As mining continues to be the driving force of Mongolia’s economy, the legal framework in the mining sector is of vital importance. The most significant piece of legislation in the mining sector is the Minerals Law of 2006 (as amended from time to time).
The Minerals Law was amended on July 1, 2014, bringing a number of positive changes which should eventually help in attracting further investment. The amendments to the Minerals Law will be discussed in greater detail below.
The Minerals Law lays out the framework whereby companies, both domestic and foreign, can obtain exploration and mining licences.
Pursuant to the Minerals Law, a holder of an exploration licence is granted the exclusive right to obtain a mining licence if the holder deems the mineral deposit to be commercially viable.
Exploration licences are granted for an initial term of three years, with the possibility of extending the term for an additional three years three times, with the exception of exploration licences for radioactive minerals. Mining licences are valid for an initial term of 30 years, with the possibility of extending the term for an additional 20 years twice.
The Minerals Law outlines rules concerning what are deemed “strategically important deposits”, and allows the state the ability to acquire certain ownership interests in companies that are exploiting such deposits. If state funding was used during the exploration phase, the state may purchase up to 50% of the shares in a company exploiting the deposit. If no state funding was used, the government still has the right to acquire up to a 34% interest in the company conducting the mining activities.
After a great deal of deliberation and consulting with various stakeholders, the country’s parliament, the State Great Khural, adopted certain amendments to the Minerals Law on July 1, 2014. Many of the amendments to the statute were based on the State Minerals Policy, which was adopted prior to the passage of the amendments to the Minerals Law. The important amendments to the Minerals Law adopted on July 1, 2014 include the following:
- The amendments to the Minerals Law establish a National Geological Office, which is charged with conducting “geological cartographic, geophysics, geochemical and hydrogeological and geoecological mapping and research on the territory of Mongolia”. (Article 11 of the Minerals Law);
- The maximum geographical size of an exploration licence was reduced from 400,000 ha to 150,000 ha (Article 17.4 of the Minerals Law);
- The maximum term for exploration licences (including all possible renewals) was extended from nine years to 12 years, with the exception of exploration licences granted for radioactive materials (Article 21.1.5 of the Minerals Law); and
- Mining Licence holders are now required to give priority to domestic taxpayers when procuring goods and services (Article 35.9 of the Minerals Law). Also on July 1, 2014, Parliament adopted the Law of Mongolia on the Repeal of the Law on the Prohibition of Granting Exploration Licences.
Until this law was passed, there had been temporary moratoria on the issuance of new exploration licences since 2010, stemming from investigations into corruption at the Minerals Resources Authority of Mongolia.
Repealing the prohibition on the granting of exploration licences is certainly a welcome move for the investment community, as it demonstrates the Mongolian government’s willingness to take steps to encourage economic growth.