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.
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."
Mongolia's overall trading volume with China has soared in recent years, primarily in bulk shipments like coal and copper. Mining company officials in Ulan Bator said it was easy - and virtually untraceable - to smuggle a few ounces of gold in one of the thousands of coal trucks heading south.
"For buyers, gold is gold," said Patience Singo of the Sustainable Artisanal Mining Project run by the Swiss Agency for Development and Cooperation (SDC), which is trying to help the ninjas clean up their production methods and get organized.
Since Mongolia abandoned Soviet-style economic planning in 1990, gold miners large and small have scoured the countryside in search of profit, damaging water supplies with untreated mercury and leaving dunes of toxic tailings in their wake.
Parliament eventually sought to address Mongolia's laissez-faire mineral laws, enacting new rules in 2009 that banned mining near rivers and forests and revoking or suspending hundreds of licenses. Official gold output dwindled from a record 21.9 metric tonnes in 2005 to just over six tonnes in 2010.
But the reduction in official supplies has driven up prices, providing incentives for the ninjas to dig away despite growing restrictions on land use. Data is hard to come by, but ninjas continue to supply at least seven tonnes a year, according to NGOs.
"The policies have - pardon the pun - driven mining underground," said an executive at a foreign mining firm with interests in Mongolia.
"You can ban mining and try to protect the environment, but the ninjas don't listen. I think the only way you can deal with them is by decriminalizing and organizing them, but whether this government is capable of that is another matter."
Mining firms and ninjas forged an uneasy but often symbiotic relationship. The companies had to defend themselves against raids from ninja crews, sometimes using brute force, but they would also track ninja activity for new discoveries.
Ninjas for their part would gather in their thousands around established mining sites like Zaamar, home at its peak to more than 40 large-scale mining companies.
"In 2007, about 10,000 ninjas came to Zaamar and their situation was like hell, but the government launched a campaign to chase them back to their own areas. Now we have fewer people, but still they come," said Bolormaa Dorj, Zaamar's governor.
Since the crackdown on large-scale mining, Mongolia's ninjas are now returning to old and abandoned properties and have even started ransacking tailings dams for gold.
Tsetsgee Munkhbayar, an environmental activist who has fired arrows at Mongolia's parliamentary buildings and attacked mining concessions in protest at the government's mining policies, said scores of abandoned mines had allowed the ninjas to thrive.
"The ninjas emerged in empty holes excavated by mining companies that ran away without rehabilitating the land - if we can't deal with the mining companies, we can't deal with the ninjas," he said.
Singo, a Zimbabwean gold mining engineer, has been trying to get ninjas organized.
The small gold processing centre at Bornuur is a far cry from the giant industrial gold producers ploughing through Mongolia's plateau and pasture. Three years of tailings fill thousands of vegetable sacks stacked up on the edges of the site, and they still don't know what to do with them.
But the plant represents progress. It was set up by five miners with the help of Singo and the SDC and brings a degree of efficiency and mechanization to the local mining community.
Large stone wheels grind down chunks of rock dug from nearby hills. A decade ago, cyanide might have been used to dissolve the ore and mercury would have been added to amalgamate the gold, but the plant uses only water and gravity, allowing the shiny flecks to roll down a chute before being refined further.
It was designed to provide a safer channel for the ninjas to sell their gold, but business has slowed in recent years, with many choosing to take their chances with the changers rather than the central bank.
"The ninjas won't stop, but they might stop coming here," said Singo.
While there is little sign that ninja activities are slowing, formal activities are. The Bornuur plant's accountant, Erdenechimeg, said it was struggling to compete with black market prices, and new restrictions on land use were also limiting the number of new miners coming in.
Singo and the SDC have also helped organize a group of 50 former ninjas in the district of Zamaar, south of Ulan Bator.
Instead of raiding licensed properties, the miners have signed an agreement with a local mining firm, the Mundulaan Trade Company, to mine marginal deposits that big firms cannot handle. It also allows them to sell directly to the central bank and mine without being molested by police and security guards.
The government has already accepted that small-scale mining is here to stay and passed regulations in 2010 allowing "organized" miners to extract gold on land that has not been restricted or licensed to other miners.
It is a small step. A few miles away from the project, scores of ninjas pop up like moles from the trenches and holes that perforate the valleys. Miners flee into the hills on motorcycles, fearing the approach of police or thieves.
Deeper into the valley, a dozen ninjas sprawl on the hillside as their comrades feed clumps of earth into a homemade dry washer. A day's mining has produced half a palmful of shiny dust that could earn them as much as 300,000 tugrik ($280).
Boldbaatar, a veteran miner in faded army fatigues, said they could earn much more if they didn't have to spend so much time hiding or running away.
"We have already been chased off this site today," he said. "They don't really chase us out of duty. They are trying to steal our gold."
It has proved nearly impossible to eliminate the ninjas, and experts like Singo say it would make more sense for the government to "formalize" them and bring their supplies back on to the official market.
For the ninjas themselves, official recognition would at least earn them respect.
"Ninja isn't a good name," said Boldbaatar. "And the ninja turtles have an advantage over us. At least they can fly."
Editing by Nick Macfie