Minerals Law
The mining sector in Mongolia is regulated by the Minerals Law, which was first enacted in 1994 and has been amended several times since then, including in 1997 and 2006. This law has encouraged foreign investment in the mining sector, and following its passage in 1997, investment in mineral exploration in Mongolia has risen dramatically.
According to the Ministry of Industry and Mineral Resources, by the mid-2000s, Mongolia was attracting 4% of global financing for mineral exploration.
With the implementation of the Minerals Law, Mongolia has issued over 6,000 exploration licenses covering 44% of its territory, actively supporting geological exploration. This increased exploration has resulted in the discovery of a promising pipeline of potential world-class mineral projects, including the famous Oyu Tolgoi deposit.
The 2006 revision to the legislation established a new category of Strategically Important Deposits, which will be exploited by both the Mongolian government and private entities. Since 2006, the law has been amended 43 times and the Government of Mongolia also has a plan to revise the Minerals law.
The aim of the law is to govern the relationships involved in the exploration, prospecting, and mining of mineral resources, as well as the safeguarding of exploration areas and active mining zones in Mongolia. The law applies to all types of mineral resources, except for water, petroleum, and natural gas.
According to the Minerals Law, mining companies are mandated to be incorporated in Mongolia, registered as taxpayers, and operate under Mongolian laws.
The Minerals Law outlines the rules and regulations for all aspects of the mining sector, including the granting of licenses, the collection of taxes and fees, and the protection of the environment and local communities. Some of the key provisions of the Law on Minerals include:
1. License requirements:
The law outlines the requirements for obtaining a license to explore and extract minerals in Mongolia. This includes the submission of an exploration plan, the payment of fees, and the provision of security for environmental rehabilitation.
2. Environmental Protection:
The law requires mining companies to conduct environmental impact assessments and to implement measures to mitigate any negative impacts on the environment and local communities. This includes the restoration of the site after mining activities have been completed.
3. Revenue Sharing:
The law requires mining companies to pay taxes and royalties on their mining activities. A portion of these revenues is also required to be shared with local communities. The Minerals Law governs the royalty rate for mineral commodities. A mining license holder pays a royalty based on the sales value of all extracted, sold, or shipped products. The sales value is determined using international benchmark prices and follows a sliding scale royalty system.
4. Local Employment:
The law requires mining companies to provide training and employment opportunities for local workers. The law also requires mining companies to source goods and services from local businesses whenever possible.
The Minerals Law specifies that foreigners can make up a maximum of 10% of the total workforce of a mining license holding company. Additionally, Article 42 of the Minerals Law mandates cooperation between the local government and the community. This cooperation results in a local agreement that addresses various aspects such as environmental protection, employment, infrastructure development, and overall mine usage.
5. Transparency and Reporting:
The law requires mining companies to regularly report on their activities, including production levels, revenue, and environmental performance. This information is made publicly available to promote transparency and accountability.”
Recent Amendments:
The National Wealth Fund Law, which governs the accumulation, distribution, and management of the country’s wealth, came into effect in April 2024. Following its approval, amendments were made to the Minerals Law.
In 2007, by resolution of the Mongolian Parliament, 16 mineral deposits with a value exceeding 5% of the country’s GDP were classified as “Strategically Important Deposits”. As part of the amendments to the Minerals Law, a new provision has been introduced, prohibiting any entity from owning more than 34% of the total shares in a legal entity holding a mining license for a Strategically Important Deposits, either individually or in partnership with other entities with a shared interest, unless the entity is state-owned or has signed an investment agreement with the Mongolian government.
Under the 2006 Minerals Law, the government’s share in Strategically Important Deposits may range from 34% to 50% depending on whether exploration was funded by the state budget. The 2024 amendment extends this provision to apply not only to primary Strategically Important Deposits but also to their associated secondary deposits. In other words, the government will hold shares in the mining licenses of these secondary deposits under the same principles.
The amendment also specify that if the ultimate owner of a license holder for strategically important deposits fully or partially transfers ownership of land use rights, mineral rights, radioactive minerals, or mining and exploration licenses for petroleum to others, whether through shares, equity interest, voting rights, or inheritance, the transfer will be subject to a 30% tax.
Environmental Protection Law
The Environmental Protection Law of Mongolia regulates “the relations between the State, citizens, business entities, and organizations in order to guarantee the human right to live in a healthy and safe environment, an ecologically balanced social and economic development, the protection of the environment for present and future generations, the proper use of natural resources and the restoration of available resources.”
The law came into effect in 1995 and was amended several times. The law aims to protect the natural resources listed below from activities that may have a harmful impact on the environment and result in ecological imbalance:
- 1. land and soil
- 2. underground resources and mineral wealth
- 3. water
- 4. plants
- 5. animals
- 6. air
The law requires individuals and entities to prevent environmental damage caused by household and industrial waste, to comply with national environmental regulations and laws, avoid and monitor any polluting activities, and rectify any such actions. It also requires companies that may have negative environmental impacts to plan annual budgets and implement measures to mitigate and eliminate them.
The law gives environmental inspectors the authority to enforce national environmental protection legislation and establishes an environmental audit mechanism for companies that use natural resources. The audit must be conducted by a licensed entity.
The Environmental Protection Law states that fees for using natural resources include fees for licenses, using natural resource reserves, and discharging waste and pollutants at acceptable levels. If companies exceed the limits permitted by their contracts or licenses, they must compensate for using more natural resources or discharging more waste and pollutants than allowed.
The 2019 Amended Constitution of Mongolia grants citizens the constitutional right to be informed about the impact of subsoil resources usage on the environment within their territory. Laws on Environmental Protection and Impact Assessment were also changed to support this right.
Citizens can ask for information about the condition of natural resource use, its impact on the environment, rehabilitation process and control measures taken, and officials or project implementers must provide it. Project implementers are also obliged to share related information about their activities to local governments.
Environmental Impact Assessment Law
The Environmental Impact Assessment Law aims to protect the environment, prevent ecological imbalance, ensure minimal adverse impacts on the environment from the use of natural resources, and regulate relations that may arise in connection with the assessment of environmental impacts of and approval decisions on regional and sectoral policies, development programs and plans and projects.
Initially enacted in 1998, the Law on Environmental Impact Assessment was subsequently revised in 2001. As Mongolia’s mining industry grew dramatically over the years, it became apparent that there was a necessity to update to the legal framework since every mining operation had some effect on the environment. To address this issue, the Mongolian parliament passed an amended version of the Law on Environmental Impact Assessment in 2012, which is currently in effect.
The law emphasizes Strategic Environmental Assessment, Cumulative Impact Assessment and Environmental Impact Assessment.
Strategic Environmental Assessment is conducted to determine and identify any potential environmental risks associated with regional or national-level projects and develop strategies to minimize them. The Law also allows citizens to be involved in the strategic assessment of any project.
Cumulative impact assessment analyzes the combined effects of various projects on human health, the environment in the particular area.
All mining companies are required to conduct Environmental Impact Assessment, which means prior identification, mitigation and elimination of possible adverse impacts of a particular project on human health and the environment. The authorized legal entity prepares Detailed Environmental Impacts Assessment, and a company develops an environmental management plan to ensure the realization of recommendations outlined in the strategic assessment.
The implementation of the environmental management plan should be reviewed every year.
A mining license holder shall deposit, as a guarantee, 50% of the total annual budget required for implementation of environmental protection measures in the designated account opened by the state organization in charge of environmental protection.
The conservation of biodiversity terms is included for the first time in this law.
Overall, the Environmental Impact Assessment Law of Mongolia, amended in 2012, plays a crucial role in protecting the environment, ensuring sustainable development, and minimizing adverse impacts of natural resource use.
Common Minerals Law
Typical building materials, such as sand and gravel, clay, brick, granite, and crushed stone, make up common minerals. The Law on Common Minerals governs the exploration and licensing of these minerals within Mongolia’s territory, as well as the responsibility of license holders and the safeguarding and rehabilitation of exploration areas and mining environments. This also encompasses the utilization of clay and sand in treatments, and the regulation of relationships related to the exploration and exploitation of common minerals required for road and railway projects and programs decided upon by the State Great Khural and the Government.
Nuclear Energy Law
The Nuclear Energy Agency was established at the beginning of 2009. Later that year the State Great Khural formulated the State Policy for Utilization of Radioactive Minerals and Nuclear Energy and the Nuclear Energy Law, which were designed to incorporate international standards for nuclear and radiation safety and security.
As a result, the legal environment has formed in Mongolia to explore and process radioactive minerals and utilize nuclear energy and introduce technologies friendly to human health and environment.
Nuclear Energy Law aims to regulate relations connected to exploitation of radioactive minerals and nuclear energy on the territory of Mongolia for peaceful purposes, ensuring nuclear and radioactivity safety, protecting population, society and environment from negative impacts of ionized radioactivity.
In 2015, amendments were made to the Nuclear Energy Law, which granted regulatory authority to MRPAM for matters related to granting, suspending, and revoking radioactive mineral licenses.
The Nuclear Energy Agency is responsible for overseeing the exploration and exploitation of radioactive minerals, the adoption of nuclear technology, and the development of related research.
All deposits of radioactive minerals are considered strategically important regardless of their size. If reserves of a deposit are determined without state funding, but are registered in the State Integrated Registry, the state will own at least 34% of the shares of the legal entity owning a mining license of radioactive minerals at no cost. If reserves are determined with state funding and exploited in partnership, the state will own at least 51% of the shares at no cost.
According to MRPAM, there are seven companies working in the field, with five exploration licenses and eight exploitation licenses, operating in compliance with the requirements of Nuclear Energy Law.
On behalf of the Government of Mongolia, the state-owned limited liability company Mon-Atom holds participating interests in those companies with radioactive exploitation licenses.
On November 21, 2024, in connection with the signing of the Investment Agreement for uranium mining with the French multinational company “Orano Mining,” an amendment to the Nuclear Energy Law was approved, along with related amendments to other laws.
The primary amendment in the law is the prohibition on bringing radioactive waste and nuclear fuel across Mongolia’s borders or allowing it to transit through the country. Another key change involves extending the term of the investment agreement from 10 years to a potential 20 years. Additionally, the royalty on the use of radioactive mineral resources is set at 5% of the sales value of uranium ore concentrate. Depending on fluctuations in the market price of radioactive minerals, the royalty will be classified into categories ranging from 0 to 130 USD per unit, with a potential increase of up to 9%.
Petroleum Law
Petroleum Law aims to regulate matters related to petroleum and unconventional petroleum prospecting, exploration, and exploitation within the territory of Mongolia.
The law was enacted in 2014 to establish a comprehensive legal framework for the petroleum sector, replacing the outdated law of 1991.
The Petroleum Law classifies petroleum products into two main categories: oil and unconventional oil. Oil includes crude oil, natural gas, and refined petroleum, while unconventional oil refers to oil sands and oil shale.
The law identifies three types of petroleum-related activities: prospecting, exploration, and exploitation. Exploration and exploitation activities for oil and unconventional oil are subject to licensing procedures. Other activities, such as prospecting and the storage and transportation of petroleum, require permissions or approvals from the relevant authorities. Such permissions usually involve a simple approval process, whereas licenses involve more complicated procedures.
The Ministry of Industry and Mineral Resources (MIMR) and Mineral Resources and Petroleum Authority of Mongolia (MRPAM) are the primary regulators for the petroleum sector. MIMR is responsible for policy issues, the issuance of licenses and organizing tenders for exploration sites. MRPAM is the main implementing authority responsible for matters such as concluding production sharing agreements, approval of annual plans, and the supervision of fee payments.
The Petroleum Law defines separate terms for “contractor”, “operating company” and “subcontractor”.
A contractor is a company that has entered into a production sharing agreement to conduct oil and unconventional oil exploration or extraction activities in Mongolia.
An operating company is a contractor’s company, incorporated and registered as a taxpayer in Mongolia, that conducts the exploration and extraction activities.
A subcontractor is a company incorporated and registered as a taxpayer in Mongolia to conduct certain petroleum-related activities according to an agreement concluded with a contractor or an operating company.
The Petroleum Law defines prospecting as geological, geochemical and geophysical research conducted to determine the presence and condition of oil and unconventional oil in a certain area. Prospecting is not a licensed activity, but a legal entity wishing to conduct prospecting must submit a request to MRPAM.
A company engaged in prospecting may request a production sharing agreement with MRPAM.
The production sharing agreement may take more than several months to conclude as the process involves the completion of negotiations with MRPAM, the procurement of an approval from the MIMR and the issuance of an authorization from the Cabinet.
The Petroleum Law defines exploration as geological, geochemical, geophysical activities, drilling and test extractions conducted to explore an oil deposit and determine the amount of its reserves.
The term of an oil exploration license may not exceed eight years, with the possibility of two extensions of up to two years each. Unconventional oil exploration licenses are issued for a maximum of 10 years, with the possibility of one extension of up to five years.
An exploration license will be issued to a company that has entered into a production sharing agreement with MRPAM. If a company is engaged in prospecting, it can pursue such an agreement. In cases where neither MRPAM nor a prospecting company have been able to reach a production sharing agreement, an exploration license may be granted to a company that has won a bid for reserve.
The Petroleum Law defines exploitation as exploitation site development and the exploitation of oil and unconventional oil.
Within 90 days of the expiry of the exploration term, an exploitation license holder must present a reserve report to the MIMR to obtain approval of the reserve. Within 30 days of such approval, the exploration license holder must submit an application for an exploitation license.
The term of an oil extraction license may not exceed 25 years with the possibility of two extensions of up to five years each. The term of an unconventional oil exploration license may not exceed 10 years, with the possibility of one extension of up to five years.
The Petroleum Law provides that exploitation licenses can also be granted through an open tender in six different situations. These include cases where the state has financed exploration activities, or where the holder of an exploration license does not apply for an exploitation license.
The profit of the oil will be shared in accordance with the terms of the production sharing agreement where MRPAM and a contractor company agrees.
Water Law and related regulations
Mongolia is among the 36 high-water-risk countries in the world. The country’s total water resources are estimated at 564.8 cubic kilometers, with 98.1% coming from surface water and only 1.9% from groundwater. The distribution of surface water is uneven, with 63% stored in Khuvsgul Lake in northern Mongolia.
Groundwater is the main resource of drinking and industrial water, contributing 82% of total water use, according to the Ministry of Environment and Tourism of Mongolia.
The agriculture sector is the dominant user of water, accounting for 56% of total water use in 2022, with 25% for irrigation and 31% for livestock. Mining consumed 15% but is likely to increase its water consumption due to high GDP growth expected through mineral exports.
Water availability varies from one region to another. Water supply is also affected by seasonal and climate variations. The Gobi region, which makes up 30% of Mongolia’s land, heavily relies on groundwater for mining, with over 70 active mines as of 2020, including significant projects such as the Oyu Tolgoi Copper and Gold Mine and the Tavan Tolgoi Coal Mine.
However, groundwater in the Gobi region is limited, causing conflicts. For instance, Umnugobi Province attempted to ban groundwater extraction for mining in 2013, which would have affected the country’s most important mines. Following protests from mining companies which were disputed in the courts, the resolution was suspended by the end of 2013.
Over the last few years, Mongolia has passed several laws to mitigate the negative impacts of mining. Among them are the Water Law, the Environmental Impact Assessment Law and, most recently, the Water Pollution Fee Law.
The Water Law, which came into effect in 2012, aims to govern relations concerning the protection, rational use, and restoration of water resources and their basins. The law states that water is the strategic resource. The law serves as an umbrella law for water resource management, defining the mandates of state organizations responsible for the development and adoption of Integrated Water Resources Management Plans. It also introduces the concepts of river basin councils and river basin authorities.
Mongolia has a strong commitment to Integrated Water Resources Management (IWRM), as defined in the Water Law. The law formally established river basin authorities throughout Mongolia to manage the 29 river basins. As of 2020, there are 21 operational river basin organizations that are responsible for creating management plans for their respective basins.
The Water Law also stipulates the creation of River Basin Multi-Stakeholder Platforms, which bring together stakeholders from local administrations, the private sector, civil society, and academia to comment on river basin management plans and negotiate priorities, as well as the work of the River Basin Authorities. At the river basin level, management plans are supposed to identify the state of water resources and lay out measures to safeguard their quality and quantity.
Provincial and local authorities play a role in collecting water use fees, which are partly earmarked to finance environmental protection measures. However, water use fees tend to be rather low. In order to increase overall funds while also incentivizing wastewater treatment at the mine, the Water Pollution Fee Law was adopted in 2019.