minerals law of mongolia

MINERALS LAW OF MONGOLIA

June
5, 1997

Ulaanbaatar

CHAPTER ONE

General Provisions

Article 1. Purpose of
the law

The purpose of this law
is to regulate relations with respect to exploration, mining and
related activities within the territory of Mongolia.

Article 2. Legislation
on minerals

1. Mineral related
   legislation consists of the Constitution of Mongolia, the Subsoil
   Law, this law and other relevant legislation which is consistent
   with those laws.

1. If an international
   treaty to which Mongolia is a signatory is inconsistent with this
   law, then the provisions of the international treaty shall prevail.

Article 3. Scope of
this law

This law shall regulate
relations with respect to exploration and mining of all types of
mineral resources except water, petroleum and natural gas.

Article 4. Definitions

In this law the following
terms shall have the following meaning:

1. "mineral"
   means any usable naturally occurring mineral concentration that has
   been formed on the surface or in the subsoil as the result of
   geological evolutionary processes;

2. "mining"
   means the entire range of activities that include separating and
   extracting minerals from the earth, course of water, ore stockpile
   or tailings, increasing the concentration of their usable contents,
   transforming these usable contents into marketable products, and
   marketing and selling those products;

3. "mining
   license" means the right to conduct mining granted by the
   Office of Geological and Mining Cadaster (OGMC) in accordance with
   this law;

4. "exploration
   license" means the right to conduct exploration granted by the
   OGMC in accordance with this law;

5. “registration of
   an application" means the official recording in the register
   maintained by the OGMC of applications for exploration or mining
   licenses and the transfer of such licenses;

6. "license
   cartographic register" means the official cartographic register
   maintained by the OGMC showing the boundaries of areas subject to
   mining and exploration licenses and any changes thereto;

7. "prospecting"
   means investigation to identify mineral concentration without
   disturbing the subsoil through physical observation, rock sampling,
   airborne surveys, and reviewing related geological and minerals
   information;

8. "exploration"
   means activities carried out on and under the earth's surface for
   the purpose of identifying the existence, location and quantity of
   mineral concentration and determining the technical and commercial
   feasibility of mining such mineral concentration. Exploration
   includes trenching, digging, opening and closing pits, drilling,
   removal and assaying of samples, pilot testing, geophysical surveys,
   and remote sensing;

9. "license fee"
   means the payment that a license holder makes as provided in this
   law in order to maintain the license effective;

10. "license
    holder" means the person to whom an exploration or mining
    license has been granted or transferred in accordance with this law;

11. "reserved area"
    means an area which has been rendered temporarily unavailable for
    grants of licenses pursuant to Article 7 of this law;

12. "special needs
    land" means land taken by authorized government entities
    pursuant to the Land Law for special public needs where exploration
    and mining are restricted or precluded;

13. "mining area"
    means the area granted under a mining license;

14. "mining claim"
    means a part of the earth in the form of an inverted pyramid whose
    apex is the center of the earth and whose base is a mining area;

15. "exploration
    area" means the area granted under an exploration license;

16. "exploration
    claim" means a part of the earth in the form of an inverted
    pyramid whose apex is the center of the earth and whose base is an
    exploration area.

17. “hard rock”
    means mineral concentration that has been formed as a result of the
    geological evolutionary processes and that is located in the same
    subsoil from its creation. /This subparagraph was added by the
    Law of December 27, 2001/

18. “plasser” means
    mineral concentration that has separated from its first subsoil
    location as a result of the depreciation and mechanic processes and
    that is located as a separate surface after re-concentration. /This
    subparagraph was added by the Law of December 27, 2001/

Article 5. Ownership
of minerals

1. The mineral
   resources naturally occurring on and under the earth's surface and
   in natural water courses in Mongolia are the property of the
   State.

1. The State, as owner
   of all mineral resources in Mongolia, has the right to grant
   exploration and mining licenses to other persons in accordance with
   the terms and conditions of this law.

Article 6. State
regulation

1. The State Ih Hural
   shall have full authority with respect to the following matters:

1. establishing a
   special regulatory regime for utilizing, storing and transporting
   radioactive materials;

2. establishing State
   policy with respect to geology and mining;

3. oversight of the
   implementation by the Government of legislation with respect to
   exploration and mining;

4. deciding whether to
   permit mineral exploration and mining on State specially protected
   land.

1. The Government shall
   have the following rights and duties:

1. enforcing
   implementation of legislation with respect to exploration and mining
   of minerals;

2. implementing State
   policy with respect to the development of the geology and mining
   sectors;

3. granting of
   exploration and mining rights on State special needs land, except
   State specially protected land;

4. establishing and
   maintaining an agency responsible for monitoring the mineral
   legislation; /This subparagraph was re-edited by the Law of
   September 1, 2000/

5. establishing and
   maintaining a Geological and Mining Development Agency (GMDA)
   responsible for conducting basic geological and mining surveys and
   research, and the issuing and registering of licenses.

1. The State central
   administrative body in charge of geology and mining shall have the
   following rights and duties:

1. to develop and
   implement State policy with respect to the development of the
   geology and mining sectors;

2. to reserve certain
   areas for limited periods of time.

1. Local administrative
   body shall have the following rights and duties:

1. to organize and
   ensure the implementation of this law and regulations of higher
   administrative bodies in their respective territories;

2. to permit the use of
   licensed areas for the purposes specified in the licenses, except
   where exploration or mining is prohibited or restricted by
   applicable legislation;

3. to ensure and
   monitor compliance by license holders of their obligations with
   respect to environmental protection, health and safety regulations
   for workers and local residents, and payment of their obligations to
   the treasuries of local administrative bodies. Local administrative
   bodies shall also have the right to request from license holders
   information and reports with respect to the above matters.

1. The Government may
   participate in exploration and mining of mineral resources only
   through business entities in which the State holds interests. Such
   entities shall have the same rights, and be subject to the same
   obligations, as any other person under this law.

1. State administrative
   bodies or officials, in their dealings with a holder of a license
   issued under this law, may only establish conditions and terms and
   request information and reports as authorized by applicable
   legislation.

Article 7. Reserved
areas

1. The Government
   member in charge of geology and mining may decide to establish
   reserved areas for periods of up to three (3) years solely for the
   following purposes:

1) to bring order and accuracy to the Register of licenses;

2) to resolve boundary disputes among license holders.

1. Within three (3)
   business days following a decision by the Government member to
   establish a reserved area, the Government member shall advise the
   OGMC of the decision and publish an official public notice
   containing the following information:

1. the name of the
   aimag or capital city and soum or district where the reserved area
   is located;

2. the coordinates of
   the reserved area;

3. the purpose for
   which the area has been reserved;

4. the time period for
   which the area has been reserved.

1. The OGMC shall
   record the reserved area in the exploration license register, mining
   license register and cartographic register.

1. Reserved areas shall
   be released for the following reasons:

1. a decision by the
   Government member to release the reserved area prior to expiration
   of the original term for specified reasons; or

2. expiration of the
   term for which the reserved area had been reserved.

Article 8. Special
needs land with restrictions on exploration and mining

1. In the event that
   the Government, or a local administration body, establishes a
   special needs land in accordance with the Land law, a written notice
   containing the following information shall be delivered to the OGMC
   within ten (10) business days:

1. the name of the area
   where the special needs land is established, the name of the aimag
   or capital city and soum or district where the land is located;

2. the coordinates of
   the land;

3. the purpose for
   which the land has been taken for special needs;

4. the time period for
   which the land shall be used for special needs.

1. The OGMC shall
   record the coordinates of special needs land in the exploration
   license register, mining license register and cartographic register.

1. If a special needs
   land overlaps entirely or in part with a territory covered by a
   valid license, thus precluding further exploration or mining in such
   overlapping area, the State administrative body that decided to
   establish the special needs land shall assume an obligation to
   compensate the license holder.

1. The amount of such
   compensation, and the time for payment, shall be negotiated and
   agreed to by the State administrative body that decided to establish
   the special needs land and the affected license holder. If the
   parties fail to reach agreement, then the amount of compensation and
   time for payment shall be determined by a neutral party in
   accordance with internationally recognized methods. The license
   holder shall have the right to resume its activities if the
   compensation is not timely paid in full.

1. Disputes with
   respect to compensation shall be decided by a court.

 

CHAPTER TWO

Legal requirements for
conducting

exploration and mining

Article 9. Prospecting

1. Any individual or
   legal entity shall have the right to conduct prospecting for
   minerals within the territory of Mongolia, except within special
   needs land areas, without a license. However, any person proposing
   to conduct prospecting must notify the OGMC and local administrative
   body and register its name and address and a description and
   location of the area in which it proposes to conduct prospecting.

1. Disturbing the
   subsoil while prospecting is prohibited.

1. Any person proposing
   to conduct prospecting shall obtain permission of landowners or
   land-possessors or land-users to enter their land.

Article
10. Eligibility for holding a license

1. Any Mongolian
   citizen, foreign citizen, or legal person shall be entitled to hold
   an exploration license (hereinafter referred to as “exploration
   license”).

1. A mining license may
   only be held by a legal person formed and operating under the laws
   of Mongolia.

1. A license may only
   be granted to one person .

Article
11. Prohibition on exploration and mining without a license

1. No person shall
   conduct exploration for minerals covered by this law within the
   territory of Mongolia without a valid license.

1. No person shall
   conduct mining of minerals covered by this law within the territory
   of Mongolia without a valid mining license.

1. The provisions of
   this Article shall not apply to landowners or land-possessors who
   utilize common minerals from their land for private and
   noncommercial purposes. A list of common minerals that can be mined
   without a license shall be approved by the Government.

1. Exploration license
   holders shall disclose to the GMIA the quantity and quality of all
   minerals recovered as a result of preliminary work done during
   exploration activities, and upon approval by the professional
   inspection institution, exploration license holders may sell such
   minerals for commercial purposes. In such case, the exploration
   license holders shall pay royalties and other relevant taxes as if
   they were mining license holders. /This paragraph was amended by
   the Law of September 1, 2000/

 

In
all other cases, exploration license holders shall have the right to
sell samples and other products recovered during exploration
activities only after obtaining a mining license or surrendering the
entire exploration claim.

Article 12. Rights of
exploration license holders

An exploration license
holder shall have the following rights:

1. the exclusive right
   to conduct exploration for minerals within the boundaries of an
   exploration claim in accordance with this law;

2. the exclusive right
   to obtain a mining license for any part of an exploration area upon
   fulfilling the terms and conditions of this law;

3. the right to
   transfer or pledge all or part of an exploration license in
   accordance with the terms and conditions of this law;

4. the right to obtain
   two extensions of the term of an exploration license for two (2)
   years each, upon fulfilling the terms and conditions of this law;

5. the right to have
   access to, entry on, and transit through, the exploration area and a
   right to construct temporary structures necessary for conducting
   exploration activities;

6. the right of entry
   to and transit through the land adjacent to the exploration area for
   the purpose of gaining access and entry to the exploration area;

7. the right of entry
   to and transit through land owned or used by other persons in order
   to exercise the rights described in this Article. This right shall
   be determined by a contract between the license holder and the
   landowner or land-user in accordance with the provisions of the
   Civil law.

Article
13. Requirements for obtaining an exploration license

1. A person seeking an
   exploration license shall submit an application for the license to
   the OGMC in accordance with the requirements of this Article.

1. The applicant must
   be eligible to hold an exploration license in accordance with
   paragraph 1 of Article 10 of this law.

1. Coordinates of all
   corners of a requested exploration area shall be marked in degrees,
   minutes and seconds on an official standard map prepared by the OGMC
   and the map shall be attached to the application.

1. The requested
   exploration area shall meet the following requirements:

1. the borders of the
   exploration area must be straight lines oriented north-south and
   east-west;

2. no part of the
   requested exploration area may overlap with a reserved area or a
   special needs land area;

3. at the time of
   submission of the application no part of the requested exploration
   area may overlap with an existing licensed area or an area covered
   by a previously filed pending application for a license.

1. Notwithstanding the
   provisions of this Article, the borders of an exploration area may
   deviate from straight lines in order to avoid overlapping with:

1. national borders;

2. a reserved area;

3. a special needs land
   area;

4. an exploration or
   mining license area granted before this law became effective having
   a shape and orientation other than as provided under this law;

5. lakes, ponds and
   other natural geographic features that may be excluded from the
   exploration area.

1. The size of an
   exploration area shall be not less than twenty-five (25) hectares
   and may not exceed four hundred thousand (400 000) hectares.

1. A person may hold
   any number of exploration licenses.

 

Article 14. Granting
an exploration license

1. An exploration
   license shall be granted to the first applicant who registers and
   files an application for an exploration area in accordance with the
   provisions of this law.

1. A person seeking an
   exploration license shall submit an application to the OGMC in the
   standard form approved by the OGMC. The following documents shall be
   attached to the application:

1. the applicant's
   name, mailing address for official correspondence, phone and fax
   numbers and, in case of foreign citizens or legal persons, the name,
   address, phone and fax numbers of the authorized representative of
   the applicant in Mongolia;

2. in the case of an
   individual applicant, a copy of the applicant's passport and, as
   applicable, visa;

3. in case of a legal
   person, a certificate of valid existence and good standing issued by
   the jurisdiction under the laws of which the entity was established.
   If the certificate is in a foreign language, it must be accompanied
   by a translation into Mongolian.

4. an exploration area
   map prepared in accordance with the requirements of Article 13 of
   this law. The map shall contain the name of the aimag or capital
   city and soum or district in which the exploration area is located.

5. a document showing
   that the applicant has paid the application processing fee
   established by the Government member in charge of geology and
   mining.

1. Any application that
   does not meet the requirements of paragraph 2 of this Article shall
   not be accepted by the OGMC.

1. Upon the receipt of
   a complete application, together with the attachments specified in
   paragraph 2 of this Article, the OGMC official responsible for the
   application register shall register the application in the
   application register, specify the record number, date, hour and
   minute of filing on each page, and issue the applicant a receipt
   acknowledging the filing of the application and payment of the
   applicable fee.

1. At the end of each
   business day, the OGMC official responsible for recording
   applications shall make a written indication of the last recorded
   application in the application register book and sign the page.

1. Immediately
   following the recording of the filing of an application, the OGMC
   shall determine by a preliminary screening whether the application
   meets the requirements specified in paragraphs 2, 3 and
   subparagraph 1 and 5 of paragraph 4 and paragraph 6 of Article 13,
   and paragraph 2 of this Article.

1. If an application
   fails to meet the requirements of paragraph 6 of this Article, the
   OGMC shall, within two (2) business days, notify the applicant of
   the defects in the application and record the notice in the
   application register book, whereupon the application shall be deemed
   to be deleted from the application register.

1. As promptly as
   possible following the preliminary screening, the OGMC shall
   determine whether the requested exploration area overlaps with any
   reserved area, special needs land, or any area covered by a
   previously issued valid license or previously filed pending
   application for a license.

1. Within ten (10)
   business days following the registration of an application for an
   exploration license, the head of the OGMC shall take one of the
   following decisions and notify the applicant accordingly:

1) If the requested area does not overlap with any part of a
reserved area, special needs land, or any area subject to a
valid exploration license, or any area requested in a pending
application for an exploration license filed and registered prior to
the

application, that the requested exploration claim is
granted to the applicant, and the applicant is required to pay
the first year’s license fee within the time period
specified in paragraph 1 of Article 25 of this law.

2) The application is rejected and deemed to be removed from the
register because of a complete or partial overlap with one of
the following areas:

a) a special needs land;

b) a reserved area; or

c) an area subject to a valid license.

3) The application is rejected and deemed to be removed from the
register because of a complete overlap with an area requested in
a pending application for a license filed prior to the
application.

4) If the requested area partially overlaps with an area requested
in a pending

application for a license filed and registered prior to the
application, then an

exploration license may be granted for the part of the
requested area which does not overlap.

1. If an applicant
   receives a notice pursuant to subparagraph 4 of paragraph 9 of this
   Article, such applicant may, within three (3) business days
   following receipt of such notice, divide the available area into
   several areas of the shape, location and size as specified in this
   law and file a separate additional application for each such area.
   Upon registration of each such application with the OGMC, each such
   application shall be deemed approved as provided in subparagraph 1
   of paragraph 9 of this Article.

1. If an applicant who
   has received an exploration license approval notice in accordance
   with paragraphs 9 and 10 of this Article fails to pay the first
   year’s exploration license fee on a timely basis, the application
   shall be removed from the register book and the notice granting the
   requested exploration area shall be deemed rescinded.

1. Within three (3)
   business days after payment by the applicant of the first year's
   exploration license fee, the OGMC shall issue an exploration license
   for a period of three (3) years and record the license and the
   exploration area in the license register and license cartographic
   register.

1. A license
   certificate shall contain the date of issuance, the license holder's
   name, the coordinates of the area covered by the license, and an
   attachment in which all subsequent changes with respect to the
   license shall be recorded.

1. Immediately
   following the grant of an exploration license, the OGMC shall notify
   the GMDA and publish an official notice informing the public of the
   granting of the license.

Article 15. Extension
of the term of an exploration license

1. Not less than thirty
   (30) days prior to the expiration of an exploration license, the
   license holder may apply for an extension of the term of the license
   by filing with the OGMC an application for such extension on the
   standard form published by the OGMC. The following documents shall
   be attached to the application:

1. the exploration
   license certificate;

2. receipts for license
   fee payments made by the license holder;

3. a certificate of
   inspection evidencing implementation of the license holder's
   environmental protection plan in accordance with Article 31 of this
   law.

1. Within ten (10)
   business days following the receipt of an application for extension,
   the OGMC shall verify whether the license holder has complied with
   conditions for maintaining its eligibility to hold a license and
   shall record this fact in the license register book.

1. Within ten (10)
   business days following the receipt of an application for extension,
   the OGMC shall extend the term of the exploration license and
   record the extension in the license register book. The license that
   has been extended shall then be returned to the license holder.

1. Immediately
   following the grant of an extension of an exploration license, the
   OGMC shall notify the GMDA and publish an official notice informing
   the public of the granting of the extension.

Article 16. Rights of
mining license holders

A mining license holder
shall have the following rights:

1. the exclusive right
   to engage in mining of minerals within the mining claim in
   accordance with the provisions of this law;

2. the right to manage
   its operations and market its products, subject to compliance with
   the requirements of Chapter 4 of this law;

3. the right to sell
   mineral products from the mining claim at market prices on domestic
   and foreign markets, subject to compliance with the requirements of
   Chapter 4 of this law;

4. the exclusive right
   to conduct exploration for minerals within the mining claim;

5. the right to
   transfer and pledge all or part of the mining license in accordance
   with provisions of this law;

6. the right to extend
   the term of the mining license once for a period of forty (40)
   years;

7. the right of entry
   to and transit through the mining area, use of the mining area, the
   right to construct necessary structures, and the right to conduct
   other activities related to mining and exploration;

8. the right of entry
   to and transit through the land adjacent to the mining area;

9. the right of entry
   to and transit through land owned or used by other persons in order
   to exercise the rights described in this Article. This right shall
   be determined by a contract between the license holder and the
   landowner or land-user in accordance with the provisions of the
   Civil law;

10. the right to use
    water, subject to compliance with applicable laws.

Article 17.
Requirements for obtaining a mining license

1. An applicant for a
   mining license must be eligible to hold a mining license in
   accordance with paragraph 2 of Article 10 of this law.

1. In the case of areas
   covered by a valid exploration license, only the exploration license
   holder may apply for a mining license. In other cases, a mining
   license shall be granted to the first applicant whose application
   meets the requirements under this law and is registered with the
   OGMC.

1. The applicant shall
   set forth the coordinates of all corners of the requested mining
   area in degrees, minutes and seconds on a standard map approved by
   the OGMC and attach the map to the application.

1. A requested mining
   area shall meet the following requirements:

1. a requested mining
   area shall have the shape of a polygon with borders that are
   straight lines, not less than 500 meters in length, oriented
   north-south and east-west;

2. a requested mining
   area may not overlap with a reserved area or special needs land;

3. at the time of
   submission of the application a requested mining area shall not
   overlap with an area covered by a valid license or an area requested
   in a pending application for a license.

1. The borders of a
   mining license area may deviate from straight lines in the case of
   borders with following areas:

1. national borders;

2. a reserved area;

3. a special needs land
   area;

4. a mining license
   area granted under the prior minerals law having a shape and
   location that do not conform with the requirements of this law and
   natural geographic features, such as lakes and ponds, that may be
   excluded from the mining area.

Article
18. Procedure for granting a mining license

1. An applicant for a mining license shall submit an application to the
   OGMC on the standard form approved by the OGMC. The following
   documents shall be attached to the application:

1. the applicant’s name, mailing address for official correspondence,
   phone and fax numbers and a certificate containing the name of its
   officer authorized to make decisions;

2. if the applicant is a business entity, a certificate of valid
   existence as a business entity in Mongolia issued by the appropriate
   registration agency;

3. a map of the area prepared in accordance with the requirements of
   paragraph 3 of Article 17 of this law. The map shall contain the
   name of the aimag or capital city and soum or district in which the
   area is located.

4. a document showing that the applicant has paid the application
   processing fee established by the Government member in charge of
   geology and mining.

1. The OGMC shall
   reject any application that fails to meet the requirements set forth
   in paragraph 1 of this Article.

1. Upon the receipt of
   a complete application, together with the attachments specified in
   paragraph 1 of this Article, the OGMC official responsible for the
   application register shall register the application in the
   application register and specify the record number, date, hour and
   minute of filing on each page, and issue the applicant a receipt
   acknowledging the filing of the application and payment of the
   applicable fee. At the end of each business day, the OGMC official
   responsible for recording applications shall make a written
   indication of the last recorded application in the application
   register book and sign the page.

1. Immediately
   following the recording of an application, the OGMC shall determine
   by a preliminary screening whether the application and attached
   documents meet the requirements specified in paragraph 1 of this
   Article and paragraphs 1 and 3 of Article 17. If an application
   fails to meet the above-noted requirements, the OGMC shall notify
   the applicant of the defects in the application and record the
   notice in the application register book, whereupon the application
   shall be deemed to be removed from the application register.

1. Within two (2)
   business days after the registration of an application for a mining
   license, the OGMC shall determine:

1. in the case of an
   application submitted by the exploration license holder covering the
   requested mining area, whether such area is located entirely within
   the boundaries of the area covered by the exploration license;

2. whether the requested mining area overlaps with any area already
   subject to a valid license or any area that is the subject of a
   pending license application;

3. whether the requested mining area overlaps with a reserved area or a
   special needs land.

1. Within twenty (20) business days following the registration of an
   application for a mining license, the head of the OGMC shall take
   one of the following decisions and notify the applicant accordingly:

1. in the case of an application submitted by the exploration license
   holder covering the requested area, that an exclusive mining license
   has been granted to the applicant and require the applicant to
   timely pay the applicable fee for the first year of the license as
   provided in this law;

2. if the requested area does not overlap with any part of a special
   needs land with prohibition on mining, or any area subject to a
   valid license, or any area requested in a pending application for a
   license filed and registered prior to the application, that the
   requested mining area is granted and the applicant is required to
   pay the applicable fee for the first year of the license as provided
   in this law;

3. if the requested area overlaps in any way with a special needs land
   with prohibition on mining, or any area subject to a valid license,
   or any area requested in a pending application for a license filed
   and registered prior to the application, that the application is
   rejected and deemed to be removed from the register.

1. If the applicant who has received a mining license approval notice
   in accordance with subparagraphs 1 and 2 of paragraph 6 of this
   Article fails to pay the first year’s license fee on a timely
   basis, that the application is rejected and removed from the
   application register, and that the decision granting the mining
   claim is rescinded.

1. Within three (3) business days following payment of the license fee
   for the first year, the OGMC shall issue a mining license to the
   applicant for a term of sixty (60) years and shall register the
   license and mining area in the license register and license
   cartographic register.

1. A license certificate shall contain date of issuance, the name of
   the license holder, the coordinates of the granted area, and an
   attachment in which all subsequent changes with respect to the
   license shall be recorded.

1. Within seven (7) business days following the decision to grant a
   mining license, the OGMC shall notify the professional inspection
   institution and GMDA and publish an official notice informing the
   public of the granting of the license. /This subparagraph was
   amended by the Law of September 1, 2000/

Article
19. Extension of the term of a mining license

1. Not less than two (2) years prior to the expiration of a mining
   license, the license holder may file an application with the OGMC on
   the standard form specified by the OGMC for an extension of the
   mining license. The following documents shall be attached to the
   application:

1. the mining license certificate;

2. receipts for license fee payments made by the license holder;

3. a certificate of inspection evidencing implementation of the
   environmental protection program in accordance with Article 31 of
   this law.

1. Upon filing of an application for an extension of a mining license,
   the applicant shall pay the processing fee established by the
   Government member in charge of geology and mining.

1. Within ten (10) business days following the receipt of an
   application for extension of a mining license, the OGMC shall verify
   whether the license holder has complied with the conditions for
   maintaining its eligibility to hold the license.

1. Within ten (10) business days following the receipt of an
   application for extension of a mining license, the OGMC shall record
   the application in the application register. The license certificate
   that has been extended shall then be returned to the license holder.

1. Within seven (7) business days following the decision to extend the
   mining license, the OGMC shall notify the GMDA, publish an official
   notice informing the public of the granting of the extension.

Article
20. Stability agreements

1. If a mining license holder undertakes to invest in its mining
   project in Mongolia no less than two (2) million US Dollars for the
   first five (5) years of the project, and if the mining license
   holder submits an application to enter into a stability agreement,
   then the Government of Mongolia, acting through the Minister of
   Finance, shall enter into such a stability agreement providing
   guarantees for a long term stable environment for such mining
   license holder.

1. The form of the stability agreement shall be approved by the
   Government and shall contain provisions regarding the stability of
   tax rates for a definite time period, the right of the license
   holder to export and sell its products at international market
   prices, a guarantee that the license holder may receive and dispose
   of hard currency income derived from such sales, and provisions with
   respect to the purpose, amount, and term of the license holder’s
   investment.

1. Within twenty (20) business days following the receipt by the
   Minister of Finance of the application and draft of the stability
   agreement, the Minister shall determine whether or not further
   clarification is required. If the Minister determines that no
   further clarification is required, the Minister shall enter into the
   stability agreement with the applicant.

1. If the amount of the initial investment in the Mongolian mining
   project is no less than two (2) million US Dollars, the term of the
   stability agreement may be ten (10) years. If such investment is no
   less than twenty (20) million US Dollars, the term of the stability
   agreement may be fifteen (15) years.

Article
21. Procedure for concluding a stability agreement

1. The license holder interested in concluding a stability agreement
   shall submit its application and draft agreement to the Ministry of
   Finance. An investment program, specifying the amounts to be
   invested within the first five (5) years, and the proposed term of
   the project, shall be attached to the application. If further
   clarification or amendment is required, the applicant shall be
   informed within seven (7) business days.

1. Upon signing the stability agreement by the Minister of Finance,
   notice of the terms and conditions of the agreement shall be
   delivered to the Mongolbank (Central Bank of Mongolia) and other
   relevant authorities.

CHAPTER
THREE

Conditions
for maintaining eligibility to

hold
exploration and mining licenses

Article
22. Maintaining the eligibility to hold exploration and mining
licenses

A
license holder must comply on a timely basis with the conditions set
forth in this Chapter, and failure to comply with any of these
conditions shall constitute grounds for cancellation of the holder's
license pursuant to Article 47 of this law.

Article
23. Maintaining the legal status to hold exploration and mining
licenses

Any
license holder shall at all times during the terms of the license
maintain its legal status to hold the license in accordance with
Article 10 of this law.

Article
24. License fees

1. Holders of exploration and mining licenses shall pay license fees
   annually as set forth in this Article.

1. Exploration license fees shall be payable with respect to each
   hectare included within the exploration area at the following rates:

1. US$ 0.05 for the first year, and US$ 0.1 for each of the second and
   third years of the term of the exploration license;

2. US$ 1.00 for each of the fourth and fifth years of the term of the
   exploration license;

3. US$ 1.50 for each of the sixth and seventh years of the term of the
   exploration license.

1. Mining license fees shall be payable with respect to each hectare
   included within the mining area at the following rates:

1. US$ 5.00 for each of the first three years of the term of the
   license;

2. US$ 7.50 for each of the fourth and fifth years of the term of the
   license;

3. US$ 10.00 for each year of the term of the license commencing from
   the sixth year.

Article 25. Payment of license fees

1. License fees for the first year shall be paid within ten (10)
   business days after the license holder receives the notice specified
   in subparagraph 1 of paragraph 9 of Article 14 and subparagraphs 1
   and 2 of paragraph 6 of Article 18 of this law.

1. License fees for subsequent years shall be payable annually in
   advance, on or before the anniversary date of the issuance of the
   license.

1. The amount of the license fee shall be calculated on the basis of
   the measurements of the license area as registered in the register
   of licenses of the OGMC and the amount of the fee shall not change
   for the particular year.

1. No exploration license fees shall be payable with respect to a
   mining area located within an exploration area.

1. The license fee shall be deemed paid upon receipt by the OGMC of
   documents certifying the payment of the fees.

1. A license holder shall have an obligation to pay applicable license
   fees within the term specified in paragraph 1 of this Article and no
   notice or invoice with respect to such fees shall be sent to the
   license holder.

CHAPTER
FOUR

Obligations of license holders

while carrying out their activities

Article
26. General obligations of license holders while carrying out their
activities

While
carrying out their activities a license holder shall comply with
general obligations set forth in this Chapter. Failure to comply
with the general obligations set forth in this Chapter will subject
the license holder to the penalties set forth in Chapter 8 of this
law.

Article
27. Establishing the boundaries and marking the area held under a
mining license

1. Within ninety (90) business days following the registration of the
   mining license in the register of licenses, the mining license
   holder shall establish the boundaries and mark the approved mining
   area by permanent markers in accordance with technical requirements
   specified by the GMIA. The establishment of the boundaries of the
   mining area shall be performed by a professional expert accredited
   by the OGMC, who shall file a report with the OGMC upon completion
   of the establishment of the boundaries.

1. A mining license holder shall preserve the markers and adjust and
   replace the markers upon extension of the license or any
   reorganization within the area in accordance with decisions of the
   OGMC.

Article 28. Environmental protection

1. An exploration license holder has an obligation to comply with
   environmental laws in effect and with the environmental protection
   provisions of this law.

1. A license holder may not commence exploration or mining operations
   without first obtaining written approvals from relevant
   environmental protection authorities pursuant to this law.

Article
29. Environmental protection obligations of exploration license
holders

1. After consultation with the environmental inspection agency and
   local administrative bodies, exploration license holders shall
   prepare an environmental protection plan within thirty (30) days
   following the receipt of an exploration license.

1. The environmental protection plan shall provide for measures to
   ensure that pollution of the environment as a result of the
   exploration activity does not exceed maximum limits and that the
   exploration area will be rehabilitated by means of backfilling,
   plugging, and cultivation to allow future utilization of the
   disturbed land for public purposes.

1. The environmental protection plan shall be submitted to and approved
   by the Governor of the relevant soum or district where the
   exploration claim is located. The Governor of the soum or district
   shall make a decision with respect to the plan within ten (10)
   business days following receipt of the plan, and notify the license
   holder of the decision by an official letter.

1. Upon approval of the environmental protection plan, the license
   holder shall provide a copy of the plan to the local environmental
   inspection organization and professional inspection institution.
   /This paragraph was amended by the Law of September 1, 2000/

1. The license holder shall record all instances of adverse
   environmental impact resulting from the exploration activity and
   submit annual reports with respect to the environmental protection
   plan to the Governor of the relevant aimag or capital city and soum
   or district. These reports shall contain information on measures
   taken to protect the environment and on the possible impact on the
   environment of new exploration machinery and technology, and
   proposed amendments to the environmental protection plan. All
   amendments to the environmental protection plan shall be approved by
   the Governor of the relevant soum or district.

1. A license holder shall provide officials in charge of monitoring
   implementation of the laws on environmental protection and local
   administrative body representatives with an opportunity to enter the
   exploration area to conduct monitoring activities on the site.

1. To ensure the discharge of its responsibilities with respect to
   environmental protection, an exploration license holder shall
   deposit an amount equal to 50 % of its environmental protection
   budget in a special bank account established by the Governor of the
   relevant soum or district. This deposit shall be refunded to the
   license holder upon full implementation of its environmental
   protection plan .

1. If a license holder fails to fully implement the measures provided
   for in the environmental protection plan, the Governor of the
   relevant soum or district shall use the deposit to enable the
   license holder to complete these measures, and if the deposit is not
   enough to cover the costs of environmental protection and
   rehabilitation activities, the license holder shall provide the
   required additional funds.

Article
30. Environmental protection obligations of mining license
holders

1. An environmental impact assessment and an environmental protection
   plan shall be prepared by a mining license holder in accordance with
   applicable laws as soon as possible before or after receiving a
   mining license.

1. The environmental impact assessment shall identify the possible
   adverse environmental impact from the proposed mining operations on
   land, water, air, plant, animal, and human life and shall include
   preventive measures to avoid and minimize such adverse impact.

1. The environmental protection plan shall contain measures to ensure
   that mining operations are conducted in a least damaging way to the
   environment. The plan shall also identify preventive measures to
   protect air and water quality, and human, animal and plant life from
   the adverse effects of mining operations in accordance with the
   regulations adopted by the State central administrative body in
   charge of the environment.

1. An environmental protection plan must include measures with the
   respect to the following issues:

1) storage and control of toxic and potentially toxic substances and
materials;

2) protection, utilization and conservation of surface water and
groundwater;

3) if necessary, construction, utilization and safekeeping of
tailings dams;

4) other measures as may be appropriate for the particular type of a
mining operation.

1. The environmental protection plan shall also provide for post-mining
   rehabilitation measures through backfilling, plugging, and
   cultivation to allow future utilization of the disturbed land for
   public purposes.

1. The environmental impact assessment and environmental protection
   plan shall be submitted to the State central administrative body in
   charge of environment and to the Governor of the relevant soum or
   district. The State central administrative body in charge of
   environment shall review these documents and notify the license
   holder of its decision within thirty (30) days after receiving such
   documents.

1. Upon approval of the environmental impact assessment and the
   environmental protection plan, the license holder shall deliver the
   documents to the local environmental monitoring organization where
   the mineral deposit is located.

1. Mining license holders shall record all instances of adverse
   environmental impact resulting from mining activity, prepare and
   send a copy of annual reports on the implementation of the
   environment protection plan to the State central administrative body
   in charge of environment, the Governor of any relevant aimag or
   capital city and soum or district, and the GMIA, respectively. These
   reports shall contain information on measures taken to protect the
   environment and on the possible impact on the environment of new
   machinery and technology, or the expansion of mining operations, and
   proposed amendments to the environmental impact assessment and
   environmental protection plan .

1. Amendments to the environmental protection plan may be made only
   after the State central administrative body in charge of environment
   approves the amendments.

1. A mining license holder shall provide local and State central
   administrative bodies officials in charge of monitoring
   implementation of legislation on environmental protection, an
   opportunity to enter the mining claim area and to conduct monitoring
   activities on the site.

1. To ensure the discharge of its responsibilities with respect to
   environmental protection, a mining license holder shall deposit an
   amount equal to 50 % of its environmental protection budget for a
   particular year in a special bank account established by the
   Governor of the relevant soum or district. This deposit shall be
   refunded to the license holder upon full implementation of the
   environmental protection plan .

1. If a mining license holder fails to fully implement the measures
   provided for in the environmental protection plan, the Governor of
   the relevant soum or district shall use the deposit to enable the
   license holder to complete these measures, and if the deposit is not
   enough to cover the costs of environmental protection and
   rehabilitation activities, the license holder shall provide the
   required additional funds.

Article
31. Review of environmental protection plan in connection with
extensions of licenses

1. Exploration license holders applying for a license extension shall
   submit for approval to the Governor of the relevant soum or
   district, prior to the expiration of the exploration license, either
   their revised environmental protection plan or a new environmental
   protection plan .

1. Mining license holders applying for a license extension shall submit
   to the State central administrative body in charge of environment a
   new environmental impact assessment and a new environmental
   protection plan.

1. The State central administrative body in charge of environment may
   require the license holder to amend the environmental impact
   assessment and environmental protection plan to reflect impacts from
   the use of new machinery or technology or environmental impact not
   foreseen in the approved environmental impact assessment or
   environmental protection plan .

 

Article 32. Impact on local buildings and structures

License
holders shall fully compensate owners and users of private and public
residential dwellings, wells, winter huts, other structures, and
historic and cultural landmarks, for damages caused to these
structures by exploration or mining operations, including, if
necessary, relocation costs.

Article
33. Relations with local administrative bodies

1. License holders shall consult and coordinate their activities with
   local administrative bodies in connection with environmental
   protection, infrastructure development and employment development in
   accordance with the provisions of this Article.

1. If a license holder deems it necessary, it may request the local
   administrative body to organize a public debate in furtherance of
   objectives referred to in paragraph 1 of this Article.

1. A license holder may select and employ a representative from among
   the local residents to coordinate all the matters involving the
   local administrative body.

Article 34.
Employment requirements

License holders shall
employ citizens of Mongolia in their exploration and mining
operations on a priority basis.

Article 35. Health
and safety standards

In conducting their
operations license holders shall comply with applicable laws so as
not to endanger the health and safety of workers and local residents.

Article 36.
Requirements for closure of a mine

1. Before closure of a
   mine, mining license holders shall take preparatory measures
   pursuant to regulations of the professional inspection institution
   to protect the health and safety of local residents. License
   holders shall inform the professional inspection institution by an
   official letter that the mine shall be closed in whole or in part,
   at least one year prior to any such closure, and the following
   measures must be implemented during the preparatory period:

1. to take all
   necessary measures to ensure safe use of the mining site and mining
   claim for non-mining purposes and to protect the environment;

2. to seal safely and
   fence off the parts of the mining area that may be dangerous during
   the use of the area for other purposes;

3. to remove all
   machinery, equipment and other property from the mining area except
   as permitted by local administrative bodies or the professional
   inspection institution. /This paragraph was amended by the Law of
   September 1, 2000/

1. Mining license
   holders shall prepare a detailed map on an appropriate scale showing
   dangerous or potentially dangerous areas created by mining
   operations.

Article 37.
Registration and sale of precious stones and metals

1. All precious stones
   and metals extracted by mining license holders shall be assayed and
   registered by the State assaying agency. Regulations on assaying
   and registration of precious stones and metals, and a list of
   minerals subject to assaying and registration, shall be published by
   the Government.

1. Mongolbank shall pay
   world market prices when purchasing precious stones and metals.

1. A mining license
   holder shall have a right to export precious stones and metals only
   through Mongolbank or authorized commercial banks.

Article 38. Royalties

1. A mining license
   holder shall pay royalties to the treasuries of the central and
   local administrative bodies on the sales value of all products
   extracted from the mining claim that are sold, shipped for sale, or
   used. /This paragraph was amended by the Law of December 27,
   2001/

1. The sales value
   shall be determined as follows:

1. for exported
   products, the sales value shall be the average monthly prices of the
   products, or similar products, based on regularly published
   international market prices or on recognized principles of
   international trade;

2. for products sold or
   used on the domestic market, the sales value shall be based on the
   domestic market price for the particular or similar product;

3. for products sold on
   international or domestic markets, where it is impossible to
   determine market prices, the sales value shall be based on the
   revenue derived from the sale of the product as declared by the
   license holder.

1. Royalties shall be
   equal to 2.5 per cent of the sales value of all products extracted
   from the mining claim that are sold, shipped for sale, or used.

Royalties shall be
equal to 7.5 per cent of the sales value of gold extracted from the

plasser that are
sold, shipped for sale, or used. /The second sentence of this
paragraph

was added by the Law
of December 27, 2001/

1. The license holder
   shall pay royalties with respect to all extracted products that are
   sold, shipped for sale or used during a calendar quarter before the
   end of the next quarter.

1. The mining license
   holder shall submit to the GMIA a quarterly report, in the form
   approved by the GMIA and verified by the license holder’s
   signature, indicating the quantity of products extracted and sold,
   shipped for sale, or used during the relevant quarter, the total
   value of the sales, and the basis of evaluation.

1. The Government shall
   prepare, and periodically publish a list of commodity exchange
   prices and related information, which shall be used for the purpose
   of calculating the sales value of exported products.

Article 39. Submission
of information and reports

1. A license holder
   shall prepare all information and reports specified in this Article
   on a timely and accurate basis and submit copies of the information
   and reports to the professional inspection institution and OGMC,
   respectively. /This paragraph was amended by the Law of September
   1, 2000/

1. An exploration
   license holder shall submit the following information and reports:

1. a plan of
   exploration activities shall be submitted within thirty (30) days
   after the grant of the exploration license;

2. annual reports on
   exploration activities for the previous year shall be submitted in
   the form approved by the Office of Geology within thirty (30) days
   after the expiration of the relevant period;

The
report shall contain information on the amount of work completed and
expenses incurred in prospecting, geophysical and geochemical work,
drilling and other activities, information on the labor force, and
the results of the exploration work. A map indicating the places
where the work was done shall be attached to the report.

A copy
of the final report on the results of the exploration work and
original materials shall be submitted at no charge.

The
GMDA shall accept the estimates of the ore reserves submitted in the
report after receiving an opinion from a qualified expert and shall
include the ore reserves into the national register of reserves.

1. the information
   reports on safe operations specified in Article 35 of this law.

1. The GMDA shall also
   have a right to demand information and reports from the license
   holder, even if such information or reports are incomplete.

1. A mining license
   holder shall submit the following information and reports:

1. a feasibility study
   on the exploitation of the deposit within sixty (60) days after
   obtaining the mining license;

2. estimated data with
   respect to the next year’s production in the form approved by the
   Mining Office not later than September of every year;

3. a report on
   activities of the previous year, in the form approved by the Mining
   Office, shall be submitted by February 15 of the following year.
   The report must contain the following:

1. number of work days,
   number of employees, and all contracts affecting the license
   holder’s right of ownership;

2. information on
   implementation of the mining plan, an estimate of changes in
   reserves, time periods of operation of the mine, a general overview
   of production facilities and any expansion or renovation of such
   facilities;

3. information on the
   quantity of ore mined, the quantity of products produced, shipped
   and sold, the price of the products sold, information with respect
   to the purchasers, information on investments made during the year,
   operating expenses, royalty payments and information with respect to
   the equipment and technology used in mining operations and
   information on other related properties.

1. a report on safe
   operations as specified in Article 35 of this law.

1. A license holder
   shall prepare a report on environmental protection as specified in
   Article 30 of this law and submit it to the Governor of any relevant
   aimag and soum or district.

CHAPTER
FIVE

Transfer
and mortgage of licenses

Article
40. Transfers of licenses.

1. A license holder may transfer the license to persons eligible to
   hold a license by a transfer agreement or through legal processes
   such as inheritance, merger of business entities, or bankruptcy. A
   transfer of a license shall be recorded with the OGMC in accordance
   with the provisions of this Article, and the transfer of a license
   shall become effective upon such recording.

1. Either the transferor or the transferee of a license shall submit an
   application for the recording of a license transfer to the OGMC, in
   the form approved by the OGMC. The application shall contain the
   following:

1. the license number, date of issuance, and the name of the license
   holder as indicated in the records of the OGMC;

2. a copy of the transfer agreement, or a court order with respect to
   the bankruptcy of the license holder, a certificate of inheritance
   from a deceased license holder, or a certificate of reorganization
   of legal entities, or other legally binding documents evidencing a
   valid transfer of the license;

3. a document evidencing the transferee’s eligibility as specified in
   subparagraphs 1 and 2 of Article 10 of this law;

4. a confirmation of acceptance by the transferee of all rights and
   obligations under the license, in a form approved by the OGMC.

1. An applicant for the recording of a license transfer shall pay the
   processing fee established by the Government member in charge of
   geology and mining and attach a proof of payment to the application.

1. The OGMC shall immediately deliver to the applicant a document
   containing the name of the applicant, the date of the application,
   and the type and number of the license to be transferred.

1. Immediately following the receipt of an application for the
   recording of the transfer of a license, the OGMC shall record the
   application and verify the following:

1. that the application complies with the requirements of this Article;

2. that the license to be transferred is valid;

3. that the license transferee is eligible to hold the license.

1. Within fifteen (15) business days following the receipt of an
   application for recording of the transfer of a license, the head of
   the OGMC shall take one of the following decisions:

1. record the transfer of the license and make appropriate notations on
   the license certificate; or

2. inform the applicant of defects in the application and request the
   applicant to submit the necessary additional information; or

3. if the transferee is not eligible to hold a license, or the license
   to be transferred is invalid, then the application shall be returned
   and the applicant shall be notified accordingly.

If the OGMC gives the applicant a notice of defects as provided in
this paragraph, the applicant shall, within ten (10) business days
following the receipt of such notice, submit additional information
to the OGMC. Within five (5) business days, the head of the OGMC
shall take a decision as specified either in subparagraphs 1 or 3 of
paragraph 6 of this Article.

1. Following the recording of the transfer of the license, the OGMC
   shall notify the professional inspection institution and the GMDA
   in writing of the recording of the transfer and, in case of the
   transfer of a mining license, it shall also notify the Ministry of
   Finance in writing, and shall publish an official notice informing
   the public of the license transfer. /This paragraph was amended
   by the Law of September 1, 2000/

Article 41. Transfer of parts of licensed areas

 

1. License holders may transfer parts of a licensed area to persons
   eligible to hold a particular type of license by a transfer
   agreement. The shape, size and orientation of the transferred and
   retained parts shall conform to the requirements of this law. The
   transfer of a part of a licensed area shall be recorded with the
   OGMC in accordance with the provisions of Article 40 and the
   provisions of this Article. The transfer agreement shall become
   effective upon such a registration.

1. The application for recording the transfer of a part of a licensed
   area shall contain a description of the land. This description shall
   contain the information required by this law to be included in the
   initial application for a mining license.

1. The applicant shall pay the application processing fee established
   by the Government member and include it with the application.

1. The OGMC shall verify and confirm that the transferred area lies
   entirely within the boundaries of the licensed area covered by the
   transferor's license.

1. Upon each transfer of a part of a licensed area covered by a valid
   license to an eligible transferee, the OGMC shall take the following
   actions :

1. record the location and coordinates of the transferred and retained
   parts of the licensed area in the register of licenses and in the
   cartographic license register;

2. make appropriate notation in the license certificate of the
   transferor;

3. issue the transferee a separate license.

Article 42. Pledges of licenses

 

1. To provide security for the financing of their investments and
   operations in Mongolia, license holders may pledge their licenses in
   accordance with the provisions of the Civil law. The pledge
   agreement shall become effective upon its registration with the OGMC
   in accordance with the provisions of Article 40 of this law.

1. The pledgor shall submit a copy of the pledge agreement, together
   with the license certificate, to the OGMC. The pledgee is not
   required to confirm its acceptance of rights and obligations under
   the license.

1. The OGMC shall verify whether the application for recording the
   pledge of the license complies with the terms and conditions
   specified in this law.

1. Upon verification that the application for recording the pledge of
   the license complies with the terms and conditions specified in this
   law, the OGMC shall record the pledge of the license and deliver the
   license certificate to the pledgee.

1. Upon termination of the pledge agreement, the license holder shall
   submit an application to the OGMC together with the following
   documents:

1. a statement signed by the pledgee to the effect that the license
   holder has fulfilled its obligations under the pledge agreement and
   that the pledge has been terminated;

2. the pledged license certificate.

Upon receipt of the foregoing documents, the OGMC shall record the
termination of the pledge and return the license certificate to the
license holder.

1. During the period of time in which the license is pledged, the
   license may not be transferred to another person unless authorized
   in writing by the pledgee or transferred to legal successors of the
   exploration license holder.

Article 43. Transfer of a license pursuant to a pledge agreement

 

1. If the pledgor fails to fulfill its obligations under the pledge
   agreement and the pledgee of a license wishes to transfer the
   license to a person eligible to hold such a license, the pledgee
   may, in conformity with Article 40 of this law and the present
   Article, submit an application to the OGMC to transfer the pledged
   license.

1. The pledgee shall attach the following documents to its application
   for recording the transfer of the license to a person eligible to
   hold such a license:

1. a document signed by the pledgor consenting to the transfer of the
   license and a statement by the pledgee confirming receipt of the
   license;

2. a certificate of the pledged license;

3. if the transferee is a person other than the pledgee, the documents
   specified in paragraph 2 of Article 40 of this law;

4. confirmation by the transferee of its acceptance of rights and
   obligations under the license.

CHAPTER SIX

Termination of exploration and mining licenses

Article 44. Termination of licenses

 

1. A license shall be terminated in the following cases:

1. expiration of the license term;

2. surrender by the license holder of the entire licensed area in
   accordance with the provisions of Article 46; or

3. revocation of the license by the OGMC.

1. A license shall terminate as to each and every part of a licensed
   area being surrendered by the license holder.

1. Upon termination of the license, the rights and obligations of the
   license holder under the license shall cease to exist, except the
   license holder’s obligations with respect to environmental
   restoration and mine closure as provided for in Articles 29 and 30
   of this law and other obligations pursuant to legislation on
   environmental protection.

1. Upon termination of the license, the license holder shall return the
   license certificate to the OGMC, and a new license may be issued for
   the area in accordance with the provisions of this law.

1. The ownership of buildings and structures, equipment and other
   property allowed to be left on the exploration or mining area in
   accordance with subparagraph 3 of paragraph 1 of Article 36 shall be
   determined in accordance with the provisions of the Civil law.

Article 45. Surrender of part of the licensed area

 

1. A license holder may surrender part of the licensed area in
   accordance with the provisions of this law.

1. A license holder shall submit to the OGMC an application for
   surrender of part of the licensed area together with the
   description of the surrendered part in the form approved by the
   OGMC. In the case of surrender of part of an exploration area, the
   description of the surrendered area shall conform with the
   requirements of paragraph 3 of Article 13 of this law. In the case
   of surrender of part of a mining area, the description of the
   surrendered area shall conform with the requirements of Article 17
   of this law.

1. The following documents shall be attached to an application for
   surrender of part of a licensed area.

1. the license certificate;

2. a certificate from the Governor of the relevant soum or district
   stating that the license holder has complied with the environmental
   protection plan for the surrendered area;

3. a report described in subparagraph 2 of paragraph 2 of Article 39 of
   this law.

1. The area retained by the license holder after surrender of part of
   the licensed area shall conform with the requirements of paragraph 4
   of Article 17 of this law.

1. Upon receipt of an application for surrender of part of a licensed
   area, the OGMC shall register the surrender of part of the licensed
   area and make appropriate notations on the license certificate.

1. The surrender of a part of a licensed area becomes effective upon
   the registering the application in accordance with paragraph 5 of
   this Article.

1. The surrender of a part of a licensed area shall not entitle the
   license holder to a refund of license fees previously paid.

Article 46. Surrender of the entire licensed area

 

1. A license holder may surrender the entire licensed area by
   submitting an application, on a form approved by the OGMC, and by
   registering the application in accordance with this Article.

1. The following documents shall be attached to the application for
   surrender of the entire licensed area:

1. a certificate of full compliance by the license holder with all
   environmental protection, mine closure, reporting and other
   requirements established by applicable laws;

2. if the particular license is pledged, an official document signed by
   the pledgee consenting to the surrender.

1. Promptly upon receipt of an application for surrender of the entire
   licensed area, and upon verification that the application complies
   with the requirements of paragraph 2 of this Article, the OGMC shall
   record the surrender in the register of licenses and modify the
   cartographic register of mineral licenses accordingly.

1. Upon surrender of the entire licensed area, the license certificate
   shall be returned to the OGMC.

1. The OGMC shall notify the relevant authorities of the surrender of
   the entire licensed area, and publish an official notice informing
   the public of the surrender.

1. A license holder that surrenders a particular licensed area may not
   submit a new application for the same area for a period of two years
   following the surrender. If the person that surrenders the license
   is a legal entity, then this paragraph shall also apply to any third
   party that controls more than 50% of the voting rights in that legal
   entity or any third party in which such entity controls more than
   50% of the voting rights.

Article 47. Revocation of licenses

 

1. The OGMC shall revoke any license, in accordance with this Article,
   if it determines that the license holder does not meet the
   requirements for maintaining eligibility to hold a license as
   specified in Chapter 3 of this law.

1. The OGMC, pursuant to a decision by the head of the OGMC, shall
   revoke a license on the following grounds:

1. that the license holder has lost its eligibility to hold a License
   in accordance with this law; or

2. that the license holder has failed to pay License Fees specified in
   Article 24 of this law in full or did not pay License Fee and
   penalty within the time specified in the paragraph 4 of this
   article; or /This subparagraph was amended by the Law of January
   8, 1999/

3. that an exploration or mining area has been designated as a special
   needs land and the license holder has been fully compensated.

1. Immediately upon determining the existence of grounds for revocation
   of a license, the OGMC shall notify the license holder, and any
   license pledgee, in accordance with the procedures established by
   this law. The notice shall specifically indicate the grounds for
   revocation of the license.

1. Within thirty (30) days following the receipt of the notice
   specified in paragraph 3 of this Article, a license holder, or any
   license pledgee who paid the License Fee and the required penalty,
   may submit to the OGMC documentary evidence that the grounds for
   revocation of the license are not valid. /This subparagraph was
   amended by the Law of January 8, 1999/

1. Upon review and analysis of the documentary evidence submitted by
   the license holder, if the OGMC agrees that the grounds for
   revocation of the license are not valid, it shall withdraw its
   notice of revocation and notify the license holder accordingly.

1. If the OGMC determines that the documentary evidence submitted by
   the license holder does not establish invalidity of the grounds for
   revocation of the license, the head of the OGMC shall revoke the
   license and notify the license holder and license pledgee
   accordingly.

1. The holder or license pledgee shall have a right to file a complaint
   with the court within thirty (30) days following the date of
   issuance of the decision.

1. If the license holder or the license pledgee files a complaint with
   the court, no license shall be issued with respect the license area
   until a valid court ruling has been made.

1. The OGMC shall notify the professional inspection institution and
   the GMDA of the revocation of a license, and in case of revocation
   of a mining license, the OGMC shall notify the Ministry of Finance,
   and publish an official notice informing the public of the
   revocation. /This paragraph was amended by the Law of September
   1, 2000/

CHAPTER seven

Resolution of disputes arising out of

exploration and mining licenses

Article 48. Resolution of boundary disputes between or among
license holders

1. Boundary disputes between or among license holders shall be resolved
   by the OGMC. Any party to a boundary dispute may request the OGMC
   to resolve the dispute.

1. The OGMC shall give all parties to the dispute an opportunity to
   present their positions and arguments in writing.

1. The OGMC shall verify if there is an overlap between disputed areas
   in the register of licenses and the cartographic register of
   licenses. If there is an overlap, the OGMC shall determine, based
   on the original applications and reports of field surveys, whether
   the coordinates and boundaries of the area were correctly recorded.

1. If, as a result of a field survey, an overlap is confirmed, the OGMC
   shall modify the area covered by the more recently granted license
   and eliminate the overlap.

1. The OGMC shall have disputed boundaries of a licensed area surveyed
   and established by an accredited professional geodesic surveyor and
   any costs and loss relating thereto shall be paid for by the party
   shown to be wrong.

1. The OGMC shall verify the disputed boundaries, make decisions on
   relevant modifications, and notify the parties to the dispute
   accordingly.

1. If the parties to the dispute disagree with the decision of the
   OGMC, they may file a complaint with the court.

Article
49. Resolution of disputes between license holders and land owners
or users

 

Land
access, rights of passage, and land use disputes between or among
license holders and land owners or land users, shall be resolved in
accordance with the provisions of the Land law, the Civil law and
other relevant laws.

Article 50. Filing of complaints to State administrative bodies

 

Where any actions or failures to act by civil servants or State
administrative bodies have prevented the exercise by citizens or
legal persons of rights conferred upon them hereunder, such citizens
or legal persons may file a complaint with respect thereto with
relevant senior officials or State administrative bodies or the
courts.

 

Article 51. Resolution of disputes arising out of a stability
agreement

Any disputes arising out of a stability agreement concluded with the
Government according to Articles 20 and 21 of this law shall be
resolved in accordance with the Arbitration law and international
treaties of Mongolia.

CHAPTER EIGHT

Sanctions

 

Article 52. Sanctions for breach of legislation

1. If a breach of the minerals legislation does not constitute a
   criminal offence, a geological and mining inspector, whilst taking
   into account the circumstances of the infringement, shall impose the
   following penalty on the guilty person:

1. If any person has conducted exploration or mining activities or sold
   minerals without holding a mineral license, all income or products
   derived from such activities shall be confiscated by the State and,
   a fine in an amount equal to the double of the value of the minerals
   in question shall be imposed on such person. In such case, the
   amount of the penalty shall not exceed the maximum penalty set forth
   in the law on Administrative responsibilities;

2. A penalty of from 10,000 to 60,000 togrogs shall be imposed in the
   case of the non-timely submission of statements set forth in Article
   39 of this law or the submission of false statements;

3. Prevention of a license holder from exercising rights conferred by
   this law shall give rise to the imposition of fines as follows:

1. with respect to citizens, from 10,000 to 40,000 togrogs;

2. with respect to officials, from 20,000 to 60,000 togrogs;

3. with respect to organizations and legal entities from 100,000 to
   250,000 togrogs.

1. Failure of a license holder to comply with obligations with respect
   to the conduct of activities under a license as set forth in Chapter
   4 of this law shall be fined as follows and, in addition, such
   license holder must pay for any damage resulting from such failure:

1. with respect to citizens, from 10,000 to 50,000 togrogs;

2. with respect to officials, from 20,000 to 60,000 togrogs;

3. with respect to organizations and legal entities, from 50,000 to
   250,000 togrogs.

1. Failure of a license holder to comply with legitimate requirements
   imposed by a geological and mining inspector with respect to the
   elimination of deficiencies discovered in the course of exploration
   or mining shall be fined as follows:

1. with respect to citizens, from 15,000 to 50,000 togrogs;

2. with respect to officials, from 10,000 to 60,000 togrogs;

3. with respect to organizations and business entities from 50,000 to
   250,000 togrogs.

1. Where a license holder continues to violate laws with respect to
   environmental protection, mine operation safety regulations, or the
   provisions of its environmental protection plan, the exploration
   and mining activities of such a holder be suspended for up to 60
   days, and if such deficiencies are not eliminated within this
   period, the exploration activities of the license holder shall be
   terminated or, in the case of an operating mine, the mine shall be
   closed.

1. A legal person who has intentionally decreased, or attempted to
   decrease, disclosures with respect to sales revenue shall be fined
   from 100,000 to 250,000 togrogs and be required to pay any unpaid
   royalties due with respect to the shortfall and, in addition, a
   penalty equal in amount to such unpaid royalties.

1. Any legal person who has failed to comply with the regulations with
   respect the assaying and registration of precious metals and
   gemstones as provided by this law shall be fined from 100,000 to
   250,000 togrogs.

1. Where a mining license holder has intentionally reduced the volume
   or amount of minerals extracted, or has intentionally reduced sales
   revenue by intentionally reducing the sales price by entering into a
   fictitious contract, or by selling the product at an unfair price,
   such license holder shall be fined 100,000 to 250,000 togrogs and
   the amount by which the revenue has been understated shall be paid
   by such license holder to the State treasury.

1. If the OGMC fails to make a decision within the time limit set forth
   in paragraph 9 of Article 14 of this law, it shall pay the applicant
   an amount equal to the processing fee for each ten (10) days such
   failure continues or, at the request of the applicant, such amount
   shall be deducted from the first year's license fee.

1. If the OGMC fails to make a decision within the time limit set forth
   in paragraph 6 of Article 17 of this law, it shall pay the applicant
   an amount equal to the processing fee for each day such failure
   continues or, at the request of the applicant, such amount shall be
   deducted from the first year’s license fee.

1. Any other penalties provided for by law.

1. A court may impose a fine of up to 30,000 togrogs on any person who
   intentionally prevents an authorized official from performing his or
   her duties in the course of an inspection.

2. If the license holder did not pay the license fee within the period
   specified in the article 25 of this law, a penalty equal to the 0.5%
   of the total unpaid amount shall be paid for each expired day. /This
   paragraph was added by the Law of January 8, 1999/

CHAPTER NINE

Structure and Composition of Agencies Responsible

for Implementation of Mineral Related Legislation

Article
53. Geological and Mining Inspection Agency

The
state monitoring on the exploration and mining activities shall be
organized and implemented by the professional inspection institution
in the central level, and by the inspection divisions in the local
level. /This article was re-edited by the Law of September 1,
2000/

Article
54. Geological and Mining Development Agency

The
GMDA is the implementing agency of the State central administrative
body in charge of geology and mining activities and includes three
divisions: the Office of Geology, the Mining Office, and the OGMC.

The
GMDA shall carry out its activities independently from the
professional inspection institutions. /This paragraph was amended
by the Law of September 1, 2000/

Article 55. Office of Geological and Mining Cadastre

The OGMC shall have the following functions:

1. to receive, register and make decisions with respect to applications
   for licenses;

2. to maintain the register of licenses;

3. to maintain the cartographic register of licenses;

4. to issue exploration and mining licenses;

5. to collect and distribute application processing and license fees in
   accordance with applicable laws and regulations;

6. to receive and register applications for prospecting;

7. to review and resolve boundary disputes between and among license
   holders;

8. to provide interested persons with access to the register of
   licenses and the cartographic register of licenses and to notify
   relevant government agencies of changes in these registers, and to
   publish official notices informing the public of such changes.

Article 56. Office of Geology

 

The Office of Geology is responsible for providing the State central
administrative body in charge of geology and mining with information
for the development of policies and programs with respect to geology
and related research, the conducting of such research, and the
following other activities:

1. regional geological and hydro-geological mapping of Mongolia and
   related geophysical research;

2. research on the patterns of distribution and types of occurrence of
   mineral resources within the territory of Mongolia and the
   evaluation of such resources;

3. geo-ecological research and recommendations with respect to natural
   and human factors that may have an impact on the social and economic
   development of Mongolia;

4. providing interested persons with all available geological and
   mining related information, including information provided by
   license holders in accordance with this law, except for information
   classified as confidential;

5. maintaining and up-dating the information fund with respect to
   national geological and

related resources.

Article 57. Mining Office

The Mining Office is responsible for providing the State central
administrative body in charge of geology and mining with information
and research on the development of the mining sector and for
conducting of research with respect to the following matters:

1. evaluations and recommendations with respect to technology and
   equipment used in the

mining industry, and implementation of mining technology policy;

1. creation of a favorable investment environment for the mining sector
   and evaluations and recommendations with respect to the existing
   investment environment;

2. research, evaluations and recommendations with respect to the impact
   the mining industry has on the social and economic development of
   Mongolia;

3. research on the supply, demand and prices of mining products, and
   forecasting of long-term trends;

4. development of proposals with respect to State policies with regard
   to particular mining projects, and implementation of such a
   policies.

CHAPTER TEN

Other Provisions

Article
58. Notification of Interested Persons

1. The State administrative body in charge of the issuance of licenses,
   their registration, and the monitoring of activities of license
   holders, shall notify relevant persons of its decisions by means of
   an official letter.

1. Such notices may be delivered to relevant persons in writing or by
   means of an official publication. In the event of a dispute with
   respect to the timing of the delivery of the notice, the date of the
   official publication shall be deemed to be the date of delivery of
   the notice.

Article
59. Payment of fees

With
respect to license fees specified in this law in US dollars, the
official exchange rate for the particular day established by the
Mongolbank shall be used.

Article
60. Access to minerals related information and reports

1. Any interested person shall have a right to have access to the file
   of license applications, the register of licenses, and the
   cartographic register of licenses during office hours in specially
   designated rooms.

1. Reports of exploration work prepared by a license holder,
   information with respect to mine operations, and feasibility studies
   shall be treated as the license holder’s confidential information.

1. Information classified as confidential shall not be disclosed,
   published or disseminated except in accordance with provisions and
   procedures established in the Law on State secrets, the Law on
   Organization secrets, and the Law on Private secrets. An interested
   person shall have a right to have access to minerals related
   information not classified as confidential during office hours in
   specially designated rooms.

 

Article 61. Distribution of royalty revenues

 

All royalty payments shall be deposited in the treasury of the
central and local administrative bodies. /This article was amended
by the Law of December 27, 2001/

Article 62. Use of license fees

All
license fee payments shall be deposited in the State central
treasury.

Article
63. Specifics of mining industry finance and accounting

1. All costs incurred for exploration, and all expenses incurred in
   preparing a mine site for production, shall be amortized on a
   straight line basis over a period of five (5) years commencing with
   the tax year in which production from the mine commences.

1. The costs of acquisition of a license, either directly or by
   transfer, shall be amortized on a straight line basis over the term
   of the license.

1. Fixed assets used in mining operations shall be depreciated on a
   straight line basis over a period of five (5) years.

1. A loss incurred in any tax year may be deducted from taxable income
   during the three (3) tax years following the year in which the loss
   was incurred.

1. All costs incurred in developing industrial and social
   infrastructure shall be depreciated on a straight line basis over
   the useful lives of the facilities constructed. All costs of
   maintaining and operating such infrastructure facilities shall be
   expensed in the year in which such costs are incurred.

1. All maintenance costs in connection with mining operations shall be
   expensed in the year in which they are incurred.

1. The Ministry of Finance shall adopt regulations implementing
   paragraphs 1 through 6 of this Article.

Article
64. Processing Fees

An
applicant shall pay the specified processing fee when submitting an
application to obtain a license, transfer a license, extend the term
of a license, pledge a license, transfer a license pursuant to a
pledge, or to surrender all or part of a licensed area, and when
requesting the resolution of a boundary dispute.

Article
65. Coming into force of the law

 

This
Law shall come into force on 1 July 1997.

Chairman
of the State Ih Hural of Mongolia R. Gonchigdorj

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