Mongolia's "ninja" miners help sate China lust for gold

BORNUUR, Mongolia (Reuters) - In a hot, concrete hut filled with acetylene fumes, an elderly Mongolian miner struggles to contain her excitement as she plucks a sizzling inch-long nugget of gold from a grubby cooling pot and raises it to the light.

Khorloo, 65, and her sons spent the day scrutinizing half a dozen CCTV screens as workers at the Bornuur gold processing plant whittled 1.2 metric metric tonnes of ore down to 123 grams of pure gold that could earn the family as much as $6,000.

Near the plant, separated from Mongolia's capital, Ulan Bator, by 100 km of rocky pasture and mostly unpaved road, life has remained largely unchanged since Genghis Khan's "golden horde" rampaged across Asia nine centuries ago.

But Khorloo is a member of a new horde of at least 60,000 herders, farmers and urban unemployed trying to extract the riches buried in the vast steppe with metal detectors, shovels and home-made smelters.

In the last five years, dwindling legal gold supplies and a spike in black market demand from China have made work much more lucrative for Mongolia's "ninja miners" - so named because of the large green pans carried on their backs that look like turtle shells. For thousands of dirt-poor herders, the soaring prices alone are enough to justify years of harassment, abuse and hard labor.

"It took us a week to dig this out," Khorloo said, holding the nugget. "But we dug for three years to reach the vein."

China's annual gold output reached a record 361 metric tonnes last year, but demand continues to outstrip supply. While Beijing doesn't publish full import figures, deliveries from Hong Kong hit 428 metric tonnes in 2011, three times more than a year earlier.

Spot international gold prices hit a record high of $1,920.30 an ounce in September as investors bought the metal as a safe haven amid uncertainties surrounding the euro zone and its debt. The price has fallen back to around $1,636 but gold remains at historically high levels after a decade-long rally.

China has certainly driven the gold rush in Mongolia - from the giant $6 billion Oyu Tolgoi copper-gold project currently being developed by Ivanhoe Mines and Rio Tinto to the makeshift holes that honeycomb the hills and valleys of Bornuur.

While the government in Ulan Bator hopes to use growing mineral output to drag its largely pastoral economy into the 21st century, many lawmakers are wary about turning Mongolia into "Minegolia" - a choking, resource-dependent blackspot tearing itself apart to deliver raw materials to China.

However, policies aimed at cutting output to more sustainable levels have played into the hands of the ninjas and a shadowy network of black market traders.

CHINA AND THE "CHANGERS"

Two decades of ninja activity have already nurtured scores of middlemen linking the underpopulated steppe with the Chinese market. And it hasn't been difficult to encourage Mongolia's struggling crop farmers and once-nomadic herders to supply them.

One English word appears regularly in the ninjas' guttural Mongolian: the "changers" are a motley group of smugglers who trade black market gold, much of which ends up in China.

"The changers smuggle it to China - the miners do all the work, but those who buy the gold make the money," said Urantsetseg, one of the many female miners in Zamaar, a gold-producing district south of Ulan Bator.

While all producers are legally obliged to sell their gold to the central bank, the black market is often a better option. Changers can offer prices above the official rate, and they can also avoid the 10 percent tax on sales.

Workers at Bornuur admitted that some of the gold it processes is not sold through official channels.

"They are requested to sell everything to the bank but they are not really ordered to do so," said Erdenechimeg Belhkuu, an accountant at Bornuur.

"Some of the supply that goes through our plant is bought officially, but some goes on to the black market, which sometimes just offers higher prices."

Copyright © 2012, Reuters

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