Last week State Great Khural received two draft bills on mining. One is the Draft Bill on Amendments to the Mineral Resources Law and the second one is Draft Resolution on Renewing the State Ownership at the Gatsuurt Deposit. These two draft bills have sparked huge debates at the State Great Khural so that Justice Coalition requested five days break. We met with R.Jigjid, Minister of Mining on those two draft laws.
What amendments have been proposed to the Mineral Resources Law?
Currently the law states that state ownership is to be up to 50 percent at those deposits where the exploration has been done with state funding, while the ownership rights reduce to 34 percent on deposits explored by private companies and Mongolia is proceeding with such regulation with joint mines.
For instance, Oyu Tolgoi. We are making amendments in order to change the regulations. Special Taxes are to be imposed for the use of the strategic deposits. In other words, state will be able to receive taxes equal to the ownership of a particular deposit.
If the amendments are approved which deposits will fall under the law?
Mineral resources are finite. Therefore state ownership implies the involvement of it in day-to-day operations and at the end is to receive the dividends.
Dividends are applicable only after years of operations and declines if the operation costs increase. The same situation we are facing with Oyu Tolgoi currently. This amendment draft focuses more on resolving such issues and bringing transparency. State is to impose the special taxes equal to the stake at the deposit.
Does it mean that state is not aiming to own a stake at every deposit?
Yes, that is correct, we going to impose the taxes, which will equal to the stake the state, holds.
Will there be changes in Oyu Tolgoi agreement if the amendment is approved?
This is more on the negotiation side with the investors. There will be more opportunities opening up for both sides. The estimates will be much clear.
How the special taxes been calculated?
After many studies the special taxes are set to be 5 percent at most. It is now up to the State Great Khural.
Many have been criticizing the 20 percent of stake at Gatsuurt deposit. Why it was estimated to be that low?
We proposed the 20 percent of state stake. If the amendments to the Mineral Resources law are approved there will be a question whether to own 20 percent stake or receive taxes that are equal to those 20 percent. Working group is set to work on this matter.
Where does the number 20 come from?
Working group members negotiated with the investor side. Gatsuurt deposit exploration has been done with private funds; meaning state is entitled to up to 34 percent of stake for the deposit. Working group conducted assessments on 34 and 20, where it came up with number 20 as being less risky option for Mongolia. It is more beneficial for Mongolia to impose special taxes on Gatsuurt rather than owning 34 percent of stake.
Can we say that Gatsuurt deposit will not bring much profit to Mongolia?
It is early to say so without any proper and detailed studies conducted. It is still in talks that Mongolia will provide 20 percent of the investment if the joint company is to be established. Further the negotiations are provisioning that the initial investment not to be increased and the additional funding can be solved with loans. With such estimates it is calculated that Government of Mongolia is to provide USD 100,000. But these numbers are not set yet.
Could you please explain more on 5 percent special taxes?
Royalties for the use of the mineral resources will depend on the type of the mineral resources and the average base for the royalties are set to be 5 percent and gradual increase further. For copper the gradual increase calculated to be at 35 percent at highest. For gold it will remain at 2.5 percent, no changes are proposed for gold.
On top of this royalty state should receive dividends from the operations, which is entitled by the state stake at the deposit. The amendment then will be a new mechanism to collect those dividends in the form of special taxes. Taxes are to be imposed in regards with the deposit, meaning that based on the feasibility studies of the deposit dividends and taxes are to be set.
What are the international experiences with collecting the dividends in such way?
The percentage varies with countries. We adhere to the average estimates. There is the form of one-time royalties as well.
What are the risks associated with owning 34 percent stake?
At Gatsuurt deposit, for instance, there is risk of high interest payments to be imposed on our shoulders. With that risk the dividends and the profits of owning 20 percent are not far from each other.
What is the gold reserve estimates at Gatsuurt deposit?
Currently it is at 50 tons.
Last week State Great Khural received two draft bills on mining. One is the Draft Bill on Amendments to the Mineral Resources Law and the second one is Draft Resolution on Renewing the State Ownership at the Gatsuurt Deposit. These two draft bills have sparked huge debates at the State Great Khural so that Justice Coalition requested five days break. We met with R.Jigjid, Minister of Mining on those two draft laws.
What amendments have been proposed to the Mineral Resources Law?
Currently the law states that state ownership is to be up to 50 percent at those deposits where the exploration has been done with state funding, while the ownership rights reduce to 34 percent on deposits explored by private companies and Mongolia is proceeding with such regulation with joint mines.
For instance, Oyu Tolgoi. We are making amendments in order to change the regulations. Special Taxes are to be imposed for the use of the strategic deposits. In other words, state will be able to receive taxes equal to the ownership of a particular deposit.
If the amendments are approved which deposits will fall under the law?
Mineral resources are finite. Therefore state ownership implies the involvement of it in day-to-day operations and at the end is to receive the dividends.
Dividends are applicable only after years of operations and declines if the operation costs increase. The same situation we are facing with Oyu Tolgoi currently. This amendment draft focuses more on resolving such issues and bringing transparency. State is to impose the special taxes equal to the stake at the deposit.
Does it mean that state is not aiming to own a stake at every deposit?
Yes, that is correct, we going to impose the taxes, which will equal to the stake the state, holds.
Will there be changes in Oyu Tolgoi agreement if the amendment is approved?
This is more on the negotiation side with the investors. There will be more opportunities opening up for both sides. The estimates will be much clear.
How the special taxes been calculated?
After many studies the special taxes are set to be 5 percent at most. It is now up to the State Great Khural.
Many have been criticizing the 20 percent of stake at Gatsuurt deposit. Why it was estimated to be that low?
We proposed the 20 percent of state stake. If the amendments to the Mineral Resources law are approved there will be a question whether to own 20 percent stake or receive taxes that are equal to those 20 percent. Working group is set to work on this matter.
Where does the number 20 come from?
Working group members negotiated with the investor side. Gatsuurt deposit exploration has been done with private funds; meaning state is entitled to up to 34 percent of stake for the deposit. Working group conducted assessments on 34 and 20, where it came up with number 20 as being less risky option for Mongolia. It is more beneficial for Mongolia to impose special taxes on Gatsuurt rather than owning 34 percent of stake.
Can we say that Gatsuurt deposit will not bring much profit to Mongolia?
It is early to say so without any proper and detailed studies conducted. It is still in talks that Mongolia will provide 20 percent of the investment if the joint company is to be established. Further the negotiations are provisioning that the initial investment not to be increased and the additional funding can be solved with loans. With such estimates it is calculated that Government of Mongolia is to provide USD 100,000. But these numbers are not set yet.
Could you please explain more on 5 percent special taxes?
Royalties for the use of the mineral resources will depend on the type of the mineral resources and the average base for the royalties are set to be 5 percent and gradual increase further. For copper the gradual increase calculated to be at 35 percent at highest. For gold it will remain at 2.5 percent, no changes are proposed for gold.
On top of this royalty state should receive dividends from the operations, which is entitled by the state stake at the deposit. The amendment then will be a new mechanism to collect those dividends in the form of special taxes. Taxes are to be imposed in regards with the deposit, meaning that based on the feasibility studies of the deposit dividends and taxes are to be set.
What are the international experiences with collecting the dividends in such way?
The percentage varies with countries. We adhere to the average estimates. There is the form of one-time royalties as well.
What are the risks associated with owning 34 percent stake?
At Gatsuurt deposit, for instance, there is risk of high interest payments to be imposed on our shoulders. With that risk the dividends and the profits of owning 20 percent are not far from each other.
What is the gold reserve estimates at Gatsuurt deposit?
Currently it is at 50 tons.