Mining Minister speaks about policy and plans for gold mining in 2016


The following is an interview with Mining Minister R.Jigjid about gold mining and Gatsuurt.

Talks on issuing loans to gold mining companies started two years ago, but no progress has been made so far. Gold miners are still waiting. When will the government address this issue?

The government made a decision during the latter part of last year. Gold mining operations stop during winter and resume in spring. We are making preparations to resume operations smoothly. The Ministry of Mining has received the plans from mining companies for operations for this year. We have assessed how much each company extracted last year and their future plans, and have selected companies that are eligible for support and submitted their names to Mongol Bank. We need 256 billion MNT for this. This will be issued by commercial banks through the Central Bank. This can be understood as an issue that has to be discussed by Mongol Bank, commercial banks, and businesses. Since this is a risky business, the collateral will have to be agreed on through a discussion with businesses. We are currently at the discussion stage of this endeavor.

How many companies are eligible for government financial support? Is the list finalized? What will the interest rate of the loan be?

In the initial stage, we have selected almost 50 companies. We will shortlist them even further. Mongol Bank and commercial banks will make the final decision. We can assess their performance this year and decide on additional financial support.

Gold collection at Mongol Bank has increased in the last few years. How much gold was mined last year? Will gold prices rise? What are the prospects?

Mongolia has been carrying out the Gold Program over the last two years. In 2014, 13 tons of gold was extracted, which was a 2.6 fold increase from the previous year. Almost 15 tons of gold was extracted in 2015. The program is yielding results. To achieve this result, the tax environment was the major driver. For instance, mining royalties are set at five percent, but if gold miners sell their gold to Mongol Bank, their royalties are reduced to 2.5 percent. Price-based royalties have been set at zero. Through this measure, we were able to reduce the amount of gold from the black market and tax evasion, and gold collection at Mongol Bank has increased.
The gold collected from individuals has also increased. Around 40 to 50 percent of the gold sold to Mongol Bank is from individuals, according to latest statistics. Gold prices are relatively stable at the moment.

Parliament is split on the amount of shares the state should own from Gatsuurt mine. What was the agreement with the outside investors? Independent Parliament members said that the state should own 34 percent, or the amount of tax charged from the mine should become a fee instead.

According to the law, the state is entitled to own up to 50 percent of a mine if the exploration work for the mine was financed by the state, and 34 percent if exploration was privately funded. But that means that the state will need to invest 34 percent of a mine’s financing. This is a difficult choice to make during an economic decline. To invest the necessary funds, we will have to borrow. This will mean we will have to repay a loan and, at the same time, keep operations profitable in order to gain dividends. In other words, it will require time. Due to this factor, we have set a royalty of five percent, regardless of the size of a mine, to avoid the issues we faced with foreign investors in strategic mining projects in the past.
If gold prices are at 1,300 USD per ounce, the tax rate at Gatsuurt will be three percent. To clarify this again, the amount of tax will be determined based on the price of gold. If this mechanism is implemented, special payments will be made to the state after a sales order is completed.  In other words, instead of getting dividends many years after a successful operation, Mongolia will receive a three percent share every time a sale is made, regardless of whether the company is operating efficiently or not. For this mine, there are three types of special payments. This means that the Mongolian government can receive up to 13 percent in taxes.

How much money will the tax amount to?

The government will receive 432.3 billion MNT from the mine’s total sales. When we made these estimations, we accounted gold prices to be at 1,300 USD per ounce. Mongolia can pay off the amount of investment needed for its share within 5.2 years. From the total cash flow, the Mongolian government will receive around 68 to 70 percent of a mine’s output.

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Posted by on Jan 27 2016. Filed under Business & Economics. You can follow any responses to this entry through the RSS 2.0. You can skip to the end and leave a response. Pinging is currently not allowed.

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