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HIGHLIGHTS


The allure of Mongolia: Mirage or opportunity?

Rich in 80 diverse minerals, Mongolia piques miners’ interest.

Mongolia is richly endowed with natural resources, with commodities such as copper, gold and coal making up the majority of the country's exports. Even with only 15 percent of the country fully mapped, the World Bank Group states that there are over 6,000 deposits of around 80 different minerals in Mongolia1. Of the 400 deposits that have been defined, 160 are in production2.

The country has a highly favorable investment climate by frontier market standards, with broad-based political stability paving the way for investor protection and a strong legal framework. Significant infrastructure development, aimed at facilitating mineral exports, should boost the country's mining sector over the coming years.

Interest in Mongolia Awakens
Mongolia's legal framework drew concerns when 106 mining licenses were revoked in 20133, and those concerns were compounded by a parliament that at times failed to consult the wider investment and business community on new legislation. However, in 2014 the country expanded the area available to mining and exploration to 20 percent (from roughly 8 percent), by lifting a 2010 ban on new licenses4.

The Mongolian government also recently resolved an ongoing dispute with Rio Tinto-owned Turquoise Hill Resources5, ending a three-year stalemate over revenue sharing and the foreign investor’s role in the Mongolia’s mining sector6.

Other recent policy changes and actions by Mongolian government have increased its attractiveness as an investment destination:

  • In a bid to revive investor interest in its mining sector, a wave of reforms to the country's 2006 Minerals Law in February 2015 and July 2014 were approved7,8,9.

  • Previously, the government was entitled to an equity interest in a mineral deposit of between 34 and 50 percent10. However, now there is an option for the government to either exercise the right to equity or impose a special royalty in lieu. This option allows the state's equity interest to be transferred to the license holder.

  • In May 2016, one of the world's largest undeveloped copper projects (Oyu Tolgoi)11, received approval for expansion. The Oyu Tolgoi mine in the South Gobi Desert of Mongolia is one of the world's largest and highest-grade copper and gold mines.

Despite periodic bouts of resource nationalism, Mongolia is expected to be more accommodating towards multinationals in the coming quarters. With China consuming about 80 percent12 of all Mongolian exports, there is room for further growth, as the government is unlikely to press ahead with policies that would further jeopardize investment in the face of China's economic slowdown. There is a view that, irrespective of the winner of the elections in June 2016, the major political parties do not have any political motivation to disturb or to bring any big large, sensitive changes into this investment agreement now13.

Footnotes:
1Cope, Louis W, Mongolia: little known mineral wealth, Mining Engineering, 1 January 2006. Factiva, Inc. All Rights Reserved.
2Taehyun Lee, Altantsetseg Shiilegmaa, Khandtsooj Gombosuren, Gregory Smith, Mongolia Economic Update, The World Bank Group in Mongolia, April 2013.
http://www.worldbank.org/content/dam/Worldbank/document/EAP/Mongolia/MQU_April_2013_en.pdf
3Frik Els, Mongolia revokes 106 exploration licences, Mining.com, 6 November 2013.
http://www.mining.com/mongolia-revokes-15139/
4Cecilia Jamasmie, Mongolia approves major overhaul to mining law, Mining.com, 2 July 2014.
http://www.mining.com/mongolia-approves-major-overhaul-to-mining-law-46645/
5Rhiannon Hoyle and Alex MacDonald, Rio Tinto in $5.3 Billion Expansion of Mongolia Project, Dow Jones Newswires, 9 May 2016. Factiva, Inc. All Rights Reserved.
6Rio's $5.3 bln go-ahead fuels hopes of end to Mongolia's hangover, Reuters, 9 May 2016. Factiva, Inc. All Rights Reserved.
7Deepali Sharma, Kincora Copper sees end to Mongolian mining licences dispute, Metal Bulletin, 29 April 2014. Factiva, Inc. All Rights Reserved.
8S.Bold-Erdene, From draft to State Policy - a long journey, The Mongolian Mining Journal, 26 February 2014. Factiva, Inc. All Rights Reserved.
9Proposed amendments to the Minerals Law, The Mongolian Mining Journal, 19 May 2014. Factiva, Inc. All Rights Reserved.
10Andrea Hotter, Mongolia draft minerals law a threat to investors, Metal Bulletin, 18 January 2013. Factiva, Inc. All Rights Reserved.
11Fawad Mir, Rio Tinto, Mongolia green-light US$5.3B investment for Oyu Tolgoi underground mine development, SNL Financial LC, 9 May 2016. Factiva, Inc. All Rights Reserved.
12As China sneezes, those closest are catching the worst colds, Macau Daily Times, 1 June 2016. Factiva, Inc. All Rights Reserved.
13Mongolia election won't impact Rio Tinto's $5.3 bln deal -mining CEO, Reuters, 11 May 2016. Factiva, Inc. All Rights Reserved.