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Mongolia mineral royalties review

by Pietro Guj | Jul 29, 2021
A review of the Mongolian mineral royalty regime, recently completed by Pietro Guj as part of the Australia Mongolia Extractive Program (AMEP) funded by the Department of Foreign Affairs and Trade, has identified a few anomalies requiring amendments to the Mongolian mining legislation.
The anomalies arise from a too literal interpretation of the term 'sales value' leading to royalties being levied on 'minor metals' contained in ores and concentrates irrespective of whether the miners have received a 'credit' for them or not. In some cases, royalties are levied on metals that may not be technically recoverable or that may occur in concentrations so low as to make the likelihood of their recovery highly improbable even under scenarios of vast improvements in metallurgy and/or market prices.
At the limit royalties are even levied on 'minor metals' where the mineral product containing them incurs a price 'penalty' because they are deleterious to the smelting and refining processes. These are patently a very unfair set of circumstances that needs to be rectified. The AMEP report recommends exempting from royalties all non-precious 'minor metals' for which miners receive no 'credits'. Savings from the simplification of the administrative system will in part offset the modest amount of revenue that government would have to forego if this recommendation is implemented. By contrast, as miners receive 'credits' for the majority of the precious 'minor metals' in concentrates, exempting from royalty the difference may not be justifiable on account of the related additional administrative complexity and compliance costs.