Mongolia stands before a shining opportunity

The air underground was dank and smelled of labor.

Hunched in his one-man mine, Zorigoo clawed at the dirt with a homemade pick. He scooped earth into a bucket and hoisted it through the sunny hole above, where his wife, Saraa, began sifting the soil for a telltale glint.

A 21st century gold rush has begun to transform the economics, politics and environment of this ancient land of Huns and Khans.

The nation of largely nomadic herders, where one in three people lives on less than a dollar a day, has some of the world’s most valuable gold and copper deposits. But like diamonds in Africa or oil in the Middle East, precious metals offer Mongolia a volatile gift.

“We are now struggling with two different things,” former Prime Minister Tsakhiagiin Elbedorj said. “The first is poverty, but the second is how to manage this richness.”

The bonanza provides an intriguing test case for what economists call the resource curse: How can Mongolia avoid the fate of nations including Iran, Venezuela and Congo, where natural bounty has fueled corruption, sapped entrepreneurship and failed to bring lasting wealth?

“The question becomes, what are you going to do with all that money?” said Arshad Sayed, the chief World Bank representative in Mongolia. “Where is it going to go? How is it going to be used?”

Gold’s easy rewards are no harder to spot than the new Hummers lumbering through the streets of Ulan Bator, Mongolia’s threadbare capital. Construction cranes swing above a downtown flush with cash.

But new dangers also are clear: Mining is ravaging rivers that sustain herding lands. Public protests have targeted global mining companies that stand to profit from Mongolia’s riches. And watchdog groups are pushing for laws to prevent corruption and ensure that windfalls become a springboard for education and broad-based growth.

For most of its history, the country knew no such quandaries. Wedged between China and Russia, the Mongolian steppe seems little changed from the 13th century empire of Genghis Khan, whose armies’ use of horses and the compound bow helped them conquer lands from Asia’s Yellow Sea to Europe’s Danube River. The only echo of that empire today is the Naadam festival with its “three manly games” -- archery, wrestling and horseback riding.

Seventeen years after the fall of communism in Mongolia, Communist Party cultural centers, where workers once sang about the glories of the revolution, have been reborn as discos and Internet cafes. But Mongolia, about the size of Alaska, has struggled to revive its economy. Only one in 10 roads is paved. Most of the country’s 2.9 million people live, as ever, in round felt huts known as gers, scattered at less than two people per square mile, vastly outnumbered by the sheep, goats and horses that provide their livelihood.

In the cities, government salaries have failed to keep pace with those in the private sector. And as the gap grows, more Mongolians are eyeing the fortune beneath their feet.

The country was long suspected of holding unexplored gold deposits. But in the last five years, mineral exploration has soared, thanks to changes in tax and mining laws and the attention sparked by the 2001 discovery of one of the world’s largest deposits of copper and gold in Mongolia’s Gobi desert. That site, known as Oyu Tolgoi, is estimated to be worth $38 billion -- more than 10 times the country’s gross domestic product.

Today, more than 40% of the country has been licensed for exploration, and gold is being churned out by mines large and small. At the tail of the food chain are subsistence miners like Zorigoo, 27, who, like many Mongolians, goes by one name. He and Saraa have given up herding animals.

“We do this to survive,” Zorigoo said, his crew cut, sweater and jeans flecked with mud from carving holes into the hills of the Oltiin Am valley, 300 miles west of the capital.

These unofficial miners are known as ninjas -- as in Teenage Mutant Ninja Turtles -- for the plastic tubs they sling over their backs. They work at the edges of the official mines, weaving among the tractors in search of what the companies leave behind. Their shadow workforce is estimated at 100,000 nationwide, more than eight times the number of people employed by the company-owned mines.

At this site, ninja tents dot the valley floor and sprawl into the hills. Among them are restaurant tents and gold-buying tents. At night, the ninjas work by headlamp -- men, women and children who are a cross-section of the nation. One family of six came from across the country last summer when school ended; a former Russian-language teacher wonders what mix of gifts to the mountain gods will land him a large enough nugget to retire.

“If the spirits are very angry, we offer good stuff like vodka. The spirits like vodka,” said the teacher, Baagii.

Others are simply getting by.

“This is our livelihood. It is our only income. We depend on this,” said Medekh, 35, a mother of three who arrives each morning looking to find at least enough for the 44-cent ride home. On a good day, she and two partners split about $18 worth of gold flakes -- no pittance in a nation where government jobs pay about $100 a month.

But the land is suffering.

Some miners burn tires to melt the permafrost. Others use mercury to help release gold from the rock. Many mines, official and unofficial, leave the rivers a polluted maze of gray-brown lagoons.

Tsetsegee Munkhbayar used to herd his animals downstream from Uyanga, until fast-growing mines sapped the rivers that fed his land. In 2001, he banded with other herders to form the Onggi River Movement, which has successfully pressured the government for stricter regulation. He is not a knee-jerk opponent of mining, but is seeking a responsible path forward.

“This is the question of our country’s future,” said Munkhbayar, whose work earned this year’s Goldman Environmental Prize, the world’s leading environmental award. “Mining development and Mongolia’s development have become inseparable. The question is how we develop it.”

Not everyone is so moderate. A year ago, protesters staged a hunger strike and burned effigies of Mongolia’s president and Robert Friedland, chairman of Vancouver, Canada-based Ivanhoe Mines, which has the rights to mine the massive Oyu Tolgoi deposit. Within weeks, parliament imposed a 68% windfall tax on high mining profits, sending a chill through the offices of Mongolia’s mining powers.

“There is nothing good I can say about it,” said Namgar Algaa, executive director of the Mongolian National Mining Assn., who warned that companies might skimp on environmental rehabilitation in order to pay taxes.

Either way, steep taxes do not insulate Mongolians from corruption -- one of the prime ways that resource-rich nations watch their riches disappear. To that end, lawmakers are considering moves toward greater transparency, including a freedom of information act that would expose government spending to greater oversight, a progressive move in a region dogged by secretive former Soviet governments.

Others argue that Mongolia’s best defense will be to establish a permanent trust fund of the kind that invests Alaska’s oil revenue and shields it from corruption.

Ultimately, Mongolia’s future prospects hinge on how the nation prepares for life after gold. For example, growth rates in Malaysia, Indonesia and Mauritius over the last quarter of a century have far outpaced those of rival producing countries, thanks to investments in education and manufacturing.

That strategy just might help Mongolia defy its own folk wisdom. An ominous saying coined long ago warns, “Gold never brings good.”