Otgochuluu Ch, Director General, Department of Strategic Policy and Planning at Ministry of Mining, Mongolia

1. Ministry of Mining, Mongolia
Mongolia’s Minerals Future
and Development
1

2. Contents
• Mongolia – Key Facts
• Mining sector in Mongolia
• Policy and legal environment
• Goals of mining sector
• Challenges
• Future prospective
2

3. 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

4. Mongolia – Key Facts
• 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%
Compositionof GDP, by sectors
Otherservices
Realestate, 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
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
GDP
GDP, at current prices, bln USD
Real GDP growth, %
Source: National Statistical Office of Mongolia
4

5. Mongolia – Key Facts
• 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
2005
2006
2007
2008
2009
2010
2011
2012
Foreign trade, bln USD
Export
Import
Deficit
Source: National Statistical Office of Mongolia, The Bank of Mongolia
5

6. 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%
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Mining share in economy
Share in GDP
Share in Industrialoutput
Share in Export
Source: National Statistical Office of Mongolia
6

7. Mining sector in Mongolia
• Investment in mineral sector is growing dramatically in last years.
Source: National Statistical Office of Mongolia
112 163
183
819
4083 4100
260
324
791
3154
3651 3654
0
1000
2000
3000
4000
5000
Investment (million USD)
Production
7

8. Mining sector in Mongolia
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)

9. 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

10. 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

11. 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.
11

12. 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

13. Foreign
investment law on
Strategic sector
2012
Foreign
investment law
1993
Investment law,
2013
New Investment Law, 2013

14. 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. New Investment Law, 2013
15
ForeignInvestors
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. New Investment Law, 2013
16
Certain tax level promises
for 5-22.5 year
1. Corporate Income Tax
2. VAT
3. Customs Tax
4. Royalty in Mining
Projects
Investors
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

17. 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

18. 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

19. Future perspective
• Political
• Economic
• Legal
Stability
• Environmental and social
• Infrastructure
• Market
Solution
• Diversification
• Projection
• Exit strategies
Prosperity
19

20. 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.

21. Ministry of Mining
Mongolia
United Nations str. 5/2
Government bldg. 2
Ulaanbaatar 210646
Mongolia
Tel: +976-11-263010
Fax: +976-11-330664
21