Ambitious global climate policies and a shift towards renewable energies are driving an escalating demand for resources like rare earth elements and other metals, crucial for renewable energy technologies. However, the steady supply of these critical minerals remains uncertain.

This creates a significant opportunity for Mongolia, which has an economy highly dependent on natural resource extraction. Mining currently accounts for about one-quarter of gross domestic product, predominantly from exports of coal, copper, and iron ore. Its mineral wealth is valued at $1 trillion–$3 trillion, including copper, fluorspar, gold, iron, tungsten, uranium, and zinc (as well as coal and oil).

How can Mongolia develop a competitive, environmentally sustainable export-oriented mining industry that can provide sustainable livelihoods to locals and fuel for the global race to net-zero?

First, we need to know where those rare earth elements are located in Mongolia’s vast geography. Most of the geological surveys undertaken so far are electromagnetic at a scale of 1:200 kilometers, which is insufficient to attract investors to spend millions of dollars on drilling holes in the earth’s crust in the hope of hitting mineral veins. Geological surveys need to be undertaken with much finer granularity, and for that, we need investments.

Which leads us to the next issue: Suitable investment frameworks. License fees for exploration were previously too high and deterred potential international investors. Even the transfer of a license from one company to another was taxed extensively. However,  a new investment law addresses such issues from the past and puts Mongolia on the path to becoming more attractive to investors. This is an important step forward and shows Mongolia’s commitment to attracting investment.

Mongolia shows that there is an opportunity for countries to accelerate economic growth and sustainable development if they develop industries that provide services, technologies, and resources that help advance the global transition to low emission technologies.

The third ingredient for success is processing capacity, as rare earth minerals in many instances require a first stage processing prior to export. Such capacity is rare just like the elements, and currently concentrated in just a handful of countries globally. Strengthening local knowledge and technical capacity is therefore critical.

A new research partnership with the Republic of Korea can start to lead the way together with the Ministry of Mining and Heavy Industries, while the Ministry of Economy and Development is creating a new policy research institution to be launched in 2024, which can help look at relevant policy and enabling environments that are conducive to catalyzing investments into the sector. A commodity exchange can also help steer the market towards climate-smart mining.

Fourth, the rare earth minerals have to be exported. One possible option is to follow the case of uranium, where France has an off-take agreement with the People’s Republic of China. Under this agreement, the People’s Republic of China purchases uranium from Mongolia, transports it through its own country and sells it to France. Another option would be to look at airborne transport, which can be economically viable for some of the more costly rare earth minerals.

Most importantly, however, there has to be a good relationship with local communities, accompanied by comprehensive environmental and social frameworks that avoid unsustainable water use and pollution by mining activities, ensure that local communities benefit from mining income, including for education, health programs, and sustainable livelihoods, and that revenues are processed in a transparent manner. Involving multilateral and non-government organizations can be helpful in this regard, to ensure the application of internationally accepted safeguards.

 Mongolia shows that there is an opportunity for countries to accelerate economic growth and sustainable development if they develop industries that provide services, technologies, and resources that help advance the global transition to low emission technologies. While intensifying climate change wreaks havoc on economies and livelihoods that are battered by extreme weather events, change can also have economic ‘upsides’ for those who plan ahead.

This blog post was based on research conducted for the technical assistance project, Mongolia: Climate-Smart Mining for a New Climate Economy.