Mongolia Considers Air Bridge With United Kingdom for Rare-Earth Exports

Executive Summary

• The Mongolian and British governments are engaged in talks on opening an “air bridge” to increase exports of Ulaanbaatar’s rare-earth elements (REEs) to the West.
• Mongolia possesses vast deposits of REES that play a critical role in the development and production of modern defense, medical, information, and “green” technology.
•  Ulaanbaatar hopes to reduce its dependency on China and Russia by developing partnerships with Western countries to mine, refine, and export its REEs.  

Western-educated Mongolian Prime Minister Luvsannamsrai Oyun-Erdene is interested in lessening his country’s reliance on China and Russia by developing partnerships with the West. In 2023, Oyun-Erdene signed an “Open Skies” agreement with the United States to promote trade (Transportation.gov, August 4, 2023). He has also pursued a partnership with the United Kingdom to ship Mongolia’s extensive deposits of rare-earth elements (REEs)—copper and uranium ores—abroad via air transit (Mrtd.gov.mn, April 13, 2023; Gov.uk, October 30, 2023). Currently, Mongolia relies on access to China’s Tianjin port for exports. The Mongolian premier sees rare-earth metals as the “crude oil of the 21st century” and hopes to use his country’s rich resources to develop new partners in the West, bypassing Beijing and Moscow (Euractiv, August 3, 2023).

Oyun-Erdene’s determined pursuit of closer economic ties with the West represents a stark contrast to the previous century when Ulaanbaatar was one of the Soviet Union’s closest allies. After its founding in 1924, the Mongolian People’s Republic (MPR) and Moscow were so close that it was unofficially called the “16th Soviet republic” (see EDM, June 20, 2019).

The December 1991 collapse of the Soviet Union was followed by that of the MPR only a month later. Mongolia began to turn away from socialism, seeking to develop a capitalist, democratic system. The country’s vast mineral reserves, including coal, copper, and REEs, were a major asset of the new regime. While the coal and copper reserves were exploited extensively, the untapped RREs have strong potential to be lucrative exports. In 2009, the US Geological Survey estimated that Mongolia’s rare-earth reserves could be as high as 31 million tons, or 16.77 percent of the world’s total, exceeded only by China (Asia Times, August 8, 2023).

Since then, Ulaanbaatar has explored various avenues for exporting REEs beyond the immediate region. In an interview with British media on March 15, Oyun-Erdene observed, “We are in the process of studying … what transportation will be used to export those commodities to other countries, and we are looking for possibilities to use air transportation to export critical minerals. There are also ways to transport those minerals to the UK” (The Telegraph, March 15).

REEs are a group of 17 elements often found in small, mixed deposits, making their extraction difficult and often damaging to the environment. REEs are increasingly critical for many modern technologies, such as electronics, batteries, fuel cells, catalysts, and fiber optics. In the United States, industrial uses include defense, medical, and information technology. The increasing demand for “green” technology has elevated the importance of these minerals, as REEs are used in wind turbines and hybrid electric vehicles. The technical application of REEs requires at least 99.9 percent purity, necessitating several rounds of processing. Many countries have mining capabilities, while only some have partial processing abilities. Even fewer states possess the refinery capabilities necessary to render RREs into a usable form (Usitc.gov, December 2020).

Oyun-Erdene’s vision directly threatens Russia and China’s near monopoly of rare-earths production. Both Russian and Chinese media have criticized the Mongolian premier’s proposal, as it would expand the Western economic footprint in an area Moscow and Beijing regard as their “near abroad” (Newizv.com, August 3, 2023; Qq.com, March 24 [1], [2]). China currently dominates the global supply of REEs, and neighboring Russia has strong potential for the extraction and production of rare-earth metals. Mongolia, heavily dependent on coal exports, seeks to diversify its revenue streams as more countries set net-zero emissions goals (Eeas.europa.eu, September 25, 2023).

Mongolia’s geographic position makes diversifying its economic partners exceedingly difficult. The country is landlocked between Russia and China, and the pair dominate Mongolia’s foreign trade. In 2023, more than 8 million tons of foreign cargo passed through the Russian-Mongolian border railway stations of Russia’s Naushki and Mongolia’s Sukhbaatar, a 140-percent increase over 2022 figures. In addition, the volume of export cargo transferred by rail from Russia to Mongolia exceeded more than 2.7 million tons, a 12.5 percent increase. Russian cargo transiting Mongolia to China totaled 3.6 million tons, an 80-percent increase. In terms of westward trade, in 2023, China exported more than 1.5 million tons of cargo to Russia via Mongolia, a 150-percent increase. Mongolian exports to Russia, however, declined by 6 percent compared to 2022 levels (Vostok-Teleinform, January 30).

Ulaanbaatar has struggled to send REEs, whether by rail or air, to the West, as exports would inevitably have to pass through Russia and China. Beijing is not interested in strengthening competition in the rare-earth market. Therefore, the United States and Europe will have to negotiate with Moscow, which is heavily burdened by the West’s economic sanctions. Russian airspace is consequently closed to British aircraft, leaving the sole option of flying through China unless transport can be carried out exclusively by Mongolian airlines (BBC News, February 25, 2022).

The Mongolian government has several options when considering partnerships to mine and refine REEs. Coal and copper mining are already essential components of Mongolia’s gross domestic product (GDP). UK-listed Rio Tinto operates the Oyu Tolgoi copper mine, Mongolia’s largest foreign direct investment, and makes up 25 percent of Mongolia’s GDP. Additionally, France’s state-backed Orano is laying plans to develop Mongolia’s first uranium mine (The Financial Times, March 23). China, which is closer to home, may be a viable option. For years, Beijing has allowed the import of lightly processed REE concentrate for refining. The strategy helps ensure prices that incentivize other countries to dig new mines but not build processing plants that could compete with Chinese exports.

Oyun-Erdene refers to the United States as Mongolia’s “third neighbor” alongside Russia and China (Mfa.gov.mn, August 4, 2023). Before Mongolia cashes in on its potential REE bonanza with the West, certain hurdles must be ameliorated, among them corruption and a lack of infrastructure. Nevertheless, Mongolia’s success with Rio Tinto’s Oyu Tolgoi copper mine bodes well for future mining projects and the possible increase of exports to Western countries. The Mongolian premier has said, “Mongolia is landlocked, but we are not mind-locked” (The Financial Times, January 29, 2023). Whether that mindset will be sufficient to overcome the country’s authoritarian neighbors remains to be seen.