121225 Minerals Law Recommendations En
Click here to load reader
-
Upload
mustapbender -
Category
Documents
-
view
212 -
download
0
Transcript of 121225 Minerals Law Recommendations En
7/29/2019 121225 Minerals Law Recommendations En
http://slidepdf.com/reader/full/121225-minerals-law-recommendations-en 1/10
Submission to Office of the President
On the Draft Law “Minerals Law”, version 2012.12.05
CRSM LLC respectfully submits the following comments for consideration by the Office of the
President.
Background
CRSM LLC was established in 2010 to invest in Mongolian mining companies and to promote the
development of the Mongolian mining industry. CRSM is owned by a group of Australians each of
whom has had long careers in the mining industry. CRSM is supported in its ventures by the First
Reserve Corporation (FRC) of United States of America which is the world’s largest private equity
investor in energy and energy related projects.
The investment philosophy that CRSM and FRC have adopted for Mongolia is to invest up to 49% in
Mongolian businesses. CRSM will contribute its technical expertise; FRC will contribute the majority
of the funding required in order to foster and build sustainable Mongolian businesses. To date the
company has made 2 investments in Mongolian exploration companies and has fully funded 2
exploration seasons for each of these Mongolian companies. During the 2012 exploration season, up
to 250 Mongolian staff were engaged within the operations. These staff members have been
provided with training, experience and career opportunities not previously available to them.
CRSM and FRC seek to have a long term investment in Mongolia. We support the goals of the people
and Government of Mongolia and hope to be able to contribute to the ongoing development and
prosperity of the country. It is with this genuine desire and purpose that we respectfully wish to
raise our concerns about the draft Minerals Law that has been circulated for comment. It is our view
that the draft legislation has the potential to drive investment away from the mining sector and lose
the benefits that could be generated for the population of Mongolia. Mining requires large
investments of capital and a long term focus. Investors need a stable investment climate and
security of tenure before making these commitments. The draft legislation creates significant
uncertainty for the exploration and mining companies and is not attractive for investors. More
detailed comments are provided below for your consideration. Additionally, CRSM would be willing
to participate or contribute in any forums or committees that may be formed to undertake further
reviews of this legislation.
1. Uncertainty of tenure
In many sections of the legislation the government is given the right to acquire a license from a
license holder or take it in to state reserve and is only required to reimburse actual expenditure
incurred. The circumstances under which the government may exercise this right are too subjective
and loose and therefore create a high degree of uncertainty for the mining company. Miningoperations require large capital investments and long lead times before investments can be
7/29/2019 121225 Minerals Law Recommendations En
http://slidepdf.com/reader/full/121225-minerals-law-recommendations-en 2/10
CRSM LLC Submission on Draft Minerals Law 2
Issued 5 December 2012
recouped. Unless mining companies can be assured of security of the mining license, capital will not
be allocated to mining development in Mongolia. Reimbursement of expenditure incurred is not
adequate compensation as the company will have suffered an opportunity cost from not investing
its capital in more attractive mining locations.
Recommendation: Set out in the legislation limited specific grounds under which the government
may take back a license and set out a genuine compensation obligation rather
than a reimbursement of expense.
2. Misunderstanding of commercial mining operations
If a successful mining industry is to be developed in Mongolia it must able to be globally competitive
to attract the necessary foreign investment. In a number of areas the draft legislation appears not to
recognise the commercial realities of the mining industry. For example, the volume of economically
recoverable resources within a deposit is related to the prevailing price for the commodity. If prices
are high then a greater quantity becomes economically feasible. Similarly when prices are low, the
volume of resource that is economically recoverable reduces. Throughout the draft legislation there
appears to be an assumption that the volume of resource can be scientifically quantified during the
exploration phase and then mining operations will proceed to recover that total quantity of
resource. This assumption is evident in the Articles that attempt to ban high grade mining and define
that as an activity that has not mined the whole reserve and made it impossible to mine further the
whole of the reserve. Every mining operation in the world leaves part of the resource behind
because the cost of recovery will exceed the revenue potential for that part of the resource. Articles
69 and 70 are based on false assumptions, and they are not reflective of variables that impact
mining. While CRSM agrees that genuine high grading can destroy a deposit, the current wording is
a major concern to genuine miners.
In relation to prospecting and exploration, not all companies seek the same commodity or have the
ability to find every commodity. There does not exist the technology for a single prospecting or
exploration program to find any and all minerals within a license area. Hence some areas may be
subject to decades of exploration before a company is lucky enough to find an economic orebody.
To assume that prospecting ceases or exploration is completed and prohibited after the first
company has completed its work is a complete misunderstanding of the process.
Similarly, mining operations and methodologies are subject to variation depending on theexperience and views of the engineers and companies involved. No two companies or engineers will
undertake a mine plan in exactly the same manner. The selection of mining methods, equipment
and mine plans are commercial decisions that are taken by mining companies. The financial success
of a company depends upon the skill of the engineers and management it employs and the way they
respond to the challenges that the mining conditions create. These are commercial decisions for a
company to make and should not be subject to review or approval by regulators or authorities.
Mining companies and investors must be able to make decisions based on their own assessment of
the geological and financial factors they face. Each company will have a different approach and
produce different outcomes but this must be accepted as part of a globally competitive industry
which vies for capital allocation.
7/29/2019 121225 Minerals Law Recommendations En
http://slidepdf.com/reader/full/121225-minerals-law-recommendations-en 3/10
CRSM LLC Submission on Draft Minerals Law 3
Issued 5 December 2012
Recommendation: This concept should be deleted from the draft Law. The issue of high grading
should be managed through annual review and approvals of mine plans
submitted to the authorities.
3. Lack of clarity across the different licenses
The draft legislation outlines 4 different types of licenses: Prospecting, Exploration, Mining and
Processing. There is confusion between the Prospecting and Exploration Licenses and between the
Mining and Processing licenses and it is not clear which would apply to an early stage preparation or
washing facility operated by the mining company. The draft Mining Law reduces the maximum life of
an Exploration License from the current 9 years to a maximum of 5 years. This is not sufficient time
to conduct thorough exploration and determine whether to proceed to a mining operation. Complex
minerals ore bodies can require many years to define and companies incur enormous expenditures
in this work. The current maximum life of 9 years should be retained and the right to further
extensions be provided if the company can demonstrate that it has met all of its commitments.
Recommendation: Review the relevance of the Prospecting License and revert Exploration License
to a maximum 9 years
4. Grandfathering of current licenses granted under pre-existing law
The draft Mining Law is silent about how this law will affect existing exploration and mining licenses
that were granted under current and earlier laws. This silence creates considerable uncertainty and
risk about how the law will be implemented and its implications for both foreign and domestic
companies presently doing business in Mongolia. It is imperative that the new law should be clearabout which of its sections will be applied to pre-existing licenses, and how, and which terms of the
pre-existing mining laws will remain permitted and applicable to current licenses by the
“grandfathering” of those conditions. Only then can industry participants understand the
unambiguous intention of the government and the new law and evaluate their willingness to
continue conducting business in Mongolia.
Some examples of where the grandfathering of pre-existing specific terms and conditions should be
addressed include:
License maturity, license type, and life of license – the draft law does not address the fate of
exploration licenses currently under a pre-mining agreement, or if a 4-year old exploration
license would automatically be converted to a prospecting license.
Limits on the number of licenses held by a single entity – numerous foreign and domestic
companies currently possess more than 5 exploration and mining licenses which would place
them in immediate violation of the law. The draft law does not address how those
companies and those licenses will be treated.
The new fees, taxes, and royalties as they apply to different and changing license types as
well as type of entity doing business (e.g. single stage producer vs. vertically integrated
producer/processor) create the possibility or likelihood of double taxation for the
production of the same lot of resources.
7/29/2019 121225 Minerals Law Recommendations En
http://slidepdf.com/reader/full/121225-minerals-law-recommendations-en 4/10
CRSM LLC Submission on Draft Minerals Law 4
Issued 5 December 2012
The stability of pre-existing permits at various levels of government to conduct certain
mining-related activities, and the new jurisdiction over those permits by different levels of
government as introduced in the new law should be clearly delineated.
Recommendation: The new mining law should be specific about which terms and conditions and
for which classes licenses the current and pre-existing mining laws will be
preserved and allowed to continue as conditions precedent, or by
“grandfathering”.
5. Sequence of studies and approvals
It is suggested that the sequence of studies to be undertaken should be revised. The studies relating
to environmental impact, cultural and heritage impact, community issues and mine closure should
be completed and submitted as part of the Mining License application process rather than being
undertaken after the Mining License has been granted. This approach would enable appropriate
operating and closure conditions to be attached to Mining Licenses and deliver the best outcomes
for the Mongolian community. The proposed sequence would also allow mining operations to
commence sooner once a Mining License had been granted.
Recommendation: Make environmental, cultural and heritage, community issues and mine closure
obligations an integral element of the grant of Mining License.
6. Use of international legal formats
The Mining Law of Mongolia is a critical piece of legislation and it must be effective in order to
promote the growth and development of the country. We suggest that the Law needs to be revisedto follow international legal conventions so that it provides the framework for companies to operate
with clear direction and there is no ambiguity about the intentions of the law. Unless terms are very
clearly defined, the document will be ambiguous and both companies and regulators will be able to
apply different interpretations to the act. The government’s intention should be very clear and not
able to be mistaken or altered. Some specific examples of improvements that are required are listed
below:
Any party or person that has authority to review or approve actions under the Law needs to
be specifically named – terms such as state administration or central state administration
are not specific enough. The actual government department and the office holder within thedepartment should be named
The list of definitions needs to be expanded significantly to include all of the standards,
experts and reports that are contained within the draft law – unless the specific standard is
defined then a company is unable to comply with it. For example Article 3.1.6 – states that
mineral exploration must be conducted in accordance with proven standards – this
requirement is too general. There are many “standards” applicable to exploration work and
also resource estimation. The government cannot judge the actions of a company unless it
has provided the detailed information and guidelines that are to be followed.
7/29/2019 121225 Minerals Law Recommendations En
http://slidepdf.com/reader/full/121225-minerals-law-recommendations-en 5/10
CRSM LLC Submission on Draft Minerals Law 5
Issued 5 December 2012
When a term has a been defined in a document, it should always be spelt with capital letters
to indicate that the document is referring to the definition contained in the document and
not the general use of the word in ordinary conversation
Certificate of origin – article 7.1 refers to a certificate of origin as defined in this law however
the law does not define where or how a company obtains a certificate of origin, which
authority issues the certificate, what information is contained or how the authority can
verify that the material did originate in Mongolia. What is the purpose of this certificate and
why has it been introduced?
The draft law refers to “experts” in various articles. The law should define specifically the
type of expert and how they are to be chosen. There should also be a default appointment.
For example an expert that is required to make recommendations about geology should
hold internationally recognised geological qualifications and be a member of an
international professional association such as AUSIMM. If the parties cannot agree on the
appointment then the President of AUSIMM should be asked to make the appointment.
Similar and appropriate definitions are needed for appointment of experts in each field suchas processing, legal, rehabilitation.
Recommendation: The draft law needs to be revised to meet international legal drafting
conventions and to eliminate the many areas of uncertainty and ambiguity that
exist.
7. Levels of review
The draft legislation seeks to obtain input from the community and all levels of government.
Unfortunately the drafting contains too many reviews and involves too many levels of government.
This approach will involve huge costs for the government to manage all of the review processes; it
will cause great delays for mining companies and ultimately create avenues for corruption as people
seek to shortcut the processes. We support the need to consult with authorities and the community
as part of the Mining License application process but once the License has been granted, the level
and frequency of review should be significantly reduced. Companies should submit annual reports
outlining their compliance with regulations and the conditions attached to the Mining License but
there should not be a necessity to submit annual plans or seek government review or approval for
those annual plans.
Recommendation: Review the consultation and review obligations both pre- and post- grant of the
mining license.
8. Definitions of terms used in the legislation need to be improved and more added
The draft legislation should be reviewed and more definitions provided to give a clear indication of
what it intended. For example, the draft legislation refers to an entity and in places restricts the
activities an entity can undertake such as a maximum of 5 Mining Licenses can be held. In this
context what is an entity? Is it the specific company that holds the license or does it include all of the
related entities and the parent company of the Mining License holder? This issue needs to be
clarified and will create great risk for License Holders as the wording could be interpreted differentlyby different regulators.
7/29/2019 121225 Minerals Law Recommendations En
http://slidepdf.com/reader/full/121225-minerals-law-recommendations-en 6/10
CRSM LLC Submission on Draft Minerals Law 6
Issued 5 December 2012
Article 66 sets out that a tax paying legal entity is entitled to hold a license but does not explain what
is meant by “tax paying”. Does this mean that a company must be making profits and paying income
tax before it can hold a license? If so, companies set up and funded specifically to undertake
exploration and mine development would be excluded from holding licenses. This outcome would
result in the loss of investment in exploration and mine development and is not consistent with the
way that the mining industry funds new developments.
Other examples of definitions that need to be provided are:
a. What is meant by the terms State Administration, central state administration and state
central administration, State Administrative Authority – which departments or parts of
government are these and how can an investor or company deal with these bodies if the
correct names and titles are not supplied?
b. Who has ultimate authority for decision making? It is normal for the Mining Minister to
have responsibility for decision making and to exercise authority on behalf of the
government – the officers responsible for decision making need to be nominated in the
Mining Law so that companies know who will be making decisions and so that a person
can be held accountable to the government and people of Mongolia for decisions that
are made.
Recommendation: Clarify and increase the number of definitions and clarify the decision making
authorities.
9. Restrictions on number of licenses that can be held
We are concerned about the proposed restriction on the number of Mining Licenses an entity may
hold. It is not clear why this restriction has been imposed and as already stated, it is not clear what is
meant by the term “entity”. Does this mean that the Government does not want companies such as
Rio Tinto or BHP to hold no more than 5 Mining Licenses? If so, this appears to be a strong
disincentive for large mining companies to invest in exploration or development in Mongolia.
Conversely, holding more than one license may be beyond the financial capability of many local
companies.
In many cases, a mining project may consist of a number of Mining Licenses in order to accumulate a
sufficient quantity of resources to justify the capital investment for a project. That is, a single Mining
License may not contain enough resources to justify the capital investment however the
accumulation of several Mining Licenses covering the same commodity may provide the necessary
scale to support an investment. The largest Iron Ore mines in the world are operated by BHP, Rio
Tinto and Vale each holding many separate mining licenses. The licenses in those areas are
accumulated to create vast projects of huge value to Brazil and Australia. Mongolia should
encourage such investment and development of its own natural resources and not limit the
potential opportunities.
Similarly, if a company has established the infrastructure in Mongolia to support mining operations,
why would the government wish to restrict that company to only 5 Mining Licenses? If the
appropriate studies and reviews are conducted prior to granting the Mining Licenses, the
development of additional resources will provide investment and opportunities for the Mongolian
7/29/2019 121225 Minerals Law Recommendations En
http://slidepdf.com/reader/full/121225-minerals-law-recommendations-en 7/10
CRSM LLC Submission on Draft Minerals Law 7
Issued 5 December 2012
community. Again a large company such as Rio Tinto or BHP may seek to expand its operations in
Mongolia and expand the range of commodities that it pursues. The government should only be
concerned about formulating the regulations that will apply to exploration and mining operations
and then ensuring the compliance with those regulations. If good regulations are in place to ensure
that legitimate, well qualified companies acquire mining licenses and that they operate within the
rule of law, then the quantity of licenses held by an entity should not be a concern.
Recommendation: Remove any artificial limit on the number of licenses an entity may hold and
take steps to ensure that entities are diligently undertaking exploration and
mine development activities.
10. Article 72 – Obligation to use domestic companies
CRSM strongly supports the desires of the Mongolian people to benefit from the development of its
mining industry. Our company preference is to employ local Mongolian staff and we have invested in
training and development of our employees which we hope will provide them with successful andrewarding careers. We also acknowledge the concerns that the Government and people of Mongolia
have about the importation of cheap foreign labour rather than the use of Mongolian employees.
However we suggest that the proposal in Article 72 to require 60% of minor and major operations to
be subcontracted to domestic companies is a mistake which will discourage investment and will not
achieve the desired outcomes.
a. Why should companies be required to subcontract tasks to other companies? Some
companies may choose to use subcontractors but others would prefer to engage their
own local employees instead.
b. Currently there are not enough local Mongolian companies with the necessary skills to
satisfy this requirement. For example much of the exploration drilling that is conducted
in Mongolia is carried out by foreign companies using Mongolian labour. The
consequence of the draft legislation is that foreign owned service providers would not
be selected to work on Mongolian projects. These companies would be likely to stop
operating in Mongolia and there would be significant loss of employment and capability
and exploration companies would not be able to conduct their work.
c. The nominated level of 60% will be hard to measure and monitor – does the 60% refer
to the financial cost of the work, the physical measurement of the work such as metres
drilled, or does it relate to number of people involved?d. The foreign ownership of service companies should not be a concern to the Government
as these companies are providing investment and training in Mongolian employees. The
Government already regulates the use of foreign labour through its visa system and this
should be sufficient.
CRSM suggests that companies will seek to obtain the best skills at the lowest cost.
Recommendation: Remove the obligation to use subcontractors. The government should focus
on the training and development of Mongolian people so that they can
acquire the jobs that will be created by the development of the mining
7/29/2019 121225 Minerals Law Recommendations En
http://slidepdf.com/reader/full/121225-minerals-law-recommendations-en 8/10
CRSM LLC Submission on Draft Minerals Law 8
Issued 5 December 2012
industry. This obligation for training and development of local people
should be imposed on all companies operating in Mongolia.
11. Chapter 12 Rehabilitation
CRSM recognises the natural beauty of the Mongolian environment and supports the requirementfor the highest standards of rehabilitation to be adopted for all mining operations in Mongolia.
Chapter 12 of the draft Mining Law does not set out a process that will achieve the desired
outcomes and should be re-drafted. The Mongolian Mining Law should set out the principles that
rehabilitation work must adopt such as:
a. That rehabilitation work must create a stable and sustainable environment
b. That the post-mining land use should be agreed before mining commences and this
should form the basis for the rehabilitation plan incorporated into the requirements of
the Mining License. While the Mining Industry in Mongolia is still developing we suggest
that this determination should be managed at the national level to ensure it complieswith national strategic plans
c. That where possible rehabilitation should occur progressively throughout the life of the
mine – although this is not always necessary or feasible
d. That all companies must demonstrate the financial capability to undertake the necessary
rehabilitation work before a Mining License is granted
e. The government should enforce companies to contribute a financial bond to cover the
cost of rehabilitation as per Article 119
We suggest that the requirement to plant 100 trees to replace each tree that is removed is
unnecessary in the Mining Law and that those types of decisions should be made when designing therehabilitation plan.
The rehabilitation plan should be developed before mining commences and should cover the entire
life of mine and the work to achieve the agreed post-mining land use. Once this plan is approved
there should not be a requirement to submit annual plans or have them reviewed by officials.
The number of people and bodies involved in approval and review of rehabilitation plans is far too
many and will delay the processes. The cost of the reviews to be conducted by local and central level
government will be very high if the current process is adopted.
Article 119 sets out the requirement to deposit the estimated annual cost of rehabilitation work in a
special bank account. The legislation is not clear and does not explain who controls this account or
how the money can be accessed by the company to fund the rehabilitation work. Article 126 states
that the money in the account will be returned once the rehabilitation work has been completed.
This is unacceptable as the company will effectively be funding the work twice. Further the need to
deposit monies for rehabilitation work in the bank in advance will create difficulties for companies
that will be relying on cash flow generated during the year to fund rehabilitation work.
There is too much uncertainty about the review and approval process in Chapter 12, and when
combined with the financial impositions is likely to discourage companies from investing in new
mines
7/29/2019 121225 Minerals Law Recommendations En
http://slidepdf.com/reader/full/121225-minerals-law-recommendations-en 9/10
CRSM LLC Submission on Draft Minerals Law 9
Issued 5 December 2012
Recommendation: A thorough re-evaluation of the rehabilitation process should be undertaken
before commencing a full re-draft of Chapter 12. The overall philosophy of the
re-draft should encourage progressive rehabilitation and retain sufficient bond
to enable the government to rehabilitate the mine in the event the company
defaults.
12 Chapter 13 Closure of Mine and Plant
Chapter 13 requires companies to seek and obtain approval to close mines. This is unacceptable for
a commercial operation that has to account to investors and shareholders. The decision to close an
operation after the capital has been invested is a difficult decision but it must rest with the directors
and management of the company. Mines will normally be closed because they are no longer
economic to operate.
Similarly the requirement to deposit the estimated closure costs in a bank account in advance, which
may or may not be returned to the company is not acceptable. CRSM understands the need toensure that appropriate rehabilitation of mines is undertaken but those requirements are contained
in Chapter 12. The imposition of additional costs and the need to deposit additional monies in a bank
account is a duplication of costs and will not be acceptable to investors.
As CRSM, we need to ensure that the company retains controls of its commercial decisions including
the decision whether or not to close a mining project. If the Chapter 13 on Closure of Mine and Plant
is adopted as law in Mongolia then we will not be able to invest in the development of new mines in
Mongolia. This Chapter will drive investors away from Mongolia and the potential benefits will be
lost to the country.
Recommendation: The right of the government to refuse to approve a mine closure should be
removed and any obligation to pay the government royalty on un-mined
reserves should be removed.
13 General Inconsistencies
There are numerous inconsistences throughout the draft Mining Law where cross references are
incorrect or there are conflicts in the drafting. For example Article 114.4 requires 100 trees to be
planted to replace each tree that it cut down whereas Article 18.2.11 states that 10 trees are to be
planted. We acknowledge that these may only be translation or typographic errors in the English
language version but suggest that the draft Law needs to be thoroughly checked for these types of
errors.
14 Conclusion
This submission, made respectfully by CRSM LLC, is aimed at assisting the office of the President to
create Minerals Law that promotes the good for the whole of Mongolia. For this to be achieved, the
Law must not only protect the rights of the Mongolian people it must also encourage foreign
companies to invest in the Mongolian resources industry. Too many sections of this current draft
legislation will result in foreign owned companies withdrawing from existing investments and
ceasing further investment in Mongolia’s resource industry.
7/29/2019 121225 Minerals Law Recommendations En
http://slidepdf.com/reader/full/121225-minerals-law-recommendations-en 10/10
CRSM LLC Submission on Draft Minerals Law 10
Issued 5 December 2012
CRSM and its backers have continued our strategy of investment in Mongolia during the past 12
months when many other investors have walked away because of concern over foreign investment
law changes. We are committed to expand our investments in Mongolia. We are a law abiding
company and are convinced that we can make a significant contribution to the Mongolian people
while at the same time meeting the expectations of our foreign financial backers.
This draft legislation imposes a much greater risk profile on our company and its investments than
currently exists and will cause us to review our whole strategy of investment in Mongolia. If the
legislation continues without addressing the concerns we have outlined in this submission, it is likely
that our financial backers will find themselves unable to continue funding our investments in
Mongolia.
CRSM is willing to assist the Office of the President or any other government authority to improve
the form of the Minerals Law drafting so that it adequately protects the interests of the Mongolian
people but also allows a managed development of the resources industry in Mongolia by
establishing an acceptable risk profile for foreign investors.
Our submission above has focussed on the principles that are important to us. In reviewing the
legislation we have noted many inconsistencies and inappropriate drafting of individual clauses and
we would be pleased to contribute these observations to any review of the draft law.
CRSM LLC
Rob Stewart
Executive Director