By some reports Mongolia has one of the fastest growing economies in the world. It has tremendous natural resources in the form of copper, gold, coal and more. Mining companies from all over the world have been jockeying for a place at the natural resource rich table that is Mongolia. However, with so much going for it economically, Mongolia now appears to be on the brink of shooting itself in the foot with new legislation in the form of a new draft mining law that will in effect put a real damper on exploration and mining. If that happens, it will bring Mongolia’s economic development to a screeching halt.
The “Fox Business” website posted an article on its website on January 16, 2013 entitled, “Mongolia’s Draft Mining Law Threatens Investment Climate-Business Group” written by Alex Macdonald and found at:
http://www.foxbusiness.com/news/2013/01/16/mongolia-draft-mining-law-threatens-investment-climate-business-group/
In his article, Mr. MacDonald reports the following about the new draft mining law.
“Proposed changes to Mongolia’s mining law threaten to undermine the economic viability of its fledgling mining sector, with negative consequences for the entire economy and future investment in the country, business leaders and investors warned.
The legislation, which includes a requirement for existing miners to relinquish stakes in projects to indigenous groups, marks a departure from the free-market principles that have benefited the country since the 1990s, The Business Council of Mongolia, the country’s largest business group, said in a four-page open letter to Mongolia’s president last week.
The legislation, if approved in its current form, will “halt current minerals exploration and development in Mongolia and greatly discourage any future investment,” The Business Council of Mongolia, which has more than 250 members, said in its open letter.
The draft law, which would replace the one signed in 2006, proposes several measures that would give the Mongolian government a firmer grip over its mineral resources while raising concerns about ownership rights and possibly lead to higher taxation. The legislation would require that mining companies hand over a stake of at least 34% in their existing projects to indigenous groups. It would also require companies to mine lower ore grades even if they’re not profitable, said Luke Lesley, head of mining at London-listed Origo Partners PLC (OPP.LN), a private equity group that owns stakes in various Mongolian mining companies…
Mining companies that currently operate in Mongolia include globally diversified miner Rio Tinto PLC (RIO), operator and major shareholder of the Oyu Tolgoi project through Turquoise Hill Resources Ltd. (TRQ.T), Peabody Energy Corp. (BTU), and Erdene Resource Development Corp. (ERD.T)…
“Passage of the Draft Law in its current form is likely to damage Mongolia’s brand as an investment destination,” the Business Council said, noting that it would lead investors in all sectors of Mongolia’s economy to re-evaluate the country’s sovereign risk profile. The end result could repel rather than attract foreign direct investment, the Council said…
Last year, politicians pushed through a law that restricts foreign ownership in key strategic sectors such as mining. The law was passed just before parliamentary elections in June in response to voter concerns that Mongolia may be compromising its sovereignty by giving foreigners too large of a stake in its key sectors. But since the elections, the government has been considering relaxing some of those rules in order to make it more business friendly…
“Passage of the Draft Law in its current form is likely to damage Mongolia’s brand as an investment destination,” the Business Council said, noting that it would lead investors in all sectors of Mongolia’s economy to re-evaluate the country’s sovereign risk profile. The end result could repel rather than attract foreign direct investment, the Council said.”
With the investment climate in Mongolia as it currently is, it is more important than ever for any company or individual contemplating doing business in, and investing in Mongolia to do your due diligence carefully before you decide to wade into the shifting sands of business law in Mongolia.
Hawkeye in China
– LEX SMITH