Mongolian Mines Open for Business

I was thrilled to see that Mongolia’s political leadership decided to repeal two of the taxes which had kept mining development in the country at a near standstill in recent years.

Specifically, the parliament revoked four 2006 laws, including the ridiculous windfall profits tax, which taxed any copper sold above $2,600/ton and any gold sold above $500/ounce at 68 precent. In a world where copper trades at about $6,470/ton and gold at $960/ounce, this was a joke. They also revoked the law that automatically gave the government a huge stake in any and all new mines in the country.

This is good for several reasons:

1) Mongolia desperately needs income, and its mines are some of the largest left in the world. Estimates put the Oyu Tolgoi mine alone as home to three percent of the world’s total supply of copper. High taxes give you income, but only if companies will pay them. By lowering the taxes and the government’s stake, they are ensuring some income, which is better than none.

2) Mongolia is an amazing place with amazing people. It is a baby democracy – only officially 16 years old – so many of the decisions that come out of its leadership reflect the fact that it is still getting things together politically. This was one of them. Repealing it was a step in political maturity and good economic sense. It will help redeem the international reputation of the country and its leadership.

3) Mongolia is huge – one third the size of the continental United States – and has only two million people. That’s right. Mining there is not going to drastically disrupt the people or their environment. If anything, considering one third of them live in poverty, it will dramatically improve it.

Mongolia has a tough neighborhood – Russia to the North, China to the South, North Korea over to the East. They are tough people, with an independent spirit and sense of individualism that is rare in North Asia. Buddhist and animist in spirit and attitudes, they are hospitable people with a powerful history. Outside of the capital city, which reflects the years of Soviet influence on the country, the whole place reminds me of what the American West and the American Indians (when they weren’t warring with each other) must of been like. It is a place I hope to see succeed; this decision is certainly a step in the right direction.