The French – Mongolian Uranium Mining Deal: Boom or Bust?

Mongolia boasts an incredibly rich array of natural resources, from copper to coal, to rare earth metals. Although the country also contains rich and accessible uranium deposits, the mineral has not been mined in Mongolia since the 1990s, after the last Russian uranium mine closed. Though companies like the Canadian-owned Khan Resources have attempted to restart production since, none have managed yet to overcome the political, environmental and legal hurdles that inevitably arise when mining in Mongolia. In October 2023, the French nuclear company Orano signed a deal to mine uranium in Mongolia after concerns about France’s nuclear supply arose due to instability in western Africa, where it historically sourced most of its uranium. Many questions remain, as to whether the project will succeed unlike previously failed attempts to mine the element in the country, and as to how the mineral will leave Mongolia, which is landlocked and enveloped by China and Russia.

The France-Mongolia uranium deal

Concluding an impressive display of courtship, in October 2023 Mongolia signed a 1.7 billion USD agreement to mine uranium, assigned to the French nuclear group Orano, which has been operating in Mongolia since the 1990s. Prime Minister Khurelsukh, hosted by President Macron in Paris, agreed to grant a uranium mining licence for the biggest known uranium deposit in Mongolia, at the Gobi desert site of Zuuvch Ovoo. The site is currently being explored for upcoming commercial extraction, set to begin in 2028. 

The deal would make Mongolia the 7th largest global producer of uranium at a profitable time, as uranium prices are set to rise in the next decades due to an increase in nuclear power plant construction. Currently, the mining site is being explored and controlled by Badrakh Energy, a joint venture between majority shareholder French group Orano at 66% and the Mongolian government at 33%. Once mining commences in earnest, the ownership structure is likely to change to being 90% French owned with Mongolia exchanging its equity for a 19% royalty fee, according to statements on the agreement. This royalty-fee exchange is considered a better deal for both as it would leave Orano with relative freedom in day-to-day operations while Mongolia would see an increased cash flow directly into its state treasury.

How will Mongolia benefit from the deal?

Mongolia’s economy is still largely dependent on exports of gold, coal and copper, especially to China, which accounts for 82% of its 9.2 billion USD exports, of which over 90% are mineral resources and products. This presents both an economic and political risk whenever the Chinese economy or commodity prices slump. In 2017 such a scenario resulted in the IMF executing its fourth-largest financing package yet to shore up the faltering Mongolian economy. The current government in place since 2021 has been trying to incentivize more diversified mining projects in an effort to boost GDP and economic resilience, including uranium and rare earths. 

Mongolia already hosts some globally renowned mineral enterprises such as the partly Chinese owned Rio Tinto’s Oyu Tolgoi copper-gold mine, but these have faced expensive and time consuming legal challenges and political interference, especially from Mongolia’s governments that have tended to use mining concessions as bargaining chips in domestic political negotiations. By successfully and smoothly executing this agreement with France, Mongolia would demonstrate to resource hungry western investors that it is a safe and profitable country to invest in, attracting more much-needed foreign investments.

The benefits for France and the EU

France currently boasts an extensive fleet of domestic nuclear reactors and, unlike in Germany, their nuclear policy is not set to be changing anytime soon. Before the 2023 coup d’etat in Niger, France sourced at least a quarter of its nuclear fuel from the African country, along with Canada and Kazakhstan, but the subsequent instability has left it searching for other reliable and low geopolitical risk suppliers for its power plants. 

Seeking to avoid the endless legal and political issues that have plagued Rio Tinto in Mongolia, the French wisely determined to secure political support by illustrating the attractiveness of the deal to the Mongolian political establishment. To this end, President Macron himself visited Ulaanbaatar in early 2023 before receiving his Mongolian counterpart in Paris later the same year, putting on display a Gengis Khan exhibition in Nantes to further secure his support. Standing as the largest EU project in Mongolia ever, the deal also paves the way for future EU-Mongolia collaboration on critical raw materials, including rare earth metals, which have emerged as an important priority on the EU de-risking agenda and which Mongolia possesses in abundance.

Previous attempt failures to mine uranium in Mongolia

While small quantities of uranium were extracted during the late soviet era at Dornod, no uranium mining has taken place in Mongolia since 1995. After the mine closed, the majority Russian-populated 10.000 strong local mining town of Mardai completely collapsed. The same mining licence was soon acquired by Canadian firm Khan Resources, in collaboration with a Russian state-owned company and the Mongolian government, but no uranium ended up being produced. In 2009 Khan Resources’ licence was revoked owing to an effort by Mongolia and Russia to push the Canadians out of the partnership due to a proposed acquisition of the firm by a Chinese state-owned company, an action that resulted in legal proceedings in which Khan Resources would eventually be reimbursed in 2011 after a long arbitration process. All the while the former Soviet mine is still laying dormant. 

Unlike the ill-fated Dornod deposit, the Zuuvch Ovoo site has been explored and held by Orano since the early 2000s, which has identified it as bearing the largest uranium reserves in Mongolia. Furthermore, the lack of previous mining history also precludes possible expensive legal challenges. The location of the site, relatively close to the existing Trans-Mongolian railway into Russia and China, and situated in the sparsely populated Gobi desert, only adds to the feasibility of the operation. 

Compared to the early 2000s, the legal framework for mining in Mongolia is now more consolidated and developed, presenting a lower risk profile for investors. The past 30 years of mining in Mongolia have created a significant and growing body of court cases to be referenced in legal disputes. The most relevant legislative update since the introduction of the original 1994 Minerals Law has been the 2009 Law on Nuclear Energy, regulating the extraction of radioactive materials. The legislation clarifies the ownership structure of future nuclear mining operations, and the responsibilities of both the government and the private party that agrees to exploit such deposits. Discussions are currently ongoing on a comprehensive reorganisation and simplification of the various Mongolian mining codes into a single updated Minerals Law, which proposes to nearly halve royalty payments, now one of the highest in the world, further benefitting future investors.

How will the uranium leave Mongolia? 

Despite the project’s high likelihood of success thanks to secure political support, favourable economic conditions and lack of legal obstacles, the question of how the uranium will leave Mongolia threatens to become its biggest obstacle. Being a landlocked country with no navigable rivers, and sandwiched between Russia and China, Mongolia’s exports necessarily need to transit through either one of its neighbours to reach France and the global market. 

Given the EU’s current icy relations with Russia, the sanctions in place, and the proximity of the mining site to the Chinese border, which is already connected by existing infrastructure, it is unlikely that the uranium will transit through any Russian ports. Instead, the uranium will probably be exported initially by truck or rail, through the northern Chinese port of Tianjin Xingang, which Mongolia already relies on for 80% of its international trade. The transit of a significant portion of France’s nuclear supply through China, however, could also present significant risks if transit controls were to be introduced, for example in the event of heightened tensions between the EU and China.

How to successfully implement the deal?

Compared to the Canadian Khan Resources’ unfruitful venture, Orano’s uranium project currently stands at a high likelihood of implementation and success. Analysing the issues that previous mining firms have faced, lack of political support emerges as the main causal factor behind the failure of Khan Resources in Dornod and Oyu Tolgoi’s expensive delays. In Rio Tinto’s case, it signed its deal with the Democratic Party government in 2009, a year before it lost the elections to a landslide victory of the opposition Mongolia’s People Party. The new government then obstructed the mining project for political gain, as the deal had been one of the Democratic Party’s landmark achievements. In the case of Khan Resources, the project failed to secure political support in a time of legal uncertainty, when Mongolia was still recovering from post-Soviet instability, and was outmanoeuvred by local politicians who were seeking a better deal with Russia, paranoid of possible Chinese influence. 

Learning from others’ mistakes, France has managed to secure political support of both the President, who is not facing another election until 2027, and of Prime Minister Oyun-Erdene, shielding the deal from political dogfighting. Compared to the 1990s, mining legislation and property rights have been greatly developed and policy u-turns are unexpected, though not impossible given the volatile nature of Mongolian politics. Although Mongolia has enacted important legislation in the areas of environmental sustainability and labour rights, mining projects often have an outsized negative effect in both areas, given the harsh work conditions and polluting nature of the industry. The implementation of the agreement will thus also require an increased focus on the environmental and social impact of the mining activities and their sustainability. 

Ultimately the biggest risk to the project comes from outside of Mongolia, given that the processed uranium will probably need to transit through China before reaching the global market, where shipments could be obstructed for geopolitical gain. In order to lessen the risk from such a scenario, guarantees from China not to obstruct the passage of its goods could be sought, possibly using the alternative Russian export route for future leverage. 

More concretely, a comprehensive bilateral agreement between China and Mongolia, which is currently covered by a limited bilateral investment treaty, would also strengthen Mongolia’s export resilience while reducing barriers for the landlocked country’s exporters, who have no special arrangements with any Chinese ports yet despite their crucial importance. Notwithstanding the significant hurdles that the operation presents, the Orano agreement can bring increased benefits and cooperation between the EU and Mongolia, with France gaining a secure supplier and Mongolia diversifying its export portfolio. For the project to succeed the question will thus be how the challenges posed by transportation constraints, sustainability factors and political developments will be mitigated.

Author: Giacomo Ferri, EIAS Junior Researcher

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