MONGOLIA AND FRANCE LAUNCH JOINT URANIUM PROJECT AT WORLD-CLASS "ZUUVCH-OVOO" DEPOSIT

R. Renchindulam

In the January issue of the Mongolian Mining Journal:

On January 17, 2025, the Government of Mongolia and French-registered Orano Mining SAS, an investor in the Mongolian- French joint venture Badrakh Energy LLC, signed an $1.6 billion investment agreement in Ulaanbaatar for the long-term development of the Zuuvch-Ovoo uranium deposit, located in Ulaanbadrakh soum, Dornogobi aimag.

On the Mongolian side, the agreement was signed by Minister of Mongolia and Chief Cabinet Secretary N. Uchral, Minister of Finance B. Javkhlan, Minister of Industry and Mineral Resources Ts. Tuvaan, and Executive Director of Erdenes Mongol LLC S. Narantsogt. On the French side, the signatories included Laurent Saint-Martin, Minister Delegate for Foreign Trade and French Nationals Abroad. Nicolas Maes, CEO of Orano: Xavier Saint Martin Tillet, Senior Executive Vice President of Orano's Mining Business Unit, and Marc Meleard. Executive Director of Badrakh Energy LLC.

The agreement officially marks the launch of the Mongolian-French joint uranium collaboration that has been under discussion for 28 years. Below are the key milestones of Orano Mining's activities in Mongolia:

• 1997: Orano Mining Group, one of the world's top three uranium mining companies, opened its first representative office in Mongolia.
• 1997: Kogegobi LLC, a subsidiary of Orano Mining, began geological exploration in Mongolia.
• 2003: Orano obtained an Exploration License in Mongolia.
• 2010: The "Zuuvch-Ovoo" uranium deposit was discovered by geologists from Kogegobi.
• 2016: The deposit's reserves were officially registered, and a special exploitation license was secured.
• June 2017: Badrakh Energy LLC was established
• 2017: Mon-Atom LLC acquired a 34% stake in Badrakh Energy LLC, making it a Mongolian-French joint venture.
• January 17, 2025: The Investment Agreement was signed, marking the official start of the project to mine yellow uranium powder using underground leaching and enrichment methods.

It would be a lengthy process to recount every event that occurred during this period. Therefore, we will focus on highlighting the key provisions of the Investment Agreement and some of the notable events related to it.

The implementation of this Investment Agreement with Mongolia's third neighbor country is expected to generate 520 billion MNT annually and a total of 17.1 trillion MNT over the entire project period for both national and local budgets. Additionally, it will contribute 61.5 billion MNT annually and 2 trillion MNT to the National Wealth Fund over the same period. Approximately 1,600 new jobs will be created. The project will also bring in advanced technologies from the global uranium industry, along with significant infrastructure development, including the construction of a sulfuric acid plant.

The working group, made up of 99 members. including industry scientists, experts, and representatives from 24 government agencies, as well as 6 professional and private sector organizations, was responsible for drafting the Investment Agreement. The group consisted of a main working group led by Chief Cabinet Secretary N. Uchral, alongside sub-working groups headed by ministers from the relevant sectors.

The working group carried out the following activities to improve the legal environment for the utilization of radioactive minerals in the economy:

• During the plenary session of Parliament on November 21, 2024, the draft law proposing amendments to the Law on Nuclear Energy was discussed and approved. The government has decided to establish a legal framework that aligns with the principle outlined in the Constitution of Mongolia, which states that 'natural wealth is subject to the control of the people, and the majority of the benefits should be allocated to them. This framework will guide the joint exploitation of radioactive minerals with investors. 
• At the session of the Parliament on January 9, 2025, the Parliament adopted the Resolution 'On the Replacement of State Ownership Shares and the Size of Mineral Deposits of Strategic Importance. It was decided that the 34% state- owned shares in the 'Dulaan-Uul, Zuuvch Ovoo, and 'Umnut' radioactive mineral deposits associated with the project would be replaced by special royalties and 10% state-owned preferential shares.

Eighteen rounds of negotiations between the Govemment and the investor were held in accordance with Mongolian laws and international legal principles. As a result, the following conditions, in line with the fundamental principles of the Mongolian Constitution, have been incorporated into the agreement;

1. Confirmation of Benefit Distribution: Mongolia will receive the majority of the direct benefits-at least 51%-from the extraction of strategically important mineral deposits each year.

2. Benefit Equalization Payment: In the event that the direct benefits to Mongolia fall short of 51%, the Investor and the Project Implementing Company will be required to make a "Benefit Equalization Payment" to the Government to ensure that Mongolia's share reaches 51%."

3. Revised Ownership Structure and Revenue Generation: The 34% state- owned common shares will be replaced with 10% preferred shares and a 5% special royalty, with the possibility of an incremental royalty of up to 9%. This arrangement is expected to generate an estimated $593 million in dividends from preferred shares, $2 billion in royalties, and a total of $5.2 billion in revenue for the state and local budgets over the course of the project.

Under the Law on the National Wealth Fund, the project dividends will be directly credited to the savings accounts of citizens within the Savings Fund.

The parties agreed that the rates for four types of taxes would remain fixed. Initially, the investor proposed stabilizing 27 types of taxes, but after negotiations, they agreed to fix the rates for only four: corporate income tax, VAT, mining. royalties, and customs duties.

SULFURIC ACID PLANT TO BE BUILT WITH $96.2 MILLION INVESTMENT

The investment agreement is set for a duration of 20 years, with the possibility of extension in accordance with the law, provided both parties are satisfied with the terms. As part of the project, the parties have agreed to establish a sulfuric acid plant in Mongolia, with an estimated investment of $96.2 million. Construction of the plant is scheduled to begin in 2028, with operations expected to commence in the third year of uranium mining. The plant will have a daily production capacity of 700 tons of sulfuric acid and 7.4 MW of power. Should Mongolia decide to produce and sell elemental sulfur domestically, the project's implementing company will have the exclusive right to purchase it at a reasonable price.

To support local development, the project implementation company will sign a tripartite cooperation agreement with the Governor of Dornogobi aimag and the Governor of Ulaanbadrakh soum, where the project will be located, committing to invest $1 million annually in the development of the local community.

The agreement stipulates that more than 90% of the total workforce of the project implementation company must be Mongolian citizens. Additionally, at least 60% of all subcontractors during the mine operation phase must be registered and tax-compliant legal entities, and at least 40% of the total annual procurement value must come from such entities in Mongolia...

The launch of this project marks the beginning of the third-largest initiative out of the 14 mega projects prioritized by the Coalition Government. In his speech at the signing ceremony, Prime Minister L. Oyun-Erdene emphasized the socio-economic, geopolitical, and strategic significance of the project for both countries and urged the project implementers to act responsibly.

He stated, "This project, in terms of its socio- economic impact, has the potential to offer a fresh perspective on Mongolia's investment environment to the international community. It could serve as the starting point for a revival of foreign direct investment, including in clean energy.

Under the framework of this project, Mongolia will produce 68.9 thousand tons of uranium, a key raw material for nuclear energy, which is a source of green energy. This will help reduce greenhouse gas emissions by 3.9 billion tons compared to coal power plants, assisting Mongolia in meeting its obligations under the United Nations agreements and the 2015 Paris Agreement on climate change.

I want to emphasize that Mongolia is actively utilizing its natural resources to support clean energy generation. I would also like to remind investors that the Mongolian people, as well as civil society organizations, are closely watching to ensure that contractual obligations are met, particularly with regard to environmental standards, rehabilitation, and quality control.

Furthermore, we ask the investor to fulfill its key obligations under the agreement, including the introduction of advanced uranium mining technologies and expertise meeting French and European Union standards, the establishment of new plant facilities, the training of over 1,600 highly skilled specialists, and the creation of a professional labor force in Mongolia.

In addition, Laurent Saint-Martin, Minister Delegate for Foreign Trade and French Nationals Abroad, attached to the Minister for Europe and Foreign Affairs, emphasized the strategic significance of this project for both France and Mongolia.

He stated, "Zuuvch-Ovoo is one of the world's ten largest uranium deposits, and through the implementation of this agreement, Mongolia will emerge as a major player in the global uranium market.

We will continue to deepen our relations at all levels, strengthen trade and investment, and work together for the benefit of both countries peoples, fostering mutually beneficial cooperation and supporting national independence. France is proud to be Mongolia's "third neighbor. We will stand with you at every stage of this project, bringing our expertise and capabilities. French experience and know-how will contribute to the areas of energy transition, carbon reduction, and biodiversity protection. We are committed to working closely with the Mongoilan side to realize all these goals."