Mongolia introduces amendments to the Minerals related laws
On 18 February 2015, the Parliament of Mongolia adopted 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", together with the Amendment to Law on Rule “Amendment Laws") which are expected to be available for public upon expiration of the term of veto that might be exercised by the President of Mongolia as stated in the Constitution of Mongolia. Given the importance and long waited development in the minerals sector, we set out below the main changes contemplated by the Amendment Laws based on the drafts submitted to the Parliament. Please note that our comments below remain subject to review of the finally approved laws when they are published on State Gazette.
Amendment to Law on Rule
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") has become one of the most famous legislations in Mongolia for the reason that its implementation has never been adequate due to issues relating to the compensation for license holders.
The Amendment to Law on Rule is aimed to give opportunity to such license holders to continue their mining operations, if they provide 100 per cent guarantee for the environmental rehabilitation and apply for a permission to the Mineral Resource Authority of Mongolia (the “MRAM") for resuming their activity within 3 months after the Amendment to Law on Rule comes into effect.
The Amendment to Law on Rule introduces new Articles 3 and 4, and revises Articles 1 and 2, respectively. For the purpose of enforcing the Amendment to Law on Rule, a new Article 56.1.8 will be added to the Minerals Law under which the violation of the Amendment Law on Rule and an agreement concluded in accordance with such law will be considered as a ground to revoke the license by the MRAM.
Amendment to Minerals Law
Pursuant to the Minerals Law, the state may participate up to 50% jointly with a private legal entity in the exploitation of a minerals deposit of strategic importance 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.
The Government of Mongolia (“GOM"), the initiator of the Amendment to Minerals Law, expressed that there is a need to impose the royalty on minerals deposit of strategic importance rather than holding the shares of such deposit. When the state share is replaced with royalty, it is expected that the state benefit from mineral deposits of strategic importance will increase by its present value and it will be more stable for 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 state budget.
Accordingly, the key concept of the Amendment to Minerals Law is that if the parties agreed to transfer the percentage of the state share in minerals deposit of strategic importance upon the approval of an authorized organization, the party that receiving the state share (the license holder) has to pay the royalty by percentage approved by GOM. In other words, the license holders for a minerals deposit of strategic importance have the right to choose between keeping the state with its share holding or replacing it with the royalty.
These Amendment Laws will come into effect after 10 days upon its official publication by the Parliament of Mongolia on the State Gazette. We will provide a detailed summary on Amendment Laws when they are officially published.
 State Gazette is the official publication of the Parliament Secretariat where laws are officially published.
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