As governments worldwide try to reduce fossil fuel usage and CO2 emissions, critical minerals and their supply chains are ever-important. Mongolia’s vast natural resources combined with the government’s push to capitalize on its critical minerals bestow tremendous opportunities for Mongolia’s economic development and diversification efforts, and bolster Ulaanbaatar’s relevance on the world stage.
With increasing global urgency to secure critical mineral supplies, Mongolia is uniquely positioned to expand its role in the mining sector by partnering with and enhancing its economic prospects through regional and international partnerships. To capitalize on the global energy transitions trend, Mongolia first needs to develop a comprehensive strategy emphasizing regional development and the sustainable exploration and extraction of critical minerals.
Moreover, Mongolia’s capitalization of its critical minerals is closely tied to Ulaanbaatar’s bilateral relations with global partners aiming to make an energy transition and managing the supply chain. Mongolia contains extensive mineral deposits, including copper, coal, fluorspar, gold, iron, petroleum, tungsten, uranium, and zinc.
In recent years, Mongolia has made some leaps in establishing energy and critical minerals-related agreements with global partners such as France, South Korea, Japan, India, the United Kingdom, the United States, and the European Union. As bilateral cooperation agreements move forward and are put to work, Ulaanbaatar hopes to diversify not only its mining sector but also its trade partners by becoming a player in the supply chain.
In 2023, during U.S. Under Secretary for Economic Growth, Energy, and the Environment Jose Fernandez’s trip to Mongolia, the United States and Mongolia signed a critical minerals collaboration MoU, which “includes a framework for Mongolia and the United States to work together on technical areas of support to further Mongolia’s efforts to develop capacity to encourage investment in its mineral resource sector, which is vital to the global clean energy transition.” Also in 2023, Mongolia and France signed an agreement to explore and develop uranium.
In East Asia, South Korea has been keen to reduce its dependency on China and diversify its critical minerals supply chain. Seoul’s partnership with Ulaanbaatar does have the potential to bolster Mongolia’s development of its critical minerals but also become a player in the supply chain. In addition to the Mongolia-South Korea critical minerals cooperation agreements, Ulaanbaatar and Seoul established a cooperation committee on rare earth minerals in 2023.
While Mongolia’s bilateral approach is critical, Ulaanbaatar is expanding trilateral mechanisms that can bolster its economy, too. Mongolia currently has several trilateral mechanisms with Russia and China, but Ulaanbaatar is also looking for other partners.
In 2023, the first trilateral Critical Mineral Dialogue between the United States, Mongolia, and South Korea took place in Ulaanbaatar; this shed light on Mongolia’s implementation of its third-neighbor foreign policy in a trilateral mechanism to diversify investment, trade partners, and development projects.
Recognizing the strategic importance of critical minerals, countries are likely to place greater emphasis on securing their supply chains and establishing reliable sourcing networks. Mongolia’s democratic governance and the need to diversify investment provide an opportunity for international partners.
For example, Mongolia’s Oyu Tolgoi copper-gold mine is poised to become the fourth-largest underground copper producer by 2030. Other underground copper mines are currently active in Arizona, United States, and in Central Papua, Indonesia.
It is paramount for Mongolia to capitalize on its critical minerals and establish a cohesive strategy to manage these resources. The new Mongolian legislature must introduce Mongolia’s critical minerals strategy. There are several key components that need to be included in Mongolia’s strategy:
- Defining a List of Critical Minerals: Establish a prioritized list of critical minerals essential for the energy transition, such as lithium, cobalt, nickel, rare earth elements, uranium and so on. This list will help guide targeted investment and development efforts, ensuring alignment with global demand and technological trends.
- Identifying and Developing High-Potential Mining Sites: Conduct extensive geological surveys and feasibility studies to identify and evaluate potential mining sites. This should include leveraging advanced exploration technologies and partnering with international geoscience firms to accurately assess mineral deposits. Identifying high-potential sites will be crucial for attracting investments from local and international mining companies.
- Creating Attractive Investment Conditions: Develop policies and incentives that make Mongolia an attractive destination for investments.
- Developing Infrastructure and Supporting Services: Invest in critical infrastructure, including transportation, energy, and logistics networks, to support mining operations. Enhancing connectivity and reliability will be essential for attracting investors and ensuring the efficient mining and export of minerals.
- Implementing Comprehensive Exploration, Partnership and Development Plans: Build strategic alliances with leading global mining companies, technology providers, and research institutions to facilitate technology transfer, enhance mining practices, and secure necessary investments. By developing detailed plans that outline the stages of exploration, extraction, and processing of critical minerals, including timelines, investment requirements, environmental impact assessments, and community engagement strategies, Mongolia’s mining sector will be enriched.
- Implementing Regulatory Frameworks: Developing and enforcing regulations that promote sustainable mining practices, protect the environment, and ensure fair compensation and benefits for local communities. This includes creating incentives for responsible mining practices and establishing clear guidelines for mining operations and land use.
By enacting these strategies in the legislature, Mongolia can position itself as an important player in the global supply chain for critical minerals. These efforts significantly enhance and diversify Mongolia’s mining industry, which will drive economic growth and attract more investment.
While the legal frameworks concern Mongolia’s domestic legislation, there are external components that need to be considered as well. Mongolia’s strategy will need to address and find ways to overcome some challenges.
Some analysts say, in regard to the Mongolia-South Korea critical minerals partnership, “the strength of this partnership will depend on how well South Korea can separate its supply chain strategies from its alignment with the United States and manage its relationship with China given the country’s high dependence on China for imports of these critical resources.”
Having supply chains in mind, emerging industries such as car batteries are another crucial sector for Mongolia’s critical minerals.
Car batteries cost roughly twice as much as labor in an electric vehicle’s total cost. Therefore, achieving competitive costs and high quality in battery technology (e.g., range, durability) is a key differentiator for EVs. Consequently, companies like GM, Tesla, and BYD have formed partnerships or made direct investments to safeguard their supply chains and gain a competitive edge over competitors. Mongolia can capitalize on and plan to enter the battery technology sector. A battery technology advantage is not only crucial for EVs but also for the broader energy system. Leaders in battery technology can become major players in the energy ecosystem, providing solutions from home off-grid batteries to large-scale grid and renewable power plant batteries.
For Mongolia, the opportunity to contribute to the regional and global energy transition by supplying key commodities is significant. If Mongolia were to increase the scale of production, there may be potential for more value-added efforts. As these metals become increasingly important, particularly for EV manufacturers, the car battery has emerged as a critical competitive advantage. The Oyu Tolgoi project has demonstrated Mongolia’s vast untapped potential in large-scale copper mining, as well as other critical resources such as rare earth elements and uranium, all of which are essential for the energy transition. By utilizing these critical minerals, Ulaanbaatar can use its foreign policy to diversify its energy resources, promoting sustainable green infrastructures, such as solar panels, wind farms, and batteries.