Mongolia has been experiencing a boom in its mining sector, which brings new opportunities as well as major challenges to future investors. 2009 brought two significant events in Mongolian mining sector.
Mongolia to Repeal Windfall Profits Tax
In August 2009, the Mongolian parliament (The Great Ikh Hural) voted to abolish the windfall profits tax on copper and gold effective 1 January 2010. The windfall profits tax, which was introduced in 2006 and imposed a 68% tax on the portion of the metal sales price (defined by reference to the London Metal Exchange) in excess of US $2600 per ton of copper and US $850 per ounce of gold.
A decision to repeal the windfall profits tax is surely to be welcomed by foreign mining companies doing business in Mongolia.
The government to sign for the Oyu Tolgoi project
Following the abolishment of the Windfall profits tax, the Mongolian government has signed a long-awaited investment agreement with Ivanhoe Mines Ltd. of Canada and Rio Tinto Ltd. of Australia concerning the development of the Oyu Tolgoi copper and gold project, which is located in southern part of Mongolia. According to the agreement, the production is expected to commence in 2013 with a five-year ramp up to full outfut.
The Oyu Tolgoi deposit is regarded as the world’s largest undeveloped gold and copper deposits, which is estimated to produce in excess of 450,000 tonnes of copper and 330,000 ounces of gold per year, with a 45 year mine life, and is one of the largest investments in Mongolia since the end of the Soviet era. Under the terms of the investment agreement and associated shareholders’ agreement, the government of Mongolia will own 34% of Ivanhoe Mines Mongolia Inc LLC, the license holder of the Oyu Tolgoi project.
After 6 years in the works, it is believed the Oyu Tolgoi investment agreement will set a precedent for future foreign mining company investments in Mongolia and it is believed the project will increase Mongolia’s GDP by 34% annually.
Mr. Edward Lehman, managing director of LEHMAN, LEE & XU Law Firm, commented on windfall profits tax that “Mongolian authorities have made important change by repealing the windfall profits tax to grow future investments in its mining sector.”
Lehman, Lee & Xu Law Firm is regarded as one of largest commercial Law Firms in China maintaining offices in Beijing, Shanghai and Shenzhen. The mining team of the firm advices to its clients all sort of legal advices relating to obtaining the exploration and mining licenses and its procedural works.
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