Windfall tax (Mongolia)

Last updated

The Windfall tax or windfall profits tax in Mongolia was a taxation on the profits made by mining companies operating in Mongolia. It was implemented in 2006 and was the highest windfall profits tax in the world. It was a tax on unsmelted copper and gold concentrate that was produced in Mongolia. The tax was repealed in 2009 and phased out over two years. Repealing the 68% tax law was considered essential to enable foreign mining companies to invest in mineral resources development of Mongolia.

Contents

Implementation

The tax was initially proposed to the State Great Khural (the Mongolian Parliament) in 2005, initially taxing copper and gold profits when their respective prices reach $2,600 per tonne and $500 per troy ounce. The bill passed in May 2006, a change to the law occurred in 2006 changing the gold price that would be taxed to $650 per ounce, [1] and eventually to $850 per ounce. The tax rate was 68%, which was the highest in the world. [2] The tax was implemented with the hopes that copper mining companies would smelt their copper within the country rather than shipping concentrate out [1] as there would be no windfall tax if the material was smelted in Mongolia. [3]

The implementation of the tax was not anticipated by Vancouver-based Ivanhoe Mines, owners of the Oyu Tolgoi Project in Mongolia. Following the announcement by the government shares of Ivanhoe (traded on the Toronto Stock Exchange) dropped over 21% (or CA$2.22)). [4]

Opposition

Ivanhoe made the case that addition of a smelter to the Oyu Tolgoi Project would increase the capital required to bring the project into production. Others suggested that the small scale independent miners would simply not report their full production to the government, or turn to smuggling to avoid the tax. [3] There was opposition to the rate being established by the Mongol Bank by appointment of the government, and a claim that it was against the constitution. The Constitution Court of Mongolia later determined that this was not a violation. [1] In 2009 the tax was repealed with a phase out period lasting until 2011. [3] [5]

Repeal

Rio Tinto and its partner Ivanhoe Mines made the scrapping of the tax a precondition to their signing an agreement to establish the Oyu Tolgoi mine, a major copper-gold mining project in the Gobi Desert. The government agreed to the removal of the tax in return for an increase in royalties from Oyu Tolgoi. The tax was repealed in early 2011, with Oyu Tolgoi commencing commercial production in 2013. [6]

Related Research Articles

Robert Martin Friedland is an American/Canadian billionaire financier in the mining industry. Since the early 1980s, he has specialized in securing funding for the exploration and development of mineral and energy resources and technology ventures. He is the founder and chairman of his private, family-owned firm, Ivanhoe Capital Corporation, which is active in capital markets, focused on emerging markets. He is the founder and co-chairman of Ivanhoe Mines – a Canadian public company listed on the Toronto and OTCQX exchanges.

Centerra Gold

Centerra Gold Inc. is a Canadian mining company that owns and operates the Kumtor Gold Mine in the Kyrgyz Republic, the Mount Milligan copper-gold mine in British Columbia, Canada, and the Öksüt gold mine in Turkey. Through its Thompson Creek Metals subsidiary company, it also own the Endako and Thompson Creek molybdenum mines in British Columbia and Idaho, respectively, though they have been inactive since Centerra's acquisition. The company formerly owned and operated the Boroo Gold Mine in Mongolia. Headquartered in Toronto, Centerra Gold is a public company with shares traded on the Toronto Stock Exchange and New York Stock Exchange.

Tavan Tolgoi Mongolian coal mine

Tavan Tolgoi is one of the world's largest untapped coking and thermal coal deposits, located in the Ömnögovi Province in southern Mongolia. It has a total estimated resource of 6.4 billion tonnes, one quarter of which is high quality coking coal. It is divided into six sections: Tsankhi, Ukhaa Khudag, Bor tolgoi, Borteeg, and Southwest and Eastern coalfields. The Tsankhi section is the largest part, and is divided into East and West Tsankhi - these have had the most focus recently.

Oyu Tolgoi mine Mine in Mongolia

The Oyu Tolgoi mine is a combined open pit and underground mining project in Khanbogd sum within the south Gobi Desert, approximately 235 kilometres (146 mi) east of the Ömnögovi Province capital Dalanzadgad. The site was discovered in 2001 and is being developed as a joint venture between Turquoise Hill Resources with 66% ownership and the Government of Mongolia with 34%. The mine began construction as of 2010 and shipped its first batch of copper on 9 July 2013.

Mineral industry of Peru

The mineral industry provides a major source of economic growth in Peru's national development. In 2006, Peru occupied a leading position in the global production of the following mineral commodities: fourth in arsenic trioxide, third in bismuth, third in copper, fifth in gold, fourth in lead, fourth in molybdenum, fourth in rhenium, first in silver, third in tin, and third in zinc. In Latin America, Peru was the first ranked producer of, in order of value, gold, silver, zinc, lead, tin, and tellurium and the second ranked producer of copper, molybdenum, and bismuth.

Canada–Mongolia relations Diplomatic relations between Canada and Mongolia

Canada–Mongolia relations are foreign relations between Canada and Mongolia. Both countries established diplomatic relations on November 30, 1973. Canada has been represented in Mongolia through an embassy since 2008. Mongolia has an embassy in Ottawa, and in 2002 opened an Honorary Consulate in Toronto. Though Canada and Mongolia established diplomatic ties in 1973, ad hoc linkages and minor activities occurred between the two countries mainly through the Canada-Mongolia Society, which disbanded in 1980. When Mongolia formed a democratic government in 1991 after the collapse of the Soviet Union, Canada began to support Mongolia with donor activities through the International Development Research Centre, Canadian International Development Agency and several non-governmental organizations.

Mining had a very small impact on the Ecuadorian economy back in the 1980s, contributing only 0.7 percent to the GDP in 1986 and employing around 7,000 people. Minerals were located in regions with little to no access, thus exploration activities were hindered. Although it was believed that Ecuador had reserves of gold, silver, copper, zinc, uranium, lead, sulfur, kaolin and limestone, the latter practically dominated the industry as it was used in local cement plants.

There are different methods by which gold mining companies are ranked. One is by their annual production. Another is by their cash cost per ounce, that is, how much money it costs them to mine the gold. Since gold prices are the same everywhere, companies with lower costs per ounce make more profit. The most common method lists by market capitalization which considers the total value of capital holdings by that company. Also considered when comparing companies is their market capitalization per ounce of gold equivalent which takes the market value and total reserves and resources for each company as well as the price of gold into consideration. The figures for each company can be used to determine the value the stock market gives to each company's reserves on an ounce to ounce basis.

Mauritania's mineral sector was dominated by iron ore mining and beneficiation. Other mineral commodities produced in the country included cement, copper, gold, gypsum, petroleum, salt, and steel. The Ministère des Mines et de l’Industrie was the Government agency responsible for enacting the Mining Code and for the coordination of all activities in the mining sector. The Direction des Mines et de la Géologie was the entity responsible for promoting the mineral sector and for providing geologic and mining information to potential investors; the Direction des Hydrocarbures was in charge of the development of the petroleum sector; and the Office Mauritanien des Recherches Géologiques was the Government entity responsible for evaluating areas of mineral potential for exploration. Société Nationale Industrielle et Minière (SNIM) was responsible for iron ore production and benefciation.

Turquoise Hill Resources is a Canadian mineral exploration and development company headquartered in Montreal, Quebec, a majority-owned subsidiary of Rio Tinto Group. Its principal and only material mineral resource interest is a 66% share of the Oyu Tolgoi Copper-Gold Mine in Southern Mongolia 200 km east of Dalanzadgad. The company was called Ivanhoe Mines until August 2, 2012 when a financing agreement was completed with Rio Tinto.

Hugo Dummett

Hugo T. Dummett (1940–2002) was a South African mineral-exploration geologist who is best known for his role in the discovery of the Ekati Diamond Mine in the Barren Lands of Canada's Northwest Territories. Dummett has been described as "the brains, the ideas and the energy" behind the discovery of Ekati, which led to the creation of a new Canadian diamond-mining industry.

Centres of mining operations include Konkola and Kitwe.

Robinson Mine

The Robinson Mine is a porphyry copper deposit located at Ruth, White Pine County, Nevada, in the Egan Range, 4 miles (6.4 km) west of Ely. The mine comprises three large open pits: Liberty, Tripp-Veteran and Ruth. The ore is extracted using conventional surface methods, and is then processed into a copper-gold concentrate, and a molybdenum concentrate in a concentrating plant. Since 2012 the mine has been owned and operated by Polish copper miner KGHM Polska Miedź S.A.

Khanbumbat Airport Airport in Khanbogd, Ömnögovi, Mongolia

Khanbumbat Airport is an airport in Khanbogd, Ömnögovi, Mongolia. The airport's construction was funded by the adjacent Oyu Tolgoi mine. It is the second airport in passenger traffic in Mongolia after Buyant-Ukhaa International Airport. The airport serves nearly 100,000 passengers annually.

Mining in Mongolia

Mining is important to the national economy of Mongolia. Mongolia is one of the 29 resource-rich developing countries identified by the International Monetary Fund and exploration of copper and coal deposits are generating substantial additional revenue. Coal, copper, and gold are the principal reserves mined in Mongolia. Several gold mines are located about 110 kilometres (68 mi) north of Ulaanbaatar, such as Boroo Gold Mine and Gatsuurt Gold Mine. Khotgor Coal Mine is an open-pit coal mining site about 120 kilometres (75 mi) west of Ulaangom. Ömnögovi Province in the south of Mongolia is home to large scale mining projects such as the Tavan Tolgoi coal mine and the Oyu Tolgoi copper mine. Oyu Tolgoi mine is reported to have the potential to boost the national economy by a third but is subject to dispute over how the profits should be shared. The International Monetary Fund (IMF) has estimated that 71 percent of the income from the mine would go to Mongolia.

Mining in North Korea is important to the country's economy. North Korea is naturally abundant in metals such as magnesite, zinc, tungsten, and iron; with magnesite resources of 6 billion tonnes, particularly in the North and South Hamgyong Province and Chagang Province. However, often these cannot be mined due to the acute shortage of electricity in the country, as well as the lack of proper tools to mine these materials and an antiquated industrial base. Coal, iron ore, limestone, and magnesite deposits are larger than other mineral commodities. Mining joint ventures with other countries include China, Canada, Egypt, and South Korea.

Copper mining in Mongolia is a major industry and source of income for the country. There are only two companies that produce copper concentrate, Erdenet Mining Corporation, a Mongolian-Russian joint venture, and the Oyu Tolgoi mine, a joint venture between Rio Tinto Group, Turquoise Hill Resources, and the Government of Mongolia. Until 2010 copper was Mongolia's largest export.

Byambasaikhan Bayanjargal

Bayanjargal Byambasaikhan is a Mongolian business executive specialized in energy, infrastructure and mining investment and financing. He played leading roles in closing several of Asia's landmark project finance transactions. He is known as the clean energy pioneer in Mongolia having successfully developed and commissioned the country's first utility scale wind power project. This paved way for half a billion dollars of private sector investment in Mongolia’s renewables industry through 2019. Byambasaikhan's interests are in areas of energy, clean energy and regional infrastructure connectivity.

SouthGobi Resources is a coal mining company listed on the Hong Kong Stock Exchange and Toronto Stock Exchange. The company's primary asset is a coal mine and development projects of coal assets in Mongolia.

References

  1. 1 2 3 "2006 Minerals Yearbook - Mongolia" (PDF). United States Geological Survey. p. 15.1. Retrieved 13 May 2013.
  2. ↑ Pistilli, Melissa (12 March 2012). "Resource Investors to Watch Mongolian Parliamentary Elections". Resource Investing News. Retrieved 13 May 2013.
  3. 1 2 3 Hornby, Lucy (25 August 2009). "Mongolia repeals windfall tax, paves way for Ivanhoe". Reuters . Retrieved 13 May 2013.
  4. ↑ "Ivanhoe 'surprised' by new Mongolian windfall tax". CBC News . 15 May 2006. Retrieved 13 May 2013.
  5. ↑ "Mongolia tax repeal clears way for $4 bln mine". China Mining. 28 August 2009. Retrieved 13 May 2013.
  6. ↑ "Mongolia To Rescind Mining Windfall". Tax-news.com, Honkong. Retrieved 14 May 2013.
This page is based on this Wikipedia article
Text is available under the CC BY-SA 4.0 license; additional terms may apply.
Images, videos and audio are available under their respective licenses.