Mongolia eases restrictions on miners

MONGOLIA, for years held out as a potential competitor with Australia to attract global investment for highly promising mining prospects, has faltered following the introduction a year ago of stringent regulations requiring parliament to approve foreign involvement in the industry.

But the country's parliament, the State Great Hural, has now amended that tough legislation to ease restrictions on private investors while raising the bar on state-owned enterprise capital.

This will benefit Australian and other Western miners while making life harder for China, which controls Mongolia's access to the coast and provides much of its energy, and buys almost 90 per cent of its total exports.

The impact of the legislation will be to remove the requirement for private companies investing more than $70 million to seek parliamentary approval.

But wholly or partly state-owned firms will need both parliamentary and cabinet approval, as will foreign investments taking more than 49 per cent in what are deemed strategic entities.

"The amended law does not yet provide for straightforward application procedures and approval criteria, omissions that dampen the potential credit-positive aspects," Moody's Investors Service said.

The government has indicated that it will submit a new investment law to parliament this northern summer, aimed at clarifying any uncertainties.

It is believed that no foreign investment proposals that came within the scope of the previous legislation received approval, leaving projects to flounder.

Exploration in the South Gobi region alone has identified reserves of about 35 million tonnes of copper, 1275 tonnes of gold and six billion tonnes of coal.

By far the largest mining project in the country is Rio Tinto's $6.6 billion Oyu Tolgoi copper-gold resource, where production is due to start by July. The Mongolian government holds 34 per cent of the project. Ownership and profit issues remain under negotiation.

Law firm Allens, which opened an office in the Mongolian capital of Ulaan Baatar 18 months ago, said: "While the amendment is a step in the right direction, many issues with the (foreign investment) law remain.

"We are also aware of recent comments that suggest the law may be further amended so it will apply only to wholly or partly state-owned foreign investors, and that a new law based on international practice will be put in place to deal with private sector investment."