Mongolia Leverages Critical Minerals for Geopolitical Autonomy
US-Korea dialogue, French uranium investment, and Japanese partnerships dilute China-Russia dependency through resource diplomacy
Saint Clair Market Intelligence | January 2026
Mongolia Series | Article 2 of 4
This article is part of our series examining Mongolia’s transformation from pure resource extraction toward technology-enabled mining and local value capture. Article 1 established the investment landscape; this article explores how critical minerals serve as geopolitical capital attracting diverse international partners beyond traditional China-Russia dependency. Articles 3 and 4 examine copper value chain maturation and the emerging mining tech startup ecosystem.
Executive Summary
Mongolia is deploying its critical mineral endowment—copper, uranium, rare earths, and fluorspar—as geopolitical capital to expand relationships beyond its two neighbours, China and Russia. The June 2023 US-Mongolia-Korea Critical Minerals Dialogue, France’s $1.6 billion Orano uranium investment, and Japan-Mongolia mineral cooperation agreements demonstrate how a landlocked nation of 3.3 million people commands strategic attention from major economies. For international investors, Mongolia’s “third neighbour” foreign policy creates entry points into a resource base historically channelled toward Chinese and Russian markets, whilst the country’s democratic governance and legal reforms provide institutional frameworks absent in comparable resource-rich authoritarian states.
The Third Neighbour Policy
Mongolia’s foreign policy centres on cultivating “third neighbours”—democratic nations beyond its two physical neighbours that provide counterweight to Chinese and Russian influence. The United States, Japan, South Korea, India, and European nations occupy this category, offering investment capital, technical cooperation, and diplomatic support. Mongolia joined the Organisation for Security and Co-operation in Europe (OSCE) as an Asian partner, participates in UN peacekeeping missions, and maintains defence cooperation agreements with NATO members—unusual positioning for a country bordered exclusively by authoritarian powers.
The critical minerals strategy operationalises this policy. Mongolia contains substantial deposits of commodities essential to clean energy transition and defence manufacturing: copper (electric vehicles, power infrastructure), uranium (nuclear baseload generation), rare earth elements (permanent magnets, electronics), fluorspar (metallurgical flux, chemical feedstock), and tungsten (tooling, defence applications). These resources provide negotiating leverage with nations seeking supply chain diversification away from Chinese or Russian dominance.
The US-Mongolia-Korea Critical Minerals Dialogue, launched in June 2023, exemplifies this approach. The trilateral format connects Mongolia’s resources with Korean processing technology and American end-market demand, creating supply chains bypassing Chinese intermediaries. Topics include exploration cooperation, financing mechanisms for mine development, and technical standards harmonisation. A November 2023 follow-up established a joint committee on rare metals cooperation specifically addressing magnetic rare earths (neodymium, praseodymium) essential for electric motors and wind turbines.
The Orano Uranium Investment: Third Neighbour Policy in Action
France’s state-owned Orano Mining finalised a $1.6 billion investment agreement with Mongolia’s government in January 2025 for the Zuuvch Ovoo uranium mining project in Dornogovi province. This transaction represents the third neighbour policy’s most substantial European manifestation to date—a 30-year partnership positioning Mongolia as a strategic supplier for France’s nuclear power programme.
The project structure reflects Mongolia’s evolved negotiating sophistication. Over 51% of direct benefits flow to the Mongolian state through taxes, dividends, and royalties. A dynamic resource fee starts at 5% and escalates to 8% when uranium prices exceed $80 per pound, protecting state revenue during commodity price volatility. The joint venture between Orano and state-owned MonAtom creates Badrakh Energy as the operating entity, with production capacity targeting 2,500 tonnes of uranium annually—sufficient to fuel approximately 15-20 nuclear reactors.
Mongolia amended its Nuclear Energy Law in November 2024 specifically to enable this deal. Key provisions replaced mandatory state equity stakes with flexible payment mechanisms, prohibited foreign radioactive waste imports, and established parliamentary authority to modify terms when strategic interests require. These reforms resolved regulatory uncertainty that previously deterred uranium sector investment, including Orano’s 25-year exploration presence without commercial production.
For France and Europe, Mongolian uranium addresses supply chain vulnerability. France operates 56 nuclear reactors with plans to construct six new-generation EPR2 units by 2035. Current uranium sourcing relies heavily on Kazakhstan (43% of global production), Niger, and Canada. Mongolia’s resources—estimated at 60,500-166,000 tonnes—provide geographical diversification during Europe’s nuclear renaissance as the EU includes nuclear energy in its green taxonomy.
Japan and Korea’s Calculus
Japan and South Korea approach Mongolia through complementary lenses: Japan seeks resource security for its manufacturing base and nuclear power programme, whilst Korea pursues both raw materials and market access for Korean mining/processing technology. Both nations maintain historical ties to Mongolia distinct from China and Russia, creating diplomatic foundation for economic cooperation.
Japan’s interests span uranium (nuclear power restart), rare earths (electronics manufacturing), and fluorspar (steel production). Japanese firms participate in Mongolia’s Gold-2 Programme supporting precious metals development, whilst JICA funds infrastructure projects including Ulaanbaatar airport expansion and water treatment facilities. The MonJa Accelerator connects Mongolian startups with Japanese venture capital, building ecosystem linkages beyond pure resource extraction.
Korea’s approach reflects its position as a minerals-importing manufacturing economy. Korean firms operate in Mongolian mining services, equipment supply, and exploration. The Korea-Mongolia bilateral relationship includes defence cooperation and cultural exchange. Korean battery manufacturers evaluate Mongolian graphite and copper as inputs for electric vehicle supply chains serving global markets.
Both nations recognise Mongolia’s constraints—landlocked geography, infrastructure deficits, Chinese market dependence—but view engagement as strategic diversification worth the complications. The trilateral format with the US provides diplomatic cover and financing mechanisms neither Japan nor Korea could mobilise independently, whilst Mongolia benefits from coordinated rather than fragmented foreign investment.
China’s Enduring Influence
Despite third neighbour cultivation, China remains Mongolia’s dominant trading partner and investor. Over 80% of Mongolian mineral exports flow to China, Chinese firms hold substantial mining assets, and Chinese infrastructure enables Mongolian operations. Geographic reality dictates this: the 4,677-kilometre Mongolia-China border provides multiple crossing points optimised for bulk commodity transport, whilst Russian routes add thousands of kilometres and require different rail gauges.
China’s Belt and Road Initiative investments in Mongolia include railway extensions, border crossing upgrades, and industrial park development—projects enhancing Mongolia’s export capacity but deepening integration with Chinese logistics networks. Chinese investors participate across Mongolia’s mining sector from exploration to processing to downstream manufacturing.
Mongolian policymakers navigate this dependency through regulatory mechanisms: foreign investment restrictions in “strategic” sectors, mandatory Mongolian state participation in large projects, and licensing requirements favouring diversified investor bases. The 2024 sovereign wealth fund legislation (Chinggis Fund) ensures strategic mine revenues fund domestic development rather than accruing entirely to foreign shareholders.
The geopolitical calculus accepts Chinese market dominance whilst ensuring no single foreign actor (including China) controls Mongolia’s resource sector comprehensively. The Orano uranium development, US-Korea critical minerals cooperation, and Japanese infrastructure funding create alternative relationships Mongolia can leverage during bilateral negotiations with China, even if actual export volumes remain China-dominated.
Investment Implications
For international investors, Mongolia’s third neighbour policy creates opportunities and complications. Government encouragement of non-Chinese investment provides regulatory support and strategic partnership possibilities unavailable in purely commercial contexts. US-Mongolia trade agreements (Third Neighbour Trade Act providing duty-free access), Canadian investment protection treaties, and European critical minerals dialogues reduce political risk relative to investing without diplomatic frameworks.
The investment sweet spot involves projects where third neighbour participation provides clear value beyond capital: technology transfer (advanced mining techniques, environmental management systems), market access (direct sales to European/Korean/Japanese end-users), or financing terms unavailable from Chinese lenders. Projects lacking these differentiated value propositions likely find Chinese alternatives more economically efficient despite Mongolia’s diplomatic preferences.
Strategic investors—sovereign wealth funds, state-backed industrial companies, defence-related manufacturers—find Mongolia more compelling than purely financial investors. The former value supply chain security and geopolitical positioning beyond financial returns; the latter prioritise IRR and exit timelines potentially compromised by infrastructure constraints and political complexity.
What This Signals for Ecosystem Development
Mongolia’s mineral diplomacy illustrates how small, strategically-located nations leverage resource endowments for geopolitical autonomy. But the story extends beyond extraction. The relationships formed through critical minerals partnerships create channels for technology transfer, technical education, and ecosystem development that transcend commodity price cycles.
The MonJa Accelerator (Japan), Korean mining technology partnerships, and European technical cooperation programmes establish infrastructure for knowledge transfer. Mining companies seeking efficiency gains increasingly adopt digital solutions—ore tracking, safety monitoring, environmental compliance—creating demand for technology providers with Mongolia-specific expertise. This dynamic suggests the third neighbour policy’s long-term value may lie less in commodity revenues than in the ecosystem capabilities these relationships enable.
Continue reading the Mongolia Series:
Article 1: Mongolia’s Mining Investment Landscape — Public listings, sovereign wealth fund, and regulatory evolution
Article 2: Mongolia Leverages Critical Minerals for Geopolitical Autonomy — US-Korea dialogue, French uranium investment, and third neighbour policy
Article 3: Mongolia’s Copper Value Chain Matures — $1 billion Khanbogd smelter and local value capture
Article 4: Mongolia’s Mining Tech Startups — Blockchain carbon tracking, digital platforms, and the ecosystem shift beyond extraction
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Disclaimer: This article is for informational purposes only and does not constitute investment or policy advice. All decisions should be made based on independent research and consultation with qualified advisors. Saint Clair does not advocate for or against nuclear energy policy; this analysis examines investment and geopolitical dynamics without taking position on energy source preferences.
About Saint Clair – Advisory & Capital: Saint Clair practises Capital Diplomacy — fostering cross-border investment relationships between Europe and Asia through trust, insight, and strategic facilitation. We advise governments, regulators, and institutional stakeholders on policies that strengthen innovation ecosystems and attract international capital. Since 2016, we have specialised in the Europe-Asia investment corridor.
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