Mongolia eases restrictions on foreign investors

Reuters

* New law aims to revive foreign investment

* Analysts say is step in right direction, but more to bedone

* Mongolia's growth closely tied to its vast copper, coalresources

By Terrence Edwards

ULAN BATOR, Oct 4 (Reuters) - Mongolia has passed a lawaimed at reviving foreign investment by easing restrictions oninvestors in key sectors such as mining and by providing greatercertainty on the taxes they must pay.

The new regulations take effect on Nov 1 and replace twoprevious laws, including one that imposed restrictions onforeign investments in strategic sectors after state-ownedAluminum Corp of China (Chalco) made a bid to takecontrol of Mongolia-focused coal miner SouthGobi Resources in 2012.

Investors and analysts said the new law was a step in theright direction following more than a year of uncertainty overinvestment rules, which many blamed for a slump of 43 percent inoverseas investment in the first half of 2013, on an annualbasis.

Economic growth in the sparsely populated and landlockedcountry is heavily tied to its vast copper and coal resources,and reinvigorating foreign investment has been a top priorityfor its government.

"Without a doubt, it is a very positive development," saidSam Spring, chief executive of Mongolia explorer Kincora Copper.

Under the new law, which had been on the cards for a fewmonths, private companies will no longer need governmentapproval to invest in the so-called strategic areas of mining,telecommunications and banking. Although firms that are at least50 percent state-owned will still need the go-ahead from a newagency.

The law also gives investors five to 22 years of "stability"on value added tax, corporate income tax, mining royalties andcustoms duties. That means they will pay tax rates that applywhen an investment is made for those periods.

The new investment law protects investors fromexpropriation, allows profits to be taken out of the country,and reaffirms the right to arbitration, Sereeter Javkhlanbaatar,head of foreign investment regulation and registration in theeconomic development ministry told Reuters.

While the new investment law marks a step forward,Independent Mongolian Metals & Mining Research analyst Dale Choisaid three key issues - the fate of an underground expansion atRio Tinto's Oyu Tolgoi copper mine, uncertaintyover 106 mining licences, and revisions to a rivers and forestslaw - still need to be resolved to restore foreign investorconfidence.

Centerra Gold needs revisions to the rivers andforests law in order to go ahead with its Gatsuurt project,which has been on hold since 2010.

Kincora Copper is among an estimated 11 foreign companiesand 67 Mongolia groups affected by uncertainty over the statusof mining licences.

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