Bottom Line: Mongolia is revising its mining regulations and preparing to submit a final draft to parliament in an attempt to attract more foreign investment in the sector. While the Mongolian government has traditionally be very sober about its legislation and has not made any overt attempts at resource nationalism or legislative adjustments that would give it an unduly larger share of profits, we believe the new regulations will specifically make the terrain more complicated for foreign investors in terms of environmental regulations.
Analysis: The new regulations will focus on reducing environmental damage caused both by artisanal mining and large-scale exploration and extraction activities by local and foreign companies since 2009. Herders have been particularly impacted due to pollution of water sources and pastures. Uniquely, the Mongolian government is very fast to act on environmental issues. In 2009, it easily passed a law prohibiting mineral exploration in water basins and forest and canceled 200 mining and exploration licenses as a result. The playing field has also been challenging due to corrupt practices in the issuance of licenses by provincial authorities: this, too, will be addressed in the new mining code.
Recommendation: Keep an eye on these developments, especially if you are a small or intermediate-sized mining company. What is likely to happen here is that the focus of the negative aspects of the new mining legislation will be on small and medium-sized companies because the bulk of public protest is over the activities of these companies who do not have the capacity to engage in real community development projects but still cause environmental damage. The new legislation is likely to favor large companies with greater investment capacity.