MONGOLIA AT A CROSSROADS: A LOOK ACROSS THE MONGOLIAN STEPPES TO THE CHILEAN PAMPAS

• Jurisdiction: Derecho Internacional

International Mining and Oil & Gas Law, Development, and Investment
(Apr 2013)
CHAPTER 17A
MONGOLIA AT A CROSSROADS: A LOOK ACROSS THE MONGOLIAN STEPPES TO THE CHILEAN PAMPAS^*
Carolina Walther-Meade
Partner, Milbank, Tweed, Hadley & McCloy
New York

CAROLINA WALTHER-MEADE is a partner in the New York office of Milbank, Tweed, Hadley & McCloy and a member of the firm's Project Finance and Latin America Practice Groups. A partner since 2007, Ms. Walther-Meade has extensive experience in cross-border financings and international project finance and development, with an emphasis on oil and gas, infrastructure, mining and energy projects throughout Latin America. She has also been involved in numerous acquisition financings and structured financings in the region. Her practice includes representation of commercial bank syndicates, multilateral and export credit agencies and other lenders, as well as corporate developers and industrial groups. She spent one and a half years with Milbank based out of Brazil and continues to spend a significant amount of time in our São Paulo office. Her recent representations include lenders on a range of mining projects in the Dominican Republic, Chile and Mexico; sponsors in a variety of toll road and other transportation infrastructure projects in Peru, Panama and Mexico; providers of financing in numerous acquisitions in Latin America; and parties in energy-related projects throughout the region. Ms. Walther-Meade is consistently recognized as a leading project finance lawyer by Chambers Latin America. She grew up in Mexico and speaks Spanish and Portuguese fluently. She is an Advisory Board Member for the Women in Law Empowerment Forum.

A. Introduction

Few countries dominate the world's attention when it comes to mining like Mongolia does. Be it the country's discovery of some of the world's largest unexploited deposits, the Mongolian government's demands for renegotiation of mining concessions or its imposition of a seemingly endless moratorium on the issuance of exploration licenses, eyes have turned to Mongolia in simultaneous wonderment and befuddlement. One of the most recent significant developments is the Mongolian government's publishing of the Draft Minerals Law at the end of 2012 ("Draft Minerals Law"). Proposed as a replacement for the current Mongolian Minerals Act enacted in 2006 ("Mongolian Minerals Act"), a vote approving (or not) the Draft Minerals Law is expected for June 2013. The approval (or disapproval), of the Draft Minerals Law will have an immediate impact on the Mongolian mining sector and inevitably the country's long-term economic outlook, including potentially tipping the scales against (or for) the inclusion of Mongolia as a frontier market by the FTSE Group.ⁱ These events will determine whether one can expect the international financing community to continue to participate as potential financiers in formidable mining projects in the country.

No one knows what regulatory path forward (or backward depending on the perspective) Mongolia will choose--a determination upon which the return on significant amounts of foreign investment will depend. The resulting legal framework will, unquestionably, be a decisive factor in attracting or eliminating potential financiers. In this article we review a brief history of mining in Mongolia, the proposed regulatory regime and suggest that Mongolia look across the Mongolian steppes towards the Patagonian pampas of Chile for guidance.

B. History

I. Pre-1990's

Although the announcement of the Oyu Tolgoi copper and gold deposit discovery in 2001 shined a global spotlight on Mongolia's mineral reserves, it by no means marked the beginning of mining in the country. Archeological evidence of copper smelting shows Mongolian mineral deposits have been exploited since the Bronze Ageⁱⁱ and coal has been mined consistently for well over a hundred years.ⁱⁱⁱ

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Yet despite the long history, much of modern Mongolia's mining industry has been dominated by domestic coal consumption and characterized by relatively low levels of commercial exploration and exploitation relative to its reserves.^iv During the middle of the 20th century Mongolian state-owned companies employing Soviet capital and expertise engaged in exploration and development activities with their large neighbor.^v These joint ventures were the main mining activity that took place in the country and helped advance the sector. Most notably, the Erdenet Mining Corporation ("EMC"), formed in the 1970's, ramped up to full production between 1978 and 1983 and remains one of the top 10 copper mines in the world today.^vi

As a result of these joint ventures, by 1985 mineral products accounted for over 46% of Mongolia's exports.^vii Nonetheless, the lack of infrastructure combined with the landlocked remoteness of the resources from major markets prevented some of the higher grade coal resources and other known minerals from being extracted and...