Mongolia's new legislation that removes distinction between domestic and foreign companies when it comes to investing in the country will help attract more investment, miners with projects in the region said Friday.
From November 1, foreign companies will not need to seek government or parliamentary approval before investing in Mongolia. There will be no restrictions on the amount of investment if the company is not 50% or more owned by a foreign government. If the company is state-owned with more than 50% share held by a foreign government, it cannot buy more than 33% of a project in Mongolia.
The new law also provides a stable tax structure as the rates cannot be amended by future legislation unless those changes benefit the investor. It also removes all restrictions on the movement of assets in or out of the country and also provides protection against nationalization of the investors' assets.
"We believe that this will improve sentiment towards Mongolia-related investment stories," Australia's Aspire Mining said in note to stakeholders Thursday. Aspire is developing the Ovoot coking coal project in northern Mongolia, which is due to begin production in 2017 at 5 million mt/year.
"While the investment law has become effective recently and further regulations are to be issued, it is certainly a welcome development which should promote domestic and foreign investment in Mongolia," an official from SouthGobi Resources said.
"Reports also suggest that the law is a first step in streamlining the investment environment and creating more favorable investment conditions by simplifying the registration process and removing some approval requirements," he added.
SouthGobi operates the Ovoot Tolgoi mine located 40 kilometers from the Shivee Khuren-Ceke crossing on the Mongolia-China border.
Mongolia's largest mining operation is Rio Tinto's Oyu Tolgoi copper mine located in the southern Gobi desert, 100 km north of the Mongolia-China border. Oyu Tolgoi began operating in July and Rio's share of production rose to 10,300 mt in the July-September quarter from 4,400 mt over April-June.
Though a Rio Tinto official would not comment on the impact of the new law, at the Mongolian Mining Summit held in Perth last week Oyu Tolgoi's Chairman Batsukh Galsan said the country has actually been becoming more investor friendly despite what he called ups and downs.
Oyu Tolgoi is owned by the government of Mongolia (34%) and Turquoise Hill Resources (66%), which is held 50.8% by Rio Tinto. The miner also manages the project.
"I have seen excitement about Mongolia reach fever pitch and drop off a cliff multiple times. Examples include the passage of the 2006 minerals law, adoption and repeal of the windfall profits tax, and recently of course the delay in developing the underground mine at Oyu Tolgoi," he said.
"In spite of the ups and downs, the trend has been a steady march forward as more and more investors discover the long term prospects of the country and the potential rewards for patience and commitment," he added.
WANING INVESTMENT
Investment in Mongolia has waned over the last two years after the introduction of a Strategic Entity Foreign Investment law in May 2012, which increased the number of approvals required by foreign companies.
During 2012, foreign direct investment in Mongolia fell by 17% and a further 47% during January-August 2013, Aspire pointed out. This was "a clear indication that sentiment toward Mongolia had quickly deteriorated given the increased political and legal uncertainty felt within the wider investor community," it added.
The IMF, however, sees Mongolia's medium-term prospects as positive due its abundance of natural resources.
"We welcome the adoption of the new Investment Law. This, along with other legislative changes the government is making, can be expected to render the business environment for domestic and foreign investors more predictable and transparent," the IMF said in a statement issued on October 7.
