Well, Mewtwo is a Legendary Psychic-type Pokemon, genetically engineered to be superior to Mew, an already existing Psychic-type Pokemon. That may not be justification enough, however.... It's mind reading is definitely a Psychic ability, I can say that much for "how does it work".
I'm not too sure what its biggest feats for mind reading are, but, looking here:
https://www.reddit.com/r/respectthreads/comments/2so1w6/respect_mewtwo_the_first_movie/
Mewtwo's telepathy allowed it to, just after birth, telepathically communicate with its fellow Pokemon clones. It was also able to telepathically communicate with humans & Pokemon, mind controlled a Nurse Joy for a considerable period of time, spoke through her, &, once Mewtwo had no more use for her, wiped her mind.
If my memory serves, Mewtwo was also able to disable the use of their moves amongst all of his Pokemon clones, & their originals, to force them to fight physically & to exhaustion.
Mewtwo was also able to wipe the memory of everyone involved at the end of the 1st movie, all at once, doing so while using psychic power to fly away, & also using Psychic power to bring his fellow Pokemon clones with him.
Later, Mewtwo wipes the memory of Team Rocket's entire strike force, also all at once.
If it can know people's thoughts as they think them, then it's probably reading their mind to do so, but I'm not sure how much resistance it can break through. Mind Control or Wiping may indicate more ability to do so, but I'm unsure.
Me First may qualify as some sort of Mind Reading, & has had descriptions such as:
DPPtHGSS
PBR
| The user tries to cut ahead of the foe to steal and use the foe's intended move with greater power. |
And:
| SM | The user cuts ahead of the target to copy and use the target's intended move with greater power. This move fails if it isn't used first. |
could possibly be a means of using Decapitation Mode attack.
(If you're wondering, failing because it goes first is referring to the game mechanic of Me First failing if the target has already used a move that round, so there isn't anything to copy. This happens because MF doesn't have heightened priority like, say, Quick Attack, & generally requires the user have higher speed or such. But that may be irrelevant game mechanics, especially in a Speed Equalized match.)
VSBattles Wiki also uses a composite Mewtwo. Mewtwo in the Pokemon Adventures manga also proficiently uses a giant spoon made of Psychic energy, which, among other things, it has
used to slice through a buildings . Such a weapon is
claimed to be a Psychic's ultimate weapo . Given the existence of the Twistedspoon held item in Pokemon which increases the power of Psychic moves & Kadabra & Alakazam having their own spoons to hold for more power, & Mega Alazam getting even more spoons, I wouldn't doubt that claim TOO much....
In any case, that spoon is certainly a way it could cut through her after Laser Focus. For a second cutter, if Mewtwo can't just get a 2nd spoon, it COULD use
Psycho Cut .
BWB2W2
XYORAS SM
| The user tears at the target with blades formed by psychic power. Critical hits land more easily. |
If in this case, Critical hits translate to being more able to do the double severing, Psycho Cut could prove particulary effective. ESPECIALLY so if Mewtwo also uses Laser Focus, I imagine.
It's also possible Mewtwo has some form of pre-cognition, as indicated by it learning Future Sight by level-up at the very least, even if it may not have Mind Reading.
Also, since Cal mentioned Ryuko has Regenerationn (Mid-High), it may also be worth mentioning Mewtwo has Regenerationn of its own, albeit Mid-Low. In particular, it has Recover & to quote Mewtwo's page:
Life Force: One of a series of Abilities that appeared in Pokemon Conquest. It allows Mewtwo to passively recover health between attacks.