S.Bold-Erdene finds out from B.Baatartsogt, Head of the Department of Geological Policy at the Strategy and Policy Planning Authority in the Ministry of Mining, details about issuance of new exploration licences and about the modalities of selection of 106 special licences.
Have you decided on the process to be followed in issuing exploration licences? Also, how much territory will come under these?
Work on their implementation has been under way ever since the amendments to the Minerals Law were passed by the State Great Khural. The priority is to begin granting exploration licences. A new principle, aligned with international practices, is being followed. We have now determined the areas where exploration licences can be granted and geological work conducted. This was done after a careful and wide-ranging study of the country’s economic, social and developmental trends, infrastructure construction, world minerals prices etc.
The coordinates and boundaries of areas where exploration and mining can now be conducted, based on the results of the study, were actually finalised on 28 July. Any form of mining activity is forbidden or restricted on about 65% of the total territory of Mongolia. The remaining 35% includes areas where licences have already been issued and where fresh licences can now be granted. Development of the mining sector is restricted to this 35% of our land, with the other 65% categorically out of bounds for any kind of geological or mining activity whatsoever.
So how will you be granting licences on this 35%?
We need study this thoroughly before arriving at a decision. Currently, 7.7% of the 35% is under valid licence, 1.1% will be given to radioactive minerals or uranium licence and 6.4% after selection through tender.
Areas explored with State funding or where geological survey has determined that there is mineral reserve will receive licences only through tender.
Altogether 10.6% of the total territory comprises areas where no State funding was ever used and where no licence has ever been issued. These areas are also outside the ambit of the long-named law and so we are free to issue licences there.
We plan to start with grant of exploration licences to cover about 20% of the land, but this we shall do in phases, and not all at once. For example, we are likely to grant licences on 2%-3% of the total territory of the western aimags in the first place. Likewise, we shall determine the percentage of the total territory in every aimag to come under licence, and the plan is to fix the percentage soum wise.
All licences will be granted in either of the two ways specified in the old law: through tender selection or through applications. One amendment has reduced the area to go through tender selection, and another has directed that areas where licences were annulled because of non-payment of dues, or surrendered -- partially or wholly -- after some exploration work, or expired will not go through tender selection. This way, the international practice of first-come-first- granted can be followed here extensively.
The 6.3% of the total territory where State funds have been spent on geological and research work will go through selection through tender, rightly so as it is not appropriate to apply the first- come-first-served principle there. We shall retain the old procedure of getting the opinion of the local authority after forwarding to them all requests for an exploration licence. What is new is that such requests can now be submitted online, and there would be no need to stand in line for hours at the Minerals Authority. However, those opting for online submission must make sure they have all supporting documents ready.
When will you announced the areas for licence issuance?
The first list will be announced very soon. We have worked hard to make the whole procedure of granting licences transparent and simple, a change from the chaos that marked the earlier process where people had to queue up several times and it wasn’t immediately clear who got which area.
The first list, covering 20% of the area, will be announced before the end of this year. The software to allow the Minerals Authority to receive applications online is still being developed. The quantum of area is already determined and ready.
If geological and mining activities are allowed in 35% of the total territory of the country, will people not say the Government is about to destroy 35% of our national land? And what exactly is the difference between exploration licences and mining ones?
As of now, only exploration licences will be issued on 20% of the land, to study and determine its mineral potential and the geological structure. There is absolutely no permission to start mining. Based on the information collected, it will be determined whether that area is a potential mineral deposit or not. Nobody knows the exact amount of land that can be a potential deposit; it can be just 1% of that 20% of the land. Exploration licence holders will work to determine that.
With advancing technology, geological exploration can even be done from space. Some countries use electric and magnetic geophysical methods for geological work, and go for drilling when the reserve amount needs to be determined. Drilling is basically making a hole of 15 cm-20 cm diameter up to a depth of between 100 metres and 500 metres to collect geological data. Drilling is very expensive, costing about $150-$200 per metre, and drilling 500 metres will set you back by around $75,000-$100,000. However, even if geological exploration work is so expensive, the advantage is that the investment stays in Mongolia.
It is generally accepted that the ger the area under geological survey, the higher is the chance of finding a deposit. We are just following this principle when issuing exploration licences. All data collected will be the property of the State and it is for the State to decide who will use that data and who will mine the deposit.
You said all the investment in exploration stays in Mongolia. How much has been invested and has there been any change after the ban on issuance of new licences?
Investment in exploration depends directly on the minerals price. If uranium demand goes up in the world market, and along with that the price, investment in uranium will naturally increase.
Demand for mineral raw material and the prices were high in the world market 4-5 years ago, so there was a rush to get exploration licences in Mongolia, with around $200 million-$300 million invested annually. Now it barely reaches $100 million. Even with investment on additional exploration on major deposits like Oyu Tolgoi, the figure doesn’t exceed $100 million.
Studies have revealed that annual worldwide investment in exploration work in the last few years has totalled $15 billion -$20 billion. Australia and Canada drew 8% each of this, China and Kazakhstan 3% each, and Russia 2%. Mongolia has the potential to attract 5% or more of this investment and if we can translate this into reality, annual investment in exploration in Mongolia can very well reach $2 billion.
When exploration licences covered 40% of Mongolia’s total territory, the operators were mostly small companies investing the lowest possible amount. Times have changed. Big companies of the world are interested in investing here and Mongolia’s competitiveness is on the rise. Our legal sector has improved and is stable. We now have the State Policy in Minerals Sector, an amended Minerals Law and the Law on Petroleum. Compared to other countries, Mongolia’s tax environment is good and so we have high hopes for attracting more investment in this field.
Do you expect investment in only new licences, or would currently valid licences also see a surge in spending?
I expect they will. Investments frozen in the valid licences will begin to move again because, first, the legal environment is now stable and mineral prices should go up, so we are quite positive.
What regulations will apply to the 106 licences?
The regulations were passed in the beginning of July and a working group led by the State Secretary of the Ministry of Mining, R.Jigjid, is now collating all data regarding the 106 licences, and prepare the tender selection process.
Holders of these 106 licences include companies that spent quite some money on exploration. Will they suffer loss for no fault of theirs?
We are considering that issue. The tender selection process ensures companies have professional staff and also the necessary funds for geological survey work. There are some additional requirements for the 106 licences. Some companies say that they spent money on work, some say they were going to, and some say they didn’t, while some say they spent but cannot show any records. We review every case and assess the expenditure claims. All this will be taken into consideration at the tender selection.
If a company really invested in exploration, the amount they spent will be the threshold for the tender selection. This means if a new company participates in the tender selection, it has to invest more than what was spent by the former licence holder. And if the new company wins the tender, it will reimburse the former licence holder. So any company that held one of the 106 licences and made any investment will either get the licence back or, if it fails to do so, will be compensated.