Positive changes may be underway for foreign mining companies hoping to mine gold in Mongolia as the government has apparently drawn up legislation to ease the tax burden on gold mining companies.
The UB Post reported that the government has drafted amendments to the nation's minerals laws on gold, aimed at easing tax burden and to increase the volume of gold sold to the Central Bank of Mongolia.
The draft laws will also annul the windfall profits tax in order to bring the nation's royalties in line with international standards.
Mongolia's 2006 minerals law allows the government to impose taxes of 68% on shipments of gold and copper when the gold price exceeds $500/ounce and the copper price $2,600/t. A January 2007 study by Mineral Law and Economics Professor James Otto of the Colorado School of Mines found that the current Mongolian mineral sector tax system is not internationally competitive.
In his study, Otto said Mongolia's mining tax system includes a 5% royalty, a 5% import duty, a 20% withholding tax, and a 68% excess profits tax.
Last year, 10.5 tonnes of gold was sold to the Central Bank of Mongolia. However, mining companies have been holding on to their gold to avoid paying the hefty tax, according to the UB Post. As a result, gold revenues normally anticipated to help fund the Mongolian government budget are falling short.
Unless the Mongolian Parliament amends the mining tax laws, the country could continue to discourage foreign mining investment, experts have warned. IIn hi
Most companies would hesitate to invest in any project not yielding an internal rate of return of at least 12%, Otto wrote. The mine model analysis indicated that under the current Mongolian system the IRR for the model mine would be about 8.6%, thus not meeting the financial investment profitability criteria of all companies.
Most international base-metals exploration/mining companies will find the current Mongolian mining tax system unacceptable. Mining companies have many alternative nations to invest in, and nations with favorable geology and lower tax impositions have an advantage over higher taxing nations. Under the current system it is doubtful that any new major base metals mine could achieve a level of profitability that would be sufficient to meet the requirements of those lenders that finance mining projects.