30.10.2013 Mongolia’s minerals future and development, Otgochuluu Ch

Ministry of Mining, Mongolia

Mongolia’s Minerals Future

and Development

1

Contents

• Mongolia – Key Facts

• Mining sector in Mongolia

• Policy and legal environment

• Goals of mining sector

• Challenges

• Future prospective

2

Mongolia – Key Facts

Land area 1 564 116 sq.km

Population 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 million

Exports USD 371.2 million

Imports USD 534.3 million

Main exports Coal,copper, gold, zinc, crude oil, molybdenum, livestock, animal

product, cashmere, wool, textiles

Main imports Machinery and equipment, cars, fuel, food products, industrial consu

mer goods, chemicals, building materials 3


• 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

Construction

Manufacturing

Agriculture

Mining

Source: National Statistical Office of Mongolia

8.5

10

.7

17.3

-5

0

5

10

15

20

25

30

-

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, %


4


• 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

5

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


6


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


112 163 183

819

4083 4100

260 324

791

3154

3651 3654

0

1000

2000

3000

4000

5000

Investment (million USD)

Production

7


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 Operation

Exploration

Total

8

From exploration to operation (mining)

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.

9

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.

10

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.

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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. 12

Foreign investment law on

Strategic sector 2012

Foreign investment law

1993

Investment law, 2013

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 14


15

Fore

ign

Investo

rs

Private

State

owned

Registration

Admin

Ministry

$100 000-threshold

for each investor

•Mining

•Banking and Financing

•Media and

Telecommunications

Business Activities

Owned by more than 50%

Till 33%

More

than 33%

Law on Investment-Procedure


16

Certain tax level promises

for 5-22.5 year

1. Corporate Income Tax

2. VAT

3. Customs Tax

4. Royalty in Mining

Projects

Inve

sto

rs Foreign

Domestic

Invest

Mongolia

Agency

+

Council

Stability

Certificate

Criteria

•Thresholds based on the regions

(see Table 1&2)

•Environment Friendly

•New techs & know-how

•stable job creation

Draft Law on Investment-stability certificate

Goals of Mining Sector

• Increase competitiveness: market share,

reliable partner;

• Profitability improvement: cost

optimization (transport and energy cost);

• Commodity diversification:

• horizontally – unconventional oil, rare earth

metals;

• vertically – higher level processing (coal, iron

ore processing)

• Cost reduction of energy sector;

• Enhance co-relation between taxation and

mineral sector policy;

• Commitment to setup sustainable,

transparent, accountable regulations.

Ease of Doing

Business 2012 rank

out of 183 countries

Protecting investors 29

Paying taxes 57

Registering property 26

Getting credit 67

Enforcing contract 33

Doing business,

Overall

86

Source: ICF/World Bank Doing Business 2012 report

17

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.

18

Future perspective

• Political

• Economic

• Legal Stability

• Environmental and social

• Infrastructure

• Market Solution

• Diversification

• Projection

• Exit strategies Prosperity

19

Future perspective

20

• Proxy to China – large growing market;

• 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.

Ministry of Mining

Mongolia

United Nations str. 5/2

Government bldg. 2

Ulaanbaatar 210646

Mongolia

Tel: +976-11-263010

Fax: +976-11-330664

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30.10.2013 Mongolia’s minerals future and development, Otgochuluu Ch

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