France and Mongolia Investment Agreement to collaborate on $1.6 BIllion uranium mining project www.europeanbusinessmagazine.com
On January 17, 2025, “Orano Mining” company of the French Republic and Mongolian Government signed an Investment Agreement to collaborate on a uranium mining project. This agreement represents the second major investment accord between Mongolia and a third neighbor country and marks the largest foreign investment since the Oyu Tolgoi project. The project will be implemented by the French-Mongolian joint venture Badrakh Energy LLC and Orano Mining S.A.S.
The deal is worth $1.6 billion. Mongolia will directly benefit from 51 percent of the project. The start of the use of the Zuuvch-Ovoo deposit, one of the 14 mega projects of the Joint Government, will not only increase foreign investment, but also create new jobs and introduce new technologies.
The investor has been operating in Mongolia in the field of exploration and mining since 1997, and began production trials of the Zuuvch-Ovoo deposit in July 2021 and successfully completed it in December 2022. The Zuuvch-Ovoo uranium deposit, discovered by geologists from Cogegovi LLC, is rightfully included in the top 10 largest deposits discovered in the world in the last 20 years.
Currently, Badrakh Energy LLC holds a special exploitation license covering three areas: Zuuvch-Ovoo, Dulaan-Uul, and Umnut, located in Dornogovi aimag. The company has completed the construction of the facilities necessary for conducting production pilot work at the Zuuvch-Ovoo deposit.
The Mongolian Government has negotiated with the investor a total of 18 times and has agreed on the following terms in the economic and investment areas in advance. Specifically, the initial investment amount will be approximately $500 million and is planned to be made within 4 years from the date of entry into force of the agreement.
For the initial investment, it has been agreed that the financing of the project’s investment and operations will not be financed through loans and will be financed through equity. In the event that shareholder loans are not approved during the project period and an urgent need for loans arises, it will be decided by a shareholders’ meeting, and the shareholder loans granted to the project implementing company before the date of entry into force of the agreement will be transferred to the project implementing company’s equity.
Rather than directly using the financial calculations submitted by the investor, the Mongolian side will develop its own financial calculation model in accordance with the international FAST (Flexible, Appropriate, Structured and Transparent) standard based on the feasibility study, and after verification with the investor, Mongolia confirmed the conditions for receiving the majority of the benefits of the strategically important mineral deposits, or at least 51 percent, annually in the accumulated amount.
The draft agreement specifically mentions the income to be calculated as direct benefits for the Government and the investor, and if the direct benefit of the Mongolian side does not reach 51 percent, the investor and the project implementing company will be obliged to reimburse the Government for the additional benefit adjustment payment necessary to bring the benefit to 51 percent.
The agreement stipulates that the Government will directly acquire 10 percent of the state-owned preferred shares of the project implementing company’s owners free of charge and will not reduce the percentage. The investor’s proposal to stabilize a total of 27 types of taxes was reduced during the negotiations, and it was agreed to stabilize only 4 types of taxes: CIT, VAT, Mineral Resources Royalty Tax, and customs tariffs. Although a proposal was submitted to stabilize the tax calculation method in a broad sense, it was agreed to stabilize only three indicators: tax type and rate; depreciation period; and loss carryforward period.
Mineral Resources Royalty Tax will be calculated as a basic and increased percentage, and special payments will be fully paid from the sales value of the product without deductions or inflation. The draft agreement includes the principle of anti-base erosion and profit shifting (BEPS) and full compliance with domestic law. During the negotiation process, it was with the investor party that marketing payments will not be recorded as deductible expenses for tax and financial reporting purposes.
New technologies will be introduced and a sulfuric acid plant will be established. The feasibility study includes $2.4 million for waste management and $96.2 million for the sulfuric acid plant, which will be built starting in 2028. The project is anticipated to bring significant societal and economic benefits, including increased foreign investment, enhanced state and local budgets, job creation, technology transfer, and strengthened international cooperation.
Published Date:2025-01-22