Mining in southern Mongolia is threatening the livelihoods of herders and straining water supplies, a report said Monday, as foreign companies race to exploit the country's rich mineral deposits.

Mongolia has opened up it vast reserves of natural resources to foreign investors in the hope of pulling thousands out of poverty, but activist groups said herders, townspeople and the environment were paying a heavy price.

In 2009, Mongolia sealed a long-awaited multi-billion dollar deal with Canada's Ivanhoe Mines and Anglo-Australian miner Rio Tinto to develop Oyu Tolgoi, one of the world's richest copper deposits and a key gold source.

Ulan Bator is also selecting foreign companies to develop the prized Tavan Tolgoi coal deposit, one of the largest on the planet.

But the mines, located in the vast Gobi desert, were being developed without sufficient scientific information about the potential environmental and social impact of the operations, activist groups said.

"The future of herding in the South Gobi is under threat as the development of extensive mine infrastructure pushes herders out of traditional camps, fragments pasture land and puts pressure on water resources," the report said.

The report was published by CEE Bankwatch Network in the Czech Republic, urgewald in Germany, Bank Information Centre in the United States and Oyu Tolgoi Watch in Mongolia, with the financial assistance of the European Union.

Towns located near the mines lacked adequate services and infrastructure to handle their burgeoning populations, it said.

Increased dust caused by mining and trucks was exacerbating "desertifcation and the decreasing quality of vegetation", as well as fuelling the number of asthma and bronchitis cases in the area.

Local residents were also missing out on promised job opportunities, according to the report, which was based on interviews with herders and people living in towns near the mines as well as mining companies and investors.

"An influx of people from outside the region increases competition for jobs, and while herding engages both men and women, mining offers more opportunities for men," the report said.