Mongolian murmurs rattle miners

Vancouver – Although preliminary, reports of proposed amendments to Mongolia minerals and mining policy sent ripples through the equity markets of many explorers active in the central Asian country.

The country’s main English language newspaper, the UB Post, recently featured a story titled “Mining and mineral law may multiply costs”. The article reports that the Ministry of Trade and Industry (and Prime Minister Ts. Elbegdorj, although not confirmed) introduced draft amendments of the Mineral Resources Law to parliament. Both the cabinet and parliament are scheduled to review and discuss the proposals over the upcoming weeks.

There are two reported versions of the proposed royalty and tax plans, both having a fixed 2.5% royalty (the same as under the current policy).

Additionally, the article states that both plans would see foreign-owned companies become required to pay either a 15% or 30% income tax and that under the 15% income tax plan, an additional export tax may be tabled. This portrays a false inference that companies do not pay taxes, where in actuality they already pay a 15-30% tax on producing operations, hence no real change is occurring with this item. The proposed tax rate amendment is in reality to be applied to Mongolian operators to essentially level the playing field for all.

Trade and Industry Minister S. Batbold described the amendments as targeting four general issues:

• Ensuring Government intervention in larger, strategically significant deposits;
• Increasing transparency of the exploration licence process;
• Setting licence, royalty and export tax rates; and
• Table an environmental reclamation policy.

Also contained in the draft amendments was the more surprising item, the State would now hold rights to own up to 30% of any mineral deposit, whereas previously, no level was defined. There were no specifications as to whether the government would purchase or simply take this interest, nor whether it would be participatory or not. It would reportedly determine its interest level, on a case-by-case basis, upon analysis of a number of parameters including infrastructure, reserves, geology and mineral valuations.

The draft Government ownership rights are keyed to minimum threshold parameters based on deposit size. Coal deposits of at least 500 million tonnes, copper deposits containing at least one million tonnes (2.2 billion pounds) of contained metal and one-million oz. plus gold deposits were tabled in the proposal.

The suggested policy change would also see the licensing procedure change to utilize an auction system.

The news article continues that the draft new policy will see a ten-fold increase in exploration licence fees during the initial three years and a three-fold increase in mining licences. Minister Batbold is also attributed as stating that local water usage fees, to local governments, may increase up to 20-times.

As news of the draft amendments emanated through the junior and senior markets, the effect was immediately felt in share values of Mongolia’s foreign explorers and developers. Almost across the board, shares of Ivanhoe Mines (IVN-T, IVN-N), QGX (QGX-T, QGXLF-O), Western Prospector Group (WNP-V), Entre Gold (ETG-V, EGI-X) and International Uranium (IUC-T) fell from between 4-to-18% on strong volumes.

Companies were quick to respond to the story to quell investor concerns. Ivanhoe issued a news release clarifying that the proposed amendments remain very preliminary and it expects to continue in its dialogue towards developing a fair mining policy.

QGX, in the process of closing a $35 million public offering, hosted an impromptu conference call to address the issues and proposals, citing no real surprises other than the Government’s possible 30%-interest rights.

It very much appears that Mongolia, and its burgeoning mining industry, is cutting its teeth as it moves forward towards potential development of many of its mineral deposits.