Almost a year and a half after the law banning all mineral prospecting, exploration and mining in water basins and forest areas was passed, implementation began last week. The Government initiated a process of revocation of licenses in stages, beginning with 254 alluvial gold mining licenses. The law covering environmentally vulnerable areas is like those in developed mining countries including Canada and Australia.

For investors in Mongolia, the risk to the estimated 1,782 licenses has been known for some time. But the largely unknown factor for those impacted is the compensation claims which need to be assessed and most find it difficult to see the source for the payment. Indeed, there is speculation among professional organizations that the announced revocations are legally unenforceable as the law on mineral resources is clear that licenses can be canceled only after compensation is agreed upon and paid. There can be no cancellation before compensation.

The draft budget does not provide allocations for such compensation, so the mining entities can continue with work under their licenses. The State Organization of Geology and Mining has thus urged the Professional Monitoring Agency to suspend the licenses, so that no further work is done until the issue is resolved.