Эрдсийг эрдэнэст
Ирээдүйг өндөр хөгжилд
Ирээдүйг өндөр хөгжилд
Mining The Resources
Minding the future
Minding the future
R. Renchindulam
The Nuclear Energy Law, adopted in 2009, aimed to develop Mongolia’s nuclear energy sector and enhance the exploration and extraction of radioactive minerals. The draft amendments to the Law on Nuclear Energy, along with other related sublaws were discussed and approved during the plenary session of the Parliament’s regular autumn session on November 21, 2024.
This establishes a legal framework for utilizing strategically important deposits, introducing advanced technologies, and producing value-added final products. It also includes the signing of an Investment Agreement for the joint Mongolian-French Zuuvch- Ovoo uranium project to be implemented in Ulaanbadrakh soum, Dornogobi aimag.
This does not guarantee that the uranium project will proceed smoothly. The investment agreement with the French state-owned Orano Mining Group is yet to be discussed in Parliament. Once finalized, it will outline how the project can be mutually beneficial for both the investor and Mongolia.
The uranium project was first discussed at the highest level during French President Emmanuel Macron’s state visit to Mongolia in May 2023. Later, during his official state visit to France in October 2023, Mongolian President U. Khurelsukh signed agreements and related documents to strengthen ties in various sectors, including uranium mining, energy, and telecommunications.
Thus, the signing of a cooperation protocol in the uranium sector between the two countries activated the Zuuvch-Ovoo project, implemented by Badrakh Energy LLC, and laid the foundation for future major projects and programs.
The protocol of the agreement states that if 10% state ownership is preferred, there will be no financing obligations for the state. During the term of the investment agreement, both parties will receive dividends from owning preferred shares in the joint project, paid in advance, on mutually agreed terms. It will be prohibited from making any changes to the rules of the company without the consent of both parties. However, more than a year has passed since the agreement was made, little significant progress has been made. This delay was primarily due to the lack of a clear legal framework. Specifically, if an investor were to pay incremental mining royalties, none of the existing laws in the country clearly defined how these royalties should be calculated for radioactive minerals. As a result, amendments are being made to the Nuclear Energy Law, which has remained unchanged for 15 years since its adoption in 2009.
According to the working group, amendments to the Law on Nuclear Energy were made in accordance with Article 6.2 on the exploitation of mineral deposits of strategic importance complying with the principles thatnatural wealth is subject to the people’s control/ power, and the legal basis to allot a majority of the benefits gained from it to the people shall be determined by laws of the Constitution. In other words, with the implementation of the project, Mongolia’s share of the benefits will align with the “50+1” principle, granting the right to receive mining royalties from sales within the framework of the law.
ROYALTY IS MORE THAN 14%
The Zuuvch-Ovoo uranium project, implemented by Badrakh Energy LLC, which holds three operating licenses in Dornogobi aimag, will process uranium oxide (yellowcake) for use as nuclear fuel and export it to France. Currently, Mongolia expects to receive a royalty payment of over 14% from product sales. A total royalty of 14% will be charged, consisting of a basic royalty of 5%, a special royalty of 5%, and an incremental royalty of 0-9%, depending on market prices (currently 4%). If demand for yellowcake increases in the market, the total royalty could rise to 19%. The International Atomic Energy Agency (IAEA) estimates that global uranium demand will grow from 93,000 tons in 2024 to 177,000 tons by 2050.
In addition to the draft amendments to the Nuclear Energy Law, changes are also being made to the Tax, Corporate, and Investment Laws. For example, common shares have been converted into preferred shares. However, the law stipulates that these changes apply only to this specific project. This amendment creates an opportunity to continue negotiations for the Investment Agreement.
Let me highlight some of the key items being discussed for inclusion in the Zuuvch- Ovoo uranium project and the Investment Agreement:
Regarding the benefits of the Zuuvch-Ovoo project: if the Mongolian side agrees to take a 34% stake and receive only the basic royalty, it must also provide financing for 34% of the $1.6 billion required to implement the project. This is because, under the Law on Minerals, if state-funded exploration was used to determine the proven reserves, the state may own up to 50% of a strategically important mineral deposit. However, if the proven reserves were determined by the private sector, the state’s ownership may be limited to up to 34%.
If that principle is followed, preliminary estimates suggest that, in addition to generating a net profit of $169 million per year, the Mongolian government will need to begin paying for its share of 34% of the investment, amounting to $125 million, starting from the time the Investment Agreement is signed. However, if dividends are collected from the 10% preferred shares, along with basic mining royalty, special royalty, and incremental royalty, the net profit will be reduced by $11 million.
Most importantly, the working group clarifies that the Mongolian government will not be required to pay for its 34% share of the investment, incur any financial liabilities, or face future debt, unlike the Oyu Tolgoi project.
In other words, Mongolia will receive dividends from the 10% preferred shares and will also earn income from taxes and fees on the 24% of the project it owns.
This includes a total of 13 different types of taxes and fees: a 25% corporate income tax (on amounts exceeding 6 billion), customs tax, VAT, special taxes, taxes on the use of common mineral resources, real estate tax, air pollution fees, water resource use fees, road use fees, land fees, permit fees, resource use fees, and fees for the use of motor vehicles and self- propelled vehicles. Taken together, these are expected to help achieve the “50+1” principle.
ISSUES TO BE ADDRESSED IN THE ONGOING INVESTMENT TREATY NEGOTIATIONS FOR THE “ZUUVCH-OVOO” URANIUM PROJECT
G. Manlaijav, Secretary of the Office of the Atomic Energy Commission, stated: “The project will generate 250 tons of radioactive waste. Waste management, in accordance with relevant international and Mongolian laws and regulations, will be included in the Investment Agreement. Three types of waste will be generated during the project, and it has been agreed that waste will be handled in three ways: building a plant to destroy flammable and hazardous materials, burying radioactive waste such as containers and gloves contaminated with yellowcake, and incinerating regular waste.”
The investment agreement is currently over 60% complete. The most contentious and challenging issues in the agreement involve local community health, environmental impact, rehabilitation, and the conditions for depositing advance closing contract payments.
The investor proposes depositing the funds in an international financial institution and issuing a guarantee. In contrast, the Mongolian side suggests depositing the funds in the Mongol Bank. To do this, they propose opening a special foreign exchange account at the Mongol Bank for the deposit.
The investor will not deposit the entire amount at once, but will instead deposit over $10 million per year, totaling approximately $320 million by the project’s closure. The working group believes this money could be deposited in the Mongol Bank at an interest rate of 4.8%, potentially growing to over $600 million.
The second issue is whether yellowcake should be considered a final product. The Government of Mongolia included yellowcake in the list of finished products under Resolution No. 286, dated November 10, 2010. As a result, VAT cannot be collected on yellowcake. Therefore, the government needs to reconsider the VAT status of yellowcake.
DANGERS AND RISKS OF URANIUM MINING
There are five countries capable of enriching uranium, and they are the five permanent members of the UN Security Council. France is one of these countries and derives 68% of its energy from nuclear power. In other words, we are collaborating with a country that has extensive experience in operating uranium mines.
Additionally, the Zuuvch-Ovoo project has undergone external research conducted by the Academy of Sciences as well as French and Canadian companies. This research will continue even after production begins. So far, the research has not identified any significant risks, and it is considered safe to proceed with the project, provided safety guidelines are followed. The groundwater in the Gobi region is located 20-25 meters below the surface.
The uranium is located at a depth of 120-160 meters, within a layer of muddy sand. Therefore, it is believed that mining the uranium will not affect the groundwater.
The Zuuvch-Ovoo uranium deposit will be mined using an underground leaching method. In this process, water is first pumped deep underground to dissolve the uranium. The resulting uranium-rich solution is then pumped to the surface, where the uranium is separated from the water. The water is then returned underground for reuse. Experts explain that this process is similar to dissolving sugar in water.
The fluid pumped into the well consists of 99% water and 1% sulfuric acid. Currently, 50-60% of uranium mines worldwide use this underground leaching technology. In other words, if safety protocols are followed, there are no significant technological risks.
It is also clear that a mutual agreement with local communities will be necessary, while also ensuring the protection of the investors’ interests. The investors have proposed allocating $1 million annually for local development. The details of these arrangements will become clearer once the Investment Agreement is signed.
NUCLEAR POWER PLANT
Currently, Mongolia has 192.2 thousand tons of uranium reserves, accounting for 2% of the world’s total uranium reserves. More than 10 deposits have been discovered and identified through exploration.
With such resources, we cannot remain a country that only produces yellowcake. Since we are mining radioactive minerals, it is only natural that we should have a nuclear power plant.
Producing 1 kWh of energy using nuclear fuel emits 68 times fewer greenhouse gases than using coal. This is why the world is shifting away from generating energy from solid fuels and moving toward more advanced technologies. Evidence of this shift is seen in the fact that 32 countries currently operate 440 nuclear reactors, with 63 new reactors under construction, 88 planned, and 344 more projected for the future.
However, building a nuclear power plant is not an easy task. According to the working group, it takes at least 8 years to build a 350 MW nuclear power plant, and 15 to 20 years to construct a larger one. While we may be able to wait this long, the working group has not provided a definitive answer on whether or not to proceed with building a nuclear power plant.
The Coalition Government’s Action Plan includes initiating basic research on nuclear power plants. Once this program is incorporated into the Action Plan, we will have to begin this work.
The Zuuvch-Ovoo deposit is expected to produce 2,500 tons of uranium oxide per year. The project will also begin generating dividends from its 10% preferred stake starting in 2028, when uranium exports commence. The working group estimates that, along with additional tax revenues, the project will generate a total profit of $5.6 billion over its lifetime. Why not take advantage of these economic benefits to build a nuclear power plant and eliminate energy dependence?
The successful implementation of the uranium project is expected to fundamentally expand Mongolia’s economy, including advancing the energy sector, attracting investors to large- scale projects, and opening up significant geopolitical opportunities and pathways.
