ONTHE STREETS OFMONGOLIA’S CAPITAL, Ulaanbaatar, the distinctive sound of the Australian twang is never far away. Inside the Grand Khaan Irish Pub, a popular downtown bar, it’s common to spot Australian expats sharing a Jacob’s Creek red and enjoying some wagyu beef.
Mongolia’s rich and largely untapped natural resources have attracted a diverse array of Australian businesses, includingminers, suppliers, construction and engineering companies and firms fromthe legal and financial sectors.
More than 650 Australians live in the country and more than 45 Australian businesses operate there, with many other staff working on a fly-in, fly-out basis from China and Australia.
“With strong skills and experience in the mining sector and related services industries, Australian firms have played a large role in the development of this sector,” says Australian ambassador to Mongolia Sam Gerovich, who is based in Seoul.
In 2011, Mongolian GDP stood at $ 13.4 billion, with analysts predicting foreign investment will top $ 10 billion over the next five years in the minerals sector alone. And Australian investment is expected to be a significant contributor.
Rio Tinto’s $ 6.6 billion Oyu Tolgoi project, the huge copper and gold mine in the south Gobi Desert, is predicted to increase MongolianGDP by one third when it reaches full production. Oyu Tolgoi has already paid $US800 million in taxes to the Mongolian government, including $US280million in national and local taxes and other government fees last year.
However, as Riohas found out, doing business inMongolia isn’t all smooth sailing. Oyu Tolgoi operator Turquoise Hill Resources, whichiscontrolledbyRio, isbattlingrenewedpolitical interference over development costs, royalties and ownership of the project, of which the government has a 34 per cent stake.
TheMongolian mining boom also cooled last year. The 2011 recordGDPgrowthof 17.3 per cent slowedto12.3 per cent last year. Decreasing exports to China and foreign investment concerns over a tightening of the mining regulatory regime sent shock waves through the expat business community.
The Strategic Entities Foreign Investment Law introduced last May addedtotheuncertainty. “Institutional shareholders havebeen less interested inMongolian-related stocks because of legislative volatility,” Aspire Mining managing director David Paull says.
According to Paull, Aspire (which operates Ovoot, the secondlargest coking coal deposit in Mongolia) experienced more than 50per cent underperformance last year as a result of parliamentary elections and changes in the foreign investment law. While the effect on Aspire was significant, Paull reckons the company got off fairly lightly. “We were the lucky ones. We didn’t have to go to market and we already had our discovery. If you were a junior exploration company with a lower share price at that time, it would have been very difficult.”
John Miragliotta is the environmentmanager at Sustainability, a Perth-based consultancy firm specialising in occupational health and safety and environmental issues and with clients including the Oyu Tolgoi and Ovoot operations. “The past six months have been challenging for us,” he says. “While that has been across the