In brief
The Mongolian Parliament has passed amendments to the country's Minerals Law which should be of interest to foreign investors and mining companies. Partners Igor Bogdanich and Kate Axup, and Senior Associate Steven Local, look at what certain of the amendments may mean for Mongolia's mining sector.
Background
On 1 July, 2014 the Mongolian Parliament passed amendments to the Minerals Law of Mongolia (the Amendments). At the same time, the Mongolian Parliament also passed several new laws relating to the mining sector (the New Laws), including a law which lifts the ban on the issue of new exploration licences.
The Amendments and the New Laws were foreshadowed earlier this year when the Mongolian Parliament adopted a State Minerals Policy. The State Minerals Policy was intended to form the basis for amendments to the Minerals Law and other laws relating to the mining sector, and sought to promote four key objectives:
- establish a stable investment environment;
- improve the quality of mineral exploration, mining and processing;
- encourage the use of environmentally friendly and modern technology; and
- strengthen the competitiveness of the Mongolian mining sector in the international market.
These objectives provide a useful framework in which to review the Amendments and the New Laws.
Stable investment environment
The Amendments and the New Laws include certain measures to establish a stable investment environment for Mongolia's mining sector.
The most significant measure is contained in a New Law which lifts the ban on the issue of exploration licences, with effect from 1 July 2014. The ban had been in place since 2010. This change is expected to have a positive impact on Mongolia's mining sector in the short term by encouraging investment and exploration activity.
Another measure which is found in the Amendments, is the establishment of a National Geology Office which is essentially responsible for collecting and maintaining information in respect of Mongolia's mining sector. The functions and duties of the National Geology Office include:
- conducting surveys and analysis on Mongolia’s mineral resources;
- maintaining a database and a national registry of mineral resources;
- monitoring changes in mineral reserves; and
- determining areas that can be granted under exploration licences.
Quality of mineral exploration, mining and processing
The Amendments provide for improvements in the quality of mineral exploration, mining and processing by the following provisions:
- extending the maximum term of an exploration licence from 9 to 12 years and removing the requirement for a pre-mining agreement;
- requiring exploration reports and feasibility studies to be prepared and assessed by an independent technical expert (new paragraph 48.12); and
- requiring a licence holder to include in its mining feasibility study details of transportation of minerals, infrastructure and the financing required for closure of the mine (new paragraph 27.1.12).
Environmentally friendly and modern technology
The Amendments promote environmentally friendly and modern technology to some extent. For example, the Amendments provide for the creation of a Policy Council to make recommendations and provide support for implementation of the Government’s mineral resources policy. The Policy Council would be an appropriate body to consider measures to promote environmentally friendly and modern technology in Mongolia's mining sector.
Under the Amendments, a licence holder must now procure one of its employees to regularly update the state administrative body in charge of geological and mining matters on environmental, rehabilitation and mine closure matters (see Article 27). This requirement may help to facilitate more transparency on environmental matters and encourage an orderly process for mine closure.
Similarly, Article 10 of the Minerals Law has been amended to require cooperation between the National Geology Office and the relevant agency in charge of the environment to develop regulations for reclamation and closure of mines and processing plants.
Competitiveness of the Mongolian mining sector in the international market
The Amendments seek to strengthen the global competitiveness of the Mongolian mining sector by requiring:
- that mineral licence holders engage contractors and suppliers who are registered Mongolian taxpayers in priority to other contractors and suppliers, provided that such goods, works or supplies are of the required standard. This amendment may help to develop the mining services industry in Mongolia; and
- mined/processed minerals to be sold on a priority basis to processing plants in Mongolia at market prices. The Amendments do not specify whether the term 'market prices' refers to international market prices or domestic market prices. We expect that most foreign investors in Mongolia would seek assurance that they could sell at international market prices to ensure that they will not be disadvantaged by this provision.
It is not clear whether foreign or local investors will view the above measures favourably given that they may wish to be free to contract and market on the best international terms.
Conclusion
The Amendments and the New Laws do not introduce radical changes to the regulation of Mongolia's mining sector, with most of the provisions of the Minerals Law surviving intact. However, there are some important changes which will be of interest to foreign investors and mining companies in Mongolia. In the short term, the lifting of the ban on the issue of new exploration licences is a key development which should encourage growth in exploration activity. Mining services companies established in Mongolia are likely to directly benefit from this change. Over the medium to long term, the establishment of the National Geology Office and the Policy Council should help to contribute to the orderly development of Mongolia's mining sector to meet the objectives set out in the State Minerals Policy.
Allens is an international law firm which practices throughout the Asia Pacific region. It advises on international legal issues in Mongolia but does not provide Mongolian legal advice. Allens regularly works with Mongolian counsel where Mongolian legal advice is required.