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MINERAL SECTOR OF MONGOLIA

MINERAL SECTOR OF MONGOLIA. Presenter J.BILEGSAIKHAN Head of Mining Department of Mineral Resources and Petroleum Authority of Mongolia. Present level of Geological investigation in Mongolia. 99.1 % of the Mongolian territory is covered by geological mapping on a scale of 1:200 000,

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MINERAL SECTOR OF MONGOLIA

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  1. MINERAL SECTOR OF MONGOLIA Presenter J.BILEGSAIKHAN Head of Mining Department of Mineral Resources and Petroleum Authority of Mongolia

  2. Present level of Geological investigation in Mongolia • 99.1 % of the Mongolian territory is covered by geological mapping on a scale of 1:200 000, • 24.8 % of the Mongolian territory is covered by general exploration work and geological mapping on a scale of 1:50 000, • 84% of the Mongolian territory is covered by hydro-geological mapping on a scale of 1:500 000, • 22.5 % of the Mongolian territory is covered by gravimetric survey on a scale of 1:200 000 and 1:100 000, • 60 % of Mongolian territory is covered by aerial magnetic survey on a scale of 1:200 000, • 32 % of the Mongolian territory is covered by aerial multispectral survey on a scale of 1:50 000 and 1:25 000.

  3. 24.8% of the Mongolian territory is covered by general exploration work & geological mapping on a scale of 1:50000. This figure is expected to increase every year by 0.2 to 0.5 %.

  4. 100% 156.4 mil.hectar 35.8% 56.1 mil.hectar 45.1% 70.4 mil.hectar 0.5%, 0.8 mil.hectar 13.4% 21 mil.hectar 5.2% 8.1mil.hectar

  5. Exploration budgetMillion us dollar

  6. Exploration expenditure in 2006

  7. The mineral sector’s impact on the Mongolian economy(1)

  8. Production and Investment in Mining Preliminary estimations by MRPAM

  9. Mining sector

  10. Mining and petroleum production

  11. Petroleum Exploration Blocks

  12. Petroleum Exploration Blocks • Active exploration under PSC: Petro China Daqing Tamsag – XIX, XXI, XII; Dongsheng Gazriin tos – 1997PSC; Petromatad – XX; China Golden Sea Petroleum - XV • Application under consideration: • Block number – II, III, IV, V, VI, XI, XII, XVI,XVII, XVIII, XXIII, • Blocks for receiving applications: • Block number – VII, IX, X north, X south, XXVI, Block receiving applications by countries: Canada -1, Australia-1, Russia-2, Mongolia-2, China-2 Open blocks: • Block number – VIII, XIII, XIV, XXIV

  13. Investment and Production Petroleum Sector

  14. TAXES APPLICABLE TO MINING OPERATIONS 2002 2003 2004 2006 CORP. INCOME TAX 15% / 40% 15% / 30% 10% / 25% VALUE ADDED TAX (VAT) ON IMPORTED MINING EQUIPMENT 15% 0 ROYALTY 2,5% 2,5% / 5% ROYALTY FOR PLACER GOLD PRODUCTION 2,5% 7,5% 5% VALUE ADDED TAX ON GOLD PRODUCTION 15% 0

  15. WINDFALL TAX In 2006 the Mongolian parliament passed a law on excess profits tax (windfall tax). The windfall tax is imposed on gold when its LME-price exceeds 500 USD/ounce and on copper above a LME-price of 2600 USD/t. A tax rate of 68% applies to revenues that exceed above-mentioned price levels.

  16. Taxes in the mining sector of Mongolia Effective tax rate Gold, % Copper, % 30 25 20 percentage 15 10 5 0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 year

  17. Tax rates based on gold prices Effective tax rate/gold/ 80% 70% 60% 50% 40% 30% Effective tax rate 20% Rate in total expense 10% 0% 700 750 800 850 US$/ounce

  18. Tax rates for different copper prices Effective tax rate /Copper/ 60% 50% 40% 30% 20% Effective tax rate 10% Rate in total expense 0% 4000 5000 5600 6000 6500 7000 US$/ton

  19. Effective tax rate as calculated in paragraph 61 of Minerals Law Gold, % Copper, % 25 % 20 15 10 5 0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 years

  20. AMENDMENTS OFTHE NEW MINING LAW Strengthened issues on environmental protection and rehabilitation Extended rights of local administrative bodies License holders duties are increased Mining licenses are granted in two different ways: First come first serve basis on new exploration areas Tender biding on other areas

  21. AMENDMENTS OFTHE NEW MINING LAW Classification of Mineral deposits: - Deposits of strategic importance - Deposits of conventional mineral - Deposits of common mineral Governments Participation and Guarantee: the state may participate up to 50% jointly with a private legal person in exploitation of a mineral deposit of strategic importance where state funded exploration was used to determine proven reserves. The state may own up to 34% of shares of the investment made by a license holder of a mineral deposit of strategic importance where proven reserves were determined through funding sources other than the State budget.

  22. Strategic deposits in production

  23. Uranium deposits of strategic importance

  24. Strategic deposits in pre-operation stage

  25. LICENSE Period of validity of exploration licenses shall be 9 years. /3+3+3/ Pre-mine development operation /in з years under agreements/ Periods of validity of mining licenses shall be 70 years. /30+20+20/ Minimum exploration expenditure. / 0.0, 0.5, 1.0, 1.5 $/hа / Limited license transferring and mortgaging. Added an item stating that licenses can not be used for trading.

  26. Royalty Royalties for domestically sold coal or other conventional mineral resources are equal to 2,5% of sales revenue Royalty for minerals other than specified above shall be 5,0% of sales revenue Distribution of Royalty revenues: 70 % into the State budget 20 % into the budget of the aimag or capital city 10 % into the budget of the soum or district

  27. INVESTMENT AGREEMENT Investment agreement can be concluded if an investment of more than 50.0 mill USD is made within the first 5 years. 50,0 - 100,0 million USD 10 years 100,0 - 300,0 million USD 15 years 300,0 millionor more USD 30 years The agreement with an investor will be made jointly by cabinet members responsible for financial, geological, mining and environmental issues.

  28. Early result from negotiation on the investment agreement of Oyu Tolgoi deposit Share price of Ivanhoe mines

  29. COPPER DEPOSIT LOCATIONS FOR MINING-NON-FERROUS METALLURGICAL FACTORY PROJECT TOMURTEI ERDENET CORP. SHARIIN GOL TSAV ULAAN HUTUL TAVAN TOLGOI TSAGAAN SUBRAGA OUY TOLGOI

  30. Promising projects 30

  31. Prospective of production and predicted investment during the implementation of high promising projects

  32. Strategic Alliances Rio Tinto-Ivanhoe(Copper, gold) Erdene Gold-Xstrata (Coal) Barrick-QGX (Gold, copper) Mitsui-Ivanhoe (Power, coal, infrastructure) BHP-Asia gold-Ivanhoe (Coal, copper) Troy resources-Rio Tinto Phelps Dodge-Fortress (Copper) Basic Element, Renova and Severstal (Coal) IUC-Denison-Mongolian and Russian Governments (Uranium)

  33. Investors from Common Wealth in Mongolia 33

  34. THANK YOU FOR YOUR ATTENTION

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