Mongolia’s Rare Earth Resources Are Vast, but Output Is Still Zero

Mongolia appears in almost every serious conversation about diversifying critical minerals away from China. Yet the country has not produced a single tonne of rare earths commercially. That gap between how often its rare earth resources are mentioned and how little they have delivered is the real story.

Rare earth elements (REEs) are a group of 17 metals used in magnets, electronics and defence systems. China dominates both mining and refining, which leaves governments and manufacturers looking for alternative supply. Mongolia keeps coming up because it has large mineral deposits and a stated policy of courting partners beyond its two neighbours.

Rising rare earth demand from magnets, electronics and defence systems is what gives even an unproven deposit strategic value, as buyers look for supply outside China.

That geography cuts both ways. Mongolia is landlocked between China and Russia, so every tonne it might one day sell has to cross one of their borders.

Here is a clear view of where the country’s rare earth story actually stands, what stands in its way, and which signals would tell you the picture is changing.

Where Mongolia’s rare earth story stands today: potential, not production

On paper, the endowment looks impressive. The US Geological Survey (USGS), in its Minerals Yearbook on Mongolia’s mineral industry in 2023, lists rare earths among the country’s extensive deposits, alongside copper, coal, gold, fluorite, tungsten and uranium.

Read closer, though, and the language tightens. The USGS does not report any commercial REE mining in Mongolia, and its Mineral Commodity Summaries 2025 leaves Mongolia off the list of rare earth producers entirely.

Development status check The USGS does not identify Mongolia as a commercial rare earth producer, and publishes no Mongolia-specific rare earth reserve figure.

That distinction matters. A geological occurrence is simply metal in the ground. A mineable resource is one that drilling, testing and cost studies have shown can be extracted at a profit.

The clearest marker of where Mongolia sits is Khalzan Buregtei, in Khovd province, developed by the Mongolian National Rare Earth Corporation (MNREC). MNREC describes it as the largest of six registered REE deposits in the country.

NI 43-101 is the Canadian standard for reporting mineral projects. A definitive feasibility study is the detailed engineering and cost assessment that usually comes before any decision to build.

For you as a reader tracking supply chains, that makes Mongolia an option on future diversification. Any timeline that assumes near-term supply deserves scepticism.

Who can own what: Mongolia’s rules for foreign access to strategic minerals

Even a proven deposit raises a second question: how much of it can a foreign investor actually own? The answer comes in layers.

The first layer is the 2024 strategic-deposit amendments. According to a European Parliament Research Service briefing from April 2024, a single investor’s stake in an entity holding a licence for a strategically important deposit is capped at 34%.

The second layer goes further. The US Department of State’s 2025 Investment Climate Statements report that private owners of assets Parliament designates as strategic must transfer at least 34% to the state without compensation. The Mining Law also lets the government take up to 50% of such a deposit, and Article 6.2 of the Constitution requires the state to receive a “majority” of benefits from strategic projects.

The third layer depends on who the investor is. Private foreign investors are generally free to own and control assets, subject to the strategic rules and the 2013 Investment Law’s US$100,000 capital requirement.

Foreign state-owned enterprises face more. A foreign SOE seeking 33% or more of a mining company needs prior government permission, according to the State Department and law firm Norton Rose Fulbright.

The tension is plain: Mongolia wants foreign capital while claiming a larger state share. No comprehensive REE-specific legal regime has been publicly reported, so the questions you would need answered stay open:

• Will the deposit be classed as strategic?
• Could the state take an equity stake?
• Does the 34% cap apply?
• Would a foreign SOE partner trigger national-security review?

This tells you ownership economics, not just geology, will drive returns.

The special royalty option introduced in 2025 can replace state equity on strategic deposits, so the signed investment agreement may matter more to investors than the statutory 34% cap itself.

Between China and Russia: why geography shapes every critical mineral decision

Suppose the rules settle. The minerals still have to leave the country, and that is where Mongolia’s “third neighbour” diplomacy meets hard physical limits.

• Transport: exports move south through China toward ports such as Tianjin, or north through Russia.
• Processing: rare earths need separation and refining, which means chemically splitting mixed ore into individual saleable metals, and Mongolia has limited capacity.
• Neighbour leverage: the Congressional Research Service reported last month that China accounted for 89% of Mongolian exports and 40% of imports in 2025.
• Retaliation risk: CSIS warns closer Western or Japanese alignment may invite pressure because trade is so concentrated.

Processing gap CSIS analysis from May 2026 estimates about 88% of Mongolian minerals leave the country unprocessed, mostly bound for China.

A KAS-linked analysis ties this to China’s 2025 export-licensing measures and to Mongolia’s lack of an independent export corridor. The Asian Development Bank (ADB) reached a similar view this year: potential does not automatically become investable supply.

China’s export-licensing measures reach well beyond mining, covering processing technology and refined products, and they explain why frontier suppliers like Mongolia attract so much strategic attention despite producing nothing yet.

Supporters argue diversified investors give Mongolia leverage. Sceptics counter that dependence on Chinese and Russian routes cannot be removed quickly, leaving “third neighbour” largely a diplomatic balancing act.

Third neighbour partners: what is and is not on the record

The United States has the 2023 MOU, and CSIS has raised possible Minerals Security Partnership candidacy. Japan and South Korea are discussed as natural partners, and the EU as a strategic one.

None has a publicly reported binding REE offtake or mine-development agreement. Frameworks exist; commercial projects have not been identified.

For you, that means partnerships can diversify Mongolia’s friends faster than its routes. The geopolitical premium and the geopolitical risk are the same fact.

What investors tracking critical mineral supply chains should weigh

The risks are easier to see once they sit beside the case for optimism.

Oyu Tolgoi offers useful context. The ADB describes it as one of the world’s largest copper-gold mines, and copper is Mongolia’s most developed critical mineral, proof the country can host a major foreign-operated project.

It is not proof an REE project would succeed. Oyu Tolgoi also showed how complex ownership, tax and sovereignty negotiations can become, and rare earths add processing hurdles copper never faced.

Mongolia’s history of renegotiating mining agreements at Oyu Tolgoi shows how ownership, tax and sovereignty terms can be reopened long after a project starts, a risk any rare earth partner would have to price in.

Khalzan Buregtei’s move from a 2024 pre-feasibility study to a 2025 definitive-feasibility assignment fits the slow pattern of frontier rare earth projects. Treat Mongolia as a watch-list position and track these signals:

1. The definitive feasibility study outcome
2. Strategic-deposit classification for Khalzan Buregtei
3. A named processing partner
4. Export-route arrangements
5. A binding offtake agreement

Feasibility results and project timelines are subject to change, and past progress does not guarantee future outcomes.

What Mongolia’s option value is worth, and what would have to change first

The strategic case for Mongolia is strong. The investment case remains unproven, because commercial production, domestic processing, independent export access and stable ownership rules are all still missing.

Headline partnerships will keep arriving. They matter less than whether the hard pieces fall into place together.

The single test to apply is convergence. When a bankable feasibility result, a settled ownership classification and a workable export route line up on the same project, Mongolia’s option starts turning into supply. Until then, it stays on the watch-list.

This article is for informational purposes only and should not be considered financial advice. Investors should conduct their own research and consult with financial professionals before making investment decisions.