Quotes of the Day

Irishman John Macken is stranded. A powerful sandstorm is ripping across the Gobi Desert and the Cessna scheduled to fetch him from this remote spot in Mongolia's south, called Oyu Tolgoi, can't risk a landing. The sand rampages in intimidating sheets, propelled by fierce, gusting winds, crashing into cars with enough force to strip off paint and crack windshields. The entire Gobi appears on the move, bounding across the barren terrain in giant, leaping clouds of stinging yellow grit, pausing for a moment when the wind suddenly dies off, then surging with renewed energy as the gales return. But Macken, 55, isn't bothered. As the rest of us run for cover, he slips on a pair of black sunglasses and strides through the storm in a white polo shirt. "Sand in the Gobi is like rain in Ireland," he shrugs.

Macken puts up with the sand because of what lies beneath. Under this stretch of desert is one of the largest copper and gold deposits ever discovered, and Macken, CEO of Vancouver-based Ivanhoe Mines, possesses the rights to mine it. Ivanhoe estimates the deposit is worth $38 billion. In contrast, the entire GDP of Mongolia is just $1.9 billion. Macken calls the deposit "hitting the jackpot; you only find one of these a decade." When the project reaches full production, miners will excavate up to 200,000 tonnes of ore a day and burrow nearly 2 km under the earth's crust. Water for processing will come from subterranean cisterns of salty goo, which, Macken says, date "from the dinosaur age." Today, Oyu Tolgoi is a ragtag outpost of makeshift offices and humble gers?the traditional white tents Mongolians have inhabited for millennia?with the rest of the site still home to scorpions and the occasional camel-toting nomad. "It's Wild West stuff, the frontier," Macken says. But Ivanhoe is talking up a grandiose scheme. During the mine's life-span?at least 35 years, probably more?the company envisions the area as a thriving industrial center, with high-rise apartments, five-star hotels, broadband Internet and an international airport. In fact, the project has the potential to completely transform this poor nation of 2.5 million people, bringing Mongolians more money than they have seen since Marco Polo was captivated by the opulence of the Great Khan back in the 13th century. "It's the most important thing that has happened in Mongolia for a long time," says Macken.

Mongolia may well be the world's new El Dorado. It's not just Oyu Tolgoi, and it's not just copper and gold. Mongolia could be harboring a host of other valuable metals, as well as coal. How much, nobody knows, but last year mining companies spent $100 million just on exploration. Instead of elation, however, the buried treasure has generated controversy. A national debate is raging from the halls of parliament to the gers of the countryside over how mining should?and shouldn't?change Mongolia at a critical moment in its history. Emerging from isolation after decades of communist rule, Mongolia today is experimenting with democracy, enjoying an explosion of civil society and tapping into the world economy to a greater degree than it ever did in the past. Mining can impact all of this: it can strengthen Mongolia's nascent pluralism, or contort the government into a corrupt kleptocracy; develop the entire country, or enrich only a handful; give Mongolia control over its own destiny, or make it a victim of erratic, insensitive global markets.

Unfortunately, there is little to guide Mongolia through this complex transition. Most developing countries with economies dependent on natural resources have miserable economic and political histories. Some, like Congo, deteriorate into criminality and chaos; others, such as Saudi Arabia, never cure their addiction to just one commodity. "No one has a model to show Mongolia," says Mandar Jayawant, deputy country director for Mongolia at the Asian Development Bank. The Mongolians realize that the decisions made over the next few months could determine the future of their society for generations, and many worry their inexperienced leadership will spoil this golden opportunity. "This isn't Mongolia, it is Mine-golia," says Ganbaatar, the popular founder of civic movement Resolute Reform. "The whole globalization process is focused on digging things up. This is too dangerous for us. We could follow Africa."

Mongolia has little else to offer the global economy beyond its mineral wealth. Much of this boundless country?three times the size of France?is completely undeveloped, with no industry, towns, even paved roads. About 40% of the population still leads the nomadic lives of their distant ancestors, roving among the pastures with their herds of cattle, yaks, camels, sheep and horses. Though mining has been an important part of the economy for decades?it already accounts for 20% of GDP and 70% of exports?the scale has been too small to do much to alleviate the country's poverty. Three-fourths of the population lives on $2 a day or less. The capital, Ulan Bator, is notorious for its nearly 4,000 "street children," some of whom survive subzero winters inside the city's sewers. Surrounding the city are unusual slums called "ger districts," where unemployed from the countryside set up their tents hoping?but often failing?to find jobs.

Yet centuries ago the Mongolians might well have been the richest people on the planet. Marco Polo was the most vivid chronicler of the fabulous treasures of the Great Khan, at that time Genghis Khan's grandson Kublai. His opulent palace in Beijing, Polo wrote, was "the most extensive that has ever yet been known," with storehouses of gold, silver, jewels and pearls, gilded and painted ceilings and great staircases of marble. Kublai's wealth has become legendary. Schoolchildren today are still dazzled by the 19th century romantic poem "Kubla Khan" by Briton Samuel Taylor Coleridge, and its most famous verse: "In Xanadu did Kubla Khan, a stately pleasure-dome decree ..."

Polo described the Mongolians at the pinnacle of their power. Since then, this proud people have often been at the mercy of its two giant neighbors, China and Russia. The Ming chased Kublai's hapless descendants out of China less than 80 years after his death, and the once subject Chinese later came to dominate their former overlords. Mongolia eventually became part of the Soviet bloc when it installed the first communist government outside Russia, in 1924. The country only became truly independent when the communist regime failed in 1990 and a democratic government took its place. But the heavy influence of its neighbors endures. Just about everything the Mongolians buy, from fruit to refrigerators, is imported from China. The country still uses the Cyrillic alphabet imposed by the communists, and a statue of Lenin has survived off the main square in Ulan Bator. (Another of Stalin suddenly vanished from the capital, only to resurface a few years later as the centerpiece of a new disco.) The bitter experiences of the past have left Mongolians with a visceral distrust of foreigners and a determination to carve out their own place in the world.

The fortune underground could be the key to Mongolia's independence, development, everything. There is a buzz of excitement sweeping across this country that something historic is about to happen, and nowhere is that more evident than at Oyu Tolgoi. At the site's exploration shaft, manager André Zeelie looks on proudly as six Mongolian miners clamber into a giant steel bucket, drills at the ready and headlamps switched on, and descend into the darkness. It's a heart-numbing 220 meters to the bottom, but they'll spend eight hours a day in this narrow crevice, chipping samples from the ocean of ore that could be the foundation of Mongolia's resurrection. I mutter to Zeelie, a South African, that I doubted I could stomach the depths. He cracks a crusty Popeye grin. "Once you go down, you always want to go down," he says. "It gets into your blood." As the miners vanish from sight, he waves his hand over the shaft. "This is a bright future for Mongolia," he says. "The wealth can develop the country. They are good and hardworking people. They deserve it."

Enter the "Ninjas"
During a lunch of fried noodles with camel meat in the dusty outpost of Tsogt-Ovoo in the Gobi Desert, four men rush into the restaurant, their hair so encrusted with sand that it is frozen into fairy-tale peaks and swirls. A traveling companion, Munkhuu, chats with one of them and he reveals their identity?"ninjas!" No, not the mysterious men in black made famous by martial-arts movies. In Mongolia, ninjas are gold prospectors. Their nickname, the tale goes, comes from the green plastic pans they use to sift for gold. When the prospectors carry them strapped to their backs, the locals think they resemble Teenage Mutant Ninja Turtles. Thousands of ninjas are scattered around the country, hoping to find their own private chunk of the new El Dorado. But when we press one of the ninjas for more information, he becomes suspicious and his eyes shift nervously. "No, I'm not a ninja," he lies. But it's too late. He has already coughed up the location of their camp. We jump into our Land Cruiser and dash across the desert in search of it.

Some 20 km later, we come upon a motley collection of 10 gers dotting a rocky hillside. A half-dozen ninjas, some with their heads wrapped in scarves to protect them from the swirling sand, bend over a narrow shaft and lift a plastic bucket of ore to the surface with a red cord. The shaft, 18 meters deep and carved out of the rock with a generator-powered drill, is no place for the faint-hearted. One of their group recently lost a leg after tumbling to the bottom. But the lure of gold?and a dearth of other opportunities?keeps them digging. Usukhbayar, 36, has been searching for gold in these dry hills for two years. He's uncovered petrified wood, turtle fossils, human skeletons?the remains, he believes, of victims of communist purges?and just enough gold to support his family. Sometimes, he says, he gets lucky and finds $1,000 worth of gold in one day, but most of the time, he earns little or nothing. "I don't want to be here. It's hard work and my health is suffering," he says. "But I'm trapped. There aren't any jobs." He looks at me, pushes his blue floppy hat back from his forehead, and smiles. "You know, the Americans started this way, digging for gold in the ground. We have it better than they did, though. We have mobile phones, and cars to take us back to town."

In the grassy valley of Zaamar west of Ulan Bator, the spirit of the 1849 California Gold Rush is indeed alive. Here the rolling hills are covered with gers and abandoned mining shafts. Dozens of prospectors crowd a narrow stream, bent over their water- and mud-filled pans searching for tiny crumbs of gold. About 7,000 ninjas live in Zaamar, many of them unemployed with no place else to go, others highly trained professionals fed up with low salaries. An entire community has developed here, with ger bars, cafés and shops selling everything from hiking boots to cans of tuna to German wine (a bargain at $4 a bottle). Most shopkeepers also collect gold from the prospectors. "We Sell Ice Cream and Buy Gold," one ger advertises. They wrap the pinhead-sized granules in scraps of paper and store them in simple wooden boxes. Merchants called "pushers" then make the rounds among the local shops each day to buy up the gold. Where they take it, nobody knows. The price is a hefty $500 an ounce?a lot of dough in a country where the average government job, if you can find one, pays $100 a month.

The rewards enticed Bolor-Erdene, 23, to take a year off from his studies at an Ulan Bator university to seek his fortune. He digs in sunglasses and a black leather jacket surrounded by about 50 other ninjas, all furiously shoveling holes into the muddy hillside. Exhausting 10-hour days are the norm here, but Bolor-Erdene sometimes slaves much longer if he's lucky enough to stumble onto a rich find. He once went three nights without sleep excavating one shaft that netted him $400. Despite the hardships, Bolor-Erdene believes the life of a ninja is his only choice. With tuition of $350 and few well-paying jobs available, Zaamar's gold is his only hope of finishing his degree. "When you go home, you feel like a totally different person because you have some money," he says. "But you have to be tough. This isn't the life you want to pursue for very long."

For some in Mongolia, like Valentin Gryaznuhin, the ninjas have been around too long already. The 60-year-old Moscow native is the deputy chief engineer at a gold mine run by Russian outfit Golden East in the sleepy village of Uguumur in the Zaamar valley. Here, the Russians have imported a little slice of Siberia into the Mongolian countryside. Five hundred Russians live on an isolated compound protected by well-armed Russian security guards dressed in army fatigues. Inside, Russian women bake black bread and fry up meat-and-potato pancakes with sour cream for breakfast. The mine is almost entirely self-supporting, with greenhouses to grow cucumbers, pig farms and, of course, a sauna. The place has the coziness of a prison camp, but Gryaznuhin swallows his loneliness with typical Russian stoicism. Life in Mongolia is "good," he says, living in the camp is "not a problem." He sits with us late into the night at the mine's three-room guesthouse sipping tea and chatting about gold mining. The clock edges near midnight, Gryaznuhin runs out of things to say, but still he stays, clinging to the rare conversation with new visitors. Only when it comes to the family he left behind in Russia does he show emotion. With one month of home leave a year, he rarely gets to see them. "That's a problem," he admits.

Talk of ninjas gets him agitated, however. Last year, says Gryaznuhin, Golden East discovered 1,000 ninjas shoveling away at one part of the company's mine, pilfering gold and grinding work to a halt. The Russians complained to the government, which sent in police to chase the ninjas out. "Just think of how much they took," Gryaznuhin grimaces. Indeed, clashes with the authorities are a constant issue for the ninjas. Two years ago, Gankhuyag, 29, says police arrested him while he was digging on one mining company's land. They kept him locked up for a week, until, he says, he paid them $35 to let him out. "They treated us like slaves," he says. The incident, however, didn't deter him. He returns to Zaamar each summer in a never-ending hunt for gold. "I have a dream to make a movie," he says, his two-month-old son gurgling nearby on a bed inside the family ger. "It would be about a child born into a ninja family. His parents work hard looking for gold, facing danger when the tunnels collapse. But they make a fortune and return to the city, and the child grows up to have a wonderful life." He pauses pensively for a moment. "That's my dream, too."

It's not Dambaa's dream. He doesn't agonize over extracting gold, but over preserving land. Dambaa has spent his entire 76 years with his horses and cows in the grassy valleys around Zaamar, wandering from pasture to pasture. For the nomads of the steppe, the land has always been the sacred source of life, the only way to keep their flocks, and themselves, alive. Survival is never certain in this harsh environment. A few misplaced rain clouds could spell death for thousands of animals. But there is a romance to his antiquated way of life?his sturdy felt gers, the multicolored woollen caps and coats to protect him from the biting cold, the fresh bowls of yogurt, the remoteness, the freedom. Now he fears the mines in the area are threatening this traditional lifestyle. "There's no water, no pastures," he complains, in between sips of salty milk tea. "The families downstream can't use the water from the river anymore. It goes rotten." His friend Ragchaa Myangandash, 68, sadly agrees. Dust storms have come to the valleys for the first time, and many nomads are already leaving. Whether or not the mines have actually caused these environmental problems, these nomads believe Mongolia is better off without them. "The taxes the mining companies pay aren't worth the damage to the environment," says Ragchaa.

Growing Pains
Dambaa and his nomadic friends are part of a chorus of voices questioning whether mining is really good for Mongolia. How, they're asking, can the country reap the benefits of the mines?a higher standard of living and economic growth?while avoiding the potential evils?corruption and environmental catastrophe? Everyone believes they have the solution. Mining companies say foreign investment and free markets will safely spread the wealth throughout the country. Politicians, craving popular support, promise to stand up for the common man and protect the national good. But much of the public doesn't trust either party. Their nightmare scenario goes something like this: foreign big shots descend on their helpless nation (once again), bully or bribe their leaders (once again), cart away all the gold, make tons of money, and leave the Mongolians as a bunch of poor sheep herders. Civic leaders have led rallies on Ulan Bator's main square, demanding that the government put in place transparent rules for developing new mines to make certain that Mongolians get their fair share. "Under the earth, that belongs to the Mongolian people," says Resolute Reform's Ganbaatar. "I really want foreign investors in my country, but make sure it is good for my people."

In the eyes of many Mongolians, the answer to all of these tricky questions can be found in Erdenet. The city of 80,000 is Mongolia's third largest, and its existence is due entirely to the Erdenet copper mine next door. Thirty years ago, the Mongolian and Soviet governments cooperated to open this mine, and since then it has been the stereotypical bloated socialist venture. Stop anyone on the neatly kept streets and he (or she) will either work for the mine, or have a father, mother or some other relative who does. Though the city is a place only Stalin could really love?with rows of uniform, concrete-block apartment houses and wide, traffic-free streets?the well-off residents are clearly thankful. A bulldozer on a stone platform sits in one square. For a high-school drawing contest to celebrate Erdenet's 30th anniversary, two of the winners simply drew mines, the ore glistening maroon and yellow, while just about all the others include mining in some way?bulldozers, the mine's corporate headquarters, or the periodic table symbol for copper. In Erdenet, you become a miner because your pa and even ma were miners. "My mom worked for the mine all of her life, so I have to work there, too," says Tuguldur Tsogzol, 23, a metallurgy student at a local technical college. "Everything we have here is because of the mine."

The residents of Erdenet expect the new mines to provide for the people in the same way. Purevdorj Purevjav, 38, a veteran mine employee, suggests Mongolians should own half of each project, and the newcomers should employ as many locals as possible. "Foreign companies hire too many foreigners," he gripes.

So far, the new mines aren't living up to the expectations of many Mongolians. Much of the disappointment surrounds Canada's Centerra Gold, the first Western company to operate a mine in Mongolia, called Boroo. The company has invested $75 million and created 600 jobs?90% of them for Mongolians?since the mine opened in 2004, and it has also donated large sums for schools, hospitals and children's centers, and even co-sponsored the first Mongolian team to scale Mount Everest. But many Mongolians believe Boroo still isn't doing enough. Under an agreement with the government, Boroo pays 2.5% of revenues as royalties?which was standard when the deal was inked?and no or reduced corporate tax for the first six years of operation. By that time, much of the gold in this small mine will likely be gone. The site, situated among barren hills north of Ulan Bator, has a transitory air. Two rigs drill away in a sandy pit. A jumble of temporary, container-shaped buildings house the miners. The canteen is managed by a French company, and an Indian serves the roasted fish and noodles at lunchtime. Boroo "digs up gold and just takes it away," Ganbaatar seethes. Igor Kovarsky, a vice president at Boroo, says its critics harbor Soviet-era ideas about how mines should operate, and they don't appreciate the kind of benefits modern foreign investors can bring. "We do a lot for Mongolia," he says.

Ivanhoe's Oyu Tolgoi has been the most divisive and hotly debated project, and not only because it is the biggest. The company's executive chairman, Robert Friedland, is one of mining's more controversial figures. Nicknamed "Toxic Bob," Friedland was CEO of a company that developed a gold mine in Colorado in the 1980s that leaked cyanide, acid and metal-laden water. Washington's Environmental Protection Agency has so far spent over $200 million cleaning up the mess. (Ivanhoe Mines, however, was not involved in this project; Friedland, though he never admitted any personal liability for the Colorado mine's problems, agreed to pay nearly $28 million to settle lawsuits pertaining to the mine in 2000.) Thanks to the Internet, the Mongolians caught wind of his reputation, and weren't too happy to find their country's future in his hands. Ganbaatar burned him in effigy in the middle of Ulan Bator. Friedland, a master showman, didn't help matters by playing the role of the arrogant foreigner. "You're in the T-shirt business," he bragged about Oyu Tolgoi at a 2005 investor conference in Florida. "You're making T shirts for five bucks and selling them for 100 dollars." The brouhaha has contributed to negative public sentiment toward Ivanhoe that has poisoned the Oyu Tolgoi project. Ivanhoe hasn't been able to ink a deal with the government on taxes and other issues to allow the mine to move into production, and, says Ganbold Dogsom, president of the Mongolian National Mining Association, "we don't have brave leaders who will sign an agreement with Ivanhoe."

The company has launched a charm offensive to convince the Mongolians that Ivanhoe is a responsible mining company. Executives have held meetings with civic leaders and showed off their 817-page environmental-assessment report. Macken has offered the government a "50-50" partnership for Oyu Tolgoi. Meanwhile, the company continues to invest in the project?$370 million so far. At the Gobi site nearly 900 employees forge ahead with exploration and prepare to build the site's main mining camp. "It's a huge project for a former socialist country to digest at one time," says Macken. "I believe in the end we will find a framework so we can build our mine and do business here for the long term."

But as public pressure mounts, Mongolia's politicians are becoming more nationalistic. In May, parliament unexpectedly passed a new law that mandates a 68% tax on mining profits if prices for gold and copper surge above certain levels. The law threatens to end Mongolia's mining boom before it starts by discouraging new investment, and the suddenness of the new tax has fueled fears that policymaking will descend into rapacious arbitrariness or anti-free enterprise communist practices. The government insists that won't happen. "There is no starting back toward socialism or going into the situation of an African society and the mistakes they made," says Sodbaatar Yangug, deputy minister of industry and trade.

While the controversy rages, Erdenetsetseg Khusrii waits and hopes that someday the country's new riches will trickle down to her. A former nomad, she moved to the town of Mandalgov in the Gobi six years ago after much of her livestock died in bad weather. Mandalgov is a sad place. Sand blows through the nearly deserted streets, a statue of Lenin still sits in the central park, and the main restaurant serves only camel-meat goulash. Erdenetsetseg, 46, dressed in a traditional royal-blue robe called a deel, sells ice cream and Coca-Cola from a dark shop on Mandalgov's main street. Her husband is unemployed, and she barely earns enough to make ends meet. "We're just living day to day," she says. But all is not lost. Her 21-year-old son is studying geology at an Ulan Bator university. "Maybe he'll work at Oyu Tolgoi," she says. "He tells me it's a really big thing." With some smart leadership, determination?and a golden nugget of luck?perhaps Mongolians will once again live in stately pleasure domes.

• Michael Schuman
• Impoverished Mongolia is rich in untapped mineral wealth. But will the potential bonanza help or hurt the nation?