19.11.2013 outlining government policies and long term plans for mongolia’s mining sector,...

Outlining government policies and long-term plans for Mongolian mining sector

Khurelbat. A Head of International Cooperation Division, Ministry of Mining, Mongolia

Mongolia 2013 Investment Summit, Hong Kong1

Mongolia – Key Facts

Land area 1 564 116 sq.kmPopulation 2,918,579 (as of October, 2013)Literacy rate 97.5%Currency Mongolian tugrug (MNT)Exchange rate MNT 1,700.00 per USD (as of October, 2013)Inflation rate, YOY

8.4% (as of September, 2013)

GDP USD 11 billion (as of end-2012)GDP per capita USD 2,562 (as of end-2012)Trade balance USD 163.1 millionExports USD 371.2 millionImports USD 534.3 millionMain exports Coal,copper, gold, zinc, crude oil, molybdenum, livestock, animal

product, cashmere, wool, textilesMain imports Machinery and equipment, cars, fuel, food products, industrial consu

mer goods, chemicals, building materials 2

Mission

The Ministry’s Mission is to add value to the natural resourceassets of Mongolia: This will be achieved by the introduction ofadvanced safety technologies, development of responsible andtransparent mining practices, policies, regulations and proceduresthat encourage compliance with the law, environmentally friendly,healthy and socially acceptable mining operations to mutualbenefit.

This mission will improve long –termlivelihood security, enhancethe quality of life of Mongolians, accelerate socio- economicdevelopment, and promote competitive and sustainable growththrough creating and supporting value added production.

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ORGANIZATION CHART OF MINISTRY OF MINING

MINISTER

VICE MINISTER

STATE ADMINISTRATION AND MANAGEMENT

DEPARTMENT

STRATEGICPOLICY, PLANING

DEPARTMENT

MONITORING, EVALUATING AND

INTERNAL AUDITINGDEPARTMENT

ECONOMY, FINANCE AND INVESTMENT

DIVISION

GEOLOGICPOLICYDIVISION

FUELPOLICYDIVISION

MININGPOLICYDIVISION

STATE SECRETARY

MINERALRESOURCESAUTHORITY

PETROLEUMAUTORITY

GOVERNMENT IMPLEMENTINGAGENCIES

LEGAL DIVISION

INTERNATIONAL COOPERATION

DIVISION

COORDINATION OF POLICY

IMPLEMENTATIONDEPARTMENT


• Mongolia’s GDP growth rate averaged 8% during 2005-2012.

• Mining and agriculture are main industries, 20% of GDP

0%

20%

40%

60%

80%

100%

Composition of GDP, by sectors

Other services

Real estate, renting

Transport & communication

Wholesale & retail trade

Const ruction

Manufacturing

Agriculture

Mining

Source: National Statistical Office of Mongolia

8.5

10

.7

17.3

-5051015202530

-

2.0

4.0

6.0

8.0

10.0

12.0

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

GDP

GDP, at current prices, bln USD

Real GDP growth, %


5


• Coal exports went from virtually zero in 2000 to over 18.5 million tones in 2012.

• Mongolian economy is expected to grow on average by 10 percent each year.

• GDP per capita is expected to reach 5000 USD by 2013.

4.8

4.4

6.6 6.7

-4

-2

0

2

4

6

8

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

Foreign trade, bln USD

Export

Import

Deficit

Source: National Statistical Office of Mongolia, The Bank of Mongolia

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Mining sector in Mongolia

• Mining is the most important economic sector in Mongolia, accounting for 22 percent of GDP, 61 percent of industrial value added, and 94 percent of export earnings.

• Major export-related minerals include copper, molybdenum, gold, coal, and fluorspar concentrates. The country also produces limited amounts of tungsten, salt, clay, lime and aggregates.

22%

22%

61%

64%

89% 94%

0%

20%

40%

60%

80%

100%

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

Mining share in economy

Share in GDP

Share in Industrial output

Share in Export


7


• Investment in mineral sector is growing dramatically in last years.


112 163183

819

4083 4100

260324

791

3154

3651 3654

0

1000

2000

3000

4000

5000

Investment (million USD)

Production

8

9

№ Minerals 2013.01.01

1 Gold, t 2459.5

2 Silver, thous.t 27.9

3 Copper, mln.t 83.5

4 Molybdenum, thous.t 972.4

5 Zinc ore, mln.t 36.6

6 Iron ore, mln.t 1088.9

7 Tin, thous.t 50.9

8 Lead, thous.t 2039.8

9 Coal, bln.t 23.0

Reserves of selected minerals

10

Major commodities Unit 2010 2011 201220122011,%

Mining and quarryingCoal thous.t 25 246.4 30 940.1 28 561.0 92.3Copper, with concentrate thous.t 522.0 513.7 517.9 100.8Copper concentrate with 35%

thous.t 357.1 347.4 347.6 100.1

Molybdenum with t 4 677.1 4 163.1 4 050.2 97.3Molybdenum concentrate with 47 %

t 4 348.0 3 977.0 3 933.9 98.9

Gold kg 6 037.1 5 702.6 5 995.0 105.1Iron ore thous.t 3 203.2 5 678.3 7 561.4 133.2Fluor spar concentrate thous.t 140.7 116.4 157.2 135.1Zincum concentrate thous.t 112.6 104.7 119.1 113.8

ManufacturingCopper 99% t 2 746.2 2 388.7 2 281.7 95.5Metal foundries thous.t 61.8 55.4 57.0 102.8Steel casting thous.t 3.8 3.6 4.3 121.5Electric wire t 147.3 1 263.0 1 414.5 112.0

MINING PRODUCTION OF MONGOLIA, (the end of the selected years)


1091 1,253

4111

2,239

5202

3,492

0

1000

2000

3000

4000

5000

2008.XII.31 2009.XII.31 2010.XII.31 2011.XII.31 2012.XII.31 2013.III.01

Number of special mining license, 2008-2013 OperationExplorationTotal

11

From exploration to operation (mining)

Revision of the Legal environment on mining industry

Laws passed by Parliament of Mongolia:

•Law of Mongolia on Licenses of Business Activities is amended on 7 February’ 2013;

•Law of Mongolia on Petroleum Products is amended on 7 February, 2013:The main points ofthe amendment are to separate the import, wholesale and retail petroleum product licenses that mustbe obtained individually, although a person may hold all three. Also, it proposes an inventory ofreserves petroleum products.

•Law on Control on Turnover of Explosive Substances Blasting Tools is amended and adoptedon 31 January, 2013.

–Added an article that a Mongolian citizen or an entity must own at least 51% of ExplosiveSubstances Blasting Tools manufacturing industry.

–Added an article that an entity involved in the business of explosive substances blasting toolsmust hold operational risk insurance, and life and health insurance.

•Investment law of Mongolia, Oct. 2013–The purpose of this Law is to protect the legal rights and interests ofinvestors in the territoryof Mongolia, to establish a common legislative guarantee for investment, to encourageinvestment, to stabilize the tax environment, to determine the rights and obligations of investorsand the competences of a government body related to investment and toregulate other relationspertaining to investment.

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New Investment Law, 2013

The Key Factors of the new Investment Law:

1. More Liberalized Market Condition• Eliminates approval system to foreign investors and replaces it with registration

procedure.• Terminates the SEFIL which was requiring approvals for foreign private owned

investors from the Government.• Promises the same guarantees and protection to both Domestic and Foreign Investors.

2. Business Friendly• Reduces starting a business procedure at least 30 days• Creates a state agency to serve investors in many ways• Reveals possible tax and non-tax state supports and incentives to investors

3. Increasing Efficiency of Investment• Facilitates to follow up real projects in economy• Projects need to be qualified with certain criteria/Environment, Know-How, Jobs e.g.,/• Increases responsibilities of both state and investors

4. Towards Economic Diversification• Regional and sectors classification in order to diversify the economy as a whole.• Helps Decentralization and Urbanization to rural areas 13

Challenges

• Political:

– Social license to operate: Educate public and local community;

– Environmental issue management;

– Stakeholder relationship: coordinates private and government sector;

– Enhance institutions: skills shortage;

– Professional journalism;

– Transparent, predictable, reliable and accountable rules and regulations.

• Economic:

– Revenue management;

– Global commodity price volatility;

– Lack of economic diversification and dependence on minerals sector and world commodity prices;

– Expansionary fiscal policy pressures and high inflation.14

New laws on approving stage:

•Mongolian National Policy on Mineral Resources. (main principles:open,transparent, responsible, support public-private partnership, good governanceand mutual beneficial, nondiscrimination for investors, work and health safety,introducing international standard, legal improvement based on scientific surveywith open discussion among stakeholders)

•Law of Mongolia on Common Minerals.

•Law of Mongolia on Increasing Transparency in Gold Trade.

•Renewed Law of Mongolia on Petroleum.

Drafting stage:

•Amendment to Law of Mongolia on Mineral Resources.

•Amendment to the Law on temporarily banning issuance of new miningexploration license due to the utilization of common minerals.

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Policy and legal environment of Mining sector

• New State Policy on the Mining Sector, Draft amendment to the Mineral law, Draft amendment of Petroleum Law are discussing by the Parliament for approval:� Open and responsible governance;� Transparent corporate governance;� Non-discrimination of investors;� Open access to geology and geo-science information;� Better operational and health safety regulations;� Research and stakeholder consultation reflecting towards participatory decision making;�Supports solid genuine mining; �From liberal activities to standardized improvement.

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Draft of the State Policy on Mineral sector

• The document has four main sections: rationale, key principles, policy priorities and implementation.

• The document defines the main priorities of different phases or segments of the mining industry: legal and policy framework, geological research and geo-science information, mineral extraction, mineral processing, environmental protection and rehabilitation, and mineral resources management.

• In the legal and policy framework section two priorities are particularly notable:

– Supporting artisanal and small-scale miners’ efforts to work legally under cooperative work arrangements;

– Supporting Extractive Industries Transparency Initiative (EITI) and Responsible Mining Initiative, and improving regulations on social, economic and environmental assessment.

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Draft amendment of Mineral Law

• Law proposes to change the licensing structure and process to support genuine miners;

• Update mineral classification to the international standard;

• Provides the concept of Deposit Development Agreements (with central government in form of IA, PSC, Service Agreement) and Local Development Agreements;

• Processing licenses issues in the following circumstances (i) by application; or (ii) tender bidding. The term of issue will vary depending on the results of the supporting feasibility study.

• Independent State Professional Committee of Mineral Resources

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Draft amendment of Petroleum Law

• Provides broader understanding on roles and responsibilities of state organizations;

• A clear commitment on ensuring community involvement and incentives to communities;

• Improves local governance;• Clarifies royalty and percentage of special license payment,

discount and exemption, the granting, suspension and invalidating the special license and control on exploration and utilization of oil;

• Clarifies the payment allocation for use of resources of oil and unconventional oil;

• Legal framework for new sector: unconventional oil.19

Future Action Plan

• By the Parliament resolution #27, 2007: 15 deposits added to the strategic mineral deposits list and approved the 39 deposits list for a later solution.

• The new government made the resolution #100 to: develop feasibility studies of strategic mineral deposits; determine an appropriate government ownership share; add the deposits those where exploration work was done by government funds and add then the strategic mineral deposits list.

• Final production projects: Steel making, Copper smelting, Phosphate fertilizer, Coal processing and gasification, Oil refinery, Asgat silver deposit project and Uranium project etc 24 big projects

20

Goals of Mining Sector

• Increase competitiveness: market share,reliable partner;

• Profitability improvement: costoptimization (transport and energy cost);

• Commodity diversification:• horizontally – unconventional oil, rare earth

metals;

• vertically – higher level processing (coal, ironore processing)

• Cost reduction of energy sector;

• Enhance co-relation between taxation andmineral sector policy;

• Commitment to setup sustainable,transparent, accountable regulations. Source: ICF/World Bank Doing Business 2014 report

21

Ease of Doing Business 2014 rank out of 189 countries

Protecting investors

22

Paying taxes 74

Registering property

27

Getting credit 55

Enforcing contract 30

Doing business,Overall

76

Future perspective

22

• Clear policy and legal environment;

• Supporting private investment and investing to infrastructure;

• Competitive tax environment and improve fiscal policy;

• Diversification of extractive mineral;

• Improvement of mineral processing levels- value added products;

• Efficient Revenue management;

• Support the geological survey and promote mineral exploration;

• Mineral classification;

• Support and cooperate with dynamic growing human resource.

• Trading with two neighbor partners and transit to 3rd market

• Integrated standards shall be introduced.

Key Actions Towards Policy Improvement

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• Very favorable investment environment – stable and lowest tax

• “Lessons in Learning” from experiences: Agricultural industry to mining industry (since 1990, mining sector – more than 20 % of GDP)

• Member to CRISCO and introducing international standards in to mineral reserves

• “Mining Diplomacy” international cooperation direction to utilizing mineral resources to support economic growth.

• Potentials:

• Increasing operational licenses issuance in order to support industrialization and processing plants of minerals

• Huge potential of subsidiary service sector following big mining and industry park projects

Ministry of MiningMongolia

[email protected],[email protected]

19-20 November 2013, Mongolia 2013,

Investment Summit

Hong Kong

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