Source: Reuters, Bloomberg, Undesnii Shuudan   Date: May 1, 2010

President Ts. Elbegdorj has ordered a halt to the issuance and transfer of mineral exploration licenses, as also revalidation of revoked licenses, until the Government can enact a stricter law on mining investment. The directive, posted on his website, may rekindle some of the uncertainty that for years surrounded mining investment in the country.

The order came into force at 5 pm on April 20. The President had called the heads of Standing Committees and the Director of the Mineral Department to a meeting earlier on the day to explain his decision, calling it “an extreme step taken after careful consideration”. He said he had found during his visits to the provinces that there was widespread anger over how petty violations had taken on criminal proportions.  Mineral resources are connected to national security, but holders of almost half of the exploration licenses do not provide the mandatory annual information about their work. Licenses are used less for exploration than as money-making tools.
The freeze on new mining permits will remain in place until a new law on mineral licenses is adopted by the Government, according to the directive. It was not immediately clear how long it would take to pass a new law, but the directive calls on the Government to hold public discussions on the matter in June. "I order the Government to regularly report to me on the status of the implementation and the ways it resolves the issues," said Mr. Elbegdorj, adding that a final report has to be submitted to the National Security Council by May. In June, citizens will be given information about this through the Civil Chamber. "It is important to urgently develop the law on mineral licenses and have it publicly discussed." Mr. Elbegdorj said that while he remains focused on the development and protection of natural resources, his directive seeks to ensure that that the people of Mongolia remain the true owners of the countries mineral wealth.

Right now, the Presidential directive apparently will not affect the operations of those companies that have valid exploration permits. But it is unclear whether the Government intends to review the validity of existing permits going forward.  The new directive could hinder Khan Resources' efforts to get its uranium mining and exploration licenses reinstated, as the Presidential order also applies to any licenses that have been revoked.

“Our initial estimate is that this should not have any effect on overseas investors in Mongolia, although we’re still looking to clarify some details,” said Mr. Alisher Djumanov, the Beijing-based chief executive officer of Eurasia Capital Management. “The whole system for allocating licenses does need streamlining and it may well be that there is corruption in the way some licenses are given out.”

Mining Minister Dashdorj Zorigt declined to make an immediate comment.
“I think this is just a temporary situation,” said Mr. Alexander Molyneux, chief executive officer of SouthGobi Energy. “The Government is checking mining licenses to make sure they are in order. If your license is in order, like ours is, then there shouldn’t be a problem.”

Last year's signing of a long-awaited agreement with Rio Tinto and Ivanhoe Mines allowing them to proceed with the USD5 billion Oyu Tolgoi copper and gold mine had paved the way for foreign investment in the mining sector. Mongolia has thus far issued 4,706 valid mineral licenses of which 3,610 are exploration permits and 1,096 are mining licenses. The directive noted that most of the permits currently held by companies and individuals operating in Mongolia are held in violation of existing laws.