G. DAMDINNYAM: MONGOLIA HAS TWICE AS MANY MINING LICENSES AS EXPLORATION LICENSES-A SERIOUS IMBALANCE

We spoke with G. Damdinnyam, the Minister of Industry and Mineral Resources.

By A. Khaliun.

The Ministry of Industry and Mineral Resources is currently drafting a proposal to amend the Law on Minerals, which is expected to be submitted during Parliament's upcoming autumn session. What are the key changes proposed in this amendment?

Since taking office, I've been working openly with stakeholders across the sector. As part of this, we established a non-permanent policy advisory council under the Ministry, involving representatives from various sub-sectors of industry and mineral resources.

One of the council's main tasks is to submit the long-discussed draft amendments to the Law on Minerals at the beginning of Parliament's autumn session. Alongside, we are preparing amendments to related laws, including the Law on the National Sovereign Wealth Fund and the Law on the Mining Products Exchange. We plan to hold open discussions on these proposals and collect feedback from both the sector and the public.

For example, under the Law on the National Sovereign Wealth Fund, companies must pay royalties to the fund regardless of the mine's size or profitability. These payments are mainly allocated to the local development funds of the regions where the mines operate. For areas without mining activities, we are committed to introducing a regulation that allocates a portion of the base royalty to those regions as well, to ensure fairer distribution.

At its August 20 meeting, the government made a decision to address the excessive royalty rates that were placing undue pressure on companies.

In advance of the upcoming Mining Week government event in September, the approved a key resolution for the mining sector. This corrected the issue of royalties being calculated using excessively high benchmark prices - for example, 22.6% for coal, 54.3% for fluorspar, and 26.6% for iron ore - which had created significant financial strain across the industry.

As a result of this resolution, royalties will no longer be based on either the companies' contract prices (which tend to be too low) or inflated benchmark prices. Instead, they will now be calculated based on the standardized prices set by the Mongolian Stock Exchange where minerals are actively traded. After extensive discussions, this approach was adopted to establish a fair base price for royalty payments. We believe that this decision will be well received by stakeholders in the sector.

The government has also decided that if a company sells at least 25% of its products through the Mongolian Stock Exchange, then the royalties for the remaining 75% will also be calculated using the Exchange's benchmark prices.

Secondly, there was a provision in the Law on the Mining Products Exchange that had effectively halted the operations of processing plants. It required that products be sold exclusively through the Exchange and prohibited exports, which led to the shutdown of 47 beneficiation and processing facilities and severely disrupted the manufacturing sector.

As a result of this restriction, more than $100 million in sales from 55 contracts across over 30 companies had been frozen. This issue has now been resolved. At the next Cabinet meeting, our ministry will propose a temporary regulation under the Law on the Mining Products Exchange to support the operations of domestic beneficiation and processing plants. Then, during the autumn session of Parliament, we will submit a draft amendment to formally revise this law in support of the domestic processing industry.

How will the changes to the royalty calculation method affect state budget revenues?

While the revised royalty calculation is expected to create a shortfall of approximately 50 billion MNT in the state budget, increased activity on the Mongolian Stock Exchange is projected to generate around 100 billion MNT more than in additional revenue enough to offset the deficit. 

"Mining Week 2025," which brings together stakeholders from the mining, extraction, and industrial sectors, will be held in September. What will be the highlights of this year's event?

Mining Week & MinePro 2025 will take place in Mongolia from September 11 to 13. The event continues to grow each year and serves as a central platform for professionals already active in the mining, industrial, and extraction sectors, as well as for those interested in investing in them.

It is also a forum where Mongolia's policies for the upcoming year along with its medium- and long- term strategies are presented and Government discussed. representatives, private sector leaders, and civil society stakeholders come together to share challenges, explore solutions, and exchange knowledge and information.

A key theme for the 2025 event will be fostering public understanding of the mining sector's value, discussing the equitable distribution of its benefits, and exploring opportunities for investment. There will also be conversations around professions that would I be in high demand in the future and the roles that the next generation can play in this evolving sector.

To support this, we've agreed with the Mongolian National Mining Association to launch the "Engineers of the Future" program, which will introduce the sector to university students and senior high school students. In addition, major industrial projects and initiatives will be showcased during the event.

What level of foreign involvement is planned for the "Copper Processing Complex" project? How are the technology, financing, and long-term partnerships being structured?

The feasibility study for the copper smelting plant has been approved by our ministry, and the project is now moving into the implementation phase. An international open tender will soon be announced to select a contractor for the plant's construction. Detailed information on this process will be shared during the Mining Pro event.

In parallel, I recently visited the Darkhan Metallurgical Plant to work on developing a framework for the operations of the steel complex, which is the second-largest industrial project. Mongolia has substantial geological reserves of both iron ore and copper. However, the beneficiation and processing segments of the industry have not been operating effectively or delivering the expected outcomes.

Our government, under the leadership of Prime Minister G. Zandanshatar, is committed to revitalizing these industrial plants and advancing clear, actionable policies in this area. At the upcoming MiningWeek & MinePro 2025 event, the Prime Minister, Deputy Prime Minister, and Ministers of Economy and Development, Finance, Environment and Climate Change, along with other sectoral leaders, will present policy directions and hear directly from investors and industry stakeholders.

What policies are being implemented to intensify exploration efforts?

Out of every $100 that enters Mongolia, $95 is earned by the mining sector. However, geological surveys in Mongolia are not limited to mineral resources alone-they also cover soil, flood risk, seismic activity, tectonics, and various other fields. In most countries, such foundational surveys are financed by the state budget. Broad-scale research is carried out to identify potential mineral-rich areas, and these data are submitted to the Mineral Resources and Petroleum Authority of Mongolia, which then issues exploration licenses through tenders.

Unfortunately, exploration investment in Mongolia remains very low. For example, while approximately 100 billion MNT has been generated from license auctions this year, only about 11 billion MNT has been allocated to exploration activities. This discrepancy reflects a failure to adequately communicate the sector's importance, resulting in delays to vital exploration work.

To address this, we are adopting the internationally Sustainable recognized Towards standard Mining (TSM) developed by the Mining Association of Canada. This framework promotes sustainable mining practices through inclusive stakeholder engagement and responsible governance.

Expanding the exploration sector and conducting strategic mapping to determine where and what mineral resources exist for future generations has been neglected-yet this is a critical function carried out by nearly every resource-rich nation. It is a matter of national security.

Globally, the number of exploration licenses is typically five times greater than exploitation licenses. In Mongolia, however, we see the opposite: exploitation licenses outnumber exploration licenses two to one. This is a serious imbalance- and we must recognize that it puts our future at risk.

Major deposits like Oyu Tolgoi, Tavan Tolgoi, and Tsagaan Suvarga were all identified thanks to exploration work conducted before 1990. Since then, our efforts have fallen short, leading to a decline in new resource discoveries and increasing uncertainty about the location and scale of untapped reserves.

That's why we must accelerate exploration and streamline procedures. Globally, it takes an average of at least 20 years to discover, develop, and bring a major deposit into production. This is directly tied to Mongolia's long- term sustainable development-and we must act now.

What percentage of Mongolia's total territory is covered by mining and exploration licenses?

There's a common public misconception that mineral licenses have been issued across the entire country but that's not true. Currently, Mongolia has 1,768 valid mining licenses and 973 valid exploration licenses. Mining licenses account for 3.1% of the country's total land area, while exploration licenses cover 1.3%.

In reality, about 80% of Mongolia's territory is either under special state protection or reserved by other legal and regulatory frameworks, making it ineligible for mineral licensing. Of the remaining 20% where licenses can legally be issued, much of the land lacks any identified mineral occurrences.

Some industry experts criticize the current regulations for issuing exploration licenses. Is there a need for changes going forward?

Absolutely, changes are necessary. At present, it's common for individuals or companies to acquire exploration licenses and then simply hold onto them for years without active work. Because obtaining a license is costly, many ordinary companies can't afford to participate. This allows well-funded entities-including many foreign investors-to accumulate multiple licenses. While acquiring a license is expensive, the cost of maintaining it is relatively low.

We plan to move toward a licensing model similar to those used in developed mining countries such as the United States, Canada, and Australia. In these systems, obtaining a license is affordable and straightforward, but companies are required to make their exploration data publicly accessible. You can't simply keep the information to yourself. License holders must perform drilling and exploration work annually on their licensed areas; failure to do so results in the license being revoked and returned to the state.

Additionally, we intend to implement a system where the annual license fees increase progressively over time. This will discourage license speculation and ensure that only companies genuinely committed to exploration and sector development remain active.

Discussions on the 2026 state budget are currently underway. What is the Ministry of Industry and Mineral Resources' policy for next year's budget? What major state-funded projects or programs are planned?

We need to ramp up exploration and research efforts-not only in the mining sector but also to better understand what lies beneath Mongolia's soil. It's crucial to understand where mineral resources are located, identify suitable sites for urban development, and assess potential risks in emergency situations. Such comprehensive studies are essential, as countries that conduct them effectively tend to attract greater investment.

Accordingly, the 2026 budget includes an allocation of 40 billion MNT for exploration activities. Moreover, if a proper legal framework was in place to allow the sector to be funded through its own revenues, we could potentially allocate between 60 and 70 billion MNT for exploration.

The oil refinery is scheduled to be commissioned in 2028. Is that timeline still on track? And how much investment is allocated in next year's budget to ensure Mongolia's financing share is maintained?

The oil refinery project is progressing steadily and remains on schedule. The portion of financing for which the Government of Mongolia is responsible will be included in next year's state budget to ensure uninterrupted funding. Once operational in 2028, the refinery is expected to produce 1.3 million tons of petroleum products annually, meeting approximately 55% of the country's domestic demand.

When will Mongolia finalize its list of critical minerals? What initial projects are planned in this area?

Finalizing the list of critical minerals is a key issue addressed in the proposed amendments to the Law on Minerals. Once clearly defined in the law, the list will be officially published. While many countries officially designate certain minerals as critical, the concept of "strategic deposits" is unique to Mongolia. For our country, coal, iron, and copper are currently classified as critical minerals. The law will also establish clear policy directions for this sector and outline how Mongolia will collaborate with other countries. 

Several rare earth element deposits have been discovered. Which one is likely to be developed first?

The Halzan Buregtei deposit is currently the primary focus among Mongolia's rare earth element sites. While Mongolia holds significant geological reserves of rare earth elements, transforming these resources into economically viable deposits requires substantial investment. This includes extensive drilling to confirm reserves and completing a comprehensive feasibility study. Such a study involves 7-8 detailed stages, and only after its completion can the project be presented to potential investors. This is an expensive and time-consuming process but essential to turn such resources into tangible assets.

At present, only a few rare earth deposits in Mongolia have reached this advanced stage of readiness. The Ministry remains committed to supporting these projects through targeted policy measures.

Since becoming Minister, you've emphasized that policies should be tailored to the specifics of each mining product. Can you elaborate? 

Yes, absolutely. It's unfortunate that Mongolia's economy is so heavily reliant on coal that fluctuations in coal prices can trigger widespread economic difficulties. This clearly highlights a policy imbalance. The mining sector needs product-specific policies distinct strategies for gold, copper, iron ore, fluorspar, and other minerals. Developing these tailored approaches is a highly technical and professional task, but it's crucial for sustainable and balanced growth in the sector.

President U. Khurelsukh issued a partial veto on the "Gold-3" campaign. How will the process move forward from here?

The President vetoed one provision of the campaign, but the rest of the initiative will proceed as planned. It's important to clarify that this resolution was not initiated by the Government but was proposed by a Parliamentary working group. When the autumn session of Parliament begins, the President's veto will be reviewed. During this review, the issue of adjusting the boundaries of specially protected areas mentioned in the resolution will likely be discussed.

Once the vetoed provision is resolved, the "Gold-3" campaign will continue. Although it may be too late to commence mining during this year's warm season, preparations will move forward under a policy framework that supports both financing and operational readiness. The campaign will focus on promoting legal gold mining and combating illegal mining activities.