Amendments to Minerals related laws are officially released
The Parliament of Mongolia has officially published the Amendment Law to the Law on the Rule for Compliance of the Law on Prohibition against Exploration and Mining in Headwater Areas, Protected Zones for Water Reserves and Forest Lands of 2009 (the “Amendment to Law on Rule”), and the Amendment Law to the Minerals Law of 2006 (the “Amendment to Minerals Law” which were adopted on 18 February 2015.
Amendment to Law on Rule
Under the Law on Prohibition against Exploration and Mining in Headwater Areas, Protected Zones for Water Reserves and Forest Lands enacted on 16 July 2009 (the “Prohibition Law”), some mining and exploration licenses have been revoked.
Due to such revocation, the Government of Mongolia (the “GoM”) owed an obligation to compensate the license holders as stated in the Prohibition Law. For the purpose of reducing the expenses by GoM on implementation of the Prohibition Law and allowing safe mining operation on such licensed areas, the Amendment to Law on the Rule sets forth below key regulations.
1.If a license holder who obtained a license within the restricted area under the Prohibition Law before 16 July 2009 wishes to continue its operations then it can apply to the Mineral Resource Authority of Mongolia (the “MRAM”) to resume its operations within 3 months since the date of effect of the Amendment to Law on Rule, which will be expired on 16 June 2015.
2.On the basis of the foregoing application, the Ministry of Environment, Green Development and Tourism, the MRAM, and governor of respective aimag must enter into an agreement with the license holder. The GoM also approves the template of such agreement and its implementation will be inspected by the professional inspection authority.
3.If an affected license holder does not apply to the MRAM or conclude an agreement within the stipulated timeframe, a license will be revoked and no further exploration or mining license will be issued on that area to anyone again.
4. Article 3 of the Amendment to Law on Rule provides that the GoM has to approve guidance for regulating following issues:
-revoking licenses issued within the headwater areas
-taking relevant measures with respect to the licensed areas on which mining operation has been commenced within ordinary protected zones for water reserves (200 meters from riverbank); and
-implementing environmental rehabilitation
5.Once signed and issued, agreements and guidance mentioned above will constitute regulations that require the license holders to provide 100 percent guarantee for the environmental rehabilitation in advance. Accordingly, they will also serve as grounds for obligations and authority of the professional inspection authority in respect of the environmental protection.
6.A mining license holder who has obtained a mining license within the forest land is required to comply with the several provisions of the Law on Forest; and if the areas of exploration license overlap with the protected areas of ordinary protected zones for water reservoirs or forest land, the relevant issues will be subject to the Law on Forest and the Law on Water.
7.If a mining license holder does not perform environmental rehabilitation on the mining site, the payment for environmental rehabilitation will be reimbursed by the respective license holder subject to its income earned during the mining operations period.
Amendment Law to Minerals Law of 2006
Pursuant to the Minerals Law of 2006 (the “Minerals Law”), the percentage of the state share in a minerals deposit of strategic importance (“Strategic Deposit”) is determined by an agreement on exploitation of the deposit.
Under the Minerals Law, the state may participate for up to 50% jointly with a private legal entity in the exploitation of a Strategic Deposit where state funded exploration was used to determine proven reserves and such percentage of the state share is determined by an agreement on exploitation of the deposit considering the amount of investment made by the state.
Further, the state may hold up to 34% of the shares of the investment made by a license holder in a mineral deposit of strategic importance where proven reserves were determined through funding sources other than the state budget and the percentage of the state share is determined by an agreement on exploitation of the deposit considering the amount of investment to be made by the state budget.
GoM, the initiator of the Amendment to Minerals Law, considers that the Amendment to Minerals Law provides the state with the alternative to impose the royalty on the Strategic Deposit rather than holding the shares of such deposit. When the state share is replaced, it is expected that the state benefit from the Strategic Deposit will increase by its present value and it will be more stable for a longer period. Moreover, the GoM believes that the royalty from mineral deposits of strategic importance will be one of the most reliable revenues for composing the state budget.
Accordingly, the Amendment to Minerals Law added a whole Article, No. 471, to the Minerals Law and related changes in Articles 5.3 – 5.5 of the same law.
The key concept of the Amendment to Minerals Law is that if the parties agreed to transfer the percentage of the state share in the Strategic Deposit upon the approval of an authorized organization, the party that is receiving the state share (the license holder) has to pay the royalty by percentage approved by GoM. In other words, the license holders for the Strategic Deposit now have the right to choose between keeping the state share with its shareholding and replacing it with the royalty.
The Amendment Minerals Law also defines the maximum limit of the royalty rate as 5 percent which depends on specific features of the respective deposit of strategic importance.
As the Amendment to Minerals Law enabled the option to replace the state share with the royalty, the Articles 5.3-5.5 of the Minerals Law were amended to reflect the foregoing.