BUSINESS COUNCIL of MONGOLIA NewsWire

www.bcmongolia.org info@bcmongolia.org

Issue 260 – February 8, 2013

NEWS HIGHLIGHTS:

Business

Government talks with Rio on hold for Tsagaan Sar;

Mongolia to press Rio over Oyu Tolgoi costs;

Oyu Tolgoi clarifies Parliament's concerns;

OT produces first concentrate;

Operations on hold at MEC's Khushuut mine;

MRC releases December 2012 Quarterly Activities Report;

TDB signs MOU with Japanese bank for information dissemination;

Mongolia Opportunities Fund partners with Japanese financial group;

AUM contracted to research employment opportunities driven by OT;

OBG releases Mongolia 2013 report;

AUM to offer MBA from Indiana University;

CapitalistExploits.at releases Mongolia country research;

S&P affirms rating and negative outlook for Winsway;

Doors open at Maternity Hospital No. 1;

Rio looks to build after writedowns.

Economy

Mongolia debt costs rise as government battles Rio Tinto;

Legal uncertainty cuts minerals exploration and companies' stock performance;

MSE board members appointed;

Mongolia auctions MNT 25 billion bills;

Energy grid links to Umnugobi;

Crime spikes as Tsagaan Sar nears;

85 mm;

Capital Markets Day sees 180 new investors open securities accounts

USD 1.25 a day labor amid USD 4,000 purses stirs discontent;

Four pitfalls to Mongolia’s astonishing growth;

Chinalco Mining IPO flops;

China data points to moderate recovery.

Politics

President makes public demands of OT investors;

Cabinet orders inspection lab for OT copper concentrator;

Miners air grievances on draft Minerals Law at open discussion;

Former MRA head sentenced to 6 1/2 years;

Parliament no longer to pursue privatization of MIAT;

MP Ganbaatar submits new labor law;

Bill allows citizens to submit draft legislation to Parliament;

Parliament's fall session concludes Friday;

Mongolia bans percentage of acetic acid in foods;

Government officials travel to Russia to inquire on price hikes;

Former ambassador rumored to have sold Moscow embassy;

SouthGobi Sands president calls for help from U.S.;

67-year old Mongolian woman sentenced to death in China for drug smuggling;

Mongolia doesn’t have resource nationalism—for now;

China, Mongolia seek to mend trade differences

At odds with Mongolia’s modernity, a poet seeks another way.

ECONOMIC INDICATORS

MSE Top 20 Index by market Capitalization;

Foreign-listed Companies with Mongolian Assets;

Inflation;

Central bank policy rate;

Currency rates.

*Click on titles above to link to articles.

SPONSORS

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BUSINESS

GOVERNMENT TALKS WITH RIO ON HOLD FOR TSAGAAN SAR

Government officials said its stakeholders meeting is ongoing, with talks to resume after Tsagaan

Sar, Mongolia's lunar new year celebration.

Government and Rio Tinto PLC officials met on Wednesday to discuss grievances regarding the

project at the Ikh Tenger complex in Ulaanbaatar. Government representatives included Mining

Minister D. Gankhuyag, Environment and Green Development Minister S. Oyun, Erdenes Oyu Tolgoi

LLC Director Ts. Sedvanching while Oyu Tolgoi President and Chief Executive Officer Cameron

McRae and other Rio Tinto officials came to represent private interests.

―We have requested an explanation to why the initial investments had been increased by USD 2

billion, after which we would discuss the next financial issues,‖ said Gankhuyag. ―Parties have

agreed to resolve the issues based on scientific research and narrow estimations. We only demand

what is in compliance with Mongolia's regulations.‖

Economic Development Minister N. Batbayar noted Oyu Tolgoi's investors had grown worried over

President Ts. Elbegdorj's statements on Friday when he said Mongolians should take back control of

the project. He said the Rio Tinto officials had asked that members rescind their comments, to

which they replied, ―Mongolia is a state with a parliamentary republic. The people of Mongolia love

and respect their land. You will be allowed to operate on the territory of Mongolia if you

understand this point.‖ He added that the investment agreement must be proven to be of benefit

to Mongolians.

Source: Info Mongolia

MONGOLIA TO PRESS RIO OVER OYU TOLGOI COSTS

Mongolia will press Rio Tinto PLC to explain a spike in costs at the Oyu Tolgoi copper-gold mine, a

government source said, warning that it could threaten efforts to finance other projects in the

country.

"We would like to have some mechanism where we can control such cost increases. We do not know

if they are justified," said the source, who requested anonymity and said that the cost of the first

phase of the mine was around USD 2 billion higher than originally stated in the project's feasibility

study.

"We also want to know why our share of the revenues from the project has fallen so much, so at

least we can understand it and explain it to the people," he said.

A statement issued on Oyu Tolgoi's website late on Tuesday put the total capital required for the

project's first phase at USD 6.6 billion, compared to USD 5.7 billion in the original 2010 approved

feasibility study. It said concerns about the costs of the project had already been addressed in a

series of meetings between both sides.

The government source said the increased costs would have a considerable impact on the long-term

sustainability of Oyu Tolgoi, and on Mongolia's efforts to raise funds for other projects, including

the massive Tavan Tolgoi coal mine and a billion-dollar railway building program.

"We cannot have major financial institutions investing in a project that is not sustainable," he said,

adding that the higher costs meant Mongolia would not receive dividends from the project until

2033, far beyond the original schedule of 2019. Given that the project is financed by debt not

equity, you can imagine the financial costs will be tremendous and have an impact on the project's

revenues for the government," he said.

The project cost was initially estimated at around USD 4 billion, roughly the same as Mongolia's

gross domestic product in 2009, and was also expected to pave the way for other huge mining

deals, including Tavan Tolgoi. But Mongolia has struggled to find the capital required not only to

build the mines, but also the infrastructure required to get minerals to market.

Source: Reuters

OYU TOLGOI CLARIFIES PARLIAMENT'S CONCERNS

Oyu Tolgoi LLC released an official statement in response to President Ts. Elbegdorj's message to Parliament where he asked for more control of Oyu Tolgoi by Mongolian interests. The statement directly responded to the criticisms from the president and elsewhere regarding overblown costs for the mine's development. As of 31 December 2012, Oyu Tolgoi had reported USD 7.4 billion comprising USD 6.6 billion of phase one development costs, plus interest costs on loans USD 500 million, early phase two capital of USD 200 million and further exploration of USD 100 million. The government purchased 34 percent in the company with borrowed money for other shareholders. State-owned Erdenes Oyu Tolgoi, which holds the 34 percent stake, is not required to repay the loan unless the business becomes profitable. Currently investors are seeking to raise project financing from international banking and financial institutions to enable the next stage of development. Project financing would lower the interest rate the government is paying with the opportunity to bring forward shareholder dividends. Project financing is expected to decrease the total cost of the business to all stakeholders. Rio Tinto PLC provides Oyu Tolgoi with ―highly valuable skills, systems and processes‖ for the benefit of the project. When Oyu Tolgoi reaches commercial production, management

fee payments are expected to be in the range of USD 60 million to USD 80 million a year. While capital cost increases also increase management fee payments, Rio Tinto has no incentive to increase costs. Loss of dividends and higher financing costs erode a far greater value for Rio Tinto that it receives in increased management service fee payments. Oyu Tolgoi was the country's sixth biggest taxpayer in 2011, according to the General Tax Office. This was before the mine was even operational. From January 2010 through November 2012, Oyu Tolgoi had paid USD 803 million in taxes and payments to the government. Between 2010 and 2011, Oyu Tolgoi loaned USD 250 million to the government. Part of that was a USD 150 loan in the form of a tax prepayment with repayment coming in tax credits. Under the prepayment agreement Oyu Tolgoi was entitled to use these tax credits from 2012. Building Oyu Tolgoi has been a joint effort between Mongolians and workers from 44 nations. At the end of 2012, the Oyu Tolgoi project directly employed around 13,000 people, 85 percent of whom were Mongolians. During the operational phase, more than 90 percent of the Oyu Tolgoi total workforce would be Mongolian. Both foreign and Mongolian workers are paid commensurate with prevailing market conditions in their home countries. This is standard across the world.

Source: Oyu Tolgoi LLC

OT PRODUCES FIRST CONCENTRATE

Turquoise Hill Resources Ltd. last week on Thursday announced that its 66 percent-owned Oyu

Tolgoi copper and coal project had produced its first copper-gold concentrate after it processed

first ore through the concentrators in early January.

The start of concentrate production signaled that production ramp-up is expected to achieve

commercial production rates within the next three to five months.

―Oyu Tolgoi continues to progressively ramp up the mine and the production of first concentrate is

another important milestone. We are making good progress on our timetable leading to the start of

commercial operation,‖ Turquoise Hill Chief Executive Officer Kay Priestly said.

Turquoise Hill celebrated the commissioning of the Oyu Tolgoi mine's concentrator on 27 December

2012. Activating the concentrator's ore-processing circuit for the first time commemorated the

occasion. Under the common start-up plan, ore will be initially sourced from the open-pit mine on

the Southern Oyu deposits, while the adjacent higher-grade underground mine on the Hugo North

deposit will be developed to full production of 85,000 tons a day.

The mine is expected to produce more than 1.2 billion pounds (544,000 tons) of copper, three-

million ounces of silver and 650,000 ounces per year of gold in the first ten years of operation and,

seven years later, at its peak it is expected to produce about 1.7 billion pounds of copper and one

million ounces of gold.

Source: Mining Weekly

OPERATIONS ON HOLD AT MEC'S KHUSHUUT MINE

Mongolia Energy Corp. Ltd. (MEC) reported the halt of operations at its coal-producing Khushuut

coal mine. Resumption will depend on the selection of a suitable coal extraction contractor to

perform the coal extraction work and the improvement of coal processing issues by the installation

of a dry coal processing system.

MoEnCo LLC, the company's indirect subsidiary, is in the final round of negotiation with two

potential contractors for the provision of coal extraction work and the process is at an advanced

stage. MoEnCo is discussing the commercial terms of the services with the potential contractors and

hopes to finalize the process as soon as possible. During this period, the mining operation at

Khushuut is still continuing, though on a smaller scale, for preparation such as stripping of the top

soil and extraction. MoEnCo has hired the excavators, dozers, loaders and other necessary

equipment from the equipment providers and operates them through MoEnCo's own operation team

on site.

Also, the company's dry-coal processing system will enhance the quality of coal in the screen

process. Otherwise, its coal haulage and operation costs would remain expensive for commercial

production. The foundation work of the dry-coal processing system was completed in the middle of

January 2013.

Source: Mongolia Energy Corp. Ltd.

MRC RELEASES 4Q QUARTERLY ACTIVITIES REPORT

Mongolian Resources Corp. (MRC) reported spending USD 677,000 on operations in Mongolia and

maintaining the corporate headquarters in Australia in its December 2012 Quarterly Activities

Report.

MRC received an offer for a subscription agreement to provide AUD 589,000 (USD 613,502) by way

of issue of 5.9 million new shares at 10 cents a share from AR Management Co., Pty. Ltd., which is

currently under review by its board. The company is currently seeking further financing and is

discussing project financing with banks and private equity holders to continue its operations.

During this period, costs were incurred on completion of the 2013 mine plan for submission to

government and for completion of the exploration work to remain compliant with the government

on licensing regulations. The company shares during the quarter ranged from AUD 0.07 to AUD

0.0086 cents.

Late in this quarter, the Sujigtei gold project was put on care and maintenance for the winter

period. MRC continues to review its ongoing financing options. Continued delays in the Sujigtei

operational approval, which includes the permission for cyanide operations, continues to hamper

the company moving forward. Resolution No. 154 issued from the 2009 Law for the prohibition of

Mineral Exploration in Water Basin Areas and Forest Areas restricted some mining and exploration

activities in 254 licensed areas of Mongolia. Gunbileg Gold LLC, the subsidiary of MRC that owns the

Sujigtei project, had an exemption, but a second resolution, No. 194, was issued in 2012 to expand

upon the area covered.

Read more.

One matter of confusion is the fact that although the Sujigtei project awaits a decision for approval

for the cyanide operations, MRC's Blue Eyes Mine has been granted approval. This processing plant

is a common plant for both the Blue Eyes and Sujigtei mine operations, and its approval at Blue

Eyes but not Sujigtei is being discussed by government authorities. A review of all the company's

licenses was conducted this quarter and the Minerals Authority reconfirmed that all licenses of MRC

are in good standing.

Source: Mongolian Resources Corp.

TDB SIGNS MOU WITH JAPANESE BANK FOR INFORMATION DISSEMINATION

Mizuho Corporate Bank Ltd. signed a memorandum of understanding with Trade and Development

Bank (TDB) LLC on 29 January.

The memorandum aims to enhance Mizuho's ability to provide information to Japanese corporations

that are considering expanding their businesses into Mongolia and enhance its service structure for

them when they do. Mizuho will offer local currency services, exchange information regarding local

financial markets and regulations, and conduct training and seminars.

Source: Mizuho Corporate Bank Ltd.

MONGOLIA OPPORTUNITIES FUND PARTNERS WITH JAPANESE FINANCIAL GROUP

Japan's ORIX Corp. has partnered with the Mongolia Opportunities Fund I, aiming to use the fund as

a vehicle to make its first investment in Mongolia.

The fund was established in June 2011 with the aim of investing in high-growth sectors of the

Mongolian economy such as mining, infrastructure, and export-related areas. Mongolia

Opportunities Partners, the fund operator, is comprised of staff with experience in mergers and

acquisitions, investment and asset management at international financial institutions and major

foreign capital consulting firms.

ORIX is aggressively pursuing investment in growth areas in the high-growth Asian market. Through

this investment, ORIX aims to create a local network and contribute to the development of the

Mongolian economy by capitalizing on its financial services know-how and client base accumulated

in Japan.

Source: ORIX Corp.

AUM CONTRACTED TO RESEARCH EMPLOYMENT OPPORTUNITIES DRIVEN BY OT

The American University of Mongolia (AUM) has been awarded a contract by Oyu Tolgoi LLC to study

ways the Oyu Tolgoi copper-gold mine can positively influence and contribute to labor support

sources, in order both to improve Mongolia's educational landscape while also meeting Oyu Tolgoi's

need for Mongolian executives, staff and workers. Oyu Tolgoi recently produced the first ore

concentrate at its mine in the south Gobi and, as it moves towards full production later this year, is

committed to increasing employment of Mongolians at all levels in the company.

The study is being led by Dr. R. Bat-Erdene, the university's executive director, formerly director of

the higher education department in Mongolia, to recommend how the mine could help enhance this

sector.

Source: American University of Mongolia

OBG RELEASES MONGOLIA 2013 REPORT

The Business Council of Mongolia's (BCM's) media group partner Oxford Business Group (OBG) has

released its Mongolia 2013 report.

The reports features the country's Foreign Investment Law, which have been the subject of much

debate at the political level, affecting the interest from international players in key areas such as

infrastructure, capital and expertise. In the report Mongolia's plans to extract investors who can

help the country tap its vast quantities of mineral reserves are put under scrutiny. It discusses the

challenges the country faces in its endeavors to ride the commodities boom while trying to retain

age-old traditions. Detailed analysis of the efforts to resolve issues at the country's two largest

mines, Oyu Tolgoi and Tavan Tolgoi, is included, which will be of key interest to prospective

investors, together with in-depth coverage of changes to the country's legal, environmental and tax

regimes.

The report also explores the government's plans to drive through legislative reforms which will pave

the way for new public-private partnerships in electricity generation. The country's bid to revive

manufacturing through domestic processing is also given wide-ranging coverage.

―This should help stabilize government finances, whilst increasing foreign reserves and also play a

part in improving fragile investment confidence,‖ said Regional Editor Paulius Kuncinas. ―The most

significant milestone in 2013 remains the launch of commercial production at Rio's copper mine, set

to become the largest in the world.

Interviews with President Ts. Elbegdorj, Prime Minister N. Altankhuyag, U.S. Secretary of State

Hillary Clinton, and Australia's Foreign Affairs Minister Bob Carr are included in the report.

Source: Business Mongolia

AUM TO OFFER MBA FROM INDIANA UNIVERSITY

Indiana University's Kelley School of Business has entered into a partnership with the newly formed

American University of Mongolia (AUM) to offer an MBA for global executives beginning in

September.

A recently signed memorandum of understanding between the two institutions builds on long-

running ties between the university and Mongolia. Indiana University is a center of academic

expertise in Mongolian Studies, and its Department of Central Eurasian Studies in the College of

Arts and Sciences is the sole independent, degree-granting academic unit in the United States,

staffed with its own faculty of specialists in the region.

―This new program signifies our commitment to partnering with American University of Mongolia to

offer new and innovative business education programs to meet the needs of this dynamic country,‖

said Idalene Kesner, interim dean of the Kelley School and the Frank P. Popoff Chair of Strategic

Management. ―The growth that is occurring in Mongolia is exciting, and we are proud to be working

to support the economic potential of the country through education.‖

The degree program will be a blend of classes taught on the American University of Mongolia

campus in Ulaanbaatar and online instruction. With a focus on growing international opportunities

in Mongolia, the curriculum will focus on four themes that emphasize a global managerial

perspective. It will include a one-week residency at Indiana University Bloomington and a one-week

program at the Washington Campus in Washington, D.C.

Source: Newswise

CAPITALISTEXPLOITS.AT RELEASES MONGOLIA COUNTRY RESEARCH

CapitalistExploits.at has released a comprehensive collection of video interviews, special reports

and country research targeting equity and real estate investors.

The package, aptly named ―Mongolia: Boots on the Ground‖, is available for purchase as a digital

download containing over three hours of video with 13 chief executives, investment bankers, real

estate professional and entrepreneurs focused on Mongolia. The package includes USD 1,500 in

bonus content, including the R2 Research Mongolia Real Estate Report 2012, the Oxford Business

Group Mongolia country report, and Resource Investment Capital's Mongolia 101 report. Video

interviews include Christopher de Gruben, Chief Executive Officer of M.A.D. Investment Solutions,

Harris Kupperman, Chief Executive Officer of Mongolia Growth Group, Nick Cousyn, Chief Operating

Officer of BDSec JSC, and Jim Dwyer, Executive Director of the Business Council of Mongolia (BCM).

―We are proud to be bringing this product to investors looking to deploy their capital into one of, if

not the fastest-growing, economies in the planet,‖ said Chris Tell, co-founder of

CapitalistExploits.at.

Please contact Saruul at saruul@bcmongolia.org or at 317027 on how to purchase the package.

Source: CapitalistExploits.at

S&P AFFIRMS RATING AND NEGATIVE OUTLOOK FOR WINSWAY

Standard & Poor's (S&P) Rating Services said it had affirmed its 'B' long-term corporate credit rating

on China-based Winsway Coking Coal Holdings Ltd. The outlook is negative.

It also affirmed its ―cnB+‖ long term Greater China regional scale rating on the coking coal supply

and logistics provider. At the same time, S&P lowered its issue rating on Winsway's senior unsecured

debt to ―B-‖ from ―B,‖ and its Greater China regional scale rating to ―cnB‖ from ―cnB+.‖ All the

ratings were removed from CreditWatch, where they were place with negative implications on 21

January.

―We affirmed the corporate credit rating on Winsway because we expect the company's operating

performance to improve in the next 12 months after a loss in 2012,‖ said S&P's credit analyst Huma

Shi. ―We also anticipate that Winsway can continue to access bank facilities for its short-term

financing needs.‖

Source: ETNet

DOORS OPEN AT MATERNITY HOSPITAL NO. 1

Construction has finished on the renovations financed by Centerra Gold Inc. to Maternity Hospital

No. 1.

―I would like to call this building a palace for mothers and children,‖ said Health Minister N. Udval

at the opening ceremony. ―Today we are witnessing a very important historic moment. This is

definitely an important event for the health sector of Mongolia.‖

Boroo Gold President John Kazakoff signed a project agreement with former Minister of Health S.

Lambaa to provide MNT 10 billion in funding to renovate the hospital, first constructed in 1963. The

hospital had not been used for maternity purposes for a long time, said the State Specialized

Inspection Agency, as the government lacked the funds to restore it. Project planners developed

the project taking examples from hospitals in Korea to construct a hospital that met international

standards.

The hospital is equipped with an air ventilation and oxygen system and a diesel generator that

could supply power within three seconds of a power outage. A new annex was also built that will

hold pathology, infant and delivery units. Each of the three units will have separate reception,

operating and intensive care units, including four vacuum-sealed operating rooms.

―My son was born in this maternity hospital three years ago,‖ said Kazakoff. ―We paid for not only

the building, but also the medical and non-medical equipment.‖ He added, ―We invested into the

hospital's construction because the birth of a new person is the greatest treasure in life.‖

The new hospital wing will require an additional 200 additional workers, which the Ministry of

Health had already approved. Hires will include physicians, pediatricians, pathologists, hygiene

specialists, laboratory staff, pharmacists, and pediatric nurses, in addition to a host of maintenance

engineers.

Source: Ardchilal

RIO LOOKS TO BUILD AFTER WRITEDOWNS

The message from Jan du Plessis, chairman of Oyu Tolgoi copper-gold mine developer Rio Tinto

PLC, following two failed attempts to branch out from Australian iron ore is that the strategy

remains unchanged. Putting it into action will now fall to Sam Walsh, the Australian head of iron

ore who has been with Rio since 1991. At 63, Walsh has only committed to three years at the helm,

reinforcing the impression that his elevation to the top job was a sudden decision.

Rio Tinto is forecast to report full-year underlying earnings of USD 9.3 billion, down from a record

USD 15.5 billion in 2011. But analysts hope the latest writedowns will give the new chief executive

a solid base from which to tackle Rio Tinto's challenges.

"It is a big cut to the aluminum business, but brings the carrying value down to where we value the

assets," said Rob Clifford, analyst at Deutsche Bank. "We did not expect them to do that in one fell

swoop."

The writedowns, too, may help Rio Tinto offload its Pacific Aluminum operations, which have been

tagged for a sale on a listing for nearly a year. Other loose ends for the new boss include the

diamond business, which is earmarked to go.

Among Walsh's priorities will be ensuring that Rio's big development project in copper, Oyu Tolgoi

in Mongolia, reaches commercial production on schedule in the first half of this year and that

political debate in the country about how to secure its fair share from minerals extraction does not

endanger further progress.

More fundamentally, according to Clifford, shareholders will be looking for a new approach from

Rio's top managers after a series of spending blunders, for which the board too must take

responsibility.

"For a full re-rating of the mining sector, we need to see better capital allocation. The clear

message from the Rio board to its team is that you had better not come asking for capital unless

you are sure you can show returns," he said.

Source: Financial Times

ECONOMY

MONGOLIA DEBT COSTS RISE AS GOVERNMENT BATTLES RIO TINTO

The yield on Mongolia's global sovereign notes rose to the highest since the debt was sold in

November as the government battles for control over a mining contract with Rio Tinto plc, the

nation's biggest investor.

The yield on the 5.125 percent dollar-denominated notes due 2022 climbed 20 basis points this

month to 5.85 percent. The rate has jumped 41 basis points, or 0.41 percentage points, in 2013.

Mongolia may seek to borrow as much as USD 5 billion from international markets, according to the

limit of the medium-term note program the country agreed on with the four banks in November.

President Ts. Elbegdorj last week called for Mongolia to have greater control of the Rio Tinto-

operated Oyu Tolgoi copper and gold project, which will account for almost a third of the nation's

economy once in full production. Rio Tinto has rebuffed at least two attempts in the past 18

months by Mongolia to redraw the investment agreement, which gives the world's second-largest

miner a 64 percent stake in the mine, with the government holding the rest.

―The bonds are reflecting investors' shrinking confidence in the direction of the current

administration,‖ Travis Hamilton, founder of Singapore-based Khan Investment Management Ltd.

Mongolia raised about USD 1.5 billion from the November debt sale that was managed by Bank of

America Corp., Deutsche Bank AG, HSBC Holdings PLC and JPMorgan Chase & Co. The notes are

rated ―BB-‖ by Standard & Poor's Investors Services, or three steps below investment grade. The

yield on state-controlled Development Bank of Mongolia LLC's 5.75 percent bonds due 2017

increased 26 basis points this month to 5.13 percent.

Oyu Tolgoi held a shareholder meeting in Mongolia on Thursday, where it was expected to address

concerns held by the government.

―It's going to be extremely important to see the outcome of [Thursday's] meeting with Rio Tinto on

Oyu Tolgoi,‖ said Hamilton. Favorable pricing at its last bond sale ―gave the government the

impression that they could walk on water. But I think they'll get a rude surprise the next time they

go to the market unless they get their act together.‖

Source: Bloomberg

LEGAL UNCERTAINTY CUTS MINERALS EXPLORATION AND COMPANIES' STOCK PERFORMANCE

Altan Dornod Mongol's chief executive presented a poignant case against the proposed draft of the

Minerals Law at a session last Friday to discuss the legislation.

Focusing on the economic importance of sound legislation within Mongolia's mining industry, B.

Bold, who is also a former chair of the Mongolian Stock Exchange (MSE), presented several key

arguments, in particular the rate at which minerals exploration has declined in country and the

overwhelming dependence on foreign investments into Mongolia and on the Oyu Tolgoi project. This

was perpetuated by highlighting the 60 to 70 percent drop in Mongolian mining companies on

international exchanges in the past 12 months, a 67 percent drop in the MICC index over the same

period, and an overwhelming amount of non-mining listed companies also seeing negative

performance.

The message was non-political and clear: if the uncertainty regarding foreign investment and

mining legislation remains, foreign investment will leave Mongolia.

Source: Mongolia Investment Group

MSE BOARD MEMBERS APPOINTED

New board members of Mongolian Stock Exchange JSC have been appointed in accordance with an

order from the State Property Commission (SPC).

M. Batgerel, chairman of the Policy and Implementation Department of SPC, was appointed as

Board Director. Government board members selected were B. Daajamba, deputy chairman of the

Financial Regulatory Commission (FRC); G. Batkhurel, director of the general planning sector at the

Development Policy and Strategy Department of the Ministry of Economic Development (MED); B.

Bayar, director of Legal Sector Under Public Administration Implementation on Heavy Industry of

the Ministry of Industry and Agriculture (MIA). Independent board members selected were D.

Dolgormaa, director of sustainable development for social responsibility for Mongolyn Alt (MAK)

Group; Ch. Ganbat, executive director of Liberty Partners LLC, and J. Maizorig, general partner of

law firm MDS & Associates LLP.

Source: Business Mongolia

MONGOLIA AUCTIONS MNT 25 BILLION BILLS

The Ministry of Finance reported a total of MNT 25 billion sales by auction of 25,000 bills with 12-

week maturity. Bids received totaled MNT 67 billion and MNT 25 billion, with a weighted average

interest rate of 11.23 percent.

Source: Cover Mongolia

ENERGY GRID LINKS TO UMNUGOBI

The power lines and power-generation substations linking Mandalgobi, Tavan Tolgoi and Oyu Tolgoi

were commissioned on 28 January.

Energy Minister and MP M. Sonompil was in attendance at an event to observe the importance of

bringing energy to Umnugobi Aimag, which has had continuous electrical problems and energy

shortages. Sonompil said that future plans include connecting a power line from Tavan Tolgoi to

Dalanzadgad Soum, the provincial capital of Umnugobi Aimag.

MCS International led the project to bring power to the south Gobi with the installation of 220

kilovolt transmission lines and the substation. Although a six-megawatt thermal power station with

equipment from South Korea, India, and Japan was built 12 years ago in Dalanzadgad with

international aid largely from South Korea, the generator has experienced frequent breakdowns and

technical failures. The substation has reportedly never operated at full capacity.

Umnugobi reportedly has a demand for seven to eight megawatts of electricity and is set to grow

compared with three to four megawatts on average for the rest of Mongolia's provinces.

Source: Business Mongolia

CRIME SPIKES AS TSAGAAN SAR NEARS

Mongolia has seen a recent rise in crime.

The Center for Information and Urgent Management reported 38 cases of theft, six robberies, 21

incidents of violence, 106 traffic accidents, and 14 cases of death between 1 to 4 February. Cases

of stolen meat and dairy products from storage containers, apartments balconies and households in

ger districts has soared due to the upcoming Mongolian lunar new year celebration, Tsagaan Sar.

Police officials have also warned about increased theft from cars, pick pocketing and robbery.

Source: Udriin Sonin

85 MM

About a century has passed since Mongolia was first introduced to the world of the railway

networks. Unfortunately not much has changed since then due to political games. Now there are

questions over whether Mongolia should fully adopt the wide rail gauge used by Russia or transition

to the more narrow Chinese gauge for more streamlined export to China.

The current railroad network accounts for 90 percent of cargo transport in Mongolia. But specialists

say the network lacks the capacity to support the ever-growing economy. Government policy calls

for ―broad‖ 1,520-millimeter (4 ft., 11 5/6 inch) gauge rather than the ―international‖ gauge of

1,435 millimeters (4 ft., 8 ½ inch), which is also the system adopted by China, the destination for

nearly all of Mongolia's mineral exports.

Now the government plans to provide USD 55 million from the Development Bank of Mongolia to

finance the construction of railway with the broad gauge. The plan will require about 60 percent of

the USD 3 billion from a private partner and remaining 40 percent to come from equity financing.

According to the plan, repayment would take over nine years after transport began, with the

transport of 47 million tons of coking coal and 20 million tons of thermal coal per year.

However M. Enksaikhan, the former director of Mongolian Railway has argued for the narrow gauge

because it would mean greater efficiency and speed for border crossing. Using China's gauge would

mean less time spent unloading and reloading cargo to another train. It would also reduce

pollution, he said, as moving the cargo leaves a great deal of coal dust in the air.

―For example,‖ said Enkhsaikhan, ―loading and unloading 20 million tons of coal leaves around

500,000 tons of dust in the air.‖

Despite the cost, the government argues the rail gauge is a matter of national security and a rail

link is needed from Mongolia's eastern region and the planned Sainshand industrial complex. For

now, that sentiment has taken priority over cost.

Source: Mongolian Economy

CAPITAL MARKETS DAY SEES 180 NEW INVESTORS OPEN SECURITIES ACCOUNTS

Mongolia observed its first Capital Markets Day on 26 January, seeing the emergence of 180 new

investors in Ulaanbaatar.

Initiated by the Mongolian Stock Exchange, the day is meant to recognize the achievements of

organizations such as the Financial Regulatory Committee (FRC), the Securities Clearing House and

Central Depository, and Mongolian Association of Securities Dealers, Brokerages and Clearing Banks.

More than 500 citizens attended an event to learn more about the securities markets and the

services available to them.

Following the event, 180 new investors opened securities and clearing accounts.

Source: Mongolian Stock Exchange

USD 1.25 A DAY LABOR AMID USD 4,000 PURSES STIRS DISCONTENT

As companies such as Rio Tinto PLC, Peabody Energy Corp., and Mitsui & Co. plan to keep the

mining momentum going by exporting more of Mongolia's USD 1.3 trillion troves of resources, about

a fifth of the population of 3 million are getting by on USD 1.25 a day.

The gold, copper and coal rush earning the country the nickname ―Minegolia‖ made the nation

China's top supplier of coking coal, and spawned sushi bars, USD 3,500-a-night hotel suites and a

Bayerische Motoren Werke AG car dealership. In the meantime, Mongolians have flocked to

Ulaanbaatar in search of work.

―People are not convinced it's going to help the country to develop,‖ as concepts such as property

ownership and land exploitation rights are literally foreign, said Jack Weatherford, best-selling

author of Genghis Khan and the Making of the Modern World.

Investment has been good for some Mongolians. O. Jambaljamts is chairman of Mongolian Mining

Corp. (MMC) and was the country's richest man with a net worth of USD 2.3 billion in 2011,

according to rankings by local publication Hero Magazine, though a spokeswoman of MMC denied

the accuracy of the report. Former Prime Minister S. Batbold is fifth on Hero's list with USD 1 billion

from stakes in Altai Holdings LLC. Number eight is current Foreign Minister. B. Luvsanvandan with

USD 800 million from Bodi Group.

Mongolia may have between 60,000 and 100,000 subsistence miners, according to Patience Singo,

manager of the Swiss state-funded SAM project that aids the workers. Ninja miners outnumber

those working in large mines two-to-one and operate in 18 of Mongolia's 21 provinces. They are

estimated to support 13 percent of the national population. In rural Mongolia, subsistence miners

account for a fifth of the economy, earning an average of USD 176 a month, or 57 percent more

than the country's minimum wage. Still, ninja mining is a one-way street that doesn't lead to better

jobs with bigger companies that rely on machinery for mining, Singo, a mining engineer and a

Zimbabwe native, said.

―Most of them don't have the necessary skills to switch over,‖ he said.

Source: Bloomberg

FOUR PITFALLS TO MONGOLIA‟S ASTONISHING GROWTH

Despite Mongolia's rise to the world's fifth fastest-growing economy, with a 12.3 percent gross

domestic product growth rate in 2012 that would make today's anemic Western economies salivate,

several recent reports indicate that Mongolia's economic success story may turn out not to be all

that it seems.

Here are four ways its meteoric growth could go awry:

1. The ninjas: Though they sound like some sort of ore-hunting SWAT team, the herders who have

recently sought their fortunes in freelance mining are actually a bit of a drag on the mining

economy. They do not pay taxes while contributing to prostitution, gambling and other illegal

activities. Also herders who resisted mining complain that mining companies have undermined their

way of life, forcing them to migrate.

2. Dependence on China: China's demand for Mongolian minerals has already slumped somewhat,

and most analysts say Mongolia needs to diversify its economy away from just one main trading

partner.

3. Mongolia's "resource nationalists" have made it difficult for mining projects to get off the ground.

Nationalist policymakers worried about foreign influence over Mongolia's resources and want to

amend the agreement for the Oyu Tolgoi copper mine, so that Mongolia gets a bigger share. The

massive Tavan Tolgoi mine has also suffered a number of setbacks, including halted exports to

China.

4. Mongolia is still pretty corrupt: Transparency International ranks Mongolia as the 94th most

corrupt of 176—not as bad as 120th most corrupt in 2011, but still not great. Either way, this is

hardly the sort of environment where dramatic, sudden economic growth can be expected to

improve quality of life for citizens.

Source: Washington Post

CHINALCO MINING IPO FLOPS

Mining has not been the flavor of the month for investors, with big writedowns from Oyu Tolgoi

copper mine developer Rio Tinto PLC and Anglo American PLC. But it is still a shock to witness the

poor stock market debut of Chinalco Mining Corp. International, the copper company spun out of

state-run Chinalco, China's biggest aluminum group. Chinalco has interests in Mongolia‘s resources

but has as of late had difficulty, with subsidiary Aluminum Corp. of China‘s (Chalco‘s) blocked

proposal to purchase large stakes in SouthGobi Resources Ltd. and Winsway Coking Coal Holdings

Ltd. and most recently in a contract squabble over an USD 350 million offtake agreement with

Erdenes Tavan Tolgoi LLC.

The shares slumped by up to 11 percent in Hong Kong on Thursday, even though the initial public

offering (IPO) was priced in the middle of the indicative range and cornerstone investors bought

nearly half the USD 400 million offering. The stock later recovered, but still closed 6.3 percent

down. Clearly the recent equities rally has not restored investors' appetites for IPOs.

The banks behind the IPO were a bit unlucky in their timing, as the market debut came just as

investors were absorbing the latest news from the U.S. Federal Reserve, which said American

economic growth had stalled in recent months. That raised worries about demand for commodities.

Chinalco plans to use the IPO funds to develop a copper-molybdenum silver mine in Peru—a

somewhat unusual project for a company listed in Hong Kong. But it will still do little to encourage

future IPOs. According to Bloomberg, companies raised USD 8 billion through IPOs in Hong Kong last

year, the lowest since 2003 and down 63 percent from 2011.

Source: Financial Times

CHINA DATA POINTS TO MODERATE RECOVERY

You might be forgiven for thinking that in China, where most of Mongolia‘s mining resources are

delivered, PMI stands for ―purposefully misleading indicator.‖

On Friday, the government's official purchasing managers' index (PMI) came in at 50.4 for January,

below expectations and down from 50.6 in December—pointing to a tepid recovery. About 45

minutes later, the unofficial HSNC PMI came in at 52.3, up from 51.1, suggesting accelerating

growth. In fact, two surveys have much in common. Both are slightly above the 50 mark that

separates growth from contraction, pointing to a continued moderate recovery in China's

manufacturing sector. Both also show particular strength in the new-orders sub-index. The official

PMI showed new orders at their strongest level since May 2012 and the HSBC index showed them

rising at the sharpest pace in two years. That's a hopeful sign for continued growth in output.

Other data points in the same direction. A business-sentiment survey from Market News

International indicates improving conditions in January, also with new orders strengthening.

Another positive sign is that steel prices on the Shanghai Futures Exchange edged up—extending a

recovery that started in September. Investors are optimistic. The Shanghai Composite Index gained

5.1 percent for the month as equity markets bet on higher profits to come.

The reason the two PMI surveys differ is likely that they rely on different samples and take

different approaches to adjusting the data for seasonal effects. A sharp increase in the sample size

for the official survey—to 3,000 businesses, from 820 in January--should improve its accuracy.

Chinese New Year, which fell in January last year but takes place in February this year, also

complicates the picture.

Source: Wall Street Journal

POLITICS

PRESIDENT MAKES PUBLIC DEMANDS OF OT INVESTORS

President Ts. Elbegdorj made demands to the investors of the Oyu Tolgoi copper-gold project at an open meeting of Parliament last Friday, saying Mongolians had to take the project back in their hands. Elbegdorj took issue with the ever-growing spending costs of the project. The Mongolian government has yet to approve the spending plan for Oyu Tolgoi for 2013 as spending has exceeded Turquoise Hill Resources Ltd.'s projections. He said the company requested and additional USD 2 billion, a 47 percent increase from the original prediction of USD 5.1 billion. ―The initial estimate for the underground mine's financing was USD 14.6 billion, but the company is planning to spend USD 24.4 billion,‖ said the president. He added, ―The investment agreement is that the initial investment will be used to produce ore concentrate and the commercial profit will be used for operational expenses... The time has come for the Mongolian government to take Oyu Tolgoi matters into its own hands.‖

Elbegdorj said the government was not made aware of these facts, despite its position as a 34 percent stakeholder in the project. He demanded a Mongolian representative sit on the managing board and an audit of the project, saying Turquoise Hill delays its reports for months at a time. The government approved USD 153 million for management expenses on 31 January 2013, he said, by that time having spent USD 3.2 billion in total. The president also took issue with management costs, which he said comprised 6 percent of the total investment and was 2.5 times higher than the international rate. He said this was unacceptable as Mongolia comparatively only receives 5 percent in royalties for minerals produced from the project. He also pushed for greater participation from Mongolian companies to provide support to the project and transactions via Mongolia's banks. Furthermore he noted that Oyu Tolgoi has still yet to meet the 90 percent mark for Mongolian employees at Oyu Tolgoi and foreign wages almost double that of Mongolian workers. The investment agreement calls for 90 percent Mongolian personnel after development begins, with commercial production slated to begin by June this year. ―We must learn from the mistakes of Oyu Tolgoi,‖ said the president. ―Mongolia has laws and they must be upheld. They must realize that they cannot just take our wealth and go. They must realize that they are investing in a country with laws.‖

Source: UB Post

CABINET ORDERS INSPECTION LAB FOR OT COPPER CONCENTRATOR

The Cabinet of Ministries at a regular meeting ordered an independent inspection laboratory for the

Oyu Tolgoi copper concentrator.

The laboratory would perform testing under the lead of the Central Geological Laboratory to

reduce costs and redundant services.

Source: Business Mongolia

MINERS AIR GRIEVANCES ON DRAFT MINERALS LAW AT OPEN DISCUSSION

Some 150 members of the mining industry and concerned members of the business sector attended

the open discussion hosted by the Mongolian National Mining Association (MNMA) and the Business

Council of Mongolia (BCM) last Friday to listen to analysis of the current draft law and air their own

concerns. Speakers were largely critical of the vagueness of the law and how little it explained how

the law would be implemented. Though people were divided on how much authority the

government needed over the industry, there was some consensus that the law was incomplete and

would make it impossible for mining companies—foreign and domestic—to remain profitable in

Mongolia.

―The government is making it impossible for a company to start work,‖ said E. Batmunkh, Executive

Manager of Magma Mining.

―Terms have been confusing, some new ones invented. The draft law says there is no need for

strategic deposits, but its call for strategic minerals—what is this?‖ he added.

Last Friday's meeting followed an open hearing between the government, civil organizations,

academics and the private sector where stakeholders had the opportunity to share their thoughts

on the law with the working group from the Office of the President that drafted it. That first

meeting was pre-empted by an open letter from BCM to the President's Office that included a

point-by-point critique of the law. According to the event's moderator, MNMA Executive Director N.

Algaa, President's Office head P. Tsagaan divided the letter into seven parts and distributed them

among his working group for careful study and analysis.

Brian Fisher of BAEconomics is scheduled for March to present quantitative models of how the

Mongolian economy would be impacted. Though the current form of the bill is admittedly

unacceptable to many who work in the mining industry, some form of the law must appear to keep

the gears turning in the Mongolian minerals extraction and exploration sector. Without it, said BCM

Executive Director Jim Dwyer, most all of Mongolia‘s mining operations would cease, with some

presumed exceptions for the Tavan Tolgoi coking coal mine, the Oyu Tolgoi copper-gold mine, the

Erdenet copper mine, and a handful of other large mines.

Source: BCM

FORMER MRA HEAD SENTENCED TO 6 1/2 YEARS

Former director of the Mineral Resource Authority, D. Batkhuyag, and three other officials were

found guilty of abusing their authority to illegally issue 106 mineral licenses.

The judge found the former officials guilty of renewing three licenses to SouthGobi Sands LLC and

transferring a license for a territory of 72,499 hectares of land in Umnugobi with a reported 42.9

million tons of coal to a company run by friends. Batkhuyag was sentenced to 6 1/2 years in prison

and has been barred from ever working in public work for three years.

The government has revoked 107 licenses related to the case.

Source: Udriin Sonin

PARLIAMENT NO LONGER TO PURSUE PRIVATIZATION OF MIAT

Parliament has decided not to move forward with a motion to privatize MIAT Mongolian Airlines

following the recent embezzling scheme allegedly perpetuated by the company's management.

During the discussion of the company, Parliament approved motions to double flight frequency and

the number of routes by 2016 and to focus on making Mongolia a transit destination between Russia

and China. They also approved the motion for special flight services for use by government

officials, to begin in 2014. Parliament hopes for the new airport now being planned at Zuun Mod

Soum will become a central destination point for north Asian flight passengers and freight.

Legislators have dropped the proposition of privatizing the state-owned airline, however, given the

recent scandal where upper management stole millions.

Source: Zuunii Medee

MP GANBAATAR SUBMITS NEW LABOR LAW

MP S. Ganbaatar said a revised Labor Law is ready for submission for the spring session of

Parliament.

―The market economy has many side effects for people and nature. The Labor Law in part protects

them.‖

Ganbaatar noted the thousands of young people looking for work in the private sector and the

growing disparity between rich and poor in Mongolia. He specifically pointed to Oyu Tolgoi LLC,

saying the gap between a Mongolian and foreign worker was huge. He said while a Mongolia worker

might take USD 1,500, a foreign worker might take USD 30,000 for the same task.

―This unfair treatment should not exist and we will demand a change,‖ he said.

The new law would give workers the right to negotiate and create mutual labor contracts. He cited

the case of his sister, S. Gantuya, who is suing Oyu Tolgoi for worker discrimination for this reason.

He further remarked that the Mongolian Labor Union could win 93 percent of the cases where

workers had been illegally fired.

Source: Zuunii Medee

BILL ALLOWS CITIZENS TO SUBMIT DRAFT LEGISLATION TO PARLIAMENT

MP J. Batzandan has initiated a bill that would permit citizens to submit bills to Parliament.

―Citizens write draft bills about their social issues. However, government officials do not accept

them because they hurt officials' interests.‖

The bill would allow a citizen to submit any legislation that is able to gather 100,000 signatures in

support to Parliament from 13 of Mongolia's 21 provinces.

Source: Udriin Sonin

PARLIAMENT'S FALL SESSION CONCLUDES FRIDAY

A spokesperson of Parliament said the Autumn Plenary Session would conclude on 8 February.

D. Enkhtuya, the head of Parliament‘s press and public relations department, recounted the

approved motions during the last session of Parliament, including the formation of the Mining

Development Acting Committee, ambassador appointments, and approval for appointments to the

National Human Rights Commission.

Parliament Speaker Z. Enkhbold is expected to deliver a closing speech summarizing Parliament's

achievements in the new government's first session and issues scheduled for the Spring Plenary

Session.

Source: Info Mongolia

MONGOLIA BANS PERCENTAGE OF ACETIC ACID IN FOODS

The government has added acetic acid to its list of prohibited chemicals for use in Mongolia.

The Ministry of Environment and Green Development and Ministry of Health announced a ban on the

use of more than 25 percent concentrate acetic acid of up to 500 milliliters for food consumption

beginning 1 January 2013. According to a report by the World Health Organization (WHO), food

poisoning and chemical misuse is a major cause for health disorders among the world population.

Deaths from acute food poisoning and the misuse of chemicals have increased in Mongolia. Acute

poisoning from chemicals is listed as the fifth-highest reason for death in the country.

The misuse of acetic acid with concentrates of 50 to 80 percent is reportedly most frequently

related to incidents. It is also often used as a means for committing suicide. A total of 4,436

incidents of chemical poisoning were registered at the Emergency Center between 2003 and 2011.

Over 5011 of those incidents were caused by acetic acid acute poisoning. Every year 50 to 60

people suffer from acetic acid poisoning and three to nine die because of it. A total of 479 children

were brought to the Center for Maternal and Child Health over the last decade.

Source: News.mn

GOVERNMENT OFFICIALS TRAVEL TO RUSSIA TO INQUIRE ON PRICE HIKES

The deputy minister of mining and other state officials visited Russia to discuss the recent rises in

fuel prices in Russia.

Mongolian officials met with members of Russia's Ministry of Russia and oil importer Rosneft to

discuss Russia's decision to increasing the export tax to Mongolia, while taxes on exports elsewhere

have fallen by up to 40 percent over the past four months. According to statistics from the Central

Bank of Russia, Rosneft's price for fuel to Mongolia is USD 300 more than to other countries.

Officials hope to find an explanation for Russia‘s decision to target Mongolia for higher prices,

renegotiate its agreement with Russia on the purchase of fuel products and stabilize price for the

next six months, and to purchase two million tons of crude oil for Mongolia's planned oil refinery in

Darkhan.

Source: News.mn

FOREIGN MINISTRY DENIES RUMORED OF SOLD EMBASSY PROPERTY IN MOSCOW

A Foreign Affairs Ministry official denied reports that Mongolia's embassy building in Moscow had

been sold.

―The building still belongs to Mongolia. It has not been sold,‖ said B. Mandakhbayar, director of the

Department of Law and Treaty. He said, ―The Mongolian Embassy to Russia owns a number of

properties in Moscow. The building that is claimed to be sold was formerly the Trade Mission house

whose current address at Spasoleskovskii Pereulok 7/1 is being rented for 10 years with permission

from the Ministry of Foreign Affairs of Mongolia and State Property Committee in 2007 to 2008.‖

A rumor that the Mongolian Embassy in Moscow might have been sold spread just days after names

of the new ambassadors from Mongolia to other countries have been approved by Parliament

according to local newspaper Mongol News.

The newspaper said the 10-story building of the Mongolian Embassy in Moscow might have been sold

to Chechnya. An unconfirmed source said that the former Ambassador L. Khangai sold the embassy

building during his term from 2005 to 2009.

The former ambassador, diplomats and their families used to stay at the Embassy building II.

Mongolian Embassy building II is located at the center of Moscow near to the U.S. Embassy.

Mongolia used to own the whole building, but now the Mongolian Consulate occupies only a few

offices in the building.

Mandakhbayar added that the move to rent the property was legal by under both countries' laws,

and the decision was made because of the small number of diplomats operating there.

Source: News.mn

SOUTHGOBI SANDS PRESIDENT CALLS FOR HELP FROM U.S.

SouthGobi Sands LLC's president has asked for help from the congressional delegation in his home

state of Minnesota with an exit ban imposed on him by the Mongolian government.

Justin Kapla, who is also executive director at SouthGobi Sands and a board member of the Business

Council of Mongolia, asked delegation members for assistance in lifting his travel ban, which he said

was imposed because investigators considered him a witness in a corruption investigation of

government officials involving the transfer of some of his company's minerals exploration licenses.

―They're all working on it. All three of their offices are great,‖ said Justin's father, William Kapla,

speaking of the assistance U.S. government offices had provided. He also said the U.S. Embassy has

been talking to Mongolian officials.

Kapla wrote that the events in question happened well before he went to work for SouthGobi

Sands. He said the Mongolian agency conducting the investigation, the Independent Authority

Against Corruption (IAAC), has acknowledged that but told him he could not leave because it would

need to hold someone responsible if the investigation finds any wrongdoing by the company.

Kapla, 39, grew up in Elk River, Minneapolis, is married to a Mongolian woman and has two

children, all of whom are with him. He is reportedly free to work and move around Mongolia but

cannot leave.

Last year, following a strong reaction from government opposing the proposed takeover of parent

company SouthGobi Resources Ltd. by Aluminum Corp. of China Ltd. (Chalco), the government's

Mineral Resources Authority (MRA) and its former chairman, D. Batkhuyag, an advisor to a former

prime minister whose party lost power in the June election. Batkhuyag was accused of bribery and

other corruption, and convicted this week and sentenced to six and a half years in prison. Among

Batkhuyag's misdeeds, the authority alleged, were dealings with SouthGobi Sands. Five of the

company's licenses were to have been suspended because the company failed to spend sufficient

funds exploring the areas, but instead Batkhuyag's office returned most of the licenses to SouthGobi

and transferred one to a private Mongolian company controlled by friends.

Kapla's case was first reported by Jon Springer, a freelance journalist and financial blogger.

Source: Associated Press

67-YEAR OLD MONGOLIAN WOMAN SENTENCED TO DEATH IN CHINA FOR DRUG SMUGGLING

A 67-year old Mongolian woman was sentenced to death for attempting to smuggle an undisclosed

amount of marijuana and drugs in China.

The woman claimed she was carrying two bags for another person who asked her to do so at

customs at the airport when she was arrested by Chinese custom officials last December.

―I was not aware that the bag contained marijuana and drugs. I was used as a victim for

smuggling,‖ she said.

The convicted woman first traveled to Beijing for the 2008 Olympic Games and visit many times

afterwards for business, she said.

The judge sentenced the woman to death under the belief she was involved with a drug smuggling

ring. The Mongolian Consulate in China has contacted her family to inform them of the news.

Source: News.mn

MONGOLIA DOESN‟T HAVE RESOURCE NATIONALISM – FOR NOW

With the increased level of interest the world has taken in Mongolia, given its blistering economic

growth rate, resource nationalism is mentioned more and more often as a threat. But lumping

different streams of slogans and platforms together into a single category suggests there is a

coherent ideology that unites them. This is not the case.

Mineral resources in Mongolia are afforded constitutional protection. Although this is not an unusual

attitude, Mongolia's mineral boom is often portrayed abroad as a Hugo Chavez-like nationalism that

ignores the important role that foreign investors can play and should play in maximizing benefits to

local populations. At present, there is no political movement or anti-mining party that espouses a

coherent ideology of autarky on the basis of the exploitation of natural resources in Mongolia. A

massive flow of in-bound investment gives Mongolian decision makers very little time and

opportunity for reasoned and careful choices.

Mongolia was hurt in the 1990s by the shock therapy policies advised by international institutions.

Amplified by the effects of calamitous winters that followed, most Mongolians concluded that

following international advice provided them with few benefits. After 2005, the prospect of

development on the basis of mineral wealth suddenly emerged as tantalizing possibility.

Mongolians are now clamoring for immediate benefits, partly rooted in promises that politicians

echoed on the basis of foreign investor claims. Mongolian decision makers, by contrast, have

neither the information nor the experience on which to base crucial decisions. It is easy for

opposition politicians and even members of the government to claim that the Oyu Tolgoi agreement

benefits foreign investors more than Mongolians. These voices do not offer specific alternative

arrangements other than to demand a greater share in ownership, but their claims are not rooted in

any kind of consistent resource nationalism.

Threats by foreign investors, including the currently rumored threat by Rio Tinto to suspend

operations, are more likely to give rise to true resource nationalism than to force populist

politicians to abandon their ad-hoc positions and statements.

Julian Dierkes is an associate professor at the University of British Columbia's Institute of Asian

Research.

Source: Financial Times

CHINA, MONGOLIA SEEK TO MEND TRADE DIFFERENCES

The kabuki-style dance of trade partners Mongolia and China began again in earnest when on 15

January the third meeting of the Mongolia-China Cooperation Commission on Mineral Resources and

Energy met in Ulaanbaatar.

Although China and Mongolia see great benefits in continuing their vibrant trade in minerals, each

side has a different vision on how to proceed. This has led to a tense relationship that often,

mistakenly, is described by global financial commentators as resource nationalist sentiment in

Parliament and the populace.

Two of the prime goals of the Mongolian side during the consultations were to renegotiate upwards

the prices the Chinese pay for Mongolian raw minerals and lessen transit tariffs for Mongolian

shipments destined for third nations such as South Korea and Japan.

Mongolia raised the issue of China‘s mining operations failing to obey Mongolian environmental and

safety laws. They demanded the employment of more Mongolian workers and discussed plans for

construction of mineral processing plants in Mongolia. China pressed for more stability in the legal

environment for bilateral trade and foreign investment. Zhang also suggested that their countries

focus on developing large mining projects and constructing railway and coal transport border

infrastructure.

The Chinese government has been very circumspect in commenting on recent trade disputes with

Mongolia. This is far different from the 1990s when rail freight traffic often was severed to punish

Mongolian actions or influence decision making. This change in strategy may reflect the realization

that a hard-line approach with Mongolia was counterproductive and that Inner Mongolian factories

have become more dependent on Mongolian minerals.

The visit by Wu Banggu, chairman of the Standing Committee of the National People's Congress, is

another sign that Sino-Mongolian relations will continue to be played out in Asia at the very highest

level as 2013 progresses. The lack of clarity of how bilateral mineral trade will proceed, however,

reflects both Mongolian domestic political sensitivity over Chinese predominance among foreign

investors and a growing Mongolian desire to develop mineral deposits more slowly under their own

auspices.

Author Alicia Campi has a PhD in Mongolian Studies, was involved in the preliminary negotiations

to establish bilateral relations in the 1980s, and served as a diplomat in Ulaanbaatar. She has a

Mongolian consultancy company (US-Mongolia Advisory Group), and writes and speaks extensively

on Mongolian issues.

Source: Asia Times

AT ODDS WITH MONGOLIA‟S MODERNITY, A POET SEEKS ANOTHER WAY

G. Mend-Ooyo is considered Mongolia''s poet laureate, and an important figure in the fight to retain

its traditional culture. As the fast-growing economy puts its modernization into overdrive and draws

its population away from its nomadic roots, he has his work cut out for him.

―It is a big shame for us that the country is so focused on mining, to the detriment of herders and

the traditional ways of life,‖ said Mend-Ooyo, sitting behind his cluttered desk in an old Soviet

building in Ulaanbaatar. ―It's really difficult to bring back lost culture once it's gone.‖

Born into a nomadic family, in youth he moved across the steppe. Herding goats and sheep

throughout the day and listening to his elders play traditional music on horse-head fiddles at night.

Riding horses since the age of three, Mend-Ooyo grew up when Mongolia was under Russian control.

His father taught him the indigenous Mongolia script by drawing it in the snow that fell outside

their ger during the long winter months. The family prayed nightly in secret, hiding their Buddhist

statues in a box during the day.

In the 1970s, Mend-Ooyo moved to Ulaanbaatar for university and formed the underground literary

group Fire, and in the 1980s he published some of his poetry after it was vetted by officials. When

single-party communist rule ended in 1990, he began publishing more of his work, including the

writing that espoused his pastoral roots and eventually became his best-known poems.

Mend-Ooyo is now channeling his energy into rethinking the modern Mongolian way of life. He

envisions a 21st-century nomadic community in which schools, health care, and markets move with

the people, allowing them to maintain their mobility while providing some of the benefits of

contemporary society. He is starting small, beginning in his home province some 600 kilometers

from Ulaanbaatar where he writes in the summer and where much of his family still lives and herds.

There, he is discussing his plans with others in the community, as well as experts who can advise on

ways to realize it.

―It is my dream to build it,‖ he said.

Source: Wall Street Journal

_______________________________________________________________________________________________

NEW MONGOLIAN LAWS

The following laws, amendments and addenda to laws were published in the latest weekly Government bulletin. Unless otherwise decided by Parliament, they will take effect ten (10) days

after publication.

Date Laws

01.02.2013 Law on Bank Deposit Insurance

Amendments and Addendum to Law on Central Bank /Mongolbank/

Amendments and Addendum to Law on Bank

Amendments and Addendum to Law on Citizen

Amendments and Addendum to Law on Insurance

Amendments and Addendum to Law on Corporate Income Taxation

Amendments to Law on Government and Local Property

Law on Abiding the Package of Laws on Justice

Amendments and Addendum to Law on Mongolian Justice

Amendments and Addendum to Law on Judicial Administration

Amendments and Addendum to Law on Judge's Legal Situation

Amendments and Addendum to Law on Reconciliation

Amendments to Law on Legal Situation of Judicial Citizen's Representative

Amendments and Addendum to Law on Lawyer's Legal Situation

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

members who wish to access complete versions of the laws and regulations in Mongolian language

are welcome to email the BCM office: info@bcmongolia.org.

ANNOUNCEMENTS

“COAL MONGOLIA-2013” THE THIRD COAL INVESTOR‟S INTERNATIONAL CONFERENCE AND

EXHIBITION AGENDA IS NOW AVAILABLE

Organized by Ministry of Mining and Mining.mn the third Coal Mongolia 2013 international

conference and exhibition will be held from 21-22 February at the SS Convention Center.

At this time conference programmed seven parts.

Part 1 is ―COAL MARKET AND MONGOLIA‘S COMPETITIVENESS‖

Part 2 is ―MONGOLIAN BUSINESS ENVIRONMENT FOR COAL MINERS‖

Part 3 is ―COAL MARKET OUTLOOK‖

Part 4 is ―ENVIRONMENT AND SOCIAL ISSUES-HOW MONGOLIA EFFECTED BY COAL MINING‖

Part 5 is ―COAL MINING INFRASTRUCTURE-BRINGING BEST PRACTICE‖

Part 6 is ―INVESTMENT PROJECTS AND NEW TECHNOLOGIES‖

Part 7 is ―SECTOR LEADER DISCUSSIONS‖

And also conference featured speakers and panelists from the mining sector leaders. Such as:

GANKHUYAG Davaajav, Minister of Mining,

OYUN Sanjaasuren, Minister of Environment and Green Environment

BATTSENGEL Gotov, CEO and Executive Director of Mongolian Mining Corporation

NARANBAATAR Lundeg, President of Glogex Holding.

As usual, BCM is supporting this event and members will get a 10% discount for registration.

Please contact Saruul at saruul@bcmongolia.org or 317027 to get a special discount code.

And download the agenda, log on http://www.coalmongolia.mn/index.php/conferene/download-

agenda Contact us: Tel: 976+70115590; Email: info@coalmongolia.mn.

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MINER & SUPPLIER CONFERENCE, 14-15 MARCH, ULAANBAATAR

The Third Annual Miner & Supplier Conference will be held at Chinggis Khan Hotel from 14 to 15

March. BCM members will receive a 10 percent discount for registration.

This year the forum will be organized under the slogan ―Maximizing Mining Capabilities with

Effective Procurement Strategies.‖ It several goals include improving contributions to society and

the national economy, promoting environmentally friendly products and technology and increasing

business coherence between suppliers and mining businessmen.

Contact Saruul at saruul@bcmongolia.org or at 317027 for a special discount code. For more

information visit minerandsupplier.com.

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MINES AND MONEY HONG KONG, 18-22 MARCH

Mines and Money Hong Kong is where mining companies from around the world come to raise

capital in Asia and meet with investors from Hong Kong and mainland China.

Cementing its position as a major fixture on the global mining investment circuit, Mines and Money

Hong Kong 2013 will bring together over 3500 institutional investors, mining entrepreneurs, brokers

and investment analysts for five days of high-value networking, investment analysis and deal-

making, from 18-22 March.

Click here to read delegate feedback on the 2012 event and learn why the industry views Mines and

Money Hong Kong as a ―must-attend‖ event.

The exhibition floorplan for Mines and Money Hong Kong 2013 is already filling up fast – click here

to see the list of mining companies already signed up to showcase their projects and investment

opportunities at the event.

Bringing together more investors and investment opportunities than ever before, Mines and Money

Hong Kong 2013 is an event you will benefit from attending.

What‟s new in 2013?

Enhanced pre-event networking to facilitate meeting arrangement

More in-show meeting rooms to facilitate one-2-one meetings onsite – (sold out in 2012)

Extended exhibition to provide space for 320+ mining companies to showcase their projects and

growth prospects – (sold out in 2012)

Larger venue for the black tie Mines and Money Hong Kong 2013 Asia Mining Awards Gala Dinner –

(sold out in 2012)

Dedicated investor invitation team to ensure maximum investor attendance

Mines and Money Hong Kong will also provide…

A high-level conference covering the most relevant topics for your business

Leading international speakers from across the mining and investment sectors

Project spotlight presentations showcasing a wide array of mining investment opportunities

Superb networking opportunities with decision-makers at the highest level

A bustling exhibition offering business opportunities at every turn

The largest gathering of investors focused on the mining sector in the Asia-Pacific region

As usual, BCM is supporting this event and members will get 15% discount for registration.

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MONGOLIA INVESTMENT SUMMIT 2013, APRIL 16-18, LONDON

Business Council of Mongolia members are invited to attend the Mongolia Investment Summit

London 2013 and receive a 15 percent discount on their registration fee.

With significant amounts of investment in Mongolia traditionally coming from Asia there are new

opportunities to be explored in the Western Hemisphere. Investor interest is high from the west and

fund managers, private investors and financiers want to gain exposure to Mongolian growth.

Mongolia Investment Summit London in April will provide an important opportunity to meet these

investors, raise the profile of Mongolia and promote your business.

The event provides an excellent opportunity to meet with major investors, mining groups,

government officials and real estate specialists to identify new business partners. At the event, the

views on the country will be discussed by investors from companies such as Barclays Natural

Resource Investments, HSBC Global Asset Management, Collabrium Capital and more. The event

provides an opportunity not to be missed.

Enter the discount code “Business-Council-Mongolia-Special” when you register to receive the

early bird discount plus an additional 15percent off.

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THIRD ANNUAL RISK FORUM, 1 MAY, ULAANBAATAR

The third annual Risk Forum of Mongolia will be held on 1 May 2013 in Ulaanbaatar.

This is the largest risk event in Mongolia, co-organized by the Business Council of Mongolia and

Mandal General Insurance. The Risk Forum will provide the most comprehensive overview of risks

that Mongolia faces today and the status of risk management all under one roof. Risk management

techniques and tools will be shared and best practices promoted across industries.

Last year, the event had attracted over 250 representatives of Mongolia's top corporations and

government agencies and resulted in the formation of Risk Institute of Mongolia. This year, the

expert speakers will be address topics concerning Macro Risks, Business Risks, and Community Risks.

For more information, visit RiskForum.mn.

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“MM TODAY” on MNB-TV, Friday‟s at 18:50

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 from 18:50 to 19:00 tonight. Tune in to watch this program that reports stories from

today‘s BCM NewsWire.

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BCM‟S MINING SUPPLY CHAIN DATABASE

The new version of BCM‘s Mining Supply Chain Database is in use. Following the initiative of Oyu

Tolgoi LLC, the BCM has maintained the Mining Supply Chain Database since March 2009. It is an

honor to introduce you to the new version of the database which is totally upgraded as to its

content and use of information technology opportunities.

As of December 31, suppliers registered on the database totaled 1,405. During 2012, 251 new

supplier entities joined the Database and 236 prior supplier registrants updated their company

profiles. In addition, 22 buyers were also registered and 82 tender announcements were posted.

We are inviting all Mongolian mining suppliers and buyer companies to join the Mining Supply Chain

Database. Please visit here for registration—FREE!

If you have any questions regarding the database, please contact Undral at undral@bcmongolia.org

or 317027.

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BCM WEBSITES

MONGOLIAN WEBSITE „PRESENTATIONS‟ AND „NEWS‟ SECTIONS

The ‗Presentations‘ section on BCM‘s Mongolian website can be reached via bcm.mn/itgeluud.

As a key component of BCM‘s Mongolian website, articles from the ‗News‘ section and the

government website Open-Government.mn are regularly updated.

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ENGLISH WEBSITE: 'PRESENTATIONS', 'MONGOLIA REPORTS', „MONGOLIAN BUSINESS NEWS‟,

„PHOTO GALLERY‟

On BCM‘s English website, the ―Resources‖ and ―Presentations‖ sections are available.

Note the presentation by Bold Baatar, CEO of Altan Dornod Mongol, “Mongolian Mining

Investment Environment” at the Mining Industry Open Discussion on February 1, 2013, at

Kempinski Khan Palace Hotel.

The following 3 presentations were added from the BCM 28 January monthly meeting:

Dr. Katsuhide Nagayama, JICA Team Leader, JICA Project Team – ―The UB-Metro toward a

world competitive city - Ulaanbaatar‖

Chris Adsett, Chief Executive Officer, Techenomics Mongolia – ―Importance of Oil Analysis to

Industry‖

Mandar Jayawant, Managing Director, Mongolian Opportunities Fund – ―The Value of Private Equity for Mongolian Companies‖

Please also note 25 presentations from the Mongolian Investment Summit 2012 on 30-31 October in

Hong Kong; recent postings from BCM‘s 11 December, 5 November and 24 September monthly

meetings; and 9 presentations from Discover Mongolia 2012.

The ―Mongolia Reports‖ section includes the ―2013 Mongolia Investment Climate Statement‖ by the

Economic and Commercial Section of the U.S. Embassy; ―How Mongolia will perform in 2013?‖ by

Mandal Asset Management; ―Mongolia Business Owner and CFO Survey result‖ by BDSec JSC; ―The

fiscal regime for mining - a way forward‖ by IMF Fiscal Affairs Department; ―Mongolia-a

supplement to Mining Journal‖ from Mining Journal October, 2012; ―Macro Overview‖ September,

2012 by EPCRC; ―Taxes for Expatriates in Mongolia‖ from PricewaterhouseCoopers.

BCM's English website includes the ―Mongolia Business News‖ section where the Open Letter to

Parliament and Government is available for download.

BCM continuously posts news stories and analysis of relevance to Mongolia at ‗Mongolian Business

News‖ before they are all put together each week for Friday's weekly NewsWire.

The ―Photo Gallery‖ contains photos from the 5th Anniversary BCM Gala dinner on November 5.

The BCM NewsWire will continue to be issued each Friday, incorporating items already on the home

page for a consolidated account of the week‘s events.

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SOCIAL NETWORK WITH BCM

The Business Council of Mongolia (BCM) has expanded its reach to your favorite social networks.

Keep up to date on the latest business deals in Mongolia and how the climate for investment is

improving each day with BCM.

Connect with BCM on Linked-in to join the diverse group of professional contacts creating a better

business environment in Mongolia today.

Add BCM on Facebook at http://www.facebook.com/pages/THE-BUSINESS-COUNCIL-OF-

MONGOLIA/129826330435540 to read the latest announcements and comment on events carried in

the NewsWire with the community.

Hear breaking news and announcements as they happen when you follow BCM on Twitter at

http://twitter.com/#!/bcMongolia.

We have now 922 fans on our Facebook fans page, 1,090 connections on LinkedIn network, and 593

followers on Twitter.

Of course for news information, interviews, event photos, and announcements regarding our

organization, visit the official BCM website at www.bcmongolia.org and www.bcm.mn.

__________________________________________________________

BCM WORKING GROUP MEETINGS

The BCM Education Working Group met on Tuesday, February 5, with 11 members attending.

Saha Meyanathan/DAS/, Robin Charpentier/AUM/ moderated the session.

New Member: Mitsuaki Toyoda, Gereltuya Tsegmid /Save the Children/was welcomed. Speakers and topics were:

-Government Plan in the Higher Education Sector.

Baterdene R. /Chair, Ministry of Education Working Group on Higher Education; CEO, American

University of Mongolia.

-Update of American University of Mongolia activities-

Ms Robin Charpentier / Director, Academic Programs, American University of Mongolia/

-BCM Resource Pool of Consultants in Higher Education-

Ms Robin Charpentier./Director, Academic programs, American University Mongolia/

-Update on TVET Partner Consultative Committee Meetings-Dr Kern Von Hagen /Manager,

Pipeline Talent OT/

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The BCM Capital Markets Working Group met on Thursday, February 7, with 12 members attending.

Howard Lambert /ING Bank/, Nick Cousyn /BDSec/ co-chairs, moderated the session.

New Member: Dale Choi /Origo/ was welcomed. Speakers and topics were:

-Road show in USA. -Nick Cousyn /BCSec, Chief Operating Officer/

-MoF bond auctions that are managed by the Central Bank.-Howard Lambert /Head of

Corporate and Investment Banking, ING Bank Mongolia/

-Update on draft Minerals Law -Jim Dwyer /Executive Director, Business Council of

Mongolia/

Next meeting: 11th of April 2013 at BPI meeting room 12th floor Express Tower

Please contact: erka@bcmongolia.org

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ECONOMIC INDICATORS

INFLATION Year 2006 6.0% [source: National Statistical Office of Mongolia (NSOM)] Year 2007 *15.1% [source: NSOM] Year 2008 *22.1% [source: NSOM] Year 2009 *4.2% [source: NSOM] Year 2010 *13.0% [source: NSOM] Year 2011 *10.2% [source: NSOM] December 31, 2012 *14.0% [source: NSOM] *Year-over-year (y-o-y), nationwide Note: 14.2% y-o-y, Ulaanbaatar city, December 31, 2012 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] May 12, 2010 11.00% [source: IMF] April 28, 2011 11.50% [source: IMF] August 25, 2011 11.75% [source: IMF] October 25, 2011 12.25% [source: IMF] March 19, 2012 12.75% [source: Mongol Bank]

April 18, 2012 13.25% [source: Mongol Bank]

January 25, 2013 12.50% [source: Mongol Bank]

CURRENCY RATES – February 7, 2013

Currency Name Currency Rate

US dollar USD 1,391.63

Euro EUR 1,882.81

Japanese yen JPY 14.84

British pound GBP 2,179.78

Hong Kong dollar HKD 179.60

Chinese Yuan CNY 223.24

Russian Ruble RUB 46.32

South Korean won KRW 1.28

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.