The uncertainty over Tavantolgoi reflects Mongolia“s ambivalence towards foreign investment, and investors could be facing a process every bit as lengthy as that surrounding Oyutolgoi where an investment agreement was reached after six years of negotiation, says an analytical report by Reuters.  That dispute over such a protracted period of time obviously slowed down investment and put off some of the smaller investors, but an analyst with Renaissance Capital who follows government policy in Ulaanbaatar says it was “healthy – they debated and got the public involved and finally reached an agreement, and that has now opened the floodgates for more investment.”

Mongolia is right to try to ensure its own interests are served by mining development, Prime Minister S. Batbold has said. “People were asking questions – why were foreigners privileged and why do we not equally support domestic investors so there is a fair and competitive environment?” he said.

According to Alisher Ali Djumanov, Chief Executive of Eurasia Capital, “that the Government needs foreign investment is beyond a doubt and we should not rush to the conclusion that the whole mining sector is now closed to equity participation”. He said there would still be plenty of room for foreign mining firms even if Mongolia kept hold of strategic projects.

Some say Mongolia“s biggest challenge will be its complete economic dependence on its powerful neighbor China. They have to be cautious – it is a very difficult geopolitical position to be in and they have to manage the investments in order to balance the geopolitics. But Ulaanbaatar cannot defy economic trends. Last year, Chinese demand for imported copper surged 119 per cent even amid the global downturn, helping push prices up 140 per cent and easing the pressure on Mongolia“s finances.

And while Oyutolgoi will be developed by Canadian and Australia miners, all the copper it produces will cross the Chinese border less than 100 km. “Chinese investment is treated with suspicion but the reality is that China is already the largest trading partner, the largest consumer of Mongolian resources and the largest investor,” said Djumanov.

Far from spurring sustainable economic growth, too much natural wealth can lead to stagnation, pushing up a country”s exchange rates at best, and fostering “rent-seeking” elites and social conflict at worst, economists say. It remains unclear how Mongolia will handle the huge inflows of foreign investment coming its way. The investment boom will require the building of new towns, bring a massive influx of migrant workers, as well as a transport network to ship raw materials into major markets like China. Oyutolgoi alone will create 80,000 new jobs, and towns near the remote mine site need to be built from scratch.

“At this point, infrastructure is a necessity,” Mineral Resources and Energy Minister D. Zorigt has said. “Foreign investors who come and say yes, we”d like to invest in the necessary infrastructure, would have a competitive edge.”