The Mongolian Government is preparing to restore 106 mining licences that it cancelled last year, after it was discovered that the licences were issued illegally.

Among the 106 licences are 11 owned by foreign companies and 66 are owned by local groups.

Mongolia’s Ministry of Mining was quoted by Bloomberg as saying that: "The Ministry of Mining and government is working to find the best solution for the license holders."

"The proposal will still need sign-off from parliament."

The Mongolian Government’s attempts to restore confidence in the mining industry follow on from its unresolved dispute with the Rio Tinto Group over the Oyu Tolgoi copper and gold deposits.

The government intends to boost the confidence of investors, as foreign investment has dropped by 54% in 2013 and economic growth fell from 12.4% in 2012 to 11.7% last year.

"How the government responds to investor concerns will set a positive and visible precedent for the future."

Kincora Copper, which is one of the 106 affected mining companies, said that the government proposed a ‘win-win solution’ for all stakeholders to resolve disputes in late 2013.

Kincora has already written-off C$6.95m in the September quarter due to the cancellation of the Tourmaline Hills and North Fox licenses, which it acquired from a private Canadian group in 2012.

The company is in the advanced stage of mobilising mining activities in the Bronze Fox project, ahead of exploration activities.

Kincora president and CEO Sam Spring said this case has had a major, negative impact on investor sentiment towards Mongolia, and it hopes that how the government responds to investor concerns will set a positive and visible precedent for the future.

"Although Kincora has recently, successfully raised capital to explore our flagship and unencumbered Bronze Fox project, uncertainty relating to the 106 license issue has significantly impacted investment and asset valuations in Mongolia, not just amongst those directly impacted by the 106," Spring said.

Kincora added that the Mongolian Government has conducted a case by case investigation and supported a resolution to be passed in parliament, which will ensure security of tenure, award compensation for lost time due to judicial process and return the licences who those that comply.

Mongolia already plans to introduce two new bills to parliament to enable the growth of its mining industry and boost investment in the country.

One bill proposes to override a June 2010 law that suspends the new exploration licenses, therefore allowing companies to explore deposits such as coal, copper and gold.

The second bill would modify the guidelines of the July 2009 law on rivers and forests, allowing companies to undertake mining activities in areas that were previously prohibited due to environmental issues.