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Mongolia: New Mining Law Being Drafted

(Jan. 17, 2017) Mongolia’s Ministry of Mining and Heavy Industry is working on new legislation on mining. The Mining Law now being drafted would regulate all aspects of mine businesses, from their establishment to closure. (Mongolia Considers New Mining Law, NEWS.MN (Jan. 4, 2017).) It thus reportedly would cover a wider range of topics than the existing Minerals Law, which was passed on July 8, 2006, and effective as of August 26 of that year, and amended numerous times, including extensive revisions in 2014. That law focuses on regulating the licensing process and on financial accountability. (Id.; Minerals Legislation, Mineral Resources Authority of Mongolia website (click on separate links for 2006 law and 2014 amendment) (in Mongolian); Orgil Davaasuren, The Amendments of 2013, 2014 and 2015 to the Law of Mongolia on Minerals (2006), Ashid Advocates LLP website (2015).)

Mongolia’s economy is heavily dependent on mining industries. According to a World Bank report, as of the middle of 2016, 20% of the Gross Domestic Product was from the mining sector, double the proportion of ten years ago. (Mongolia: Overview, The World Bank website  (last updated Aug. 26, 2016).)

2013-2014 Amendments of the Minerals Law

The amendments enacted on October 3, 2013, were designed part to make the Minerals Law consistent with provisions of the Investment Law, which was itself adopted on that day. Those provisions covered the royalties due to investors, including investors involved in the mining sector of the economy.(Davaasuren, supra; Mongolian Law on Investment (unofficial translation) (Oct. 3, 2013), Embassy of Mongolia in Poland website.)

On January 24, 2014, the Mongolian Parliament adopted additional amendments to the Minerals Law specifying that if a mining license holder sells extracted gold to the Bank of Mongolia or a bank authorized by that institution, the royalty rate will be 2.5%, a reduction from prior rates. (Davaasuren, supra.) Furthermore, on May 15, 2014, the Mongolian Parliament approved amendments that state that mining operations, including exploration, must be preceded by a survey done by an organization with ethnographic, paleontological, and archaeological expertise, in order to ensure that there is no harm to Mongolia’s cultural heritage from the mining operations and that Mongolian law is consistent with the ideas expressed in the 1972 World Cultural and Natural Heritage Convention. (Id.) Mongolia has been a party to that Convention since February 2, 1990. (Convention Concerning the Protection of the World Cultural and Natural Heritage (adopted Nov. 16, 1972), United Nations Educational, Scientific and Cultural Organisation [UNESCO] website; States Parties Ratification Status (as of June 9, 2016), UNESCO website.)

Major Amendments of July 2014 

In a report based on the draft of July 1, 2014, amendments to the Minerals Law, which were subsequently adopted, and on comments from the Vice Minister of Mining, Erdenebulgan Oyun, Michael Kohn of Bloomberg.com noted that the proportion of Mongolia that would be available to mining operations and exploration was increased from about 8% to 20% and that a 2010 ban on issuance of new mining licenses would be removed. In addition, companies would be able to undertake exploratory operations for 12 years, rather than being limited to nine years as was previously the case. (Michael Kohn, Mongolia Passes Mining Changes to Boost Exploration, BLOOMBERG (July 2, 2014).)   In addition, the revision of the Law created two administrative bodies, a National Geological Survey and a Policy Council concerned with legal changes that affect mining.

The amendments were described in the press as designed to both stimulate the economy and restore investor confidence. (Id; Cecilia Jamasmie, Mongolia Approves Major Overhaul to Mining Law, MINING.COM (July 2, 2014).) Other changes introduced include:

  • providing that a separate law will govern exploration and mining of some common minerals;
  • requiring a license for exploration and collection of non-ferrous metals and precious stones, similar to the license needed for other common minerals;
  • expanding the powers of Mongolian authorities to approve the form of contracts for mining license holders, covering environmental protection, mineral extraction, infrastructure development, and job creation. The government will now approve, and publicly announce, in which areas exploration is permitted, and the Ministry of Mining will approve some regulations and procedural rules previously approved by the Mineral Resources Authority;
  • requiring license holders to give priority to Mongolian businesses in procuring goods or selling extracted, concentrated, or partially processed products;
  • compensating license holders, who have had their licensed areas confiscated by the state as “special purpose zones,” within one year of the confiscation decision and allowing those areas to revert to the license holders if no longer needed as special purpose zones;
  • reducing the size of the area covered by a single exploration license from 400,000 to 150,000 hectares (from about 988,400 to 370,660 acres);
  • requiring license holders to do feasibility studies that include details on proposed transportation of the mined products, infrastructure development, and funding needed for mine restoration or closing;
  • basing the amounts of fines for violations of the Minerals Law on the minimum monthly wage; and
  • obligating applicants for exploration and mining licenses to have all documentation reviewed by accredited technical experts. (Davaasuren, supra.)