The preferential lower royalty was contained in amendments to the Minerals Law approved by Parliament on 24 January 2014. That law stated the preferential 2.5% rate would remain in force until at least 1 January 2019.

The original rationale for a lower royalty on direct gold sales at market prices to the Mongol Bank was to help the Mongol Bank build up its gold reserves to stabilize the MNT exchange rate, foreign exchange reserves and other metrics and bring greater order to the domestic gold market. However, some observers believe that repeal of the 2.5% preferential royalty would cross-pressure other MNT stabilization efforts, such as the Mongol Bank’s recent action in raising interest rates to 15%, as well as impede new mining investment. We await further clarification on the royalty language.

Every domestic and foreign gold company in Mongolia has relied on that 2014 law, which guaranteed to keep the preferential royalty until 2019. They built that assumption into all their budgets and their prospectuses for investors. If the royalty doubles to 5%, observers fear it will make investment in Mongolian gold companies less attractive, discourage fresh FDI coming into the mining sector, lower the amount of gold actually produced subject to royalty, and impact overseas investor confidence.