While former SouthGobi executives American Justin Kapla and Filipinos Cristobal David & Hilarion Cajucom Jr. have been detained in Mongolia for 816 days, Mongolia’s economy has mirrored the despair of their situation in its death spiral. 2012 was the year Mongolia changed laws that would reduce foreign investment more than 80% annually on average for the next two years. 2012 was also the year the country had its last national parliamentary elections and the year the government’s legal team began a stubborn endless pursuit to destroy the coal company SouthGobi Resources and the lives of three former employees.
It is not accidental that Mongolia’s commitment to destroy SouthGobi has coincided with its economy imploding. As a frustrated top executive running his international company’s business in Mongolia vented to me two months ago:
A government determined to build its economy may or may not succeed. A government determined to destroy its economy will always succeed. That should be the opening quote for your next Mongolia article.
The senior executive added that Mongolia’s commitment to failure made a number of current rogue African and communist dictatorships look economically savvy before adding the “good news is that the IMF is getting ready for Mongolia’s bailout now.”
When I first visited Mongolia in 2011, the economy was booming. People were buzzing Mongolia could be the “Saudi Arabia of coal,” its world-class top 5 Oyu Tolgoi copper mine under construction was going to add 50% to GDP alone and exponential GDP growth thanks to the sudden discovery of multiple large mining deposits was certain. The local stock market was coming off a rise of over 100% the prior year. When going in and out of meetings with local businesses – or at popular bars at night – visiting hedge fund managers were everywhere passing out business cards and trying to find an edge to invest themselves in the country.
April 1st, 2012, was the true beginning of trouble for Mongolia’s economy and SouthGobi. It was a true April Fool’s Day that has made many look like fools albeit without humor. Turquoise Hill, the private company (in a government partnership) that owns the Oyu Tolgoi copper mine (which was to boost GDP 50% once at full capacity) also was the majority stake holder in SouthGobi Resources. Turquoise Hill (then doing business under its former name Ivanhoe Mines) announced plans to sell its stake in SouthGobi Resources to the Aluminum Corporation of China (aka Chalco) on that date.
It was a little more than two months before national elections in June 2012. The proposed deal gave every local politician, journalist and pundit a concoction of everything that could agitate the Mongolian voting public:
• Mongolians have a testy relationship with the neighboring Chinese going back to the times when Chinggis Khan (aka Ghengis Khan) conquered the Chinese and subsequent periods in which Mongolians and Chinese went back and forth conquering each other (China won the last round and as a result is the larger nation).
• As an example, some Mongolians have advised me not to eat apples from China because the Chinese put poison in them to kill Mongolian children.
• Ivanhoe/Turquoise Hill, the owner of the copper mine set to radically improve Mongolia’s GDP had made partnership deals with the government in 2009 and 2010. In the run-up to elections, populist appealing politicians and pundits now claimed Ivanhoe/Turquoise Hill had given Mongolia a raw deal that should in all fairness to the people of Mongolia be renegotiated.
• In brief, the story morphed into: a foreign-owned big mining company that is trying to bamboozle the people of Mongolia on our biggest mining asset is now additionally going to try to bamboozle the people of Mongolia by selling a large coal mine – a Mongolian coal mine – to our dastardly southern neighbor. Political fireworks ensued.
