The Sustainable Artisanal Mining (SAM) Project started in 2005 and built on Swiss Agency for Development and Cooperation’s (SDC) experience in Artisanal and small-scale mining (ASM) projects in Ecuador, Bolivia, and Peru. Since 2005, the SAM Project has been contributing to the organization and formalization of Mongolian ASM sector, advocating for environmentally sound mining practices and raising awareness amongst stakeholders on responsible ASM. The SAM Project has been implemented in four Phases, so far, with goals and aims to develop an economically sustainable, environmentally responsible and human rights-based ASM sector in Mongolia benefiting from and contributing to, global best practice regarding ASM. Phase 1 of the SAM Project aimed to develop ASM as a motor for sustainable rural development under an integrated sustainable resource management by the Government of Mongolia. Goal of Phase 2 was to support ASM to create favorable conditions and structures for the ASM sector so that its contributions to socio-economic development based on the careful use of natural resources in selected areas will increase. Phase 3 secured the recognition of ASM as a formal sub-sector contributing to Mongolia’s economic development. Phase 4 of the SAM Project seeks to transform Mongolia into an international knowledge hub for ASM best practice. In Phase 4 of the SAM Project, SDC initiated and funded the development of ASM Knowledge Hub, a web-based platform, opening ceremony for which was held on March 1, 2018. The ASM Knowledge Hub is a web-based interactive platform, which will provide active exchange and distribution of ASM information and connect ASM actors and knowledge contributors in Mongolia as well as with global ASM stakeholders. The platform features latest news and updates in ASM sector and provides information on upcoming events regarding the sector. Visit ASM Knowledge Hub at www.asmhub.mn for various articles, studies, researches and publications produced by ASM stakeholders.
In our previous post, we introduced Mongolia’s new tender process for obtaining a license for minerals exploration activities. Here, we will briefly discuss the procedures and requirements on review of an application for the exploration license.
After receiving applications for a license to explore for minerals in a particular plot, the State Administrative Agency of Mongolia will evaluate each technical proposal and fee proposal submitted by the interested parties on a scale, and will notify the candidate who obtained the highest scoring evaluation that it is eligible to receive the exploration license. If two or more applicants obtained equal or similar evaluation scores, the applicant which first submitted the application is first eligible to be issued the exploration license. If an applicant submitted incomplete documents or a review of the technical aspects of the documentation reveals that the application does not meet the requirements to be eligible for the exploration license, the State Administrative Agency will notify the applicants in writing regarding their exclusion from the remainder of the tender process, and will provide and explanation along with returning the application documentation to the applicant.
The selected candidates are required to pay an initial annual exploration license fee within 10 days after receiving notice of eligibility. If the candidate fails to pay this fee, it will be deemed to be a ground to revoke the license. After payment of the initial fee, the State Administrative Agency will issue an Exploration License valid for a three (3) year period. When the Exploration License is issued, the Ministry of Environment, the local province, district, city’s governor, and local Inspection Agency with jurisdiction over the target plot will each be notified directly, and the aware of the exploration license will be published in public media.
Revocation of a License
There are several potential issues which may result in revocation of an issued minerals exploration license. Breach of rules and standard procedures for exploration will result in revocation, and the holder will be required to transfer the license back to the State Administrative Agency. Failure to pay required corporate income taxes, to duly report to the tax office and to report relevant information to the tax office will also result in revocation of the license. The Exploration License will be revoked in the event that the license holder does not report such status to the Mongolia Legal Entity Registration Office (LERO), along with relevant details about its corporate structure and holdings, or where changes to the license holders corporate governance and information is not reported within 10 days to the Tax Office.
Companies in or considering getting into the Mongolian mining industry need to be aware of new changes in procedures for obtaining a license for minerals exploration. The new changes are geared toward making it easier to apply for and register a minerals exploration license, which will hopefully facilitate interest in continued minerals exploration in the Mongolian steppe.
The amendment of the Law on Minerals regulating the issuing of new mining licenses, was adopted by the Mongolian Parliament on 10 November 2017. Under the law, new mining and exploration licenses will be granted through a new tender process starting this year. Prior to the amendment, mining licenses were obtained through applications and tender bids.
The minerals exploration process will start with a determination by the State Administrative Agency as to the target plot of land to be explored. After identifying a candidate area for exploration, the State Administrative Agency will notify the provincial governor and local municipality, and provide a detailed outline and map of the proposed exploration.
The governor and local municipality will have 45 days to provide a response to the State Administrative Agency giving local opinion as to the planned exploration in the target area. A meeting of citizen representatives should be held to determine local attitudes. If there is no official reply within the 45-day period the proposed exploration is considered accepted by the locality.
After a target area has been approved for minerals exploration, the State Administrative Agency will announce a selection process inviting potential exploration companies to submit application documents to be considered to management the exploration. The invitation period will last 30 days and include publication through public media and newspapers. In the event that an area targeted for exploration receives no applicants to conduct the exploration, the State Administrative Agency will leave the area open and conduct further announcements going forward.
With the new Changes, licenses for minerals exploration will be issued through a special selection and bidding process. Interested companies are required to submit a request to be considered to participate in the selection process to the State Administrative Agency. The application must include documentation regarding the applicant’s technical proposal or project outline documentation. The required documentation will include information regarding personnel requirements, techniques and technology, and the nature of the planned exploration work. The State Administrative Agency will register the request and give a receipt to the applicant while the request is considered.
Our next post will look at procedures for review of submitted applications and revocation of issued licenses.
Canadian Minister of International Trade Francois-Philippe Champagne met March 12, 2017 with Mongolia Mining Minister Ts.Dashdorj, to issue a joint announcement that the Mongolia-Canada Foreign Investment Promotion and Protection Agreement (FIPA) has entered into force.
The Global Affairs Department of the Canadian government is quoated as saying, “This agreement sets out a framework of legally binding rights and obligations that will protect Canadian investors in Mongolia. The strong reciprocal protections in the FIPA will help Canadian and Mongolian companies deepen commercial ties with confidence and spur job creation.”
Canada is estimated to have invested over 6.4 billion USD in Mongolia in 2015, one of the larest individual country contributions. Most of this Canadia investment in Mongolia is in Mining and related sectors. It is hoped that FIPA will encourage diversification in investments in areas such as agriculture and infrastructure.
According to the agreement each nation will accord the other “Most Favored Nation” status.
We are happy to see Canada double down on economic engagement with Mongolia. Canada’s efforts include working with Mongolia to develop capacity in natural resources management, official transparency and accountability, and environmental sustainability.
The benefits Mongolia gains from these policy improvements will be felt not only by Canadian investors, but for all foreign investors in Mongolia, along with local Mongolian companies and individuals.
In 2016, a private Mongolian company, Mongolian Copper Corporation (MCC), bought 49% of shares in Erdenet Mining Corporation (EMC). The shares were purchased from previous owners, the government of Russia, and Russian state-owned Rostec Corporation. Described by Rostec as, “valued at a market premium,” The purchase initially attracted public criticism as to how it was conducted.
A task force, lead by Sh. Radnaased Head of the Mongolian Parliament’s Standing Committee on Law (SCL) investigated the transaction and found that MCC had paid over USD 400 million for the stake utilizing a pattern of illegal corporate structure ss and illegal financing arrangements. The transaction violated several provisions of the Mongolian Constitution and statutory laws. The SCL made a proposal this year to transfer the 49% stake in EMC to the Mongolian Government. The Mongolian Parliament has passed a resolution endorsing this course of action.
The sale to MCC was approved by the former government, the day before new parliamentary elections were held. Some now say the allegations of illegal conduct are political fabrications designed to make nationalization of the shares easier by discrediting the original sale.
Though in this case the nationalized shares are currently owned by a private Mongolian company, foreign investors will no doubt take note. Though the current government has allowed foreign mining company Rio Tinto to continue with the Oyu Tolgoi mining expansion, and claims that Mongolia is open to foreign investment, it is clear that among parliament at least, there are substantial sentiments regarding government ownership of mining projects.
A new draft law to amend to the company law was submitted to the Mongolia Parliament recently. The purpose of the proposed amendments is to improve the regulation of liability limited companies with majority state ownership. There have been problems which have occurred with corporate governance of such majority state owned companies, in areas such as shareholder and board meetings and selecting members of the Board and executive management.
The amendment aims to improve legislation concerning proposals to call regular and irregular meetings of shareholders of these companies and improve the effectiveness of the regular Board of Directors meeting so as to aid is role as decision maker and to ensure normal operations of these companies.
The draft amendment includes the regulations clarifying procedures for to the call of regular and irregular meetings of shareholders of and the effectiveness of Board of Directors meetings.
Once the draft law enacted, rights, obligations and liabilities associated with the liability limited companies dominated by state ownership shall be clear and no additional funding from state budget shall be required for enforcement of this law. We see this as a positive step to encourage independent decision making among leadership of key state owned enterprises, which are the primary vehicles by which Mongolia facilities and draws profits from several of its major mining operations.
The Mongolian mining industry is a big part of the firm’s client base. Of course, mining in Mongolia is a very carefully regulated sector. Mongolian mining companies require a special mining license to legally manage a mine or conduct geological exploration activities. In some cases, a valid mining license may be revoked by the government. It is important to be mindful of these circumstances so that steps may be taken to avoid such a risk.
The State administrative agency will revoke a mining and exploration license on the following grounds:
One of the general requirements to hold exploration and mining license are that the legal entity holding the mining license, should be incorporated under the laws of Mongolia and must be Mongolian taxpayer for the entire duration of a valid license. Without meeting this requirement will be one of the grounds to be revoked the licenses. If a company is not paying correct taxes, it is at risk.
Another important requirement is to pay license fees on time as specified in the law. The amount of the license fee will be calculated on the basis of the measurements of the real estate covered by the license. Timely payment of the required license fees will be determined by the date of the transaction as recorded at the bank. The license holder must pay the license fees each year in advance, on or before the anniversary date of the issuance of the license. If the fee is not paid in advance, the company will be levied fines of 0.3 percent of the annual payment amount for each day overdue. If payment is overdue for 30 days or more the license is at risk of being revoked.
Where a designated area for exploration or mining has been reclassified as a “special purpose territory” by a decision of the Government, or it has been prohibited by the law to explore or mine in such area, the government may compensate the mining and exploration license holder, and duly revoke the license ;
If a company holding an exploration license is not conducting expected exploration activities, as indicated by annual exploration expenditures being lower than the expected minimum cost of exploration, the license for such exploration may be revoked.
A license may be revoked if environmental authorities determine the license holder has not adequately carried out its environmental conservation duties.
Where a designated area for exploration or mining has been identified as a cultural heritage area, the license will be revoked.
If it is determined that the license holder has breached obligations under Mongolian Law as it relates to fresh water conservation, the license will be revoked.
Britain and Mongolia this week signed a new memorandum of understanding targeting the mining sector. The two countries pledged an exchange of technology and expertise, and deepening ties in the mining sector.
The agreement, recognizes “the spirit of cooperation that exists between the respective countries” and demonstrates a desire on both sides to “to promote closer cooperation in the extractive sector”. The MOU was signed by the two parties at a Mining conference held in UK.
Future cooperation is expected to cover technology transfer, education, and financing. This is good news for the mining sector in Mongolia, which relies on foreign technology, expertise and financing to develop its vast mining resources.
Oyu Tolgoi, the largest mining project in Mongolia, is managed by UK based Rio Tinto.
A draft of the 2017 budget for Mongolia is approved including a budget framework and an overview of policy through 2019. The budget projects a 9.1% deficit for 2017.
The budget expects economic growth of 3% in 2017. In the interests of maintaining a stable tax environment for companies, taxes are not expected to increase. The government aims to improve infrastructure in the mining sector, move forward in large mining projects and generate budget revenue by increasing construction and investment.
The government’s operating expenses are set to be cut by 1% over 2017. At the same time, money has been set aside for loans and scholarships for top students, as well as funding for private and public colleges.
There are also steps included to minimize the deficit, for example, operating expenses for state organizations will be cut. Each organization will receive a cut of 10% to 100%, depending on the organizations function. Expenditures for a number of state funded programs and events will be reduced by 410 billion MNT.
Mongolian parliament has approved the reduction of the number of domestic bonds issued and will promote economic growth by taking steps to ensure proper spending of funds received from foreign loans.
These measures, to limit the deficit, to promote large mining and infrastructure projects, and investing in Mongolia’s schools and students, are all positive steps for the country at a time when the overall economy has slowed due to global economic forces. If the increase in mining and infrastructure projects proceeds as expected, Mongolia could return to double digit growth in the coming years.