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Mongolia to Sort-Out Gold Mining Licenses

Mongolia’s government is reviewing a list of more than 1,700 mining licenses for possible termination under regulations aimed at environment protection, a senior official told reporters.

The suspended gold projects were said to contravene the country’s new Water and Forest Law, which bans mining activities in water basins and forest areas of the landlocked country, where water is in scarce supply.

In September, local environmental activists armed with hunting rifles opened fire at the site of a gold mine owned by China’s Puraam and Canada’s Centerra Gold about 100 kilometers north of Ulaanbaatar, which they accused of running roughshod over local environmental laws.

The number of licenses to be reviewed for termination compares with a total of about 4,000 mining licenses that the country has issued to date.

Regulations have been established to compensate license-holders facing losses as a result of the law, Mongolia’s minister for mineral resources and energy D. Zorigt said to Mongolian daily Udriin Sonin.

Michael Waring from Toronto-based Galileo Global Equity Advisors said the review shouldn’t be viewed as an attack on foreign miners.

“Mongolia is only really moving towards where the rest of the developed mining world is already at, in terms of protecting watersheds,” he said in an interview to The Wall Street Journal.

Mongolia’s vast and largely untapped mineral and energy resources have attracted a surge of interest from mining companies and investors, particularly in the past year. A number of major mining companies with assets in Mongolia are listed on stock exchanges in Canada and Hong Kong.

However, the revocation of the licenses highlights the regulatory risks businesses operating in Mongolia face as the country comes to grips with the implications of its resource boom.

According to Zorigt, names of companies whose licenses are to be terminated would be announced at a later date.

“Where only part of the area is in law violation, licenses may be partly terminated,” he said, while adding that “some mines may be classified as strategic deposits, in which case they could be exempted from the law, though the government would then acquire an equity stake in the project.”

“Too many outsiders were trying to pick up licenses in a bit of a lottery and trade, and you know what that can lead to. These licenses need to be properly explored and well thought through,” Eric Zurrin, ResCap chief executive, an investment bank active in Mongolia, said to Reuters.

At the same time, some experts consider that the law did not offer precise definition of water basins and forest areas, leaving it unclear what projects would be under threat.

Department of geology, mining and cadastral units at the Minerals Resources Authority have not yet taken a decision to invalidate gold mining licenses in environmentally sensitive areas.

There are four requirements that have to be met before any license can be terminated. The government must define the specific boundaries where the offending licenses breach the law, specify compensation procedures and rules, allocate the compensation money, and there has to be an individual compensation agreement with every license holder.

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