Mongolia’s prime minister defended changes to the country’s mining laws after foreign investors raised concerns they could deter investment in its large reserves of critical minerals, including those used in electric vehicle batteries and other new energy technologies.

Legislative amendments to restrict private investment in strategic deposits and give the government free shares in mining projects will ensure the Mongolian people benefit from the country’s substantial resources, Prime Minister Oyun-Erdene Luvsannamsrai said in an email to Bloomberg News last week.

“The Government of Mongolia remains committed to maintaining a stable legal environment for a thriving minerals sector which delivers significant financial returns for our investment partners,” Oyun-Erdene said.

Mining represented 28% of Mongolia’s GDP last year and comprised 92% of all exports, mostly to China. The country has vast resources of coal and copper, a metal deemed crucial to the global energy transition. Its largely untapped deposits of rare earths have attracted mining interests from countries including France, Germany and the US.

Mongolian lawmakers last month approved legislation to cap a single investor’s shareholding at 34% and allow the government to take shares in companies mining strategic deposits without compensating their owners, changes that critics say create uncertainty over operations and investment returns. They were passed last month alongside a new Sovereign Wealth Fund Law seeking to channel mining revenues into funds for economic development and welfare.

The government previously paid to acquire 34% stakes in firms exploiting strategic deposits, and a single investor could own as much as 66% of mining assets.

INVESTOR WORRIES

Business groups including the American, Australian and European chambers of commerce told reporters in a joint press conference this month that they support the broader goals but expressed alarm that authorities passed the law only three days after first hearings were held and altered the text of the bill without consulting stakeholders.

“These sorts of policy will actually pull foreign investment” elsewhere, said Brad Clarke, chairman of the Australian Chamber of Commerce.

“The changes in the law may lead to a significant decrease in foreign direct investment” in mining, said Ariunbold Batchuluun, a spokesperson for Mongolia-based MAK Group, which is developing the Tsagaan Suvarga copper mine, deposits deemed strategically important.

Oyun-Erdene said he’d welcome public input when the parliament debates an annual budget for the Sovereign Wealth Fund.

Nevertheless, the concerns may complicate the Mongolian government’s efforts to attract foreign investment to help grow the crucial mining sector while it seeks to win over voters calling for a greater share of the country’s mineral wealth and an end to corruption.

CANCELED DEBT

The changes to the state ownership rules were foreshadowed by the 2021 decision by Rio Tinto Group to forgive debt incurred by Mongolia for taking a 34% stake in the Oyu Tolgoi mine after a decade of disputes over taxes and shareholding in the world’s fourth-largest copper mine.

The amendments are not expected to affect Rio Tinto because of an investment agreement in place with the Mongolian government. The country currently labels 16 deposits as strategic, mostly owned by local mining companies with the government sharing their profits. Oyun-Erdene said his administration has no current plans to add any resources to the list.

“The main intention of the amendments is to tackle the oligarchic concentration of financial gains from within this vital industry. Currently much of the wealth sits in a small number of hands,” the prime minister said.