From the 1990s to the early 2000s, Mongolia was hit by successive natural disasters that saw thousands of herders lose their income, leaving many with little option but to mine illegally. Using simple equipment, these “ninja” miners extracted gold, coal, fluorspar, metals, salt, and petrified wood, harvested nuts and medicinal plants, and hunted protected animal species. At the height of the ASM gold rush, it is estimated that there were up to 100,000 miners operating illegally in Mongolia. Because it attracted a higher market price and was easier to sell, gold was considered the most desirable ore to mine.
A country is considered to be a “mining nation” if mining represents more than 10 percent of the national economy, budget and exports. In Mongolia, mining comprises 20-30 percent of GDP, 30 percent of the budget, 90 percent of exports, and 70 percent of foreign direct investment. The dominance of the mining sector has had significant social, cultural, environmental, and economic impacts at all levels.
Artisanal mining was included in state policy in 2010 in the Law on Minerals, and procedures for mineral extraction through artisanal mining were enacted through Government Resolution #308. This allowed illegal gold miners to become formalised legal entities by forming cooperatives, legally verifying their sources of income, and in return having their rights upheld, enjoying access to social services and paying taxes. Formalisation also provided miners with employment opportunities, enabled environmental rehabilitation, stemmed the illicit flow of gold, and increased the Bank of Mongolia’s gold reserves. Formalising the gold supply chain also benefited rural areas through more equitable distribution of wealth.
However, despite the growing number of ASM cooperatives and the increasing Bank of Mongolia reserves, the ASM supply chain is not operating to its full capacity. An underground gold trade still exists, with illegal traders buying from miners who balk at keeping gold for more than a day or who are logistically unable to travel to the Bank of Mongolia in Ulaanbaatar. The illegal traders pay up to 15 percent less for gold than the central bank, preying on miners’ ignorance and lack of knowledge. To address this, the government must set up the appropriate supply chain infrastructure. The Bank of Mongolia does not have branches in every aimag, and the existing 10 branches do not purchase or reserve gold.
Due to the lack of test laboratories, inspectors are only able to document the details of the gold submitted. This lack of services has meant that, at present, artisanal miners are selling up to 95 percent of extracted gold to gold traders on the spot. Hence it is imperative for the Bank of Mongolia to expand its reach and set up one-stop shops where miners can enjoy immediate transactions.
ASM miners are contributing to job creation in rural areas and opening up opportunities for miners to diversify their incomes. This is fueling rural development and improved service provision for communities, and increasing local budgets.
With Mongolia’s gold market forecast to double in coming years, it is vital that the government establish the requisite infrastructure and enact appropriate supply chain legislation to ensure that the gold mined in the country remains in the country.
