(Corrects seventeenth paragraph of a story published on June 21 to note that Rio Tinto runs the operation through its holding in Turquoise Hill.)
June 21 (Bloomberg) -- The lump of copper ore beneath the brown scrub and sand of Mongolia’s Gobi desert is about the size of Manhattan and contains enough of the metal to meet world demand for two years.
Known as Oyu Tolgoi, or Turquoise Hill, the deposit is an estimated 70 million years old, which dates it to around when dinosaurs roamed the Gobi. Fossilized remains of Velociraptors were found in the area in the 1920s, the same beasts turned into the stuff of nightmares in the movie “Jurassic Park.”
Rio Tinto Group, the world’s second-biggest mining company, now rules that desert. It’s built an airfield and clusters of swimming-pool blue buildings above the Oyu Tolgoi find. Almost 8,000 people work and live in this remote gated community of dormitories, pizza parlor, canteens, hair salon, cinema, supermarket, bars and basketball courts. Personal trainers are available in the gym.
Rio Tinto yesterday postponed today’s scheduled first shipment from the $6.6 billion mine, saying it will start as soon as the government indicates support. The project, which also contains rich deposits of gold, will bring jobs, along with expectations of improved health care and education to the nation’s 2.9 million people, who live in a country three times the size of France. It’s also raising concerns about water supply in Mongolia’s most arid region.
Oyu Tolgoi, reachable by plane or gravel road 550 kilometers (342 miles) south of the capital Ulaanbaatar, will boost Mongolia’s economy by a third, according to Rio. Gross domestic product is now about $10 billion. A third of the population make a living from herding sheep and raising cashmere goats. More than one in four live in poverty, according to the World Bank.
Retired police officer Luvsantseden Dashzeveg, 76, sells leather boots, carpets, riding whips and rope to herders from a store in a glass-fronted mall in the town of Dalanzadgad, about 210 kilometers west of the mine. It’s the capital of Omnogovi province, home to Oyu Tolgoi and its copper and gold reserves, the world’s fifth-largest.
The discovery has drastically changed the 82-year-old town, Dashzeveg said. The population was 20,375 in February, up 51 percent in less than three years. Before the mine, Dalanzadgad had one attraction: a jump-off point to the Flaming Cliffs where fossilized dinosaurs were discovered.
“Yes, it’s true that Oyu Tolgoi helps us,” Dashzeveg said. “They pay high salaries. Their money’s what built the new homes here.” Then the conversation turned to water supply for a mine in the middle of the desert.
Rio Tinto’s Oyu Tolgoi LLC unit will use 696 liters of water a second to process ore into copper concentrate for delivery by road to China -- a truck every nine minutes, 24 hours a day.
Rio found water 40 kilometers from the mine site in what it called an “ancient” aquifer 400 meters below ground and measuring 45 kilometers by 15 kilometers, according to a company video. It holds 6.8 billion cubic meters of water and tapping it was given state approval in 2009, according to the company’s website.
The mine would consume 20 percent of the water in the Gunii Hooloi aquifer, which isn’t fit for human or animal consumption because of its excessive mineral and salt content, and 80 percent of the water used will be recycled, Oyu Tolgoi said.
“Of course, they say that everything will be fine with the water,” said Dashzeveg. “But they would say that, wouldn’t they?”
The mine’s massive water needs and its overall impact on the environment has raised concerns, including at the U.S. Treasury Department, which makes recommendations to international lenders.
The Treasury said on Feb. 28 that it wants to be “recorded as abstaining on this project based on environmental policy concerns and legislative mandates.”
While the U.S. supports investment in Mongolia, the Oyu Tolgoi environmental and social impact assessment “has gaps in critically important information” related to operations and plans for mine closure, the Treasury said in a statement on its website.
In February, a group of 39 non-profit environmental groups petitioned the World Bank and the European Bank for Reconstruction and Development to withhold loans for the mine’s second stage on ecological grounds.
Rio runs the operation through its Turquoise Hill Resources Ltd. unit, which holds a 66 percent stake. Mongolia owns 34 percent.
Three-hundred-ton Komatsu Ltd. trucks operate in temperatures as low as minus 40 degrees Fahrenheit (minus 40 Celsius) in winter and 120 degrees in summer, delivering thousands of tons of ore to a crusher 24 hours a day.
“The temperature can get pretty extreme here,” said Jacob Shafer, a press relations official at the site.
“We have an Astroturf football pitch, we have a lot of recreational facilities, so I think, yeah, there are plenty of options for relaxation. And this has all been set up in the middle of a desert, which I think is really impressive.”
At the mine site, geologist Rinchen Oyunchimeg is poring over the latest rock samples. Her job is to standardize ore output so that each truck load leaving the site contains a 24 percent to 30 percent copper ratio.
After delivery to smelters in China -- the border is 100 kilometers to the south -- it’s refined into copper used in houses, cars, computers and mobile phones in the urbanization of the world’s most populous nation.
“It’s a very complicated deposit,” said Oyunchimeg. Oyu Tolgoi’s ore body lies deeper than most discoveries, and is 10 times the age of copper deposits in Chile, the top producer, the geologist said.
Copper for delivery in three months on the London Metal Exchange closed at $6,960 a metric ton on June 19, down 30 percent from a high of $9,885 on Feb. 28, 2011.
How long the mine keeps running and its size depends on financing for the $5.1 billion stage two of the mine and relations between the government and Rio Tinto. The two clashed this year over cost overruns for the mine’s first stage.
While the mine is just starting, part of the funding talks will be on how it will end in about 50 years.
Once a mine is exhausted, an operator is obliged to return earth and rocks removed from the site. Another form of waste is powdered rock known as tailings, which can contain chemicals and acids used to separate metals from ore.
Oyu Tolgoi plans to store its tailings from processing 110,000 tons of ore a day in a reservoir beyond the open pit mine. It will be clay-lined to prevent leakage of toxins that may contaminate water tables.
Tailings sites have been known to fail. Freeport-McMoRan Copper & Gold Inc. agreed to pay $6.8 million in 2012 to settle federal and state claims that hazardous substances escaped from tailings at its Morenci mine in Arizona.
State officials said wind and rain moved substances including sulfuric acid residue and metals from the mine. The agreement included no admission of liability by Freeport.
In Indonesia, Freeport has repeatedly sparred with the government over tailings disposal into a river near its Grasberg project, the world’s second-largest copper mine.
Back in Dalanzadgad, Dashzeveg the boot seller has a customer. He’s dressed in a brown deel, the traditional Mongolian robe, belted at the waist with a sash and worn mostly by herders or as ceremonial dress.
He ignores the colorful Mongolian boots with curved toes and picks up a plain, black knee-length leather boot, which is 70,000 tugrik ($49) cheaper at 100,000 tugrik.
“Russian?” he asks. Dashzeveg nods.
Russia & China
Mongolia is one of the few places in the world where Made-in-Russia is still a desired brand, with trucks, juices and fish conserves among the goods imported from the northern neighbor. One reason for that is Russia is a counterbalance to the dominance of China, a former colonial ruler and now Mongolia’s biggest trading partner.
The unease between Mongolia and China is evident at the mining camp, where Chinese workers have separate living barracks, canteen, shops and entertainment. Chinese work crews mostly operate separately from Mongolians and private security guards help keep the peace.
Accommodation for other workers includes modernized versions of traditional huts used by nomads, known as gers. The VIP versions come with en-suite bathroom and flush toilets.
Across the street from boot-seller Dashzeveg’s shop in Dalanzadgad, a two-story concrete building houses the Oyu Tolgoi Information Center.
“There is a lot of skewed views and misinformation about the project,” said Amarsaikhan Tseenzen, 57, a guide at the center, who recalled protests in 2010 as locals and herders complained the mine was robbing resources. They worried water would be depleted and pasture land damaged.
That’s changing as the operator has reached out to local businesses and dug new wells, she said. The center shows films about the mine and its use of water. Opinions change after visitors see the films, she said.
“People often say, ’We didn’t know this was such a big development for Mongolia. We only heard bad rumors,” she said.
Water issues are at the forefront of concerns for Sanjaasuren Oyun, Minister of Nature and Green Development. A geologist for Rio Tinto before entering politics in 1999, Oyun says her ministry will monitor wells around the mine.
“We are urging mining companies to recycle water for industrial use,” Cambridge-educated Oyun said in her office in Ulaanbaatar. “We are discussing an increase in water tariffs.” That’s to encourage more water recycling as then the companies will pay less, she said.
What may be the longer-term answer to mining in the middle of the Gobi desert is diverting water from Mongolia’s lakes and rivers in the north, she said.
The government and the World Bank are studying options to channel water from the Orkhon River to the Gobi via an aqueduct. An environmental impact study for the project will be ready by the end of 2014, Oyun said.
Climate change has hit Mongolia harder than most. While average global temperatures are up 0.7 degrees Celsius in the last 70 years, in Mongolia the increase is 2.1 degrees, Oyun said.
“Because we were pretty desperate to get the economy going, to get some income and jobs, and budget growth, we more or less overlooked environmental standards,” Oyun said of the 20-year period from 1990, when Mongolia broke away from the orbit of what was then the Soviet Union.
That’s changing, she said. “The current government has put the environment high on the agenda.”