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‘The Poland of Northeast Asia’: Mongolia’s Lithium Frontier

AsiaCanadian Business

A truck at the vast Oyu Tolgoi mine near the Gobi Desert in southern Mongolia. Photo by Rio Tinto.

With its heavy dependence on the extractive industry, facilitated by a powerful mining lobby, Mongolia is quickly resembling what Naomi Klein has described as an environmental sacrifice zone.

The country’s generous corporate tax breaks and policies that are increasingly friendly toward foreign enterprises have encouraged North American companies to freely capitalize on Mongolia’s mineral resources.

Most recently, Mongolia’s giant copper and gold mine, Oyu Tolgoi, has been in industry headlines for the massive underground expansion that is now underway, a move that has faced few critiques in the international press or from environmental groups. The project is the largest financial undertaking in Mongolia’s history.

But apart from its more well-known deposits of coal, copper and gold, Mongolia is becoming a frontier for lithium exploration and extraction.

Global demand for lithium is increasing due to its use in lithium-ion batteries and other components for electric vehicles, light-rail trains, and personal electronic devices such as Apple’s iPhone, and has long been on the market as a “mood stabilizer” in the pharmaceutical industry. Industry publications expect lithium stores to triple by 2025 and prices to rise significantly as electric vehicles become more popular.

The rare-earth mineral also has significant military uses in unmanned vehicles and for large energy storage systems, such as earlier versions developed by Lockheed Martin for AECOM, Northrop Grumman’s lithium-ion battery for use on nuclear submarines, or, more recently, the “nearly invincible” battery developed by the US Army Research Laboratory. The lithium isotope Li-7, which is a by-product of refining natural lithium, also has potential use in producing tritium for thermonuclear weapons. In recent years, the US Government Accountability Office notably remarked that it was concerned with domestic Li-7 supply.

The popular argument that lithium is necessary to transition vehicles away from fossil fuels—and coal-reliant countries away from dependency on coal—usually doesn’t go deeper to critique the influence of Canadian and US companies on economic priorities and policies in those countries with substantial lithium deposits.

For at least two decades, mineral prospecting in Mongolia, and across Central Asia, has gone hand-in-hand with neoliberal policy intervention, and the looming lithium boom signals that this will only intensify.

“First-movers in the region”

With confirmed reserves of at least 203,000 tonnes of lithium, Mongolia is among the world’s most significant prospective sources of the rare-earth mineral. Confirmed lithium deposits are largely concentrated in southeastern Mongolia, closer to Chinese projects like Baotou in Inner Mongolia. Surveying is ongoing in western salt lakes, like Hyargas Noor, where Mongolia also harbours deposits of uranium.

More recent discoveries of lithium have included a deposit found by Mongolian company Buman-Olz in 2018, in the eastern Dornod province. The company’s CEO, Tsogtjargal Dondovdorj, confirmed intentions to further develop exploration and signaled the redevelopment of the Matad soum.

Korean company Posco Daewoo—whose parent corporation Posco International has investments in Indonesian palm oil and was previously exposed for using child-labour in Uzbek cotton farms—has already expressed interest in working with Mongolian state-owned company Erdenes Mongol LLC to continue exploration for lithium.

Canadian mining and extractive companies have a long history of exploration and development in Mongolia, and they have faced minimal backlash for the social and environmental damages caused by the building and operation of extractive megaprojects.

Some of the biggest names in Canadian mining are operating in Mongolia, including Kincora Copper, Centerra Gold and Rio Tinto’s subsidiary Turquoise Hill. Top Canadian mining executives, like former CEO of Oyu Tolgoi, Cameron McRae, have played a significant role in lobbying the Mongolian government, including pushing for changes to corporate tax rates in favour of mining companies. This legislation was implemented in January 2020.

McRae is deeply embedded in the mining and private sector lobby in Mongolia through his role as founding president of a policy think tank, the Institute of National Strategy, and as a director on the Business Council of Mongolia since 2018. He is also a director for the Canadian-owned mining company Erdene Resources Development Corp., one of the major gold producers in Mongolia which, as of 2019, is financed by the European Bank for Reconstruction and Development.

In 2017, the Government of Mongolia signed a Foreign Investment Promotion and Protection Agreement (FIPA) with Canada, to ensure “greater predictability and certainty” for Canadian investors working in the country. François-Philippe Champagne, then Minister of International Trade, described the intentions of the FIPA in the following way: “The opportunities to strengthen our middle class relate directly to creating the right conditions for Canadian businesses to compete internationally, and that is precisely what this agreement is all about.” And yet, as Yves Engler pointed out in a recent article for Canadian Dimension, FIPA agreements ultimately empower corporations to sue governments “for pursuing policies that interfere with their profit making.”

Oyu Tolgoi, a combined open pit and underground mining project in Mongolia. Photo from Wikimedia Commons.

Such agreements have no doubt empowered Canadian corporations to make significant strides toward tapping into Mongolia’s unexploited lithium reserves. One of the largest mining licenses in Mongolia was awarded in 2017 to Toronto-based company ION Energy, for the development of the Baavhai Uul lithium brine project in the eastern Sukhbaatar province. At around 30 kilometres from the border with China, ION Energy’s Baavhai Uul site is located in strategic proximity to planned megafactories in China, as well as existing battery production facilities in South Korea, Taiwan, and Japan.

In an interview with Investing News, ION’s CEO Ali Haji recently described how ION “wanted to be first-movers in the region”, and that the company was founded in 2017 “with the sole purpose of obtaining a lithium exploration license in Mongolia.”

No doubt anticipating a boom in lithium demand, Canadian ambitions in exploration and mining in Mongolia nonetheless fit into larger strategic maneuvers to sway political influence in central Asia toward Western geopolitical priorities.

Competing Colonialism

Through a network of projects in transport, infrastructure and resource extraction, China is aiming to integrate Mongolia into the economic corridor of its Belt and Road Initiative (BRI). Proposals for BRI-integrated infrastructure have included highways connecting copper and gold mines from the Gobi to China, and a railroad that would increase Chinese imports of coal directly from the expanding Tavan Tolgoi coal-fields.

There are legitimate concerns for Mongolia around the environmental and social accountability of Belt and Road projects. The BRI has been criticized for displacing indigenous populations, exploiting lax environmental regulations, and contributing to pollution in its host countries. The BRI has also been blamed for inflating project costs, creating debt traps and exploiting smaller economies by asserting unilateral Chinese interests over regional priorities. The creation of Special Economic Zones to serve the economic corridor, such as Kyaukphyu in Myanmar, also allows for Chinese companies to escape tax obligations in host countries.

Mongolia, however, relies heavily on this close trade relationship, as most mineral resources are exported in raw form to China, rather than being domestically processed. And with about two-thirds of the world’s lithium-ion battery plants based in China, the proximity of Mongolian lithium brine deposits is convenient for Chinese producers.

The demand for lithium is also expected to grow over the coming years, due largely to China’s growing electric vehicle (EV) industry and recent state subsidies for new EV purchases, as well as global increases in the procurement of electric military aircraft.

China has also been investing in the lithium industry in Bolivia, one of the three countries making up the South American “Lithium Triangle” that dominates global lithium supplies.

The wide reach of the BRI ultimately symbolizes an economic threat to the hegemony of Western corporate investments and influence, beyond just northeast Asia. After all, BRI free trade zones are not markedly different from those developed with the help of the US Agency for International Development (USAID).

“Democracy-building” in Northeast Asia

With its rich mineral deposits and strategic location, Mongolia has long been a target of corporate-led economic reforms that empower private, foreign investment over regional interests. Both the US and Canada have positioned themselves as “third neighbours” to Mongolia to counteract the influence of China and Russia, and many of the economic reforms have gone hand-in-hand with “democracy-building” projects in the region.

In July 2019, the US announced a Strategic Partnership with Mongolia that includes deepening “national security and law-enforcement ties” and intensifying “cooperation as strong democracies”. The Government of Canada has similarly described its interests in Mongolia as “promoting sustainable economic growth and democratic development”.

Buman Olz coal project, located in Matad soum of Dornod aimag, near the lithium deposit find.

John Baird, Foreign Affairs Minister under the Harper government, visited Mongolia in 2014 with the mission to “contribute to the democratic development of the country”, according to a government press release, including promoting reforms in Mongolian public service and mining governance.

The Atlantic Council—a US military lobby group funded by NATO and top US military officials—has also promoted the integration of Mongolia into the US military infrastructure in the region. When Mongolia’s collaboration with NATO was finalized in 2012, the Atlantic Council celebrated the “good will” Mongolia earned through its participation in NATO’s training exercises like the Khaan Quest, training the Afghan National Army, and participating in the US-led Iraq War.

In a cable from September 2006, published by Wikileaks, former US Ambassador to Mongolia Pamela J. Slutz summarized the motivations and pivotal influence of her diplomacy term: “Mongolia is not of strategic importance to the US, at least not in the conventional defense and security context […] Rather, Mongolia’s value to the US lies in it becoming a base of democracy in an otherwise unfriendly region.”

Slutz described how USAID has helped Mongolia “get its house in order” by paying particular “attention to the private sector”, while blatantly framing Mongolia’s “ideological confrontation between ‘Asian values’ and ‘Western values’”. Slutz also decried Mongolian political leaders as “steeped in socialist doctrine”. She went on to claim that “[w]ith a better (western) educated populace, wider integration into regional and global organizations, and greater confidence in building and managing bilateral and multi-lateral relationships beyond its traditional immediate neighbors, Mongolia could, in many respects, become the Poland of Northeast Asia.”

This claim that the country could follow the steps of Poland’s neoliberalisation reflects the long legacy of Western corporate intervention in Mongolia. Following the collapse of the Soviet Union, Mongolia became the locus for, as journalist Richard Tomlinson described in a 1998 piece for FORTUNE Magazine, the likes of “Harvard graduates who a few years back descended on Ulaanbaatar to teach the locals capitalism”.

And yet, despite the so-called “democratic development” in Mongolia’s governance, Transparency International’s 2019 Corruption Perceptions Index still gave Mongolia a relatively low score of 35, alongside Brazil and Egypt. In October 2018, Mongolia’s Small and Medium Enterprise (SME) scandal spurred protests against government corruption when state officials were found to be embezzling state money from the SME Fund to start their own enterprises. It was also only that year when Mongolia (along with Panama and Macau) was removed from the European Union’s “non-cooperative” tax haven list. In January 2019, Al Jazeera reported that the Mongolian government was perceived to be in danger of slipping into authoritarianism and was clearly hostile toward Mongolian media and anti-corruption agencies.

The machinations for “sustainable economic growth” and “democracy building” that have been led by the US and Canada have proven to be a means of pushing neoliberal reforms that empower foreign companies at the expense of the priorities of local governments. As the demand for lithium in so-called “green energy” grows, and Canadian mining companies become more established in Mongolia, so too must the oversight and public awareness of long-standing Canadian activities in the resource-rich country.

After all, Canadian mining projects in Mongolia and agreements like FIPA are not so much about “strengthening the middle class”, as Minister François-Philippe Champagne has put it, but rather about advancing a broader agenda of corporate intervention and NATO’s strategic military interests in central Asia.

Lital Khaikin is an author and journalist based in Tiohtiá:ke (Montréal). She has published articles in Toward Freedom, Warscapes, Briarpatch, and the Media Co-op, and has appeared in literary publications like 3:AM Magazine, Berfrois, Tripwire, and Black Sun Lit’s “Vestiges” journal. She also runs The Green Violin, a slow-burning samizdat-style literary press for the free distribution of literary paraphernalia.

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