MONGOLIAN MINING SECTOR:

CURRENT SITUATION, REFORMS IN

LEGAL ENVIRONMENT AND FURTHER

ACTIONS

G.TAMIR, SENIOR OFFICER

MINING POLICY DEPARTMENT, MINISTRY OF MINING

ULAANBAATAR 2016.05.23

Within its policy to promote export-oriented industry,

the Government of Mongolia:

- considers mining sector as priority economic

sector of the country; and

- accentuates introduction of environment-

friendly and advanced technology and

production of finished products to investors.

Policies followed in minerals

sector

Source: World Bank, 2013

RUSSIA$2.118 Trillion GDP

143.500.000 Population

8th Largest Economy

KOREA$1.198 Trillion GDP

50.129.669 Population

15th Largest Economy

JAPAN$5.007 Trillion GDP

126.659.683 Population

3rd Largest Economy

CHINA$8.939 Trillion GDP

1.344.130.000 Population

2nd Largest Economy

3

OPPORTUNITIES: Why invest in Mongolia?

• State protected areas – 18.2%

• Areas falling under application of the Law with

Long Name – 27.5%

• Urban areas, infrastructure, special needs area

– 6.6%

• State reserve areas, locally protected areas –

32.2%

• Ecological importance areas – 14.2%

• Minerals license – 7.5%

• Radioactive minerals license –1.1%

Prohibited areas – 71.5% (+37.2 overlaps)

Covered by valid licenses – 8.6%

Licenses may be granted – 19.9% or 31

million hectares

Exploration license areas

MINERALS LICENSES

AS OF 2015.10.02

EXPLORATION LICENSES – 1688

AREAS COVERED BY EXPLORATION LICENSES - 12.1 THOUSAND HA

PERCENTAGE WITHIN THE TOTAL TERRITORY OF MONGOLIA -7.7%

MINING LICENSES - 1459

АREAS COVERED BY MINING LICENSES - 1.2 THOUSAND HA

PERCENTAGE WITHIN THE TOTAL TERRITORY OF MONGOLIA - 0.8%

8.5% OF THE TOTAL TERRITORY OF MONGOLIA IS COVERED BY MINERALS LICENSES

LEVEL OF GEOLOGICAL SURVEYING

99%

84%

38%32%

1: 200,000 геологийн зураглал

Гидрогеологийн судалгаа

Геофизикийн судалгаа

1: 50,000 геологийн зураглал

CURRENT LEVEL OF GEOLOGICAL AND MINERALS

SURVEYING OF MONGOLIA

Approx. 80 types of minerals, approx. 1000 deposits, over 8000 occurrences

Main Minerals Resources (2013) World Rank

Gold (thousand tons)

Zinc (mln tons)

Iron ore (bln tons)

Crude oil (bln barrel)

Copper (mln tons)

Coal (bln tons)

Shale oil (bln tons)

2.5

1.7

1.2

2.4

117

175.5

788

Top 10

Top 10

Top 10

Fluorite (mln tons) 3.8 Top 10

OPPORTUNITIES: Why invest in Mongolia? 1950 deposits and 8150 occurrences are registered in the State inventory of mineral

resources, and 300 of them are under utilization.

The Central and Eastern parts of Mongolia are relatively well studied. Western part of

country is untapped, which has a great potential for discovery of new deposits.

RESERVES OF MAIN MINERALS (2014)

GOLD (TONS)

ZINC (THOUSAND TONS)

IRON (THOUSAND TONS)

PETROLEUM (THOUSAND BARRELS)

COPPER (THOUSAND TONS)

COAL (THOUSAND TONS)

Source: Ministry of Mining, 2014

2493

1740

1166

2438

57

175500URANIUM (THOUSAND TONS) U 170

OPERATIONAL MINES

“OYU TOLGOI” COPPERV AND GOLD MINE

“ERDENET” COPPER AND MOLYBDENIUM MINE

“BAYANGOL”, “TAYANNUUR” IRON ORE MINES

“BOR-UNDUR” FLUORSPAR MINE

“ERDMIN”, “ACHIT IKHT” COPPER CATHODE MINES

“BOROO”, “OLON OVOOT” GOLD MINES

“TUMURTIIN OVOO” ZINC MINE

“DARKHAN”, “KHUTUL”, “MONTSEMENT” CEMENT PLANTS

“BAGANUUR”,, “SHIVEE OVOO”, “UKHAA KHUDAG”, “TAVAN TOLGOI”, “NARIIN SUKHAIT” COAL MINES

OTHER MINES WITH SMALL AND MEDIUM CAPACITIES

IMPACTS OF MINING SECTOR TO THE

ECONOMY

YEAR

INDEX

2006 2007 2008 2009 2010 2011 2012 2013 2014

GDP 30.0% 27.5% 28.2% 28.2% 21.8% 21.0% 18.0% 18.7% 20%

GROSS

INDUSTRI

AL

PRODUC

TS

68,4% 67.8% 64.3% 65.4% 69.4% 65.0% 67.1% 67.4 % 68.7%

TOTAL

EXPORT

S

76,0% 68,8% 80.7% 84.6% 86.9% 91.0% 91.0% 81.0 % 83%

MINING PRODUCTS

# PRODUCTS 2007 2008 2009 2010 2011 2012 2013 2014

1

Fluorspar

concentrate,

thousand tons

109.9 115.7 115.3 140.7 116.4 157.2 76.4 110.0

2

Copper in

concentrate,

thousand tons

130.2 126.8 129.8 124.9 122.0 121.7 186.7 249.2

3Molybdenum in

concentrate, tons1978.3 1783.6 2408.7 2198.2 1957.0 1903.6 1754.1 1999.4

4Coal, thousand

tons9.238 9.692 13.164 25.246 30.940 28.561 29.163 27.305

5 Gold, kg 18087 15184 9803 6037.1 5703.0 5995.0 8904.4 11503.8

6Copper cathode,

tons3006.5 2586.6 2470.1 2746.2 2389.0 2120.3 2201.4 5000.0

7Iron ore, thousand

tons0.265 1.387 1.379 3.203 5.678 7.561 6.011 10.2

8Zinc concentrate,

thousand tons154.7 143.6 156.5 112.6 105.0 119.1 104.1 93.2

The Parliament of Mongolia approved the “Government

policy to be followed in the minerals sector” in 2014.

GOVERNMENT POLICY

IN MINERALS SECTOR

Purpose of the Government policy to be followed in the minerals

sector:

“...to develop private sector based, transparent, responsiblemining and create economically balanced, multi-pillar structurein short and medium term...”

“...to increase the quality of minerals exploration, extraction,development, and strengthen the competitiveness oninternational market by creating value-added products...”

GENERAL PRINCIPLES OF THE POLICY

No damage to rights and interests of stakeholders;

Promote modern, advanced technology and innovation;

Be open, transparent and responsible;

Adhere to the Rule of law principle, work with mutual benefit,

promote the good governance;

No discrimination depending on type of ownership;

Public disclosure of information that is not prohibited by laws;

Improve labour safety, hygiene related laws;

Maintain the government regulation in an appropriate level.

Geological exploration surveys will be intensified and minerals reserves increased;

Production and types of value-added products will be increased;

Industrial accidents will be decreased by introducing integrated standards and creating

favorable conditions for labour safety and hygiene;

Long-term planning will be done;

Towns and settlements will be established, infrastructure will be developed;

Population density will be reduced;

Work places will be increased, unemployment rate reduced;

Conditions for openness and transparency will be created and the principle of responsible

mining will be implemented;

Public participation will be ensured;

Favourable business opportunities will be created for openly trading minerals products on

minerals commodities exchange.

REFORMS IN

LEGAL ENVIRONMENT (1)

LAW ON MAKING AMENDMENTS TO THE LAW ON PETROLEUM

PRODUCTS AND LAW ON MAKING AMENDMENTS TO THE LAW

ON BUSINESS PERMITS (2013.02.07)Policy based on partnership between the government and private

sector will be followed in foreign trading of petroleum products.

LAW ON MAKING AMENDMENTS TO THE CUSTOMS LAW AND

LAW ON MAKING AMENDMENTS TO THE VALUE-ADDED TAX LAW

(2013.02.07)

To support processing plants by exempting technologies,

equipment, tools and special purpose construction materials

designated for separating gas and liquid fuel from petroleum,

oil shale and coal from customs duty and value-added tax

LAW ON CONTROLLING TURNOVER OF EXPLOSIVES AND

BLASTING TOOLS (REVISED VERSION) (2013.01.31)To improve integrated controlling, inspection, responsibilities system

and regulation of related government bodies

REFORMS

IN LEGAL ENVIRONMENT (2)

LAW ON COMMON MINERALS (2014.01.09)

Some powers transferred to local governments to promote

decentralization of the government powers and to increase

production of sand and gravelLAW ON MAKING AMENDMENTS TO THE MINERALS LAW (2014.07.01)

Issuing exploration licenses by coordinates on the areas established

by the government created opportunities for increasing minerals

reserves and foreign investment, and maintaining a stable legal

environment for the mining sector LAW ON PETROLEUM (REVISED VERSION) (2014.07.01)

Legal environment improved, competitiveness increased. Legal basis

created for developing unconventional petroleum as a new economic

sectorLAW ON MAKING AMENDMENTS TO THE MINERALS LAW (2014.01.24)

Transparency in gold trading has been introduced

REFORMS IN LEGAL ENVIRONMENT (3)

LAW ON RATIFYING THE INTERNATIONAL LABOUR ORGANIZATION CONVENTION 176

(2015.07.03)

To introduce and implement the mine labour safety and hygiene standards consistent with the

international practices

LAW ON MAKING AMENDMENTS TO THE LAW ON PROCEDURE TO IMPLEMENT THE LAW

ON PROHIBITING EXPLORATION AND EXTRACTION OF MINERALS IN HEADWATERS OF

RIVERS, PROTECTED WATER BASIN ZONES AND FORESTED AREAS (2015.02.18)

Possibilities given to entities previously holding licenses to continue their activities

LAW ON MAKING AMENDMENTS TO THE MINERALS LAW (2015.02.18)

Payment of special royalty, equal to the amount of dividend payment, is introduced

LAW ON MAKING AMENDMENTS TO THE BUDGET LAW AND LAW ON MAKING

AMENDMENTS TO THE LAW ON HUMAN DEVELOPMENT FUNDS (2015.05.21)

30% of minerals royalty payment and 50% of minerals license fee payment will be transferred to the capital city, aimag, soum and district development funds

ЭOUTCOME OF LEGAL REFORM

Possibilities created for clear, long-term and stable environment; Approval of new laws requires prior recommendations by the

Minerals Policy Council; Extraction of some minerals (gold, copper) increased; Opportunities for investment created by continuing issuance of

exploration licenses; Opportunities created for producing construction materials in rural

areas by reducing the population density; Legal basis established for transferring the rights and duties of

Minerals Professional Council to professional associations andspecialized experts consistent with the international practice(became a member to CRIRSCO).

DEPOSITS OF STRATEGIC IMPORTANCE

(PARLIAMENT RESOLUTION NO.27 OF FEBRUARY 6, 2007

1.TAVAN TOLGOI, COAL – UNDER PARTIAL OPERATION

2.NARIIN SUKHAIT, COAL – IN OPERATION

3.BAGANUUR, COAL - IN OPERATION

4.SHIVEE OVOO, COAL – IN OPERATION

5.MARDAI, URANIUM - NO OPERATIONS COMMENCED

6.GURVANBULAG, URANIUM – NO OPERATIONS COMMENCED

7.DORNOD, URANIUM – NO OPERATIONS COMMENCED

8.ERDENET, COPPER-MOLYBDENUM - IN OPERATION

9.TSAGAAN SUVERGA, COPPER-MOLYBDENUM – IN OPERATION

10.ОЮУ ТОЛГОЙ, ЗЭС, АЛТ- IN OPERATION

11.TUMURTEI, IRON ORE – UNDER PARTIAL OPERATION

12.BURENKHAAN, PHOSPHORITE - NO OPERATIONS COMMENCED

13.BOROO, GOLD - IN OPERATION

14.TUMURTIIN OVOO, ZINC – IN OPERATION

15.ASGAT, SILVER, MIXED METALS – NO OPERATIONS COMMENCED

16. GATSUURT, GOLD – NO OPERATIONS COMMENCED (INCLUDED IN THE LIST OF DEPOSITS OF STRATEGIC IMPORTANCE IN 2015)

LOCATION AND RESERVES OF DEPOSITS OF

STRATEGIC IMPORTANCE

DEPOSITS RESERVES

1 TAVAN TOLGOI 6 billion tons

2 NARIIN SUKHAIT 91 thousand tons

3 BAGANUUR 512.8 thousand tons

4 SHIVEE OVOO 564 thousand tons

5 MARDAI 1104 tons uranium

6 DORNOD 58933 tons uranium

7 GURVANBULAG 16073 tons uranium

8 TUMURTEI 229.3 thousand tons ore

9 OYU TOLGOI 31,1 thousand tons

copper, 1328 tons gold,

7601 tons silver,

molybdenum

10 TSAGAAN SUVARGA 1.3 thousand tons, 43.6

thousand tons

molybdenum

Western region - 1 deposit

Khangai region – 2 deposits

Central region - 9 deposits

Eastern region - 4 deposits

11 ERDENET 3.2 thousand tons copper,

90 thousand tons

molybdenum

12 BURENKHAAN 40 thousand tons

phosphorite

13 BOROO 22 tons gold

14 TUMURTEIN OVOO 820 thousand tons zinc

15 ASGAT 2247 tons silver

16 GATSUURT 50 tons gold

FURTHER ACTIONS TO BE TAKEN (1)

Within the frame of legal reform:

Law on Transparency of Minerals Sector;

Law on Subsoil (revised version);

Related rules, procedures and standards;

“Copper”, “Iron”, “Gold”, “Coal”, “Fluorspar”, “Zinc and mixedmetals”, “Rare earth elements” programmes;

FURTHER ACTIONS TO BE TAKEN (2)

Within the frame of system reform:

Establishment of National Geological Office;

Establishment of Minerals Commodities Exchange;

Renewal of the structure and composition of Minerals ProfessionalCouncil;

Improving connections and relationship between scientificorganizations;

Supporting integrated policy and organization for laboratories;

Strengthening foreign relations and cooperation

FURTHER ACTIONS TO BE TAKEN (3)

Within the frame of increasing benefits of mining sectoreconomy: Improve infrastructure of areas where big deposits are located

Put into operation deposits of strategic importance and thosewith established reserves;

Increase extraction of gold;

Increase operation and benefits of concentrators, deriveddeposits;

Intensify reconnaissance and exploration, and increaseextraction and exportation of petroleum and unconventionalpetroleum;

Intensify the project works for aerification of brown coal

THANK YOU FOR YOUR ATTENTION