BUSINESS COUNCIL of MONGOLIA NewsWire

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Info@bcmongolia.org

Issue 100, January 8 2010

NEWS HIGHLIGHTS:

Business:

SouthGobi Energy set to raise USD400 million in Hong Kong IPO;

China National Gold’s unit ties up with Monnis for gold exploration;

SouthGobi aims to boost coal production sixfold;

SouthGobi sells Indonesian coal project to focus on Mongolia;

Highlights of Entrée Gold activities in 2009;

Ivanhoe invites new options, keeps others guessing;

SouthGobi appoints new Vice President, Corporate Development;

EBRD plans equity investment in Petro Matad;

ARMZ questions Khan directors’ rationale behind rejecting offer;

Areva and Mitsubishi sign agreement on uranium exploration in Mongolia;

Cameco closes the book on Centerra;

Police unhappy at former Anod Bank Director’s release on bail;

MPs to investigate foreign deals of two banks in liquidation;

ELC establishes successor firm with Australian-based firm;

Multiple scenario planning will help miners survive volatility;

U.S. telecom company fined for bribing Chinese, Mongolian officials;

Corporate transparency gaining ground;

Russia to engage with investors on mineral law; Chinalco to buy further mining assets abroad.

Economy:

Parliament rejects President’s veto of budget;

Government dedicates 2010 to business reforms;

PM calls for realistic plans and policies;

Central Bank chief says financial system is stable;

Weather concerns lift copper to new highs;

Mongolia gets support from ADB, Japan to resolve banking problems;

Work reports on Free Trade Zones reviewed;

First privately built power plant coming up in Khuvsgul;

Ambassador Addleton sees opportunities for American business;

Temasek, CIC lead sovereign wealth funds into Mongolia;

Mining Report sees strong growth in 2011;

Mongolia seeks new foreign investors to balance China and Russia;

Working group to examine electricity and heating tariffs increase;

First installment of Human Development Fund allowance likely soon;

Donors against the grant of allowances to all citizens, reminds official;

New insurance payment rates announced;

Korea’s bourse operator mulls setting up joint stock exchange in Mongolia;

Japan, Mongolia to study free trade pact;

Customs Authority claims its work getting better;

Agreements will fulfill our economic potential, says President;

Asia well placed to keep riding recovery, but not at pace of 2009;

China’s Central Bank urged to invest forex reserves in resources;

Central bankers say it with gold;

Russia sheds debt burden of Soviet era, likely to issue bonds;

China dethrones Germany as top goods exporter.

Politics: Mongolia carries on with its democratic breakthrough;

Government approves national program to protect consumer rights;

India helping Mongolia open its first major IT outsourcing center;

Ex-President Enkhbayar visits South Korea to “attract investment”;

Province Governors resent being “a soldier without a gun”;

“People’s Heroes” will be chosen this year, too;

Roy Dongen, two others receive first Altan Gerege awards;

Rush to the altar before 4 allowances are stopped; Impunity and injustice are legacy of July riots, says Amnesty International; injustice are legacy of July riots, says Amnesty International;

Mongolia-registered ship was “a rogue vessel”, probe into sinking reveals.

BUSINESS SOUTHGOBI ENERGY SET TO RAISE USD400 MILLION IN HONG KONG IPO Canada-listed coal miner SouthGobi Energy Resources plans to raise about USD400 million from a Hong Kong initial public offering this month. The company, which started IPO premarketing on January 4, is focused on expanding its coal production capacity in Mongolia, centered on its Ovoot Tolgoi mine. It said it would use the proceeds of the share sale to expand production capacity and access regional infrastructure. According to a term sheet, 75 percent of the offering would be allocated to institutional investors, 15 percent to Canadian investors and 10 percent to Hong Kong retail investors. The company will kick off a marketing road show on January 11, aiming to list on January 29.

Source: Reuters.com

CHINA NATIONAL GOLD’S UNIT TIES UP WITH MONNIS FOR GOLD EXPLORATION Jinshan Gold Mines Inc. has entered into a memorandum of understanding with Monnis International Inc. to jointly explore and develop gold projects in Mongolia. Monnis was established in 1998 as an official distributor of Nissan Motor Co. in Mongolia. It has since expanded its activities and is now active in the fields of geology, mining, energy, construction, international freight forwarding, foreign trade, automotive service, communication, banking, and air industry, with over 600 employees. Jinshan and Monnis will have 51 per cent and 49 per cent equity interest, respectively, in the acquired projects. Jinshan will control and manage them and believes the partnership will allow it a larger presence in Mongolia. Jinshan is listed on the Toronto Stock Exchange. China National Gold, a Chinese state-owned enterprise and the largest gold producer in China, owns approximately 41.2% of Jinshan's outstanding shares and continues to demonstrate its commitment to Jinshan.

Source: Bernama.com, www.jinshanmines.com

SOUTHGOBI AIMS TO BOOST COAL PRODUCTION SIXFOLD SouthGobi Energy Resources, 79 percent-owned by Ivanhoe Mines Ltd., aims to boost its coal production in the Gobi desert by more than six-fold to 8 million metric tons by 2012, CEO Alexander Molyneux has said at a media briefing at the Ovoot Tolgoi mine, about 950 km south of Ulaanbaatar. At least USD500 million is needed for SouthGobi‘s development, which includes building a 40-km railway track to the Chinese border, Mr. Molyneux said. ―The increases in production talked about by the company are executable and achievable,‖ said Mr. Alisher Djumanov, managing partner of Singapore-based Eurasia Capital Management, which has about USD100 million in investments in Central Asia and Mongolia, mainly in natural resources. ―Developing a rail link to the border is a good way to reduce overheads. One of the key issues they have is how to get their products to customers in China.‖ The mine started production this year to supply power producers and steelmakers. This year Ovoot Tolgoi produced 1.2 million tons of coal, currently carried by truck across arid dirt tracks to rail links in the Chinese province of Inner Mongolia. The mine has 114.1 million tons of reserves. ―This is our first year of production at the mine and we are now planning to increase this rapidly,‖ Mr. Molyneux said. Read more…

―Mongolia is a new frontier for coal,‖ said Mr. Djumanov. ―I have not seen other figures, but the government estimates the country may have 100 billion tons of coal.‖ SouthGobi is seeking institutional investors to fund its operations in Mongolia, Mr. Molyneux said, adding that the spending estimate for the next three years is still preliminary. The company has secured USD500 million of financing from China Investment Corp., the country‘s sovereign wealth fund.

Source: Bloomberg.com

SOUTHGOBI SELLS INDONESIAN COAL PROJECT TO FOCUS ON MONGOLIA SouthGobi Energy Resources has closed the sale of its Mamahak coal project to Kangaroo Resources. SouthGobi announced in October that it had suspended further development work at Mamahak pending a more detailed operational review. Following various approaches and with the company‘s strategic focus on Mongolia, it was determined that the project could be best developed and operated by an Indonesian focused coal mining company. ―The sale will enable SouthGobi management to further focus on our Mongolian operations and projects,‖ a company statement said.

Source: www.southgobi.com

HIGHLIGHTS OF ENTRÉE GOLD ACTIVITIES IN 2009 The exploration and corporate highlights of Entrée Gold Inc. in 2009 include signing of the long-awaited Oyu Tolgoi Investment Agreement between the Mongolian Government and Entrée‘s joint venture partner, Ivanhoe Mines Ltd. and largest shareholder, Rio Tinto; the conversion of Entrée‘s Shivee Tolgoi and Javhlant exploration licenses into mining licenses; and continued exploration of Togoot coal deposits through additional drilling and the preparation of a Mongolian resource report in advance of a mining license application. The successful conclusion to negotiations that culminated in the signing of the Oyu Tolgoi Investment Agreement in October 2009 provides stability to Entrée‘s Lookout Hill portion of the Oyu Tolgoi project and sets the stage for future project development. Entrée‘s Hugo North Extension and Heruga deposits are key elements for consideration as the Oyu Tolgoi project advances towards production. Ivanhoe Mines is preparing an updated Integrated Development Plan that is expected to provide a projected timeline and work program related to the construction and completion of the Oyu Tolgoi mining complex. Exploration programs are being prepared for 2010 to seek new mineralization on Entrée‘s 100%-owned western portion of the Shivee Tolgoi mining license. Exploration was temporarily suspended in 2009 to accommodate the protracted mining license conversion process. Entrée may now continue investigating the potential of this prospective region of Lookout Hill without facing imminent license expiry. Read more… On Entrée‘s 100%-owned Togoot exploration license, in-fill drilling continued at the Nomkhon Bohr coal deposit in 2009. Drill testing of other coal targets in the northwest corner of the Togoot exploration license was also conducted. A resource report is being prepared by Mongolian consultants in collaboration with Entrée‘s technical team in preparation for submission of an application to convert all or part of Togoot to a mining license. Abolition of the 68% windfall tax, to take effect in January 2011, signaled an awareness that the mining industry has an important role to play as Mongolia recovers from the economic crisis. The industry welcomed this decision as the tax was perceived to be a deterrent to future mine exploration and development by both domestic and foreign investors. Further studies along the Oyu Tolgoi mineralized trend indicate several target areas could be drill tested in order to expand known resources. Geophysical data gathered over the areas surrounding the Heruga and Hugo North Extension deposits indicate promising trends suggesting the continuation of mineralization associated with each deposit. Approximately 8 km of relatively untested ground lies to north of the Hugo North Extension on the Shivee Tolgoi mining license, between the Hugo North Extension deposit and the near surface Ulaan Khud copper showing. Shivee West is geologically similar to the setting of the Oyu Tolgoi deposits. It is common in very large porphyry copper-gold systems, such as those found in South America, for mineralization to occur along parallel structural trends. Strong geophysical signatures, in combination with copper-gold-molybdenum geochemical evidence, make Shivee West highly prospective.

Source: Entrée Gold Inc.

IVANHOE INVITES NEW OPTIONS, KEEPS OTHERS GUESSING Colorful dealmaker Robert Friedland is seeking new options for his current venture, Ivanhoe Mines, as it starts building a massive copper-gold mine near Mongolia's border with resource-hungry China. The company, which has partnered with mining giant Rio Tinto in Mongolia, has hired investment bankers to look at possibilities "to further enhance shareholder value". That might include offering new shares or bonds, borrowing money or selling a subsidiary, as well as "various corporate transactions". The company stressed that no specific deal was under consideration. Analysts were reluctant to speculate on whether the statement meant that Ivanhoe could go on the block, but one analyst said the language of the statement left the door open for a sale. A source close to the Vancouver-based company also did not rule out the possibility of a sale, saying all options were possible. "With the excellent progress that now is being made on moving the Oyu Tolgoi copper and gold project toward production, and with the strong performance of our SouthGobi Energy coal subsidiary in Mongolia ... this is the right time to explore options," Mr. Friedland, Ivanhoe's chairman, said in the statement.

Source: Reuters.com

SOUTHGOBI APPOINTS NEW VICE PRESIDENT, CORPORATE DEVELOPMENT SouthGobi Energy Resources Ltd. has appointed Mr. Tony Pearson as its new Vice President, Corporate Development, effective February 8, 2010. Mr. Pearson will be responsible for business and corporate development initiatives. He currently works for the Australian Securities & Investments Commission and previously held senior positions with Citigroup's Metals and Mining Investment Banking team when he advised mining clients on capital raisings, mergers, acquisitions and divestitures, with particular responsibility for Asian and Australian mining companies. SouthGobi CEO Alexander Molyneux said Mr. Pearson‘s ―extensive experience in the mining industry, together with his strong background in infrastructure financing, make him a valuable addition to our company as we expand our coal-mining operations.‖

Website: www.southgobi.com

EBRD PLANS EQUITY INVESTMENT IN PETRO MATAD The European Bank for Reconstruction and Development (EBRD) will be making a USD6 million equity investment in Petro Matad Limited, the first Mongolian oil exploration and production company. The majority share in the company is owned by Petrovis LLC, the largest oil products distributor in Mongolia. Petro Matad holds production sharing contracts with the Government, entitling the company to operate on three petroleum blocks, including the company‘s main asset Block XX, located in Tamsag Basin, in the far eastern part of Mongolia, near the Chinese border. The EBRD investment will be used to finance the drilling of three wells in the block, as well as to support Petro Matad‘s further exploration in the recently awarded Blocks IV and V. The EBRD will purchase approximately 17 per cent of Petro Matad‘s newly issued shares and will have a seat on the company‘s Board. ―This transaction will strengthen the role of the private sector in the Mongolian economy, and will help reduce Mongolia‘s energy dependency on external providers... In addition, the project will bring new and improved environmental and corporate governance standards,‖ said Mr. Kevin Bortz, EBRD Director for Natural Resources. On his part, Mr. Gordon Toll, Chairman of Petro Matad, said, ―Petro Matad takes pride in the fact our company has received such investment from the EBRD, and this marks a meaningful path forward for the fast developing Mongolian private sector. ‖

Source: The FINANCIAL

ARMZ QUESTIONS KHAN DIRECTORS’ RATIONALE BEHIND REJECTING OFFER JSC Atomredmetzoloto (ARMZ) has said the circular issued by the board of directors of Khan Resources ―provides very little new information to support its recommendation to shareholders that they should reject our offer‖ to acquire all of the issued and outstanding common shares of Khan for an all-cash consideration of CAD0.65 per share. The offer remains open until 5:00 p.m. on February 1, 2010. Mr. Vadim Zhivov, Director General of ARMZ, said, "Our offer represents full and fair value for Khan shares and fully considers the economics of the Dornod Uranium Property in Mongolia and the significant political and licensing risks inherent in its development." Responding to some of the "Reasons for Rejection" mentioned by Khan's board of directors in the circular, AEMZ has said ―the value per pound of resource attributable to Khan implied by the offer compares favorably with the average value per pound implied by the four most recent transactions involving exploration and development stage uranium companies, including the acquisition of

Western Prospector Group Ltd. by China National Nuclear Corporation (CNNC) which was announced prior to the suspension of all uranium mining and exploration licenses by the Government of Mongolia‖. Calling Net Asset Value (NAV) ―a theoretical valuation methodology‖ ARMZ said ―transactions involving unfinanced exploration and development stage projects with unknown ultimate project ownership and an uncertain regulatory and licensing environment are generally completed at a significant discount to NAV‖. ARMZ agreed with Khan's board of directors that ―the challenges and uncertainty in Mongolia are very real and unique issues facing Khan have a material impact on the value of the Khan shares‖, but rejected any suggestion that the offer is "opportunistic".

Source: www.sedar.com

AREVA AND MITSUBISHI SIGN AGREEMENT ON URANIUM EXPLORATION IN MONGOLIA Areva and Mitsubishi have agreed on terms for a partnership. A statement from the French state-owned nuclear power group says it has invited Mitsubishi Corp. of Japan to participate in the development of its uranium exploration assets in Mongolia, with the possibility of acquiring 34 percent of Areva Mongol over time. This agreement represents a substantial step in the development of uranium resources in Mongolia. Through their joint efforts, Areva and Mitsubishi Corporation will create value in the exploration and future exploitation of Mongolian uranium resources based on proven expertise, professionalism and sustainable development practices. Mitsubishi Corporation, Japan‘s largest general trading company, is seeking to reinforce its assets in the uranium mining industry, while Areva Mongol has been conducting successful exploration activities in Mongolia for more than 10 years and currently holds 36 uranium exploration licenses on more than 14,000 sq. km. Among the different areas to be explored, Dornogobi province has demonstrated a high potential for uranium. This zone is the primary target with respect to a future exploitation. Future drilling campaigns will be dedicated to identify new possible uranium resources.

Source: press@areva.com

CAMECO CLOSES THE BOOK ON CENTERRA Cameco Corporation has sold 88.6 million shares in Centerra Gold for CAD871 million, and made arrangements to transfer another 25.3 million shares it owns in the gold miner to the Government of Kyrgyzstan. After the transfer is completed, Cameco will have sold its entire interest in Centerra, ending its participation in the gold-mining business and freeing the company to focus on its core uranium-mining and nuclear-energy businesses. In the April agreement, which followed years of negotiations and delays, Centerra and Cameco agreed to give the Kyrgyz Government an increased share in Centerra, in exchange for security of tenure, a bigger concession area and a simplified, fixed tax regime of 14% of the gross revenue for the Kumtor mine. Cameco spun out its gold assets into Centerra in 2004. Besides Kumtor, Centerra also owns and operates the Boroo mine, in Mongolia, and is planning a new operation, Gatsuurt, also in Mongolia.

Source: www.miningweekly.com

POLICE UNHAPPY AT FORMER ANOD BANK DIRECTOR’S RELEASE ON BAIL The Police are unhappy that the Bayanzurkh district court recently granted bail to Mr. L.Ulambayar, former Director of Anod Bank, without notifying the investigators. More than a year after he had been named as a suspect in the Anod Bank case, Mr. Ulambayar was arrested on December 15 last when he landed in Chinggis Khaan airport after failing to find asylum in the USA. His release on bail came even though the charge against him is one of causing the state losses amounting to billions of MNT. Mr. Ulambayar prayed for bail on health grounds and is reported to be receiving private treatment at home. Police contest the judge‘s argument that the three other suspects in the case are also free on bail. They say the charges against Mr. Ulambayar are of a completely different nature. The other three had to mortgage their cars and residences in order to raise the bail amount after being in jail for more than six months, while Mr. Ulambayar had to pay only MNT3 million after he had been in prison for 14 days. Mr. Ulambayar, against whom a warrant had been issued by Interpol, has said he was waiting for a decision by U.S. officials on his request for political asylum. According to the police, he was repeatedly notified that no asylum could be considered for a person wanted by Interpol.

Source: en.News.mn

MPs TO INVESTIGATE FOREIGN DEALS OF TWO BANKS IN LIQUIDATION The Parliamentary Standing Committee on Security and Foreign Policy has set up, at the bidding of Parliament Speaker D.Demberel, a working group to investigate the foreign transactions of the two banks that are being liquidated. Its members, MPs Kh.Narankhuu and D.Khayankhyarvaa, have been asked to specially study how the liquidation of Anod and Zoos banks has affected the financial system as a whole and how much damage their deals with Nomaring and Itochu companies caused. The head of the Standing Committee, Mr. Z.Enkhbold, said the study had been found necessary after the Central Bank did not provide information on the foreign relations of the two banks.

Source: en.News.mn

ELC ESTABLISHES SUCCESSOR FIRM WITH AUSTRALIAN-BASED FIRM Economic and Legal Consultancy (ELC), run by Mr. Bayar Budragchaa in Mongolia since 2000, has now been succeeded by Budragchaa Kennedy and Associates after a partnership between ELC and Michael I. Kennedy & Associates was established. Mr. Bayar, Head of BCM's Legislative Working Group, was named one of the world's 262 leading mining lawyers in 2009. MIKA was established by Mr. Michael Kennedy, the other Governing Partner of the new firm, in Cambodia in 1995 and in the Lao PDR in 1997 with its base in Melbourne, Australia. Another partner is Mrs. Taivan Natsagdorj, who served as a Senior Prosecutor at the Prosecutor General's Office of Mongolia. The new firm will continue to offer international and Mongolian professional consulting expertise across all business sectors with a special focus on major commercial and infrastructure projects which call for the coordination of multiple tasks and skills. It will continue to advise multinational and multilateral clients and individuals on matters of law with respect to wide ranging issues. Read more… Issues include, but are not limited to: Drafting, review and advice on legislation and regulatory issues, due diligence analysis and reporting; Commercial and company law activities, mergers/acquisitions, joint ventures, shares and stock purchases, contracts; Banking, taxation, funds transfer and related financial services; Mining, energy, transportation, telecommunications, and environmental issues; and Commercial dispute resolution, mediation, arbitration and if necessary, litigation.

Source: ELC newsletter

MULTIPLE SCENARIO PLANNING WILL HELP MINERS SURVIVE VOLATILITY The best strategy for mining companies in the current environment is a flexible one, Deloitte analysts have suggest in a recent report. The professional services firm has drawn up what it believes are the top ten issues facing the industry, but prefaces the list with a warning that the winners will be those that learn to manage volatility by coming up with responses to a range of possible market scenarios. Unfortunately, mining companies are more often influenced by short-term outlooks, as evidenced by the ―almost giddy‖ rush to expand capacity when commodities were hitting record highs two years ago. Then, when commodity prices fell in the wake of the downturn, companies started preaching cost containment, cutting across the board and shedding noncore as well as high-quality assets, halting production, scaling back workforces and putting deals on hold. With commodity prices and demand rebounding once again, companies need to balance the risk that too conservative a view could prevent them from capitalizing on opportunities, while considering whether demand fundamentals can sustain prices at these levels. Read more… According to its 'Tracking the trends: A look at 10 of the top issues mining companies will face, Deloitte's number-one issue emerging within the mining sector is whether demand from growing economies like China are sustainable. Here, the need for multiple scenario planning is clear: while some industry stakeholders speculate that stockpiling by emerging nations is unsustainable and maybe artificially inflating prices, other experts point to underlying demand likely to resurge as China, India and other countries continue to modernize. ―Given the plausibility of numerous scenarios, mining companies need the strategic flexibility to adapt to either one,‖ Deloitte comments. The second issue highlighted in the report is more a trinity of challenges, dubbed 'commodities, currency and costs', while third place goes to the tricky decisions related to when mining companies

should ramp up production that was curtailed during the downturn. The other issues in Deloitte's 2010 list are: Four: The spread of sustainability – the pressure on companies to earn a social license to operate; Five: A shortage of available capital, which in turn puts a damper on growth; Six: The risk to the mining industry from climate change, which is becoming an increasingly important consideration; Seven: 'Extreme mining' – the search for the industry's new frontier, which at the moment appears to be under water; Eight: Hesitation over consolidation, as the need to merge still exists but the desire does not. ―Where buyers are in fact actively trying to take advantage of lower market valuations to acquire quality assets, sellers are attempting to ignore the stock market on the belief that they are being undervalued—making it nearly impossible to find a middle ground,‖ Deloitte says; Nine: Government intervention; and Ten: Rising infrastructure costs.

Source: www.miningweekly.com

U.S. TELECOM COMPANY FINED FOR BRIBING CHINESE, MONGOLIAN OFFICIALS UTStarcom Inc., a U.S. telecom company, has agreed to pay USD3 million in fines for bribing Chinese officials with Hawaiian vacations and other junkets. The U.S. Justice Department said UTSI had agreed to pay a USD1.5 million fine for violating the Foreign Corrupt Practices Act by providing "travel and other things of value" to employees of state-owned Chinese telecom firms. The Securities and Exchange Commission (SEC) said the California company had agreed to pay an additional USD1.5 million for authorizing millions of dollars in unlawful payments to Asian government officials. "UTStarcom spent millions of dollars on illegal bribes to win and keep customers in Asia," the SEC said in a statement. "It is important for corporate America to recognize that resorting to these methods of boosting profits contributes to a culture of corruption that cannot be condoned under U.S. law." The SEC said UTStarcom made improper payments to "sham consultants" in China and Mongolia, while knowing they would pay bribes to foreign government officials. Source: AFP

CORPORATE TRANSPARENCY GAINING GROUND Much like transitions to democracy over the past four decades transformed governments from mostly authoritarian to mostly democratic, we are currently witnessing a transformation of global corporations from a more or less opaque shareholder-centric model to a more transparent multi-stakeholder model. Successful transitions occurred in such diverse places as South Africa, the Philippines, Indonesia, Mongolia and even Iraq. The case of China remains a unique experiment in the liberalization of economics, but not politics. Despite some business-related legal reforms, China may remain the exception that proves the rule. As to global companies, increased government pressure and stakeholder demands for accountability (from employees, investors, customers, non-governmental organizations and others) are creating a similarly catalytic turning point that is beginning to yield a more transparent business model. Will greater corporate transparency evolve from this turning point in a manner similar to the democratization that began in the early 1970s? We think so. Read more… Governments are lending a hand. Global anti-corruption efforts provide a clear example. In the past month alone, governments around the world have stepped up the pressure. December 9 was International Anti-Corruption Day; among other activities, the 38 signatory nations of the Organization for Economic Cooperation and Development Anti-Bribery Convention reaffirmed their commitment to expanded enforcement efforts around the world. In November, Mr. Lanny Breuer, chief of the Criminal Division of the U.S. Department of Justice, promised to deliver on an aggressive Foreign Corrupt Practices Act enforcement agenda, noting that they ―will be intensely focused on rooting out foreign bribery‖. He emphasized that the department will focus on the investigation and prosecution of executives, stating that ―culpable individuals must be prosecuted and go to jail‖. Mr. Breuer counseled businesses to have a ―rigorous F.C.P.A. compliance policy that is faithfully enforced‖, and to ―seriously consider voluntarily disclosing‖ discovered violations, and to remediate the source of any violations. He noted that smart companies already have these measures in place.

Strong government incentives, good governance and corporate citizenship can be mutually reinforcing factors and they are playing a key role in shaping important issues in the growth of corporate transparency. There are other critical global business issues — human rights, anti-fraud, environmental compliance — that all point in the same direction: For their own good and that of their multiple stakeholders, companies are trending in the inevitable direction of adopting greater transparency and integrity programs. Whether they do so voluntarily or by regulatory mandate, companies are beginning to embrace the new transparency imperative in five key ways: Adopting better governance with stronger shareholder rights, board rules, director accountability and pay for performance. Integrating corporate integrity programs into business strategy and leadership development. Pursuing dialogue with multiple and increasingly vocal stakeholders. Engaging proactively with regulators intent on trans-border cooperation and enforcement (especially regarding anti-corruption, anti-money laundering, antitrust and anti-fraud). Catering to two critical constituents — employees and customers — who have shown greater willingness, and ability, to ―vote with their feet‖. Is ethics to business what democracy is to politics? Is the role that transparency and integrity play in the private sector similar to the role that democracy plays in the public sector? We think so. Less enlightened entities will come along under the pressure of increasingly proactive stakeholders and regulators. And the irreversible Internet revolution that now ―outs‖ what previously could be hidden will only further the irreversible progress to greater transparency that is already under way. Source: The New York Times

RUSSIA TO ENGAGE WITH INVESTORS ON MINERAL LAW Russia will seek opinion from foreign companies on proposed changes to investment laws needed to unlock the country's lucrative oil, gas and metals reserves, the head of Russia's anti-trust agency has said. Long-awaited revisions to Russia's strict laws on foreign investment in strategic mineral fields should be ready by the end of January 2010, when they will be presented to potential investors, Mr. Igor Artemyev told reporters. "The prime minister has ordered that the changes to foreign investment laws be discussed with investors, both Russian and foreign, prior to their being passed by the government," said Mr. Artemyev, who heads Russia's Federal Anti-Monopoly Agency. Prime Minister Vladimir Putin has said in comments posted on the government's website, "I have no doubt those who approach us today with investments and technology will have competitive advantages not only in the Russian market, but in international markets. On our part, we will do everything necessary to create the best conditions for attracting capital to Russia". A spokesperson for a Western company present on the Russian market said, "For us, one of the main points is the possibility for keeping the license on a field if, during exploration work, it turns out the deposit falls under the 'strategic' category."

Source: www.miningweekly.com

CHINALCO TO BUY FURTHER MINING ASSETS ABROAD Chinese metals conglomerate, Aluminum Corporation of China (Chinalco), is on the lookout for opportunities to acquire mining assets overseas as it restructures amid fierce competition, its president has said. The firm will also seek joint ventures and strategic cooperation with suppliers of resources, energy and raw materials. "Chinalco must adopt profound business restructuring in order to maintain our leadership in the industry," he said. Source: www.miningweekly.com

ECONOMY PARLIAMENT REJECTS PRESIDENT’S VETO ON BUDGET Parliament has rejected the President‘s veto of the State Budget Law of 2010, with the support of 44 or 77.2 percent of the 57 MPs present. MPs R.Amarjargal, B.Batbayar, Z.Enkhbold, Ch.Ulaan, Kh.Temuujin, S.Oyun, Z.Altai, D.Enkhbat, Ya.Batsuuri, Kh.Jekei, L.Gantumur, G.Bayarsaikhan and D.Odkhuu, however, supported the President‘s stand on the MNT76 billion allocated to every MP for their constituencies. MPs faulted the President‘s action on several counts and Mrs. D.Arvin called it ―an infringement on the rights of MPs‖. Explaining the rationale behind the President‘s veto, his adviser on legal matters, Mr. G.Ganzorig, refused to explain why the budget for the President‘s Office was sought to be doubled as it was unrelated to the veto. MPs greeted this with laughter.

Source: www.news.mn

GOVERNMENT DEDICATES 2010 TO BUSINESS REFORMS The present year will be observed as ―The Year to Reform the Business Environment‖, according to a decision taken by the Government at its 86th and last meeting in 2009 on December 30. A draft law will be formulated, setting out the planned reforms in the business environment, ways to implement them, particularly through cooperation between the Government and the private sector. An action plan will be formulated, with inputs from regional officials on their local priorities. The Prime Minister will head a council to be set up to enforce, supervise, and monitor the reforms and will have the First Vice Prime Minister as his deputy. The other members of the council will come from various Ministries, the Central Bank, the Financial Regulation Bureau, the Stock Exchange, the Customs Authority, the General Authority for Intelligence and others. The Prime Minister has instructed officials to make regular reports to the public. Source: Zuunii Medee

PM CALLS FOR REALISTIC PLANS AND POLICIES Prime Minister S.Batbold has told representatives of the financial and economic sectors that Mongolia is set to take the road to quick development, and for this ―it is very important to formulate clear and realistic plans, emphasizing the creation of the appropriate legal environment to implement them‖. He wanted a policy on State expenses to be ready before work begins on the budget for 2011 and revealed that the Ministry for Finance and the National Development and Innovation Committee have been asked to prepare a comprehensive database to help in this. The Prime Minister called for coordination between big projects and development strategies and hoped that the proposed Budget Stability Law would restrict the dependence of the budget on revenue from the mining sector, which could instead be used to enrich the stabilization fund. Regional administrations should get more freedom to spend money according to local needs. In general also, government expenses must be determined by following uniform norms, and freed from any personal pressure from high-powered people. Tender bids should be decided cleanly and kept free of corruption. Financial resources can be best utilized only with advance planning. Expressing satisfaction that the General Customs authority has succeeded in reducing corruption and red tape and was working more efficiently, Mr. Batbold said Mongolia should have a clear vision of its border trade, customs and foreign policies, reducing waiting time at ports and providing fast and quality service.

Source: Ardiin Erkh

CENTRAL BANK CHIEF SAYS FINANCIAL SYSTEM IS STABLE Central Bank President L.Purevdorj has not ruled out the contribution of inadequate supervision to the mess in Zoos and Anod Banks, but has asserted that in general the financial system in the country is ―stable‖. A clear sign of this, according to him, is provided by the ―increasing number of bank accounts and the return of public confidence‖. He defended the sale of Government bonds or guaranteeing people‘s deposits as ―measures taken throughout the world‖, adding that ―banks are going bankrupt not only in Mongolia, but also in many developed countries‖. Mr. Purevdorj explained that the assets and deposits of the now defunct Zoos Bank have been transferred to the new State Bank and the Central Bank has accepted the liabilities, including all bad loans. The State Bank is working well and ―once the tide turns, we plan to privatize it‖. Saying that ―it was not possible to establish another state-owned bank‖, Mr. Purevdorj explained that the Central Bank was providing a MNT170 billion loan to keep Anod Bank afloat. The Central Bank did not have the authority to declare any bank as bankrupt. ―Only the National Security Council can do this as such a move carries the risk of engendering instability in the country. If the NSC asks us for our views, we are ready to offer them,‖ the Central Bank President said. Source: Ardiin Erkh

WEATHER CONCERNS LIFT COPPER TO NEW HIGHS Copper rose to new multi-month highs on Wednesday, as bullish market sentiment was reinforced by upbeat US new factory orders data, aided by concerns over harsh cold weather in parts of China. Shanghai's benchmark third-month copper futures contract hit a 17-month high of 61,850 yuan a ton, before ending at 61,650 yuan, up 2%, its biggest daily gain in two weeks. Three-month copper on the London Metal Exchange hit USD7,606, highest since August 28, 2008, before easing to USD7,590 a ton. Some analysts warned the frenzy could fizzle soon. "The upward momentum in copper is nearing an

end, partly as prices are under the pressure from commodity index rebalancing. The growing LME stocks also weigh," said one. Source: www.miningweekly.com

MONGOLIA GETS SUPPORT FROM ADB, JAPAN TO RESOLVE BANKING PROBLEMS The Japan Special Fund, funded by the Government of Japan and administered by the Asian Development Bank (ADB), will provide a USD2 million technical assistance grant to Mongolia to strengthen institutional capacity for banking supervision. The process of implementing reforms in the banking sector will include a review of the regulatory environment and help develop guidelines to strengthen corporate governance and improve risk management. The expected outcome of this project will be the establishment of an improved policy and operating framework for managing risks in the banking sector and for resolving the problem of distressed assets, which in turn will help deliver a strong, broad-based economic recovery. Mongolia‘s economy has come under pressure as a result of the global downturn, with copper prices slumping and domestic growth slowing sharply since the end of 2008. This in turn has caused a weakening of the country‘s financial institutions. The Central Bank is the executing agency for the project, which is due for completion by the end of 2012.

Source: NNN-ADB

WORK REPORTS ON FREE TRADE ZONES REVIEWED Three years have passed since the Government announced its decision to establish four free trade zones, in Zamiin-Uud, Altanbulag, Tsagaan-Nuur and Choir. The regional councils established to implement the work have recently submitted progress reports. USD31.7 million will be spent to bring Zamiin-Uud on par with Ereen, only a few km across the border. Construction of housing complexes and roads is continuing. Technical and economic evaluation of a project to improve the infrastructure there has also been completed. Officials of concerned Ministries have reviewed both reports and talks will be held on securing a concessional loan from China. As regards Tsagaan-Nuur, however, no investment was made in 2009. Private businesses have built a loading terminal and installed a weighing machine with their own money in Altanbulag to expedite movement of their goods. Construction of a similar terminal in Tashanta to improve the Customs capacity there has been started by a Russian company. This year a sum of MNT4.3 billion has been allocated for the development of all four free trade zones.

Source: Undesnii Shuudan

FIRST PRIVATELY BUILT POWER PLANT COMING UP IN KHUVSGUL The first power station built with private investment in Mongolia is going to come up in Khuvsgul province. The 60-mw plant at the Mogoin Gol coal deposit is being built by the joint Mongolia-China Yuanda group, together with the New Asia Mining group. The power station is estimated to cost USD110 million and is likely to take 20 months to be completed.

Source: Udriin Sonin

AMBASSADOR ADDLETON SEES OPPORTUNITIES FOR AMERICAN BUSINESS U.S. Ambassador Jonathan Addleton has said he was surprised by the fact that he was named ambassador to a country where he had previously served, which is not a customary practice, but he enjoyed his previous service in Mongolia and is happy to be back there. He feels the evolving economy of Mongolia presents great opportunity for American business, noting that the mining industry in particular is poised to expand rapidly. There is only about USD100 million in annual trade currently between Mongolia and the U.S., while for Panama, with a similar population, the figure is USD5 billion. ―Coca-Cola was one of the early arrivals,‖ Dr. Addleton said. ―There are now two Coca-Cola bottling plants. A lot of the exports from the U.S. right now are in the consumer goods area and mining equipment. So in these areas, there are prospects for American companies.‖ Tourism is also a growing field in Mongolia, particularly adventure tours, with companies offering guided trips, some that include overnight stays with nomad families.

Source: GlobalAtlanta.com

TEMASEK, CIC LEAD SOVEREIGN WEALTH FUNDS INTO MONGOLIA According to a report issued by Eurasia Capital, Mongolia is becoming an attractive investment destination for Asian and Middle Eastern sovereign wealth funds (SWFs) that seek gaining exposure to massive untapped natural resources in this frontier land, strategically located at the doorsteps of

China, the world‘s largest consumer of commodities. In a space of three months, Ulaanbaatar received visits by senior executives of eight sovereign wealth funds including from China, Singapore, Korea, the UAE, Kuwait, Libya and others. Among SWFs, Temasek was the first to make foray into Mongolia. Last year Singapore‘s USD120-billion fund, together with Hopu Investment (a USD2.5-billion private equity fund where Temasek is the largest investor) invested USD300 million in then Lung Ming (now Iron Mining International), a developer of iron ore mine in Mongolia. China Investment Corp, China‘s USD300-billion SWF made headlines by committing USD1.2 billion in two transactions within one week in October, agreeing to invest USD500 million in SouthGobi Energy, a coal miner, and up to USD700 million in Iron Mining International. Thanks to these above three deals, USD1.5 billion investments by SWFs already represent 30% of Mongolia‘s USD5-billion GDP. To put this figure in perspective, Kazakhstan and Vietnam, two prominent frontier markets, would need to attract USD40 billion and USD27 billion respectively in sovereign investments to reach such ratio. While natural resources are the main area of interest for sovereign investors, visiting executives identified a broad range of industries where they expect attractive investment opportunities due to the huge economic boom Mongolia is poised to experience. These include energy, transportation, infrastructure, banking, construction and property. SWFs are expected to join both strategic and portfolio investors that are expected to pour billions of dollars in investments per year into Mongolia. This will allow Mongolia to become one of the world‘s fasting growing economies throughout the next decade. Source: Eurasia Capital

MINING REPORT SEES STRONG GROWTH IN 2011 The Mongolia Mining Report Q1 2010 says significant changes made recently to the Mineral Law (1997), in particular the repealing of the 68% windfall tax, have opened up the market for foreign investment in Mongolia. The current Government concedes that Mongolia has to appeal to foreign investors as it is unable to invest independently in domestic mining projects, and will benefit from the new technology and expertise that outside investors bring. Mining output is expected to increase significantly from 2010 onwards. The Tavan Tolgoi deposit has numerous investors lined up to bid. It is anticipated that after an almost 50% contraction in 2009, the mining industry will return with strong growth of 26% and 18% in 2011 and 2012 respectively. The country seems to be just finding its feet with regard to its relationship to the mining industry. The Government has struggled to find a balance between passing on the profits from its rich resources to impoverished citizens without deterring essential foreign investment into the country.

Source: www.companiesandmarkets.com

MONGOLIA SEEKS NEW FOREIGN INVESTORS TO BALANCE CHINA AND RUSSIA Mongolia is attempting to attract fresh foreign investors to balance China and Russia, its dominant traditional partners and neighbors, as it embarks on a series of privatizations and initial public offerings of its extensive mineral assets. Mining companies from China and Russia - states that have dominated Mongolia historically - are among those vying for licenses to develop Tavan Tolgoi, a state-owned deposit of more than 6 billion tons of coking coal. By a program of privatizations during 2010, Mongolia's government intends to balance applications of Chinese and Russian companies against those from the US, India, South Korea and elsewhere. That is the commercial corollary of its "third neighbor" foreign policy - which aims to recognize the importance of its neighbors, while inviting third-party interests to prevent Chinese or Russian dominance. "We welcome investment both from our neighbors and our third neighbors," said Mr. Dashdorj Zorigt, Mongolia's Minister for Mineral Resources and Energy. "There is the issue of commercial interests, and ensuring that any deals we make are in line with our foreign policy. We will not base our decisions purely on political considerations - but they will also not be based purely on business considerations. We will be balanced." Mr. Zorigt declined to say whether the Government's 34 per cent stake in the Oyu Tolgoi project would guide other agreements. On November 23, Prime Minister S. Batbold said the Government would prepare state enterprises with strategic assets for international IPOs. "Next year we hope to see the first IPOs," Mr. Zorigt said. That would be the focus of his ministry during the next year. Source: The Financial Times

WORKING GROUP TO EXAMINE ELECTRICITY AND HEATING TARIFFS INCREASE A meeting of representatives from the Mongolian Labor Union, the Union of Employers, and the Energy Regulation Department discussed the decision to raise electricity and heating prices with effect from January 15, and set up a working group consisting of experts to examine the calculations made by the Energy Regulation Department. The Labor Union is against the increase. Its head, Mr. S.Ganbaatar, has asked for a meeting with the Prime Minister to discuss the issue. ―It is wrong to provide support to some companies by making people pay more. The decision was taken without considering other options. The problem the energy sector faces is related to the incompetence of its officials, and we oppose this move to make the people bear the burden for their actions,‖ said Mr. Ganbaatar. Saying that corruption and fraud marked the spending of public funds in the sector where low-quality products were regularly bought at the behest of officials, Mr. Ganbaatar remarked that the increased tariffs will lead to more unemployment by hitting small and medium industries hard. Mr. R.Myagmar of the Energy Regulation Department told the meeting that the Government was requested to raise electricity tariffs by 24 percent and heating tariffs by 20 percent in 2010. It decided to provide MNT15 billion as subsidy so that the increase was kept lower. However, this amount works out to only 29 percent of production costs. Asked about the impact on prices, he said, ―The energy tariff is being raised according to law. As for the price of other products, it is an issue for the companies concerned.‖ Source: Onoodor, Ardiin Erkh

FIRST INSTALLMENT OF HUMAN EVELOPMENT FUND ALLOWANCE LIKELY SOON Parliament Speaker D.Demberel told a Press conference on Monday that MNT324 billion from the Human Development Fund will be distributed to citizens in 2010. ―So far MNT 130 billion was paid yearly as Child Money. This year citizens will get three times as much. We are considering giving MNT70,000 each to elders, children and disabled citizens before Tsagaan Sar,‖ said Mr. Demberel. The rest will get their turn only after a civil registration process is completed, likely by October. This is different from the census. It aims to gather detailed information about citizens and will become the basis of the census, which has been postponed to November. The heads of two Standing Committees said the payment of MNT70,000 to each citizen will not trigger inflation or lead to price rise because it will be given in installments. Also, most recipients will use the money to pay school tuition fees or such other expenses, and not to buy things.

Source: Ardiin Erkh

DONORS AGAINST THE GRANT OF ALLOWANCES TO ALL CITIZENS, REMINDS OFFICIAL Commenting on the ongoing move to distribute MNT70,000 to every Mongolian citizen, Mr. B. Batjargal, Director-General of the Budget Policy Department at the Ministry of Finance, has sought to remind MPs that at an international conference of donors in March 2009, Mr. Arshad Sayed, Resident Representative of the World Bank in Mongolia, stressed the need to ―maintain budgetary discipline at all levels‖, and that donor countries and international financial institutions like the World Bank and the IMF, would not favor this initiative. The straying from the ―principle of efficient capital distribution‖ is a political decision that will have a negative impact on efforts to ―extend the economic platform‖. Asked if the distribution could lead to a cancellation of the agreement with the IMF, Mr. Batjargal said this was unlikely but the IMF had been very clear that it wanted the Government to review its welfare program and to ensure that money reached only those who needed it and was not distributed in an undisciplined manner.

Source: Zuunii Medee

NEW INSURANCE PAYMENT RATES ANNOUNCED The Government has fixed the amount of health insurance payment for 2010. Salaried workers will continue to pay 4 percent of their total income, but rates have changed for those whose insurance is paid by the Government. They include children, students of universities, institutes, colleges and professional training centers, herdsmen and prisoners. The monthly payment for them has been raised by MNT170 and will now be MNT670 but the entire burden will be borne by the State. A foreigner or unregistered citizen will pay MNT4,000.

Source: Udriin Sonin

KOREA’S BOURSE OPERATOR MULLS SETTING UP JOINT STOCK EXCHANGE IN MONGOLIA South Korea's bourse operator Korea Exchange (KRX) is studying a reform plan that includes setting

up a joint stock exchange in Mongolia. It also plans to cut 10 percent of its 750-strong workforce to boost efficiency, slash wages by 5 percent and reduce executive positions in a bid to cut costs.

Source: Yonhap

JAPAN, MONGOLIA TO STUDY FREE TRADE PACT Japan and Mongolia have agreed to launch talks over the possibility of a free trade pact. The Japanese foreign ministry has said an agreement to this effect was reached in a meeting in late December in Tokyo between Japanese Foreign Minister Katsuya Okada and his Mongolian counterpart Gombojavyn Zandanshatar. Mr. Zandanshatar, visiting Japan for the first time since he assumed the post of Minister of Foreign Affairs and Trade in November, reaffirmed Mongolia‘s goal of a broad economic partnership agreement (EPA) with Japan, including a free trade deal. The two countries agreed to start government-level talks to study the economic benefits. Mr. Zandanshatar also called on Japan to cooperate in developing his country‘s mineral resources, including uranium. Mr. Okada promised to enhance Tokyo‘s support and asked Ulaanbaatar to create an environment for Japanese companies to ‗operate smoothly‘ in Mongolia. Source: AFP

CUSTOMS AUTHORITY CLAIMS ITS WORK IS GETTING BETTER Officials of the General Customs Authority have detailed the various steps being taken to improve customs services which are popularly perceived to be unfriendly and inefficient and riddled with corruption. Much of the documentation work in border posts will be digitalized, responding to the Prime Minister‘s call for a ―green economy‖. Animal skins and unprocessed hunting products will not be allowed to leave or enter Mongolia. There will be rewards for law abiding organizations. The officials cited a study by the Sant Maral Foundation showing that the level of corruption among customs workers has decreased. A meeting between Customs officials and businessmen supported the contention. Russian and Chinese businessmen who attended the meeting in Zamiin-Uud felt Mongolian Customs services were getting more and more helpful and competent. The Director of the General Customs Authority, Mr. D.Tseveenjav, wanted specific and sustained plans for the development of border ports and explained that outdated and inefficient equipment kept productivity low. There are plans to keep some ports such as Shiveekhuren, Gashuunsukhait and Khangimandal operational for 24 hours a day. The Customs Authority employs 1,250 employees and there is a case to raise their salaries. The number of corruption cases fell to 4 in 2,000 in 2009 from 5-12 in the preceding years.

Source: Zuunii Medee

AGREEMENTS WILL FULFILL OUR ECONOMIC POTENTIAL, SAYS PRESIDENT In his New Year message to the country, President Ts. Elbegdorj said in 2009 Mongolia ―saw the greatest number of newlywed couples and the greatest number of babies being born in the past 20 years‖. Referring to the success of athletes, artists, farmers and national industries, Mr. Elbegdorj said, ―Destiny smiles on those who try.‖ He called the Democratic Revolution 20 years ago ―our collective achievement, putting an end to the years-long divide‖. Observing that consolidation of the achievements of democracy and freedom is seen in all areas of national life, the President said, ―Important decisions were made and agreements concluded which will notably contribute to improving our lives, fulfill our economic potential and guarantee our citizens the right to be the true owners of the country‘s assets.‖

Source: Montsame

ASIA WELL PLACED TO KEEP RIDING RECOVERY, BUT NOT AT PACE OF 2009 Last year's rebound in Asian markets will be a tough act to follow, but that doesn't mean stocks can't continue to rise. Asia outside of Japan led the world out of the global financial abyss in 2009, producing some of the biggest market gains of the year. The widely used MSCI AC Asia Ex-Japan Index rose 68.3% as confidence built that Asia's fastest-growing economies — especially China, India and Indonesia — were on more advanced recovery paths than their Western counterparts. Few expect markets to repeat that kind of performance but 2009 confirmed that Asia, led by China with its large government reserves and broadly solvent banking system, avoided the leverage problems that ignited the crisis in the West and is in a better position to take advantage of the global rebound. Markets, however, always slow in the second year of a recovery, and while 2009's performance sowed optimism among investors, new challenges could damp the party mood, namely fears of rising interest rates, inflation, capital outflows and asset bubbles. A resurgence of the USD has historically coincided with down years in Asian markets.

The best-performing Asian markets in 2009 were those that were most insulated from the world-wide collapse of trade. Indonesia's and India's domestically driven economies fall into that category. They also benefited from confidence-inspiring elections in 2009. Indonesian stocks rose 87% and India's Sensitive Index, or Sensex, rose 81%, but both countries face the risk of inflation in 2010. What surprised many investors in 2009 was the ability of China, usually seen as an export-dependent economy, to quickly spur domestic demand. A giant government stimulus plan helped investment and consumption keep the economy humming. China's stock market anticipated that spending gusher and powered out of the gates in early 2009, avoiding hitting a new low even as markets in much of the rest of the world found their nadirs in early March. The benchmark Shanghai Composite Index hit its low point in October 2008. It rose 80% in 2009, but remains 45.7% below the October 2007 peak. Read more… Currencies in South Korea, Japan, Thailand, Indonesia and Australia all posted strong increases against the USD in 2009. Hong Kong's and Singapore's stock markets, two of the region's most liquid, became major buying targets for overseas investors seeking to benefit from China's growth. The benchmark Hang Seng Index rose 52%, its biggest one-year leap in a decade, and Singapore's Straits Times Index climbed 64.5% to end at its highest close since August, 2008. Despite the gains in 2009, investors believe that as corporate earnings expand during the recovery, stocks can continue to rise without valuations rising too high. Asian stocks trade around 2.1 times book value. They are betting Asia will expand healthily on the back of continued government stimulus and rapidly growing domestic consumption. Even modest growth in the U.S. and Europe, the usual source of demand for Asia's exports, would be enough to keep Asia's companies humming. And should demand pick up in the West faster than expected, Asia could enter a period of supercharged growth. But that also would raise fears of inflation and put pressure on policy makers to hit the brakes. Source: The Wall Street Journal

CHINA’S CENTRAL BANK URGED TO INVEST FOREX RESERVES IN RESOURCES China's massive foreign exchange (forex) reserves must directly tap into strategic resources including oil, according to the president of a provincial branch of the central bank. The remark, published in a newspaper run by the central bank, is the Government's clearest message thus far that forex reserves will be diversified by investing in resources. The safety of China's massive forex reserves, mostly consisting of USD-based assets, has become a hot issue during the economic crisis. By the end of September last year, these reserves were the world's largest, totaling USD2.27 trillion, according to figures released by China's State Administration of Foreign Exchange. China's holdings of US Treasury bonds totaled USD798.9 billion by the end of October, making China the largest financer of US debt, according to the latest data released by the US Treasury. Many Chinese economic analysts want China to boost its strategic resources reserves to hedge against the risks of the devaluation of the dollar. They fear that the country's USD assets would likely face losses if inflation occurs in the USA or if the purchasing power of the USD drops. Though US Federal Reserve Chairman Ben Bernanke stated last month that "inflation could move lower from here", some fear that the US will see inflation in the near future. Read more… The consumer price index (CPI), a main gauge of inflation, rose 0.4 percent in November from October, and over the past 12 months the CPI reading increased 1.8 percent, posting the first positive change year-on-year since February last year, according to data released by the US Bureau of Labor Statistics (BLS). The producer price index, a main measure of inflation at the wholesale level, rose 1.8 percent from the previous month in November, the BLS said. The Chinese official said that investment in resources should be carried out by professional investment firms by purchasing foreign exchange assets from the forex market or the central bank.

Source: Global Times

CENTRAL BANKERS SAY IT WITH GOLD Strong dollar equals falling gold price, right? Except, perhaps, when Asia's central bankers are involved. Some three quarters of the region's USD5 trillion in foreign-exchange holdings are parked in U.S. dollars. A desire to diversify away from the greenback, though, has become evident. The dollar's share in reserve accumulation dropped to less than 30% in the third-quarter, Barclays Capital estimates. Analysts think most diversification in 2009 favored the euro. As they seek to diversify their foreign-exchange reserves, Asia's central banks could buy gold. Some

have already started. The Reserve Bank of India stirred up markets when it revealed it purchased 200 tons of gold from the International Monetary Fund in October, taking gold's share of the central bank's reserves from 3.6% to nearly 6.4%. Even if other central banks don't start making large purchases like India's, they'll likely remain a substantial buyer as reserves continue to pile up. In the 12 months through November, the banks added around USD800 billion to their foreign-exchange holdings, a side effect of their efforts to slow the appreciation of local currencies. China, which has seen its reserves rise by more than 50% in the past two years to about USD2.3 trillion, has bought 450 tons of gold during the period, Merrill Lynch estimates. That is a substantial chunk in a market where annual turnover is about 3,800 metric tons. Accumulation of reserves by Asia's central banks will likely continue as long as strong regional growth and high interest rates continue to attract foreign investors. Read more… A shift in portfolios, like India's, would only add to this, and there is scope for this to happen. Gold currently accounts for around 2% of reserves in emerging markets, Merrill Lynch calculates. That compares with a 10% average globally, and more than half of all holdings in the case of the U.S. Federal Reserve, as well as France's and Germany's central banks. Asia's central bankers will move slowly, particularly with gold prices still above $1,000 per ounce. But a shift toward the global average would mean more buying in store — regardless of what the dollar does. Source: The Wall Street Journal

RUSSIA SHEDS DEBT BURDEN OF SOVIET ERA, LIKELY TO ISSUE BONDS Russia has rid itself of Soviet-era debt, paving the way for it to re-enter international capital markets after a decade. This happened when Russia recently exchanged USD405.8 million of cash and sovereign Eurobonds maturing in 2010 and 2030 to the remaining outstanding bondholders of Soviet debt. "Completion of the last exchange represents the settlement of one of the most complex and comparatively large categories of the external state Soviet-era debt," Russia's Finance Ministry said. The Government had said it intended to finish the exchange before issuing new bonds. The size of Russia's Eurobond issue could be up to USD17.8 billion, according to Finance Minister Alexei Kudrin, depending on the price of oil, the country's major export. The nation's re-entry comes as fresh emerging-market sovereign debt is expected to reach critical mass. Demand is not expected to be a problem for any of the likely new issuers. Russia's Finance Ministry has said it will lean more heavily on overseas debt markets through 2012 to finance annual deficits, as Russia's oil wealth funds run down. Standard & Poor's has said that Russia's net government borrowing requirement could come in at 6% of gross domestic product in 2010. Recently, the ratings firm raised the sovereign outlook on Russia to stable from negative and affirmed its rating at triple-B, noting that budget and balance-sheet performance will gradually improve. Mr. Kudrin said the move created a "good environment" for the anticipated Eurobond offering. Russia holds an investment grade rating from all three international ratings firms, due partially to its USD440-billion gold and currency reserves, the worlds third largest next to China and Japan. Source: The Wall Street Journal

CHINA DETHRONES GERMANY AS TOP GOODS EXPORTER China took over the mantle of the world's top merchandise exporter from Germany in 2009, according to the latest figures, aided by a global economic crisis that has taken a greater toll on other trading powers. China exported USD957 billion of goods in the first 10 months of 2009, compared with USD917 billion for Germany, according to customs data compiled by Global Trade Information Services, a Geneva-based firm. No changes in November or December are expected to overturn the Chinese lead, trade experts say. China is likely to publish trade figures for the full year next week. China's claiming of the title of world‘s largest exporter was widely expected, with annual growth in its exports regularly exceeding 20% during the past decade. China in 2007 overtook Germany as the world's third-largest national economy, and is on track to soon surpass Japan to become the second-largest economy after the U.S. China's ascendancy has been accelerated by the international financial crisis, from which it has suffered less than other major economies. With trade in tatters around the world, Chinese exports fell 20.4% during the first 10 months of 2009, compared with 27.4% for Germany and 21.4% for the

U.S. The trade figures don't include transactions in services, which are significant in developed economies but a weak point for China. Read more… Germany suffered a particularly heavy drop in 2009 exports because of its concentration in machinery and other capital goods, which were hit by a slump in investment spending by industries world-wide. Global consumer spending fell by less than corporate investment, benefiting China's exports of low-cost consumer goods relative to Germany's high-end equipment. High export volumes don't necessarily translate into overall economic success. Many economists criticize both Germany and China for focusing too much on export volumes, and doing too little to promote sustained growth in domestic demand and improve living standards. Many of China's exporters earn relatively slim profits churning out goods designed and marketed by other companies. Source: The New York Times

POLITICS MONGOLIA CARRIES ON WITH ITS DEMOCRATIC BREAKTHROUGH Mongolia, a formerly communist nation sandwiched between two autocratic and powerful neighbors, once seemed an unlikely candidate for democratic reform. But while its mighty neighbors China and Russia are allowing authoritarian tendencies to diminish rule of law, impoverished Mongolia has persisted in building a more accountable government. In one of the most underreported stories of 2009, Mongolia is forging ahead with reforms aimed at making its society more open and less subject to the endemic corruption that has plagued many former communist states. It is moving more rapidly in a democratic direction than any of the former Soviet republics of Central Asia. And its new leaders vowed early on to quickly privatize state enterprises and create a free-market economy. But progress has come with some difficulty. When the Soviet Union cut off subsidized trade and economic aid in 1990, Mongolia‘s gross domestic product dropped by as much as a third. Food shortages followed. Prices skyrocketed. Agricultural and industrial output fell drastically. During a visit in mid-1992, two well-meaning but young and inexperienced Mongolian reformers lost nearly all of the country‘s foreign exchange in a series of currency dealings that went sour. Mongolia has managed to foster good relations with China and Russia as well as with the United States, Japan, and both North and South Korea. In the early 1990s, many feared that an ever more powerful China might dominate the country. Read more… Although China is clearly a big player in Mongolia‘s trade and mining sectors, it has so far refrained from disrupting Mongolian politics. But things could still go terribly wrong. President Ts. Elbegdorj has warned that corruption could threaten much hoped-for gains from the mining sector. ―Now we have some profit, some money from mining,‖ he said. ―If you have bad government, it‘s going to be a curse.‖ Mr. Elbegdorj has said that the key will be reform of the judicial system and an anti-corruption agency that can work more effectively, because ―corruption is deep-rooted in this country‖. He has set an ambitious goal of making the judicial system more open, accountable, and independent by 2011. The world should stay tuned. Source: The Christian Science Monitor

GOVERNMENT APPROVES NATIONAL PROGRAM TO PROTECT COMSUMER RIGHTS The Government has approved the introduction of a national program to protect the rights of consumers. The first law on this was passed in 1991 and amended in 2003, while the general procedure for protecting consumer rights was adopted in 1992. However, implementation has fallen below intention. Funding for the program will be included in the state and provincial budgets.

Source: en.News.mn

INDIA HELPING MONGOLIA OPEN ITS FIRST MAJOR IT OUTSOURCING CENTER Mongolia and India are working together in a number of fields, but information technology (IT) is one in which they have the closest collaborations, according to the Mongolian Ambassador to India, Mr. Voroshilov Enkhbold. He said, "We do have BPOs, but with India's help we are going to set up a major IT outsourcing center very soon. About four-five years back an India-Mongolia IT school was established in Mongolia with the Indian Government's help. Initially the staff there was trained by Indian experts, but now we are on our own."

In order to build their own skills so that they can further develop the IT sector in their country, a growing number of Mongolian youngsters are making way to India to pursue higher studies in the field. ―This year more than 500 students came here,‖ Mr. Enkhbold said. Mining is another sector in which the two countries are forging strong ties, with companies like Jindal Steel and MESCO Steel Limited setting up manufacturing units in the central Asian country. A country half the size of India but with less than three million people, Mongolia is also seeking collaborations in the tourism sector. Source: The Economic Times

EX-PRESIDENT ENKHBAYAR VISITS SOUTH KOREA TO “ATTRACT INVESTMENT” Former President N.Enkhbayar told a Seoul newspaper during his recent visit to South Korea that the Mongolian economy is reviving but is still in a difficult situation. New opportunities have come up for foreign businessmen to invest in minerals and the infrastructure sector. He specifically mentioned five countries – the USA, Japan, China, Russia and South Korea – which should find it advantageous to invest in Mongolia. Indeed, he said, the aim of his present visit was to meet with Korean companies and to attract their investment. There are 1,800 Korean companies operating in Mongolia, but they are all small and medium enterprises and big corporations such as Samsung and Hyundai should now appear on stage, he felt.

Source: Undesnii Shuudan

PROVINCE GOVERNORS RESENT BEING “A SOLDIER WITHOUT A GUN” A recent seminar in Government House heard several province Governors express unhappiness over how their region is treated when the state budget is implemented. Khuvsgul Governor L.Tserenjav said not enough money is ever available for work in provinces and complained that MPs spend their constituency money according to their personal wishes. Khuvsgul‘s population of 130,000 is more than that of Gobisumber, Dornogobi and Gobi-Altai together but they all get MNT500 million to support small and medium industry. Khovd Governor G.Nyamdavaa wanted a bigger role for the province administration in determining budget priorities, instead of the MPs. The local Civil Representatives should also have a say in what to do in a province. Bulgan Governor M.Oyunbat said MPs spend their money on big programs, while numerous small works that must be done languish for lack of funds. ―This is because the province authorities have no role in formulating the budget. The Ministry of Education, Culture and Science decides on whether and how a school or a kindergarten will be constructed. Someone very rightly described a province governor as a soldier without a gun. More spending rights for province authorities would make for greater the people‘s participation,‖ he said. Source: en.News.mn

“PEOPLE’S HEROES” WILL BE CHOSEN THIS YEAR, TOO The public opinion poll sponsored by the Zuunii Medee newspaper and the TV-9 television channel will continue to be held in 2010, to select ―People‘s Heroes‖. These are people perceived by ordinary citizens to have done worthy things for the country, without any self-interest and without Government recognition. For one month in 2009 thousands of people from all corners of the country proposed 150 candidates for the honor. Ten of them were shortlisted and finally five were chosen. This year will select a fresh group of honorees.

Source: Zuunii Medee

ROY DONGEN, TWO OTHERS RECEIVE FIRST ALTAN GEREGE AWARDS The first Altan (Golden) Gerege awards were recently presented by Foreign Minister G.Zandanshatar to Mr. Roy Dongen, a BCM member, Prince Andrew of the UK, and Mr. Tokuji Yanagisawa, head of the Japan-Mongolia Association. The awards have been instituted to honor foreigners and Mongolians who advertize Mongolia abroad, or protect the interests of Mongolians in a foreign country, or develop relations with foreign countries in politics, economy, education, arts, culture and sports. The Gerege is the golden seal which was used as a diplomatic passport in the time of Chinggis Khaan. Mr. Dongen is Chairman of the Mongol Saikhan Foundation which, since its foundation in 2001, has been organizing a wide range of activities. It gives financial support to the State Theatre of Opera and Ballet to arrange productions abroad, and has granted scholarship to a student to study in the Netherlands.

Source: www.mfat.gov.mn

RUSH TO THE ALTAR BEFORE 4 ALLOWANCES ARE STOPPED The Social Allowances Law has been amended to stop the payment of monthly and quarterly child allowances, and allowances for newborn babies and newly married couples beginning January 1, 2010. Of the more than 1.4 million Mongolian children, about 950,000 used to receive Child Money, with the rest not claiming it either because they lived abroad or their parents did not need the MNT136,000 annually for every child. However, there are many families that depended on this allowance to meet household expenses. Mr. D.Bayarsaikhan, Director of the State Labor and Welfare Service Department, held out some hope for such families by saying that beginning in the near future every citizen will be granted MNT120,000 from the Human Development Fund annually. The announcement that the allowances will be stopped saw a rush in the last days of the year on the banks that distributed the allowances, leading some of their branches to declare that they had no money in their accounts. Mr. Bayarsaikhan agreed that the number of claimants showed a large increase once word had spread about the decision and the budgeted allocation was not enough. December also saw a surge in marriages as many young people wanted to take the MNT500,000. The Finance Ministry agreed to make money available to meet the unexpected rise in demand.

Source: Undesnii Shuudan

IMPUNITY AND INJUSTICE ARE LEGACY OF JULY RIOTS, SAYS AMNESTY INTERNATIONAL The Government of Mongolia has failed to effectively respond to human rights abuses that took place during the July 2008 riot in Sukhbaatar Square and its aftermath, leaving a legacy of impunity and injustice, Amnesty International has said in a year-end report. The report describes how hundreds of people were taken to police detention centers where they were held in over-crowded cells without food or water for up to 72 hours during the riots. Police beat detainees while they were in custody and during interrogations to extract ―confessions‖. One year on from the riot, the scope of the investigation conducted remains limited. Allegations of torture and other ill-treatment in detention, and excessive and unnecessary use of force by police have largely been ignored. ―Investigations into allegations of human rights violations have been delayed, ignored or inadequately investigated‖, said Ms. Roseann Rife, Asia-Pacific Deputy Program Director at Amnesty International. ―A year on from the riot and there is no accountability on the part of authorities and no justice for the victims.‖ Procedures for prosecution of ten police officers and four senior police officials suspected of using and authorizing the use of live ammunition during the riot was stalled by the defendants and their lawyers for over seven months until early November 2009. The case file is now being read by the families of the victims and their lawyers. All in all, the report charges Mongolia with failing to comply with its international obligations which require them to take a range of legislative, judicial, administrative and other measures to prevent human rights violations and bring those responsible to justice and ensure victims receive reparations in line with international standards. On 1 July 2008 thousands of people protested at Sukhbaatar Square amid allegations of widespread election fraud. The riot was unexpected and unexpectedly violent. At least nine people were shot by the police, four fatally, and a fifth person died allegedly from smoke inhalation.

Source: Amnesty International

MONGOLIA-REGISTERED SHIP WAS “A ROGUE VESSEL”, PROBE INTO SINKING REVEALS A Mongolian ship that sank in the Bay of Bengal in September was ―a rogue vessel with fake papers‖, a preliminary probe by Indian Government agencies has said. MV Black Rose had entered the Paradip port without valid documents to carry illegally extracted iron ore. ―The ship was 32 years old and evidently not seaworthy. It had gained access to the Paradip harbor on September 4 despite having no valid documents. Even the insurance papers submitted were found to be fake,‖ a source said. The ship left the port on September 9, five days after its arrival, and sunk hours later. ―The ship had left the harbor without filing proper documents and taking customs clearance for the cargo,‖ the report said. Nearly 23,843 tons of ore was loaded in addition to 971 tons of inflammable furnace oil and substantial quantities of lubricant oil, the probe has revealed. Suspicion about the vessel, registered in Ulaanbaatar but owned by Singapore-based Black Rose Maritime Ltd, deepened as no one had come forward to make any claims after it capsized. Source: The Telegraph, Calcutta

NEW MONGOLIAN LAWS

The following amendments and annulments to current Mongolian lawS were published in a recent weekly Government bulletin. Unless otherwise decided by Parliament, the amendments and annulments take effect (10) days after publication.

Date Law 12/18/2009 Amendments to the Law on Consolidated budget of Mongolia Annulment of Law on Mongolia development fund Amendments to the Law on Social welfare

Amendments to the Law on Annulment of some provisions of Law on Consolidated budget of Mongolia Amendments to the Law on Civil Health Insurance Annulment of Law on Granting allowance to mother and children, providing financial support to children, mother and family Amendments to Law on Government's Special Fund Annulment of some provisions of Law on Corporate income tax 12/11/2009 Addendum to Law on Medicine, medical tools

Please visit BCM‘s website, Legislative Working Group, for a summary of new Mongolian laws.

BCM members who wish complete versions of the laws in Mongolian language are welcome to call or email the BCM office (332345; info@bcmongolia.org)

ANNOUNCEMENTS

ASIAN FINANCIAL FORUM IN HONG KONG, JAN 20-21

―Asia in the New Economic Order‖ will be the theme of the next Asian Financial Forum, January 20-21, 2010, at the Hong Kong Convention and Exhibition Centre. Renowned international speakers will discuss the opportunities and challenges facing Asia and, in particular, China. They include: Dominique Strauss-Kahn, Managing Director, International Monetary Fund; Nouriel Roubini, Professor of Economics, New York University; E. Gerald Corrigan, Managing Director, Goldman Sachs; and senior government officials from the region. Over 1000 business leaders and senior executives will attend the Forum. BCM is pleased to be a Sponsor of this prestigious event.

For registration information, please send Email to aff@hktdc.org or call at (852) 2584 4372.

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“MM TODAY” ON MNB-TV BCM is pleased to announce that Mongolian National Broadcasting continues its cooperation with BCM on ―MM Today‖. This English news program is aired every Friday for 10 minutes and is scheduled for 22:25 tonight. Tune in to watch this program that reports stories from today‘s BCM NewsWire.

SPONSORS

ECONOMIC INDICATORS

MSE WEEKLY REVIEW

For the abbreviated trading week ended December 31, 2009, trading activity on the Mongolian Stock Exchange (MSE) totaled 31,100 shares with 29 companies traded. Total market value of transactions was MNT 19.3 million. Total market capitalization of the 358 stock companies listed on the MSE was MNT 620.7 billion.

The Top-20 Index increased by 227.37 points or 3.8% compared to the previous week, closing at 6189.91 points. MSE Composite Index increased by 79.56 points or 2.7% compared to the previous week, closing at 3,043.86 points.

Most active stocks traded were: Khuh gan (12,400 shares), UID (5,500 shares), and Apu (4.800 shares).

Major share price percentage gainers were: Tuul Songino Usnii Noots (32%), Shivee Ovoo (32%), Takhi Co (14.5%), Teever Achial (12.1%), and Baganuur (7.7%). Major share price percentage losers were: Almaas (8.0%), Ulaanbaatar ZB (7.1%), UID (7.1%), Eermel (6.5%), and BDSec (5.9%).

INFLATION

Year 2006 6.0% [source: National Statistical Office of Mongolia (NSOM)] Year 2007 *15.1% [source: NSOM] Year 2008 *22.1% [source: NSOM] November 30, 2009 *3.5% [source: NSOM] *Year-over-year (y-o-y)

CENTRAL BANK POLICY LOAN RATE

December 31, 2008 9.75% [source: IMF] March 11, 2009 14.00% [source: IMF] May 12, 2009 12.75% [source: IMF] June 12, 2009 11.50% [source: IMF] September 30, 2009 10.00% [source: IMF]

CURRENCY RATES – January 8, 2010

Currency name Currency Rate

US dollars US 1463.79

Euro EUR 2103.17

Japanese yen JPY 15.77

British pound GBP 2333.06

Hong Kong dollar HKD 188.74

Chinese yuan CNY 214.39

Russian ruble RUB 49.01

South Korean won KRW 1.29

Disclaimer: Except for reporting on BCM‘s activities, all information in the BCM NewsWire is selected from various news sources. Opinions are those of the respective news sources.