BEIJING Nov 25 (Reuters) - Mongolia's decision to revoke hundreds of gold mining licenses last week has alarmed investors but the government's efforts to clean up its mining sector could have long term benefits, the head of a foreign fund said.
Mongolia's energy and mining minister Dashdorj Zorigt announced late last week that 254 gold mining licenses would be suspended for violating the country's environmental laws, while another 1,700 licenses would be put under review.
The move came after a series of policy changes over the last year aimed at bringing the booming but still nascent industry under greater supervision and control.
In April, Mongolian president Tsakhia Elbegdorj ordered a halt to the issuance and transfer of mining licenses until parliament passed a new and stricter law.
Small and unqualified miners were the main target of the new rules, Eric Zurrin, chief executive of ResCap, an investment fund active in Mongolia, told Reuters.
"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," he said.
The gold projects suspended last week were said to contravene the country's new water and forest law, which bans mining activities in water basins and forests.
Mongolia, under pressure to develop its economy, has sought to open up its mining sector to foreign investors, but it has already led to a backlash.
In September, Mongolian 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 kilometres north of Ulan Bator, which they accused of running roughshod over local environmental laws.
But the ambiguities in the legislation are causing uncertainty, experts have said.
Graeme Hancock, senior mining specialist with the World Bank in Ulan Bator, told Reuters that the law passed last year did not offer any definition of water basins or forest areas, leaving it unclear what projects would be under threat.
"It was a knee-jerk reaction that isn't justified," he said. "The answer lies in creating a sound management framework, not in just trying to ban it. The problem now is that by banning these projects, they will be replaced by ninja miners -- and that is a worse outcome than what they had."
So-called ninja miners are local herdsmen who dig in resource-rich areas in hope of finding valuable minerals.
Mongolia, described by some investors as "Minegolia", is home to vast, untapped deposits of coal, copper, gold, uranium and other minerals, including the Oyu Tolgoi copper-gold mine and the Tavan Tolgoi coking coal deposit, both of which are among the biggest of their kind in the world.
The government has been struggling to find the right mix of policies that will enable it to avoid the mistakes made by other poor but mineral-rich countries, and some of its decisions have caused alarm.
Khan Resources , a Canadian miner, saw its uranium mining permits cancelled earlier this year and it continues to fight the decision in the courts. [ID:nN12167314]
A Mongolian-based mining executive told Reuters that a policy allowing the government to turn any deposit into a "strategic national resource" was especially worrying
"If the Mongolian government can revoke our licenses with immediate effect and declare the mines to be a strategic national resource, where does that leave us?" he said.
The government spent five years negotiating terms with Canadian miner Ivanhoe Mines on the development of Oyu Tolgoi, finally making a breakthrough late last year after agreeing to abolish a windfall tax on mining profits.
Investors said the windfall tax has slowed progress in Mongolia's mining sector.
"Potential investors have been focusing on coal," said Zurrin, referring to a mineral not covered by the tax.
"But the interesting one is the copper-gold belt, where very few are looking right now. Because of the 68 percent windfall tax investors just said, 'Forget it, I'll look for coal'."
(Reporting by David Stanway, Editing by Clarence Fernandez)
sowurce: Reuters
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