31.08.2012 Sector challenges and issues, D. Damba

Mongolian National Mining Association PRESIDENT: D.DAMBA

DISCOVER MONGOLIA

ULAANBAATAR 2012

UNSTABLE LEGAL

ENVIRONMENT

• Three mineral laws in less then 20 years, the fourth expected!!!

- 1994 Mineral Law

• First of its kind.

- 1997 Mineral Law

• More liberal

- 2006 Mineral Law

• The state participation is dictated (34% stake mines explored private funding, and 50% share with government funding)

UNSTABLE LEGAL

ENVIRONMENT

• Law to prohibit mineral exploration and mining operations at head-waters of rivers, protected zones of water reservoirs and forest area (the water and forest law) (2009)

– 1391 exploration license, 391 mining licenses (total 1782) affected

– 254 licenses suspended

– Compensation roughly 4billion USD required (Annual state budget around 2billion USD)

– Artisanal miners???

UNSTABLE LEGAL

ENVIRONMENT

• Nuclear energy law (2009)

No progress

Civil societies are protesting and pressing to

stop uranium exploration and mining

• Environment Protection Issue

More then six hundred NGOs and

environmentalist movements (Active 300

mining operations, half of them are

construction material extractors)

• Any mineral resource related laws should

reflect the opinion of professional associations,

sector’s academics

• Laws should be formulated based on research

(positive and negative effects)

TAX REGIME

Taxes 2012

Corporate Tax

10% / 25%

(MNT 3 billion)

VAT

10%

Custom's Tax

5%

Progressive royalty 7.5-10%

Up to 30 % on Copper ore

TAXES REGIME

• In 2006 – 68% Windfall tax (On gold and

copper)

– Gold sector practically stopped

– Tax avoidance

– Opposite result: decline in tax income

– Gold smuggling

– Abolished from January 1st, 2011

TAXES REGIME

• Progressive royalty

– Introduced in 2010

– Effective from January 1st, 2011

• Standard price for export minerals

– Government resolution 88 (in 2007), and 39 (in 2010)

– By international market price

– Calculating the tax of metal concentrate

• Zinc, Copper, Lead, Molybdenum, Tin,

Aluminum – London Metal Exchange

• Gold, Silver – Mongol Bank

• Fluorspar – Export price for USA and Russia

• Iron – Contract price between Australia and

Japan

• Tungsten – http://www.bgr.bund.de

• Coal – http://www.coalworld.net

STANDARD PRICE INDEXES

BUREAUCRACY

• Permitting system – Registration system

• Autocratic organization – Service

organization

• Law implementers create own regulations,

order, decision – which contradicts the law

itself

• Some of the government services should be

transferred to NGOs

PRIVATE SECTOR OPINION

• Any mineral resource related laws should reflect the opinion of professional associations, sector’s academics

• Laws should be formulated based on research (positive and negative effects)

• Now is time for future not the past. How the revenues, from mining specially from OT, should be used for the development of the country?

• If the OT investment agreement will be re-negotiated – the negative impact of it will hit the Mongolian economy

THANK YOU FOR YOUR

ATTENTION

MNMA: Room 501, Geosan building, Ikhsurguuli street, Sukhbaatar

district, Ulaanbaatar, Mongolia.

Tel: +976 11 314877 Fax: +976 11 330032

Webpage: www.miningmongolia.mn