BUSINESS COUNCIL of MONGOLIA NewsWire

www.bcmongolia.org info@bcmongolia.org

YearEnder Issue – December 27, 2013

The Business Council of Mongolia wishes its members and all readers of the Newswire a

healthy, happy and prosperous New Year!

2013 – The Year that Was...

This year-ending issue comprises eight broad sections containing articles from the passing year's

previous issues of BCM's NewsWire which unfold the chain of events that lead to today's state of

affairs. This is a chronological compilation of reports as they appeared, not a summary or post

analysis. Readers should bear in mind that the issues each week collect reports from various media

sources, and these reports, especially those in the Mongolian media, can often be distressingly

vague or tantalizingly incomplete. We give them as they were published, recording how events

developed. This issue is meant to be used as a primary source document, not organized history. The

items appear here as they did originally. The issue number and the source are given for those

seeking further information.

I. BCM MEETING RECAP

BCM in 2013

January

Issue 259

The meeting on 28 January with B Byambasaikhan in the chair for the first time was attended by

125 150 members and invited guests.

BCM membership now stands at 231 members, up 48 from 183 members a year ago. The 14 recently

joined members are:

1. Global Ideas is an architecture and construction company based in Ulaanbaatar. It provides a

wide array of services, from design and planning services, to tailored construction and renovation

services to foreign and local clients alike. Its goal is to provide better quality housing to the people

of Mongolia.

2. Golder Associates, established in 1960, is a global, employee-owned company driven the purpose

to engineer earth‘s development while preserving earth‘s integrity. From over 180 offices

worldwide, its more than 8,000 employees help its clients find solutions to the challenges society

faces today including extraction of finite resources, energy and water supply and management,

waste management, urbanization, and climate change.

3. Grata Law Firm, founded in 1992, is one of the leading professional law firms in Central Asia

including Mongolia. It provides full services in Mongolian laws and is engaged in the international

practices of commercial and business law.

The office opened in 2011 and is one of the first truly full-service international law firms in

Ulaanbaatar, Mongolia.

4. Interconsulting LLC is a professional consulting company which is uniquely positioned between

the development project consulting and traditional market research, investment advisory and

management consultancy services.

They are specialists in Mongolia strategy and advise foreign companies, international development

organizations, government and non-government institutions on development projects

implementation and Mongolia investment strategies.

5. ISG Mine Elect has concentrated on establishing successful alliances with clients and suppliers

throughout Australia. Now based in Australia and Mongolia we poised to deliver outstanding services

to our existing and new clients.

The Infrastructure Services Group (ISG) of companies provides complete ―turn-key‖ infrastructure

solutions to all areas of Industry. With ISG Holdings providing streamlined cost effective

administrative, quality and safety systems to its subsidiary companies.

6. Lehman Bush offers a broad range of accounting, tax, payroll and corporate services to clients

seeking to enter Mongolia‘s thriving business market. It provides high value added consulting

support for companies with initial and second stage development programs in Asia and abroad,

ranging from investment in manufacturing, mining, minerals, governmental relations, to the

development of sales distribution and logistics.

In Ulaanbaatar, Lehman Bush offers a broad range of accounting, tax, payroll and corporate services

to clients seeking to enter Mongolia‘s thriving business market.

7. Mining National Operator (MNO) is a privately invested national mining company founded in 2010.

Its operational fields include mining operations (mine planning and mining), consulting (project

start-up, process of mining operation, etc), project estimation (long, medium and short term mine

planning), project management(management contract), environment management (assessment and

planning), contract mining (overburden removal and mineral resource mining contract works, pre-

striping waste), construction of infrastructure (paved road construction, gravel dam of the road,

gravel dam of the railway), construction of water pond facility (construction of plant tailings dam

and reservoir ponds), reclamation work (technical and biological reclamation for disturbed land),

and mine closure plans & execution.

8. Monroad LLC is the leading Mongolian road, bridge construction and road maintenance company,

established on 24 November 2001. It has grown into a highly respected regional contractor by

utilizing the most current innovations in construction technology and employing a highly skilled

workforce of operating engineers and field support personnel.

9. New Logistics LLC is a group of skilled and experienced professionals who combine an

understanding of effective logistics systems with local experience and awareness of the operating

environment, thereby being able to deliver the following services to our customers.

They aim to deliver an outcome that maximizes its contribution to client‘s objectives and go

beyond expectations with a view to creating value to the client.

10. Origo Partners MGL is a member of the China-focused private equity investment company,

Origo. It specializes in permanent capital and fund management. It has experienced local managers

backed by a blue-chip base of shareholders

Its key portfolio assets include Gobi Coal & Energy; Celadon Mining; R.M. Williams; China Rice;

Unipower Batteries, and NiuTech Energy.

11. Save the Children (Japan) in Mongolia is one of the world's leading independent organizations

for children. Its vision is a world in which every child attains the right to survival, protection,

development and participation. Its mission is to inspire breakthroughs in the way the world treats

children, and to achieve immediate and lasting change in their lives.

Save the Children started operating in Mongolia in 1994. And now has funding of approximately USD

4 million dollars for the wellbeing of children in Mongolia.

12. Sumitomo Corporation Ulaanbaatar Representative Office engages in multifaceted business

activities benefiting from its integrated corporate strength, selling a variety of domestic products

and services, conducting import-export and trilateral business transactions, providing domestic and

international business investment, and participating in numerous other profitable activities

facilitated by our global network and the relationships of trust.

It opened in Mongolia in 1992 and now has 5 local staff focused on investment and gathering

information. Its investments in Mongolia are Mobicom Corp. and Transwest Mongolia.

13. Summit strives to become the best and top company among other players in information

technology and a permanent partner to its customers by persistently meeting their needs in

addition to introducing and delivering high quality products and service to our customers.

14. Worley Parsons Mongolia service capabilities cover the entire asset lifecycle: from identifying

the opportunity to the operating phase. WorleyParsons extensive experience ensures that we

provide project solutions with the lowest total lifecycle cost while meeting each customer‘s specific

requirements.

WorleyParsons‘ scope of work will be delivered from its Brisbane office with support from its other

offices in China and Ulaanbaatar.

N. Algaa, Executive Director of the Mongolian National Mining Association, presented first for the

evening, providing his thoughts on the recently released draft Minerals Law from the Office of the

President.

He discussed the importance in providing provisions in the law concerning the ownership of mineral

deposit reserves, the bureaucracy for licensing, and the transferring of rights for licensing. Algaa

was also quick to point out that Mongolian companies would not go unscathed, as investors would

likely be leery about investing in any company that must operate under such conditions. He said

that developing the law that was most beneficial would take a cooperative act between all

stakeholders.

―Today Mongolia needs consensus between government and the private sector. Without consensus,

we cannot grow.‖

Algaa said there was still time for the private sector to help change the law for the better, echoing

the words of P. Tsagaan, the Chief of Staff of the Office of the President, who said ―there should be

no rush to pass the law and it should not be used as a political device for candidates to campaign on

in the upcoming presidential election.‖

―Instead of just saying it's a bad law, we should seek out alternative provisions. We set up our

working group to find those alternative provisions.‖

The next speaker was Jay Liotta of the law firm MahoneyLiotta LLC. He brought to the audience's

attention two pieces of legislation recently passed by Parliament that would restrict the

professional abilities of lawyers and auditors in Mongolia.

―Today auditors and law firms can no longer give tax advice,‖ said Liotta explaining the effects of

the Law on Auditing and Tax Advisory.

According to Liotta, the law, which passed early this month and took effect 28 January,

restructures the auditing and tax advisory professions. Auditing firms are given three months to

restructure and establish tax consulting firms with five licensed tax advisors. He stressed it was how

quickly companies were expected to implement the changes that was the crux of the issue.

Although the second law passed, the Law on Lawyers was originally scheduled for 1 January 2014,

the date had been pushed forward to 15 April, again giving very little time for companies to

implement the changes asked for in the law. The law also provided very little clarity on how

lawyers could operate and what the actual licensing requirements were. He speculated that even

the Mongolian attorneys that had practiced for decades would no longer be able to operate as they

had been after the law takes effect.

―We're really trying to understand how the legislation is going to work and how it will be

implemented. As we saw with the draft Minerals Law and the Strategic Entities Foreign Investment

Law, we're curious on the social and economic impact assessments,‖ Liotta said. He added, ―If I try

and take a perspective of what's going on in Mongolia... I think part of it can be viewed as reform...

From another perspective, with some of the extremes in it, I guess it looks like legislative chaos.‖

Katsuhide Nagayama, Japan International Cooperation Agency (JICA) team leader of the JICA

Project Team, spoke next to present plans for developing Ulaanbaatar's public transportation

network with a metro system.

The JICA team had first submitted its master plan in 2009, targeting a completion date of 2030 for

the entire project. Nagayama said his team hoped to complete the first phase by 2020, with

operations transport to begin that year. The basic plan structure revolves around developing an

east-west metro line in Ulaanbaatar. Also included would be a north-south line, to be developed by

the Asian Development Bank (ADB). In total the metro network would include three east-west lines,

one north-south lines, and seven subordinate lines. Stations would include the Ulaanbaatar city

center, the now-under-development Zuunmod International Airport, Nalaikh Soum, the Tolgoit

logistics park, and the Bagakhangai agro-industrial center.

―After completion of the bypass for freight railway, the UB railway will provide a metropolitan

commuter rail service exclusively for passengers,‖ reads one of the slides in his presentation.

The plan calls for a public-private partnership with USD 200 million of investment from a private

partner firm and USD 1.5 billion from the government. The government and private firm could then

establish a public-private joint company to rent the infrastructure for use.

―This is a dream project but not really just a dream because with the economy blowing up from

investment into Mongolia's mineral sector, this city will be a hub of activity. In that city, this metro

is necessary.‖

Chris Adsett, Chief Executive Officer, Techenomics Mongolia, spoke next on the importance of oil

analysis to industry. Adsett said his company tailors itself to the Mongolian market, offering a range

of services. He explained that oil analysis was important, as it could help save companies money,

improve operating performance, and lower the frequency of unscheduled maintenance.

―If at the beginning, the lubricant stays clean from the start and cleanliness is maintained, the crew

can extend the life quite dramatically of compartments and lubricants.‖

Going forwards, Adsett said Techenomics aimed to provide companies with its fully-commissioned

monitoring services with regional labs—including one in Tsogtsettsii Soum, Umnugobi Aimag—

filtration units for oil refurbishing, and vibration analysis.

Mandar Jayawant, Managing Director of the Mongolian Opportunities Fund, gave the final

presentation, explaining the importance of private equity in a developing economy such as

Mongolia's.

Jayawant said his fund had already met its target financial goal of USD 50 million, with USD 13

million deployed already and 8 years to allocate the remaining USD 37 million. A fund such as his

needs companies to invest in that will grow fast and need upgraded technology, better

management, and financing. His funds, and others like it, are essential to help companies meet

their potential as there is a shortage of local lending options, limited expertise and difficulty in

making international connections. Private equity is particularly advantageous to firms as it aligns

the interest of the investor and the firm being invested into. It also provides outside perspective

and grants expert support, he added.

―Owners can be comfortable with interests of investment fully aligned; the demand of investment

on cash flow won't be overly demanding,‖ said Jayawant.

He noted that his fund was not a venture capital firm and was not investing for the long haul. There

is always an exit strategy, he said, with the intention of leaving the company better off than when

the fund found it. Growth is key, not control, he stressed.

―If the exit is not clear, it is better not to go with the investment at all.‖

___________________________________________

February

Issue 263

The meeting on 25 February, with B. Byambasaikhan in the chair of the first meeting in the ―Year of

the Water Snake,‖ was attended by 90 members and invited guests.

Byambasaikhan reminded members of the scheduled presentation by Brian Fisher, Managing

Director of BAEconomics Pty Ltd, ―Economic Impact Assessment of draft Minerals Law‖ on 18 March.

Next he invited Adrienne Youngman, Partner at Mongolia Talent Network, to update members on

the progress of a survey her firm was administering to identify Mongolia's best employer. She said

work was progressing well and they were still accepting survey submissions.

"We've gone through the strategic threshold, but now it's time to make through to the data to

identify the top employer."

BCM membership now stands at 244, with 44 more members than a year ago.

―Despite the economic turmoil, we have more new members joining BCM than ever before,‖ said

Executive Director Jim Dwyer. ―We're up this year 20 percent from a year ago.‖

The seven most recently joined members are:

1. Anglo American is one of the world‘s 5 largest mining companies, headquartered in the UK and

listed on the London and Johannesburg stock exchanges. Its portfolio of mining businesses spans

bulk commodities—iron ore and manganese, metallurgical coal and thermal coal; base metals—

copper and nickel; and precious metals and minerals.

2. Erdenes Tavan Tolgoi JSC owns licenses over a majority of the Tavan Tolgoi coalfield, one of the

largest open pittable coking coal deposits in the world.

Tavan Tolgoi has 7.4 billion tons of measured indicated and inferred coal reserves and resources

and 1.8 billion tons of proven probable coal reserves in accordance with JORC. The company

commenced commercial production in July 2011.

3. The Capital Market Research Centre is a non-profit and non-membership NGO which was founded

in September 2008 and based in Ulaanbaatar. Its general activities include studying the activities of

Mongolian companies listed on the Mongolian and foreign stock exchanges and their influence on

Mongolia's economic growth and foreign investment.

4. The German-Mongolian Entrepreneurs Association represents the interests of enterprises that are

involved in bilateral German-Mongolian trade and investment. It is the biggest bilateral economic

association in Mongolia and supports its members and other organizations as a platform for

commercial contacts, business information and offers a wide range of services.

5. Modun Resources is a company listed on the Australian Stock Exchange (ASX) which is developing

its 100 percent-owned Nuurst coal project in central Mongolia. Nuurst is a thermal coal project,

which encompasses a 34.5 square kilometer licensed area, with a 478 million-ton JORC reported

coal resource at Nuurst (326 million tons Measured, 104 million tons Indicated, 48 million tons

Inferred).

6. Practical Daatgal LLC, established in 2003, is insuring all kinds of risks through its skilled

insurance experts while gaining the gratitude of its customers.

7. Sandvik Mining is a business area within the Sandvik Group, based in Sweden, which is a leading

global supplier of equipment and tools, service and technical solutions for the mining industry. The

offering covers rock drilling, rock cutting, rock crushing, loading and hauling and materials

handling.

Ch. Khashchuluun, Chief Executive Officer of UBRM Consulting, gave the first presentation on

improving the current business climate in Mongolia.

―There have recently been many changes to the economic climate in Mongolia. Investment projects

take years, so it's not good to change so much,‖ said Khashchuluun. He added, ―Probably

government shouldn't meddle much in investment affairs and leave it to private capital.‖

Khashchuluun noted how foreign investment was a chief driver of Mongolia's world-beating growth.

He said the government would be wise to take a long-term approach to the situation rather than

settle on short-term prizes.

―Capital is like oil or gas for an engine. If it stops, the engine will as well.‖

Columnist and television host D. ―De Facto‖ Jargalsaikhan spoke next with his presentation titled

―Five Hills and Five Challenges.‖ He explained how poor governance had crippled the operations of

Mongolia's prized Tavan Tolgoi coal mine. Worse, politicizing the deposit had allowed enterprising

government officials to make off with the short-term gains, while society at large saw very little

benefit.

Jargalsaikhan named five challenges that held back such projects from success. The first was the

unsustainable growth of government. In the past government could grow on the back of mining

revenues, but now that prices are falling and foreign investment is sputtering that growth is no

longer manageable.

The second issue was the lack of accountability in government, allowing politicians to put their own

agendas ahead of the economy.

―We expected more transparency and after that accountability. This is not the case,‖ said

Jargalsaikhan.

Tavan Tolgoi and other projects were also suffering from poor governance. Mongolia is still scarred

by corruption, Jargalsaikhan said, and volatility in government—especially after elections. Even

attempting to resolve corruption only exacerbated the fourth issue of authoritarian governance,

which has many government officials overly preoccupied by possible corruption accusations.

Finally, the last challenge was the fact that all the actions of policy makers are governed by

elections. This kind of thinking, he said, has thus far resulted in the squandering of assets such as

Tavan Tolgoi, misuse of pension funds, and inability to launch crucial projects such as the

construction of Power Plant No. 5.

___________________________________________

March

Issue 267

The meeting on 25 March, with Executive Director Jim Dwyer in the chair, was attended by 110

members and invited guests.

Dwyer summarized past events during March, including a presentation by Brian Fisher of

BAEconomics on the projected impact of the draft Minerals Law released to the public by the Office

of the President. Fisher's presentation focused on the significance of the mining sector in Mongolia,

noting aggressive legislation would be a detriment to both Mongolia's mining sector and the

Mongolian economy as a whole. He noted that if passed in its current it would result in 4 percentage

points less gross domestic product (GDP) growth per annum over the course of the next 20 years.

Dwyer also noted developments concerning the Strategic Entities Foreign Investment Law (SEFIL),

which was reportedly ready for amendment by the government, and the draft Minerals Law.

―We hope to see the SEFIL changed to apply just to foreign state-owned enterprises,‖ said Dwyer.

―We hope to see the draft Minerals Law vastly improved, but after allowing considerable time for

public comments and no sooner than in the fall session of Parliament.‖

BCM membership now stands at 247, up from 211 members a year ago. The three most recently

joined members are:

1. Alfred H Knight Ltd (AHK), established in the United Kingdom in 1881 and still remaining in the

ownership of the founding family, has been at the center of the global metals and minerals industry

throughout its history. The company has more than 2,000 staff with offices in 35 different

countries.

2. The Mongolian Coal Association is a national association for the coal sector of Mongolia,

established in January 1998. It is a not-for-profit and non-government organization with members

from coal producers, coal enterprises, coal related institutions, and professionals.

The association aims to participate in activities to direct the legal conditions of the Mongolian coal

sector through participating in policy drafting, implementation of state industrial policies,

developing rules and regulations, safeguarding the members' rights, providing services, developing

international cooperation, raising efficiency, introducing modern technologies, and strengthening

the management and personnel of the coal industry of the country.

3. ProCURE Global Development and Consulting LLC is an expert resource for both developed and

emerging market nations who desire to plan, build, staff, and operate sustainable hospitals and

specialty centers of excellence. Its mission is to work collaboratively with governments and private

entities to meet their growing patient care needs using resources within their own country.

The first speaker of the day was Ruth Pulaski, Director of Marketing and Development at the

American University of Mongolia (AUM), to present the plans of the newly established university.

―Although predicted growth is bringing increased wealth and increased standards of living, it also

brings potential risks‖ said Pulaski.

She noted the importance of a liberal arts education in ―educating the whole person‖ while

instilling broad knowledge of the world, social responsibility, and strong intelligence and practical

skills.

Though a four year undergraduate program was scheduled to begin in 2014, the school may have to

delay that event. Until then, the school will focus on its executive education course, English

language institute, and global executive MBA program with the Kelley School of Business, Indiana

University. A fourth program is planned for engineering that will rely on a partnership with the

University of Alaska, Fairbanks.

AUM was established in 2011 by five U.S. and five Mongolian businessmen, educators, and

community leaders. She noted that Newcom LLC was the university's first sponsor when Pete

Morrow, the current chairman of the school, resided on the board. Newcom has been followed by

Rio Tinto PLC, the GE Foundation, and DAI.

The next speaker was Bayar Budragchaa, Managing Director of Economic and Legal Consultancy

(ELC) LLC, who provided an update to the Strategic Entities Foreign Investment Law (SEFIL).

Bayar presented on a letter distributed by his firm to clients that reported on a recent regulation

approved by the Cabinet of Ministers. The Regulation Regarding Receiving and Making Decisions on

Request of Entities Carrying Out Activities in Sectors of Strategic Importance was approved to

compliment SEFIL and provide more clarity to the law. The new regulation has the law apply only to

state-owned enterprises. It also designates the required approval from the minister of economic

development and the minister overseeing the sector from which the company in question operates.

―If approved, it is good news because it means Cabinet approval for these transactions,‖ said Bayar.

He added, ―It's our hope the project will be looked at again, but from a different angle.‖

Tony Burchill, Australian Consul-General and Trade Commissioner, gave the final presentation,

explaining the importance of Australia and other nations' third-neighbor relationships with Mongolia.

―We're entering the economic stage of a third neighbor policy, and I think we'll see a lot of

challenges come out of this,‖ he said.

Burchill explained that to Australia the third-neighbor policy is a bipartisan tenet of its foreign

policy to present excellent person-to-person links, expanding the presence of the Australian

government, and bringing together two great mining nations.

―The two countries have enormous things to offer each other,‖ he said. ―A lot of people comment

that Mongolia is a competitor. We don't rescind from that, but we want to work towards its

success.‖

___________________________________________

April

Issue 271

The meeting on 22 April, with B. Byambasaikhan in the chair, was attended by 110 members and

invited guests. Executive Director Jim Dwyer gave a short summary for the audience on the

Mongolia Investment Summit in London, where spirits were high.

―The atmosphere was surprisingly upbeat,‖ said Dwyer. ―Hong Kong last October was not so, and we

weren't sure how it would go.‖

BCM membership now stands at 251, an all-time high. The four most recently joined members are:

1. Bloomberg Television, an award-winning, multi-platform 24-hour business and financial news

network, provides continuous coverage of the people, companies and ideas that move global

markets. Broadcasting from centers in New York, London, Singapore and Hong Kong and powered

with an unparalleled news gathering team of 2,300 news professionals in 146 bureaus across 72

countries worldwide, Bloomberg Television delivers real-time business news to over 310 million

households globally.

In addition to major cable and satellite providers are Bloomberg.com and Bloomberg Mobile. The

network is available on the Bloomberg Professional service, used by the most influential individuals,

corporations, and institutions around the world.

2. Mitsui & Co., one of Japan‘s major trading companies, has five principal functions - marketing,

financing, logistics, risk management, and process development capabilities. It combines these

functions and brings together its diverse strengths to create and optimize value chains in a wide

range of business fields. Maximizing its value-added content, the company strives to meet the

diverse needs of its customers around the world. Most of its gross profit comes from energy

businesses.

3. Santa Fe provides the full range of relocation services to support businesses with international

interests from diverse industry sectors. Santa Fe is located in 54 countries with 123 offices globally

and offers holistic relocation solutions to support businesses and relocate employees.

4. Taxand LLC, provides professional tax services to clients across industry sectors. The company

houses experts in corporate tax consulting and compliance, tax audit defense, tax litigation,

transfer pricing, tax due diligence, VAT and customs duties. In addition, it has considerable

experiences in outsourcing as well as advisory services for foreign investors.

Nick Cousyn, Chief Operating Officer of BDSec JSC, gave the first presentation of the evening,

speaking on the Gobi Deluxe Hotel and Resort. He suggested that the Gobi Resort was the perfect

place for busy business professionals to get away from the stress and hassles of the city—not to

mention the pollution of winter—and enjoy the quiet and serene nature Mongolia has to offer.

―We all find it difficult to relax and unwind,‖ said Cousyn, ―but to have a place to recharge our

batteries and get away from UB is very nice.‖

The hotel is 38 kilometers from the city and features nine rooms, a restaurant, gers for summer

holidays, and a variety of activities. He divided hotel guests into three categories: those for

business, family, and recreation; each with their own accommodations. While companies planning

staff retreats may like to take advantage of the VIP conference rooms and corporate dining room,

family-oriented patrons can make use of the kids rooms and winter activities, and those looking for

a fun party can enjoy the full disco and bar and karaoke.

Brian White, Editor of the blog The Mongolist, spoke next to give a detailed talk on his latest entry,

―The Middle Layer.‖ The title refers to the prevailing discussion and exchange of ideas that is

sandwiched in between ideas, both good and bad, and useful knowledge. He explained that

accurate data on Mongolia was difficult to find, allowing observers to make false presumptions.

He recalled the statements made by President Tsakhia Elbegdorj concerning Oyu Tolgoi that were

quoted by international news sources. His statement, ―It's time for Mongolia to have Mongolian

control and Mongolia representation,‖ seemed to be yet another piece of evidence that ―resource

nationalism‖ was taking hold of the government's policies. However another translation of the

speech suggests he merely felt that Mongolia should take greater responsibilities for itself.

―Mongolia's middle layer is thin, making it difficult to educate,‖ said White. ―As the economy grows

this may change.‖

Head of Foreign Investment Relations and Registration, Sereeter Javkhlanbaatar, spoke next to

clarify some uncertainties regarding the changes to the Strategic Entities Foreign Investment Law

(SEFIL).

"The amendment removed the MNT 100 billion threshold, firstly. Secondly it excluded the private

sector from getting approval from Parliament," said Javkhlanbaatar.

According the Javkhlanbaatar the amendment would help expedite the regulation process for

foreign officials, as it's difficult to put short deadlines on decisions before Parliament.

Javkhlanbaatar also discussed a new law currently in the drafting stage at the Economic

Development Ministry that would essentially replace the law they just amended. The ministry's plan

is to introduce a new law that would wipe clean all the uncertainties – the Investment Law. The

draft indicates that the government is interested in introducing incentives so it could better direct

foreign investment to sectors outside of mining for a more round-about development model and a

diversified economy.

"We don't give any incentives to you. It causes some other issues,‖ he said. He later said, "What kind

of projects do you need to lead? What kind of judgments and also standards?‖

Finally Chuluuntseren Otgochuluu, Head of Strategic Policy and Planning at the Ministry of Mining,

concluding the speeches of the evening, presenting a brief introduction to Mongolia's mining policy.

He explained how he hoped mining would serve as a launch pad for a variety of different industries

in Mongolia to open up. However, with mining being as unpopular as it is among most people, many

politicians have taken on strong rhetoric in opposition to mining activity and foreign influence in

the sector.

―Local people find it easy to hate mining and don't understand, so politicians give them a populist

position,‖ said Otgochuluu.

He said Mongolia was taking on the difficult challenge of balancing the wants of the public and

keeping a fair business climate to attract investment in order to drive the country's development.

He noted that although exploration licenses were no longer being issued at the moment, mining

licenses were still being granted. He also noted that the government was working to develop its oil

industry, too, which hopefully would provide another form of income for the country.

___________________________________________

May

Issue 276

The BCM meeting on 27 May, with Bayanjargal Byambasaikhan in the chair, was attended by 85

members and invited guests. Executive Director Jim Dwyer reported that the Environment Working

Group, chaired by Amarjargal Bayarmaa of Clean Energy LLC, has added 16 new volunteers, bringing

the total to 35. The Working Group is currently awaiting the celebration of World Environment Day

on 5 June.

BCM membership now stands at 256, an all-time high, compared with 223 in May 2012.

―For every additional new member, we set a new record,‖ said Dwyer.

The four most recently joined members are:

1. Cover Mongolia is an Ulaanbaatar-based news service and consulting firm focused on Mongolia. It

was founded by Munkhdul ‗Mogi‘ Badral with the vision of providing accurate and timely information

to private, public and social stakeholders of Mongolia.

Cover Mongolia is a culmination of Mogi‘s five years of experience in the financial and brokerage

industry in Mongolia. Cover Mongolia‘s news service comprises of CoverMongolia NewsWire email

newsletter, as well as its Cover Mongolia Facebook (/CoverMongolia) and Twitter (@CoverMongolia)

feeds.

2. Khan Investment Management Ltd. is a single-country Mongolia-focused investment house with

offices in Ulaanbaatar, Singapore and Grand Cayman. Khan Investment Management is the

Investment Adviser to the Khan Mongolia Equity Fund.

Conceived to create, structure and promote the Khan Mongolia Equity Fund, Khan provides global

investors with access to a wide range of investment opportunities in fast growing Mongolia.

3. The Mongolian Exporters‘ Association is a non-Governmental organization, established in 2006. It

aims to connect local producers and exporters with the international market, assist producers with

trading export commodities, assist in networking with regional and international commodity

exchanges and specialized research companies, arrange training on mineral economics, design,

technology, operations and management, and teach mining business English.

The Association has been actively helping the Mongolian mineral exporters to enter the

international market since 2006. It is also providing supply and demand analysis of the mineral

products as well as price forecasts.

4. Very Important News aims to improve the state governing system using information technology to

increase the involvement of civil society organizations and provide conditions to organist their

activities openly to the public.

―Speaker Group‖ Co., Ltd. was founded in 2001 and operates in software and media relations. It has

operated Vip76.mn for five years with the aim to act as a bridge between government officials,

citizens, professional experts and civil society representatives.

The first speaker of the evening was Stephan A. Fischer, managing director of VF Messen GmbH, to

update members on the Future Mongolia 2013 Expo. The event is scheduled for 19 to 22 June at the

Buyant Ukhaa Sport Complex, located near the Chinggis Khaan International Airport.

―We are not just a mining exhibition or for infrastructure development. We cover the entire

spectrum of development,‖ said Fischer.

Fischer said vendors and company representatives from around the world would come to Mongolia

to share their know-how and build partnerships.

―We do not want to teach everyone how to do everything. We want to do it together with the

industry.‖

Jonathan Addleton, former U.S. ambassador to Mongolia, spoke next on his new book Mongolia and

the United States: A Diplomatic History. Addleton came to Mongolia in two separate roles, the first

from 2001 to 2004 with USAID, and again from 2009 to 2011 as ambassador.

Addleton took listeners back through Mongolia's history of diplomacy with the United States. U.S.-

Mongolian relations stretch as far as 150 years ago in 1863 when the first U.S. citizen traveled to

Mongolia.

―Actually the 1900s had much more vibrant U.S. Mongolian commercial relations than people

realize,‖ said Addleton.

He recalled that in 1919, when the United States was in the midst of the Jazz Age, it imported

silent films and Harley Davidson motorcycles to Mongolia. He also noted that in 1921 the U.S. had

one million rabbit skins arrive from Mongolia. Noting how much has remained the same, he

commented, ―Some of the issued faced now were faced back then.‖

However, the most important events in history of the United States and Mongolia's partnership took

place in the 1990s and 2000s, when USAID took action to create deep roots through Khan Bank and

XacBank. Also it was during this time, in 2007, that the Business Council of Mongolia spun off from

the North America-Mongolia Business Council and was established.

―Over the long-term, people to people relations are vital, but long-term commercial ties are just as

much so,‖ said Addleton.

Ulaanbaatar Deputy Mayor T. Bat-Erdene spoke next to share with members the city's landscaping

development plans. Bat-Erdene noted that currently UB has a population of 1.1 million with

expected growth to bring that figure to 1.7 million by 2020. With that in mind the city's urban

planners hope to utilize Ulaanbaatar's 470,000 hectares of land by dividing it into 4 zones:

protected areas, commercial business, parks green space, and animal husbandry.

Planners hope an expansion of 800 hectares of green space will help tourism, with plans for a 960-

hectare national park in southern Ulaanbaatar. There are also plans to bring greenery to 109

streets, including in the city's ger districts. To finance the work, the government is hoping to utilize

public-private partnerships.

―PPP is a very positive approach to using resources effectively,‖ said Bat-Erdene. ―Last week

consultations were held with NGOs and environmental representatives for landscape planning. ―We

hope these partnerships will continue.‖

Landscaping activities are expected to begin in June this year.

Environment and Green Development Minister Sanjaasuren Oyun gave the final presentation of the

evening, noting that she would discuss a similar topic to Bat-Erdene's: policy reform for Mongolia's

environment. Today, the 8 percent of forest-covered territory is shrinking due to development

throughout the country. The government is now implementing reforestation plans to revitalize aging

forests by planting younger trees and maintaining the environment.

One step the government is taking is the privatization of forested land, where people can build a

home and employ some commercial activity and eventually resell to the government at a profit.

The government is offering land at MNT 200,000 per hectare for eventual sale of MNT 350,000, said

Oyun.

―This week we discuss the plan with the Cabinet. It could sound ambitious, but we have rich

traditions of co-existing with the environment so that traditions should be intertwined with modern

technology and breakthroughs,‖ said Oyun.

She noted that Mongolia had seen tremendous environmental change for the worse in the last two

decades, as miners have failed to hold to their reclamation responsibilities, the air in the capital

has grown toxic, and authorities struggle with garbage and toxic material waste management.

However, the government is becoming more proactive, first by replacing stoves with more efficient

models in 120,000 homes, and raising the standards of its fuel. In the near term the government

plans to revisit the so-called ―Long Name Law,‖ which in 2009 halted the exploration activities of

mines located near forested areas and headwaters, and a new payment scheme for water

management.

___________________________________________

June

Issue 280

The BCM meeting on 24 June, with Bayanjargal Byambasaikhan in the chair, was attended by 92

members and invited guests. BCM membership now stands at 257, an all-time high, compared with

223 in May 2012.

―For every additional new member, we set a new record,‖ said Executive Director Jim Dwyer.

The most recently joined member is:

1. Namaste Indian Restaurant is a family business owned by Ch. Oyunbileg and her husband S.

Kumar. Since Namaste Restaurant opened in August 2010, they have enjoyed the support of their

loyal guests who voted their restaurant as the ―Top Choice Indian Restaurant of Ulaanbaatar‖ in the

2011 edition of Lonely Planet Magazine. It also received the ―Certificate of Excellence – 2013‖

award from Tripadvisor.com.

There are currently two Namaste restaurants, one inside the Flower Hotel in Sansar and the other

on Baga Toiruu. Together they employ more than 40 employees, of which five are professional

Indian chefs. Supervising the restaurants is Kumar, who has spent 13 years in various Indian kitchens

in Mongolia and India.

First to speak was Yana Stankova, Country Director of Oxford Business Group, to reintroduce

members to her organization's aims and renew its partnership with the Business Council of Mongolia

with the signing of the third memorandum of understanding in three years. She also noted that she

and her staff were hard at work on the 2014 Report to include all the latest developments in the

Mongolia investment market.

The second presentation was given by Luvsandendev Sumati, Director of Sant Maral Foundation, to

discuss their latest poll before the election. This was the second poll released before this year's

presidential election, but the only one following the announcement of the candidates challenging

incumbent President Tsakhia Elbegdorj.

―If you refer to the March poll, no candidates were nominated, but it's quite normal that Elbegdorj

was ahead of any possible rival,‖ said Sumati. He added, ―Since then, nothing has changed in the

rating of the party... I'd say in this election, Elbegdorj is quite safe.‖

Sumati noted that more than half of those polled felt elections in Mongolia had improved since the

introduction of the electronic voting machines. He also noted that his poll indicated that 70 percent

of those questioned were interested in voting, but the actual turnout might be lower because of the

usual migration of people during this time of the year.

Next to speak was Adrienne Youngman of Mongolia Talent Network to introduce Golomt Bank as the

winner of the ―Employer of the Year‖ title for 2012.

―I am very honored to receive this award on behalf of our employees. Golomt is proud to be the

first to win this award,‖ said Dagva Munkhtur, the Operations Director.

Ambassador of the Japanese Embassy Takenori Shimizu spoke next to give a presentation on the

history of relations between Mongolia and Japan as well as a detailed description of their moves

towards closer relations in trade and diplomacy.

Shimizu's experience in Mongolia spans a large portion of Mongolia's history following the 1991

democratic revolution, and he has witnessed firsthand Mongolia's transition towards a capitalist

economic system. Japan's largest contribution to Mongolia, he said, is probably in education and

human development. Japan provides 70 scholarships to Mongolian students annually and currently

has 1,300 Mongolian students studying at its universities.

―Unfortunately, economic relations are not as good regarding trade, and the current volumes are

low,‖ said the ambassador. He said, ―Both sides—Mongolian and Japan—are equally unhappy with

this current situation.‖

He noted the importance of the Erch initiative introduced during Japanese Prime Minister Shinzo

Abe's visit to Mongolia earlier this year. He explained that two of its major aims were to enhance

business relations and expand growth in Mongolia. He also brought attention to the efforts of the

JICA volunteers on the ground in Mongolia working to implement infrastructure projects such as the

metro project planned for Ulaanbaatar.

―Mongolia is developing rapidly, with the mining sector in the most important role,‖ he said.

―However, what's more important is how you use the income from mining. I hope Mongolia will use

it [the revenues from mining] wisely and Japan is happy to assist in this area.‖

For the last presentation was U. Ganzorig, President of Mandal General Insurance, to speak on risks

in Mongolia. He introduced to the audience Mandal's 2013 Risk Report, with a number of copies in

Mongolian language made available free to members. That report includes 10 risks facing Mongolia

today, but for the evening's presentation he would introduce a select few.

The first and most pressing risk was the deficit in the budget born out of too-optimistic projections

for commodity prices. He said Mongolia's economy was weighing heavily in the mining sector, an

unpredictable source of income, with 17 percent of total gross domestic product (GDP) sourced

from that sector.

―There is a very huge correlation with copper price and coal price in relation to the budget,‖ said

Ganzorig while pointing to a chart that showed budgets and surpluses that closely followed

commodity prices. ―The effect of coal prices in recent months, you've all noticed that.‖

Other risks included the air pollution that was causing respiratory problems in the short run but in

the long run would likely lead to cancers and strokes. Poor driving was responsible for 90 percent of

accidents, he said, and many of the city's buildings were ill-equipped for earthquakes. Another

pressing worry was a likely energy crisis to hit Mongolia this winter. He noted that Mongolia had

exceeded the nation's power generation capabilities first in 2010, and this year would likely see the

displacement of more than 700 people in the event of wide-scale energy and heat failures.

___________________________________________

August

Issue 289

The BCM meeting on 26 August, with Bayanjargal Byambasaikhan in the chair, was attended by 95

members and invited guests.

―It's September, and in a few days school is starting, but we have more important events in the

economy going on,‖ said Byambasaikhan. ―A new Investment law to replace SEFIL is expected to

be passed this September, out of the special session of Parliament.‖

BCM membership now stands at 264, an all-time high, compared with 239 in August 2012. The six

newest members are:

1. Archon LLC is a trading and consulting company based in the Ulaanbaatar, founded in 2012. Its

mission is to expose the businesses of its parent company, Kito LLC, to new sectors of the economy.

The company has quickly seen success in penetrating several emerging markets and pioneering new

technologies in Mongolia. It also is set to become an exporter of a Mongolian national treasure—

cashmere textile.

2. Bodi Insurance LLC, a member of Bodi Group for 18 years, is a leading insurer who has been

introducing new ideas for commercial insurance products and services to individuals at any location.

In 2012, the Mongolian Chamber of Trade and Industry selected Bodi Insurance LLC as ―Top

Insurance Company,‖ in addition it won the ―International Star for Leadership in Quality‖ award in

Paris.

3. Established in 1996, Geosan has achieved steady growth while earning a reputation for offering

high quality professional service. The company offers a complete range of services in geophysical

survey and mapping, and leverages the latest technology in the field. Geosan completed its first

contract in 1998 for locations near the Oyu Tolgoi and Gatsuurt deposits using a single magnetic

system. Since then, Geosan has grown the capability to conduct nearly the entire gamut of ground

and airborne surveys available today.

4. Global Investment and Equity Advisory Partners was founded in 2013 by the two partners, both of

whom had previously worked at Mongolia‘s leading law firms. The firm‘s partners comprise of the

most experienced and knowledgeable legal practitioners in Mongolia. The partners each specialize

in their own respective fields whether it be banking and finance, minerals and mining or corporate

law. The firm focuses on the business needs of its clients and finding the most favorable solutions

available within the framework of the law.

5. Nomads Catering & Integrated Services is a 100 percent privately owned Mongolian entity based

in Ulaanbaatar. It has opened a chain of 22 restaurants and two hotels since 2003. Today, it is a

leading food, beverage and catering service provider in Mongolia offering a wide range of services

including supply chain and logistics management, construction, remote site catering, in-flight

catering, fast food chain and hotel management. More than 1,500 dynamic young people work with

Nomads in Mongolia, Russia and China.

6. World Nixes LLC strives to be the most effective, efficient, and socially responsible nationwide

leader in sourcing and delivering of goods and products. It strive to contribute to the mining sector

as it is the key sector of the development of Mongolia. World Nixes supplies a wide range of light

trucks and truck tires.

Joshua Sunga, internship program director at AIESEC, gave the first presentation of the day,

describing the role of AIESEC in Mongolia in developing Mongolia's population of young people into

an efficient and capable workforce.

―Youth leadership development is crucial to the economy, especially with the growth of today,‖ he

said.‖

He noted the importance of presenting young people in Mongolia with opportunities for practical

experience because of the sparse opportunities found in the university curricula of today. AIESEC

operates in 124 countries and territories around the world, with 86,000 members and one million

alumni worldwide. Thus far it has sent 49 Mongolian students and recent graduates abroad for

internship experience. Internships typically last between two and 18 months, giving participants

global mindsets and instilling unique skills from each country.

The next speaker was G. Saruul, deputy chief executive officer at the Mongolia Stock Exchange, to

provide a brief summary of the Securities Law, due to come into effect on 1 January 2014.

―The goal of the law,‖ said Saruul,‖ was to create a transparent market place and provide equal

opportunity to investors.‖

To do that means going into greater detail than the previous law to define key terms and the

process for making basic transactions; as well as introducing mechanisms to ensure transparency in

the market. With these in place investors could expect a market that operates more fairly, having

greater liquidity, and providing investor protections. It also means cracking down on insider trading.

Saruul also mentioned that a Fund Law had been approved by Cabinet on Friday, 23 August, and was

expected to pass in Parliament during the extraordinary session of Parliament in September.

Presenting third was G. Zorig, country manager of Tree Global Mongolia, to describe his company's

activities to help Mongolia succeed in its land reclamation efforts and combat the debilitating

effects from human activities to the environment in Mongolia.

―Looking back at the past two years, our work looks to have been effective, with three times faster

growth to plants, and 95 percent greater survivability compared with 10 percent before.‖

His company boasts earlier maturation for trees, faster soil restoration, and two-to-four times

greater carbon sequestration. Tree Global Mongolia has assisted Boroo Gold in its own land

reclamation efforts, and received high praise, noting an ―exceptional survival rate for this type of

planting and far better than we had anticipated.‖

According to Zorig, the issue is a deeply important one to the country as the Mongolian people

witness the disappearance of its wildlife and fauna. Mongolia has seen the disappearance of 13.1

percent in forest coverage since 1990. Tree Global has done its own part in Mongolia with the

reforestation of 150,000 hectares of land, or 150 million seedlings planted a year.

The following speaker was Daniela Zadrozny, consul at the U.S. Embassy, to give a crash course in

attaining U.S. visas. She explained the process—from applications, to interviews, and background

checks—while providing some ―myth busting‖ along the way.

―I know in Mongolia a lot of misinformation about the U.S. visa process is out there. In many ways

it's because the U.S. visa process is different than other countries,‖ she said.

The visa appointment, a mandatory step enforced worldwide, is the first step. The U.S. Embassy

allows for group appointments as well as expedition for emergencies. Next is the interview—which

probably is the most difficult step for most people. She recommended that applicants bring a filled-

out DS1 document, their passport, a passport photo, and their visa application. Other materials,

such as invitations and high school records, are not normally necessary. She stressed the importance

of honesty during the interview, and that applicants should focus on making a reasonable argument

that they have a valid purpose for their trip and the funds needed to stay there and return. It's also

important that applicants disclose any family ties to persons living in the United States.

Zadrozny made special mention that decisions were not personal and emotions were set aside for

making decisions on whether to permit visas. She also noted that any information discovered that

was withheld beforehand would cast doubt upon the applicant and work against their case.

The final presentation for the day came from Sereeter Javkhlanbaatar, director of foreign

investment at the Economic Development Ministry, to discuss a highly anticipated Investment Law

to replace both the 1993 Investment Law and 2012 Strategic Entities Foreign Investment Law.

Although Javkhlanbaatar could not reveal everything about the law, as it was still incomplete, he

did explain a few key concepts to demonstrate the intentions of the law. The first was to tear down

the division between ―strategic‖ and non-strategic sectors, treating the economy as an equal

playing field. Rather than curb foreign ownership through restrictive and vague policies, the

government is now set out to only put checks on state-owned companies. Various sector

requirements would instead be regulated via the licensing process. The process for registering a

company in Mongolia would also be made more efficient.

―We are going to save your time,‖ said Javkhlanbaatar. He added ―We won't have approval systems

for strategic sectors, but we will have approvals for state-owned companies.‖

He said the government intended to create new agencies, including a review board, similar to what

exists in Australia, and the Invest Mongolia Agency, which would have the main purpose of

attracting foreign investment. There would also be certain guarantees on taxes, with specific

mention by Javkhlanbaatar made regarding income, royalty, customs and value-added taxes.

___________________________________________

September

Issue 293

The BCM meeting on 23 September with Peter Morrow, founding Chairman, in the chair was

attended by 105 members and invited guests. Morrow announced the resignation of Vice Chairman

Tim O'Neil, who has left Mongolia to return to his home in Canada, and that BCM will soon seek a

replacement. Other tasks under consideration by BCM are membership renewal planning and its

search for a local social media consultant.

Morrow also discussed findings from a recent translation of the draft Minerals Policy, saying the

latest draft was still falling short of hopes. ―All is not there. It's not where we'd like it to be yet,‖

said Morrow.

BCM membership now stands at 265, an all-time high, compared with 250 in October 2012. The

newest member is COSOL, a global service provider specializing in optimizing business processes

and technology systems for the mining and minerals processing sector. Since April 2000, COSOL has

worked in emerging mining regions including Mongolia, Chile, Peru Colombia and Kazakhstan, with

over 135 clients including Xstrata, BHP Billiton and Rio Tinto. From Greenfield to established sites,

emerging mine operators to tier-one organizations, COSOL combines extensive mining industry

knowledge with expertise on a range of operational and ERP systems to deliver best-practice

services and solutions.

Alaia Telleria, project director of Milestone GRP spoke first to introduce her company's Mongolia

book and research. Milestone is the exclusive partner of the Center for Global Dialogue and

Cooperation (CGDC), a business club based in Austria, delivering thorough research guides covering

markets from around the world. Whenever CGDC's interest is peaked by a new market, said Telleria,

it is Milestone's job to produce a 250-page guide filled with development trend reports, interviews

with key newsmakers of the area, and expert contributions gathered locally and from global

experts.

―Our mission is to close the gap between the perception and the reality on the ground,‖ said

Telleria.

Since arriving in Mongolia, the Milestone team has gathered local partners such as the Ministry of

Education, the Business Council of Mongolia, the Mongolian National Chamber of Commerce and

Industry, and the Mongolian National Mining Association.

The next guest speaker for the evening was Miki Kubota, attaché at the Japanese Embassy, to

discuss the recent visit by Prime Minister Norov Altankhuyag to Japan. Altankhuyag summarized the

discussions Altankhuyag had with his Japanese counterpart Shinzo Abe, including the multi-tiered

strategic dialogue between the two nations, the promotion of their economic relationship, and the

promotion of people-to-people exchanges.

―This visit was the first where Mongolia didn't receive any souvenir because the two are now

mutually beneficial partners,‖ said Kubota, noting that Mongolia was now classified as a nation no

longer in need of grants.

Kubota also expressed Japan's hope that Mongolia would look to Japan as its ―third neighbor,‖ as

Japan continues to prop for itself a stronger role in the region, and continue its welcoming attitude

toward investment.

Chris McDougall, managing director of Mongolian Investment Banking Group, gave the next

presentation to speak on the current state of the economy and the trajectory it is heading toward.

He began by repeating some of the gloomy statistics and facts that have become so common place:

43 percent less foreign investment, year-on-year; a currency depreciation of some 20 percent, year-

to-date; falling imports; and impending job losses.

However, Mongolia is taking impressive action, said McDougall, by rolling out an Investment Law to

replace the Strategic Entities Foreign Investment Law and a new Gold Transparency Law. He lauded

the former as it will ―create a level playing field,‖ putting foreign and domestic investors at equal

terms. He also called the Gold Transparency Law a ―fantastic set of rules‖ to create economic

incentives comparable to what is seen on the Toronto Stock Exchange. He also noted that Mongolia's

flagship Oyu Tolgoi mine was no longer the be-all, as Mongolia has grown to become a more

complex and multi-faceted market.

―OT [Oyu Tolgoi] is decoupling; it's not longer a cornerstone as investors realize that Mongolia is not

the only one causing delay, and not the only opportunity.‖

___________________________________________

November

Issue 300

The BCM meeting on 11 November with Bayanjargal Byambasaikhan in the chair was attended by

150 members and invited guests. The meeting observed BCM's 6th-year anniversary and was

followed by BCM‘s Annual Membership Renewal Dinner seating 185 members.

Jim Dwyer, Executive Director, spoke on the importance of BCM‘s members, ―our lifeblood.‖ Jim

announced a special offer for subsidiaries and divisions of current BCM members to join at a 50%

dues discount. This dovetails with a BCM goal to attract more medium-sized entities to its

membership.

BCM membership now stands at 268, an all-time high, compared with 250 in October 2012. The 5

newest members are:

1. Clear Lakes Capital was established in 2011 to manage offices and apartments in Mongolia. It

focuses on the central parts of Ulaanbaatar offering well-furnished properties and improves the

properties by replacing kitchens and fridges, installing flat screen TVs, ovens and dishwashers. All

apartments have emergency water heaters and most properties have LED lighting and smoke

detectors installed. Above all Clear Lakes responds to occasional breakdowns in a matter of hours.

Its properties are to be found in Park View, Regency Residence, Four Seasons Gardens and Temple

View.

2. Since its establishment in 1924, the Institute of Finance & Economics (IF&E) has been one of the

leading economic and business development centers in Mongolia offering high quality programs.

Students are offered new opportunities and the latest knowledge reflecting current market

developments. IFE is on its way of becoming a highly competitive business school in Asia.

IF&E offers a wide range of Business programs such as Financial Management, Business

Administration, Tourism & Hospitality Management and, Business Economics, Business Law, and

Marketing Management.

3. Ramada Ulaanbaatar City Center is a premier international hotel in Ulaanbaatar. The hotel is set

in a luxury shopping mall complex, standing 17 stories tall with a new modern architecture. It

features 128 guest rooms and suits, and inclusive executive floors with its own lounge. The hotel is

located in the heart of the Ulaanbaatar downtown and 20 minutes away from Chinggis Khan

International Airport.

4. Established in 1998, the Mongolian National University is the second biggest private institution of

higher education in Mongolia. Its distinguished history of excellence and hard work continues to

provide students with unique opportunities to make difference through academic teaching, research

and professional programs. Currently 5,200 students study in the 58 undergraduate and three

graduate programs.

Mongolian National University has established cooperative relationships with 18 universities and

research institutions abroad. The university pays close attention to foreign language education. In

Mongolia only MNU students are trained for seven semesters in advanced specialized knowledge of

English education and curriculum contents, and the ability to use English.

5. Salmira Investment Fund is a U.S.-based investment partnership formed by three brothers. The

fund is an expression of the three principals‘ profound interest in emerging and frontier market

investing. Ultimately, Salmira is a fledgling family office that the brothers hope will continue to

grow as it positions itself in Mongolia and other Asian economies on the verge of exciting expansion.

The fund has active investments in Mongolia‘s transportation and financial sectors; its principals

continue to evaluate opportunities across most sectors of the Mongolian economy. In addition to its

Mongolia-based projects, Salmira evaluates and has participated in various private market

opportunities in Southeast Asia as well as real estate and resource-related investments in the

United States.

Nick Cousyn, Chief Operating Officer of BDSec JSC, presented ―A Westerner‘s Journey to the DPRK,‖

where he discussed his recent visit to North Korea for a site visit to the Rason port and the Sungri

oil refinery recently acquired by Mongolia-listed HBOil JSC. HBOil is participating in an oil

exploration and production joint venture with North Korea's state-owned oil company and is set to

purchase a company with oil exploration rights in North Korea's East Sea.

Matthew Pottle, Managing Partner, PwC, presented ―PwC CEO Survey 2013 – Confidence in Growth‖

where he discussed data collected from two years of surveys and interviews from company heads

based in Mongolia benchmarked against international responses. He said that although chief

executives had short-term concerns for the economy, there was greater confidence for the long

term.

David L. Wyche, Economic and Commercial Section Chief at the U.S. Embassy, presented ―The U.S.-

Mongolia Transparency Agreement.‖ The agreement signed this year is a result of years of

cooperation for a trade and investment framework agreement (TIFA) and was a key step toward

establishing a free trade agreement.

Sereeter Javkhlanbaatar, Director General, Foreign Investment Regulations and Registration

Department of the Ministry of Economic Development, gave an update on the new Investment Law,

which took effect this month. The new law, he said, removes distinctions between foreign and

domestic investors, providing many equal provisions. One dramatic change, some audience

members noted, was a new rule for establishing a foreign invested company. While in the past a

start-up in Mongolia needed USD 100,000 in assets, now USD 100,000 is required per investor.

Javkhlanbaatar noted many improvements, however, including the removal of restrictions for

investment by private companies. Any entity 50 percent or more owned by a foreign government,

however, will need ministry approval for more than 33 percent acquisition for any company

operating within banking and finance, telecommunications and media, or mining.

___________________________________________

December

Issue 304-305

The BCM meeting on 9 December with Bayanjargal Byambasaikhan in the chair was attended by 80

members and invited guests. Byambasaikhan made reference to the changes made to the legal

environment for investors and how the president is putting his efforts into creating a ―smart‖

government to improve things even further.

―I think this message is of a change for the economic life of Mongolia,‖ said Byambasaikhan.

―Everyone is saying government is an obstacle and it needs to be changed. That's what's being

discussed now.‖

BCM membership now stands at an all-time high. The seven most recently joined members are:

1. Amar Power LLC operates in the fields of construction of power plant and facilities, relevant

configuration services, consulting service, sales and supply of electrical equipments. Its skillful

engineering team cooperates with several organizations, companies and research institutes of

Russia, China, the United States, Canada, Australia, Turkey and Poland that perform similar

operations and activities.

2. AREC Mortgage Corporation is a non-banking financial institution that specializes in real estate

finance in Ulaanbaatar. AMC provides finance on mortgaged property and provides project finance

to real estate developers for their development projects.

The banking system in Mongolia is still relatively underdeveloped. AMC provides loans to SMEs at

lower rates than would otherwise be available to them. All loans are well secured by property

mortgage. AREC has a team in Ulaanbaatar that performs property management and asset

management for the assets AREC manages.

3. Fiscal Audit provides audit consulting, financial statement analyzing, tax consulting and financial

statement assurance services from independent position to legal entities and business owners in line

with the Law of Mongolian Auditing, Law of Mongolian Accounting and other International Auditing

and Financial statement preparation standards using with professional ethics of auditors.

4. Fluor is one of the world‘s leading publicly-traded engineering, procurement, construction,

maintenance, and project management companies. It was ranked No. 1 on Fortune magazine‘s

―Engineering, Construction‖ industry list of America‘s largest corporations and #1 in the same

category on Fortune‘s annual survey of ―World‘s Most Admired Companies.‖

It operates over 1,000 projects annually, serving more than 600 clients in 79 different countries

with 41,000 employees executing projects globally. It has offices in 29 countries on six continents

and in 2012 celebrated 100 years of exceeding client expectations.

5. Khaan Insurance LLC is a national investor-owned insurance company in Mongolia.

Khaan Insurance was formed in 2012 to write insurance throughout the Mongolia. It has 18 active

branches and was listed in the top 10 entities in terms of equity—all in just a year since its

establishment. Khaan Insurance's reinsurance partners are globally accredited companies.

Its core businesses are property, casualty and liability insurance.

6. NovaTerra advises entrepreneurs, large corporations, governments, financial institutions and

private equity firms. Its approach is to be deeply involved with clients in long-term relationships.

NovaTerra can invest alongside its clients and further invest part of its success fees into deals or

companies. NovaTerra has a proven record in negotiating and closing projects and agreements with

the Mongolian Government

7. Outotec Oyj provides customers with technology solutions and services that support the entire

life cycle of operations. Outotec tailors solutions to customers‘ needs to ensure that they receive

the smartest value from virtually all types of ore while making the least impact on the

environment. In addition, its global sales and service network guarantees that there is always an

experienced Outotec professional on hand for support.

Outotec Mongolia LLC was officially formed in Mongolia from January 2013. It now cooperates with

Erdenet Mining Co., Oyu Tolgoi LLC, Energy Resources LLC and Boroo Gold.

J. Bayarmagnai, executive director of the Quality Supplier Development Center (a USAID grantee)

spoke first on his organization and its missions to increase the productivity and competitiveness of

small- and medium-size enterprises. He said the center acts by intervening to facilitate in

relationships between buyers and suppliers, and that its impact can be determined by looking at

added sales as indicators. They also look to remove bottle necks that producers face in meeting the

needs of buyers.

―This is very exciting because I believe it can bring real quality and value to business,‖ said

Bayarmagnai.

One example offered was the center's experience with Wagner Asia Equipment LLC, which required

a local company able to repair or salvage parts back to specifications. The center sought out a

company and found Geomach which assisted in removing bottlenecks, such as attaining financing

for a welding machine.

―Basically, we have no limit,‖ he said. ―We can help SMEs deliver quality products and services to

buyers.‖

L. Sumati, director of the Sant Maral Foundation, spoke next to discuss progress made in Mongolia's

battle against corruption. He said it was impossible to deny all the progress made given all the

positive responses in his latest poll, which surveyed 1,200 people in the business community about

corruption.

Sant Maral found that land access to be a leading challenge for businesses in Mongolia, leading the

list of grievances since 2006. Other issues included mining licensing, customs, and regulations.

Respondents said the most difficult agencies to work with were the Tax Office, Special Inspection

Agency, Customs, and local authorities. ―There may be some optimal time for development for the

future, but for today it remains difficult,‖ he said.

Meanwhile, at the household level, people reported dramatically less experiences with corruption,

with the number of responders who said they had paid bribes falling from a high of 28 percent in

2007 to 8 percent this year. He said there were generally positive feelings about the Independent

Agency Against Corruption and the arrests they had made, too.

D. Jigjidmaa, investment promotion program manager at the World Bank's International Finance

Corp. in Mongolia gave the final presentation on investment protections.

―Mongolia is not so different from other developing countries, especially regarding the political risks

of the last four to five years,‖ said Jigjidmaa.

She said IFC had been engaged with the Mongolian government since March 2013 to collaborate on

the Investment Law that took effect in November. It has also signed a cooperative agreement with

the Ministry of Economic Development to help improve the investment environment. This includes

the establishment of a reference guide for complaints made by investors and how government

responded. They hope to work closely with the government to improve grievance management and

dispute resolution.

―Now we're fine-tuning how the mechanism will work. Every minister wants control over

investments in the sectors they oversee.‖

The plan, she said, is to work from January 2014 to the following July to build awareness and a

stakeholder network. Afterward, they will then benchmark international experiences, such as the

improvements made to South Korea's investment environment since 2009, to help direct the

evolution of Mongolia's dispute resolution mechanism.

II. OYU TOLGOI

Starts and stops

January

Issue 254-255

OT CONCENTRATOR ONLINE

As the Oyu Tolgoi copper and gold mine prepares to begin commercial production in 2013, it has

taken a major step forward with the completion of the concentrator—the largest and most

technologically advanced machine ever built in Mongolia.

To mark the major milestone, Oyu Tolgoi LLC celebrated the commissioning of the concentrator

with Mining Minister D. Gankhuyag, who commemorated the occasion by pressing the activation

button on the concentrator for the first time. MPs, cabinet members, and ambassadors also were in

attendance for the event.

―I am pleased to be participating in the ceremony to commission the concentrator at Oyu Tolgoi's

world-class mine. On behalf of the Mongolian government, I congratulate all who contributed to the

project, which is being constructed on schedule,‖ said Gankhuyag. ―Oyu Tolgoi's progress as the

guarantee of our mineral wealth left for us by our ancestors is the result of Rio Tinto's effective

project management and financial capabilities.‖

Completed in record time, the commissioning of the concentrator represents a significant advance

for Mongolia. Oyu Tolgoi brought the specialized expertise of over 18,000 people from 44 countries

to the complex project.

―From the signing of the investment agreement to activating the concentrator, Oyu Tolgoi's

progress has been remarkable,‖ said Cameron McRae, Oyu Tolgoi President and Chief Executive

Officer. ―We are doing more than just constructing the most technologically advanced mine in

Mongolia's history. We are also helping to usher in a new wave of economic development.‖

With the concentrator online, Oyu Tolgoi will begin producing the copper concentrate in the early

stage of the first quarter of 2013. Commercial production is expected within the first half of next

year. The ore is coming from Oyu Tolgoi's open pit mine, which began producing raw ore earlier this

year. Eighty percent of the value of Oyu Tolgoi is in the extensive underground mine, which is still

in the early stages of development and expected to begin producing in 2016.

Source: Oyu Tolgoi LLC

OYU TOLGOI‟S GOVERNMENT BOARD MEMBERS CALL FOR NEW FEASIBILITY STUDY

Government representatives on Oyu Tolgoi LLC's board of directors have called for a renewed

feasibility study in light of larger-than-expected expenses.

Board member P. Tsagaan said a board meeting for 24 December was postponed due to the need for

an updated feasibility report. He said that although the project is on track, with an energy

purchasing agreement recently made with an Inner Mongolian energy producer and the ore

concentrator ready for commissioning, the expenses have not reflected the original report.

―The increase of investment could be connected with overall price increases, but it should be

explained and presented in the feasibility study,‖ said Tsagaan. ―Therefore we request a renewed

feasibility study before discussions are made on the approval of next year's budget.‖

Source: Undesnii Shuudan

ERDENES OYU TOLGOI CEO APPOINTED

Former MP Ts. Sedvanchig was appointed as Chief Executive Officer of Erdenes Oyu Tolgoi LLC.

Erdenes Oyu Tolgoi is the state holding company with the government's 34 percent stake in Oyu

Tolgoi LLC. There are reports that Sedbanchig has in the past made demands for a greater stake for

the government in Oyu Tolgoi. However, his appointment suggests that he will fall in line with the

government's demands.

Source: Mongolia International Capital Corp.

Issue 256

OYU TOLGOI'S AIRPORT COMPLETE

Oyu Tolgoi LLC has finished construction of its Khanbumbat Airport.

The airport is located 36 kilometers from Khanbogd. It was built by Artzsuvraga, who employed

more than 700 engineers and professionals for the project. The airport's construction features a

traditional ger design with a runway length of 3,250 meters and width of 45 meters.

The airport was completed within three months of construction. It has the capacity for 240

passengers an hour while servicing passenger and cargo planes such as the Boeing 737. The cost for

construction came to MNT 2.5 billion.

Source: Unuudur

Issue 257

RIO TINTO SEEKS USD 4 BILLION OYU TOLGOI PROJECT FINANCING

Rio Tinto PLC is said to have invited bankers to Mongolia in connection with a project financing of

USD 4 billion of debt for the Oyu Tolgoi copper-gold site, the country's biggest-ever mine.

The world's second largest mining company has invited lenders as it seeks to finalize terms of the

project financing, according to three people with knowledge of the transaction who wished not to

be named. A so-called request for proposal, setting out details of the debt sought, will be sent to

lenders following the meeting, two of the people said.

The meeting will take place on 27 January and include a visit to the mine, in the south Gobi Desert

80 kilometers from Mongolia's border with China, one of the people said. Rio Tinto is seeking to

raise as much as USD 2 billion from commercial banks, with the remainder provided by export credit

agencies and international development funds, another said.

BNP Paribas and Standard Chartered Bank were selected by Turquoise Hill Resources Ltd. when it

was known as Ivanhoe Mines Ltd., alongside the European Bank for Reconstruction and Development

(EBRD), the World Bank's International Finance Corp. (IFC), and Export Development Canada to

arrange the financing, it said in July 2010. They have been joined by Export-Import Bank of the

United States, Australia's Export Finance & Insurance Corp. and the World Bank's Multilateral

Investment Guarantee Agency, according to IFC's website. IFC is considering a loan contribution of

about USD 800 million, including a syndicated portion, according to its website.

Rio Tinto provided USD 1.5 billion of bridge financing to support the development of the mine, and

has provided USD 3.5 billion of funding in total, it said 18 April. The loan would be repaid when the

project financing is in place, it said at the time.

Source: Mine Web

February

Issue 260

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

Issue 261-262

RIO SAYS OT'S START DEPENDS ON END TO DISPUTE

Rio Tinto PLC, the world's second-largest mining company, said its USD 6.6 billion Oyu Tolgoi copper

mine in Mongolia will not start until disagreements with the government are resolved.

―A number of substantive issues have recently been raised by the government of Mongolia, including

the implementation of the investment and shareholder agreements and project finance,‖ Rio Tinto

said in a statement. ―Subject to the resolution of these issues, first commercial production from

Oyu Tolgoi is scheduled to commence by the end of June 2013.‖

Rio Tinto, which named Jean-Sebastien Jacques as the new head of its copper unit, twice rejected

Mongolia's demands in the past 18 months for a greater share of profits from the mine. President Ts.

Elbegdorj said this month Mongolia should have more control of the copper-gold operation that will

be the biggest contributor to its economy once it's in full production.

―I'm concerned by recent political signals within Mongolia calling into question some aspects of the

investment agreement,‖ Rio Chief Executive Officer Sam Walsh said during a webcast presentation.

―This undermines the partnership we've built and the stability on which a project of this size and

scale depends.‖

The government is seeking to boost Mongolian participation in management and increase the

number of local companies that can benefit from the project, including the use of Mongolian banks.

Rio Tinto reported a lower-than-expected second half loss as earnings at its iron ore unit beat

analysts‘ estimates and it raised its dividend. The loss was USD 8.9 billion in the six months ended

31 December from a USD 1.76 billion loss a year ago, Rio Tinto said in an email. The loss, the

biggest in at least 15 years, was driven by USD 14 billion in writedowns on the value of its aluminum

and coal business and offset by an almost USD 1 billion benefit from its mineral sands operations.

Source: Bloomberg

March

Issue 263

OT INVESTORS RESPOND TO WEEK‟S MEETINGS

This week saw the continuation of a closed-door shareholders meeting for the Oyu Tolgoi copper-

gold project and a meeting of the project‘s board of directors. The meetings were used as a venue

to resolve a number of grievances from both private investors and the Mongolian government.

Turquoise Hill Resources Ltd. said it would continue to have productive discussions with the

government of Mongolia on a range of issues related to the implementation of the 2009 Oyu Tolgoi

investment agreement, including project development and costs, operating budget, project

financing, management fees and governance. While progress on these issues was made during the

last meetings, all parties have agreed to continue discussions during March 2013 with a goal of

resolving the issue in the near terms.

―Given Oyu Tolgoi‘s significant economic and social benefits to Mongolia, it is in the best interest of

all stakeholders to swiftly resolve these important issues and keep the project on schedule,‖ said

Kay Priestly, Turquoise Hill‘s chief executive officer. ―We are open and willing to consider

opportunities related to the implementation of the investment agreement and companion

shareholders‘ agreement that will assist the government as long as it preserves the respective

agreements.‖

Oyu Tolgoi LLC responded with similar remarks from its president and chief executive officer,

Cameron McRae regarding the meeting. He noted that the talks were helping parties reach some

resolution and encourage greater cooperation.

―Our shareholders have been working through a number of issues, but everyone shares a strong

commitment to the success of Oyu Tolgoi. Some of these issues are complex, so it‘s natural that

resolution is taking some time. But the talks are constructive, both shareholders are working hard

to see resolution, and real progress is being made.

Source: Oyu Tolgoi LLC, Turquoise Hill Resources Ltd.

MONGOLIA PLANS TO CHARGE RIO'S OT INTEREST ON TAX

Mongolia plans to start charging interest on allegedly unpaid tax owed by Rio Tinto Group's Oyu

Tolgoi LLC, as talks continue over the future of the USD 6.6 billion copper and gold mine, the

mining minister said.

Mongolia wants Oyu Tolgoi LLC, in which Rio Tinto controls 66 percent and the government the rest,

to pay interest, even as the two sides disagree on whether the tax payment was made. Oyu Tolgoi

said 5 February that it pre-paid USD 150 million in tax in 2010 and 2011 and was due to receive

credit for it last year. Mines Minister D. Gankhuyag said that the payment was a loan and tax

obligations are still outstanding.

―Their tax payment will now be charged with interest,‖ which has yet to be worked out, Gankhuyag

said. ―The Mongolia government did not do anything wrong. It's the investor side.‖

Oyu Tolgoi's budget is only approved by both sides until the end of the month, while London-based

Rio Tinto has said commercial scale operations are due to start by mid-year.

In addition to Oyu Tolgoi's tax prepayment, the company also made a USD 100 million prepayment

of dividends in 2010 and 2011, it said in its February statement. Separately, in 2012 Oyu Tolgoi paid

a total of USD 280 million to Mongolia in taxes and other fees, according to the statement. The USD

250 million that Oyu Tolgoi said were tax and dividend prepayments was actually a loan to the

Mongolian government that the country plans to repay in 2014 and 2015, with interest, minister

Gankhuyag said.

Source: Bloomberg

Issue 265

U.S. RAISES SERIOUS CONCERNS OVER OT'S ENVIRONMENTAL, SOCIAL IMPACT

World number two miner Rio Tinto PLC has suffered another setback at the Oyu Tolgoi copper mine

in Mongolia after the United States refused to vote on World Bank funding to expand the massive

copper-gold project in Mongolia.

Operator Turquoise Hill Resources, which is controlled by Rio Tinto, has already spent more than

USD 6 billion on the mine in the south Gobi Desert, where it hopes to start commercial production

by June. The additional USD 4.5 billion debt package being negotiated with the International

Finance Corporation (IFC), the World Bank's private sector arm, the European Bank for

Reconstruction and Development and several private institutions is needed to develop Oyu Tolgoi to

full capacity with an underground mine to compliment the open pit.

The Inter Press Service reported Friday the U.S. decision to abstain from voting would not derail IFC

funding of the giant mine, but would add further pressure to make substantial changes to the

controversial project.

―[T]he United States' review of the Environment and Social Impact Assessment (ESIA) for the project

has raised concerns in a number of areas,‖ a position paper, dated last February but publicly

released this week, states.

―First, the United States believes the ESIA has gaps in critically important information, particularly

related to the operations phase of the project and mine closure... Second, the ESIA does not

provide a sufficiently detailed analysis of associated facilities and cumulative impacts.

―In particular, the policy statement notes that the impact assessment, which currently focuses

almost exclusively on the project's construction rather than its potential operation, covers this

planned expansion ‗only lightly.‘ The document also draws attention to longstanding complaints

from local herder communities, currently pending before a World Bank Group auditor. The U.S. says

it is ‗keenly interested in the outcome of this review.‘‖

Source: Mining.com

GOVERNMENT MAKES DEMANDS FOR OT

Though the government has taken time out again from its Oyu Tolgoi negotiations with its private

partners, it has released a number of requirements it says are needed for compliance with the 2009

investment agreement and Mongolian law.

The Mongolian government has demanded from investors an explanation for increased investment

into the project and proper implementation of the feasibility study. It believes that investors have

deliberately breached the agreement made on 2009, claiming costs had soared USD 2 billion above

the initial USD 5.1 billion projection. Government has also demanded a breakdown of all expenses.

The added costs would have the government wait longer before it could collect dividends for its

shares from the original expected date of 2019.

Another allegation is that management costs are two to 2.5 times higher than international

standards. Although spending for management was originally projected at USD 321.4 million for the

2010-2013 period, that figure nearly doubled. The investment agreement mandates management

costs stay below 3 percent of investment.

The government has also claimed that prime investor Rio Tinto PLC hid a point of conflict of

interest regarding its legal advisor Goldman Sachs Group Inc. Government laid fault onto Rio Tinto

for not informing it that Goldman Sachs held shares of 66 percent-stakeholder in the Oyu Tolgoi

project Ivanhoe Mines Ltd. (now called Turquoise Hill Resources Ltd.) and its majority stakeholder

Rio Tinto while acting as its legal advisor.

Another claim alleges that Entree Gold Inc.'s 30 percent ownership of special licenses held by Oyu

Tolgoi LLC was in breach of Mongolian law. Under the 2009 investment agreement, the former

minister of mineral resources was permitted to transition the 3148X and 3150X licenses for

exploration to mining, which took effect three weeks after signing of the agreement. However, the

government has found this to be in violation of the Minerals Law, which only allows for such

decisions to be made by the Mineral Resource Authority. Acting in this way resulted in a stake of 26

percent rather than 34 percent, which would eventually mean a loss of USD 1.4 billion for the

Mongolian government in dividends earned.

Rio Tinto must operate in line with projections outlined in the feasibility study, said the

government, and in full compliance with the Minerals Law and Companies Law. That includes mining

the deposit without exhausting its resources and abstaining from mining activity at select areas with

high-grade mineralization. The feasibility study outlines the extraction of a quarter of copper

reserves and a third of gold reserves. It has also alleged that investors constructed concentrate

containers in China without permission from the Representative Leading Council and is in violation

of Clause 8.1 of the investment agreement by not providing equal payment to Mongolian and foreign

employees.

The government has also called for talks to address the issue of Resolution No. 57, which would

allow it to increase its stake in the project from 34 percent to 51 percent. It also feels it is owed

compensation for Rio Tinto's USD 4 billion in purchases for 51 percent interest in Turquoise Hill

Resources Ltd. (then called Ivanhoe Mines Ltd.)

The compound violations are reason enough for review of the agreement, said the government.

Source: Cover Mongolia

Issue 266

RIO PAYS NEARLY USD 12BN IN TAXES

Mining giant Rio Tinto PLC on Friday reported that it had paid some USD 11.6 billion in global taxes

during 2012.

In its voluntary tax report, the miner noted most of the taxes were paid in Australia, with more

than USD 8.9 billion outlaid to all levels of Australian government last year. Rio Tinto's Mongolian

operation added USD 280 million in taxes, with Canada accounting for USD 1 billion, the United

States for USD 376 million, Chile for USD 331 million, and the United Kingdom for USD 150 million. A

further USD 140 million was paid in France and South Africa accounted for USD 130 million in taxes.

Corporate income tax was the largest component of Rio Tinto's tax payments around the world,

followed by government royalties and payroll tax.

―Rio Tinto makes significant contributions to public finances in all the countries where we are doing

business,‖ said chief financial officer Guy Elliott. ―We believe it is important to disclose this tax

information because this level of transparency helps us to retain our license to operate, promotes

government accountability and plays a key role in combating corruption.‖

Source: Minnig Weekly

OT SAID TO GET USD 3.7BN FROM BANKS

Rio Tinto PLC attracted nearly double the USD 2 billion sought from commercial banks for the Oyu

Tolgoi project finance deal, according to three people familiar with the matter.

The Mongolian mine has attracted about 3.65 billion from banks, including 11 lenders committing

USD 300 million each, said the people, who asked not to be identified because the transaction isn't

public. Further banks may participate in the loan before it closes next month, they said.

Rio Tinto is seeking about USD 2 billion of 12-year loans from banks and a further USD 2 billion from

export credit agencies and international development lenders. The boards of International Finance

Corp. (IFC) and the European Bank for Reconstruction and Development (EBRD) granted approval to

join the USD 4 billion project finance deal last month.

HSBC Holdings PLC, Intesa Sanpaolo SpA and Natixis have committed USD 300 million to the deal,

said the people. They join Australia & New Zealand Banking Group Ltd., BNP Paribas SA,

Commonwealth Bank of Australia, Credit Agricole SA, ING Groep NV, Sumitomo Mitsui Banking

Corp., Societe Generale SA and Standard Chartered PLC in providing the biggest amount, people

familiar with the matter said last week.

Bank of Tokyo-Mitsubishi UFJ Ltd. and National Australia Bank Ltd. have committed USD 150 million

each, and Nederlandse FMO NV has pledged USD 50 million, they said.

David Outhwaite, a London-based spokesman for Rio Tinto, declined to comment on the financing.

The bank commitments come amid a tussle for control of the USD 6.6 billion copper and gold

project, Mongolia's single biggest investment. At full capacity the mine, which is suffering from cost

overruns, will account for almost a third of the economy.

Source: Bloomberg

Issue 267

STACKING OT'S RESERVES AGAINST ERDENET‟S RESERVES

The reserves found at the Oyu Tolgoi copper-gold mine dwarf those found today at the Erdenet

Copper mine, which currently generates Mongolia's largest copper-export revenues.

A feasibility study approved in March 2010 reported indicated resources at OT of 3.775 billion tons

of iron ore, with 19.7 billion tons of copper, 810 tons of gold, 5,905 tons of silver, and 75,600 tons

of molybdenum. Also reported were inferred resources of 3.38 billion tons of iron ore, with 380

million tons of copper, 1,328 tons of gold, 7,601 tons of silver, and 81,600 tons of molybdenum. The

study also showed Oyu Tolgoi's reserves are three to four times larger than the iron ore found at the

Erdenet copper mine, including seven times as much copper resources.

The Erdenet mine had total indicated resources of 1.544 billion tons of iron ore, with 8.058 billion

tons of copper and 2,223,874 tons of molybdenum. After 30 years of commercial production,

Erdenet Copper Corp. reported in 2009 inferred resources of 1.087 billion tons of iron ore, 4.79

billion tons of copper and 131,034 tons million tons of molybdenum.

Source: News.mn

April

Issue 268

OT GETS CONTINUED FUNDING THROUGH APRIL

The board of Mongolia's Oyu Tolgoi copper and gold mine agreed to continue funding the project

through April, Mining Minister Davaajav Gankhuyag said in mobile phone text message.

The mine is operating on a month-to-month budget and requires approval from the board of

directors. International investors currently cash fund the entire project.

Putsag Tsagaan, an Oyu Tolgoi board member, said earlier this month that Mongolia will not

approve the budget for the entire year until the company produces a feasibility study for phase two

of the project.

Source: Bloomberg

Issue 269

MONGOLIA DEBATES THE INTERESTS OF GOLDMAN SACHS

Mongolia‘s parliament is deliberating on its past dealing with Goldman Sachs (Asia) LLC to decide

whether or not there was a conflict of interest.

Goldman Sachs acted as an advisor to the Mongolian government during the drafting of the Oyu

Tolgoi investment agreement, advising on financial aspects such as the development of a financial

model. The World Bank and other organizations, meanwhile, provided their own brand of financial

and legal advice, some without charge, while Goldman Sachs left a bill of USD 250,000, according to

Erdenes Oyu Tolgoi LLC at a session of Parliament.

Mining Minister Davaajav Gankhuyag concluded that session, remarking upon the need for a court‘s

opinion. However, what court the case should be introduced to has yet to be decided. One possibly

regulatory body is the U.S. Securities and Exchange Commission.

Source: Business-Mongolia.com

Issue 270

AUDIT SEEKS TO SETTLE USD 2 BILLION COST OVER-RUN CLAIMS

Mongolia said it is undertaking an audit of Rio Tinto PLC's Oyu Tolgoi operation as it seeks to

understand the reasons for an alleged USD 2 billion cost overrun at the mine where output is due to

start in June.

―We are checking procurement documents and expenditures,‖ Finance Minister Chultem Ulaan told

reporters in Ulaanbaatar. ―No one understands why the project has gone USD 2 billion over budget,

so we are checking this.‖

The USD 6.6 billion Oyu Tolgoi mine will be the largest contributor to Mongolia's economy and is

estimated to account for one-third of the nation's gross domestic product in 2020. The government's

audit team is studying what equipment was bought for the mine and its cost, said Ulaan. The

operators of Oyu Tolgoi have brought in a foreign auditor, he said.

Oyu Tolgoi is 66 percent owned by London-based Rio Tinto, the world's second-largest mining

company, with the remainder controlled by the land-locked nation. They've been in dispute over

the alleged cost overruns and management control with three emergency shareholder meetings held

this year. Mongolian president Tsakhia Elbegdorj said in February the country should have more

control over the project, prompting Rio to threaten delays to the start of production. Talks on

legislation governing Rio's investment at the mine are continuing.

―The agreement is fine, there are just some parts that need to be streamlined so it will be more

efficient,‖ said Minister Ulaan. ―We don't intend to increase the tax on Oyu Tolgoi, we are just

saying that they should pay what every other mining company pays.‖

Ulaan repeated a claim that Rio Tinto owes taxes to the government for 2012.

Cameron McRae, chief executive officer of Oyu Tolgoi LLC, said at the Mongolian Investment

Summit conference in London that ―constructive progress‖ is being made in talks with the

government. The company is well advanced in funding talks for an expansion of Oyu Tolgoi, he

added.

―Bank funding in the form of project finance is the most attractive finance option because it is

cheaper and better tailored to the project than any other option currently available,‖ McRae said.

―The process is now well advanced.‖

Source: Bloomberg

Issue 271

RIO COPPER NAMES BOLD BAATAR AS PRESIDENT OF INTERNATIONAL OPERATIONS

Rio Tinto PLC has appointed Baatar Bold as President of International Operations of its Copper

Group, effective from 3 June.

Bold, a native Mongolian who has served as an advisor to Rio Tinto for the past three years, will be

based in London. Bold comes to Rio Tinto from Golden East LLC, a gold exploration and mining

Company,

―Bold Baatar will be a strong addition to our copper product group,‖ said Rio Tinto Copper Chief

Executive Jean-Sebastian Jacques. ―His role will be to ensure safe and efficient operations at

projects and sites in Australia, South Africa, Papua New Guinea, Indonesia, Alaska; oversee specific

divestments within the copper group; and help to consolidate the copper portfolio. In addition, he

will establish strong partnerships between Copper International Operations and our service and

support functions and will be the catalyst for construction interactions with Rio Tinto Group

functions.‖

Prior to Golden East (Altan Dornod Mongolia), Bold was chief executive of Newcom, where he

managed and built a diverse investment portfolio across telecom, airlines, property management,

mining services, and renewable energy. Previously, he held senior-level positions with J.P. Morgan

in London, Moscow, and New York, where he acquired extensive experience in the mergers,

acquisitions, and divestment arena.

Bold is chair of the Mongolian National Mining Association board and a member of the executive

board of the Business Council of Mongolia.

Source: Oyu Tolgoi LLC

May

Issue 273

OYU TOLGOI APPOINTS NEW EXECUTIVE COMMITTEE MEMBERS

Oyu Tolgoi LLC announced the expansion of its Executive Committee with four new members.

Munkh-Ochir Tsogoo was named as general counsel and head of legal and compliance; Munksukh

Sukhbaatar as head of power strategy development; Tserenkhuu Tserevsuren as head of corporate

affairs; and Dulamsuren Begzjav as head of business analysis and planning. Tsogoo will assume his

role as general counsel from 1 June 2013.

―The expansion of our Executive Committee goes hand in hand with the evolution of Oyu Tolgoi

from a development and construction project to an operating business,‖ said Cameron McRae,

president and chief executive. ―The vast experience and expertise of the new members will

strengthen the Executive Committee, and I look forward to their contribution.‖

Source: Oyu Tolgoi LLC

Issue 274

MONGOLIA TO BEGIN OT INVESTIGATION

Mongolian media sources reported that the State Budget Standing Committee approved the start of

an investigation into Oyu Tolgoi LLC's compliance with company tax and contractual obligations.

―We believe this development is negative for Turquoise Hill Resources, as it increases the sovereign

risk of investment.‖ said Visor Capital. It added, ―As we believe that the vital issues for the

company remain the discussions with the Mongolian government of the OT project and signing of

the USD 4 billion project finance facility, we expect negative share impact.‖

Source: BNE

Issue 275

STATE COMMISSION APPROVES OT CONCENTRATOR

A state commission has given official approval to the copper concentrator at the Oyu Tolgoi copper-

gold mine.

Approval came on 9 May from a commission made up of representatives of the Mining Ministry,

Environment and Green Development Ministry, Industry and Agriculture Ministry, Economic

Development Ministry, Finance Ministry, and Mining Resources Department. The commission

requested from Oyu Tolgoi LLC an analysis on water resources, focus on more quickly finishing all

activity concerning the concentrator, and that work comply with the feasibility study for the

project. They also requested a report on the possible negative impact from industry on the

environment with a list of prevention activities.

Oyu Tolgoi‘s concentrator plant has the annual production capacity of 35 million tons of copper

concentrate.

Source: Unuudur

Issue 276

OYU TOLGOI DECLARES GOOD STANDING ON WATER FEES

Oyu Tolgoi LLC denied reports that it had fallen behind on payments for water fees incurred during

its operations.

―Recent media reports stating that OT's water supply has been stopped due to a tax dispute are

incorrect,‖ said a statement from Oyu Tolgoi. ― Oyu Tolgoi LLC has always operated in good faith in

accordance with all relevant laws and regulations.‖

The statement further stated that on 25 May the company received from the Ministry of

Environment Economic Development a notice that a new water fee scheme had been approved and

that it ―looked forward to reaching a mutually acceptable solution.‖

Source: News.mn

June

Issue 278

LAUNCH OF MONGOLIAN COPPER MINE ON HOLD PENDING AUTHORIZATION

The first export from Mongolia‘s $6.2 billion Oyu Tolgoi copper and gold mine is being held at a

later date than expected as project developers await final authorization from the government for

the launch of export.

A number of journalists were contacted to express their interest in a ceremony mooted for 14 June.

That event appears not to be taking place. Oyu Tolgoi LLC said nothing had changed from previous

statement that it was expecting first exports before the end of June. The opening of Oyu Tolgoi is

vital for Mongolia as it is expected to make up a third of the country‘s economy by 2020. The mine

is also a crucial source for growth for operator Rio Tinto as it aims to ease its dependence on iron

ore and cast off small unprofitable assets.

Mongolia‘s Prime Minister Norov Altankhuyag had planned to attend the event at the mine, a

government spokesperson said. A spokesperson for President Tsakhia Elbegdorj had said it was

unlikely he could attend because of activities related to his re-election campaign. Elbegdorj, who is

seen as more supportive of foreign investment than opposition candidates, is expected to win the

poll, scheduled for 26 June.

―We‘re hopeful come the second half of the year people will become a bit more positive on

Mongolia,‖ said Sam Spring, chief executive of Kincora Copper Ltd., a copper explorer with a

project near Oyu Tolgoi. ―Hopefully, Oyu Tolgoi ramping up and the completion of the project

financing helps, as does the presidential election.‖

Source: Reuters

July

Issue 281

MONGOLIA SAID TO DEMAND RIO TINTO KEEP MINE REVENUE IN COUNTRY

Mongolia is insisting that revenue from Rio Tinto PLC's USD 6.6 billion Oyu Tolgoi copper and gold

mine be kept in the country before it will allow sales to start, according to a government official

with knowledge of the matter.

Government officials want revenue from the mine to be held at a Mongolia-based bank, a decision

that Rio Tinto rejects, said the person, who asked not be identified as the talks are private.

London-based Rio postponed an event scheduled for today that was to mark the first shipment of

copper concentrate from the mine to China, citing a ―request from the government of Mongolia.‖

The standoff threatened Rio's June deadline for shipments and revived a dispute over the mine that

will account for 35 percent of Mongolia's GDP when fully operational in 2020. The Manhattan-sized

deposit will produce 450,000 metric tons of copper and 330,000 ounces of gold a year, as well as

silver and molybdenum. With fees, royalties and the 34 percent stake held by the government, as

much as 71 percent of the profits will to go the Mongolians, the International Monetary Fund

estimates.

Rio would not comment on whether the banking issue caused the delay to the first shipment, or

specify the reason for the postponement, with Melbourne-based spokesperson Bruce Tobin saying

the mine is ready to start shipments.

―Rio Tinto is keen to start shipping as soon as possible in order for the benefits from Oyu Tolgoi to

start flowing to all parties, including the people of Mongolia.‖ Tobin said in an emailed statement.

―Shipping will commence as soon as the government indicates its support for us to do so.‖

In February the Mongolian government blocked some of Rio's bank accounts in Ulaanbaatar over

unpaid tax claims, said three people familiar with the situation. While the accounts were unfrozen,

the two sides remained in protracted talks over how to solve a raft of issues, including management

control.

Source: Bloomberg

Issue 282-283

RIO FACES MORE HURDLES AT OYU TOLGOI, MONGOLIA SHAREHOLDER SAYS

Rio Tinto PLC faces lingering disputes with the Mongolian government over its Oyu Tolgoi copper

mine, said a director of the state company that owns a third of the mine, highlighting risks

confronting the massive project.

According to Tserenbat Sedvanchig, executive director of Erdenes Oyu Tolgoi, the government still

has 22 points of dispute with Rio Tinto, operator of the project that is expected to boost the

country's economy by 35 percent by 2020.

―If we don't make clear what was the amount of initial investment, resolution of some of the other

21 issues will be hindered,‖ Sedvanchig told Mongolian online news service News.mn in an interview

on Tuesday. He added, ―Any action aimed at tax evasion will be strictly prosecuted under our law

and Rio Tinto and the company management team probably understand this well. We requested Oyu

Tolgoi to register all its domestic and foreign accounts with relevant state agencies,‖ Sedvanchig

said.

Mongolia will receive at least USD 100 million in royalties from Oyu Tolgoi this year, he said. The

Mongolian government has said the USD 6.5 billion project is at least 2 billion over budget. Other

issues that remain to be resolved include the government's demand for equal pay for Mongolian and

foreign workers, concerns about higher management fees and fair representation of Mongolians in

management. The company has blamed delays in attaining permits, industry-wide costs increases

over the three years of development and inflation in Mongolia for the cost overruns above its early

estimates.

Two auditing teams are investigating costs incurred during phase one development of the project,

one appointed by the Oyu Tolgoi board and the other by Mongolia's parliament. The government and

Rio Tinto will need to resolve the dispute over the costs of the first phase of the project before

agreeing on funding for the second phase, an underground development expected to cost more that

USD 5 billion.

Source: Reuters

Issue 284

OYU TOLGOI CEO TO STEP DOWN IN NOVEMBER AFTER TERM ENDS

Cameron McRae, chief executive officer of Rio Tinto PLC's Oyu Tolgoi LLC, plans to step down from

his job, three years after taking control of Mongolia's biggest company, according to a person

familiar with the matter.

McRae's departure at the end of his three-year contract, which comes due in November, has been

communicated within the company, said the person, who asked not be identified because the

information isn't public. A successor has yet to be named, the person said.

McRae has steered Oyu Tolgoi through an inception that has included shareholder clashes over cost

over-runs, tax payments and a lack of local participation in the management of the USD 6.6 billion

copper and gold mine. Enough of the disputes were resolved to allow the project to begin copper

shipments earlier this month, after two postponements as Mongolia sought to ensure revenue from

the mine is passed through domestic banks.

Source: Businessweek

August

Issue 285

RIO DELAYS OYU TOLGOI UNDERGROUND DEVELOPMENT

Diversified miner Rio Tinto PLC on Monday announced that it would delay the underground

development at its Oyu Tolgoi copper project, in Mongolia.

The miner was notified by the Mongolian government that the terms of the project financing

provisionally secured for the underground development, reported to cost some USD 5 billion, would

need to be approved by Parliament. Parliament is currently in summer recess and Rio Tinto has

been warned that the approval process itself could take some time to work through. As such the

mining major on Monday said it would delay all funding and work on the underground development,

reported to cost some USD 5 billion, since it would need to be approved by Parliament.

In the meantime, Rio, through its 51 percent held subsidiary Turquoise Hill Resource Ltd., would

continue the management and ramp-up of the open-pit mine and export of Oyu Tolgoi concentrate.

Source: Mining Weekly

Issue 286

PM SAYS PARLIAMENT APPROVAL NOT NEEDED FOR OYU TOLGOI FINANCING

Rio Tinto PLC does not need to seek Mongolian parliamentary approval for a USD 4 billion financing

package to fund development of an underground mine at the Oyu Tolgoi copper project, Prime

Minister Norov Altankhuyag said.

―Parliament has already made the decision and signed their agreement,‖ Prime Minister Norov

Altankhuyag said at a weekly press briefing on Thursday. He added, ―Cabinet doesn't have to be

involved. All issues can be discussed and decided at the board of directors' level.‖

Rio Tinto on Monday put all work on the underground expansion of the Oyu Tolgoi mine on hold,

saying it had been advised that project financing provisionally secured for the project would need

to be approved by Parliament. It expects the process would take some months to work through as

Parliament was on summer recess.

Source: Reuters

RIO TINTO TO PROVIDE NEW FINANCING PACKAGE TO TURQUOISE HILL, SAYS WILL NOT BUY

MORE SHARES

Rio Tinto PLC and Turquoise Hill Resources Ltd. signed an agreement under which Rio Tinto will

provide Turquoise Hill with a financing package to enable it to fund the continuing development of

the Oyu Tolgoi copper-gold mine and, if necessary, to refinance its existing indebtedness to Rio

Tinto by the end of the year.

Rio Tinto agreed to provide a USD 600 million bridge funding facility to Turquoise Hill, maturing 31

December 2013, subject to certain conditions being satisfied. The facility will be used initially to

refinance all amounts outstanding under an existing USD 224 million short-term funding facility

provided by Rio in June 2013, and thereafter for the continued ramp up of phase one of Oyu Tolgoi

development. Rio has agreed to extend the short-term funding facility until 28 August and to permit

funds repaid by Turquoise Hill from the proceeds of the sale of its 50 percent interest in Altynalmas

Gold Ltd. to be redrawn. Rio Tinto has also agreed to waive its option to convert all or part of any

amounts outstanding under the short-term funding facility into Turquoise Hill common shares.

In addition, if Turquoise Hill must raise equity to repay this new bridge facility and the existing USD

1.8 billion interim funding facility provided by Rio Tinto, Rio has agreed to provide a firm stand-by

commitment for a fully underwritten rights offering by Turquoise Hill, subject to certain conditions

being satisfied.

Rio currently owns 50.8 percent of Turquoise Hill shares, along with anti-dilution rights that allow it

to acquire additional securities of Turquoise Hill so as to maintain its proportionate equity interest

in Turquoise Hill. Rio said it has no present intention of acquiring additional securities of Turquoise

Hill.

Source: Rio Tinto PLC

Issue 287

RIO ANNOUNCES 1,700 REDUNDANCIES

Rio Tinto PLC said on Wednesday it would have to cut up to 1,700 jobs in its Mongolian operations

after a more than USD 5 billion underground expansion of the giant Oyu Tolgoi copper mine was

suspended.

The expansion was put on ice last month as the global miner said the Mongolian government wanted

parliament, currently in recess, to approve financing for the project. Mongolian Prime Minister

Norov Altankhuyag said last week that Rio did not need to see parliamentary approval for the

development's package.

The delay marked the latest bump in the road for Rio at one of its biggest projects—and one of the

world's largest untapped copper deposits—which started exporting form an open pit in July after

two last-minute hiccups in securing government approval. Mongolia has raised concerns about the

costs of the Oyu Tolgoi expansion and the potential that rising expenditure will delay when it starts

receiving its fair share of profits.

―[Oyu Tolgoi is] still an operating business, exporting concentrate to our international customers

and infrastructure projects outside of the underground development, such as the road construction

to Tsagaankhad, will continue,‖ said a Rio spokesman.

At the end of April 2013, Oyu Tolgoi employed 11,750 people, almost 90 percent of them Mongolian

nationals. Rio said Oyu Tolgoi shareholders—itself and government—were still ―fully committed‖ to

resolving the issues holding back the underground development.

Source: Reuters

Issue 288

ERDENES OT EXECUTIVE DIRECTOR FIRED FOLLOWING RIO DISPUTE

The executive director for Erdenes Oyu Tolgoi LLC, Tserenbat Sedvanchig, has been fired after nine

months at the state-owned company, a period marked by disputes over mine costs and funding with

partner Rio Tinto PLC.

He was replaced by former deputy prime minister and member of Parliament Davaadorj Ganbold,

56, at a board meeting today, the national Montsame News Agency reported on its website.

―The project should work for both sides, Mongolia and Rio Tinto. Something should be done to find

consensus,‖ Ganbold said today in an interview. ―It's a marriage between the two sides and I will try

to make it work, to push the project forward.‖

Sedvanchig last month told Rio Tinto that Parliament is responsible for approving a multi-billion

dollar package to finance the second stage expansion of the mine. The news, announced in a 29

July press release by Rio Tinto, triggered a 20 percent drop in the share price of Turquoise Hill

Resources Ltd. Prime Minister Norov Altankhuyag had to step in and overrule Sedvanchig, saying the

decision to approve project financing could be made by the board of Oyu Tolgoi LLC.

Ganbold ―may be an ideal candidate to do what needs to be done as it relates to getting OT back on

track,‖ Nick Cousyn, chief operating officer at brokerage BDSec, wrote in a note to clients.

Source: Bloomberg

September

Issue 291

OYU TOLGOI APPOINTS NEW CEO

The top copper marketing executive at Rio Tinto Group will take over as the head of the Oyu Tolgoi

copper mine, said the mining unit on Wednesday.

Oyu Tolgoi's board, including three new Mongolian members, approved the appointment of Craig

Kinnell as president and chief executive, replacing Cameron McRae from 1 October. McRae is

leaving Rio Tinto. Kinnell takes over at a tricky time as Rio Tinto is trying to resolve disputes with

the Mongolian government over terms for USD 4.2 billion in project financing to fund an expansion

at Oyu Tolgoi, which is crucial to Rio and Mongolia's growth. Rio put the USD 5 billion expansion

project on hold in August and said it would have to cut up to 1,700 jobs due to the project financing

dispute.

"Craig's years of experience running mines and selling minerals at international market prices make

him the perfect choice to successfully lead the project in the coming years," Oyu Tolgoi Chairman

Batsukh Galsan said in a statement.

Source: Reuters

Issue 292

TURQUOISE HILL ANNOUNCES RESIGNATION OF JACQUES AS BOARD DIRECTOR

Turquoise Hill Resources Ltd. announced 17 September the resignation of director Jean-Sébastien

Jacques.

Jacques is resigning from the Turquoise Hill board in order to fully concentrate on his many

responsibilities as chief executive of Copper at Rio Tinto Group. A new Rio Tinto-nominated director

will be announced in due course.

Source: Turquoise Hill Resources Ltd.

Issue 293

MINING MINISTER DROPS OT INVESTMENT AGREEMENT RHETORIC

Mining Minister Davaajav Gankhuyag indicated a strong about face on his stance on the Oyu Tolgoi

investment agreement at a press conference on 26 September.

―It is true; I used to criticize the Oyu Tolgoi agreement. Now the government of Mongolia is not

against the OT agreement, ―said Gankhuyag. He added, ―The OT agreement was made already, so

we‘ll fulfill the agreement and everything shall be handled according to the agreement.‖

This is a strong reversal of past statements when he said Mongolia had a right to at least 50 percent

ownership of the project, pointing to Parliament Resolution No. 57. The UB Post reported on 15

September, 2012 that the minister said Mongolia had a right to 50 percent of the project as soon as

the initial investment by private investors was recuperated, and that the investment agreement was

in direct contradiction to Mongolian law.

―The OT IA violates the Constitution, parliamentary resolution 57, several provisions of the Law on

Foreign investment and the Minerals Law. The IA must be changed,‖ said Gankhuyag on at TV8

interview on 26 September, 2012.

―We find the comments from Minister of Mining Gankhuyag to be quite positive,‖ said BDSec JSC

Chief Operating Officer Nick Cousyn, ―and mark a notable shift in sentiment on his and the GOM‘s

behalf.‖

Source: BDSec JSC

October

Issue 294

MONGOLIA CONFIDENT OF RESOLVING OYU TOLGOI BATTLE BY DEC 31

The Mongolian government is confident it can resolve disputes with Rio Tinto over a $5 billion

expansion of the Oyu Tolgoi copper and gold mine by Dec. 31, the deadline for sealing financing for

the project, an official said on Tuesday.

"I am very confident," the mining ministry's director general of strategic policy and planning, and a

boarder member for Oyu Tolgoi LLC. Otgochuluu Chuluuntseren, told reporters, when asked

whether Mongolia would be able to resolve issues ahead of the deadline.

The Oyu Tolgoi board, including three new Mongolian directors, met in London last weekend to try

to resolve about 15 concerns that the Mongolian government has raised.

Mongolia has yet to be satisfied on three major issues: terms for project financing, an analysis of

cost overruns at Oyu Tolgoi and feasibility studies for the mine's expansion, Otgochuluu said. The

government hopes to see a feasibility study for Phase 2 by early 2014, he said, and wants a detailed

breakdown of costs for each phase of the mine's development, rather than accepting a figure of

more than $14 billion for the whole development.

"The Mongolian government has equity so we have to closely follow the costs," Otgochuluu said. He

added, "We made good progress for the sustainability of mutual trust," he said. "I don't want to

jeopardize trust because of minor technical issues."

Uncertainty over Oyu Tolgoi, as well as changing foreign investment rules, have led to a 43 percent

drop in foreign direct investment in Mongolia this year and rocked shares in smaller companies with

projects in the country.

Source: Reuters

RIO TINTO'S OYU TOLGOI FACES CHINESE CUSTOMS DELAY

The Oyu Tolgoi copper and gold mine has already begun to receive payments for copper

concentrate shipped to a warehouse in China but hasn't yet recorded any revenue due to Chinese

customs approval delays, Turquoise Hill Resources Ltd. said.

The delay represents another stumbling block for the project which has been mired in years of spats

over matters, including how to maximize returns and the ratio of foreigners in its workforce.

Turquoise Hill, which owns 66 percent of Oyu Tolgoi and is majority owned by the project's

operator, Rio Tinto PLC, said the mine "has begun to receive payments from customers. However,

as revenue is recognized [only] when customers withdraw concentrate from the warehouse, to date

Oyu Tolgoi has not recorded any revenue."

Oyu Tolgoi has produced 160,000 metric tons of copper concentrate and shipped approximately

38,000 tons of concentrate to a bonded warehouse in China between the time it began its first

shipments in July and 18 September. Another 122,000 tons is currently being held in inventory at

the mine, the company said.

Although Oyu Tolgoi has established the logistics process with Mongolian customs officials enabling

concentrate to be delivered to the bonded warehouse in China, Oyu Tolgoi's customers are currently

engaged with Chinese customs officials to receive the necessary approvals to enable them to collect

purchased concentrate from the warehouse, the company said.

Production at the mine has not been affected while customers work through the Chinese customs

process, the company added. Oyu Tolgoi's concentrator continues to ramp up and is currently

running at full capacity or approximately 100,000 tons of ore processed a day. "Turquoise Hill

continues to expect Oyu Tolgoi sales to be aligned with production rates by the end of this year," it

added.

Source: Wall Street Journal

Issue 295

RIO, MONGOLIA RESOLVE ISSUES IN MINE CONFLICT

The Mongolian government says half of the concerns about the development of Mongolia's massive

Oyu Tolgoi copper and gold mine have been resolved and that a meeting will be convened next

week to whittle away the remaining issues.

Rio Tinto PLC, the project operator and major shareholder, and the Mongolian government held an

Oyu Tolgoi board meeting last week in London in which they resolved 15 out of the 30 urgent issues

that had led to the suspension of the USD 5.1 billion expansion project. The board agreed, among

other things, that all Oyu Tolgoi licenses owned by third parties should be transferred to Oyu

Tolgoi, giving the Mongolian government a 34 per cent stake in the licensed deposit area. This

means that two licenses part-owned by Canada-listed mining company Entree Gold will be

transferred to Oyu Tolgoi. As part of the transfer, the Mongolian government will receive an

additional USD 1.4 billion over the duration of the project, the government said.

The Mongolian government and Rio Tinto have been at loggerheads over the investment terms of an

agreement signed by both parties in 2009. The government has been pressing Rio to improve the

terms of the deal, amid escalating costs. For its part, Rio wants to ensure that the government

keeps to the original investment agreement.

The board will meet again on Monday to address three key outstanding issues: how to monitor and

reconcile project cost overruns, submit an authorized registration of the expansion project plan,

and review additional project financing.

Source: The Australian

Issue 296

TURQUOISE HILL BRINGS OYU TOLGOI PRODUCTION UP TO „NAMEPLATE‟ CAPACITY

Turquoise Hill Resources Ltd. on 14 October announced third quarter 2013 production at its massive

copper-gold-silver Oyu Tolgoi mine in Mongolia, broadly in line with expectations.

"During the third quarter, the Oyu Tolgoi concentrator continued to ramp up and is now operating

at nameplate-capacity of approximately 100,000 tons of ore processed per day,‖ said Kay Priestly,

chief executive of the Vancouver-based company. ―Concentrate shipments began early in the

quarter and Oyu Tolgoi's customers are making good progress with Chinese customs officials to

resolve matters with purchased concentrate at the border." She said, "Head grades improved in the

quarter with a lower proportion of stockpiled ore processed as open-pit mining activities ramped up

after being reduced in the second quarter to preserve cash. Given the mine and concentrator are

still early in development and operation, ore grades and recovery rates are expected to continue to

improve throughout the fourth quarter."

Turquoise Hill said it expects the USD 6.6 billion mine, which shipped its first copper in July, to

produce between 75,000 and 85,000 tons of copper in concentrates for 2013 and that shipments of

concentrate are expected to be aligned with production rates by the end of 2013.

Source: Mining.com

Issue 297

CUSTOMS DISPUTE RESOLVED FOR RIO'S OYU TOLGOI SHIPMENTS

A customs dispute that had been holding up copper concentrate shipments from Rio Tin PLC's

massive Oyu Tolgoi mine has been resolved, Turquoise Hill Resources Ltd. said on Monday.

Oyu Tolgoi had been scheduled to start shipping to customers in China after opening in July, but

was forced to stockpile material while buyers negotiated import approvals. Turquoise Hill, 66

percent owner of the USD 6 billion mine run by Rio Tinto, said customers have received the needed

approvals, and a convoy carrying concentrate left its warehouse at the Chinese border on Saturday.

"The withdrawal of concentrate from the warehouse by customers is expected to ramp up quickly,"

said the Toronto-listed company in a statement. It said the mine will now start recording revenue.

Oyu Tolgoi's concentrator has been operating at full capacity, processing some 100,000 tons of ore

each day. Turquoise Hill reiterated that it expects shipments to be in line with its production by the

end of this year.

Source: Reuters

November

Issue 300

ENTRÉE NEGOTIATES FOR STABILITIES AT OT

Entrée Gold Inc. reported on its negotiations with Mongolia for its joint venture with Oyu Tolgoi LLC

in its third-quarter report published 13 November.

Since the government placed its temporary restriction on the joint venture licenses from transfer in

February 2013, discussions have focused on issues arising from Entrée's exclusion from the 2009 Oyu

Tolgoi investment agreement, including the fact that the government of Mongolia does not have a

full 34 percent interest in the joint venture property. Discussions have also covered the fact that

the mining licenses integral to future underground operations are held by more than one corporate

entity and that Entrée does not benefit from the stability that it would otherwise have if it were a

party to the 2009 agreement.

―Meetings to discuss possible ways of addressing all parties' concerns have been positive and

constructive,‖ said the Source. ―No final agreements have been reached and further discussions

with all stakeholders are required.‖

Stakeholders of the Oyu Tolgoi project, including the Government of Mongolia, OT LLC, Erdenes Oyu

Tolgoi LLC, Erdenes MGL LLC and Rio Tinto.

Source: Entree Gold Inc.

Issue 301

TURQUOISE HILL TO RAISE UP TO $2.4BN TO REPAY RIO FUNDING AT OT

Turquoise Hill Resources Ltd. said Thursday it was planning a rights offering of up to USD 2.4 billion,

citing delays at Rio Tinto PLC‘s Oyu Tolgoi copper and gold mine in Mongolia that have stopped it

from financing the mine's next phase.

Shares of Vancouver-based Turquoise Hill, which owns 66 percent of Oyu Tolgoi, fell more than 6

percent to CAD 4.35 in afternoon trading on the Toronto Stock Exchange. Diversified miner Rio

Tinto owns 50.8 percent of Turquoise Hill and operates Oyu Tolgoi. Turquoise Hill filed a

preliminary prospectus for the rights offering. Rights offerings raise funds from existing

shareholders.

Rio Tinto put Oyu Tolgoi's more than USD 5 billion underground expansion on hold in July, saying the

Mongolian government wanted parliament to approve the project's financing. Turquoise Hill said

progress was being made with the government, but it was not clear when the project would be

approved or when a feasibility study would be final. The company said it did not expect to

complete project financing this year. Under an agreement with Turquoise Hill, Rio Tinto will be

required to buy shares that are not taken up under the rights offering, subject to some conditions.

Turquoise Hill needs the funds to repay Rio Tinto under two funding facilities. The facilities'

maturity dates have been extended to 15 January, 2014, so the rights offering can be completed.

Turquoise Hill also reported its financial results for the third quarter on Thursday. It posted a net

loss of USD 94 million, or 9 cents a share.

Source: Reuters

Issue 302

MONGOLIA WANTS TO RESOLVE MINE DISPUTE WITH RIO TINTO BY EARLY 2014

Mongolia hopes the USD 5 billion expansion of the giant Oyu Tolgoi copper and gold mine can start

next year as it works to resolve a dispute with global miner Rio Tinto PLC, its partner on the

project, a government source said.

But Rio Tinto may be reluctant to push on too quickly due to bleak market conditions, the source

said, with copper prices down more than 10 percent in 2013 and expected to drop further on a

flood of new supplies from South America and Africa.

"Our side is committed to starting the second phase as soon as possible and we can agree on certain

issues in December or January and plan development," said the source, which is involved in

Mongolia's discussions with Rio Tinto but did not want to disclose his name.

Craig Kinnell, Rio Tinto's new representative in Mongolia and the chief executive of the Oyu Tolgoi

project, said one of his four priorities would be to prepare the project for future growth, but he

gave no timeframe for the expansion.

"I am as expectant as everyone for the day that the issues under discussion will be resolved. But

speed is not the measure of success," Kinnell said in his first public speech in the job at the

Mongolian Investment Summit in Hong Kong last week on Tuesday.

Mongolia has complained about first phase costs being USD 2 billion higher than originally planned,

the source said. The source said the overruns would mean it would take longer for the Mongolian

government to pay back what it owes on the project, meaning that it would take longer before it

started receiving dividends. He said Mongolia also continues to object to Rio Tinto's financing and

management costs.

Erdenes Oyu Tolgoi, the government entity that holds Mongolia's 34 percent stake in the project,

said in a statement on Tuesday that Mongolia remained fully committed to the project and to the

terms of the original 2009 agreement. Some interpreted the statement as a sign that the

government is prepared to be flexible to resolve a deadlock that has forced Rio Tinto to lay off

1,700 staff at the mine.

Source: Reuters

December

Issue 304-305

OYU TOLGOI APPROVES 2014 BUDGET

The Oyu Tolgoi LLC board of directors unanimously approved the company program, plan and

budget for 2014. The decision was taken at the quarterly board meeting held in Ulaanbaatar from

11 to 12 December.

―It‘s great to have unanimous board support for the project‘s coming year,‖ said Craig Kinnell,

president and chief executive officer of Oyu Tolgoi. ―This is a sign of confidence in the entire

8,000-strong Oyu Tolgoi team. After safely ramping up production this year, we‘re now looking

forward to our first full year of exporting business.‖

Source: Turquoise Hill Resources Ltd.

OT MINE‟S „PHASE TWO‟ BANK FINANCING PLEDGES EXTENDED

Turquoise Hill Resources Ltd. said on Monday that parent Rio Tinto PLC had secured extended

commitments from the banks that have agreed to finance the underground expansion of the Oyu

Tolgoi copper and gold mine. The extension, to March 31, gives Rio Tinto more time to resolve a

dispute over costs with the government of Mongolia. Rio, which owns 50.8 percent of Turquoise Hill

and operates Oyu Tolgoi, put the mine's more than USD 5 billion expansion on hold in July, saying

the Mongolian government wanted parliament to approve the project's financing. Mongolia, which

will not see its share of Oyu Tolgoi's profit until Turquoise Hill recovers its costs, has complained

that total costs on the first phase were USD 2 billion higher than planned. It wants assurances such

overruns will not happen again, and hopes to resolve the dispute by early 2014, a government

source told Reuters last month. Turquoise Hill, which owns 66 percent of Oyu Tolgoi, had said in

June that financing commitments would expire Dec. 12. The Vancouver-based company announced

a rights offering to raise up to USD 2.4 billion in November, citing the delays at Oyu Tolgoi. A

feasibility study for the underground expansion is still on track for the first half of 2014, the

company said on Monday. It also confirmed that it expects Oyu Tolgoi to produce 150,000 to

175,000 tons of copper in concentrates, and 700,000 to 750,000 ounces of gold in concentrates in

2014.

Source: Reuters

TRAFIGURA AGREES TO OFF-TAKE DEAL FOR OYU TOLGOI MINE

Commodity trader Trafigura has agreed to provide financing for the massive Oyu Tolgoi mine in

exchange for a long-term deal to buy an undisclosed portion of the output, it said on Monday.

Trafigura, which markets a wide range of metals including copper concentrate, referred to the off-

take deal in its first fully public annual report since being set up 20 years ago. "We also provide

finance in exchange for long-term supplies. For instance, we recently signed an off-take agreement

with Oyu Tolgoi in Mongolia," it said, giving no further details.

Rio Tinto put the mine's USD 5 billion expansion on hold in July, saying the Mongolian government

wanted Parliament to approve the project's financing. Mongolia hoped to resolve the dispute by

early 2014, a government source told Reuters last month. Fifteen banks that have agreed to finance

the expansion have told Rio they will extend their commitments, which were due to expire at the

end of the year, until next March, a statement said on Monday. Trafigura also said the global copper

market is expected to be broadly in balance next year as low inventories and a recovery in global

growth offset stronger mine output.

"We don't expect prices to rise markedly, but on the other hand, with concentrates trading at close

to cost levels for some producing areas, a collapse in prices is also unlikely," the Trafigura report

said.

The benchmark copper price on the London Metal Exchange has shed 8.3 percent this year, weighed

down by more output from new mines such as Oyu Tolgoi and improved operations at many existing

mines. The global copper market is expected to widen its surplus next year to 328,000 tons from

182,000 tons this year, analysts polled by Reuters said in October.

Source: Reuters

III. TAVAN TOLGOI

Under new management

January

Issue 257

TRANSPORT FIRM HALTS EXPORT OF COAL FROM TT

Erdenes Tavan Tolgoi JSC has been denied the transport of its exports after failing to pay service

fees.

Altangovi, who is in charge of the coal transport loading facilities at Tsagaan Khad, which is nearby

Mongolian-Chinese border point Gashuun Sukhait, suspended transportation of its coal last Friday.

The suspension of transport for Erdenes-TT's goods has reportedly also affected China, creating a

halt in transport there too.

The government is currently in negotiations for a USD 200 million loan from the Development Bank

of Mongolia to Erdenes-TT. Without those funds, exports from Tavan Tolgoi may not be possible.

Source: News.mn

ERDENES-TT SEEKING STATE LOAN, CEO SAYS

Mongolia's Erdenes Tavan Tolgoi JSC, the country's largest state-owned coal company, is seeking a

USD 400 million to USD 500 million government loan to repay debt and build infrastructure, its chief

executive officer said.

"Our financial situation is very complicated at the moment and we have to cover our debts and

finance all our infrastructure projects and operations," Ya. Batsuuri, a former member of

Parliament who has led Erdenes-TT since October, said.

Erdenes-TT, which signed a USD 250 million contract in July 2011 to supply coal to companies

including Aluminum Corp. of China Ltd., transferred about MNT 300 billion to the government's

Human Development Fund in 2011 and 2012. The fund hands out cash to Mongolian citizens as part

of a government effort to redistribute the nation's mining wealth.

Source: Bloomberg

Issue 258

NO IPO FOR ERDENES-TT IN 2013, SAYS CEO

State-owned Erdenes Tavan Tolgoi LLC will receive government funds of USD 350 million to repay its

debts and will also seek to renegotiate a supply contract with the Aluminum Corp. of China Ltd.

(Chalco), Chief Executive Officer Ya. Batsuuri said.

But it is unlikely to be enough to develop the mine's huge potential as well as build the

infrastructure required to deliver the coal to market from the south Gobi, and the project is likely

to face further delays. The company's problems have already forced it to suspend deliveries to

China.

―E-TT is facing... financial difficulties. That's why we stopped our coal transportation and export,‖

Batsuuri said.

Last year, Batsuuri's predecessor complained publicly that a government decision to make the

company pay MNT 937 billion (USD 670 million) into the country's Human Development Fund had

held back progress on the mine. Batsuuri said the government had now agreed to help pay its debts,

although the government has agreed to only pay USD 350 million of the USD 500 million the

company had hoped for.

Mongolia was planning to raise up to USD 3 billion in funds by listing the eastern Tsankhi section of

the mine on foreign stock markets this year, but Batsuuri said such plans were now suspended.

―Not this year,‖ he said. ―We decided to wait until the market recovers, the price of coal increases,

and until E-TT starts regular construction of its wash plant. Plus we need to increase our exports.‖

Batsuuri said Mongolia would also seek to renegotiate a coal sales deal with Aluminum Corp. of

China Ltd. with the aim of bringing prices in line with international levels. In a deal signed in July

2011, Tavan Tolgoi originally agreed to sell USD 250 million worth of coal to Chalco, but it didn't

reveal the volumes involved. Analysts have said the price could be as much as USD 20 a ton cheaper

than the average prices of Mongolian coal delivered in China, which are already much lower than

international rates.

Batsuuri said Tavan Tolgoi had received a USD 350 million loan from the Chinese company and had

paid almost half of the money back in the form of coal.

―Paying by coal is not profitable for the company. We are losing on coal trade. That's why the

government made the decision to pay out the remainder. We will pay the remaining USD 180 million

in cash.‖

He said Mongolia wanted to sell the coal at standard global prices, and we're also seeking other

buyers other than China. However, Chalco appeared to rule out the prospect of talks when

contacted.

Source: Reuters

February

Issue 259

CHALCO THREATENS LEGAL ACTION IN TT COAL DISPUTE

The Aluminum Corp. of China said on Monday that it would seek legal redress if Mongolia sought to

break a coal sales agreement signed in 2011.

Mongolia's state-owned Erdenes Tavan Tolgoi LLC, which runs the coveted 7.5 billion-ton Tavan

Tolgoi coal project, said last week that it is seeking to renegotiate a 2011 deal with Chalco to

supply USD 250 million worth of coal from the deposit. Speaking at a press conference, Li

Dongguang, president of China Aluminum International Trading Co. Ltd., a subsidiary overseeing the

Mongolian deal, said the company would seek compensation for any breach of the contract.

Li said Chalco imported 2.37 million tons of coal from Tavan Tolgoi in 2012, lower than the original

plan of three million to four million tons. Chalco made an advance payment of USD 250 million to

buy coal from Erdenes-TT in July 2011. Shipments to China were suspended earlier this month

because the state-owned Mongolian firm was unable to pay the cost of delivery.

Chalco would be willing to provide financial help to Erdenes-TT to keep operations running, and

would consider paying the company's transportation costs, but it says all offers have been ignored.

―We have proposed many solution plans, but there has been no response from them,‖ said Liu

Xiangyu, the manager of the company's Hong Kong unit, who is in direct talks with Mongolia. ―All

they request is to adjust the price, cut the volume, and renegotiate.‖

Ya. Batsuuri, the chief executive of Erdenes-TT, last week said the prices paid by Chalco were

lower than the cost of production, and that Mongolia wanted to sell its coal to other customers at

international prices. Chalco said the prices were index-based, with a 10 percent discount compared

with Australian prices to account for the lower quality of Mongolian coking coal. Li said Chalco was

paying as much as USD 100 per ton to move Tavan Tolgoi coking coal across the border to markets in

southern and eastern China.

―The new management team [of E-TT] doesn't understand the situation,‖ he said.

Source: Reuters, Wall Street Journal

MONGOLIA COUNTS ON CHINESE RIVAL TO BREAK COAL DEAL IMPASSE

Mongolia is reaching out to China's largest coal producer, China Shenhua Energy Co. Ltd., in an

effort to break a deadlock over the terms of a souring coal-for-loan deal with another Chinese

resource company, Aluminum Corp. of China Ltd. (Chalco), according to Mongolia's Ambassador to

Beijing, Ts. Sukhbaatar.

China's state-owned resource giants often compete with each other—at least in the early stages—in

securing projects, and Mongolia may be counting on the Chinese companies' innate sense of rivalry

to prompt renegotiation of an increasingly untenable resource deal.

State-owned Erdenes Tavan Tolgoi LLC, which owns the project, has halted coal exports to China in

a bid to renegotiate the July 2011 agreement, under which Chalco lent the firm USD 350 million to

be repaid in coal but capped the commodity's price at USD 70 a metric ton, Sukhbaatar said.

―Chalco was just using a moment when the government badly needed funding to get a deal that was

unacceptable in the sense of normal international trade,‖ he said.

The management team at Erdenes-TT has repaid nearly two-thirds of the loan, and now wants to

change the contract to reflect fluctuating market prices for coal, he said. Coking coal import prices

are around USD 190 a ton, according to the 52Steel.com consultancy, though they were even

higher—Russian coal imports cost around USD 229 a ton including transport and taxes—at the time

the Chalco deal was reached.

Mongolia may be hoping Shenhua, which is in the running to develop the western half of Tavan

Tolgoi, will work to resolve the impasse with an eye on gaining goodwill in its bid for the project.

―What we're trying is to deal with Shenhua as the principal and the biggest coal company‖ in China,

he said.

Source: 4-Traders

MONGOLIA‟S BIGGEST COAL MINER LOSES EXECUTIVES IN COST CUTTING

Erdenes Tavan Tolgoi LLC said its two most senior foreign executives resigned as part of cost cuts at

the cash-strapped company.

Chief Financial Officer Angus Caithness and Chief Operating Officer Graeme Hancock have left,

Erdenes Tavan Tolgoi spokeswoman G. Enkhmanduul said in an emailed statement. Caithness and

Hancock are two of four deputy directors at the company, she said.

―To overcome the current financial problems the board of directors decided to decrease the

company's management expense by releasing the foreign deputy directors,‖ Erdenes-TT said in a

separate statement today. The posts will be vacant until the company's financial situation recovers,

it said.

The departure throws into question the timing of Erdenes-TT's initial public offering, which was

expected to raise as much as USD 3 billion when first planned three years ago. They follow the

company revealing this month that it stopped deliveries to Aluminum Corp. of China Ltd. (Chalco),

its main buyer, because it could not afford to truck coal to China.

Hancock was the second-highest executive at Erdenes-TT and his role included preparing the

company to list in Hong Kong, London, and on the domestic bourse. Caithness is a graduate of

Harvard Business School and the Financial Services Institute of Australasia. He formerly served as

the CFO of Hunnu Coal Ltd.

Source: Bloomberg

Issue 261-262

ERDENES TT SELECTS DOMESTIC FIRM FOR WEST TSANKHI DEVELOPMENT

Erdenes Tavan Tolgoi LLC selected Mongolian firm Khishig Arvin to begin development of the West

Tsankhi at the Tavan Tolgoi coking coal project.

The company will begin soil removal beginning at the end of next month. Erdenes-TT's Chief

Executive Officer, Ya. Batsuuri, said West Tsankhi would produce an additional seven million tons of

coal this year, which would help improve the company's financial status.

Source: Zuuni Medee

March

April

Issue 268

GOVERNMENT HAS SECOND THOUGHTS ON CANCELING CHALCO AGREEMENT

Mongolian politicians have changed their tone on the Tavan Tolgoi offtake agreement with

Aluminum Corp. of China Ltd. (Chalco), indicating they may be able to resolve their disagreements

without canceling it.

At a recent press conference Prime Minister Norov Altankhuyag suggested that canceling the

contract might not be in Mongolia's best interest. Furthermore, in a 2 April interview with

newspaper Udriin Shuudan, both Mining Minister Davaajav Gankhuyag and Erdenes Tavan Tolgoi LLC

Chief Executive Officer Yaichil Batsuuri echoed the prime minister's remarks. They said ministry

officials had met with their Chinese counterparts to discuss the issue and that Chalco

representatives would arrive in Mongolia on Thursday for discussion.

―At the Cabinet level, we are assessing whether we should pay our debt back with coal or with

cash,‖ said Gankhuyag.

Source: Mongolia International Capital Corp.

GOVERNMENT TO ESTABLISH POWER PLANT JV AT TAVAN TOLGOI

The Cabinet of Ministers has agreed to pursue a joint venture with private investors for a 450-

megawatt power plant at Tavan Tolgoi.

The government plans to hold at least a 34-percent stake in the project, but the Ministry of Energy

has the authority to modify that expectation. Energy Minister M. Sonompil will act as project

coordinator of the company.

Source: News.mn

TT POWER PLANT TO GET GREATER POWER OUTPUT CAPACITY

Mongolia will increase the size of a planned thermal power plant in the Gobi desert by 50 percent

to meet the needs of its biggest project, the Oyu Tolgoi copper and gold mine.

The Tavan Tolgoi power station will generate 450 megawatts, compared with an earlier capacity of

300 megawatts, Minister of Energy Mishig Sonompil said in a phone interview today. The plan was

approved by the government at a meeting on 30 March. The generator will run on fuel from the

Tavan Tolgoi coking coal deposit, which has 6.4 billion metric tons of reserves.

Mongolia will fund 30 percent of the power station through its USD 1.5 billion Chinggis bond. The

rest will come from private investors and loans. Mongolia will own at least 34 percent of the plant,

according to a 30 March statement.

Former Prime Minister Mendsaikhan Enkhsaikhan was appointed head of the power plant.

Source: BusinessWeek

Issue 271

ERDENES TT RESUMES EXPORTS TO CHINA

Mongolia's massive Tavan Tolgoi coal mine resumed exports of coking coal to China on Monday after

suspending deliveries in January due to cost pressures, the state firm in charge of the project said.

Erdenes Tavan Tolgoi LLC signed an initial USD 250 million coal sales agreement with Aluminum

Corp. of China in July 2011, but halted deliveries in January, saying the price paid for the coal was

below the cost of production. The firm, already saddled with huge debts, said it wanted to

renegotiate the terms of the Chalco deal.

Late in January, Chalco threatened to take legal action against Erdenes TT if it failed to comply

with the terms of the contract. Erdenes TT said in a statement on Monday that cost cutting at the

mine had allowed it to reduce its losses. It would resume deliveries to Chalco immediately, but was

still seeking to renegotiate the 2011 deal.

Source: Reuters

May

Issue 272

ERDENES TT TAVAN REACHES ACCORD WITH CHALCO AS SHIPMENTS RESUME

Erdenes Tavan Tolgoi LLC, Mongolia's largest state-owned coal company, agreed to pay a higher

interest rate on the USD 186 million due to Aluminum Corp. of China Ltd. (Chalco) as part of an

accord to resume coal deliveries.

During a standoff between Erdenes TT and Chalco, the Mongolian side failed to repay USD 186

million. As a result, the interest on the loan amount has been increased, Erdenes TT said, without

specifying the rate.

Erdenes TT restarted coal shipments to Chalco on 22 April after winning a USD 3 a metric ton price

increase from the Chinese buyer, the Mongolian company said. Chalco will pay USD 56 a ton and

Erdenes TT will supply the Chinese company five million to six million tons this year, the company

said. Exports to Chalco stopped on 11 January due to a lack of funds required to pay for

transportation.

Source: Bloomberg

Issue 273

TT TENDER TO HELP SECURE NEW CUSTOMERS

Mongolia's plan to develop the untapped western block of its massive Tavan Tolgoi coal mine will

help raise cash from new customers to offset an exclusive but loss-making supply deal with China's

Aluminum Corp of China Ltd. (Chalco), an official with the mine's developer said.

The mine's state-owned operator, Erdenes Tavan Tolgoi LLC, expects to begin exporting coal from

the West Tsankhi coal field in the third quarter of this year after opening it up to tender last week,

said Delgersaikhan Tsagaan-Uvgun, head of mine planning at the firm.

―The bid is for one year, but we have to complete it quickly, hopefully in six months. We just want

to make some coal available to sell to some other customers besides Chalco, which may give some

extra cash,‖ Tsagaan-Uvgun told Reuters.

Mongolia is under pressure to raise funds to plug a budget gap and stave off a credit downgrade.

Chalco has exclusive rights to purchase coal from the East Tsankhi coal field via a USD 250 million

offtake agreement signed in 2011.

"The government instructed us to increase the number of customers, so we will go and ask some

other customers to buy it," Tsagaan-Uvgun said.

Source: Reuters

Issue 274

MONGOLIA‟S ERDENES TT TO MINE COAL COVETED BY PEABODY, SHENHUA

Erdenes Tavan Tolgoi LLC will begin this year to mine Mongolia's West Tsankhi coal area as part of

the debt-laden company's plan to ramp up output and pay off money owed to Aluminum Corp. of

China Ltd.

Erdenes TT will pick a contractor in the next few months to start work at West Tsankhi with target

output of 2.6 million metric tons for 2013, chief executive officer Yaichil Batsuuri said. The miner

resumed deliveries last month after a three-month suspension over a dispute regarding price, and

may be able to repay Aluminum Corp. of China Ltd. (Chalco) the USD 186 million it owes, which is

to be paid in coal deliveries, about six months from now, he said. Erdenes TT also owes about USD

200 million to the Development Bank of Mongolia LLC, he said.

The company envisions increasing output to 15 million tons next year and more than 30 million tons

by 2017, he said. As production rates increase, Erdenes may still pursue some form of partnership

with foreign companies as Mongolian coal miners have no experience producing more than 10

million tons a year, he said.

―We would like to work with one of these international mining companies,‖ such as Peabody Energy

Corp., Anglo American PLC and Chinese firms including Shenhua Energy, Batsuuri said. ―They have

good management engineering and equipment. We need them. We would like to work with them on

marketing.‖

Erdenes TT has scaled down its investment program as the rail line will be built by other Mongolian

state entities, he said, which could cut transport costs by half. Forty percent of Erdenes TT costs

are currently tied up in paying for trucks to take the fuel about 260 kilometers (162 miles) south to

China, he said. This leaves Erdenes TT to focus on a USD 400 million plant to wash coal, which

produces a more value-added product, and a USD 100 million water supply project, he said. The

company plans to pick the builder for the washing facility this year and start operating it in two or

three years, he said.

Once Erdenes TT increases output, adds the washing plant and other infrastructure, and improves

management and efficiencies, the company will return to the idea of an initial public offering,

Batsuuri said. The share sale, which was initially planned in 2011 and estimated to raise USD 3

billion, is still about a year or two years away, he said.

Source: Bloomberg

June

Issue 279

ERDENES-TT TO REPAY CHALCO DEBT THIS YEAR

Erdenes Tavan Tolgoi LLC's chief executive said it expected to conclude its contract with Aluminum

Corp. of China Ltd. (Chalco) in 2013.

Erdenes-TT is currently selling coal to Chalco at USD 56 a ton as repayment for total debt from 2011

of USD 350 million. Chief Executive Officer Yaichil Batsuuri said currently the company has

outstanding debt of USD 170 million, but it would take four to five months to pay that sum off.

Erdenes-TT has suffered from poor coal prices, and the challenges is likely to grow worse as

Batsuuri said the price for coal sold to China would likely fall when it sets a new price.

―The price for the next season will be established on the first of July. Generally, the coal market

looks dim. The price is more likely to fall.‖

The company has awarded a tender to mine at its West Tsankhi site to Gobi Power LLC for MNT 17

billion. Some have speculated that this would prevent a strategic partnership with foreign

companies, but Batsuuri said that a strategic consortium is not yet off the table.

―The consortiums are keen on participating as a strategic investor and expressed their interests,‖

he said. ―There is a working group formed that had long talks with the investors. We are yet to see

progress on these talks.‖

Additionally the company has negotiated for deliveries at a new port that Batsuuri said would save

the company tens of millions of dollars.

Source: Business-Mongolia.com

July

Issue 284

MONGOLIA GRANTS 1-YEAR CONTRACT TO MINE TAVAN TOLGOI WEST BLOCK

Mongolia has lined up three local firms to mine the West Tsankhi block of the giant Tavan Tolgoi

coal mine for a year, an executive at the state-owned mining company said on Friday, as the

country aims to boost coal output.

Mongolia is racing to start producing coal from the long-delayed project as it is under pressure to

plug a budget gap and help pay down debt to Aluminum Corp. of China (Chalco) amid a sharp

downturn in coal prices. Delgersaikhan Tsagaan-Uvgun, head of mine planning and technical

coordination of state-owned Erdenes Tavan Tolgoi LLC, said the company has finalized a one-year

contract for mining at the 888 million-ton West Tsankhi block to a consortium of three local

companies. The deposit is owned by Erdenes TT, which has contracted work at its East Tsankhi

deposit to Australia's MacMahon Holdings and Germany's BBM Operta.

The company said it expects to mine a total of up to 6 million tons this year at the east block and 2

million tons at West Tsankhi. Chief Financial Officer Batdorj Enkhbat told Reuters that the company

was in talks to export coal to new international markets, such as Japan or Korea, as the landlocked

country looks to ease its dependence on China.

Source: Reuters

August

Issue 288

ERDENES TT COAL PRICE TO CHALCO FALLS TO $43 A TON

Erdenes Tavan Tolgoi LLC has agreed to a price point of USD 43 per ton of coal sold to Aluminum

Corp. of China Ltd. (Chalco)

The agreed price is reportedly higher than other coal companies operating in Mongolia. The

government is pushing both private and state coal companies to continue exporting coal, however,

to keep the budget deficit from growing wider. It also has decided to purchase the road between

Tavan Tolgoi and the Gashuun Sukhait border point to China to help encourage coal export activity.

Erdenes TT is locked into an agreement to pay USD 350 million in debts to Chalco via coal. The

government threatened to cancel its contract with Chalco in February this year when the price hit

USD 70 a ton. Chalco hinted that the price could go as low as USD 30 a ton.

Source: Udriin Sonin

ERDENES TT EXPERIMENTS WITH NEW COAL-PROCESSING TECHNOLOGY

Erdenes Tavan Tolgoi LLC has partnered with Japan Coal Energy Center and Nagata Engineering to

test an experimental coal drying process. If successful next year, the company will move toward

establishing a coal preparation plant using the technology within 2014.

Source: Undesnii Shuudan

September

Issue 290

ERDENES TT TO LAUNCH EXPORT FROM WEST TSANKHI

Erdenes Tavan Tolgoi LLC submitted to the State Commission paperwork for the permanent

commissioning of coal mining at the West Tsankhi deposit, with export expected to begin in

September.

The deposit is expected to produce three million tons of coking coal in the first year of operation,

and 20 million tons by 2017. Erdenes TT contracted the Mongolian Miners consortium for the

preparatory work leading up to mining at West Tsankhi.

Source: Udriin Sonin

Issue 291

ERDENES TT PLANS FOR COAL WASHING PLANT COMMISSIONING IN 2014

Erdenes Tavan Tolgoi LLC is prepared to begin construction of a coal-washing plant in 2014.

Erdenes TT first submitted plans for the project last June before receiving approval from the

Ministry of Mining and the Professional Committee on Mineral Resources. The plans call for two

years, five months of construction.

With the added coal production from the West Tsankhi, Erdenes TT expects to export between 3

million and 3.5 million tons of coal for the year. Exports have been made more efficient with

customs clearance being made at the mine site rather than the border.

Source: Zuunii Medee

Issue 292

ERDENES TT APPROVES POWER PLANT PRE-FEASIBILITY STUDY

Erdenes Tavan Tolgoi LLC announced its approval of a feasibility study for a 300-megawatt power

plant.

Officials discussed the feasibility study, which was compiled by MCS International LLC and Worley

Parsons Ltd., during a meeting of the Ministry of Energy's Science and Technology Board. The head

of the power station project, M. Enkhsaikhan, gave an update on the progress of the project and

plans for financing it, while Ch. Davaakhuu, vice president of operations and project management

at Mongolian Mining Corp., presented the technical specifications.

Construction of a power plant at Tavan Tolgoi was included in the 2011 Government Action Plan for

providing energy to the Gobi region for its communities and mining operations.

Source: News.mn

Issue 293

MINING MINISTER DISCUSSES TT WITH CHALCO PRESIDENT

Mining Minister Davaajav Gankhuyag received a delegation led by Mr. Xiong Weiping, the president

of the Aluminum Corporation of China Limited (Chalco), in Ulaanbaatar on 24 September.

The Minister thanked the Chalco president for "successfully cooperating with Mongolia in a main

sector of the bilateral economic relations and for making an amendment in the bilateral contract

that was beneficial for Erdenes Tavan Tolgoi." He also noted the high quality of coal from Mongolia

and expressed a hope that the Chalco would buy coal at the international market price.

Gankhuyag said he thought it necessary to transfer the contract into an off-take agreement that

was more transparent and comprehensible.

Source: Montsame

October

Issue 296

MARUBENI, GDF SUEZ AMONG FINAL BIDDERS FOR TT PLANT

Mongolia short-listed companies including Marubeni Corp. and Daewoo Engineering & Construction

Co. among the final bidders to build a USD 1 billion power plant in the Gobi Desert.

Kansai Electric Power Co. also made the short list, along with a joint bid made by GDF Suez (GSZ)

SA and POSCO Energy Corp, according to a statement on the website of the state-owned Tavan

Tolgoi Power Plant. It doesn‘t indicate when a winning bidder will be named. Coal miners operating

in the Tavan Tolgoi coal basin, which contains 6.4 billion tons of reserves, include state-owned

Erdenes Tavan Tolgoi LLC and Hong Kong-traded Mongolian Mining Corp. The Tavan Tolgoi Power

Plant will generate 450 megawatts of power, according to the company website.

Contractual agreements require Oyu Tolgoi LLC to use energy produced in Mongolia within four

years of commercial production, which began this year.

Source: Bloomberg

November

Issue 299

MONGOLIA TO SELL USD 50BN OF COAL FROM TT DEPOSIT TO CHINA OVER 20 YEARS

Prime Minister Norov Altankhuyag presented the results of his visit to China during his 30-minute

weekly press conference last week, including an agreement for USD 50 billion worth of coal sales

over the next two decades.

The prime minister said he had signed a memorandum of understanding committing 1 billion tons of

coal over 20 years from the mines operating on the Tavan Tolgoi coal deposit, including those

owned by Erdenes Tavan Tolgoi, Tavan Tolgoi JSC, and Energy Resources. The price for coal sales

will be pinned to market prices for a projected USD 50 billion. The chief commodity for export will

be coking coal, but there are also plans to build a coal-to-liquid plant to sell fuels processed from

brown coal extracted from the Tavan Tolgoi area for domestic sale and export to China. China has

also agreed to import four times the current amount of petroleum from Mongolia for processing.

The increased import volume would allow the monthly import of Mon-93 type fuel made from

Mongolia-extracted oil processed in China from 10,000 tons a month to 35,000 to 40,000 tons.

Other announcements included the decision to create four new border points, each of which would

be connected to the rail network. Altankhuyag said Mongolia can expect eased conditions for the

creation of a rail line that would run through Sukhbaatar Aimag. Additionally, Mongolia is set to

receive a loan of USD 240 million with similar conditions to that of the 2012 Chinggis bond and send

1,000 students to China for education over the next five years.

Source: Undesnii Shuudan

IV. RESOURCE EXTRACTION

“Get your shovel!”

January

Issue 254-255

PETRO MATAD'S LICENSE ASSESSMENT LAYS GROUNDWORK FOR DRILL PROGRAM

Petro Matad Ltd. unveiled ambitious plans for its Mongolian licenses after completing work to assess

their potential.

Carried out under the guidance of Ridvan Karpuz, who has been elevated to the main board, the

results of this early evaluation could be the curtain-raiser to an ambitious drilling program. Petro

Matad's Blocks IV and V have been assessed as being similar to the Junggar, Turpan, and Erlian

basins of China. A number of leads have been mapped and prospective resources have been

assessed for these targets.

The work also re-evaluated the prospectivity of Block XX. Karpuz's team did so using existing seismic

data and previous exploration results, which point to a number of unexplored basins in the southern

part of Block XX. Finally, mapping of the company's seismic on Block XX and public domain data in

Block XIX shows the structural trends that produced the Tolson Uul oil fields in Block XIX extend into

the northwestern part of Petro Matad's Block XX.

The company said the next step is to conduct regional and detailed seismic surveys in 2013. This

will help confirm the leads as drillable prospects and to identify other independent targets ―that

undoubtedly exist within these large basin areas.‖ Two-and five-year work programs have been

established. Petro Matad said it could drill four to six exploration wells in 2014 with a further two

or three wells in each of the following three years.

Separately, Clyde Evans has been appointed the company's finance director.

Source: Proactive Investors

Issue 256

WOLF PETROLEUM PROWLING FOR BIG OIL IN MONGOLIA, SIGNS PSC

Wolf Petroleum Ltd. signed a production sharing contract for a large 23,047 square kilometer

exploration block in eastern Mongolia.

About 60 percent of the surface outcrops are cretaceous aged with a high potential for source

reservoir rocks at depth. Historical gravity surveys indicate the presence of a large sub basin with a

thickness of up to 3,000 meters and a potential petroleum ―source kitchen‖ has been identified.

Currently, only two Chinese companies are producing and exporting oil on blocks adjacent to Wolf's

Sukhbaatar Block 27 and BU Blocks. Production has increased 11 times over the last five years and

the current proven reserves are over 2.4 billion barrels of oil.

Wolf plans to carry out an aggressive exploration program to complete its first three years of

contract duties within the first year. A geological and geophysical crew of up to 45 people is

planning to commence the work program on site in January.

The contract has a five-year exploration period with two possible two-year extensions and a further

five-year extension under government approval. A total of 14 years of exploration and up to 30

years of production are possible under the contract.

Wolf is now the largest petroleum exploration block holder in Mongolia, with over 74,000 square

kilometers held.

Source: Proactive Investors

Issue 257

IRON-ORE FIRM PROPOSES SECTOR-WIDE CONSOLIDATION FOR STEEL PRODUCTION

Bold Tumur Eruu Gol has proposed to consolidate 10 ore processing companies into a single

company called Mongol Steel Union.

Bold Tumur has invited companies such as Erdes Holding, Beren Group, and Mongol Metal Mining to

participate in the consortium. Bold Tumur has suggested it may seek investment of 30 to 40 the

percent from the government.

It has been projected in a study observing 14 different locations that the consortium would produce

11 billion tons of iron ore using 33 mines for a combined reserve of 660.8 billion tons of iron ore.

Bold Tumur proposed the construction of a plant with the capacity to produce 4.5 million tons of

steel pellets at Darkhan-Uul.

The first step would be to observe the construction of the steel plant in Sainshand, then develop a

feasibility study, and, finally, seek investment for the project. With investment from the state, the

plant could be constructed as soon as 2016.

Bold Tumur is currently constructing an ore concentration plant of its own in Selenge Aimag.

Source: Zuunii Medee

BOROO PRODUCES 71,838 OUNCES OF GOLD IN 2012

Centerra Gold Inc. announced a consolidated gold production total of 387,076 ounces of gold for the

whole of 2012.

The total includes 315,238 ounces of gold from the Kumtor mine in the Kyrgyz Republic and 71,838

ounces from the Boroo mine in Mongolia. During the fourth quarter of 2012, consolidated gold

production was 219,316 ounces, including 189,438 ounces from Kumtor and 29,878 from Boroo.

―The Boroo operation performed well in the fourth quarter, exceeding our gold production forecast

for the year by 7,000 ounces. The heap leach operation received final permitting and was restarted

in the quarter, restarting solution breakthrough sooner than anticipated,‖ said President and Chief

Executive Officer Ian Atkinson.

―We have also begun discussions with the new Mongolian government on a way forward for the

Gatsuurt deposit. We have not included any production from Gatsuurt in our production guidance

for 2013 due to the associated uncertainty of approval and commissioning of the project.‖

Source: Centerra Gold Inc.

GOVERNMENT COMMISSIONS CONSTRUCTION OF OIL REFINERY

The Mongolian government has decided to build the country's first oil refinery by 2015.

The state-owned refinery in the central Darkhan area will be built by Japan's Toyo Engineering

Corp. with Mongolian companies as sub-contractors. It will be able to process two million tons of

crude oil per year.

Mongolia will soon start negotiations with Japanese banks to obtain loans for the refinery. Around

90 percent of the petroleum products it now consumes are imported from Russia.

Source: Zeenews

Issue 258

MODUN TO SECURE MINING APPROVAL FOR MONGOLIAN COAL

Modun Resources Ltd. is on the road to securing a mining license for its Nuurst coal project in

Mongolia with the granting of the license expected in the current March quarter.

The application is currently under review by the Mongolian Minerals Resource Council (MMRC) after

it passed the initial Minerals Resources Authority (MRA) review process. A JORC Reserve is also on

the cards this quarter and is due for release in February.

The Nuurst projects hosts a 478 million-ton sub-bituminous coal resource, of which 430 million tons

is already in the higher confidence measured and indicated categories. The project is located close

to infrastructure, just six kilometers from existing rail. The Mongolian government plans to increase

the rail capacity to 50 million tons per annum, up from the current 20 million tons per annum, in

the next eight years.

The demand for thermal coal in China continues to grow with the fastest growing segments of the

market being imports of sub-bituminous and lignite coal, due to their lower prices and the fact its

power stations can process the lower-grade coals. Coal mining costs in China continue to

significantly increase year-on-year, with greater labor costs and average costs for production.

Modun is aiming to begin production at Nuurst within 12 to 18 months at an initial rate of three

million tons per annum, with two million tons per annum for export and one million tons per annum

for domestic sale.

Source: Proactive Investors

February

Issue 259

ENERGY RESOURCES REPORTS LOSS FOR 2012

Energy Resourced LLC reported a loss in earning for 2012.

The company exported approximately seven million tons of coal to China in 2012. Energy Resources

signed an agreement with China's Jinan Iron and Steel Group last November to deliver between

500,000 to two million tons of raw coking coal in the next five years at commercial prices. The

company believes this agreement could stabilize exportation.

Source: Zuunii Medee

BAGANUUR PROJECTS 3.5 MILLION TONS FOR 2013

Baganuur JSC has projected production of 3.5 million tons of coal for 2013.

The Baganuur mine is included in the current Minerals Laws' list of ―strategically important

deposits,‖ supplying over 70 percent of the coal consumed by the Central Regional Electricity

Network. This includes the combined heat and power plants (CHPs) in Ulaanbaatar, Darkhan, and

Erdenet, in addition to other facilities. It is considered one the largest open-pit coal mines in

Mongolia, with a resource of 599,818 million tons.

In 2012, Baganuur exceeded its target of 3.3 million tons of mined coal with 3.5 million tons in

total.

Source: Business Mongolia

Issue 260

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.

Issue 261-262

ANGLO AMERICAN ENTERS THE MONGOLIA MARKET

Anglo American announced the appointment of Graeme Hancock as President and Chief

Representative for Anglo American in Mongolia.

Hancock has been involved in the mining industry in Mongolia for the past six years, initially at the

World Bank and most recently as chief operating officer of Erdenes Tavan Tolgoi, with responsibility

for development of the Tavan Tolgoi coal project. Hancock has extensive experience in the

resource sector and has worked in government development agencies and the private sector in New

Zealand, Papua New Guinea and throughout Asia in a range of technical and commercial senior

management roles.

Anglo American recently opened an office in Ulaanbaatar as part of its long-term growth strategy to

focus on selective development in countries that are highly prospective for the group's preferred

commodities. Hancock will lead the development of Anglo American's business in Mongolia.

―Mongolia is becoming an increasingly important mining economy with significant mineral

endowments in close proximity to key markets in north Asia. I am pleased to have the opportunity

to lead the important process of establishing Anglo American's presence in Mongolia.‖

Source: Anglo American PLC

HARANGA CONFIRMS NEW IRON ORE DISCOVERY AT SELENGE

Haranga Resources Ltd. has received final assays from drilling at its Selenge iron ore project in

Mongolia which confirm the new Undur Ukhaa discovery and extends mineralization at the Dund

Bulag prospect.

Assays have now been received for the new Undur Ukhaa discovery and show intercepts of 44

meters at 20 percent iron from 24 meters; 16 meters at 21 percent from 89 meters and 26 meters

at 21 percent iron from 107 meters. Highlight intersections from drilling at the Dund Bulag prospect

include 130 meters at 22 percent iron from 67 meters; 50 meters at 22 percent iron from nine

meters and 26 meters at 27 percent iron from 116 meters including two meters at 47 percent iron.

The magnetite mineralization at Dund Bulag achieved a high quality concentrate averaging over 65

percent iron with low impurities during metallurgical testing in 2012. The receipt of the final assays

completes the program of 35,000 meters of diamond drilling at the three projects, undertaken in

2012. The cumulative exploration target at Selenge is 250 to 400 million tons, and an expanded

JORC resource is expected in the June quarter of this year.

Source: Steel Guru

WOLF PETROLEUM KICKS OFF OIL AND GAS HUNT

Wolf Petroleum Ltd. has started comprehensive geophysical programs at its Sukhbaatar block in

Mongolia to confirm the structure and depth of hydrocarbon basins.

The ground-based program consists of more than 6,300 survey points and 11,000 line kilometers of

survey work. Processing and interpretation of the geophysical data will be done simultaneously in

Mongolia and the United States to accelerate processing and interpretation time. Data from the

geophysical survey will assist in the interpretation of high resolution remote sensing surveys that

Wolf is conducting. Data from the 2D seismic and geochemical programs will confirm the presence

of a petroleum system under the block and focus the 2013 drilling program toward areas of live

hydrocarbon seepage.

Source: Proactive Investors

March

Issue 265

MMC TO BOOST RAW COAL OUTPUT TO 12 MILLION TONS IN 2013

Mongolian Mining Corp. (MMC), the largest producer of metallurgical coal in Mongolia, aims to raise

raw coal output by 28 percent this year after missing its target last year because of weak demand.

Yesterday the firm posted a USD 2.5 million net loss for last year compared with a profit of USD 119

million in 2011. Sales fell 12.6 percent to USD 474.48 million as lower selling prices more than

offset a 16.7 percent rise in volumes to 5.6 million tons of coal products. MMC‘s chief executive, G.

Battsengel, said the company aimed to produce 12 million tons of raw coal this year. Last year‘s

output of 9.4 million tons was short of its target of 11 million to 12 million tons. It has a target of

six million tons to 6.5 million tons of processed hard coking coal, its main product, up from 3.7

million tons last year.

Last year‘s average selling prices of hard coking coal fell 30 percent to USD 108.40 a ton, as

demand from developed nations fell and that from emerging nations slowed markedly.

Because of its underdeveloped railways, Mongolia saw its share of China‘s coking coal imports slide

36 percent last year from 45 percent in 2011, as more expensive trucks were used to transport the

coal. Mongolia lost share to Australia, Canada and Russia, which benefits from depressed seaborne

freight prices. Oversupply saw high-cost Mongolia producers shut production facilities in last year‘s

third quarter, when prices were at the lowest. MMC, with its own road and trucks, fared better than

its rivals. Its cost to transport coal to the border fell 30.8 percent to USD 11.90 a ton last year,

after it bought more trucks.

To cut costs, it began building a railway in June, but the newly elected Mongolian government

decided in November to unify all railway concessions under a single state-owned firm. The company

is in talks on handing over the USD 62 million of railway assets already built, in exchange for a stake

of up to 10 percent in the state-owned firm. Battsengel expects a deal by 30 June.

Source: South China Morning Post

Issue 266

THE STATE OF THE MINING SECTOR

On 18 March the Business Council of Mongolia hosted a forum for two presentations on the

Mongolian mining sector to discuss the path it is taking in its development and its role in the

economy. The presentations were directly prompted by the draft Minerals Law presented by the

Office of the President that many in the private sector say would make it impossible for companies

to run profitable operations in the company.

Ch. Khaschuluun, a researcher and analyst currently leading UBRM Consulting, began the event

introducing Mongolia's economic data from a decade ago, today and in the coming decade. Gross

domestic product (GDP) has grown by USD 9.1 billion to USD 10 billion from a decade ago, while

annual GDP growth is projected to grow by 12.5 percentage points to 18 percent compared to a

decade ago. He described that in another decade's time Mongolia could enjoy USD 37 billion GDP

and USD 12,600 GDP per capital in addition to adequate infrastructure and a diverse economy.

However, getting to that point will not come without effort. It will taking effective measures in

reducing poverty and the investment of time, resources, and the Mongolian people to develop

sectors other than mining. Also needed will be the proper management of boom-bust cycles and

savings from the wealth earned today for future generations. Khaschuluun advised investors to be

aware that certain changes were likely to take place. Those included more local involvement, the

fewer issuances of licenses and new legislation such as the foreign investment law. But with that in

mind, the country and private investors have the opportunity to cooperate to maintain a fair

business climate that is open to foreign investment while implementing these changes.

Brian Fisher, managing director of BAEconomics, spoke next on his projections for the Mongolian

economy if the draft Minerals Law was passed in its current form. Most startling was his projection

that the law would affect 4 percentage points lower average annual GDP growth and GDP per capita

over the next two decades than with the current law.

―The attractiveness of a country to foreign direct investors is dependent on the domestic

investment environment, the stability of the policy regimes in place and the effective tax rates

imposed compared with alternative investment destinations,‖ reads a slide from the presentation.

―.An uncertain environment where tax rates and other policies are unpredictable and where there

is pressure to re-negotiate established investment agreements will be less attractive to investors

than locations where policies are stable and predictable and where investment agreements, once

established, are honored in full.‖

Fisher explained how vital the mining sector is to the Mongolian economy, representing on average

about a quarter of GDP over the last four years. The government has grown increasingly more

reliant on mining revenue, which would mean devastating effects if that revenue were to dissipate.

Source: BCM

GOVERNMENT TO RAMP UP PRODUCTION AT STRATEGICALLY IMPORTANT MINES

The Cabinet of Ministers approved a government resolution to transfer its shares of Erdenet Mining

Co. as well as the Baganuur and Shivee-Ovoo mines to Erdenes MGL LLC in a bid to streamline

activity aimed at ramping up mining activities at deposits with government ownership.

Erdenes MGL is responsible for carrying out the extraction of minerals of projects listed as

strategically important deposits. Currently it has ownership of Erdenes Tavan Tolgoi LLC and

Erdenes Oyu Tolgoi LLC and holds mining licenses for the 4,293 Shivee-Ovoo coal project.

Ministers were also ordered to analyze feasibility studies of several projects, including the Tsagaan

Suvarga copper-molybdenum project and Boroo gold mine to make assessments of the resources

there and ensure that the companies operating there are complying with environmental and

rehabilitation regulations. They were also asked to open negotiations concerning government-held

shares.

Source: Montsame

NEWERA ANNOUNCES UP TO 111M TONS AT SHANAGAN COAL PROJECT TARGET

Newera Resources Ltd. announced a coal target of 64 million to 111 million tons of coal at its

Shanagan coal project.

The estimate follows two phases of drilling at Shanagan. The company said it has significant

potential to increase the exploration target and complete a maiden JORC resource by completing a

third drilling program at Shanagan.

Source: Newera Resources Ltd.

IRON ORE PRODUCTION AND REFINEMENT LAGS BEHIND GROWING DEMAND

Although Mongolia both mines and consumes its domestic iron ore it has yet to open any plant

producing finished metals using those raw materials. This has left finished iron metals expensive in

the country, well above market prices, with prices expected to grow alongside demand up to 2050.

―If the capacity is calculated to account for two MTPA [million tons per annum], it would need 1.2

million tons of coking coal which will be supplied from Tavan Tolgoi,‖ said L. Bayarkhuu, chief

executive of the Mongolian Association of Metal Producers.

He added that domestic production would result in 20 percent lower costs for the construction of

apartment buildings in Mongolia. A steel mill would also create 1,200 new jobs, he said.

The Mongol Steel Corporation has established some 10 iron-ore mining operations with the intention

of eventually building a steel mill. Meanwhile iron ore still receives zero tax for export, unlike

major producing nations such as Brazil and India.

―At present, Mongolia sells its raw iron ore at the price of USD 65 per ton. If it starts processing and

exporting its iron ore, the price would probably go up to USD 100,‖ said Bayarkhuu.

Iron ore is currently Mongolia's third largest export commodity, comprising 12.1 percent of exports.

A 2012 study estimated Mongolia had 726.5 million tons of available iron ore resources, of which

288.3 million is indicated. Customs data shows that 400,000 tons of iron products are imported each

year, with some 60 percent of steel reinforcement imported from China.

According to M. Battugs, deputy director of the Darkhan metallurgical plant, Mongolian steel

production is set to grow by 350,000 to 500,000 a year. Meanwhile steel demand is expected to

grow throughout the Southeast Asian region, with big buyers identified as Japan, South Korea, and

China. However, Mongolia has still yet to even meet domestic demand, though it exported 6.3

million tons or iron ore in 2012. Mongolia's largest trade partner, China, has a particularly large

appetite and is expected to consume 68 percent of the world's iron ore production.

Source: Mongolian Economy

Issue 267

LICENSED AREAS FOR EXPLORATION DECLINE BY 45 PERCENT

The number of special licenses for exploration has fallen by 1,872 or 45 percent.

The number of exploration licenses in circulation fell from 4,111 to 2,239 [dates not provided by

source]. On 1 March, only 880,000 hectares of land was under special license in Mongolia.

Source: Zuunii Medee

MONGOLIA INCREASES GOLD RESERVES TO HIGHEST SINCE AUGUST 2008

Mongolia raised its gold reserves for a third month to the highest in more than four years in

February as the metal capped its longest monthly losing streak since 1997.

The country's holdings expanded 1.5 metric tons to 5.8 tons, the most since August 2008, according

to the International Monetary Fund's website. Kazakhstan holdings increased 4.9 tons, Azerbaijan‘s

climbed one ton and Ukraine's rose 0.6 tons. Canada's reserves dropped 0.1 ton, the Czech Republic

cut them by 0.2 tons and Mexico's holdings fell 0.1 ton.

Nations added 534.6 tons to reserves last year, the most since 1964, even as prices averaged a

record USD 1,669 an ounce, the London-based World Gold Council said last month. Bullion slid for

five consecutive months through February and investors sold metal from exchange-traded products

this year amid signs the U.S. Economy is improving and as Federal Reserve policy makers debated

the pace of stimulus. Gold is trading 17 percent below its September 2011 record of USD 1,921.15.

―Given the depreciation rates of the major currencies in the world and the debt crisis, especially in

the euro zone, there's definitely a lot of room to buy gold,‖ Daniel Briesermann, a commodities

analyst at Commerzbank AG in Frankfurt, said. ―The percentage of gold in currency reserves is still

very low in emerging markets, so there's a lot of catch-up potential to the industrialized countries.‖

Source: Bloomberg

April

Issue 268

PEABODY-WINSWAY, SOUTHGOBI SUE UMNUGOBI GOVERNMENT

Peabody-Winsway Resources JV and SouthGobi Resources Ltd. have filed suits against the Umnugobi

government for its suspension of mining licenses covering 22,000 hectares of land until 2014.

SouthGobi and Peabody-Winsway saw government protections placed on land licensed to them for

exploration until 2041 and 2014, respectively. The Umnugobi Citizens‘ Representative Council

declared 32,000 hectares of land about 200 kilometers from Dalanzadgad Soum on November 26 last

year under state protection. Prior to that, on 24 December 2010 the council declared 10,000

hectares of land near Ulaan Nuur protected land also.

The companies are now suing Umnugobi's provincial government for MNT 3.6 billion for placing

protections over land they say are in violation of federally granted licenses. They are seeking to

have the locally passed resolution canceled and their licenses recognized. SouthGobi is also

reportedly considering a MNT 40 billion lawsuit, but no official decision has been made.

―Although the resolution was made after the licenses were issued, the land was registered as

protected in 2005. However, they were released from protection in 2007, giving foreigners the

chance to attain it,‖ said a statement from Umnugobi authorities.

The Umnugobi governor‘s office has lost two court cases regarding the matter and is now expecting

another court date before the Supreme Court.

Source: Zuunii Medee

Issue 270

ERDENE ESTABLISHES STRATEGIC ALLIANCE WITH TECK RESOURCES

Erdene Resource Development Corp. has entered a strategic alliance with Teck Resources Ltd for

option and private placement agreements to fund and explore the Trans Altai region of southwest

Mongolia.

Initially the program will focus on Erdene's Khuvyn Khar copper porphyry prospect as well as

exploration of select targets across the Trans Altai region. Excluded from the alliance are Erdene's

Altan Nar gold project and Zuun Mod molybdenum-copper deposit.

―Teck is an exceptional partner for our metals exploration in Mongolia and we are extremely

pleased for the opportunity to be working together,‖ said Peter Akerley, president and chief

executive.

Teck has agreed to subscribe for up to USD 3 million of Erdene shares through a non-brokered

private placement. The initial trance will be for five million shares priced at USD 0.20 per share for

aggregate proceeds of USD 1 million. Afterwards, Teck has the option to acquire additional shares

of Erdene, priced at the then current market plus 10 percent until it has invested USD 3 million or

acquired through subscriptions 19.9 percent of the outstanding shares of Erdene.

The balance of the private placement option is due within 30 days of Teck and Erdene being

satisfied that clarification of recent proposed changes to the mining law and foreign investment

laws of Mongolia have occurred. Meanwhile, Teck may subscribe to the balance of the private

placement with a minimum of USD 500,000 on each anniversary date of the closing of the initial

tranche.

Tech holds pre-emptive rights to participate proportionately in any future equity financing by

Erdene as long as Teck holds at least 5 percent of Erdene's shares. Once Erdene has spent 85

percent of the proceeds from the Teck financing, Teck will have the option to acquire up to a 75

percent interest in designated projects and up to USD 5 million on each of the other existing or

acquired projects so designated within the Trans Altai project area.

Source: Erdene Resource Development Corp.

ERDENE WINDS UP MONGOLIAN COAL ALLIANCE, UPDATES ON STRATEGIC OBJECTIVES

Erdene Resource Development Corp. announced that the Xstrata Coal Mongolia alliance agreement

has been discontinued and provided an update on the company's strategic objectives.

Over the past seven years, Erdene has conducted coal-focused regional scale geological mapping

programs across Mongolia, with the last four years focused on southern Mongolia. Collectively, an

area of over 10 million hectares was covered by Erdene's exploration team within basins that are

considered prospective in Mongolia, including over 250 site evaluations and the drill testing of

multiple targets. In addition, Erdene conducted comprehensive due diligence on numerous coal

deposits and prospective licenses. As a result of this extensive review and evaluation program,

Erdene has created one of the most comprehensive coal databases in Mongolia and has identified

certain highly prospective areas and potential acquisition opportunities that will undergo further

field evaluation in 2013.

With the company's corporate restructuring complete, management is now focused on advancing

the company's core projects and business interests in Mongolia. As a result of the reduced

availability of equity, management has been reviewing alternative financing opportunities to fund

the advancement of Erdene's Mongolia projects. The opportunities include forms of partnerships at

the corporate and project level. Over the past six months, Erdene has entered into non-disclosure

agreements with 12 companies and discussions are ongoing with potential partners under those

agreements.

Source: MarketWire

SOUTHGOBI MAKES A SLOW CRAWL BACK FROM MONGOLIAN PURGATORY

Though Mongolia-focused coal miner SouthGobi Resources Ltd. had time for a short hooray following

the relaunch of operations at its Ovoot Tolgoi project, it still has a myriad of issues to contend with

if it is to appease both investors and the Mongolian government.

Days after announcing the relaunch of operations on 22 March, SouthGobi released an inevitable

dismal annual report that included a USD 103 loss for 2012—inevitable because the company was

embroiled in a battle against state Chinese interests taking over Mongolian deposits, and had to

endure nine months of being unable to mine its coal deposits while the Mongolian government put

the company's licenses under a microscope. That loss compared with a USD 57.7 million net profit

for the previous year when operations went undisturbed.

Rio Tinto PLC made its majority purchase of Turquoise Hill Resources Ltd. (then called Ivanhoe

Mines Ltd.) only wanting the prized Oyu Tolgoi copper and gold mine. When a deal was struck to

sell Turquoise Hill's majority stake in the coal miner to Aluminum Corp of China (Chalco), alarm

bells rang at the thought of a Chinese state-owned company purchasing Mongolian deposits.

Politicians rushed into passage a foreign investment law, felt by SouthGobi and the rest of

Mongolia's mining sector. A Mineral Resources Authority official was also arrested for an alleged

illegal transfer of licenses that involved SouthGobi and extraction halted at Ovoot Tolgoi in June

2012.

―In discussions with our lessees, which have been sub-contractors of SouthGobi, the importance of

this mining firm's success as a bellwether of the foreign-invested mining sector has become

obvious,‖ said Philipp Marxen, chief executive of XacLeasing LLC, who provides trucks and heavy

equipment for mining. ―If the company can start full-scale production and increase coal exports

again, this will positively affect the supply chain.‖

SouthGobi needs government cooperation to put this incident behind it. The alleged illegal license

transfer investigation is ongoing, and Umnugobi Aimag citizens' council is battling to put SouthGobi's

licenses territory under state protection. Although a local court revoked that protection, the

council is appealing the decision.

Source: BNE

COKING COAL EXPORTS GROW, REVENUE FALLS

Mongolia experienced a drop in coal revenue despite greater exports for the first quarter of 2013.

First quarter data shows that Mongolia exported 3.4 million tons of coking coal, a 5.1 percent gain

year-on-year. However, falls in coal prices in China effected a 41.7 percent drop in revenues.

In the first quarter Mongolia exported just 10 percent of the 30 million tons of coal it projected for

2013. Coking coal represents some 40 percent of all exports in Mongolia.

Source: Zuunii Medee

Issue 271

ENERGY RESOURCES TO SUSPEND OPERATIONS AT UKHAA KHUDAG

Energy Resources LLC will suspend operations at its Ukhaa Khudag coking coal deposit beginning 1

May due to poor market conditions.

Night-shift workers at the mine have already taken leave, while the rest of staff is expected to do

the same next month. Poor market conditions and low prices for coal are believed to be the reason

for the halt of operations. The company has reportedly not sold any coal since March, reporting

losses of USD 2.5 million for 2012.

Source: Udriin Sonin

AREVA DISCOVERS BIG URANIUM DEPOSIT IN MONGOLIA

French nuclear giant Areva SA recently revealed information about a new uranium discovery in

Mongolia.

Areva Mongol LLC, its Mongolian subsidiary, reported 50,000 tons of uranium in inferred resources

with a trade of 0.01 percent as a result of ongoing exploration efforts at the Zoovch Ovoo project.

The project is located in Ulaanbadrakh Soum, in Dornogobi Aimag.

Uranium mineralization is characterized as roll-front type and potentially amenable for the most

effective lower-cost in-situ leaching (ISL) mining method. Thus by the volume of the uranium

resources in-situ, the Zoovch Ovoo project is comparable to the biggest deposits of that type in

Kazakhstan.

This is not the only Mongolia exploration success for Areva in recent years. Two years ago the

company announced the discovery of the Dulaan Uul deposit with 9,888 tons of uranium, following

field tests which confirmed the ISL mining method as preferable.

Areva Mongol has 28 exploration licenses covering more than 14,100 square kilometers in Dornogobi

Aimag. This huge sedimentary basin contains promising uranium deposits well-suited to ISL mining

technology. At this time Areva is investigating the feasibility of the Dulaan Uul uranium deposit.

Source: Mining.com

May

Issue 272

MONGOLIA-CHINA HUB FOR IRON ORE EXPORTS FROM INDIA TO CHINA

India Globalization Capital Inc. announced a strategic plan to establish a shipping hub at the border

of Mongolia and China to provide iron ore to its customers in China and source raw materials for its

beneficiation plants.

The hub is positioned to deliver various grades of iron ore to its customers in China and has begun

moving its first test shipment as part of the company's production ramp up. Iron ore exports from

Mongolia were virtually nonexistent in 2008, and have experienced rapid growth since that time.

According to Mongolia Asset Management, for the year 2012 Mongolia exported approximately 5.75

million tons of iron ore representing a 61 percent increase over the previous year.

―The opening of this hub required about six months of planning, negotiations and preparation,‖ said

Ram Mukunda, chief executive of India Globalization Capital. ―We are currently moving a test

shipment of 300 tons from Mongolia to China. Once successfully delivered in the next week or so,

we expect to ramp up to between 8,000 and 12,000 tons a month.‖

Source: India Globalization Capital Inc.

Issue 273

HARANGA RESOURCES UPS RESOURCE AT SELENGE PROJECT

Haranga Resources Ltd. has significantly increased the value of its Selenge iron ore project in

Mongolia, upgrading its JORC resource by 675 percent to 254 million tons at 17.2 percent iron.

Notably, 99.8 percent of this is in the measured and indicated categories while initial David Tube

Recovery results indicate that a high quality 66 percent iron concentrate is attainable from the

project. The upgrade is based on the drilling carried out by the company in 2011 and 2012, which

defined the resource at the Bayantsogt, Dund Bulag and Undur Ukhaa deposits.

Drilling also discovered additional iron mineralization at the nearby Huiten Gol prospect. An

additional exploration target of 50 million tons to 100 million tons exists on these four targets.

Source: Proactive Investors

GOVERNMENT REMAINS SILENT ON CENTERRA‟S GATSUURT PROJECT

Centerra Gold Inc.‘s Boroo gold mine approaches closure.

Centerra has had to hold off on beginning operations at its Gatsuurt project after legislation

prohibiting exploration at particular areas of forestry and headwaters resulted in the suspension of

activity there. The original plan was to mine ore at Gatsuurt with transport to Boroo for processing,

but Centerra is still waiting on a final decision from government regarding the mine.

Centerra purchased a license from Koje Govi, a subsidiary of Areva, for the Altan Tsagaan Ovoo

(ATO) deposit, which was first discovered in May 2010 with the agreement to pay 1.75 percent of

net profits gained from this deposit to Areva.

In addition to the ATO deposit are four licenses for nearby land covering 77,000 hectares, where the

environmental legislation does not currently take effect.

Source: Zindaa.mn

Issue 274

KHUSHUUT DECLARED STRATEGIC RESERVE

The government has officially added Mongolia Energy Corp.'s Khushuut coal deposit to its list of

strategic deposits

The decision follows an investigation led by a working group appointed by Parliament. The working

group found the mine has a proven reserve of 85.7 million tons and probable reserve of 1.8 million

tons, or a 88 million ton JORC reserve. That compares with a 2.4 billion-ton reserve MEC reported

to the Hong Kong exchange.

Source: Zuunii Medee

GOLD PRODUCTION SEES GROWTH

A head of macro-economic statistics at the National Statistical Office reported on the first four

months of 2013.

The gold mining sector experienced the highest growth during the period with 2.2 tons produced as

compared with 1.2 tons in the same period for 2012, although the mining sector experienced a drop

off in exports, said B. Badamtsetseg. Iron ore production fell significantly, while petroleum and

other products stayed relatively the same [the source does not provide figures -ed]

Mongolia experienced 7.2 percent growth in the first quarter of 2013, falling behind that of previous

years. Meanwhile inflation saw a slight increase in April after three months of decreases. Inflation

stood at 10.4 percent compared with 9.8 percent in March. Inflation is also in the countryside than

Ulaanbaatar.

Foreign trade has fallen off since the beginning of the year and is expected to fall further. Imports

fell in terms of petroleum, automobiles, and car parts. Exports fell due to effects from

transportation, specifically rail.

Source: Undesnii Shuudan

June

Issue 278

KHUSHUUT NOT A STRATEGIC DEPOSIT, SAYS MEC

Mongolia Energy Corp. (MEC) has responded to news reports that the Khushuut mine has been

declared a strategic deposit, saying the matter is still under debate by Parliament.

It came to the Source‘s knowledge on 3 June that there were Mongolian news articles reporting the

proposal regarding strategic deposits had been made by the Mongolian government. Upon inquiries

made with a Mongolian legal advisor, the Source learned that the government had made the

following progress recently:

―The government of Mongolia has decided to submit to Parliament a draft resolution which will

amend the attachments of Resolution No. 27 dated 6 February 2010 regarding ‗Declaration of

Certainty Deposits as being Strategically Important.‘ The resolution draft states that the deposits

pertaining to the coal of Khushuut and Tsadamnuur, gold of Gatsuurt, and rare elements of

Khalzanburgedei, Lugiin Gol, Mushgia Khudag and Khotgor are classified as mineral deposits of

strategic importance.‖

The Minerals Law states that a mineral deposit is of strategic importance if it has a potential impact

on national security, economic and-or social development of the country at regional and/or national

levels, or that it is capable of producing greater than 5 percent of the gross domestic product (GDP)

of any given year. Under the said Minerals Law, the size of the government participation is

determined largely by the level of state funding which had been provided for the exploration and

development of any deposit, with the government of Mongolia entitled to participate up to 50

percent in the event that there has been state funding of such deposit and up to 34 percent if such

deposit was discovered with private funds.

If a strategic deposit is ruled, Mongolia may negotiate for up to 50 percent of its interest. Even if

the Khushuut coal mine is designated as a strategic deposit by Parliament, such designation would

not automatically grant the government to participate into the mine or allot any shares of MoEnCo,

the MEC subsidiary holding the license, to the government. The government would also need to

discuss with MoEnCo for the terms of the arrangement.

Source: Mongolia Energy Corp.

MODUN RESOURCES WINS PREFERRED COAL BRIQUETTES SUPPLIER TO GOVERNMENT

Modun Resources Ltd. is on the road to commercializing the wholly-owned Nuurst coal project in

central Mongolia, with the company‘s subsidiary (Modun Resources LLC) being selected as a

preferred supplier of coal briquettes to the Mongolian government.

Modun was one of four tenderers through the Mongolian National Committee for Air Pollution

Reduction that sought domestic and international expressions of interest to establish a new cleaner

fuel production facility. The next step for Modun is that the key terms and conditions of the product

sale and purchase agreement will be negotiated directly with the Mongolian government, with the

briquette plant to have an initial name plate capacity of 200,000 to 250,000 tons per year.

―Discussions with the Mongolian government about formalizing this arrangement into an off-take

agreement for the supply of Nuurst coal briquettes will commence immediately,‖ said Rick Dalton,

Managing Director of Modun.

Mongolia hopes to be using the cleaner coal by November 2014 for its commitment to reducing

pollution, which has come to the center of President Elbegdorj‘s re-election campaign. Modun was

selected as one of four preferred suppliers as part of the government‘s Clean Air Initiative to

reduce air pollution in Ulaanbaatar. The company‘s successful proposal was based on using thermal

coal from its Nuurst project and creating briquettes using a binderless coal briquetting process,

which after being independently tested in Australia and Mongolia, has resulted in a substantial

increase in energy end decrease in emissions.

Source: Proactive Investors

Issue 280

MMC GRANTED NEW MINING LICENSE

The Minerals Resources Authority (MRA) granted Mongolian Mining Corp. (MMC) a special permit for

minerals extraction from Tsaikhar Khudag through Khangad Exploration LLC.

The new mining license covers a total area of around 8,340 hectares and contains around 73 million

tons of coal resources according to the Mongolian geological and mining reporting standards. The

mining license covers an initial period of 30 years, and is subject to two consecutive extensions of

20 years. MMC will pay an annual fee of USD 41,700.

Source: ETNet

July

Issue 281

MMC EXPANDS TO TOTAL PROCESSING CAPACITY OF 15MN TONS A YEAR

Mongolia Mining Corp. (MMC) announced the commissioning of its third module of the coal handling

and preparation plant at the Ukhaa Khudag coal mine on 13 June.

The expansion will boost processing capacity to 15 million tons a year, with the ability to process

around 5 million tons of run-of-mine coal a year. The module has the capacity to process 850-tons

per hour of run-of-mine coal with an in-feed operating rate of a minimum 6,000 operating hours a

year. The coal procession operations and full production capacity is expected to be available from

the third quarter of 2013..

The expansion work under design, procurement and construction management contract was

undertaken by Sedgman Ltd. All inclusive capital expenditures for the third module of the plant

totaled approximately USD 76 million, in line with the company's original estimates.

Source: Mongolian Mining Corp

MONGOLIAN INVESTOR HEADS FOR THE FINAL FRONTIER

A small yet bold Mongolian firm is preparing to launch a new oil enterprise in North Korea. It is an

unlikely pairing, but the firm is betting it has the key ingredients to make this gamble pay.

As Mongolia sputters away from frontier-economy status into the territory of middle-developed,

Mongolia Stock Exchange-listed HBOil has hopes to tap into one of the world's last remaining true

frontier markets. The company is counting on Mongolia's close relations with the neighboring hermit

kingdom to help serve as a base to launch the country's first home-grown multi-national.

―It's a big opportunity, especially having ownership in a foreign company,‖ said Ulziisaikhan

Khudree, chief executive of HBOil, which has chiefly functioned within oil-waste recycling.

North Korea has 24 times the reserves of South Korea and 360 varieties, according to the Korea

Energy Economics Institute. A 2012 report by the Asia Pacific-focused think tank Nautilus Institute

suggests the best indicator of potential onshore production is reports from 2006 of up to 300,000

tons of crude oil a year, while Pyongyang is said to be eyeing the West Sea (the Korean name for

the Yellow Sea), which is said to hold 12 billion barrels of oil.

Dependence on foreign fuel has built a strong desire in Mongolia to develop the country's own

production capabilities. A key point in the deal for HBOil then is the interest it offers in the Sungri

Oil Refinery at the Rason Special Economic Zone on the northeast tip of North Korea. Although the

facility is under refurbishment currently, HBOil hopes it will eventually win the right to deliver all

of Sungri's output to Mongolia. With rail already linking Rason and Mongolia, the deal also hints at

future access to North Korean ports, which would offer Mongolia growing minerals output to reach

new international markets.

High possibilities for disruption stemming from broken agreements and political instability, with the

potential that expanded international sanctions could make it impossible to operate, left Khudree

unfazed.

―DPRK is neither unstable nor isolated; instead it is engaged in a complex geopolitical tension,

which has become more complicated over time,‖ Khudree insists.

Source: BNE

Issue 282-283

WOLF PETROLEUM UNCOVERS OIL SEAM AT 9,600 METER DEPTH

Australian Securities Exchange-listed Wolf Petroleum Ltd. has uncovered an oil deposit 9,600 meters

underground, said company Director T. Bataa.

The oil seam was discovered at the Sukhbaatar-27 exploration site, where the company has

bartered a production agreement with the government. Comparatively, average depths in Mongolia

range between 3,500 and 4,000 meters.

―There are some sites of 4,000 meters in depth in Mongolia where oil is extracted. The site found

by us could be Mongolia's deepest,‖ said Bataa.

Source: Udriin Sonin

MODUN RECEIVES MINING LICENSE FOR NUURST

The Mineral Resources Authority (MRA) approved Australia-listed coal explorer Modun Resources

Ltd.'s application for a mining license for the Nuurst thermal coal project, 120 kilometers south of

Ulaanbaatar.

The mining license had been granted over an area of 2,497 hectares, covering the planned open-pit

mine, an area for surface infrastructure and the resource area, which remains open to the north of

the planned mine.

―This is a significant achievement and critical milestone for Modun, as we move towards first

production of coal,‖ Managing Director Rick Dalton said in a statement. He said the Nuurst project

met all the key criteria—technical, economic and environmental sustainability—as set out by the

MRA.

Modun would start the feasibility work for the Nuurst project, which would expand on the initial

mining study and seek to confirm the overall infrastructure and mine costs and the final mine plan

to maximize the economic benefits from the mine. The feasibility work was also an important step

in obtaining the financing required for the mine development.

The initial mining study identified the potential for an 84.7 million ton sub-bituminous thermal coal

mine with a 30-year mining life, with production ramping up to three-million tons a year by the

fourth year of operation.

Source: Mining Weekly

ASPIRE MINING AND NORTH ASIAN COKING COAL BUYERS SIGN MEMORANDA

Aspire Mining Ltd. announced the receipt of non-binding memoranda of understanding from four

north Asian steel mills and coking coal buyers for the purchase of coking coal to be produced from

the Ovoot coking coal project.

The four memoranda total a possible commitment by Chinese customers to purchase up to 5.6

million tons a year of coking coal. They represent nearly all of the planned total saleable

production from the Ovoot project's stage one development.

Aspire has also met with many other large-scale potential Chinese customers as well as steel mills

and coke producers in Japan, Russia and Eastern Europe, which have indicated additional significant

buying interest. Marketing efforts are still at a preliminary stage, with only half of the Chinese

target market approached to date.

Source: Aspire Mining Ltd.

PROPHECY ANNOUNCES AGREEMENT WITH WATERTON

Prophecy Coal Corp. announced it had entered a letter agreement with Waterton Global Value.

Prophecy has agreed to a partial pay down of the principal loan amounting from USD 10 to USD 6.5

million from restricted cash-on-hand amounting to USD 3.5 million and extended the maturity date

from 16 July to 31 October. The amended loan agreement facility is a non-revolving facility, and

any repayment under the facility is not available for re-borrowing.

Prophecy shall pay Waterton, in cash, a non-refundable restructuring fee in equal and consecutive

monthly installment payments. Each payment shall be in an amount equal to 2 percent of the

outstanding principal of the loan as of the date of the execution of the amendment.

Source: Prophecy Coal Corp

Issue 284

WOLF PETROLEUM BEGINS 2D SEISMIC AT SUKHBAATAR BLOCK

Wolf Petroleum Ltd. has started acquiring 2D seismic to assist with identifying drillable prospects at

its Sukhbaatar block in Mongolia.

The 451 line kilometer survey will also support upgrading of previous leads to prospects on the

company‘s nearby Baruun Urt block. It is expected to be completed in August. Results will be sent

to the U.S. for processing and interpretations will be carried out by MHA Petroleum. Wolf will shoot

340 kilometers of 2D seismic over the Tuvshiree and Uulbayan sub-basins while another 113

kilometers will be shot over the Talbulag basin and extension.

The company had previously noted all four sub-basins within the block had areas of high heat flow,

which can enhance hydrocarbon cracking and migration, while alteration minerals commonly found

near petroleum seep areas have also been identified. In addition to the seismic acquisition

program, Wolf is collecting more than 7,350 samples from shot holes for geochemical analysis.

A recent geological survey had indicated that the oil generative sediment at the Sukhbaatar block is

up to 9,600 meters thick, the largest and thickest in eastern Mongolia. This is up from the previous

estimate of 4,000 meters and has led the company to suggest that the sub-basins at Sukhbaatar are

a potential main petroleum generation source in the region. The first exploration well is currently

scheduled to spud toward the end of 2013.

Source: Proactive Investors

August

Issue 285

TEST WORK SHOWS BLENDING OPPORTUNITIES FOR OVOOT, TT COAL

Aspire Mining Ltd. announced test results that demonstrated blending opportunities with coal from

its Ovoot coal mine and the state-owned Tavan Tolgoi mine.

An independent research group tested coal taken from the Tavan Tolgoi steel-making coal deposit

blended with coking coal from its own Ovoot coal mine. The research group collected samples from

Tavan Tolgoi and sent them to ALS Laboratories in Brisbane, Australia for testing. The Tavan Tolgoi

samples from the seams zero, three and four were washed to bring ash levels down to a targeted 10

percent and then combined with washed Ovoot project coking coal on a 50-50 basis.

Of particular importance is seam zero, which is classified as thermal or weak coking coal by both

Tavan Tolgoi and the adjacent Ukhaa Khudag Mine, owned by Mongolian Mining Corp. Over the next

20 years, significant quantities of thermal and oxidized coking coal will be mined from the Tavan

Tolgoi deposits. According to the Source, Tavan Tolgoi coals are obviously blending partners for

Ovoot project coal due to their similar rank and vitrinite categories. Tavan Tolgoi coals are low in

sulfur whereas Ovoot project coking coal is high in caking and plastic properties necessary to

produce coke.

Source: Aspire Mining Ltd.

Issue 287

PROPHECY COAL CLINCHES COAL OFF-TAKE DEALS, TO RESTART RUSSIA EXPORTS

Mongolia-focused coal miner Prophecy Coal Corp. has inked two binding sale-and-export contracts

for 30,000 tons of coal from its Ulaan Ovoo mine to a buyer in Russia.

The Vancouver-based company said on Monday that the buyer was a substantial coal trader with a

yearly volume of turnover of more than two million tons in Russia‘s Buryatia region. The Buryatia

region, which consumes about six million tons of thermal coal a year, was facing a coal shortage

owing to declining coal production as a result of aging local mines.

Prophecy said an uninterrupted supply of Ulaan Ovoo coal was critical to meet growing regional

demand for premium thermal coal. Under the, off-take agreements 5,000 tons a month of coal

would be exported through northern Mongolia‘s Sukhbaatar rail station, a significant Mongolian

gateway to Russia, connected to the Russian trans-Siberian railway. The fresh-coal deliveries were

expected to start in November, when mining resumes after the completion of pit-dewatering

activities at the Ulaan Ovoo mine.

Further, the Russian buyer had also inked a nonbinding memorandum of understanding

contemplating the potential increase in monthly coal sales volume to 30,000 tons at Sukhbaatar.

Prophecy previously exported coal to Russia in 2011 and 2012. The company said the new contracts

were an important step in its drive to restart Ulaan Ovoo on a meaningful mining scale with sales

prices that could potentially generate an investment return.

―The sales price is robust, and management believes the off-take agreement and potential

additional coal sales contemplated by the MoU will help establish the long-term viability and

stability of the mining and logistical operations at Ulaan Ovoo,‖ the company said.

Meanwhile, Prophecy continued to engage Mongolian and Russian officials to work toward the

reopening of the Zeltura border crossing between the two countries. Zeltura is less than 20

kilometers away from Ulaan Ovoo, and the reopening of the border could further increase export

sales volume, reduce transportation costs, and achieve greater economy of scale. A customs

warehouse was being built on the Russian side of the Zeltura border.

Source: Mining Weekly

SOUTHGOBI POSTS LOSS, PULLS PRODUCTION FORECAST

Coal miner SouthGobi Resources Ltd. reported a second-quarter loss and withdrew its full-year

forecast for semi-soft coking coal, citing weak demand in China.

The withdrawal of the forecast for semi-soft coking coal, a variety of coal used to make steel,

comes five months after the company set the target at 3.2 million tons. SouthGobi said the timing

of any recovery next year remained uncertain and was dependent on the Chinese economy, where

demand and prices for coking coal have been weak. The company's flagship Ovoot Tolgoi mine is in

Mongolia, which neighbors China. The mine producers and sells coal to customers in China.

Certain coal prices indices in China have reached four-year lows and coal consumption and

production in regions close to the Mongolian border have dropped significantly year-on-year,

SouthGobi said in a statement. Economic activity after transition in China's leadership has been

slower than expected, the company said.

Chinese President Xi Jinping's appointment as Communist Party chief in a once-in-a-decade

leadership change last November had triggered hope of political reform. SouthGobi said average

realized selling prices fell 77 percent to USD 14.40 a ton in the second quarter. SouthGobi posted a

net loss of USD 33.7 million in the second quarter, compared with a net income of USD 237,000 a

year earlier. Revenue slumped to USD 374,000 from USD 8.4 million. The company produced

170,000 tons of raw coal, compared with 270,000 tons a year earlier.

Source: Mining Weekly

Issue 288

AREVA ANNOUNCES 63,000 TONS OF URANIUM DISCOVERED

Areva Mongolia LLC announced the discovery of uranium deposits in Dornogobi Aimag large enough

to meet global demand for 20 years,

Thierry Plaisant, chief executive of Areva Mongolia, said his company and its subsidiary Kojegobi

Mongolia has registered 6,000 and 57,000 tons of uranium with the Mineral Resources Authority at

Dulaan Uul and Zuuvch Ovoo, respectively. Areva now has plans to develop a large-scale project in

both cities, with about 30 kilometers in between each deposit. The company hopes to bring its total

uranium reserves to 100,000 through further exploration.

Plaisant also took the time to deny rumors that Areva's activities in the area were responsible for

animal deformities. He stressed the fact that Areva had only conducted exploration activities, not

processing, and would not be creating yellow cake from uranium in Mongolia. He added that Areva

had temporarily halted its operations to look into the matter, and that it was willing to fund

research to investigate the reasons behind alleged animal deaths in the area.

In total, Areva has spent approximately USD 140 million on exploration in Mongolia. Areva, in 2011,

sold 34 percent of Areva Mongolia shares to Mitsubishi Corp and now plans to negotiate a strategic

cooperation agreement with the Mongolian government.

Source: Udriin Sonin

Issue 289

MONGOLIA GRANTS SOUTHGOBI PRE-MINING AGREEMENTS

Toronto- and Hong Kong-listed SouthGobi Resources Ltd. has withdrawn its ―notice of investment

dispute,‖ which it filed with the Mongolian government in July last year, after it was granted three

pre-mining agreements (PMAs).

The PMAs now pave the way for the company to progress to the mining license application stage.

SouthGobi, in which TSX-listed Turquoise Hill owns a majority stake, said on Thursday that the

granting of the three PMAs, together with a PMA awarded on 18 January, had resolved the key

aspect of the investment dispute filed on 11 July. The PMAs relate to three mineral exploration

licenses held by SouthGobi Sands, being licenses 9449X, 5267X and 13779X. License 9449X relates to

certain areas associated with the Soumber deposit outside the existing mining license and the PMA

previously granted. Licenses 5267X and 13779X relate to the Zag Suuj deposit.

SouthGobi owns the Ovoot Tolgoi mine, which produces and sells coal to customers in China.

Source: Mining Weekly

XANADU TARGETS COPPER-GOLD PORPHYRY WITH AT OYUT ULAAN

Xanadu Mines Ltd. has commenced a second phase exploration program at its Oyut Ulaan copper-

gold porphyry project in the south Gobi region of Mongolia.

The program includes 1,500 meters of diamond core drilling, 350 line-kilometers of ground

magnetics and 1,000-meters of trenching. Drilling is designed to confirm extensions of the goldrich

porphyry copper mineralization identified by reconnaissance work in May through June.

The project is located 60 kilometers west of the trans Mongolian railway, covers 40 square

kilometers and comprising numerous mineralized porphyry centers. Porphyry mineralization at Oyut

Ulaan is associated with late-stage monzonite and quartz diorite porphyry dykes on the flanks of the

Oyut Ulaan intrusive complex.

Fieldwork should be completed by early October with results to follow shortly thereafter.

Capitalized at USD 14 million and well-funded, Xanadu is potentially leveraged to exploration

success.

Source: Proactive Investors

MMC'S JAN-JUN HARD COKING COAL SALES RISE 32%

Mongolian Mining Corp.'s (MMC's) sales of hard coking coal from January through June 2013 rose 32

percent on-year to 3.1 million metric tons, of which 2.2 million metric tons was washed coal, the

Hong Kong-listed company said Wednesday.

The volume of washed coal sales rose 72.1 percent year-on-year and accounted for 87.3 percent of

total coal revenues of USD 247.8 million for the January-July period. It received an average price of

USD 98.7 per metric ton for its washed hard coking coal over the six-month period compared with

USD 138.7 per metric ton in the same period of 2012, MMC said.

The first module began commercial operations in June 2011, and the second in February 2012, an

MMC spokeswoman said Wednesday. ―Each of the modules has an annual cost processing capacity of

five million metric tons, making a total of 15 million metric tons a year,‖ she said.

MMC was able to reduce the impact of lower coking coal prices by cutting average production costs

for run-of-mine coal by USD 2.70 per metric ton, or 37.5 percent, to USD 4.50 per metric tons, the

company said. MMC's exports to China from January through June comprised around 42 percent of

Mongolia's total coal exports, according to the country's National Statistical Office. It produced 8.6

million metric tons of coking coal in calendar year 2012 from its Ukhaa Khudag mine, which forms

part of the Tavan Tolgoi deposit in the Southern Gobi region. MMC Chief Executive Battsengel Gotov

said Wednesday the company remained cautious about the outlook for the coking coal sector but

expected a gradual recovery in coal prices over the rest of 2013.

MMC posted a USD 2.5 million net loss for the calendar year 2012. Mongolia has been losing its share

of the Chinese coking coal market this year, particularly to Australian exports. In July, China

received 982,472 metric tons of coking coal from Mongolia and 2.6 million metric tons from

Australia, according to China customs data.

Source: Platts

PROPHECY SIGNS MULTIPLE COAL OFFTAKE AGREEMENTS

Prophecy Coal Corp. announced that it has entered into a binding coal sales contracts with a

number of buyers which will involve the sale of over 30,000 tons of coal per month from the

company's Ulaan Ovoo mine.

The buyers include cement plants, a metallurgical plant, a heat plant, chemical plants and Russian

traders. The off-take quantity and a variety of customers reflect the company's significant efforts to

drive higher margin sales while satisfying government power plant needs, which are excluded from

the 30,000 tons per month forecast. All sales require pre-payments, as has been the company's

practice since January 2013. The orders reflect strong demand in Mongolian and Russian markets,

whereby economies are growing at double-digit rates, and local thermal coal mine production are

declining.

The company cautioned that mining operations at the Ulaan Ovoo mine has been curtailed since

July 2012. Some orders will be delivered in August and September from existing coal stockpile.

Fulfilling all the off-take agreements is contingent on a mine restart, which requires time and

capital expenditures. The company has installed significant water-pumping capacity at the mine

site and will soon start pit-dewatering aiming to start mining fresh coal by November 2013 and

thereafter on a continued basis.

Source: Prophecy Coal Corp.

September

Issue 291

SENTOSA CONFIRMS LARGE COPPER-GOLD PORPHYRY POTENTIAL OT

Sentosa Mining Ltd. has received two independent technical reviews of a recently completed

aeromagnetic survey over the north-western sector of the Darvii Naruu project in Mongolia.

Each confirmed the significant potential for large scale copper-gold, within that sector of the

project. The first review was conducted by Onex Consulting, a firm of independent geological

consultants, which focused on the geology and geochemistry of the Darvii Naruu Project. The

second review, by Southern Geoscience Consultants, focused on the airborne and magnetic

radiometric data itself. At Darvii Naruu, 1,620 line kilometers of aeromagnetic-radiometric data

was collected, confirming a tectonic setting in a known porphyry mineral belt that hosts Rio Tinto

PLC's giant Oyu Tolgoi copper deposit.

Relative age of host stratigraphy is consistent with other known porphyry systems within the belt,

including Oyu Tolgoi; strengthened by ore-grade mineralization up to 5.8 percent copper and 34.4

grams per ton gold found in outcrop over the Mushroom Reef prospect. A large circular magnetic

low feature immediately north of Mushroom Reef is possibly indicative of a large intrusion at depth.

Geochemistry confirms a suite of anomalous pathfinder elements including zinc and lead, which are

a reliable porphyry system signature.

Several drill-ready magnetic and potasic targets, from 37 in total, have been identified with drilling

preparations underway. Sentosa intends to exercise its option to acquire 100 percent of the

Mongolian project, subject to the company being satisfied with final due diligence inquiries.

Source: Proactive Investors

BELARUSIAN MINER TO PARTNER WITH GOVERNMENT FOR FLUORSPAR, BROWN COAL

A Belarusian company will participate in the mining of fluorspar and brown coal in Mongolia,

Belarus' Environment and Natural Resources Minister Vladimir Tsalko told media.

The agreement was reached during the official visit of the Belarusian delegation headed by Premier

Mikhail Myasnikovich to Mongolia on 3 to 5 September. During the talks with their Mongolian

counterparts, representatives of the Belarusian Environment and Natural Resources Ministry

touched upon the issues of exploration and excavation of minerals, which are in abundance in

Mongolia. According to Vladimir Tsalko, the meetings resulted in an agreement on granting Belarus

exploration concessions in Mongolia.

―Our companies will have the right to mine all minerals they explore and sell them jointly with the

Mongolian side,‖ said Tsalko. ―We have agreed that our company would begin mining operations in

Mongolia in late 2013. The sides will sign agreements on the establishment of a joint venture to

mine fluorspar, a spar which is imported by Belarus.‖

Tsalko said Mongolia suggested transferring to the Belarusian partners a brown coal deposit which

has not been mined. The minister said several businessmen and some Belarusian companies,

including BelAZ, have taken interest in the project. Belarus hopes to start mining operations in

early 2014.

Source: Belarusian Telegraph Agency

Issue 292

MONGOLIA TO TAKE DOMESTIC AREVA URANIUM STAKE TO HELP REVIVE INVESTMENT

Mongolia will take a stake in a domestic uranium venture led by France‘s Areva SA and support its

development, signaling the nation‘s willingness to revive foreign investment, said Prime Minister

Norov Altankhuyag.

―Through this we see that foreign investors are continuing to invest in Mongolia,‖ Altankhuyag said

in an interview in Tokyo on 14 September, at the end of a four-day visit.

Mongolia will take a 34 percent share of the uranium mining unit of Areva Mongol LLC, he said,

adding that this is the level of ownership under domestic law that designates a strategic deposit.

Areva Mongol owns 27 uranium exploration permits in the country and is seeking to upgrade them to

allow mining. It is negotiating an equity interest with state-owned MonAtom LLC. Japan‘s largest

trader, Mitsubishi Corp., is also a potential investor.

Mongolia‘s premier is seeking to revive direct foreign investment, which shrank by 42 percent, or

USD 1 billion, in the first half of the year, due to stricter regulation of overseas companies and the

government‘s dispute with Rio Tinto Group.

The ―hiccups‖ in Mongolia‘s economy are not unexpected and longer-term investors realize that the

issues are par for the course in an emerging market, said Howard Lambert, chief representative of

ING Groep NV in Mongolia, the first foreign lender to open an office in the country. ―Investors want

stability and they want transparency,‖ Lambert said in an interview from Ulaanbaatar. ―In emerging

markets it‘s rare to have all those things at the same time and for extended periods of time.‖

Areva has explored for uranium in Mongolia since 1997 and has 144 staff in the country, according

to its website. MonAtom‘s stake would be in Areva Mongol‘s unit, Areva Mines LLC, the company

that will produce the uranium. Mitsubishi is waiting for Mongolian government approval to exercise

its option on Areva Mongol shares, Japan‘s biggest trading company said in an emailed response to

questions. The approval is expected in the near future, Mitsubishi said.

Source: Bloomberg

Issue 293

BEREN MINING TO BUILD STEEL PLANT

Beren LLC has attracted investment from Japan for an iron ore smelting steel factory in Mongolia.

Founded in 2005, Beren Mining is a Mongolia-based mining company that owns and operates mining

and exploration licenses for several iron ore deposits in Central Mongolia.

The factory would be used for the production of 200,000 tons of steel and 100,000 tons of cast iron

a year, said General Director B. Munkhtur. He said Beren had entered an agreement with Japan's

Marubeni for implementation of the project and purchase of equipment from the other Japanese

firms Nikon and Mitsubishi.

―This kind of factory needs at least two years to be ready for operation,‖ said Munkhtur. ―However,

one Korean company with good management has taken only one year until it was ready. We are also

willing to spend only a year on the construction work.‖

Beren is financing 30 percent of the project costs using proceeds from the 2012 Chinggis bond and

the rest from soft loans from Japan.

Source: Undesnii Shuudan

October

Issue 294

MONGOLIAN FLUORSPAR: A NEAR-TERM SUCCESS STORY?

Fluorspar, although slightly further down the list of exports out of Mongolia, is seeing the

beginnings of a more important role in the Mongolian economy.

Mongolia produced 420,000 tons a year in 2012, according to the United States Geological Survey

(USGS). It is the third-largest producer in the world, with most of its supply feeding China and

Russia. In fact, insufficient transportation infrastructure means Mongolia‘s only markets for

fluorspar are these two countries, largely via the Trans-Mongolian Railway, which connects China

(at Zamyn-Uud) and Russia (at the Altanbulag port). While Mongolian production has recently

stuttered as global demand has fallen, most market commentators believe that the market will pick

up.

Vancouver-based Prima Fluorspar signed a letter of intent in September with New York, United

States-based fund Firebird Management—which holds a 99.8 percent majority stake in Berkh Uul

JSC, owners of the Delgerkhan fluorspar mine. The deposit holds almost 10 million tons of ore

grading 33.47 percent Calcium fluoride.

―Delgerkhan is one of the largest in the world,‖ said James Passin, fund manager at Firebird, who

has been developing the mine since 2011. ―There is fluorspar that we would intend to produce

through an open-cast mine. The rest of the deposit will be produced by underground mining by

rehabilitating the existing shafts,‖ he said.

The next steps for the project are to dewater and remediate the existing mine infrastructure, with

a 2014 fourth-quarter target date for first production, at a run rate of 120,000 tons a year.

Meanwhile, Mongolia Minerals Corp. is developing its Dai Uul project in Dornogobi Aimag. The

project is not as advanced as Firebird‘s, but it recently increased its reserve estimation. Both Passin

and Rodriguez de Castro agree that developing a project in Mongolia has cost advantages.

―We have a huge cost advantage on the existing infrastructure and mining assets, which will allow

us to get to production without having to invest a lot of capital, compared to a lot of other large

fluorspar deposits,‖ Passin said.

Source: Industrial Minerals

Issue 295

ERDENE COMMENCES EXPLORATION PROGRAM AT ALTAN NAR GOLD PROJECT

Erdene Resource Development Corp. announced the commencement of an exploration program at

its Altan Nar gold-polymetallic project to further define the near-surface mineralization and

prioritize new areas for the next phase of resource drilling.

"The discoveries by our Company over the past two years in the Altan Nar area have established a

new epithermal gold district in southwestern Mongolia,‖ said Peter Akerley, president and chief

executive officer. ―The objective now is to establish initial targets for open pit development at

Altan Nar while continuing to explore this large area at surface and at depth where high-grade,

gold-polymetallic shoots have been identified.‖

Source: Erdene Resource Development Corp.

PROPHECY SIGNS 30,000 METRIC TONS/MONTH OFF-TAKE AGREEMENT

Canadian coal producer Prophecy Coal Corp. said Monday it had signed an additional off-take

agreement with an undisclosed buyer for thermal coal from its idled Ulaan Ovoo mine in Mongolia.

Under the contract, Prophecy will supply 30,000 metric tons a month to the buyer, which it said

was a "new customer with substantial presence in the region." In August, Prophecy announced that

it had sealed multiple sales contracts with a number of buyers for Ulaan Ovoo coal totaling 30,000

metric tons a month. Prophecy said that during September it loaded coal from existing stocks at the

mine site and railed it to customers.

"Fulfilling the off-take agreements is contingent on the mine restart as the quantity and quality of

the existing stockpile are insufficient to supply customer demand beyond October, 2013," Prophecy

said in a statement.

Prophecy said it was targeting mine operations to restart in November. Operations at Ulaan Ovoo

were suspended in July 2012. At the time, Prophecy said existing stocks were sufficient to meet

contractual supply obligations and that the management was using the downtime to work with

Mongolian officials to seek road and bridge improvements and to open the Zelta border to facilitate

Russia export sales.

Source: Platts

Issue 296

XANADU MINES ASSAYS BROAD COPPER, GOLD ZONES AT OYUT ULAAN

Xanadu Mines Ltd. has returned broad copper-gold from a trenching program at its Oyut Ulaan

copper-gold porphyry project in Mongolia. The 780-meter trenching program tested coincident

geophysical and geochemical anomalies at Oyut Ulaan. The program has defined three near-surface

mineralized porphyry centers with results up to 85 meters at 0.75 percent copper with 0.54 grams

per ton gold, including 36 meters at 1.49 percent copper and 1.02 grams per ton gold. The

trenching was performed concurrently with the recent drilling at the Diorite Hill prospect, and drill

testing of the new targets is scheduled within the next phase of drilling.

Source: Proactive Investors

MODUN RESOURCES SIGNS MOU WITH GOM TO SELL COAL BRIQUETTES

Modun Resources Ltd. has received a strong endorsement from the Mongolian government, signing a

memorandum of understanding to supply coal briquettes.

Under the terms of the memorandum, Modun is responsible for developing a coal mine and

constructing a coal briquette plant at its Nuurst project, subject to raising the appropriate finance.

Modun is also responsible for delivering the quantity of coal briquettes as detailed in the terms and

conditions of the off-take agreement currently under negotiation with the Mongolian government.

―The signing of the Memorandum is an important and final precursor to endorse the formal Off-take

Agreement for the supply of the coal briquettes to the Mongolian Government,‖ said Rick Dalton,

managing director for Modun. "The Memorandum clearly outlines the responsibilities of the

Government departments and ensures each parties‘ interests are aligned and focused on delivering

the project. The negotiations for the off-take agreement continue to progress well and have now

moved into the final stage of discussions.‖

The independent consultants appointed by Modun have completed the feasibility study required by

Mongolian law, subsequent to attaining the mining license. Modun is undertaking a final review of

the feasibility study with the consultants prior to submitting it to the Mineral Resources Authority of

Mongolia.

Source: Proactive Investors

MONGOLIA COAL EXPORTS DECLINE 20 PERCENT BY VOLUME IN FIRST 9 MONTHS

Mongolia exported 11.38 million tons of coal in the first nine months compared with 14.29 million

tons a year earlier, according to the National Statistical Office.

The value of the coal exports fell to USD 783.94 million in the first nine months from USD 1.43

billion a year earlier, a drop of 45 percent, according to the agency. Coal is the nation‘s biggest

export.

Mongolia‘s copper concentrate exports rose to USD 679.6 million from USD 626.8 million a year

earlier. By volume, copper concentrate exports increased to 469,200 tons from 426,803 tons a year

earlier. That increase in copper shipments follows the start of commercial production at the Oyu

Tolgoi copper and gold mine in July. Mongolia‘s total exports fell to USD 3.09 billion for the first

nine months of this year compared to USD 3.23 a year earlier, according to the agency. Total

imports fell to USD 4.82 billion from USD 5.24 billion a year earlier. Mongolia‘s exports to China, its

biggest trading partner, totaled USD 2.66 billion in the first nine months, compared with USD 3.01

billion a year earlier, according to the agency. By value, the second largest amount of exports from

Mongolia went to the United Kingdom, which purchased USD 154.4 million of goods in the first nine

months, compared with USD 8.4 million a year earlier

Mongolia exported USD 478 million of iron ore in the first nine months, compared to USD 382 million

a year earlier, according to the agency. By volume, Mongolia exported 4.68 million tons of iron ore

compared to 4.62 million tons a year earlier, according to the agency. Mongolia‘s gold exports rose

to USD 245.9 million in the first nine months from USD 70.6 million a year earlier. By volume,

Mongolia exported 6 tons of gold compared with 1.6 tons a year earlier, according to the agency.

Oil exports rose to 3.5 million barrels in the first nine months compared to 2.4 million barrels a year

earlier, according to the agency.

Source: Bloomberg, Cover Mongolia

Issue 297

MONGOLIA PUSHES EXPLORATION WORK TOWARD EXTRACTION

Mongolia is seeing a growing number of mining licenses compared with exploration licenses, said a

government mining official.

Mongolia has 1,900 exploration licenses issued compared to 1,200 extraction licenses for companies

invested by countries such as the Czech Republic, Poland, Canada, and Australia. According to B.

Baatartsogt, head of the Geological Policy Coordination at the Mining Ministry, it is in Mongolia‘s

best interest to see some of these exploration projects transition into extraction.

―The number of exploration licenses in decreasing and, respectively, the number of extraction

licenses is increasing,‖ said Baatartsogt.

To help increase the number of extractive operations in Mongolia, Mongolia has increased the

budgeted allocation for exploration work to MNT 7.3 billion for 2014. The country is also changing

its policy of license issuances, instead targeting research work rather than commercial interests.

―New policy states that exploration work will be permitted only for specialists with research permit

licenses,‖ he said. ―There are also plans to establish geo-parks where there are rare geological

finds for scientific research and tourism.‖

Source: Undesnii Shuudan

MONGOLIA TO INCREASE PETROLEUM RESERVES BY 15 PERCENT FOR 2014

The Cabinet of Ministers has ordered a larger volume of petroleum reserves for next year.

At a Cabinet meeting, members have ordered a 15 percent increase in monthly reserve deliveries

from 13 companies, including NIK, Petrovis, Magnai Trade, Shunkhlai, Sod Mongol, Monpetiks, Just

Oil, and Oin Birj petroleum. Those companies will deliver at least 80,480 tons each month.

Source: Undesnii Shuudan

November

Issue 299

INVESTORS CRY FOUL AS MONGOLIA REVOKES MINE LICENSES

Mongolia has annulled more than 100 exploration licenses as part of an investigation into mining

sector corruption, raising further concerns among investors about the risks of doing business there.

Mongolia-focused Kincora Copper said on Thursday that it had received a letter from the Mineral

Resources Authority saying that two of its licenses had been revoked following a criminal

investigation into former government officials accused of illegally issuing a total of 106 exploration

licenses between 2008 and 2009.

All of the 106 licenses have been canceled.

Kincora Copper said the move, which will affect the licenses of an estimated 11 foreign and 67

domestic firms hoping to explore for a range of minerals, highlighted the uncertainty facing a

growing legion of investors.

"Security of tenure and a transparent legal system are key cornerstones for both domestic and

foreign private sector investment," said Sam Spring, president and chief executive of Kincora

Copper, in an email.

Surenjav Odbayar, head of research at Ulaanbaatar-based brokerage National Securities, said the

case related to two government officials caught up in a crackdown on corruption that was launched

ahead of Mongolian President Tsakhia Elbegdorj bid for re-election this year.

Kincora's Spring said arbitration for his own company would only be a last resort, and that they

would first seek to resolve the matter directly with the government.

Source: Reuters

PROPHECY COAL RESTARTS MONGOLIAN COAL MINE

Canadian coal miner and energy project developer Prophecy Coal Corp. on Monday announced that

operations at its Ulaan Ovoo mine had restarted as scheduled and within budget.

Prophecy said that all the required mining, safety, and transportation staff were re-hired and all of

the company's leased-out mining and transportation equipment had been recalled and had arrived

on site. With a fleet of three operating mining excavators, 6 dump trucks, and more than 20 owned

and leased transportation trucks, the company expected to mine and transport about 30,000 to

50,000 tons per month of coal in November and December, if the weather allows it. The company

reported the road condition from the mine to the Sukhbaatar rail siding to be normal and coal was

continuously being sold to a number of Prophecy customers.

Prophecy last month said it had added a third off-take partner for its Ulaan Ovoo mine, after it had

struck and accord with a new customer with ―substantial presence‖ in the region to buy 30,000 tons

a month. The company‘s asset would also supply more than 30,000 tons a month of coal to cement

plants, a metallurgical plant, a heat plant, chemical plants and Russian traders, all of which signed

binding agreements over the past two months.

The company had also recently executed a coal sales contract of significant quantity with a buyer in

Russia, which is contingent on the ability to transport coal through the Zeltura border. Prophecy

said a Mongolian government resolution had listed the border as being "under renovation," meaning

it was neither open, nor closed. Prophecy could not give a definitive timeframe to start

transporting coal through the border post. The road improvement, which required a feasibility study

and environmental impact assessment studies, were expected to be complete by the end of the

year. The road improvement project was expected to take two to four months.

Source: Mining.com

Issue 301

MODUN FEASABILITY STUDY SHOWS $11.50 A TON COST AT NUURST COAL PROJECT

Modun Resources Ltd. has submitted a feasibility study for the Nuurst thermal coal project in

Mongolia that highlights its low production costs—estimated at USD 11.50 per ton of raw coal.

The study by Absolute Mining has identified the potential for a 136.9 million ton mine producing up

to 4.9 million tons of raw coal per annum and 500,000 tons of dried coal briquettes by year four.

This will have a mine life of about 30 years.

―The results from the Mongolian feasibility study provide further confidence in the viability of

developing the Nuurst Coal Project into a low cost producing mine,‖ managing director Rick Dalton

said. ―This study will also be used as a basis for completing the more detailed feasibility work

required to secure financing for the development of the Project.‖

Modun continues to progress its Nuurst thermal coal project towards development with the

Mongolian Feasibility Study highlighting the low USD 11.50 per ton cost to produce raw coal which

would provide a significant operating profit margin even at current thermal coal prices. Besides

representing a key step in securing its mining permits, the study also provides the basis for a

bankable feasibility study that will allow the company to secure financing for the project. To top it

off, Nuurst has many advantages over other coal projects in the country, including proximity to

infrastructure and an agreement to supply coal briquettes to the Mongolian government.

Source: Proactive Investors

December

Issue 303

KINCORA ANNOUNCES SIGNIFICANT WRITE-DOWN FOLLOWING LICENSE REVOCATIONS

In the latest fallout from Mongolia's recent decision to revoke 106 mineral exploration licenses,

copper junior, Kincora Copper Ltd. announced a write-down of CAD 7 million (USD 6.6 million)

which is greater than its current market capitalization.

In a release issued on 6 November, the copper explorer said it received official notification that the

Mineral Resources Authority had revoked its licenses for its Tourmaline Hills and North Fox

properties, which are wholly owned by its subsidiary company, Golden Grouse LLC. Kincora paid

USD 5 million for the two licenses in 2012 and has subsequently spent almost USD 1.9 million on

further exploration. The company is currently valued at around USD 5 million. Asked about a time

line for the resolution of the license issue, Kincora's chief executive officer, Sam Spring says at

present there is very little certainty.

"We are told that the licenses should be reissued according to a competitive tender process,‖ Spring

said. ―If you speak to the various government agencies privately, you are told that under the new

minerals law, there will be a issuance of licenses and these 106 will be reissued at that time and

that we will probably have some preferential rights, but at the same time it will be a competitive

tender process, so it is hard to gain too much comfort from that and nothing is yet documented."

While the news is disheartening, Spring remained upbeat, saying the license for the group's flagship

asset, Bronze Fox, remains in good standing and at an operational level the asset keeps getting

better the more work gets done on it—according to Spring, it has a number of similarities to a pre-

discovery hole Oyu Tolgoi.

Source: Mineweb

ASPIRE INKS TWO MEMORANDA FOR 3.3 MILLION TONS A YEAR COAL SALES

Aspire Mining Ltd. announced the receipt of two non-binding memoranda of understanding from

large Russian coking coal end users for the potential purchase of coking coal to be produced from

the Ovoot coking coal project.

The two memoranda cover an initial commitment to potentially purchase up to 1.3 million tons a

year of coking coal, over a minimum period of five years. Additional interest received from other

Russian and Eastern European users indicates that Ovoot coking coal will have a significant

customer base in the blast and foundry furnace steel making industries outside of China.

Aspire also announced that through its Russian marketing agent, it has secured a non-binding

Memorandum of Understanding to secure up to two million tons a year rail and port capacity

through the Russian Far East coast at competitive tariffs. Russia is an important transit country for

Aspire having recently announced non-binding memoranda of understanding for Aspire to access

port capacity in the Black Sea and Russia‘s Far East. The ability to deliver from these seaports has

generated additional interest from users, particularly in Eastern Europe.

―We are very pleased with the initial interest received in Ovoot coking coal, given the relatively

short time that preliminary marketing of the coal has been undertaken,‖ said Aspire‘s managing

director, David Paull. ―We are pleased that we have been able to also now generate buying interest

in Russia which has a significant steel making industry and where Ovoot Project coking coal

compliments product offerings from established Russian coal miners. We have also been successful

at expanding rail and port capacity through Russia to other markets.‖

Source: Aspire Mining Ltd.

V. DIVERSIFICATION

The “rainbow” economy

January

Issue 257

CLEAN ENERGY NAMED “BEST GREEN ENERGY” AT GREEN AWARDS

Clean Energy LLC, the renewable energy arm of Newcom Group LLC, was awarded "Best Green

Energy" award from the Green Awards 2012.

The event was organized by the Ministry of Environment and Green Development on 19 December.

The Green Awards aim to recognize and support individuals, organizations, and companies that

showcased creative approaches to sustainable development through implementing environmentally

friendly and efficient technology and products in the country.

Source: Newcom Group LLC

February

Issue 259

AGRICULTURAL EXCHANGE TO OPEN IN Q3 2013

Mongolia's first preliminary run of its agricultural commodity exchange has been slated for the third

quarter of this year.

The government has budged MNT 5 billion for the project, with another 49 percent of investment to

come from the private sector. That includes members of the commodity exchange, investors, and

domestic production companies.

Source: Udriin Sonin

CRITICS SLAM PLANS FOR PETROLEUM REFINERY IN DARKHAN

The decision to move the site for Mongolia's first petroleum refinery has come under fire as critics

suggest it would do nothing to help Mongolia achieve fuel independence.

The change in plans was reportedly prompted by Mongolsekyu, which was founded by Japan's Toyu

Engineering and Marubeni. Some have criticized the plan, as it hinges on imported raw oil from

Russia, which they say does nothing to resolve Mongolia's dependency on Russia for fuels. Those

critics have also speculated on the fact that Minister of Mining D. Gankhuyag studied oil refinery in

Japan while cooperating with Japanese firms, leading them to believe they might have lobbied him

for the decision.

The government of Mongolia has ordered Gankhuyag to submit a technical and economic assessment

by May this year.

Source: Unuudur

WIND FARM COULD TILT UB FROM COAL TOWARD GREEN ENERGY

Mongolia's attempt to wean itself away from a coal-based energy supply will be crucial in designing

new energy policies in the country.

Mongolia's potential for harnessing renewable energy is huge, proponents say. In 2005, the

government passed the Renewable Energy Program, mandating that green energy sources account

for 20 to 25 percent of Mongolia‘s needs by 2020. Renewable energy is nothing new for Mongolia: It

is common to see a remote nomad's ger fitted with solar panels and windmills powering satellite

receivers.

Newcom Group LLC, the country's largest Mongolian-owned private mobile telecom provider, is

helping finance the USD 80 million joint venture as is the European Bank for Reconstruction and

Development (EBRD).

"Extensive wind-mapping data has shown Mongolia has the wind capacity to generate enough

electricity to supply all of China's electricity needs," said B. Byambasaikhan, CEO of Newcom Group.

The cost has decreased rapidly recent years, making wind harvesting the most suitable renewable

energy for commercial operation in Mongolia, he said. But it is still more expensive than coal,

critics contend. And coal is a much better bet to bring in much-needed revenue in the coming year

and meet the country's power needs, they say. With estimated reserves of 150 billion tons,

according to the Ministry of Mineral Resources and Energy, the country is experiencing a coal rush.

Apart from the higher investment costs, wind power is unable to provide nearly enough power to

heat homes during Mongolia's bitterly cold winters when total heat demand from the country's

combined heat and Power (CHP) plants exceeds the level of electricity production. Stakeholders in

the Salkhit wind farm are under no illusion that renewable resources will replace coal any time

soon.

"Of course if you're sitting on the largest untapped coal deposit in the world, it puts the whole

renewable energy issue a little in the background," admits EBRD resident head Philip ter Woort. But

with mounting environmental problems in Mongolia, it makes sense to examine renewable options,

he added.

Source: Eurasianet

Issue 261-262

TACKLING RETAIL RIGHTS

Efforts by Mongolia's government to improve conditions for increasingly wealthy local consumers

bode well for the fledgling retail industry. There are concerns, however, that watchdogs and

legislation will not be able to keep pace with the rapid growth of the industry.

A national consumer conference titled ‗The People are King‘ was held in November in Ulaanbaatar

with the aim of educating both consumers and producers on the importance of product quality.

Consumer representatives said that manufacturers should guarantee quality at the beginning of a

product's lifespan, and that distributors should not ignore reasonable demands by consumer

awareness regarding rights protection.

In July 2012, a mission from the U.N. Conference on Trade and Development (UNCTAD) presented

findings of a peer review it had conducted on the Authority for Fair Competition and Consumer

Protection. (AFCCP). UNCTAD found the agency had limited experience of joint work with the police

in consumer protection cases, with ―no transfer of investigatory skills from professional

investigatory agencies to the AFCCP.‖ It also noted the lack of a public relations policy, stating the

agency must develop a consistent policy for human relations, staff, development, knowledge

management, and experience sharing.

Meanwhile, the European Bank for Reconstruction and Development (EBRD) has taken a lead role in

developing the retail sector through the provision of a USD 4 million senior loan and USD 2 million

mezzanine loan in October 2012 to support BSB Service.

As a sign that it is preparing to be more assertive in projecting consumers, in November the AFCCP

imposed a MNT 4.97 billion (USD 3.58 million) fine on NIC, the largest retailer of petroleum

products in Mongolia for the ―creation of a false shortage of gasoline in the market,‖ reported

Business Mongolia. Further consumer protection steps have been taken by the Central Bank,

including a MNT 61 billion soft loan for flour mills that will allow them to supply first-grade flour at

a maximum wholesale price of MNT 550 per kilogram and a maximum retail price of MNT 650 per

kilogram.

Source: Oxford Business Group

March

Issue 264

MONGOLIA DIGS DEEP TO FIND A NEXT HOT PRODUCT FOR BRANDING AT MEF

Representatives of government, the academics, the private sector and society gathered at the

Government Palace this week to discuss objectives for establishing a national brand for Mongolia

this year at the Mongolia Economic Forum.

A number of suggestions were made in the selection of a product, including cashmere, leather, and

meat products, at the forum. Any of these would be a good choice for a brand, panelists felt, as

they have deep roots in Mongolian history and culture, which would be useful for production and

marketing purposes. Yet, the consensus was that all of them need further development before they

could compete with companies abroad.

―A number of small companies are sprouting, but they very much need to be raised to the world

level,‖ said B. Tsogtgerel, Minister of Industry and Agriculture, at the session for the business

environment.

The country is set on developing a product that can generate revenues comparable to the country's

mining industry in an attempt to diversify the economy and help it find markets for its exports other

than China. Finance Minister Ch. Ulaan noted that the government had already funneled money

from the sale of local bonds to develop the cashmere industry further through loans for equipment

and subsidies to encourage domestic processing.

Elaborating on that point, at the session on the business environment, Senior Advisor to the

President P. Tsagaan said that government revenue from the mining industry could be a valuable

source of funding to support various sectors of the economy. However, the country can no longer

rely on the banking sector alone.

―Commercial banks cannot be leaders in diversification of the economy. We are just participants,‖

said Central Bank Governor N. Zoljargal.

Panelists during the financing session advised that Mongolia would have to develop strategies to

target specific markets before ―pushing money to companies‖. Stephen Kreppel, director at the

Mongolian National Marketing and Coordination Office, noted that Mongolia should concentrate on a

product that is organic as well as environmentally and socially conscious to justify a high cost. He

said the mining economy, with its likelihood in effecting a strong currency and expensive labor

force, would in the next four to five years halve import prices and double to triple cashmere and

meat prices from that of today.

Not all these responsibilities would be left to government, however. A key player in this would be

the Mongolia's NGOs, who provide services such as pricing of commodities and leading marketing

campaigns. Of course, it would in the end be up to the private sector to implement production.

Source: Business Council of Mongolia

NGOS BUILD MONGOLIA'S SUPPLY CHAINS

A new law passed by Parliament on 1 March will make strides to improve the meat industry.

The legislation requires companies to provide certificate training for its workers and that they be

able to track the source of their meat products within the next 10 months. However, that is not

enough time, said Cedric Bussac, country director of the AVSF non-government organization,

because of the immense preparatory work needed to implement such an endeavor.

One company ahead of the competition, however, is Meat Market LLC, a subsidiary of Just Agro LLC.

It runs 12 slaughter houses and inspects food based on the standards of the Hazard Analysis and

Critical Control Points (HACCP) and eventually the International Organization for Standardization.

Tracing meat to their points of origin will require cooperation from herders. Many have already

formed cooperatives with the help of Western non-government organizations (NGOs). ASVF has been

active over the last eight years in Arkhangai where it successfully teamed up with the cooperative

Arvijin Delgerekh to establish a supply chain for yak furs. Industry officials are hoping to replicate

this business model for the meat industry.

Source: UB Post

GOVERNMENT MANDATES 34 PERCENT CONTROL OF SAINSHAND

The government has ordered that plans for the development of the Sainshand industrial complex be

revised to ensure 34 percent state ownership.

The order came to the Ministry of Industry and Agriculture so that the plans would comply with

Mongolian law. The order mandates that government have ownership of 34 percent of developer

Sainshand Industrial Park LLC, while private investors may hold the remaining 66 percent.

The government assigned the Development Bank to provide MNT 14.1 billion for development of the

complex and environmental assessment.

Source: Undesnii Shuudan

GOVERNMENT BUDGETS USD 2.3 MILLION FOR NUCLEAR PROJECTS

The government has approved of EUR 1.8 million (USD 2.3 million) to finance 8 projects in

cooperation with the International Atomic Energy Agency (IAEA), said the head of the Nuclear

Energy Authority (NEA) at a seminar for nuclear energy prospects on 1 March.

The agency head, B. Bayarbadrakh, said the nuclear program could have an enormous impact on

agriculture in Mongolia, with 49 percent of all projects until 2014 dedicated to food and

agriculture. It could also help eradicate animal disease among the country's livestock while

decontaminating seeds and extending the lifespan of crops.

However, Bayarbadrakh admitted that these sorts of prospects were unpopular in Mongolia, as a

large portion of the country was against nuclear energy in any form.

―Of course there may be bad effects,‖ he said, adding, ―But we will consider every aspect of the

risks before using it.‖

He noted that nuclear energy was widely used around the world to the benefit of millions in the

form of medicine, education, mining, agriculture, and food. He said nuclear energy could be safe

when the proper precautions had been taken, and Mongolia should not hold itself back from delving

further into opportunities related to nuclear energy.

Source: News.mn

Issue 265

MONGOLIA RANKED AMONG LEAST FRIENDLY COUNTRIES TO TOURISTS

Mongolia was ranked as one of the least friendly countries for tourists in the World Economic

Forum‘s Travel & Tourism Competitiveness Report.

The report examined the ―attitude of a population toward foreign visitors,‖ with a score of one

being very unwelcome and seven very welcome. Bolivia was ranked the least tourist-friendly nation

in the world; at 140th place it received a score of 4.1. It was closely followed in the unfriendly

stakes by Venezuela, Russia, Kuwait, Latvia and Iran.

Mongolia received a score of 5.0. The top award of friendliest country was given to Iceland,

followed by New Zealand and Morocco.

Source: The Australian

Issue 266

SHEEP CASHMERE PLANT OPENS

A new cashmere plant that uses sheep fibers for production has been commissioned by the Ministry

of Agriculture and Light Industry.

The factory has the capacity to produce eight tons of cashmere from sheep by separating the thick

fur for fine-thread production. Unused fibers will be used to make insulation for building

construction.

The company said the cashmere separated from sheep's wools is cheaper, warmer and of better

quality than goat's cashmere. Over 50 percent of the hairs from sheep can be used for cashmere,

with Mongolian production techniques able to produce 10 kilograms of washed wool from four

kilograms of cashmere.

Source: Unuudur

CAN “BRAND MONGOLIA” BE A REALITY?

Recently the Mongolian prime minister started a conversation about the opportunity to create a

new global brand. Let's call it ―Brand Mongolia.‖

Mongolia's tourism is seen by some economists as the logical inflection point to diversify the heavy

reliance on mining exports in the Mongolian economy and there are many interesting plans to

increase international tourist arrivals to the country. If you were looking to build a new and

sustainable brand you might be persuaded by the argument that some economic sectors, such as

agriculture or mining, only generate short and medium-term gains in an economy, but tourism is the

―oil that never runs out.‖ Mongolia attracts around 450,000 international inbound tourists each year

to enjoy its numerous tourist attractions. Tourism currently accounts for 3 percent of total

employment and contributes 9 percent to GDP. So perhaps it makes sense to use tourism as the

anchor to build a national brand?

With Mongolia myopically focused on internal issues such as its political instability, crumbling

infrastructure and a failing education system, it is easy to understand why the outward focused

tourism sector has received so little state support to date. A recent publication by the World

Economic Forum may provide some insights for the Mongolian policymakers to consider when

contemplating how they might deliver to this challenge.

The report entitled ―The Travel & Tourism Competitive Report 2013‖ ranked Mongolia 99 overall

out of 140 economies in a benchmarking study but received some of the lowest global rankings for

its service and attitude toward tourists, specifically the degree of customer orientation. The report

also pointed out that the attitude of the Mongolian population toward foreign visitors was among

the worst in the world. Clearly there is much to do to bring about a vision of international tourism

being the globally recognized brand for Mongolia, but like all leading brands, the quality of service

is a major intangible driver of brand value and one which ―Brand Mongolia‖ can't afford to ignore.

Source: Nigel Finch

Issue 267

LOOKING TO MARKET WINTER IN MONGOLIA

Mongolia‘s sweeping steppe and nomadic heritage attract tens of thousands of tourists from around

the world each summer. Come winter, though, popular tourist spots are eerily deserted; tour

operators have traditionally hibernated. But some are starting to ask: ―Are we missing an

opportunity?‖

Tourist season in Mongolia typically lasts from mid-May to mid-September. Most operators rely on

revenue generated during these months to survive for the rest of the year.

―No matter how successful you are in summer, winter is a dead season,‖ said Gereltuv Dashdoorov,

director of operations at Nomadic Expeditions, a tour agency. ―That‘s the same story for most

companies.‖

The actual drop in tourist numbers between seasons is hard to calculate as official statistics define

tourist as anyone who enters Mongolia on a tourist visa and stays for a minimum of three days.

Dashdoorov said the drop in bookings for most agencies is between 85 and 90 percent. Winter

visitors are mostly passengers on the Trans-Siberian Railway on a three-day layover in Ulaanbaatar—

the world‘s coldest capital—between trains.

There are other challenges, besides winter. Mongolia‘s tour operators have struggled to compete

with the mining industry for trained local staff. And mining-led inflation is making Mongolia an

increasingly expensive destination for tourists. But the seasonality of the sector continues to limit

growth. Dashdoorov also pointed out a lack of winter products for tourists to enjoy.

A handful of companies have been trying to extend the tourist season by collaborating with local

communities to organize annual events. In recent years, these have included the Golden Eagle

Festival in the western Altai Mountains each October. March events include the Huvsgul Ice Festival,

the Thousand Camels Festival in the southern Gobi Desert, and a camel polo tournament near

Ulaanbaatar. The festivals have yet to draw high numbers of international tourists, though some

have gained a reputation as colorful local affairs, said Dashdoorov, whose companies helped kick-

start the eagle and camel events.

For organizers, poor infrastructure proves as challenging as the weather. The central government

has pledged greater support for the festivals and recognizes their potential to draw visitors.

Source: Pearly Jacobs

April

Issue 268

UK RENEWABLE ENERGY TRADE MISSION TO MONGOLIA

The Mongolian British Chamber of Commerce is organizing a renewable energy and sustainable

mining trade mission.

―British companies lead the world in many areas of renewable energy, and there are huge business

opportunities in Mongolia,‖ said John Grogan, a trade mission organizer and chairman of the

Mongolian British Chamber of Commerce. He added, ―The trade mission will give companies working

in these fields the opportunity to showcase their technology and knowledge to an eager

marketplace.‖

Glasgow firm Sgurr Energy is already working on the Salkhit wind farm project.

David Scott, Mongolian honorary consul in Ulaanbaatar, has helped organize the trade mission to run

from 2 to 9 June, coinciding with Ulaanbaatar's hosting of the United Nations' World Environment

Day on 5 June.

―Scotland leads the world in many areas of renewable energy and there are huge business

opportunities in Mongolia.‖ The trade mission will give companies working in the fields the

opportunity to showcase their technology and knowledge to an eager marketplace.‖

Source: Herald Scotland, Renewable Energy Focus

MNT 95 BILLION OF CHINGGIS BONDS TO GO TO CASHMERE SECTOR

The Cabinet of Ministries has given approval to spend MNT 95 billion from last year's USD 1.5 billion

Chinggis bond toward introducing improved facilities in the cashmere industry.

The ministry of economic development received approval to fund a plan for modern processing

machinery to cashmere producers in 2013 for value-added production. The initiative would cut raw-

material exports, instead replacing them with the finished goods, and create 20,000 new jobs. The

proposal also projects the creation of 200 textile factories throughout the country.

In 2012, 40 percent of the 3,000 tons of raw cashmere was processed into finished goods by

domestic producers. Another 40 percent was most likely shipped to China for manufacturing. The

government has previously issued a resolution to support cashmere processing with soft loans for

herders and manufacturers. The government hopes to establish a strong supply chain, developing

the cashmere sector from the bottom up.

Source: Business Mongolia

Issue 269

EBRD SUPPORTS IMC HOSPITAL

The European Bank for Reconstruction and Development (EBRD) will loan USD 13.1 million to

International Medical Center LLC to partially fund Mongolia's first private hospital that meets

international standards.

The loan will go towards construction and equipment costs for a new 90-bed hospital in

Ulaanbaatar. Due to Mongolia's aging health care infrastructure, many patients opt to travel abroad

to seek treatment, spending an estimated USD 100 million a year. Currently Ulaanbaatar is in great

need of a hospital with modern equipment and highly skilled staff.

―We are proud to support the creation of the first private hospital on this scale in Mongolia. As well

as providing medical services, the project will serve as a blueprint for more private sector

investment in health care in rapidly developing Mongolia,‖ said Aza Ulziitogtokh, the head of the

EBRD office in Mongolia.

IMC is a company operating in Mongolia that owns and manages hospitals. It has partnered with

Samsung C&T, a health sector management and consultancy subsidiary of Samsung Group, and

Korea University Medical Center, a university hospital in South Korea.

Source: Business Mongolia

NAADAM CASHMERE LAUNCHES KICKSTARTER CAMPAIGN

Naadam Cashmere has announced a sale offering its Mongolian garments at wholesale prices for the

duration of its recently launched Kickstarter campaign on the website kickstarter.com, which ends

15 May.

―It‘s about more than sales,‖ said Naadam chief executive and co-founder Matthew Scanlan. ―We‘re

getting the word out about Naadam, but also telling the story of the Mongolian herders who carry

this worldwide, multimillion-dollar industry yet find themselves struggling at the mercy of

worsening local economic conditions. They benefit from every dollar we make. We make sure of it.‖

Designed in New York City and manufactured locally in Mongolia using 100 percent cashmere,

Naadam supports Mongolia‘s nomadic goat herders—the source of the majority of the world‘s finest

cashmere—by investing a portion of profits in a World Bank-sponsored program that insures the

herder‘ livestock as climate change and worsening economic conditions make it increasingly

difficult for them to support themselves.

Source: Naadam Cashmere

BELARUS TO ESTABLISH TECHNOPARK IN MONGOLIA

Industry and Agriculture Minister Khaltmaa Battulga met with Belarusian Industry Minister Dmitry

Katerinich to discuss the possibility of establishing a technopark for Belarusian mechanical

engineering products in Mongolia.

The two ministers met on 10 April in Minsk, where they discussed the possibility of opening a park

to enable service and maintenance of the Belarusian agricultural machines sold to Mongolia. They

said they intend to sign an investment contract on the matter. Belarus‘s Minsk Tractor Works,

Gomselmash, Bobruiskagromash, and Lidselmash have expressed interest in the project, while

Mongolia is prepared to begin proposing the idea to Mongolian firms.

Battulga said Belarus tractors are well known to Mongolia, as they were used in the 1950s to

develop their lands. Currently Mongolia buys tractors from several foreign companies, including

some from China, but Mongolian customers have expressed dissatisfaction with the quality of

machines in Mongolia. Mongolia would be interested in purchasing small-capacity tractors for its

agriculture, said Battulga.

OAO BelAZ is currently Mongolia‘s largest supplier of tractors, shipping 34 mine dump trucks to

Mongolia last year. Belarus shipped USD 24 million worth of merchandise to Mongolia in 2012. In

January and February this year, shipments reached 15.3 million, 25 percent up from the year-ago

period. BelAZ plans to set up a sales center for its dump tricks with a Mongolian partner in

September 2013. The Mongolian delegation also invited MAZ to participate in tender bids as its

buses were well suited to Mongolia‘s climate.

Source: Belarusian Telegraph Agency

Issue 270

MONGOLIA OFFERS LOANS TO DIVERSIFY AWAY FROM MINING

Mongolia approved USD 86.2 million of loans for cashmere, clothing and dairy companies as the

government seeks to reduce the nation's reliance on mining for economic growth.

The Cabinet of Ministers approved the loans, which are four and a half years in length, at a regular

meeting on 13 April. The funds consist of USD 45 million for cashmere companies, USD 13.5 million

for other clothing makers and USD 27.7 million for dairy producers. The statement didn't give

interest rates for the loans.

―Mining is capital and equipment intensive but it can't create all the jobs needed,‖ Jim Dwyer,

executive director of the Business Council of Mongolia, said. ―Jobs are vital here. A lot of jobs need

to be opened up for people.‖

Mongolia's government estimates the cashmere and clothing initiative will help 80 factories that

could employ as many as 30,000 workers. The loans for the dairy industry will be used to set up 15

milk farms, four large processing plants, and 86 smaller facilities, according to the statement.

Mongolia has also started a marketing campaign with the goal of giving its cashmere and leather the

same cachet as French wine and German cars. The government agreed to set up the Mongolian

National Marketing Coordination Office in 2011 to promote the country's products and also won

assistance from the Asian Development Bank, which hired American Jeremy Hildreth to help create

a brand for Mongolian cashmere. Hildreth's campaign includes labeling cashmere products from the

nation with tags that say ―Certified Mongolian Noble Fibre.‖

Source: Bloomberg

Issue 271

GOVERNMENT AND GENIE ENERGY SIGN OIL SHALE AGREEMENT

Genie Energy Ltd. said its subsidiary Genie Oil Shale Mongolia LLC and the Petroleum Authority of

Mongolia (PAM) have entered into an exclusive oil shale development agreement to explore and

evaluate the commercial potential of oil shale resources on a 34,470 square kilometer area in

central Mongolia.

The five-year agreement calls for Genie Mongolia to explore, identify and characterize the oil shale

resource in the exclusive survey area and to conduct a pilot test using in-situ technology on

appropriate oil shale deposits. Genie must seek to proceed to commercial development via a

production sharing agreement in accordance with Mongolian law. To date, Genie Energy is the only

recipient of an exclusive oil shale contract in Mongolia.

―Utilizing Mongolia's extensive oil shale reserves to reduce our dependence on imported oil is a

strategic priority of the government,‖ said O. Erdenbulgan, Mongolia's vice minister of mining. ―We

have been impressed by Genie's commitment to Mongolia. They have the technical expertise to

produce oil and gas from oil shale in an environmentally sensitive manner.‖

Source: Genie Energy Ltd.

ZARA EYES MONGOLIAN PRODUCER AS SUPPLIER

Designer clothing label Zara is considering Darkhan Nekhi JSC as a supplier of goods.

Zara made its offer during a visit to the company‘s operations, where they offered to cooperate on

the development of the company‘s production capabilities for goods such as shoes and leather

goods.

Zara plans to send company representatives to Mongolia again, this time with foreign technicians,

after a contract is made.

Source: Unuudur

ERDENET OPENS CASHMERE FACTORY

Ministry of Agriculture and Industry Kh. Battulga commemorated the opening of the Erdenet

Cashmere factory last Sunday during his visit to the Erdenet Khivis Carpet factory.

Erdenet Cashmere received government support as part of the national campaign to foster the

production of finished goods in Mongolia.

―Our nation will only prosper if we diversify our economy and decrease dependency on mining

products such as copper and coal. To achieve this, one of the most important steps we can take is

to begin processing animal-related products domestically,‖ said Battulga.

The factory is Mongolia's second-largest for textile. The government hopes that this factory will

help reduce the country's dependence on imported threads and yarn from Russia, and industry

representatives say it will help increase productivity within the cashmere industry.

Source: BDSec JSC

May

Issue 272

SIBERIAN AND MONGOLIAN SCIENTISTS DEVELOP SMOKELESS FUEL

Scientists of the Russian and Mongolian Academy of Sciences have developed a smokeless fuel based

on brown coal (lignite).

According to the chairman of the Siberian Branch of the Russian Academy of Sciences, Alexander

Aseeve, the technology provides for the removal of organic substances from coal and the thus

formed semi-coke turns into a fuel briquette. He noted that development is very much in demand

by the small boilers working on coal.

In the papers of the Siberian Branch of the Russian Academy of Science, it is said that the

technology has been developed by use of brown coal from the Baganuur and Tavan Tolgoi fields of

Mongolia.

Source: Russian and India Report

Issue 273

MONGOLIA SEEKS TO REBUILD AGRICULTURE TO COMBAT MALNUTRITION TRENDS

Most Mongolians dismiss fruits, vegetables and cultivation as ―unmanly,‖ according to Marissa

Markowitz, a food security consultant with the Ministry of Industry and Agriculture (MIA), creating a

malnutrition epidemic in the country.

Less than 1 percent of the country's land is used for production. Mongolians rely on livestock for

their food needs, guiding massive herds across the vast grasslands of the Central Asian Steppes.

One-third of households in Ulaanbaatar were found to be food insecure in 2009, according to Mercy

Corps. The standard diet here is comprised of wheat, meat and rice, said Markowitz, citing reports

by the United Nations Food and Agriculture Organization (FAO). Research released by the Ministry of

Health in 2008 and 2010 revealed that a full third of the country's population of nearly three million

eat no fruits or vegetables at all.

Vegetables and fruits are expensive compared to the monthly minimum wage of about USD 100

dollars. Spring is a particularly difficult period, when national food stores are depleted and prices

skyrocket—during this time, local sea buckthorn berries sell for about USD 3 to 4 dollars a kilogram;

carrots for roughly USD 2 a kilogram and tomatoes for nearly USD 4 a kilogram.

In light of these alarming trends, the country has recently embarked on the slow process of

rebuilding its agriculture sector. The Mongolian Women Farmers Association (MWFA) is a volunteer-

led non-government organization (NGO) that works in all 21 of Mongolia's provinces to promote

vegetable and fruit cultivation among poor families. MWFA has worked with 4,500 families on

establishing vegetable gardens as well as cooking and preserving vegetables by canning.

Source: Inter Press Service

Issue 274

MONGOLIA MAKES PUSH FOR FRUIT PRODUCTION

Last year Mongolia was able to meet domestic demand for wheat and potatoes, and this year

Mongolia is putting similar efforts into fruit production.

This spring the Ministry of Industry and Agriculture distributed 770,000 sea buckthorn saplings and

60,000 strawberry seeds to small farmers and businesses, which was enough to cover 1.4 hectares of

land. Also, select farmers were given five-year loans to develop their crops. MIA now plans to

establish 11 flash-freeze facilities and 52 greenhouses.

In Mongolia sea buckthorn, gooseberry, and red bilberry have become common fruit crops, but now

the government is hoping to encourage more diversity, including apples, plums, cherries,

raspberries, and strawberries.

Source: UB Post

Issue 276

GENIE OIL PITCHES OIL SHALE PLAN TO STANDING COMMITTEE

Genie Oil Shale Mongolia LLC presented to the Standing Committee on Economy its shale technology

and capabilities.

Harold Winiger, a senior expert of the company, presented company research on shale

opportunities in Mongolia, saying on-going study has shown that Mongolia has a large resource. He

said his company could provide the extraction technology Mongolia would need to burrow deep into

the earth without opening a mine. He added that Jenny's technology would impose a minimum

impact on the environment while making it possible to produce high quality fuels such as diesel, jet

fuel and liquid gas.

He said Mongolia's production of refined shale fuel would be twice that of Israel's. After a few years'

research, said Winiger, Mongolia could construct a refinement plant able to produce 50,000 barrels

of fuel a day.

Source: Udriin Sonin

June

Issue 277

MONGOLIA TO PUSH RENEWABLES AS CLIMATE CHANGE BITES, SAYS PRESIDENT

Mongolia, which is banking on a mining-led investment boom to develop its economy, is aiming to

turn itself into a regional renewable energy hub as it tries to fight off the pressures of global

warming, the country's president said.

―Mongolia is regarded as one of the centers of this region for wind power. We have high mountains

and the Gobi. We have great potential to generate power,‖ President Tsakhia Elbegdorj told

reporters. ―We have some ideas of how Mongolia can be Asia's super grid for wind power and solar

power, and other renewable energies. If we use all the wind power (potential) in the country, we

can enhance the energy supply of China and all over Asia.‖

Mongolia was chosen to host the U.N.'s World Environment Day on 5 June, and at a news conference

to mark the occasion, officials said the country also planned to better regulate a mining sector that

is polluting an already fragile environment. But the country faces tremendous environmental

challenges as the country is being dug up by both licensed and unlicensed miners, causing pollution

and poisoning some lakes and rivers. The World Bank ranked Ulaanbaatar among the world's most

polluted cities during winter, a consequence mostly of coal burned by residents to stave of

temperatures often reaching -30 degrees Celsius. Mongolia is suffering ―more pasture degradation,

permafrost thawing, and glacial melt,‖ said Environment and Green Development Minister

Sanjaasuren Oyun. Achin Steiner, head of the U.N. Environment Programme said Mongolia had seen

average temperature rise 2.1 degrees Celsius in the past 60 to 70 years—about three times faster

than the global average. Its high altitude and sparse vegetation in many regions made the nation

vulnerable.

Oyun said she was introducing new environmental regulations, including obliging companies to pay

compensation for the use and consumption of non-extracted resources such as water and timber.

She said the money would go to communities where those resources were consumed, with a portion

dedicated to environmental issues such as reforestation or repair of mined lands.

Source: Reuters

Issue 279

CLEAN ENERGY SIGNS CDM AGREEMENT WITH SWEDISH ENERGY AGENCY

The Swedish Energy Agency and Clean Energy LLC have signed an agreement for the transaction of

approximately 600,000 Certified Emission Reductions generated by the Kyoto Protocol Clean

Development Mechanism (CDM) project, the Salkhit Wind Farm, the fourth CDM project and the first

wind power project to be registered in Mongolia.

Salkhit Wind Farm will generate renewable electricity using wind power resources, with the output

to be sold to the National Electricity Transmission Network (NETN) on the basis of a power purchase

agreement. The wind farm, the first independent power producer in Mongolia, with 31 wind

turbines from General Electric Co. will have a total capacity it 50 megawatts and generate about

170 gigawatt hours of electricity per year. Leading the project is Newcom Group, the parent

company of Clean Energy.

As the grid is dominated by thermal power generation, the Salkhit wind farm will contribute to

greenhouse gas (GHG) emission reductions, approximately 180,000 tons of CO2 equivalent per year

once the wind farm is fully operations, expected by mid-2013.

―In addition to the emission reduction, Salkhit wind farm's contributions of renewable electricity to

the Mongolian national grid helps the country's transformation towards a sustainable energy

system,‖ said Ola Hansen, head of International Carbon Market Unit at the Swedish Energy Agency,

which is responsible for the governmental CDM program in Sweden.

Source: Newcom LLC

ADVICE TO RETAILERS: PUT MONGOLIA ON YOUR MAP

As western retailers reach beyond their home markets in search of emerging-market consumers, the

so-called BRIC countries of Brazil, China, India and Russia should not be the only ones on their radar

screens.

In the 2013 A.T. Kearney Global Retail Development Index report published this week, Armenia

jumped for the first time to the top 10 most-attractive country list. Mongolia rose to the seventh

place from ninth place, the second time it has landed among the top 10. The sub-Saharan African

country of Namibia made the top 30 list for the first time while Botswana jumped to No. 25 from

No. 20.

China dropped one place to No. 4. However, for apparel retailers, the country remains the most

attractive, partly because of its growing online sales, of which 75 percent is apparel, Althea Peng, a

partner at A.T. Kearney and co-authored of the study, said in an interview. She added Internet sales

account for about 6 percent of China's retail industry, compared to less than 1 percent of sales in

most emerging markets. Wal-Mart WMT has called out China as a big online investment focus.

Mongolia, thanks to its copper and coal mining industries, has become Asia's fastest growing

economy, ripe with opportunities for both general merchandise retailers and specialty retailers,

Peng said, adding French big-box chain Carrefour had entered the market, along with other high-

end brands including LVMH and Apple Inc.

Source: MarketWatch

Issue 280

EBRD TO DOUBLE INVESTMENT INTO MONGOLIA'S WIND ENERGY

The European Bank for Reconstruction and Development (EBRD) is ready to invest another USD 50

million in new wind projects following its USD 47 million investment for Newcom LLC's Salkhit wind

farm.

The 50 megawatt Salkhit wind farm outside of Ulaanbaatar has been connected to the electricity

grid and is now generating electricity. EBRD, which provided debt and equity funding for the

project, has announced that it is ready to invest in further renewable projects in Mongolia. The site

at Salkhit—meaning ―windy‖ in Mongolian—will generate about 5 percent of the country's electricity

needs. The investment has been hailed as a major step forward in the country's new green energy

strategy.

―Salkhit wind farm has awakened interest in wind power in Mongolia from other investors, both

local and international,‖ said EBRD Director for Power and Energy Nandita Parshad. ―We are now

assessing several follow-on wind farm projects, and expect to invest about USD 50 million in

renewable energy generators in Mongolia in the coming years. The demonstration effect from

Salkhit, in terms of both project implementation and financing, has been significant.‖

President Tsakhia Elbegdorj has said that the country aims to become a regional renewables hub,

producing a quarter of the energy from renewable sources and potentially exporting both wind-and

solar-generated electricity. Salkhit was constructed with debt and equity financing of USD 47.5

million from the EBRD, an amount matched by FMO, the Dutch development bank. The funds were

provided to Clean Energy LLC, a company that is 51 percent owned by Newcom, 14 percent by

EBRD, 14 percent by FMO, and 21 percent by General Electric Co.

―The Salkhit wind farm is a flagship project for Mongolia's renewable energy sector and energy

sector as a whole. The project has introduced new and advanced technology and know-how to the

industry,‖ said Clean Energy Chief Executive and Newcom Chief Investment Officer Sengee Enkh-

Amgalan.

Source: European Bank for Reconstruction and Development

July

Issue 282-283

BELLEGPROM CONSIDERS OUTSOURCING SOME KNITTING OPERATIONS TO MONGOLIA

The enterprises of the Bellegprom state light industry concern are considering outsourcing some

knitting operations to Mongolia.

Companies of other sectors of the light industry have started placing orders abroad. For example,

footwear companies have shoe parts sewn in China and India. This allows improving productivity

and increasing revenue per employee. Meanwhile, Bellegprom has been actively developing

relations with partners from Mongolia.

―Mongolian companies show interest in Belarusian flax yarn, fabrics for special purposes and cotton

that are used for the production of linen,‖ noted Bellegprom.

Bellegprom is tapping into new promising markets. This year first deliveries have been shipped to

Ireland, Spain, Morocco, Mongolia, Slovenia, and Thailand. In January through April 2013, the

export of light-industry goods to those markets amounted to USD 290,500. All in all, in the January-

April period of this year the export of Bellegprom enterprises exceeded USD 253.6 million, up 12.5

percent as against the same period last year. Bellegprom had a surplus of USD 83.9 million.

Despite gains in exports, the backlogs are still huge and exceed 200 percent of the average

production volume. In addition, the demand for goods of many companies is seasonal. Therefore the

companies need to produce and stock in advance a wide range of products and retail them as the

season approaches. In spring and summer some enterprises produce goods for school season, which

will sell well in autumn and winter. Currently, the share of these products in the total backlogs

ranges, from 20 percent to 60 percent. Bellegprom has developed a strategy to clear the backlogs

of inventory in 2013 and an auction plan to it. This work is done in collaboration with the Trade

Ministry, Belcoopsovyuz and retailers. In addition, Bellegprom seeks to strengthen inter-sectoral

cooperation, which also helps clear the backlogs and offset some of the imports.

Source: Belarusian Telegraph Agency

Issue 284

MONGOLIA TO IMPLEMENT GERMAN TECHNOLOGY IN COAL LIQUEFACTION PLANT

The Mongolian government is making use of its ties with Germany to bring German technology to its

planned coal liquefaction plant.

Mongolia and Germany entered a strategic partnership for minerals in 2010. Now Mongolia hopes to

make use of this arrangement for a plant that would produce liquid fuel from coal.

The government plans to hold onto 51 percent equity with the remaining 49 percent to be sold on

the Mongolian Stock Exchange.

Source: UB Post

August

Issue 285

SHARYN GOL TO ACQUIRE NACO FUEL TO EXPAND ITS BUSINESS

Sharyn Gol JSC, one of the three largest thermal coal producers in Mongolia, has submitted an offer

to buy up to 100 percent of the semi-coke manufacturer Naco Fuel.

The tender offer will be open until 13 September. Under the terms of the offer, holders of shares

who accept the offer will be entitled to receive MNT 209 in cash for each share. This transaction

results in a total Naco Fuel enterprise value of approximately USD 2.3 million, including net debt of

USD 660,000.

Naco‘s Fuel‘s plant, which is currently on care-and-maintenance, was designed to produce 100,000

tons of char a year. Sharyn Gol‘s coal is suitable for producing char or semi-coke because of its

quality. Sharyn Gol plans to restore the plant to full capacity and is reviewing the potential to

increase capacity. Furthermore, coal tar and coal gas, by-products of the coal enrichment process,

represent significant additional streams for cash generation.

―Shareholders representing over 94 percent of Naco shares have indicated that they intend to

tender,‖ said Sharyn Gol Chief Executive Graham Chapman. ―The acquisition of Naco will represent

a logical expansion of Sharyn Gol into the highly attractive market for coal briquettes. Sharyn Gol

intends to continue to make investments to maximize the company‘s ability to generate revenue

and cash flow growth for the benefit of all its shareholders.‖

Coal is likely to remain the most affordable fuel for power generation in Mongolia for decades.

Energy demand is continuously increasing, with Mongolia already starting to experience energy

shortages. However, with Ulaanbaatar ranked the second most polluted city in the world by the

World Bank, smokeless fuel use is the best solution for air pollution reduction in the short term.

Other solutions such as the shift into natural gas are in discussion, but they will require a long time

and huge investment.

Source: BDSec JSC

Issue 289

POSCO SEEKING TO DEVELOP CLEAN ENERGY IN MONGOLIA

South Korea's lead steelmaker POSCO said Sunday it is moving to develop a new type of clean

energy in resource-rich Mongolia together with a local company there. POSCO said it has joined

hands with MCS Group to start a coal-to-liquid business in the country and is in the process of

obtaining approval from Ulaanbaatar.

Source: Yonhap News

September

Issue 291

FRANCE PUSHES FOR ENERGY GENERATION COOPERATION

Delegates from Mongolia and France discussed cooperation in the development of renewable energy

and nuclear energy during an intergovernmental working group meeting in Paris, France on 2

September.

The meeting was Mongolia and France's first intergovernmental meeting. Delegates discussed

opportunities to cooperate in agriculture and infrastructure, in addition to energy, while Mongolia

raised the more specific issues of soil degradation, deforestation, and water management.

Also acknowledged during the meeting was the selection for the Power Plant No. 5 project of a

consortium that includes France's GDF Suez SA.

Source: Info Mongolia

Issue 293

PETROVIS BOASTS NEW, CLEANER FUEL

The growing popularity of Petrovis' new ―nano fuel,‖ is having positive effects on the environment,

said an air quality official. O. Altangerel, a specialist at the Air Quality Office of Ulaanbaatar, said

tests showed the nano fuel reduced air pollution with a 20 percent reduction in carbon dioxide,

12.8 percent in azote, and 64.4 percent in carbonyl.

Petrovis LLC began its import of the fuel concentrate developed in the United States in July, 2013.

The fuel is advertised as cleaner, more efficient and providing greater engine life. A taxi driver said

that by using the fuel he saved petrol and even made his engine quieter.

Source: Undesnii Shuudan

October

Issue 294

MONGOLIA TO LAUNCH WOOLEN INSULATION PRODUCTION

The Mongolian Wool Products Manufacturers Association has plans to move production of wool for

building insulation to Mongolia from South Korea, said the head of the organization.

Mongolia is working with experts from Japan to determine the equipment needed to begin

manufacturing in Mongolia, said B. Ganbat. In addition to the domestic market, Japan is a major

target for export.

―Japan has the highest usage of insulation material made of sheep wool,‖ he said. ―Japanese

people live in wooden buildings and insulate them with wool. Fiberglass insulation has been off the

market in Japan since 2000 because of the risk of health hazards... Mongolia has the raw materials

ready for manufacturing and we are in need of insulation material.‖

Source: UB Post

MSE LISTED FIRM LAUNCHES FIRST CONCRETE SLEEPER FACTORY

Ulaanbaatar-listed construction material producer BUK JSC has launched the first concrete sleeper

factory in Mongolia.

The factory will produce up to 350,000 to 500,000 concrete sleepers, a railroad tie made out of

steel reinforced concrete, annually. The factory is equipped with modern technology mostly bought

from RMS LLC of England. It will produce 500,000 concrete sleepers this winter to supply the Tavan

Tolgoi-Gashuun Sukhait railroad project next spring.

Source: BDSec JSC

Issue 296

NEW USES FOR COAL

Looking to diversify its energy sources, Mongolia is stepping up efforts to expand the value-added

content of its coal industry through development of coal-to-liquids capacity, a move that could

reduce energy import costs and provide cleaner fuel. On 25 August, South Korean steelmaker POSCO

announced it had formed a joint partnership with Mongolia‘s MCS Group to develop a USD 2 billion

coal-to-liquids plant in Ulaanbaatar‘s Baganuur district. Under plans laid out by Won Kang-hee, the

head of POSCO‘s Mongolian division, the joint venture (named the Baganuur Energy Corporation)

would build and operate a plant to produce annually 450,000 tons of diesel and 100,000 tons of

dimethyl ether, a clean-burning propane-like gas.

―Once the coal-to-liquid plant is up and running, Mongolia will become a bridgehead for us to

expand toward the world in the new energy resource area,‖ he said. The need for Mongolia to

develop a domestic fuel industry is becoming increasingly pressing. The country imports around 1

million tons of diesel a year, a figure that will rise with industrial and transport demands set to

grow in the coming years. Oil consumption has been forecast to rise from 800,000 tons in 2012 to

3.5 million tons by 2020, and demand for oil derivatives is projected to climb at a similar rate. It is

estimated that Mongolia has at least 2.4 billion barrels worth of proven oil reserves, though it will

require a long time, and extensive investments, to exploit most of the identified deposits. With

diesel representing around 60 percent of Mongolia‘s fuel consumption, experts have suggested that

three or more coal-to-liquids plants, with a capacity equal to that planned by POSCO and MCS, will

be needed to meet the economy‘s requirements in the medium term. As global coal prices are far

less volatile than those for either oil or gas, the cost of the basic feedstock for such plants should

remain relatively steady.

Source: Oxford Business Group

OIL SHALE TAKES SPOTLIGHT IN ENERGY INDEPENDENCE ASPIRATIONS

Talk of new horizons for Mongolia‘s fuel independence and further prospects have risen in the

public and media with the recent discoveries of oil shale and its potential for fuel and energy.

There has been plenty of debate on the prospects of the use of oil shale while other energy and fuel

sources are still present, which are easier to exploit and more efficient than oil shale. Oil shale has

been widely used in countries with a scarce supply of petroleum, natural gas and other valuable

minerals, but since the fuel extracted from oil shale is low in quantity and quality alike, and the

cost of the refining process is high, there has been little use of it in countries with easier access to

more common fuel and energy sources.

The method for extracting fuel from shale has been put on hold for a long time by many countries

because the process is complicated and environmentally inefficient, requiring large amounts of

water and producing large amounts of waste, and it is not very economically fruitful. The Mongolian

Oil Shale Association said large deposits of shale stones and oil need to be identified as well as

exploration and extraction work in areas where licenses for other minerals are held.

―We started evaluating Mongolia‘s oil shale deposits after signing a joint survey agreement in 2012,

and are very pleased to continue that work under this new agreement. Our geological team has

located a world-class resource and will now identify the most advantageous areas for future

commercial development,‖ said Claude Pupkin, chief executive of Genie Energy in April after the

company signed a joint survey agreement in 2012. It hopes to start producing fuel from oil shale

within fifteen years.

But according to the Center for Biological Diversity, the development of oil shale (not to be

confused with shale oil) and tar sands have been environmentally destructive. Mongolia will have to

balance the pros and cons as it moves forward.

Source: UB Post

Issue 297

ITALIAN FIRMS SEEK CASHMERE COOPERATION

Italian companies have expressed an interest in cooperating with Mongolia in manufacturing wool

and cashmere products—including setting up a joint factory in Italy.

"Italians prefer the highest quality found in the Mongolian wool and cashmere products only,"

according to Armando Branchini, president of the European Cultural and Creative Industries Alliance

and head of the Italian-Mongolian business council. "However, a lack of good management to

manufacture and sell these kinds of products is taking down the industrial capacity of Mongolia."

During talks between the two countries in Mongolia last week, B. Jargalsaikhan, general director of

Buyan cashmere company, requested that any such project should receive state support.

Mongolia is the second biggest producer of cashmere after China.

Source: Just Style

November

Issue 298

GDF SUEZ SIGNS MOU WITH NEWCOM FOR RENEWABLE ENERGY

GDF SUEZ SA signed a memorandum of understanding with Newcom LLC for the development of

future renewable energy projects in Mongolia during the visit by France‘s minister of foreign affairs.

The memorandum is in line with the Mongolian government‘s ambitions to capitalize on the

potential to generate power from the country‘s renewable energy resources. In August, GDF SUEZ,

together with its consortium partners, was confirmed a preferred bidder for the Combined Heat and

Power Plant No. 5 in Ulaanbaatar, for a facility with of the capacity 415 megawatts and a steam

capacity of 587 megawatts under a 25 year power purchasing agreement with the Mongolian

government. Mongolia benefits from outstanding conditions for the development of renewable

power projects with up to 250 sunny days per year and excellent wind potential. Newcom currently

owns and operates the 50-megawatt Salkhit wind farm, the nation‘s first wind development, and is

considering further renewable energy projects in Mongolia.

Source: GDF SUEZ SA

JAPAN-MONGOLIA JV PROVIDES CONCRETE FOR COLD TEMPERATURES

A Japanese-Mongolian joint venture concrete company said it will continue to provide concrete to

construction companies to allow construction throughout winter.

Aizawa Mongol, a subsidiary of the Aizawa Concrete Corporation of Japan, has brought Japanese

technology to Mongolia to allow construction and insulation work to continue throughout the cold

winter months, when most companies must shut down their operation.

―The factory is working from 2012 and based on the latest technology systems without any

shutdown during the cold weather,‖ said B. Enkhbayar, executive director of Aizawa Mongol. ―The

factory capacity is for 150 cubic meter of concrete per hour for production. Our objective is to

supply client companies with our high-quality mixed concrete during all four seasons.‖

Source: Udriin Sonin

MAK AND FLSMIDTH TO OPEN NEW CEMENT PLANT

Mongolyn Alt Company (MAK) has partnered with Denmark's FLSmidth & Co. for the construction of a

new cement factory scheduled for commissioning in 2014.

The Khukh Tsav cement factory is planned for construction in Dalanjargal Soum, Dornogobi Aimag

for the production of two million tons of cement annually, or 50 percent of cement demand in

Mongolia. The factory could open as soon as next month.

This new factory plus the opening of one in Khutul Soum, Selenge Aimag and other smaller factories

could cut Mongolia's dependence on foreign cement.

Source: Undesnii Shuudan

SINOPEC TO MAKE PLAY ON BROWN COAL

Sinopec Ltd., also known as the China Petroleum and Chemical Corporation, has signed a

memorandum of understanding with the Ministry of Mining to build a brown coal gasification plant

in Mongolia.

The plant will have the capacity to produce 15 billion metric tons of gas fuel per year according to

preliminary estimates. In order to produce the target amount of gas fuel, approximately 50 million

tons of brown coal will be required, at the estimated cost of USD 1 billion. Although Mongolia has

abundant reserves of raw brown coal, its potential for export is limited due to its low calorific

content. The gasification plant will produce environmentally friendly gas fuel, that doesn‘t produce

waste, using common brown coal which contributes very little to Mongolia‘s export.

Source: UB Post

Issue 300

BRING IN THE START UPS: SUPPORTING SMES IN MONGOLIA

Small businesses have never been old-fashioned nor in vogue in Mongolia. Small-and medium-size

enterprises (SMEs), however, are still important to the economy.

Assisting SMEs has been challenging to past governments in Mongolia, which spent billions of tugrugs

in soft loans to contribute to SME development. Despite these efforts, small business owners still

complain that not enough has been done.

―Soft loans that are supposed to go to SMEs are usually stuck with the middle man, the bank,‖ said

E. Ariuntugs, chief executive at the Mongolian Financial Non-Banking Institutions' Association.

There are also many who say that soft loans do not go to SMEs at all, but instead go to large

companies. One method to resolve this issue would be to introduce a mechanism that issues soft

loans through non-banking financial institutions (NBFIs) instead of banks. Most SMEs who fail to

meet the threshold put up by banks are left with no choice but to knock on the doors of NBFIs

because SME start ups are typically classified as high risk by banks. But an NBFI is different from

the bank. They provide services for about 60 percent of SMEs, with some 390,000 clients typical

among them. In total MNT 320 billion is circulated among NBFIs in Mongolia, of which about 70

percent is investors-owned equity. This gives more leeway to take risks and provide fewer obstacles

for small business owners to attain credit.

Approval of the Investment Law by Parliament is a large step forward in the right direction for

Mongolia‘s financial sector. However, this too is likely to be of most benefit for the country‘s

largest companies. Only NBFIs have the power to directly address the situation.

Source: Mongolian Economy

December

Issue 304-305

MONGOLIA'S NOMADS WARM TO SOLAR POWER

In Mongolia, often known as the land of the blue skies, the sun shines for 250 days on average each

year. It beats down on the sparse plains and on the Gobi desert that spans the country's southern

border with China.

It shines, even during the frigid winter days, on the hundreds of thousands of nomads who still roam

the steppes, herding animals and living in dome-like tents calling gers. About 800,000 of Mongolia's

2.8 million inhabitants still live the traditional nomadic lifestyle that has remained largely

unchanged for generations. Apart from the addition of motorbikes, the occasional petrol generator,

and a passing trade from intrepid tourists wanting to stay in a ger for the night, life is almost the

same as that of many nomads' grandparents and great-grandparents. Almost, but not exactly.

Dotted across the steppes, glints of light can be seen as the sun bounces off the solar panels that

have been installed on the sides of gers made of felt and yak's wool. At the start of this millennium,

Mongolia's herders and nomads had little or no access to modern electric power and its potential

benefits. But as of 2013, thanks to a concerted push by the Mongolian government, almost 70

percent of nomadic people have access to electricity. Bor, a herder who mainly travels around

western Mongolia's Arkhangai province, is one of the people whose family benefits from portable

solar home systems (SHS).

"We use it for generating the power for lighting in the ger, charging phones, we can also generate a

fridge to keep food longer and we can run a television. That is very useful for us because we can

get the most recent weather forecast, which is important for our work and keeping our animals

safe. Before we had power it was very difficult. Now it is almost like living in the city."

The ability to charge mobile phones is also important for the herders, who often have children

staying at boarding schools. Access to electricity also allows families to contact emergency health-

care and doctors for advice without having to make the often arduous journey to the nearest village

or town.

The solar systems were distributed and installed with the help of the World Bank, after the

Mongolian government's National 100,000 Solar Ger Electrification Program ran into difficulties. A

World Bank report, Capturing the Sun in the Land of the Blue Sky, describes the difficulties faced by

the Mongolian government on its ambitious project.

By 2005, five years into the plan, 30,000 families had been kitted out with an SHS, but then the

program began to stagnate."The government of Mongolia recognized that considerably more effort

was necessary not only to keep the program on track, but to scale-up implementation in order to

achieve the National 100,000 Solar Ger Electrification Program target," the report said. In 2006, the

World Bank agreed to cover half of the initial outlay costs for each family as well as after-sales

maintenance, with 50 centers set up across the country, including at least one in each of its 21

provinces, so that the herders would not have to travel to Ulaanbaatar every time the solar panels

needed maintenance.

The SHS project also offers environmental benefits to a country where the ratio of carbon dioxide

emissions to economic output is ten times higher than the world average, because of the increase in

mining over the past decade as the true extent of Mongolia's mineral wealth became apparent. The

solar systems are slowly replacing the diesel generators used by some nomads as a means of

generating power, although they are still using stoves for heating, burning wood, coal and dung

throughout the year.

Source: Al Jazeera

EIU CLARIFIES EXTENT OF OFFICIAL ESTIMATES OF OIL SHALE RESERVES

The latest research from Mongolia's mining ministry gives a clearer picture of oil shale's

development potential in the coming years. Although Mongolia has long been known to have

substantial oil shale deposits, previous estimates were extrapolated from rudimentary surveys

conducted in the 1990s and thus left the actual reserves open to speculation.

Plans to develop the industry took shape only in April 2013, when an American company, Genie

Energy, signed a five-year deal with the Petroleum Authority of Mongolia to explore oil shale

reserves in central Mongolia. Genie also plans to build a USD 4 billion processing factory in Tuv

Aimag. According to government projections, the processing plant will generate USD 850 million of

tax revenue annually. Aside from the economic benefits of the project, domestic fuel sources could

help Mongolia to improve its energy security by loosening the country's dependence on its powerful

neighbors. At present 90 percent of Mongolia's oil and related products come from Russia, with most

of the remaining amount being imported from China.

Yet the benefits of large-scale oil shale extraction are not as clear as they might seem at first

glance. Most importantly, Mongolia's oil shale resources should not be confused with the shale oil

phenomenon that is currently sweeping the United States. Oil shale (also called kerogen) is more

expensive to extract than shale oil and carries greater environmental costs. In particular, oil shale

requires a large amount of water to process, which could be a risky proposition in Mongolia, where

hydrological resources are already under strain. Although other countries—Estonia in particular—use

oil shale as a substitute for coal, extracting liquid fuel from the shale is a complex and relatively

untested process.

Genie Energy's progress on the project seems more substantial than that of comparable coal

liquefaction projects that have faltered in the region. However, environmental, technical and

political limitations suggest that Mongolia's overall dependence on foreign fuel will not change

significantly in the foreseeable future.

―We remain doubtful that oil shale will play a significant role in Mongolia in the next two years, so

our economic growth and trade forecasts will remain unchanged,‖ said the Source.

Source: Economist Intelligence Unit

VI. INFRASTRUCTURE DEVELOPMENT

Roads, rails, and etc.

January

Issue 254-255

MITSUBISHI CHIYODA SLATED TO BEGIN CONSTRUCTION OF NEW AIRPORT IN APRIL

The Ministry of Road and Transportation announced at a press conference that it had received a

detailed cooperation proposal for a new airport in Ulaanbaatar from Mitsubishi Chiyoda Group.

A feasibility study and design work by Japan's Azusa Sekkei and Oriental Consulting ran from 2009 to

2011 following the signing of a soft loan agreement to Mongolia from the Japan Bank for

International Cooperation in 2008. The agreement calls for construction by a Japanese company by

19 November 2012.

Project leader N. Enkhbat announced Mitsubishi Chiyoda had been selected, but said he could not

disclose the cost determined at that time. Construction will be funded by a 40-year loan from Japan

with zero interest in the first 10 years and 0.2 percent interest for successive years. It will be

located at Hoshigt Valley in Tuv Aimag and will need 43 months for construction, which is slated to

begin in April 2013.

The airport is planned for a capacity of 3 million passengers a year, with the possibility to expand

that to 12 million.

Source: Business Mongolia

Issue 256

MINERS REJOICE FOR NEW BORDER GATES

A group of south-Gobi coal miners attended the opening ceremony of a new border gate with eight

lines at the Shivee Khuren-Ceke border point to China.

In attendance were Mongolyn Alt Group (MAK), SouthGobi Sands LLC, and Qinhua-MAK-Nariin Sukhait

to observe the event. Previously coal companies had to share a single entrance point approximately

eight meters wide. The new entrance points will allow a significant increase in import-export

activity, with two entrances reserved for in-bound traffic.

The mining firms in attendance together invested a total of MNT 2 billion for the project.

Source: Business Mongolia

DEVELOPMENT OF INFRASTRUCTURE IN GER DISTRICTS PLANNED FOR SPRING

N. Gantumur, the head of infrastructure issues for the deputy mayor, outlined the plans to develop

infrastructure for the ger districts.

The first and foremost issue to deal with for the development of the ger districts is infrastructure,

said Gantumur. Infrastructure varies from each of the districts, with plumbing available only at

some.

One challenge will be relocating families at sites planned for development. Gantumur said most

people were willing to move into apartments. Construction firms have shown interest in the

project, especially for the Zuragt, Zuun Ail, and Central Market areas. However, the residents of

these areas will pose a challenge, he said.

―We won't take their land if they don't want to move into apartments, but they will have two

choices only: whether to move into an apartment or work on making their places connected to the

infrastructure.‖

Gantumur said the government was following examples from abroad. He said initial preparation

would begin in March with work to begin in mid-April.

The Asian Development Bank signed a memorandum and agreed to allocate USD 250 million for the

development of Bayankhushuu and Doloon Buudal.

Source: Udriin Sonin

STATE-OWNED ELECTRIC COMPANY TO MEET ENERGY DEMAND IN SOUTHERN REGION

The Cabinet of Ministries has decided in favor of establishing a state-owned southern region

electricity distribution network company.

The company will be utilized to meet the growing energy demands in the region. The growth in

energy needs is related to the numerous mining operations there. The company will provide for the

needs of at least 15 towns and three large mining operations.

Source: Unuudur

Issue 257

SPC SACKS ULAANBAATAR RAILWAY EXECUTIVE DIRECTOR

The State Property Committee dismissed the executive director of Ulaanbaatar Railway, M.

Enkhsaikhan.

The Ministry of Industry and Agriculture proposed to invest MNT 330 million from the USD 1.5 billion

Chinggis bond sale into the construction of 30 to 40 kilometers of rail in various places. However,

Enkhsaikhan objected, instead wanting to spend the money for another project.

Both parties submitted proposals to the government, outlining their plans on how to spend the

money. An official source said ministry authorities were in a dispute with those of Ulaanbaatar

Railway over the matter. This resulted in Enkhsaikhan's dismissal by SPC, an organization within the

Ministry of Industry and Agriculture.

Source: News.mn

Issue 258

UB TO LAUNCH STREETS PROGRAM

The Ulaanbaatar City Administration is set to launch its Streets project, which aims to ease traffic

jams while reducing air pollution.

The project plans for the renovation of 33 intersections in the city center, the close of 700 roads,

and a new highway along the Tuul River through to the city. The city administration is in

negotiations for a ban on the transport of raw coal to the city. Instead it encourages the sale of

coking coal, which it says would reduce air pollution by up to 50 percent. The city has also

advocated for the use of wool as a construction material and to hasten highway construction.

City authorities said land availability has not proven a problem for the development scheme.

Source: News.mn

February

Issue 259

MONGOLIAN RAILWAY APPROVED FOR RAILWAY CONSTRUCTION

The Cabinet of Ministers gave approval to Mongolian Railway for construction of rail infrastructure.

Approval follows the government's licensing of the firm for the construction of railway tracks and

related infrastructure. Following its licensing the company was ordered to seek out financing by

partnering with local and international partners.

The Development Bank of Mongolia has agreed to provide USD 55 million for the implementation of

the new railway project to begin February this year.

Source: Business Mongolia

Issue 260

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

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

March

Issue 265

GOVERNMENT SEEKS INTERNATIONAL INVESTORS FOR THERMAL PLANT TO POWER OT

Mongolia is seeking international investors to help fund a coal-fired thermal plant in the Gobi Desert

to power its biggest infrastructure project, the Oyu Tolgoi copper and gold mine.

―The total cost to build the power station will be roughly USD 500 million,‖ said O. Sainbuyan, the

Executive Director of Erdenes MGL, a state-owned company that holds the shares of Mongolia‘s

strategic deposits, including Erdenes Oyu Tolgoi LLC and Erdenes Tavan Tolgoi LLC.

The target construction date for the plant is 2016, which would allow Mongolia to adhere to the

terms of its investment agreement struck with Rio. The agreement states that Oyu Tolgoi must

source all its power from Mongolia within four years of first production, expected in June. The mine

currently imports all its power needs from China.

The government will announce a tender to find a company to build the 300-megawatt plant, to be

built at the Tavan Tolgoi coal deposit. Sainbuyan said Germany‘s Siemens AG, as well as unnamed

companies from China, have expressed interest in the project.

Mongolia will fund 30 percent of the power station through its USD 1.5 billion Chinggis bond fund. At

a meeting on 7 March, the government allocated USD 50 million from the Chinggis bond for initial

start-up costs. Sainbuyan said the cash would be used to hire consultants and to set up the project

unit.

The government favors building the plant at Tavan Tolgoi, rather than at Oyu Tolgoi, for logistical

reasons.

―If the power station is located at Oyu Tolgoi then the coal will need to be transported to the

project site. If it‘s at Tavan Tolgoi, there will be no need to ship any coal. It‘s more economical

logical and efficient,‖ said Sainbuyan.

Sainbuyan said the 300-megawatt power plant is only a first stage and that the facility will expand

to a total capacity of 1,200 megawatts.

Source: Bloomberg

Issue 267

CITY AUTHORITIES UNVEIL JICA PLAN FOR UB SUBWAY

The chair of the Department of Strategy, Policy and Planning at the Ulaanbaatar Governor's Officer

introduced a plan to build a 17.5 kilometer subway line from Tolgoit to Amgalan.

Japan International Cooperation Agency (JICA) led development of the plan, which projects a cost

of USD 1.5 billion and completion by 2020. The project proposal will be discussed by Parliament this

Spring. The Japanese government offered to lend USD 600 million with 0.2 percent interest for the

project.

The project plan projects ticket costs of MNT 600 and travel at the speed of 80 kilometers per hour,

said N. Gantumur, vice chairman of Ulaanbaatar's transportation infrastructure. He said the rail line

would create 150,000 new jobs in the service sector, including restaurants, a cinema, cafeteria,

and retail. He added that the subway line would help reduce traffic by 16 percent and help in the

effort to reduce air pollution.

JICA's plan has construction scheduled to begin in 2016.

Source: Zuunii Medee, Udriin Sonin

April

Issue 268

RUSSIA TO COOPERATE FOR TECHNICAL UPGRADE TO ULAANBAATAR RAILWAY

Russia has agreed to cooperate with Mongolia to upgrade the facilities of Ulaanbaatar Railway JSC.

At a meeting between Deputy Prime Minister and Chairman of Russia-Mongolia Intergovernmental

Committee, Dendev Terbishdagva, spoke about the need for technical improvement with Russian

Ambassador Viktor Samoilenko on 29 March. Samoilenko noted that although Mongolia and Russia

discussed the need for technical renovation for the Mongolian-Russian joint venture rail company

three years ago, no progress had been made. Meanwhile, railway traffic has grown annually.

Terbishdagva agreed, but noted there were many other Russian-Mongolian matters that need

attention following the 16th Russia-Mongolia Intergovernmental Committee meeting on Trade,

Economy, Science and Technical Cooperation held last December.

Russian and Mongolian officials are expected to discuss this and more on April 15 when they will

discuss jointly held assets. From 18 to 20 April officials from both countries will meet again for the

Erdenet Mining Corp. board of directors meeting.

Source: Info Mongolia

TT POWER PLANT TO GET GREATER POWER OUTPUT CAPACITY

Mongolia will increase the size of a planned thermal power plant in the Gobi desert by 50 percent

to meet the needs of its biggest project, the Oyu Tolgoi copper and gold mine.

The Tavan Tolgoi power station will generate 450 megawatts, compared with an earlier capacity of

300 megawatts, Minister of Energy Mishig Sonompil said in a phone interview today. The plan was

approved by the government at a meeting on 30 March. The generator will run on fuel from the

Tavan Tolgoi coking coal deposit, which has 6.4 billion metric tons of reserves.

Mongolia will fund 30 percent of the power station through its USD 1.5 billion Chinggis bond. The

rest will come from private investors and loans. Mongolia will own at least 34 percent of the plant,

according to a 30 March statement.

Former Prime Minister Mendsaikhan Enkhsaikhan was appointed head of the power plant.

Source: BusinessWeek

HIGHWAYS TO LINK RUSSIAN AND CHINA BORDERS

The Mongolian government is planning to build a USD 3.5 billion cross-country highway stretching

from its border with Russia to Zamyn-Uud on the Chinese frontier.

The 628-mile long highway is expected to be completed by late 2015 and will see foreign investors

provide up to 70 percent of the initial funding while a Mongolian investment group called

Chinggisland Development will bear the remainder.

Construction of the road will start in May and will see North American and Italian companies

involved in the project, the agency reported, without identifying specific firms. Meanwhile the

Mongolian government is also seeking a non-state partner to build a 160-mile railway from the

Tavan Tolgoi coal field to the Chinese border. The government has accepted bids from 20

companies, including 14 from overseas, and the partners will take a 49 percent stake in the project.

Prime Minister Norov Altankhuyag said that more than one bidder may be chosen, raising the

possibility of a joint venture. The state-controlled Development Bank of Mongolia LLC will also

contribute USD 200 million to the project, Altankhuyag said.

Source: Economy Watch

JICA LEADS PROJECT FOR NEW UB BRIDGE

The Japan International Cooperation Agency has completed its pre-feasibility study of the Ajilchin

bridge connecting Narny Street with the Gurvaljingin bridge.

The 828-meter extension would bring the bridge to a total length of 2,265 meters, three times

larger than the Narny bridge completed last fall.

The new bridge will be made from steel and concrete and is expected to reduce traffic congestion

by 30 percent. The government is expected to reveal the investors and construction company of the

project after it has fully discussed the proposal. Prime Minister Shinzo Abe spoke of interest in

supporting this project.

Source: Unuudur

May

Issue 272

BANPU MAKES COMMITMENTS FOR MONGOLIA'S ENERGY SECTOR

Representatives of Thailand's Banpu Public Co. Ltd., the company who acquired Hunnu Coal Ltd. for

USD 477 million in 2011, signed a memorandum concerning the energy sector at the Seventh

Ministerial Conference of the Community of Democracies.

Ten of Banpu's management staff arrived in Mongolia for the event, where they pledged with the

Energy Ministry in the memorandum to supply homes in Mongolia with renewable energy and build a

coal-fired thermal energy plant at the Sainshand Industrial Complex.

Source: Undesnii Shuudan

Issue 273

MMC TO GET USD 59 MILLION COMPENSATION FOR RAIL PACT

Mongolia Mining Corp. (MMC) will receive MNT 84.3 billion in compensation as part of a pact with

the government to terminate a rail-concession agreement.

The company and its units will enter talks with the government and may convert some of the

payment into equity in a venture that will build a railway line to the Chinese border, according to a

filing by MMC to the Hong Kong stock exchange yesterday. As part of the agreement, the company

will be granted access to 50 percent of the railway's capacity and state-owned Mongolian Railway

will take over existing construction contracts and obligations, MMC said.

The Mongolian government is seeking a non-state partner to build a 260-kilometer railway to the

Chinese border from the Tavan Tolgoi coal field, and had accepted bids from 20 companies, the

state-run news agency Montsame said in March. Tavan Tolgoi, one of the largest coal deposits in

Mongolia, has an estimated 6.4 billion metric tons of reserves, 70 percent of it coking coal for

steelmaking. Mining companies at the site, including Ulaanbaatar-based MMC, currently deliver

supplies to the border by truck.

MMC is negotiating with the government to take as much as a 10 percent stake in a unified railway

development project, according to Chief Executive Officer Battsengel Gotov.

Source: Bloomberg

ASPIRE APPOINTS RAILWAY ENGINEER PARTNER

Northern Railways Pte Ltd., a subsidiary of Aspire Mining Ltd., has appointed Snowy Mountains

Engineering Corp. to provide a range of services to advance the planning and development of the

Erdenet-Ovoot railway.

Snowy Mountains, who has completed the detailed design for the 225-kilometer coal haul railway

for Mongolian Mining Corp., has been contracted to complete a full re-optimization of the Erdenet-

Ovoot rail alignment including site visits, risk and constraint analysis, permitting and government

approvals, including a rail concession, engineering and design to allow for an energy, procurement

and construction tendering, and a bankable feasibility study. The work has been broken up into

phases with discrete decision points and performance milestones before the next phase of work

commences.

―This agreement marks an important milestone in the development of the Erdenet-to-Ovoot

railway,‖ said Managing Director David Paull. ―We have been working with SMEC for six months on

addressing critical rail project risks and it makes sense, with their in-country expertise and

experience, for [Snowy Mountains) to become our rail engineering partner for what will be a large

and important project for Mongolia.‖

The value of the work by Snowy Mountains is approximately USD 9.9 million in total to be extended

in two stages over 12 months. The cost will be funded from the USD 5 million Noble Group loan

facility and cash resources.

Source: Aspire Mining Ltd.

HITACHI, SMBC INK MONGOLIA ACCORD

Hitachi Ltd. and Sumitomo Mitsui Banking Corp. (SMBC) announced on Tuesday that they had

reached a comprehensive accord with the Mongolian Ministry of Energy on power-related projects.

Under the agreement Hitachi will consider assisting the construction of power transmission lines and

generation facilities in Mongolia. SMBC, the core bank of Sumitomo Mitsui Financial Group Inc., will

meanwhile examine possible financing schemes for possible projects through consultations with

Hitachi and the ministry.

Source: Japan Times

Issue 274

JAPANESE FIRMS TO BUILD MONGOLIAN INTERNATIONAL AIRPORT

Two Japanese companies said on Monday they will build Mongolia's second international airport as

Tokyo steps up business ties with the mineral-rich country.

Trading house Mitsubishi Corp. and engineering firm Chiyoda Corp. said in a statement that they

had been awarded the construction contract worth 50 billion yen (USD 493 million) by the Civil

Aviation Authority of Mongolia. Construction of a 3.6-kilometer (2.2 mile) runway and terminal

buildings with a capacity to handle up to two million passengers a year was scheduled to be

completed by October 2015, a Chiyoda spokesman said.

The project will be about 90 percent financed by Japanese government loans to Mongolia, the

spokesman said. The Japan International Cooperation Agency (JICA) has issued a low-interest 40-

year loan. The first decade would accrue zero interest, which would be followed by 0.2 percent

interest for the remaining 30 years. The Mongolian government will be responsible for installing

electric lines, optic fiber, and roads.

Source: News.mn, AFP

Issue 274

BROAD-GAUGE RAIL PLAN TO BOOST COSTS FOR EXPORTERS

Mongolia's decision to use broad-gauge rail for a new line to China will increase costs for coal

exporters, including Hong Kong-traded Mongolia Mining Corp. (MMC) according to a research firm.

The use of the broader gauge rail will add USD 3 to the cost of each metric ton of delivered coal

because the fuel has to be transferred at the border to wagons that fit the smaller-gauge rail used

in China, Dale Choi, founder of Ulaanbaatar-based Independent Mongolian Metals and Mining

Research, said by phone. Samsung C&T Corp., South Korea's second-largest builder, was awarded a

USD 483 million contract this week to build the 267-kilometer (166-mile) railway from the Tavan

Tolgoi coal field to the Chinese border.

Mongolia's rail network is broad gauge, a legacy of its Communist-era when most of its

infrastructure was developed by the Soviet Union, that's 85 millimeters wider than the standard

gauge used in China, the largest energy consumer.

―The business community would have preferred the standard gauge,‖ Choi said. ―The government is

taking some steps to increase efficiency, such as mine site customs, so one wonders why they would

choose the Russian gauge. I guess the geo-political consideration is much more important to

authorities.‖

It's possible to export 8-9 million tons a year to the border by road while rail can transport 28

million tons, Delgersaikhan Tsagaan-Uvgun, head of mining planning and technical coordination at

Erdenes Tavan Tolgoi LLC, said in an interview. Mongolia has 1,908 kilometers of broad-gauge track

with plans to expand the network by 5,600 kilometers to help mining companies export their

products. The 267-kilometer section from Tavan Tolgoi to the Chinese border will be the first part

of this expansion. The next section is planned to connect Tavan Tolgoi and the city of Sainshand,

the site of a USD 10 billion planned industrial complex.

Source: Bloomberg

Issue 275

PREMIER SUMMARIZES PLANNED SPENDING FOR CHINGGIS BOND

The government is still deciding on how to spend a remaining USD 347 million from the USD 1.5

billion Chinggis bond sold last year that has not been allotted toward any project, said Prime

Minister Norov Altankhuyag in a report on bond spending to Parliament on Friday.

The government has committed USD 50 million for the construction of a USD 450 megawatt power

station at the Tavan Tolgoi coking coal mine, USD 200 million for the renovation of roads, USD 200

million on the country's rail network, MNT 570 billion for the construction of paved roads to connect

Ulaanbaatar with 12 additional provincial capitals, USD 68.8 million for investment into the

cashmere industry, USD 200 million for a so-called ―New Development Project‖ [details no included

-ed], USD 27.7 for investment in the dairy industry, USD 45 million for investment in the wool

industry, USD 13.5 million for investment into the garments industry, and USD 14 million for an

apartment housing project.

MP Ch. Khurelbaatar, speaking on behalf of the Mongolian National Democratic Party, criticized the

government for raising the funds before having a detailed plan for spending. He added that the

government's practice of spending the funds off budget was in violation of Mongolian law. Finance

Minister Chultem Ulaan responded that the funds came after the 2013 budget was approved and it

would not have been possible to transfer that money from the Development Bank to the State

Budget account.

Altankhuyag also responded to criticisms, saying the spending on roads was a sound investment. He

added that a previously agreed upon sum that would have gone to the planned Sainshand industrial

park was rejected after it was determined that foreign investment would provide the necessary

funds.

Source: Udriin Sonin

Issue 276

POWER PLANT NO. 5 PLANNED FOR KHULYN GOL

Government has selected the Khulyn Gol river valley as the site for Power Plant No. 5.

The Ulaanbaatar mayor made an official decree for the site, which is located near Urgakh Naran

Soum in the 11th district of Bayanzurkh in April. The Ministry of Energy was granted the right to

acquire 43 hectares of land for 15 years for construction there in December last year. A tender bid

for the concession right to develop blueprints, raise finance, construction, daily maintenance, and

lead of the project for the 450-megawatt power plant was announced in 2012.

A consortium including Samsung C&T Corp., Korea Southern Power Co. Ltd, Ochir Tuv Co, Ltd., and

another including International Power PLC, Sojitz Corp., Posco Energy, and Newcom LLC were

selected.

Source: News.mn

June

Issue 277

USD 122 MILLION SALKHIT WIND FARM TO OPEN IN JUNE

Mongolia is scheduled to start operations at its first wind farm this month, a USD 122 million project

that is the biggest power plant in 30 years.

The 50-megawatt facility developed by Clean Energy LLC, a subsidiary of Newcom Group, using 31

turbines from General Electric Co. is located on a wind-raked ridge about 45 miles southwest of

Ulaanbaatar. Sengee Enkh-Amgalan, the company‘s Chief Executive Officer, plans to officially start

the plant on 20 June. The government has set a target to get 20 percent to 25 percent of its energy

from renewable by 2020, up from less than 2 percent currently. Coal supplies about 80 percent of

the nation‘s energy.

―In order to meet the 20 percent goal, the government really has to support these kinds of

enterprises,‖ said Enkh-Amgalan, adding that he expects the government will subsidize the costs of

wind power in order to make it affordable.

Clean Energy says the wind park will save 122,000 tons of coal, 1.6 million tons of water, and will

eliminate 180,000 tons of carbon dioxide emissions each year. The government agreed to a power

purchase agreement with Clean Energy, which will receive 9.5 cents a kilowatt-hour for power from

the wind for the lifetime of the project. Enkh-Amgalan said the power station can produce 140

million to 160 million kilowatt-hours per year, which gives the plant revenue of USD 15 million a

year. Turbines at the plant will last about 20 years, he said.

A similar project in China would cost 30 percent less said Enkh-Amgalan, due to the vast distances

and lack of roads in Mongolia, where most highways are little more than vague jeep tracks across

the desert. Clean Energy Asia and Tokyo-based SoftBank Corp. have 200,000 hectares of land in the

Gobi Desert and plan to construct a wind park with a capacity of 200-megawatts to 300-megawatts,

said Enkh-Amgalan. Wind speeds in Salkhit average 8.2 meters per second, while Gobi Desert speeds

exceed nine meters per second. The Gobi has the potential to yield 11 gigawatts per year of solar

energy and 300,000 megawatts of wind power, Enkh-Amgalan said.

Source: Bloomberg

Issue 280

MONGOLIAN RAILWAY MAKES PARTNERSHIPS FOR RAIL DEVELOPMENT

A signing ceremony was held on 20 June for a memorandum of investment for the New Railways

project.

Inking the memorandum was Mongolian Railway Executive Director P. Bat-Erdene along with

representatives of Russia's Eurasia Foundation and the United Kingdom's Ashmore Group. Also in

attendance was Road and Transportation Minister A. Gansukh and M. Kirsan Ilyumzhinov, president

of Eurasia Foundation.

Mongolian Railway has issued a special permit for construction of new rail. Currently the railway is

in the initial phase, which includes the selection of advisors for legal and technical assistance.

Source: Montsame

July

Issue 282-283

ANOTHER POSSIBLE DELAY FOR POWER PLANT NO. 5

Delivery of the 450-megawatt Combined Heat and Power Plant No. 5 continues to face

implementation uncertainties, with competing projects likely causing a delay in the final

investment decision in the near term.

Energy infrastructure is inadequate in Mongolia and more power generation capacity needs to be

installed to avoid a crunch in supply further down the road. According to a May 2013 report by

Prophecy Coal Corp., which also has a power plant in planning, Mongolia will be 100 megawatts

short in 2013, 228 in 2014, 425 in 2015 and 525 in 2016. The Central Energy System and the Western

Energy System are connected to the Russian grid via 220-kilovolt and 110-kilovolt lines,

respectively, but that electricity is expensive and cannot make up for long-term shortfalls.

In July 2012, the State Property Committee chose a consortium that included France‘s GDF Suez,

Korea's POSCO Energy, Japan's Sojitz Corp. and Mongolia's Newcom LLC (with a planned 30:30:30:10

split). That year the site location for the plant was twice moved. Then in March 2013, ten months

after the Democratic Party took control of the government, Prime Minister Norov Altankhuyag made

public comments that month that suggested the deal may not happen at all. He said that a new CHP

was not the way to go, preferring a mine-mouth solution. The GDF consortium has argued that the

CHP project makes the most sense for the country. It is more 60 percent more efficient and

cleaner, with emissions at or under standards set by the World Bank. Comparatively, a power plant

at a mine site requires laying high-voltage, direct-current transmission lines, which are expensive

and will result in the loss of energy over distance. It would also, the GDF consortium argues, lack

the advantage of being able to produce both electricity and heat for Ulaanbaatar. If the

government chooses a mine-mouth solution, a heat-only boiler will have to be constructed in the

city to provide the heat that Plant No. 5 would provide directly.

Apart from weighing down on investors' confidence, further delays in delivery of key power projects

will likely result in power shortages that the government is trying to avoid.

Source: Oxford Business Group

August

September

Issue 291

SHENHUA EXPECTS CROSS-BORDER RAILWAY TO START OPERATING IN 2014

Shenhua Group Corp. Ltd., the world's largest coal distributor, is accelerating the pace of

construction of a cross-border railway project as an independent transportation passageway to run

through Mongolia to further explore international resource opportunities.

"Constructed by Shenhua Group, the Ganquan railway linking the Sino-Mongolian border port to

Baotou city in the Inner Mongolia autonomous region will start operating in January 2014," Wang

Xingzhong, president of Shenhua's Baoshen Railway Co Ltd, told China Daily.

Total investment in the Ganquan railway by Shenhua is around 7.5 billion yuan (USD 1.22 billion).

The project was defined as one of main drivers of economic and trade cooperation between China

and Mongolia.

Source: China Daily

October

Issue 295

TERRA ENERGY APPROVED FOR ROAD CONSTRUCTION TO CHINA BORDER

Terra Energy LLC has received government approval to construct the 98 kilometer haul road

connecting its Baruun Noyon Uul mine with the China border and coal distribution hub at Ceke.

Terra expects the commencement of road construction project to take about 12 weeks. The cost of

the road construction is USD 17 million and will be funded by an extension to the existing Noble

Group debt facility. Coal sales to customers are now expected to commence in January.

A recent visit to prospective customers with the marketing agent Noble in China by Managing

Director Peter Westerhuis and General Manager Marketing Allan Dawson confirmed a strong interest

to commence use of Terra coal in their coking plants. The initial box cut excavation is continuing to

take shape and coal uncover is ahead of schedule. Coal mining and crushing will be scheduled to

coincide with the completion of the haul road construction.

Source: Guildford Coal Ltd.

Issue 296

MARUBENI, GDF SUEZ AMONG FINAL BIDDERS FOR TT PLANT

Mongolia short-listed companies including Marubeni Corp. and Daewoo Engineering & Construction

Co. among the final bidders to build a USD 1 billion power plant in the Gobi Desert.

Kansai Electric Power Co. also made the short list, along with a joint bid made by GDF Suez (GSZ)

SA and POSCO Energy Corp, according to a statement on the website of the state-owned Tavan

Tolgoi Power Plant. It doesn‘t indicate when a winning bidder will be named. Coal miners operating

in the Tavan Tolgoi coal basin, which contains 6.4 billion tons of reserves, include state-owned

Erdenes Tavan Tolgoi LLC and Hong Kong-traded Mongolian Mining Corp. The Tavan Tolgoi Power

Plant will generate 450 megawatts of power, according to the company website.

Contractual agreements require Oyu Tolgoi LLC to use energy produced in Mongolia within four

years of commercial production, which began this year.

Source: Bloomberg

November

Issue 298

MONGOLIA PUSHING FOR RAIL, PIPELINE LINKS WITH CHINA, RUSSIA

Mongolia has agreed to establish a working group with China to oversee the construction of new

road, rail and pipeline infrastructure connecting the two countries with Russia, a member of a

Mongolian government delegation to Beijing said.

The official, speaking to Reuters on condition of anonymity, said landlocked Mongolia aimed to

become a "transit corridor" to facilitate trade between its two giant neighbors and reduce the costs

of delivering Russian commodities like oil and natural gas to energy-hungry Chinese markets. The

topic was high on the agenda during talks between Mongolian Prime Minister Norov Altanhayag and

his Chinese counterpart, Li Keqiang, last week, according to the official, who is a senior adviser to

Mongolia's economics ministry. Speaking by phone from the Mongolian capital, Ulaanbaatar, he said

the working group would probably be set up soon and that Mongolia was open to allowing Chinese

firms to invest and build the infrastructure.

"Given the capacity that both countries can bring to the table, China is expected to be heavily

involved in terms of financial resources and technology," he said.

A rail link to the Russian far east is under construction and half of a direct rail line into China has

been completed, with the project scheduled to be finished by 2015. The official said that Mongolia's

state-owned railway operator signed a memorandum of understanding with state-owned Aluminum

Corp. of China Ltd. (Chalco) last week on building cross-border railways to help deliver coal.

Source: Economic Times

Issue 299

AMGALAN THERMAL STATION 30 PERCENT COMPLETE

China Machinery Engineering Corporation (CMEC) has so far completed thirty percent of the

construction of the Amgalan Thermal Power plant.

CMEC will receive its financing from the Mongolian government once completed with the

construction of the power plant, equipped with the latest technologies. The plant will cover 10.8

hectares of land for the renovation of the US-15 state-owned heating furnace at Bayanzurkh

District, Ulaanbaatar. The plant will have a capacity to supply heating to some 50,000 households

on the east side of Ulaanbaatar.

Prior to the construction, the capital city authorities relocated the families and business entities

located around the US-15 station. The thermal power plant will be on stream in August 2014.

Source: Montsame

Issue 300

MONGOLIA COMMISSIONS UB-DUNDGOBI ROAD

A commissioning ceremony was held for a new 104-kilometer road connecting Ulaanbaatar with

Dundgobi Aimag was held 10 November.

The road is the third completed out of plans by the government to connect the capital with each of

Mongolia's 21 provinces. Three Mongolian companies participated in construction for one year and

four months. Spending on the road was MNT 49.2 billion, financed by proceeds for the 2012 USD 1.5

billion Chinggis bond.

Source: Undesnii Shuudan

MONGOLIA SIGNS INTERGOVERNMENTAL AGREEMENT ON DRY PORTS

Mongolia has signed an agreement that will help develop dry ports throughout Asia.

The second session of the Forum of Asian Ministers of Transport was held at the United Nations

Conference Center in Bangkok, Thailand from 4 to 8 November. In attendance was Minister of Road

and Transportation A. Gansukh, where he participated in discussions on regional transport issues

including those relating to regional transport networks, transport facilitation and logistics, financing

options for regional infrastructure development, and sustainable and inclusive transport.

Fourteen member countries sign the Intergovernmental Agreement on Dry Ports, the third

Intergovernmental Agreement to be negotiated under the auspices of ESCAP. By signing the

agreement, the governments of Armenia, Cambodia, China, Indonesia, Islamic Republic of Iran, Lao

PDR, Mongolia, Myanmar, Nepal, Republic of Korea, Russian Federation, Tajikistan, Thailand and

Vietnam pledged to promote international recognition of dry ports, facilitating investment in dry

port infrastructure, improving operational efficiency and enhancing the environmental sustainability

of transport, where Mongolia‘s border ports of Zamyn-Uud, Sainshand, Ulaanbaatar and Altanbulag

were considered as International Dry Ports, in addition to Choibalsan.

Source: Info Mongolia

Issue 301

MONGOLIA OPENS PAVED ROAD FROM UB TO CHINA

Mongolia completed its first paved road connecting Ulaanbaatar to the border with China, which

buys more than 80 percent of the nation‘s exports.

Prime Minister Norovyn Altankhuyag attended a ribbon cutting ceremony to open the final 116.25

kilometers (72 miles) of highway stretching from the city of Sainshand to the border town of Zamyn-

Uud, the state-run Montsame News Agency reported yesterday. The total distance of the highway is

about 630 kilometers, according to Mongolia‘s Ministry of Roads.

Source: Bloomberg

SEMI-COKING COAL PLANT FACES CHALLENGES AHEAD, SAYS MINING MINISTER

Technical problems made it impossible for Mongolia to establish a refinery to create fuel from

coking coal in 2012 as promised, said Mining Minister Davaajav Gankhuyag.

―In 2011 budget we had MNT 11 billion to a build a semi-coking coal fuel factory. The original plan

was to finish the factory in 2012, however, we still cannot produce the fuel because of

technological problems,‖ said Gankhuyag

Gankhuyag said a problem arose in the decision making, where government energy specialists

advised the use of Russian technology and a Russian partner.

―It is a complicated problem now, who will be responsible for the problem?‖ asked Gankhuyag.

Source: Udriin Sonin

December

Issue 304-305

TT POWER PLANT MAY NEED CONCLUSION TO OT DISPUTE, SAYS DIRECTOR

Uninterrupted development of the Tavan Tolgoi power plant will ride on the outcome of disputes

concerning Oyu Tolgoi's underground mine, said the director of the plant

―One of the main risks is the issue of a main user,‖ Enkhsaikhan said. ―The key buyer of the power

from the TT Power Plant is OT. Due to the uncertainty over ‗phase two‘ and unresolved matters

with the government of Mongolia, OT is not regarded as a reliable buyer, on a stand-alone basis.‖

He added that the power company may request a guarantee from Oyu Tolgoi.

A consortium that includes Korea's Posco Energy and Daewoo Engineering and Construction, GDF

Suez Energy Asia, Japan's Marubeni Corp. and Kansai Electric Power in March was selected for

development of the plant, which has a preliminary estimate cost of USD 1 billion. Those expenses

include installation of 150 kilometers of electric lines between Tavan Tolgoi and Oyu Tolgoi. The

consortium will be expected to raise 30 percent of the cost itself, while the remaining 70 percent

will come from bank loans. However, the uncertainty surrounding the Oyu Tolgoi copper mine could

create more hold ups.

Source: Zuunii Medee

CABINET TO CONCLUDE CONCESSION ON ALTANBULAG-ZAMYN UUD HIGHWAY

The Cabinet of Ministers ordered ministers to conclude a concession agreement for the Altanbulag-

Ulaanbaatar-Zamyn-Uud highway.

The government is planning to establish the concession contract with the Chinggis Land

Development Group, which, according to the agreement, shall have exclusive rights to construction,

ownership and transfer of property using its own financing. The concessionaire shall complete the

construction within three years, after that shall operate the facility for another 30 years before

transferring the ownership to the Government.

If Chinggis Land accepts these terms, it would be responsible for developing a feasibility study and

blueprint of the project to be approved by the relevant ministries before concluding a financing

agreement. The concession agreement will come into effect after the Chinggis Land Development

Group obtains a financing agreement for USD 1 billion from a commercial bank of Mongolia.

The government will be responsible for freeing up the land where the highway is planned, while the

Chinggis Land would cover the costs for doing so.

Source: Montsame

VII. LEGISLATION

Hoisting up new pillars for the investment house

January

Issue 254-255

MINISTRY OF MINING TO SUBMIT AMENDMENTS TO FOREIGN INVESTMENT LAW

The minister of mining announced his intention to amend the Law on Foreign Investment of

Strategic Entities.

The amendment would increase the MNT 100 billion threshold that calls for parliamentary approval

by three to four times and also perhaps change the 45-day duration for deliberation.

The ministry is currently preparing the bill to submit to Parliament.

Source: Origo Partners PLC

PARLIAMENT APPROVES PRESIDENT‟S CALL FOR EXTENSION OF EXPLORATION LICENSE BAN

Parliament has approved legislation submitted by the President's Office to extend the ban on the

issuance of exploration licenses.

The Mongolian National Safety Council said that the extension was necessary given the time needed

to approve new mining legislation as well as other related policies. It also prohibits the transfer of

already issued licenses.

The law was due to expire at the end of December. Ch. Unurbayar, the legal policy advisor to the

president, submitted a bill for the amendment to the law banning the issuance of exploration

licenses for mining that would extend the ban. According to April 2010 data, 1,096 mining licenses

were issued for 478,000 hectares of land. The number of licenses for exploration was 3,659 for

38,900 hectares, or 24.5 percent of total land of Mongolian territory.

There are 491 licenses for Dornogobi Aimag alone for five million hectares of land, or half the

territory of that province. In Umnugobi Aimag were 459 licenses covering 7.5 million hectares of

land, almost 45 percent of the province.

Chinese firms hold 10 percent of all licenses, with 165 companies holding sole ownership of 322

licenses for 2.1 million hectares and 74 companies participating in joint ventures for 123 licenses

covering about 700,000 hectares of land.

Source: Undesnii Shuudan

Issue 256

BCM WARNS THAT DRAFT MINERALS LAW GREATLY DISCOURAGES INVESTMENT

The Business Council of Mongolia (BCM) delivered a letter to President Ts. Elbegdorj's office

criticizing a proposed mining law that it says would ―greatly discourage‖ investment.

The letter, sent on 7 January, also said the proposed legislation would ―halt current mineral

exploration and development‖ and ―make the minerals industry economically non-viable.‖

The proposed mining legislation would need to be passed by Parliament to become law. Ch.

Saikhanbileg, Cabinet Secretary, said the proposed law was drafted by the President's Office and

declined further comment.

Source: Bloomberg

MNMA HOSTS MEETING WITH DRAFTER OF NEW MINERALS LAW

The Mongolian National Mining Association (MNMA) hosted a discussion on January 3 regarding the

draft Minerals Law after the new version of the minerals resources law was made public by the

President‘s Office.

Attorney B. Munkhtuya, the head of the working group that developed the draft law, explained the

law and answered delegate questions at the meeting.

An open public hearing is being scheduled for Friday, January 18, to accept comments from the

public on the draft law.

Source: News.mn

THINKING OF INVESTING IN MONGOLIA? READ THIS FIRST

The mineral deposits under Mongolian soil could soon be governed by a radically different

regulatory framework—if a new draft of the country's Minerals Law is passed in its current form. The

new draft was published by the Mongolian government in December, and makes far-reaching

changes to the way mining and exploration licenses are awarded and maintained. It mandates that

Mongolian citizens must hold a 34 percent equity stake in all mining projects and gives state-owned

companies a pre-emptive right to any mining or exploration licenses transferred from one entity to

the other, according to a summary from law firm Hogan Lovells.

The reaction from Mongolia's business community has been apoplectic. Earlier this week the

Business Council of Mongolia (BCM) sent a letter to the president warning that the law ―threatens to

shut down the entire minerals industry of Mongolia.‖

―The impact of the draft law on the minerals industry will be to halt current minerals exploration

and development in Mongolia and greatly discourage any further investment...‖ reads the

statement.

The draft Minerals Law could still change significantly before it is passed, and BCM is no doubt

hoping that parliamentarians will heed these warnings as they amend the law in coming months.

However members of Parliament will also have to take in account voters who are worried that

Mongolians are not seeing the benefits of the minerals being extracted.

The debate over the news Minerals Law will be further influenced by the upcoming presidential

election in June. The Democratic Party, which leads the coalition government and controls

Parliament, will be working to ensure re-election for current President Ts. Elbegdorj. Their

constituents may not see things the same way as BCM does.

Source: Financial Times

Issue 257

U.S. EMBASSY‟S ASSESSMENT OF DEVELOPMENT OF INVESTMENT CLIMATE

The government has consistently said it supports foreign direct investment. However investors

assert that Mongolia's support for foreign investment seems more an aspiration than a reality.

Investors report that government has shown a declining commitment to the transparent rule of law

and free market principles regarding resource extraction. Observers argue that the 2012 Strategic

Entities Foreign Investment Law's (SEFIL's) full impact remains unclear. Investors worry that the law

may bar them from participating in key sectors of the Mongolian economy or force divestment of

Mongolian assets and equities in the affected sectors.

The Oyu Tolgoi copper-gold project has brought over USD 7 billion in capital technology, jobs, and

tax revenues to Mongolia through 2012. But doubts persist over the government's commitment to

honoring the Oyu Tolgoi investment agreement and its ability to manage public expectations over

mining revenues and related development. In addition, delays in striking deals on the Tavan Tolgoi

coking coal deposit and delays in reforming Mongolia's Securities Law and its equity markets spur

concern that the government lacks both the will and the capacity to execute multiple reforms and

projects.

Investors also suggest that Mongolia's ambivalence to foreign investment may be driven by the

government's aim to create state-owned national mining champions for coal, uranium, copper, and

rare earths. They also argue that its processes for crafting both laws and regulations negatively

impacts foreign investment. A key concern is that the proposal to amend a given law seems to

freeze, or at least significantly slow, the Mongolian regulatory process. For example, the ongoing

amendment process to the 2006 Minerals Law has adversely affected the regime for issuing

exploration and mining licenses.

The government claims it must amend laws for resource extraction to ensure that Mongolia gets its

fair share of revenues from such activities; and to ensure that investors and operators fulfill their

environmental obligations and corporate social responsibilities to the national and local

communities in which they work. Faced with a restive public, the government amends both statute

and regulation to gain more revenue and to quell public unease. This process has been extremely

chaotic, characterized by abrupt, non-transparent attempts to change the law.

Source: U.S. Embassy to Mongolia

Issue 258

RECAP OF OFFICE OF THE PRESIDENT'S OPEN HEARING

At the open-hearing forum at Blue Sky Hotel on 18 January hosted by the Office of the President,

participants voiced their discontent over the draft Minerals Law. But reasons for their displeasure

varied as some argued the law was too-far overreaching, others said it needed even more

government participation.

Following a few opening remarks by head of the Office of the President, P. Tsagaan, he opened the

floor to the working group responsible for the proposed Mineral Law's drafting. They used this time

to explain the different interests they targeted with the law and their specific intentions. Working

group head D. Munkhtuya gave the most revealing comments, explaining their intention to avoid any

long-term agreements such as the Oyu Tolgoi investment agreement, which provide stability to

foreign investors. Instead, all companies would be bound to the laws of Mongolia as they continue

to develop.

Dale Choi, a senior associate of market intelligence at Origo Partners PLC, said while reflecting on

Monday, ―We are getting more convinced the law, in essence, is the investment agreement

between the state of Mongolia and all mining and exploration investors, [excluding] OT.‖

Before the forum's close, Tsagaan invited participants to select three to five members in 4 sectors

to join the President‘s Office working group and submit those names by the end of the month.

Subsequently, the Mongolian National Mining Association (MNMA) invited the Business Council of

Mongolia (BCM) to combine with their selections for the Industry sector working group.

More than once throughout the course of the forum, Tsagaan referenced the open letter by BCM

urging modification of the draft law. Tsagaan thanked BCM for its open address to the President's

Office and line-item review of the draft law before adjourning the meeting.

Source: BCM

ATTRACTING FOREIGN INVESTMENT IS NO LONGER A PRIORITY, SAYS MINERALS LAW DRAFTER

One member of the working group that developed the draft Minerals Law has voiced the opinion the

Mongolia no longer needs foreign investment today as it did in 2006, when the legislation was last

revised.

Working group member Dabaatseren [first initial omitted -ed], said that attracting foreign

investment was a major priority for Mongolia in 2006, but now he believes it is not so critical to the

economy. In general, it became apparent from the open hearing forum last week that while

members of the business sector believe the draft law is too-far over reaching, members of non-

government organizations and academics seem to be of the opinion it does not go far enough. The

ambiguous statement of officials would put government somewhere in the middle.

Source: Mongolian International Capital Corp.

INTERNATIONAL TAX ADVISORS, LAWYERS DERIDE NEW LEGISLATION

Overseas legal firms based in Mongolia have slammed a new law forcing all foreign accountants and

lawyers to pass tough local exams before being able to practice, saying the move will restrict their

business and deter foreign investment.

The new rules will require professionals to pass state exams similar to the United States' bar and

CPA exams, but foreign lawyers in the Mongolian capital Ulaanbaatar said the move would prevent

them from providing vital services to overseas investors in a nation where laws are opaque and

irregularly enforced.

Dale Choi, analyst with private equity investors Origo, said the new restrictions would not only

deter foreign investment but would also have an impact on the ability of domestic firms to raise

funds overseas.

Darin Hoffman, partner with legal firm MahoneyLiotta, said in an email that the new law was

"symptomatic of the general shift towards increased regulation over foreign investment and foreign

citizens living and working in Mongolia that began with the adoption of the Strategic Entities

Foreign Investment Law."

The foreign investment law, passed in May last year, required foreign companies to seek

government approval to acquire more than 33 percent of any company within "strategic" sectors

such as communications, finance and banking, and mining. Failure to comply could result in a

company being stripped of its operating license.

According to data from Mongolia's Central Bank, foreign investment fell 45 percent from USD 321.5

million in June to USD 176.9 million in November last year.

Hoffman, whose firm's clients include Anglo-Australian miner Rio Tinto Group and the London Stock

Exchange, said that work on almost all foreign investment transactions had been halted since the

passage of the foreign investment law, largely due to the uncertainty felt by investors.

Source: BCM

MONGOLIA DEFENDS DRAFT MINING LAW BRANDED AS BAD FOR INVESTMENT

Mongolian officials held a briefing last Friday to defend proposed changes to the draft Minerals Law.

P. Tsagaan, the Chief of Staff for President Ts. Elbegdorj, who led the legislation's drafting, said the

proposed law would strengthen the economy, according to James Liotta, a partner at

MahoneyLiotta LLC, who attended the meeting. Representatives of Peabody Energy Corp., Aspire

Mining Ltd., and Centerra Gold Inc. were among the attendees, Liotta said.

The briefing was held after the Business Council of Mongolia (BCM) sent the President‘s Office a

letter on 7 January saying the proposed law would halt current minerals exploration and discourage

investment. Private-equity firm Origo Partners PLC, which owns more than USD 100 million of

mining assets in Mongolia, said this past week the president may have drafted the law to bolster his

popularity before elections in June.

―The president showed some courage to open this up,‖ said Liotta, who has represented companies

including Rio Tinto PLC and Peabody. ―Now we wait to see if he shows leadership to get a proper

draft law that is acceptable.‖

Mongolia's current minerals law was passed in 2006 and is the basis for the Oyu Tolgoi investment

agreement between Rio Tinto, the indirect 66 percent shareholder of the project, and Mongolia,

which has the rest. The proposed legislation, which would give the state the right to a free stake in

many mineral projects, will take the country away from the free-market principles practiced there

since the early 1990s, BCM said in its 7 January letter.

D. Bat-Erdene, head of geology at Ulaanbaatar-based Biluut Mining and a member of the group that

drafted the proposed law, said Mongolia's earlier laws were designed to attract foreign investment.

In addition to creating jobs and bringing in foreign capital and technology, they also led to

speculation, tensions with local communities and corruption, he said. The proposed law seeks to fix

that, he said.

Origo Partners, in a 14 January note to investors, said it expected that a final draft of the law will

be submitted to the spring session of Parliament in April.

Source: Bloomberg

February

Issue 261-262

MNMA RELEASES LIST OF PROPOSED CHANGES TO DRAFT MINERALS LAW TO IAAC

The Mongolian National Mining Association (MNMA) finished its proposed changes to the draft

Minerals Law.

A working group made up of representatives of the MNMA appealed to the Independent Authority

Against Corruption (IAAC) to consider several clauses of the draft Minerals Law that might

exacerbate corruption and add bureaucracy. The IAAC agreed to accept the proposal and send out

an advisory to the government's administrative office.

Problems with the bill include the addition of two categories of special licenses to four categories,

ambiguity over the period of time for licensing, the set of exploration and mining periods by the

government, the subject-oriented nature of the terms for termination, the conditions for the

passage of a feasibility study, and changes to the tax policy where taxes are taken from every phase

of operations, rather than just income as was previously done. The proposal also took issue with the

13th and 14th clauses for the government's ability to take back mineral deposit land as well as a

clause that requires a Mongolian entity to own at least 50 to 75 percent of exploration, processing

and mining licenses.

Source: BDSec JSC, Udriin Sonin

March

Issue 263

DRAFT MINERALS LAW SUBMISSION PUSHED BACK TO FALL SESSION

President Ts. Elbegdorj announced at a Citizens' Hall meeting on 27 February that he would not

submit the draft Law on Minerals to Parliament until after the presidential election in June.

The draft law's submission has been postponed until the fall session of Parliament, said Elbegdorj,

after hearing of much criticism of the draft law at Coal Mongolia. Three key weaknesses of the bill

raised were the lack of detail over management of mineral exploration, the absence of

comprehensive analysis for mineral exploitation, and the need to develop domestic capacity to

exploit minerals in Mongolia. Also needed is more content on special permits, clarification of

taxation and royalty payments, and the need for domestic supplies.

Elbegdorj said he planned to organize a new working group to develop another draft Minerals Law.

Source: Udriin Sonin

Issue 265

MONGOLIA TO EASE INVESTMENT LIMITS IN SEFIL

Mongolia will ease limits on foreign investment that require parliamentary approval even as it

restricts overseas ownership in industries such as mining amid a dispute with Rio Tinto PLC.

―Today at the cabinet meeting this issue will be addressed and there will be changes in the law in

the near future so that the international community and investors will be happy,‖ said Lu. Bold,

Foreign Affairs Minister.

Mongolia passed a law last May restricting foreign companies from buying control of assets in

industries including mining, financial services, telecommunications and media. The law blocked

Aluminum Corp. of China Ltd.‘s plan to buy coal miner SouthGobi Resources Ltd. which later came

under Rio Tinto‘s control after the London-based company took a majority stake in the coal miner‘s

parent company.

The change ―will start the deal flow from investors, which has been stopped since last May,‖ said

Jim Dwyer, Executive Director of the Business Council of Mongolia (BCM), which represents 250

businesses and other entities working in the nation. ―It‘s good for the country to have foreign

investment start up again after some 9 months.‖

The Strategic Entities Foreign Investment Law (SEFIL) required any deal worth more than MNT 100

billion involving the transfer of more than 49 percent of a Mongolian company to a foreign group to

be referred to parliament for approval.

Source: Bloomberg

Issue 267

MSE VALUE MAY GROW TO USD 40BN WITH SECURITIES LAW, SAYS CEO

The passage of a Mongolian securities law allowing dual listings would boost the value of the

nation's stock exchange by 33-fold to USD 40 billion within five years, said the bourse's chief

executive officer.

The legislation may be passed during the spring session of Parliament, which runs from April until

July, Khangai Altai said in an interview in Ulaanbaatar yesterday. The bourse, which has a

capitalization of USD 1.2 billion, has been waiting for regulatory changes for more than a year, he

said.

―We have just laid down the fundamentals and imposed the rules. Now what we need are the legal

changes. Many internationally listed companies that do business in Mongolia have an interest in

listing.‖

Mongolia is seeking to attract more investors to the nation's stock market when the benchmark MSE

Top 20 Index has stumbled 11 percent this year, Asia's worst performer. The country's Central Bank

cut interest rates in January for the first time since 2009 after economic growth declined to 12.3

percent last year from a record 17.3 percent in 2011.

At current prices, a USD 40 billion market value would rank Mongolia as the 16th-largest stock

market in the Asia Pacific region, Vietnam is presently the 15th-largest with a value of 43.2 billion

―There are 40 internationally listed companies with operations in Mongolia, which do have the

appetite to list their shares to set up a connection with the local community,‖ Altai said.

Once dual listings are allowed, liquidity will flood the market, providing an environment for most

local companies to list their shares, he said.

Source: Bloomberg

April

Issue 271

MONGOLIA‟S PARLIAMENT APPROVES CHANGES TO SEFIL

Parliament approved changes to the Strategic Entities Foreign Investment Law (SEFIL), easing some

restrictions on overseas private companies while maintaining controls on state-owned groups, after

a slump in investments.

The changes remove the need for Parliament to review investments by non-state owned companies,

said Sereeter Javkhlanbaatar, director of foreign investment registration and regulations at the

Ministry of Economic Development. Deals involving state-controlled companies or companies with

government equity will still need to be reviewed for investments.

―The amendments are welcome but the damage has been done, and many investors' appetites have

moved on to more stable jurisdictions,‖ James Liotta a partner of MahoneyLiotta LLC in

Ulaanbaatar, said by email. ―Those who are locked in are likely to take a much more conservative

approach toward investing in Mongolia.

The law applies to companies in the strategic sectors of mining, banking and media, Chimed

Saikhanbileg, the government's cabinet secretary, said by phone from Ulaanbaatar. Today's changes

only apply to Parliamentary reviews and don't remove the need for both state and private

companies in those sectors to get approval from the government, the prime minister and his

cabinet, for investments, he said.

Source: Businessweek

May

June

July

Issue 281

OIL BILL WOULD GENERATE MORE TAX REVENUE, SAYS MINING MINISTER

Mining Minister Davaajav Gankhuyag said Mongolia would receive more in tax from oil thanks to new

tax hikes in the oil bill he introduced to Parliament.

Gankhuyag said oil reserves would be taxed an additional 15 percent while traditional oils would see

10 percent added tax in the draft Law on Oil. The 10 percent earned from special licenses will be

divided 20 percent to the town presiding over the deposit and 70 percent to the state government.

Exploration and development tax will be 50 percent before purchasing is made and 60 percent

afterwards.

The legislation includes several other amendments to the 1991 Law on Oil to allow for greater

investment than is provided internationally and create a better environment for competition,

Gankhuyag said. This year there are plans to extract 608,000 tons of oil worth MNT 145.9 billion in

government revenue. Thus far this year, Mongolia has earned 64.6 billion in tax from the extraction

of 293,000 tons, of which 286,000 tons was sent to China for refinement. Mongolia holds an

estimated 332.6 million tons of oil.

Other amendments to the legislation include new royalties, government rights to extracted oil,

cooperation agreements between companies and local governments while extraction is taking

place, and transferring proceeds into local development funds.

Source: Zuunii Medee

August

Issue 285

FALL SESSION OF PARLIAMENT TO DETERMINE TRAJECTORY OF DEVELOPMENT

This year's fall session of Parliament, set to convene 3 October, may well determine how fast

development in the country can proceed.

The Mongolian government recently informed Oyu Tolgoi LLC that the financing for phase two

development would have to be approved by Parliament. Although ore shipments from Oyu Tolgoi,

destined to become the third largest copper mine in the world, finally commenced in early July,

the future expansion of the copper and gold mine may be delayed by on-going discussions between

the mining unit and the Mongolian government about approval for the international USD 4 billion

financing package.

Other issues on Parliament's fall agenda are a new revised Investment Law and revisions to the

Mining Law. Foreign investors remain somewhat concerned about how welcome they are, anxieties

that were exacerbated, for example, by a move to regulate the legal and accounting professions in

a manner similar to the practice in Russia—reforms which would make it difficult for foreign

companies to obtain international legal and accounting services. The government also faces a

revenue shortfall before the end of the fiscal year on 31 December.

Source: NAMBC

Issue 288

PARLIAMENT RECALLED AS FALLING FOREIGN INVESTMENT THREATENS ECONOMY

Parliament announced on Friday it would hold an emergency session next month, as the country

looks to ward off an economic crisis sparked by uncertainty over its biggest mining project and

falling foreign investment.

A government official had said on 16 August that the National Security Council, headed by the

country's president, was debating recalling parliament, currently in summer recess. According to its

website, Parliament will now meet for a week-long session from 2 September and is set to discuss,

among other things, legislation governing foreign investment. The extraordinary session could also

accelerate the approval of financing for a USD 5 billion expansion to global miner Rio Tinto PLC's

giant Oyu Tolgoi gold and copper mine.

Rio earlier that week announced mass lay-offs at Oyu Tolgoi, where it has put an underground

expansion on ice due to a dispute with the government. The job cuts have been read by some in

Mongolia as an attempt to pressure the government into easing its demands on the miner over

project financing, and the extra session of Parliament could spur progress. Dale Choi, an analyst at

Mongolian Metals & Mining Research, said in a note on Friday that the recall was a ―Long overdue

significant message from Mongolian authorities that the country wants back investment, both

foreign and domestic.‖

Source: Reuters

Issue 289

MONGOLIA TO SCRAP CONTROVERSIAL FOREIGN INVESTMENT LAW – OFFICIAL SAYS

Mongolia plans to scrap a controversial law designed to curb foreign ownership in what it considers

to be strategic sectors, such as mining, a government official said, as the country seeks to kickstart

its stalled economy.

The new measure, if passed, will replace the 2012 Strategic Entities Foreign Investment Law

(SEFIL), which analysts say has been partly responsible for a slump of 43 percent in overseas

investment in the first half of 2013, on an annual basis. Sereeter Javkhlanbaatar, director of foreign

investment at the Economic Development Ministry, said the new law would seek to allay concerns

about limits in sectors such as mining.

―We won't separate the market between strategic and non-strategic,‖ he told an audience of

investors during a meeting of the Business Council of Mongolia on Monday, 29 August.

Sectors identified as strategic by the 2012 law include telecommunications, banking and finance,

besides mining. At the moment, companies looking to buy 33 percent or more of any company

deemed to belong to a ―strategic‖ sector must secure government approval. State-owned firms

require government approval for any interest in a strategic asset, and parliamentary approval for a

stake of more than 49 percent.

But it was unclear if a new law could reverse the slide, he said. Javkhlanbaatar said the new law

alone would not be enough to bring foreign investment back to levels in 2011, when Mongolia

racked up world-beating economic growth of 17.3 percent. He also noted that existing licensing

systems governing sectors like mining and banking could be tightened to guarantee national

security, which could raise concerns among investors.

Nick Plummer, an analyst at the Economic Policy and Research Competitiveness Center, said

tougher licensing terms could actually increase uncertainty and extend delays whether or not the

distinction between ―strategic‖ and ―non-strategic‖ was removed.

―Until we see the draft legislation, we can only guess at what changes the government intends to

make,‖ he said.

Source: Reuters

LONG NAME LAW AMENDMENT IN THE WORKS, SAYS MINING MINISTER

Minister of Mining D. Gankhuyag on Tuesday, 20 August announced the intention to amend the so-

called Long Name Law that has banned mining exploration from certain forestries and bodies of

water.

Gankhuyag said an amendment was in the draft stage during a meeting with representatives of the

mining industries, including companies such as Jump, Shar Narst, and Mondulaan Trade, as well as

the Mongolian Association for Gold Miners. Delegates noted the closure of a number of gold mining

companies after the adoption of the exploration law.

Other problems discussed included the 10-times growth of water fees and excessive bureaucracy at

state agencies.

Source: Montsame

UMNUGOBI BANS USAGE OF GROUNDWATER

The Umnugobi Aimag Citizens' Council has established a ban on the use of all groundwater beginning

1 January 2016.

In addition to the ban of usage, the Council banned the exploration for groundwater beginning 1

August this year. The Council is arguing that without the bans it risks seeing its water levels further

deteriorate and add to the desertification of the land. The decision was made by a working group

that investigated and registered all deep wells dug by mining companies.

2011 data shows Umnugobi had 55 dried up water sources compared with a previous 650 rivers,

streams, lakes and ponds. Over the last two years, about 40 percent of existing water sources have

dried up, with only 240 streams and ponds left in the province.

Water is crucial to the mining projects operating in the area, to which the ban is certain to affect.

Source: Zuunii Medee

September

Issue 290

NO NEED FOR NEW MINERALS LAW, SAYS PARLIAMENT SPEAKER

Parliament Speaker Zandaakhu Enkhbold has spoken in favor of retaining the 2006 Minerals Law and

scrapping the law proposed by President Tsakhia Elbegdorj.

―I think that the Minerals Law, which was endorsed in 2006, is a reasonable and good law,‖ said

Enkhbold. ―Instead of the president's initiated one, the 2006 Mineral Law is suitable for sustainable

use, if we amend it.‖ Enkhbold added that he believed the mining community would agree with

him.

Parliament is expected to discuss the Minerals Law bill in the fall session of Parliament. The

amendment will regulate exploration and mining activities.

Source: Udriin Sonin

Issue 291

PARLIAMENT TO DISCUSS FIVE PIECES OF LEGISLATION DURING EXTRAORDINARY SESSION

Five pieces of legislation are scheduled for discussion at the extraordinary session of Parliament

scheduled for 16 to 27 September. Parliament will discuss the Law on Investments, the Law on

Investment Funds, the Law to Establish Transparent Gold Trading, the Amendment to the

Regulation of Water and Forest Act, and the Law on Abundant Minerals.

―MIBG has reviewed the Investment Law and believes that the legislation will create a significantly

positive legal environment for existing and prospective foreign investors,‖ said the Source.

―Similarly, abolishing the SEFIL legislation that was introduced in 2012 to regulate foreign

investment into sectors of strategic importance will add to the strengthening climate.‖

The amendments to the Water and Forest Act will likely exclude some mining companies from the

law. That might include Centerra Gold for its 1.2 million-ounce gold deposit.

Source: Mongolian Investment Banking Group

Issue 292

PARLIAMENT DEBATES NEW INVESTMENT LAW

Parliament began its extraordinary session on Monday, focusing on key legislative debate for the

country's economic performance. The agenda outlines five specifics laws to be debated, with the

most important to affect Mongolia's future and the participation of foreign investors in the new

Investment Law.

The new Investment Law comprises six chapters, with one mandating a two-thirds vote from

Parliament to amend the law. The first lays out an equal playing field for foreign and domestic

investors. As populist politicians have tried to win over voters during the 2012 parliamentary

elections, candidates openly expressed their preference for domestic over foreign-invested entities.

This new law reverses that stance by supporting both types of investors while protecting the

country's assets from state-owned enterprises.

The law also removes the ―strategic importance‖ label, removing any further requirements that

were necessary to invest into assets within the sectors of mining, communications and media,

banking and finance. Investors will only come under the labels of ―private‖ or ―state-owned.‖ The

law also removes the USD 100,000 limit of investment before state approval is needed—state

ownership includes any entities with state ownership above 25 percent. The law also looks to

provide tax stability for a five-to-10-year period for investments above MNT 15 billion.

Finally, the new law introduced the Invest Mongolia agency, which has the sole purpose of

attracting foreign direct investment. The agency will provide government a means of engaging

investors in discussions regarding foreign investment and provide a direct source of information to

communicate with stakeholders.

Source: Mongolian Investment Banking Group

TASK FORCE FORMED FOR LONG NAMED LAW

Members of the Standing Committees on the Economy and Environment and on Food and Agriculture

on 17 September agreed to establish a task force to study the Law to Limit and Prohibit Mineral

Exploration and Mining Operations at the Headwaters of Rivers, Protected Zones of Water

Reservoirs—commonly referred to as ―The Long Named Law.‖

The task force is charged with learning the positions of all parties on the controversial issues

surrounding the amendments to law and to adapt that input into the law. Leading the task force is

MP D. Arvin.

Law makers noted that the long named law from 2009 saw the issuance mining licenses ran

ordinarily for 11 months. During that period four new mining licenses were issued to 120 mining

sites before President Tsakhia Elbegdorj ordered a ban on the issuance of licenses. The 789

exploration special licenses granted before the law was enacted and the 77 operational licenses

granted after the law was passed will not be affected by the new amendments in the law.

However, applications for 346 operational licenses will once again be processed.

Source: News.mn

Issue 293

U.S. AND MONGOLIA SIGN BILATERAL TRANSPARENCY AGREEMENT

The United States and Mongolia signed an agreement on transparency in matters related to

international trade and investment on 25 September in New York.

The agreement, signed by U.S. Trade Representative Michael Froman and Mongolian Foreign

Minister Luvsanvandan Bold, marks the development and broadening of the economic relationship

between Mongolia and the United States. The bilateral transparency agreement adds to the

continuing positive momentum in relations and benefits both countries by creating a more

transparent and predictable environment for doing business.

The goal of the transparency agreement is to make it easier for American and Mongolian firms to do

business. The agreement covers transparency in the formation of trade-related laws and

regulations, the conduct of fair administrative proceedings, and measures to address bribery and

corruption. In addition, it provides for commercial laws and regulations to be published in English,

making it easier for international investors to operate in Mongolia.

Source: U.S. State Department

October

Issue 295

PARLIAMENT RECEIVES BUDGET PROPOSAL FOR 2014

Finance Minister Chultem Ulaan submitted a 2014 budget proposal to the Parliament speaker for the

Social Insurance Fund and Human Development Fund (HDF) on 1 October.

The proposed budget includes an expenditure plan, revenue sources, allocations to local budgets,

allocations to local development funds, usage by general managers, deficit recovery sources. Major

objectives of the budget are to form a security net for those vulnerable to deep poverty, reduced

unemployment and poverty rates, pensions and allowances, improved social welfare, income

equality through the taxes, the abolishment of redundant allowances, and reduced wasteful

spending.

The proposed budget for the Human Development Fund would provide cash allowances to young

people under the age of 18. The proposed budget for the Social Insurance Fund would create a

financial source for the cabinet to implement its initiatives and allocate funds to the fund.

Source: Montsame

MONGOLIA EASES RESTRICTIONS ON FOREIGN INVESTORS

Mongolia has passed a law aimed at reviving foreign investment by easing restrictions on investors in

key sectors such as mining and by providing greater certainty on the taxes they must pay.

The new regulations take effect on 1 November and replace two previous laws, including one that

imposed restrictions on foreign investments in strategic sectors after state-owned Aluminum Corp of

China (Chalco) made a bid to take control of Mongolia-focused coal miner SouthGobi Resources in

2012. Investors and analysts said the new law was a step in the right direction following more than

a year of uncertainty over investment rules, which many blamed for a slump of 43 percent in

overseas investment in the first half of 2013, on an annual basis.

Under the new law, which had been in the cards for a few months, private companies will no longer

need government approval to invest in the so-called strategic areas of mining, telecommunications

and banking. Although firms that are at least 50 percent state-owned will still need the go-ahead

from a new agency. The law also gives investors 5 to 22 years of "stability" on value added tax,

corporate income tax, mining royalties and customs duties. That means they will pay the tax rates

that apply when an investment is made for those periods.

The new investment law protects investors from expropriation, allows profits to be taken out of the

country, and reaffirms the right to arbitration, Sereeter Javkhlanbaatar, head of foreign investment

regulation and registration in the economic development ministry said. While the new investment

law marks a step forward, Independent Mongolian Metals & Mining Research analyst Dale Choi said

three key issues—the fate of an underground expansion at Rio Tinto's Oyu Tolgoi copper mine,

uncertainty over 106 mining licenses, and revisions to a rivers and forests law—still need to be

resolved to restore foreign investor confidence. Centerra Gold needs revisions to the rivers and

forests law in order to go ahead with its Gatsuurt project, which has been on hold since 2010.

Source: Reuters

SCIENTISTS SUBMIT MINERALS SECTOR PLAN

Eleven scientists have proposed a new development policy for the minerals sector.

The policy includes implementation schemes, a geology and mineral research policy, a mining and

refinement policy for minerals, metals, and coal, an investment policy, a plan to develop worker

capacities, and environmental protections and rehabilitation.

Source: Zuunii Medee

November

Issue 300

OVERVIEW OF THE INVESTMENT FUNDS LAW

Parliament‘s approval of the first ever Investment Funds Law (IFL) in early October went relatively

unnoticed, with all attention of the time focused on the Investment Law. Nonetheless, it should be

noted that the IFL is of great importance to the future of Mongolia‘s economic growth and financial

sector development when it takes effect 1 January 2014.

Comprising 11 chapters and 58 provisions, the purpose of the IFL is to regulate the basic relations

related with the establishment of an investment fund, issuance of a license for the fund, regulation

fund management companies, custody of fund assets and protection of investor rights and interests.

The law defines two main types of investment funds—private and mutual, and different regulatory

norms will apply. Private funds will be subject to limited regulation from the Financial Regulatory

Commission (FRC). Those funds will not be allowed to do public marketing and can raise funds only

through private offerings. Mutual funds can raise funds through public offerings to 50 or more

people.

One chapter of the IFL is dedicated to custodian services. Along with Securities Market Law, the IFL

brings the concept of custodian services in order to protect investors. Custodian banks will

responsible for custody of fund assets, registration of fund units, verification of net asset value of

funds and also exercise some control over management companies.

Foreign funds are not allowed to raise funds in Mongolia without licensing, but these funds can carry

out investment activities after going through a registration process with the FRC. As a special

purpose vehicle, investment funds will not be taxed as a business entity, however investors will pay

income taxes on returns subject to effective tax regimes.

Source: Mandal Asset Management

December

303-304

MINERALS POLICY ENTERS FINAL DISCUSSIONS

The government published a final draft of Mongolia‘s State Policy on the Minerals Sector for 2013

through 2025.

The document was first presented to Parliament in July and is now entering final discussions during

the autumn plenary session of Parliament following a 42 percent drop of foreign investment and 23

percent fall in the currency, year-on-year.

―We have reviewed the proposed State Policy on the Mineral Sector, which we feel will be a

positive step forward if passed,‖ said the Source. ―The passing of this policy will result in more

transparency and an increasing participation from foreign investors. That said, it will take time for

these feats to be accomplished. Investors will be weary of Government promises as they seek

longevity to prove Government intentions.‖

The proposed policy is divided into four main sections: rationale, principles, main policy and

implementation-results. The major points stressed in the policy include transparency and

responsible mining. The law sends the message that growth is going to be driven by private sector

participation and the intent to provide a stable investment environment, technological innovation

and value-added activities.

Key priorities of the law since it was first unveiled include stability of taxation and the legal

environment, an end to any discrimination between foreign and national investors, and the

preservation of strategic resources and deposits.

This most recent version saw the inclusion of a new section supporting development of local areas

and the interests of local citizens. Other key elements include exploration—which would see

greater government regulation for strategic mineral deposits while cutting down bureaucracy and

conducting scientific research—production support, and local support. The new document also

highlights greater support for non-governmental organizations for the environment, allowing them

to claim damages from mining operations, the establishment of funds to support economic

diversification, environmental protections and land rehabilitation.

The new draft has removed the risk assessment section and replaced it with a section on

implementation. This includes the improvement of the legal environment and producing of relevant

regulations, programs and projects for 2013 to 2015, followed by the implementation of programs

and projects from 2014 to 2025, and finally the provision of conclusions on midterm policy

implementation and further planning for up to 2020 and 2025.

―We believe that this policy will take us one step closer to attracting investors and supporting

private sector development in Mongolia,‖ said the Source. ―Despite current investor hesitation this

state policy, in addition to the new amended Minerals Law set to pass next year, will further

encourage investors to enter the market and will build support for the junior mining community.‖

Source: Mongolian Investment Banking Group

PARLIAMENT UNANIMOUSLY BACKS “SMART GOVERNMENT” INITIATIVE

Parliament has unanimously backed President Tsakhia Elbegdorj's ―From Big Government to Smart

Government‖ initiative for government reform concepts, having signed a joint statement of support

on 13 December.

The joint statement gives full support to the president's initiative, and commits to cooperation for

its undertaking. This includes support for enhancing government systems and policies in line with

democracy and a market economy, improving the capacities of public services, and curtailing

government intervention into private business affairs. Also included are protections to private

business, including establishing government structures for rule of law, support to domestic

industries, and honoring contracts. The fight against corruption is another main perogative.

On 16 November 16 the Office of the President of Mongolia organized a national consultative

meeting on this topic at the Government Palace. Elbegdorj next met with members of the

Parliament on 9 December to organize an open dialogue with representatives of Parliament for an

appeal for them to sign the joint statement. Reaffirming the commitment of the Mongolian

lawmakers to a breakthrough reform of the Government, the leaders of party floors and factions in

the Parliament and independent members of the Parliament signed the document for the reform on

December 13, 2013.

Source: Montsame

VIII. BANKING AND FINANCE

The build of the investment environment, the fall of the macro economy

January

Issue 254-255

MONGOLIA IN 2013

Mongolia International Capital Corp. (MICC) took a look at how 2013 may shape the Mongolian

economy for the near future.

Although Mongolia is a parliamentary democracy, the presidency is seemingly evolving to become

more significant. President Ts. Elbegdorj has been more active in policymaking than his

predecessor, appointing officers of the Independent Agency Against Corruption (IAAC) and initiating

the ban on exploration licenses to protect the country's rivers and forests. Most recently it became

public that his aides had an important role in drafting the new Minerals Law before releasing the

draft for public debate.

The President has the power to veto a law, which requires a two-thirds majority in Parliament to be

overruled. Mongolian presidents rarely enact this power, but a more activist president could

perhaps change this tradition. 2013 will be important as it is a year for a presidential election, and

whoever holds that position will have the power to set important precedents.

2013 looks set to be an important year for commodities. Mongolia simply doesn't have sway in this

areas—although it affects the economy greatest. Crisis in Europe has abated, if only temporarily,

and China's slowdown seems to have ended thanks in large part to the country's stimulus program.

However, those who warn of high trail risks in Europe, and long-term structural problems in China,

perhaps, should not be so easily dismissed. Moreover, there are questions surrounding the U.S. and

Japanese economies.

This year could be the year when Mongolia's policy on mining is set for the medium-term. The new

Minerals Law is set for debate in Parliament this year, though it probably will not depart radically

from the current law. Yet, both those who support greater foreign investment and those who would

like to set greater limits seem to view the current set of policies as in need of improvement.

Finally, as Oyu Tolgoi gears up for first production, Tavan Tolgoi is wanting for investment and

remains under-d4eveloped. While the impending public offering of Erdenes Tavan Tolgoi JSC

depends on the outlook for coking coal prices, there is much the government can get right in the

meantime.

Source: Mongolian Investment Capital Corp.

Issue 256

2012 YEAR IN REVIEW

While Mongolia can look back on a year that began with high expectations for a steady rise in

mining-generated wealth, reports of slowing growth and concerns among investors about the risk of

resource nationalism cast a shadow over the second half of 2012.

The USD 1.5 billion government bond released in November demonstrated that investor interest in

the country's vast coking coal and copper mine—and a strategic location near China and Russia—is

still strong. The offering was 10-times oversubscribed, attracting some USD 15 billion in bids, nearly

twice the gross domestic product (GDP) of 8.5 billion.

While the adoption of a Foreign Investment Law in May tightened approval requirements for

international companies has so far failed to weaken investor interest, the new requirements,

combined with a possible restructuring of a crucial deal with global mining giant Rio Tinto PLC,

could make investors more cautious in 2013. The controversial law has been described by some as a

form of ―resource nationalism.‖

Critics also noted that Mongolia's vulnerability to a downturn in commodities exports was exposed

by a drop in demand from its biggest customer, China, in 2012. Mongolia's expansionary fiscal policy

was also blamed for double-digit inflation and balance of payments pressures.

2012 witnessed a wave of confidence in the banking sector. However, banks' liquidity dropped from

50 percent in January 2011 to under 40 percent at the start of 2012. In May, Moody's downgraded

the ratings of four banks to B1, citing a ―relatively low level of cross-border diversification in their

operations.

The stock exchange also struggled in 2012, with the Wall Street Journal reporting in November that

its worth had fallen 30 percent. As for the country's two largest mining projects, the selection of

companies to develop the Tavan Tolgoi West Tsankhi coal project was delayed and the Oyu Tolgoi

copper mine has seen royalty and tax hikes that were outlined in the proposed 2013 budget.

Source: Oxford Business Group

Issue 257

ECONOMIC GROWTH MODERATES TO 12.3 PERCENT AS COAL EXPORTS SLOW

Mongolian economic growth slowed last year to 12.3 percent after moderating expansion in China

curbed demand for its exports of coal.

Gross domestic product (GDP), as measured by production, grew last year to MNT 13.9 trillion, the

National Statistical Office said. The country's exports fell 9 percent to USD 4.38 billion and imports

rose 2.1 percent to USD 6.74 billion, resulting in a trade deficit of USD 2.35 billion.

A mid-year decline in the price of coal, the nation's biggest export product, was the largest reason

for the slowdown from 2011's record of 17.3 percent pace of expansion, said Coralie Gevers, the

World Bank's Country Director for Mongolia. Slower economic growth in China, which buys 92

percent of Mongolia's exports, also contributed.

"There was a global slowdown which they could not avoid," particularly a drop in the coal exports to

China, Gevers said in a telephone interview from Ulaanbaatar. The growth rate "is along the lines of

what was expected by the International Monetary Fund (IMF) and World Bank. It's still among the

highest rates in the world. GDP growth is not going to be a problem over the next few years."

Measured by expenditures, Mongolia's GDP expanded 12.2 percent to MNT 14.6 trillion, according to

the statistics bureau. Gevers said the World Bank uses GDP figures measured by production for its

analysis.

However, Dale Choi, an analyst at private equity company Origo Partners PLC, said last year's

growth is a concern.

"A lot of this is from investment stalling, a weak external environment and a weak internal

environment as well," Choi said.

Source: Bloomberg

Issue 258

M3

Spoiled by Mother Nature's generosity, three countries have added a new term to the tongues of

investors: M3.

The M3 countries—Mongolia, Myanmar, and Mozambique—are predicted to stand among the world's

top-five fastest growing economies in the next decade, with Mongolia's gross domestic product

(GDP) growth projected to be at 15 percent a year compared with 12 and 10 percent for Myanmar

and Mozambique, repsectively.

―We are proud to develop the M3 concept as an innovative investment for frontier markets

investors,‖ said Alisher Ali, Managing Patner of Silk Road Management, in an official statement.

―Mongolia, Myanmar, and Mozambique share some striking similarities, and we are confident that

their economies will be among the best and offer outstanding opportunities for investors.‖

The M3 countries have been developing to become new destination markets for business and

finance. They are like toddlers who are just learning to walk. As such, issues regarding energy

supply, infrastructure, and the skills of the workforce are of greatest concern.

Civil wars and political unrest kept the gates to development locked until just recently in Myanmar

and Mozambique, while landlocked Mongolia, surrounded by global economic giants Russia and

China, floundered due to its dependence on Russia for oil and China's reigns over Mongolia's coal

market.

Source: Mongolia Economy

February

Issue 259

EUROFEU ASIA TO COMMENCE FIRST REVERSE TAKEOVER ON MSE

Eurofeu Asia JSC and its investment banker, Rescap Securities, have proposed the first reverse

takeover listing on the Mongolia Stock Exchange (MSE)

Eurofeu Asia JSC is Mongolia's leader and full-service provider of fire-safety products, fire

equipment maintenance services, fire risk assessment services, safety training and consulting with a

10-year track record in Mongolia. The company is majority owned and operated by its founders,

French expatriate Sebastien Marneur and Eurofeu France, a company with EUR 81.36 million of sales

per year based in France operating in the fire safety business across Europe and North Africa.

Source: Eurofeu Asia JSC

MONGOL BANK CUTS POLICY LOAN RATE BY 0.75 PERCENT

Mongolia's Central Bank cut interest rates for the first time since June, 2009 after determining that

the outlook for inflation is benign and deciding to "cautiously" ease policy, its chief economist said.

The Bank of Mongolia reduced its policy rate to 12.50 percent from the previous 13.25 percent

effective yesterday, according to a table on the monetary authority's website and confirmed by

chief economist Sandagdorj Bold. The Central Bank is confident it will be able to achieve its 8

percent inflation target for this year, Bold said.

Source: Bloomberg

AGRICULTURAL EXCHANGE TO OPEN IN Q3 2013

Mongolia's first preliminary run of its agricultural commodity exchange has been slated for the third

quarter of this year.

The government has budged MNT 5 billion for the project, with another 49 percent of investment to

come from the private sector. That includes members of the commodity exchange, investors, and

domestic production companies.

Source: Udriin Sonin

2013 ECONOMIC OUTLOOK FOR MONGOLIA, PER MANDAL

Mongolia's gross domestic product (GDP) is projected to grow 10 percent in 2013, a decrease from

12.3 percent in 2012 levels, as per forecasts by Mandal Asset Management. But with Oyu Tolgoi‘s

―full effect‖, growth may reach 17 percent.

There are several factors to have a major influence on the economy in 2013, including political

stability, the growth of government influence in the economy, the Oyu Tolgoi mine, and the

Strategic Entities Foreign Investment Law (SEFIL). While Oyu Tolgoi production will contribute

substantially to GDP, other mining, especially junior mining and exploration projects, may shrink

with a few exceptions. However, growth in infrastructure and infrastructure logistics sectors will

have a replacement effect.

Overall, there will be a shift from mining and exploration to infrastructure, logistics, and

construction sectors. There are a number of mega infrastructure projects lined up to start in 2013.

Monetary policy announced by the new Governor of the Bank of Mongolia is likely to have a positive

impact on the economy through a reduced inflation rate. In 2013, it is believed that it may get

closer to reaching its targeted single-digit rate, as its monetary policy is coordinated with

government's intention of restricting budget expenditures to 40 percent of GDP and budget deficit

at 2 percent of GDP. Also, the Bank of Mongolia has initiated and started to implement several

actions directed at smoothing imported inflation specifically related with fuel, construction and

consumer goods.

While tight monetary policy will help reduced inflation, it may not have a positive impact on

financing conditions, as it reduces the opportunity for loan rates to go down in general from the

current 18 percent rate.

2012 has been a reminder of how incredible the growth potential is for Mongolia, but at the same

time how fragile the economy is. It is not immune to external shocks and does not have thick

enough buffer to ease cyclical trends or navigate populist policy movements. It seems that 2013 will

mark a higher growth trigger primarily by public funds investments in infrastructure and

construction and, of course, by Oyu Tolgoi. If not carefully managed, this may result in a crowd-out

effect of the private sector by government.

For complete 2013 Mongolia economic forecasts report from Mandal Asset Management, refer to

BCM website – Mongolia Reports.

Source: Mandal Asset Management

Issue 260

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

Issue 261-262

MONGOL BANK ADDS TO MONEY SUPPLY WITH ONE-WEEK TREASURY BILLS

The Bank of Mongolia issued MNT 576.75 billion in one-week treasury bills at 12.5 percent on 13

February.

The Central Bank lowered its policy rate by 75 basis points to 12.5 percent on 31 January. The bank

originally started to sell treasury bills weekly in July of 2007 at a fixed rate and amount. However,

in May 2010 the trading of treasury bills became competitive based on rates bid by local commercial

banks.

The government also announced that week the issuance of a MNT 25 billion 12-week bond. The

issue was oversubscribed with local banks bidding MNT 38 billion. As planned, the 12-week bond

issue closed at MNT 25 billion at a weighted average rate of 11.04 percent. The lowest and the

highest rates of the subscription were 10.87 percent and 11.20 percent, respectively.

Source: Mongolia Investment Banking Group

FRC RAISES TRADING FEES

The Financial Regulatory Commission (FRC) has raised the fee to participate on the securities

market for financial entities. The raised fee will take effect 24 February.

Source: Financial Regulatory Commission

MONGOLIA CANCELS DOUBLE-TAXATION AGREEMENTS

On 2 November 2012, Parliament passed the law on annulment of agreements between the

Mongolian government and the governments of four countries on avoidance of double taxation and

prevention of fiscal evasion with respect to taxes on income.

Mongolia's canceled agreements are with Kuwait, Luxembourg, the Netherlands, and United Arab

Emirates, with expiration to begin in 2014 for the former two and 2015 for the latter.

―In our view, the annulment of these agreements will have an adverse impact on the existing and

future investment from the above-mentioned four countries and reduces the business framework

with these countries,‖ said V. Bolormaa, senior lawyer at GRATA Law Firm.

Source: GRATA Law Firm

March

Issue 263

MAJORITY OF MSE-LISTED COMPANIES FAIL TO REPORT YEAR-END RESULTS

Only 51 of the Mongolian Stock Exchange's listed joint stock companies submitted 2012 year-end

financial reports on time.

The MSE‘s regulations require audited year-end financial reports to the Financial Regulatory

Commission (FRC) and Mongolian Stock Exchange (MSE) by 10 February next year.

Source: Mongolian Stock Exchange

MSE MAKES BOARD APPOINTMENTS

Mongolian Stock Exchange JSC (MSE) appointed its new board members. The appointment follows

Resolution No. 554 and 23 of the State Property Commission.

The board members are Chairman M. Batgerel, director of restructuring and policy implementation

at the State Property Committee; B. Daajamba, commissioner and vice chairman of the Financial

Regulatory Commission; G. Batkhurel, head of development policy, strategic planning at the

Ministry of Economic Development; B. Bayar, general director of legal at the Ministry of Energy; A.

Khurelbat, head of international cooperation at the Ministry of Mining; and M. Bayanmunk, director

general of heavy industry policy implementation and coordination at the Ministry of Industry and

Agriculture. Independent members are D. Bolormaa, director of social responsibility and sustainable

development at Mongolyn Alt (MAK); Ch. Ganbat, managing director of Liberty Partners; and J.

Maizorig, general partners at MDS and Associates LLP.

Source: Mongolian Stock Exchange JSC

FOREIGN DEBT STANDS AT USD 2 BILLION

Mongolia's foreign debt has grown to USD 2 billion, reported Ch. Saikhanbileg in a direct questioning

from the Mongolian People's Party.

The prime minister received the inquiry from MP B. Bat-Erdene, who voiced concern over excessive

debt from foreign organizations and countries.

―Since 1990 there no official statement has been released regarding Mongolia's foreign debt;

particularly how much money was borrowed from international organizations and financial

institutions, how much were spent and how much were paid off, and, moreover, how much is left

and what is the current rate for interest.‖

Saikhanbileg reported that Mongolia has spent USD 2.7 billion of borrowed money, of which 55

percent came from donor countries and 45 percent from international financial institutions from

1990 to 2012. Mongolia has thus far spent USD 900 million for principal payments and USD 200

million for interest. She said 55 percent of loans.

Seven percent of the borrowed money was in euros, 20 percent in Japanese yen, and 8 percent

from others. The remaining 5 percent comprised special drawing rights, with 42 percent

denominated in U.S. dollars, 36 percent in euros, 11 percent in yen, and 11 percent in the British

sterling pound.

The government is expected to pay MNT 115.3 billion in 2013, of which MNT 87.4 billion would be

principal payments and MNT 27.9 billion for interest.

Source: Info Mongolia

LEGAL PROPOSALS SIGNAL ROCKY SPELL FOR MINING

A controversial draft Minerals Law that the government hopes will steer Mongolia‘s mining industry

into a new era has divided opinion across the country, with supporters highlighting the need for

change, while critics say its implementation could put the industry‘s future at risk.

The government says the planned legislation forms part of a broader bid to ensure the mining

industry is developed fairly and sustainably in a way that benefits the country economically, while

putting more social responsibility on companies and providing added protection for the

environment. However, critics say the proposals come down too heavily on investment and licensing

regulation, adding that the draft law threatens the very industry it should be trying to strengthen.

Some critics claimed the law had been designed ahead of an election to fuel the emotions of many

locals who feel they are still not benefiting sufficiently from the mining boom. The law proposes a

number of new provisions, including an obligation on foreign mining companies to hand over a stake

of at least 34 percent in their existing projects to indigenous groups. It also requires companies to

mine lower-ore grades even if the process is not profitable. Under the planned law, exploration and

mining licenses will be granted only to legal entities in Mongolia, although foreign investors are

permitted to set up wholly-owned subsidiaries in the country.

Critics also point out that the draft law leaves key issues unresolved. Luke Leslie, head of mining at

London-listed Origo Partners PLC, told Dow Jones that the legislation raised concerns about security

of license tenure, while failing to identify a dispute resolution process or body.

D. Bat-Erdene, head of geology at Ulaanbaatar-based Biluut Mining and a member of the group that

drafted the legislation, defended the proposal when speaking at the open hearing, saying change

was necessary. He pointed out that while earlier laws designed to attract foreign investment had

created jobs and brought in both foreign capital and technology, they also led to speculation,

tensions with local communities and corruption. The proposed law, he said, sought to fix that.

Source: Oxford Business Group

Issue 264

MSE LISTED COMPANIES TO DISTRIBUTE DIVIDENDS

Seven of the companies listed on the Mongolian Stock Exchange (MSE) have submitted resolutions to

the exchange on their intention to distribute dividends. Companies include Gobi, Hermes Center,

Sharyn Gol JSC, BDSec JSC, Takhi-Co, and Bayanteeg JSC.

Source: Mongolian Stock Exchange

Issue 265

MSE LOWERS TRADING FEES, ADMITS TWO NEW BROKERS

The Mongolian Stock Exchange's (MSE's) lowered its trading fees in a recent meeting of its board of

directors.

The board lowered the trading fee for stock trading with values of up to MNT 100 million to 0.4

percent from 0.5 percent, while values of MNT 100 million to MNT 1 billion will have fees of 0.38

percent compared with 0.4 percent.

Additionally, the board approved Blue Sky Securities JSC and Hunnu Empire LLC for membership to

trade on the MSE.

Source: Mongolian Stock Exchange

NSOM REPORTS RISE IN HOUSEHOLD INCOME AND FOOD EXPENSES, INFLATION DROPS

The National Statistical Office of Mongolia (NSOM) reported 40 percent growth in household income

in its monthly report.

The growth in income is likely linked to the private sector's efforts to compete with the salaries

offered to government jobs. Public worker received across-the-board salary increases twice in

recent years, forcing private businesses to offer higher salaries to attract talented workers.

Expenses are on the rise, too, with households seeing a 34 percent increase, or MNT 190,000, in

grocery costs. Unemployment is down 43 percent from 37,000 to 21,000 while the infant mortality

rate fell by one per 1,000 infants. Crime is up 8 percent.

Inflation decreased to 11.3 percent, year-over-year ended 28 February, from 13.0 percent, year-

over-year ended 31 January. The rise in inflation experienced in January is believed to have been

related to a spike in meat prices, with some provinces experiencing as much as 13 percent price

growth for meat prices in addition to hikes in the prices of milk, potatoes, and other vegetables.

The foreign trade balance was negative with imports falling 40 percent with exports falling even

further. This is believed to be linked to the fall in coal prices from USD 100 last year to USD 70 this

year.

Source: Udriin Sonin

Issue 266

INFLATION FALLS, BUT NOT LIKELY TO LAST WITH PRICE STABILIZATION PROGRAM

According to data from the Bank of Mongolia, the consumer price index in February was up by 11.3

percent from a year earlier by 1 percent from a month earlier.

The growth compares favorably with January's 13 percent and 14 percent growth year-on-year. The

source said the growth was likely due to slowed growth despite record-breaking spending by

government that could be lifting some inflationary pressures from the economy. Also, last year

import prices for petroleum increased sharply, adding to inflationary effects.

The Bank of Mongolia has claimed credit for the reduction with its Price Stabilization Program,

which provides loans to companies that supply petroleum, ―commonly-used‖ imported goods, food

products and housing to provide goods below market rates. Unfortunately, however, the program

could easily turn into a rewards program for special interests and encourage rent seeking, while

doing very little to actually combat inflation.

―We also believe that the program raises serious questions on the issue of central bank

independence,‖ said the source. ―Last year, we have seen the Parliament and the Cabinet pressure

the Bank of Mongolia to defend the value of the tugrug against the dollar, as the currency's

depreciation was partly blamed for higher petroleum prices.‖

It added that the Price Stabilization Program was also likely the brainchild of the Cabinet of

Ministries rather than the central bank.

Source: Mongolian International Capital Corp.

MONGOLIA GETS MIXED RATINGS BY FRASER SURVEY

Mongolia moved up in the composite investment attractiveness index in the 2012-2013 Fraser

Institute Annual Survey of Mining Companies, released 28 February.

This composite index considers both policy and mineral potential and is weighted to emphasize

mineral potential. Mongolia ranked 36 out of 96 jurisdictions in the composite index. However,

continued uncertainty driven by changes to policy by the government brought Mongolia to 84th out

of 96 in the latest survey. Mongolia ranked 78 out of 93 last year and 54 out of 79 in the 2010-2011

period.

In a separate index measuring uncertainty about mining policy and implementation Mongolia ranked

85th out of 96, with almost two-thirds of respondents saying that current policy vectors represented

either a strong investment deterrent or that they would not pursue investment at all under current

conditions. Only about a third of respondents called the Mongolia uncertainty factor merely a mild

deterrent.

The survey represents responses from 742 exploration, development, and other mining-related

companies worldwide. Finland had the highest policy potential index score; others in the top 10

most attractive jurisdictions were Sweden, Alberta, New Brunswick, Wyoming, Ireland, Nevada,

Yukon, Utah, and Norway. The five least attractive jurisdictions for investment based on the PPI

rankings are (starting from the worst: Indonesia, Vietnam, Venezuela, Congo, Kyrgyzstan. In

Eurasia, China had the most significant drop in score and rank in this year's survey.

Source: NAMBC

FINANCE MINISTER ANNOUNCES SOVEREIGN WEALTH FUND PLANS

Finance Minister Ch. Ulaan announced plans to establish a sovereign wealth fund to help the

country avoid the perils of ―Dutch disease.‖

Ulaan said that establishing a wealth fund was a common practice among nations to establish long-

term stability of the economy and efficiently make use of revenue earned from natural resources.

Governments may establish their own state-owned funds to invest internationally to benefit society

and the country.

Mongolia's Ministry of Finance is now researching the wealth funds of various nations hoping to learn

what structure would work best for the country, said Ulaan. He said wealth funds often fall into the

category of a stability fund, savings fund, or risks fund. While the already-present Stability Fund

and Human Development Fund share some characteristics with a wealth fund, he noted that the

government lacks the mechanisms to manage and bring continuous capital to these funds.

Source: Zuunii Medee

Issue 267

HIDDEN VALUE OF THE MSE

Though Mongolia has recently been the subject of more positive news than as of late, Mongolia's

stock market is still seeing stock prices fall. This has been the case as good news does not always

translate into share price increases on the Mongolian Stock Exchange (MSE).

Political influence has been fairly irrelevant to local market performance as it appears on

international media. When taking a closer look at the components of the MSE Top 20 index it

becomes apparent that many have performed exceptionally well apart from a few coal stocks,

which encountered unique challenges in 2012. Low coking coal prices globally hurt not only the

locally listed stocks, but also larger companies such as Hong Kong-listed Mongolian Mining Corp.

The main component of the coal stocks index is Tavan Tolgoi JSC, which has nearly 30 percent

weighting of the whole index, skewing overall performance. Tavan Tolgoi is one of many local coal

exporters hit heavily by disappointing coking coal industry performance and saw more than a 80

percent decline in its 2012 net profits. This explains the large selloff in the overall index.

Non-mining companies are doing fairly well even if the mining sector contributes hugely to the

economy. They are seeing strong growth, along with ever-increasing gross domestic product (GDP)

per capita and business opportunities. Despite their solid growth over the recent five to seven

years, the stock market as a whole has always been overly influenced by local mining stocks, most

of which having no relation to the international markets, such as thermal coal producers.

Given the influence of Tavan Tolgoi on the whole market, the first catalyst to look for in relation to

a potential recovery would be coking coal prices in China. However, a noticeable strong recovery in

the thermal coal price has emerged, which would certainly affect the coking coal price, as the

Chinese economy gets better in the second half of 2013. Whereas, the impressive performance of

the copper price in recent months signals commodities prices are gaining strength and may rally in

2013.

Source: BDSec JSC

April

Issue 268

MSE TOP 20 FALLS 10 PERCENT IN MARCH

The MSE Top 20 Index declined by 0.06 percent to sit at 15,542.24 points on the last trading day of

the month. For the month, the MSE Top 20 lost 10.1 percent.

Remicon jumped 2.1 percent to close at MNT 195, following the news about the trilateral

agreement between the Ministry of Construction and Urban Planning, the Authority for Fair

Competition and Consumer Protection (AFCCP) and over 50 construction, steel, and cement

producers signing for a soft loan of MNT 370 billion.

Source: BDSec JSC

Issue 269

MSE BRINGS OUT REMOTE TRADING

Mongolian Stock Exchange (MSE) JSC introduced remote trading as part of its upgrading process

while implementing the Millennium IT trading platform.

The upgrade comes with the master services agreement, signed by the State Property Committee,

London Stock Exchange Group and MSE. The agreement is a collaborative effort to develop

Mongolia's capital markets with a series of targeted objectives.

Source: Mongolian Stock Exchange JSC

MONTHLY FDI REACHES NEW LOW

The Balance of Payments statement from the Bank of Mongolia in February revealed a 51 percent

fall in foreign direct investment (FDI) year on-year.

The fall follows last January becoming the lowest income of FDI since 2010. February's USD 81

million drop, however, is the clearest indication seen so far of falling FDI.

―We don‘t know whether FDI will continue to fall or rise back again,‖ said the source. ―The recent

declines in FDI seem to have been caused mainly by political developments—last year‘s foreign

investment law, new draft Minerals Law, debate over OT—and politics, as we have said, is hard to

predict.

Source: Mongolia International Capital Corp.

Issue 270

CREDIT GUARANTEE FUND PROVIDES SUPPORT FOR LENDING

A ceremony was held to observe the opening of Mongolia's Credit Guarantee Fund.

The MNT 150 billion fund aims to assist struggling private enterprises and cash-strapped businesses

that are unable to meet bank requirements to receive loans. Establishing the fund was a joint-

operation between the government, Mongolian National Chamber of Commerce and Industry, and

Mongolian Employers' Federation, but is funded exclusively by the government.

―The law on the loan guarantee fund was an answer to social demand,‖ said T. Davaasuren, a

member of the Standing Committee on Budget. ―The fund has established to support small and

medium enterprises who have not enough current assets or who have failed in attaining a bank

loan. I hope the Credit Guarantee Fund will bring reform to the financial sector.‖

The fund provides 60 percent collateral for up to 60 percent of a loan, leaving the remaining 40

percent the responsibility of the lendee. In total the fund provides MNT 250 million in collateral for

three lending schemes, including current assets, investment, and micro loans. Fund Executive

Director Sh. Altankhuyag said it would provide MNT 50 billion in total for the 2013 financial year.

Source: News.mn

S&P OUTLOOK ON MONGOLIA REVISED TO “NEGATIVE”

Standard & Poor's Ratings Services revised its rating outlook on Mongolia to ―negative‖ from

―stable‖ while affirming the ―BB-‖ long-term and ―B‖ short-term sovereign credit ratings. S&P also

affirmed its ―BB-‖ issue rating on the country's senior unsecured notes while leaving its transfer and

convertibility assessment on Mongolia unchanged.

―We revised the outlook on Mongolia to negative to reflect our opinion that higher policy risk has

increased the chances of a downgrade to more than one-in-three for the country over the next six

to 18 months,‖ said S&P's credit analyst Agost Bernard. ―Mongolia's fiscal and external profiles could

deteriorate materially over the next year or two in the absence of a significant improvement in

policymaking regarding government borrowing, public-spending, and the business environment.‖

S&P may downgraded Mongolia if government borrowing increases substantially, policy risk for the

mining sectors elevates to the detriment of foreign investment, or exports remain week. On the

other hand, the outlook could be revised to stable if the government significantly strengthens the

management of its debt and investment, and the improvement in the mining sector policy and

practices enhances FDI inflow and mineral exports.

S&P expects Mongolia's external and fiscal risks to increase further over the next few years, largely

because of the expectation that the government would resort to a greater use of debt to finance its

ambitious development strategy. The positive impact of expected growth on the current account

will perhaps be largely offset over the next three years by imports associated with still sizable

foreign direct investment inflow and the large bill for transportation charges on exports.

Source: Standard & Poor's Credit Ratings Services

MOODY‟S PUTS NEGATIVE OUTLOOK ON MONGOLIAN BANKING SECTOR

Mongolia is one of the brightest hopes among the world's frontier markets: a fast-growing economy

with a vibrant democracy and a young population. So it's salutary to be reminded that not all is

necessarily well.

On Thursday, Moody's Investors Services published its first report on the country's banking sector,

giving it a negative outlook. The reason, writes Hyun Hee Park, Moody's analyst in Hong Kong is

―rapid loan growth in an economy that is increasingly exposed to commodity-driven boom-bust

cycles,‖ exacerbated by ―high loan concentrations, weak risk-monitoring systems, and the

developing nature of the regulatory framework.‖ Ouch.

Park said it was hard to trust the sector's figures and that, as well as loans to other sectors that

were ancillary to the mining sector, a large part of the loans going to individuals—a third of total

lending—went to people employed in mining. Dependency on mining makes it harder for banks to

deal with the threat of overheating in the economy and to diversify their portfolios. She expects

faster gross domestic product (GDP) growth to lead to credit growth of 30 to 40 percent in 2013, up

from 24 percent last year.

Reported non-performing loans were 4.5 percent of total loans in September 2012—another

respectable figure that Park finds hard to believe. She said a spurt of lending in the past two years

took place in ―an underwriting environment that was more relaxed compared with that of 2008 and

2009‖ and that the 4.5 percent figure ―likely understates the true extent of problem assets in the

banks' loan portfolios, and could increase in the coming 12 to 18 months.‖

―Stress outcomes underscore the fragility of the banking sector and the need to strengthen

capital,‖ said Park. ―In our scenario analysis (Exhibit 9), the estimated Tier 1 ratio fell by as much

as 3.7 percentage points under an adverse scenario where we assumed a 30 percent increase in

NPLs from 2011... These results support our view that the banks require Tier 1 ratios well above 10

percent in order to secure adequate buffers for the frontier-market risks and to sustain high loan

growth.‖

Source: Financial Times

ADB‟S 2013 OUTLOOK

Continuing economic trends feature high growth and inflation, pro-cyclical fiscal policy, and large

current account deficits. GDP growth decelerated to 12.3 percent in 2012 from 17.5 percent in

2011, and inflation accelerated. Overly expansionary policies, including substantial off-budget

spending, have caused internal and external macroeconomic imbalances.

Economic growth slowed to 12.3 percent in 2012, falling from 20.2 percent year-on-year in the

fourth quarter of 2011 to 10.5 percent in the third quarter of 2012, after a slowdown in growth in

China curbed demand for coal, Mongolia's biggest export. While economic growth in 2012 originated

in the mining sector, it was quite broadly based. Construction continued to boom, raising concerns

about another bubble as in 2004 through 2008. Inflation has remained high in Mongolia while

declining in other Asian countries, owing mainly to rapidly rising government spending and higher

food prices.

Mongolia's medium-term economic prospects are favorable, with the mining sector expected to

continue to drive growth. Growth is expected to accelerate to 16.5 percent in 2012, before being

trimmed to 14 percent in 2014 by capacity constraints in public investment planning and project

management, a tight labor market and skill shortages, and some tightening of monetary and fiscal

policies. Until then, inflation is expected to remain well into double digits, reaching about 13

percent in 2013. Prudent fiscal policy and tightening of monetary policy in 2014 could bring

inflation down to 10 percent.

Mongolia's growing demand for energy, heavy dependence on coal as its major energy source, and

reliance on two big neighbors—China and Russia—for increasingly important oil challenges its

economic development. In the short term, it attempts to stabilize energy prices to protect

consumers. Over the long-term, the government is considering using public-private partnerships to

expand electricity generating capacity. It is preparing an energy master plan that includes a 450-

megawatt heat and power plant for Ulaanbaatar. Meanwhile, Mongolia is tapping into its renewable

energy resources with its first wind farm at Salkhit. Solar resources are substantial, and there is

potential for hydropower.

Source: Asian Development Bank

Issue 271

MONGOLIA STOCKS WEAKEN TO 28-MONTH LOW

Mongolia stocks weakened to a 28-month low despite good news being released lately.

Erdenes Tavan Tolgoi LLC has resumed shipments to China. At a prime minister's cabinet meeting, it

was resolved to accelerate the project construction of Oyu Tolgoi LLC in order to fulfill the

contractual obligations on time.

Tavantolgoi, also known as ―Little TT,‖ fell 10 percent to close at MNT 3,060, dragging down the

MSE TOP 20. Thermal coal miners Sharyn Gol JSC and Baganuur JSC dropped 8.6 and 6.7 percent,

respectively. Hermes JSC was the most actively traded stock on the exchange with MNT 24.6 million

worth of 234,000 shares traded.

Source: BDSec JSC

S&P'S MONGOLIA DOWNGRADE NOT HITTING CENTRAL ASIA ETF... YET

On Tuesday, Standard & Poor's Rating Services said that it lowered its ratings outlook on Mongolia to

―negative‖ from ―stable‖ while affirming the country's ―BB-‖ long-term and ―B-‖ short-term

sovereign credit ratings. Those are both junks ratings.

The one exchange-traded fund (ETF) that could be vulnerable to S&P's now dour view of Mongolia is

the newly minted Global X Central Asia & Mongolia Index ETF (AZIA), which debuted earlier this

month. AZIA is the one ETF currently on the market with noteworthy exposure to commodities-rich

Mongolia. The fund allocates 13.96 percent of its weight to the country, making Mongolia the ETF's

third-largest country exposure behind Kazakhstan and Russia, according to Global X data.

AZIA had not traded yet, but the new ETF had gained two percent in the past week. The ETF is the

first to give significant allocations to Kazakhstan (46.1 percent), Mongolia and Turkmenistan (5.9

percent). AZIA is the only ETF with any decent exposure to Kyrgyzstan and Tajikistan.

Source: Nasdaq

MONGOLIAN BOURSE EYES BOOM IN STOCK MARKET LISTINGS

The market capitalization of companies listed on the Mongolian Stock Exchange (MSE) could leap

more than 30-fold over the next three to five years, boosted by privatizations and new regulations,

the chief executive of the bourse said on Thursday.

Mineral-rich Mongolia, a massive landlocked nation of fewer than three million people, has

ambitions to become a destination for mining investment and has been working with the London

Stock Exchange (LSE) to modernize and develop its capital markets.

MSE Chief Executive Altai Khangai told a Mongolian Investment Summit in London that a new

Securities Law was expected to be passed in the next month, which would lay out rules for new

listings as well as enable dual listings. He predicted the combined size of companies on the MSE

could reach USD 45 billion in the next three to five years from about USD 1.3 billion currently,

helped by the government's plans for privatizations as well as flotations by Mongolian firms seeking

growth capital and dual listings from international companies.

Mongolia is on index provider FTSE's watch list for possible admission to Frontier Market status,

which would boost liquidity. Khangai said Mongolia was also discussing setting up a FTSE Mongolia

series of indices.

―The success in driving liquidity in the Mongolian market is going to depend both on the expansion

of the Mongolian domestic investor base... but also of course accessing the international investor

community given the constraints on size of the domestic investor base.‖

Alastair Walmsley, head of primary markets at the LSE, said the London exchange group had also

discussions with some Mongolian companies which might look to raise capital on London's

Alternative Investment Market (AIM) for smaller companies.

Source: Reuters

May

Issue 272

GOVERNMENT TO DELIVER REFUNDS FOR PURCHASED ERDENES TT SHARES

The government plans to return the MNT 33.8 million to the 1,000 companies who purchased shares

of Erdenes Tavan Tolgoi LLC.

Last year the government distributed 20 percent of shares of state-owned Erdenes TT with the

condition that they could sell those shares to companies at face value, with the government acting

as the broker. Some 1.5 million peopled registered to sell their shares for a total of MNT 20 billion

passing through the Mongolian Securities Clearing House and Central Depository.

Companies have asked for their money back as the initial public offering for the company has been

delayed several times. The Tax Authority will be responsible for a one-time offer for companies to

receive refunds for their shares.

Source: Business-Mongolia.com

MONGOLIAN ECONOMIC INDICATOR SHOWS NEGATIVE TREND IN DOMESTIC EARNINGS

An economic indicator from the ministry of finance shows a negative trend for the Mongolian

economy.

Finance Minister Chultem Ulaan announced last week its composite leading indicator (CLI) has fallen

0.05 points to 98.78 at the end of March 2013. The CLI also sits 3.69 points below its 2011 peak.

The source said it had already observed that domestic entities in various sectors of the economy

were experiencing lower earnings, which could spur a drop in domestic investment activities and

eventually drive down asset and equity prices in the short term.

Source: Mongolia Investment Banking Group

WORLD BANK'S MONGOLIA ECONOMIC UPDATE, APRIL 2013

In 2012, Mongolia's economy continued to experience a high growth rate of 12.3 percent. This

growth rate was however lower than anticipated as Mongolia saw its coal exports drop significantly

due to China's economic slowdown.

Most noticeably, Mongolia had to finance a large fiscal deficit of 8.4 percent of GDP, a record in the

last 13 years. It is concerning that similar fiscal trends might continue in 2013 with the economy

growing at a double-digit rate but also accumulating another large fiscal deficit.

As Mongolia embarks on its largest infrastructure investments ever—which can be in part financed

through a successful sovereign Chinggis bonds issuance—greater attention has to be paid: (i) to

preparing those investments rigorously to ensure maximum socioeconomic return and avoid

potential wastage of public resources and (ii) to reflecting their financing transparently in the

national budget.

The World Bank revised its baseline growth forecast for 2013 to 13 percent, still one of the highest

in the global economy; however significant uncertainty over key growth factors make the economic

outlook highly volatile.

Fiscal balance significantly deteriorated in 2012 with the fiscal deficit climbing to 8.4 percent of

gross domestic product (GDP), a thirteen-year record level. In 2013, the fiscal outlook is likely to

follow a similar path. The fragile fiscal outlook is yet to include two off-budget financing

operations—i.e. the Price Stabilization Program and the lending from the Development Bank of

Mongolia to socially motivated projects—and the use of Chinggis bond proceeds. If they were to be

accounted for in the budget, it could bring the total fiscal deficit to around 13 percent. The trade

balance is likely to remain weak in early 2013, but is expected to improve the latter half of the

year due to strengthened mineral exports.

The challenges ahead will be the risk of continuous expansionary and pro-cyclical fiscal policy. The

rapid increase in capital expenditure—a 35-fold increase over the past decade—also risks

undermining the quality of new projects as the public investment management system and the

construction sector's capability to absorb extensive new projects cannot be scaled up quickly.

Source: World Bank

MONGOLIA'S LOOMING BUDGET CRISIS

Nobody said that forecasting a national budget is easy. As the economy waxes and wanes the earlier

best guess estimate can look less achievable as next year's budget turns into this year's actual. No

doubt a fact Australia's treasurer, Wayne Swan, would attest given the surprise shortfall in

Australia's tax collections from its controversial Minerals Resource Rent Tax (MRRT).

The bullish Australian treasury forecast for receipts of AUD 2 billion (USD 2.047 billion) for the

MRRT are trivial when you consider the total collections for Australia are around AUD 360 billion.

The Australian economy should be able to cope with any nasty surprise given its solid reserve and

strong credit rating.

But the frontier economy of Mongolia is a fraction of the size of Australia's and plagued with

political stability issues. Mongolia's government collects around AUD 3.5 billion (USD 3.6 billion) to

AUD 4 billion (USD 4.1 billion) in taxes, so on that basis it is no more than 1 percent the size of

Australia's government enterprise, and because of its emerging status it lacks any of the cushioning

that exists in more developed economies.

The ambitious 31 percent year-on-year growth for tax collection in the 2013 Mongolian budget looks

highly unlikely. The budget crisis that looms for Mongolia is an unfunded deficit that will further

destabilize its delicate economy.

Recently Mongolia introduced the Financial Stability Law (FSL), and the 2013 Budget is the first

government budget to operate under this new legislation. FSL commits the government to prudent

financial management by setting the budget deficit to a maximum level of 2 percent of GDP. It's

very likely that this ceiling will be broken and already the World Bank is forecasting a deficit of

more than 6 percent of GDP.

While many of Mongolia's bullish economists have focused their contemplation and rhetoric on how

they should brace the economy to one day avoid the future effects of ―Dutch disease,‖ it seems

that too few of them have been focused on the more pragmatic aspects of realistic budget

forecasting and prudent government financial management.

Author Nigel Finch is an associate professor at the University of Sydney Business School and a

member of the Business Council of Mongolia.

Source: Mongolian Economy

Issue 273

TUGRUG TUMBLES AS CONFIDENCE IN MONGOLIAN ECONOMY WAVERS

The Mongolian tugrug has flagged against the U.S. dollar due to increasing demand for the latter

currency.

On 2 May the central bank posted an exchange rate of 1,433.84, compared with MNT 1,426 from a

week prior, while the Naiman Sharga exchange market traded at MNT 1,438. The tugrug is expected

to depreciate further, while some economists warn that inflation is expected to rise once again,

too. This would be likely due to increased construction activity with the warmer months and a lack

of confidence in the tugrug.

The Bank of Mongolia has hosted its currency swap auction, at the request of commercial banks, in

a bid to strengthen the Mongolian currency. A request for a yuan currency swap was denied,

however, by the central bank.

Source: Udriin Sonin

Issue 274

GOLOMT STUDIES CHINESE BOND MARKET

Golomt Bank of Mongolia LLC is studying the offshore yuan bond market, according to Agal

Badamgerel, a vice president and director in the lender's investment banking division.

China's Ministry of Finance, Citic Securities Co. and China Development Bank are among issuers that

may sell bonds denominated in yuan.

Source: Bloomberg

GDP GROWTH SLOWS TO 7.2 PERCENT IN Q1 AS COAL EXPORTS DECLINE

Mongolia's economic growth slowed in the first quarter after coal prices fell and moderating Chinese

demand reduced the nation's exports.

Gross domestic product (GDP), as measured by production in constant prices, grew 7.2 percent from

a year ago, the National Statistical Office said on its website. That compares with the 16.7 percent

pace of expansion for the same period last year and a 12.3 percent annual rate for 2012. The World

Bank last month cut its forecast for 2013 Mongolian economic growth to 13 percent from 16.2

percent, citing declines in exports and foreign investment. Economic growth in China, which buys

more than 90 percent of Mongolian exports, slowed to 7.7 percent in the first quarter from 7.9

percent in the last three months of 2012.

Mongolia's exports for the first four months of this year fell 5.5 percent from a year earlier, the

statistics office said. Shipments of coal, the nation's biggest export, fell by volume to 5 million tons

from 5.3 million tons in the same period in 2012, the agency said. The value of the coal exports fell

to USD 338.9 million from USD 580.3 million a year ago, according to a statement. The volume of

copper concentrate export was little changed at 186,000 tons in the first four months compared to

186,500 tons a year earlier. The value of the shipments rose to USD 276.6 million from USD 269.5

million a year ago.

Mongolia's trade deficit narrowed to USD 528.3 million, 33.7 percent smaller than a year ago. The

nation's consumer prices rose 10.4 percent in April from a year earlier and gained 1.1 percent from

March, according to the agency.

Source: Bloomberg

Issue 275

MNT 900 BN FROM CHINGGIS BOND LOANED TO COMMERCIAL BANKS

An additional MNT 50 billion from the proceeds of last year's USD 1.5 billion Chinggis bond sale was

placed in an interest bearing back account on 10 May.

The additional funds makes it a total of MNT 900 billion loaned to commercial banks in Mongolia in

return for 7 percent interest to the Bank of Mongolia. The central bank said the cash injection

would help provide banks further liquidity for lending during this period of increased activity.

Source: Unuudur

Issue 276

MONGOLIA STOCK EXCHANGE SEEKS DEEPER TIES WITH LSE

Mongolia Stock Exchange (MSE) is seeking to attract foreign investors to its fast-growing economy

with plans to broaden cooperation with the London Stock Exchange (LSE).

Altai Khangai, chief executive of the Mongolian Stock Exchange, said it hoped to promote dual

listings and create a ―FTSE Mongolia‖ index, after Mongolia's new Securities Law, approved by

Parliament last week, paved the way for deeper collaboration with the LSE. Mongolia has been

working for years on modernizing its capital markets to help develop its USD 12 billion economy.

However, MSE's Top 20 Index performed relatively poorly during the past two years as investors

interest cooled in the face of slowing growth in the region. The Top 20 Index has fallen more than

20 percent since the end of January. Altai said the new Securities Law, which takes effect on 1

January 2014, would ―open up a new era of development in the capital markets in the country,‖

making it easier for international investors to invest in Mongolia.

The exchange is tiny by global standards, with a total market capitalization of about USD 1.3

billion. Although 328 companies are listed, more are dominant shells left over from an earlier era of

privatization, and fewer than two dozen stocks are actively traded. MSE started working with the

LSE in 2011, hiring the London group to advise on installing the Millennium trading platform, which

went online in July last year. But liquidity problems remain and traders warn the new Securities

Law will not resolve these issues in the near term.

―It is a step in the right direction, but doesn't provide any immediate solutions to the lack of

liquidity,‖ said Eric Zurrin, director at Resource Investment Capital.

An LSE spokesman added that the passage of the Securities Law was the ―first and most important

step toward giving access to Mongolia for international investors,‖ and that shared trading

technology would make closer cooperation possible in the future.

Source: Financial Times

June

Issue 278

USD 31 MILLION PAID FOR FIRST CHINGGIS BOND INTEREST PAYMENT

Economic Development Minister Nyamjav Batbayar reported that Mongolia had paid USD 31 million

for its first interest payment on last year‘s USD 1.5 billion Chinggis bond.

According to the agreement made between the Bank of Mongolia and the government, the Central

Bank is responsible for paying interest payments before funds generated from the bond sale are

allocated. Interest is due every six months following the bond‘s sale. Batbayar did not comment on

where the Central Bank would take funds for this first payment.

The government invested its money in securities with average interest of some 4.624 percent, with

MNT 900 billion given to commercial banks to hold for 12 months for 7 percent interest. The Central

Bank was thus responsible for making up the difference between interest owed for this payment and

interest generated from the government‘s investments.

The government looks to have transferred funds of USD 450 million for the power plant, railroad

and road infrastructure. The government has made plans to for spending of all but USD 347 million.

USD 50 million has been allocated to the Tavan Tolgoi power plant project, MNT 200 million for a

road network connecting Ulaanbaatar with six additional provincial capital as well as roads in the

capital. Funds not yet paid include USD 68.8 million for development of Mongolia‘s ger districts,

USD 27.7 million for green house complexes at Mongolia‘s 21 provincial capitals, USD 16.7 million

for investment into the textile industry, USD 45 million for a factory to produce construction

materials, and USD 14 billion for housing projects. Other planned funding includes MNT 570 billion

for investment into the wool and cashmere industry and MNT 200 billion for a dairy plant to be

located near Ulaanbaatar.

Source: Undesnii Shuudan

TUGRIK STRENGTHENS

The Mongolian tugrik appreciated by 0.61 percent in a week‘s time, reported the Bank of Mongolia

last week on Thursday.

The tugrik sold U.S. dollars to commercial banks at a rate of MNT 1,433.84 per dollar. The tugrik

appreciated by 0.61 percent from a week before after long-term depreciation against the dollar.

The Central Bank posted an official currency rate of MNT 1,433.43 at the auction‘s close.

Source: Eurasia Capital

Issue 279

THE FIRST FIVE MONTHS OF 2013

The National Statistical Office of Mongolia has released its economic indicators for the first five

months of 2013. The slumping Mongolian economy may be decelerating further as foreign trade

increases, while disinflation indicates that the aggregate demand of the economy is faltering.

First quarter economic growth came in at 7.2 percent year-on-year, far below expectations.

Meanwhile inflation and foreign trade decreased significantly, and the trend will like continue. At

the end of the first five months of 2013 CPI stood at 9.7 percent year-on-year. At the end of May

money supply (M2) in the economy grew by 17.5 percent year-on-year. The Source said the cooling

of CPI is likely related to a drop in the aggregate demand within the Mongolian economy.

Foreign trade activity in the first five months of the year totaled USD 4.1 billion, down 5.4 percent

compared to the same period of 2012. Imports dropped by 6.8 percent, while exports dropped 3.3

percent compared with the same period last year.

Overdue loans within the banking system of Mongolia reached USD 100 million, a 240 percent

increased compared with the same period from last year. Bad loans in domestic banks grew by 0.7

percent year-on-year at the end of May, however the figure showed a 1.9 percent year-on-year

decrease in April. The sudden surge of overdue loans and bad loans may signal troubling times for

domestic financial services enterprises.

Source: Mongolian Investment Banking Group

Issue 280

FIRST JBIC CREDIT LINE TO MONGOLIAN GOVERNMENT

The Ministry of Economic Development signed a JPY 8 billion (USD 82 million) export credit line with

the Japan Bank of International Cooperation (JBIC). The credit line is co-financed with private fiscal

institutions, with Nippon Export and Investment Insurance providing buyer's credit insurance for the

portion co-financed by private financial institutions.

Source: BNE

TDB TAPS LOAN MARKET FOR USD 100 MILLION

Trade and Development Bank (TDB) of Mongolia LLC has launched its first loan into general

syndication through bookrunners ING, FMO, and TDB Capital.

The USD 100 million loan is split between a USD 50 million A-loan from FMO, and a USD 50 million B-

loan which is split into three tranches. The tranches have tenor of two years, three years, and five

years, priced at 595 basis points over Libor, 620 basis points and 660 basis points, respectively.

Lenders that committed in excess of USD 10 million can join as a mandated lead arranger for a fee

of 200 basis points. Those lending USD 5 billion to USD 10 million can join as lead arrangers for a fee

of 180 basis points, and arrangers lending less than USD 6 million will pay a fee of 150 basis points.

Source: Trade Finance

MONGOL BANK REDUCES POLICY RATE BY ONE POINT TO 10.5 PERCENT

The Bank of Mongolia reduced its policy rate by one percentage point to 10.5 percent, effective 25

June.

Source: Cover Mongolia

MIBG SEES GDP GROWTH TO FALL TO 5.5 PERCENT IN 2013

Mongolian Investment Banking Group has made a projection for growth of between 5 and 6 percent

in 2013, falling well below 2012 growth of 12.3 percent.

As of 19 June the National Statistical Office reported that the price of main consumables fell by 1.8

percent from a month ago. With May annualized CPI at 9.7 compared with 9.8 percent in March, the

continued trend of decreasing inflation has been positioned by policy makers as the successful

result of the fight against appreciation in the domestic market. However, this is an alarming

indicator that suggests a continuation of decreasing economic activity, which will deliver a 2013

growth rate that is far below expectations.

Mongolia has seen significant slowdown in foreign trade activity. Since the mid-1990s Mongolia‘s

economic position has been driven by foreign trade, with a significant reliance on exports for

revenue generation but also on imports as the domestic production of consumables is too small to

economically support demand. As a result, Mongolia‘s foreign trade has always been larger than the

overall economy itself. The current ratio of international trade as a share of GDP is approximately

140 percent, compared with 25.2 percent in the United States and 49 percent in China.

On 15 July, Mongolian foreign trade activity fell by 8.9 percent year-on-year. While an improvement

from earlier reports as low as 15.2 percent in April, it may not mean an upward trend has emerged.

Instead, it could be a sign of a recovery in foreign trade from economic stimulation from last year‘s

USD 1.5 billion Chinggis bond.

Coal and copper will play a major role in determining Mongolia‘s real growth rates in the future.

This is especially true in terms of coal pricing and the ability of exporters to negotiate and in some

instances re-negotiate favorable returns with Chinese importers.

Source: Mongolian Investment Banking Group

MONGOLIA BANKS ON MINING SECTOR

For banks in Mongolia, the development of the capital markets is the most pressing priority.

―The deposit raising ability of any bank is fundamental unless you have an efficient, sophisticated

capital market. We have to keep learning and continue to become more sophisticated so that we

can work together with the global banks,‖ said Norhiko Kato, Chief Executive Officer of Khan Bank

LLC. He added that some areas of immediate interest in terms of expansion plans are

bancassurance business and insurance.

According to Randolph Koppa, President of Trade and Development Bank (TDB) of Mongolia LLC,

―Inflation is being tackled and has come down, although there is still concern about the fiscal

deficit, which has ultimately been driven by falling commodity prices, therefore reducing the

revenue generated. Under its fiscal stability law, the government must keep the structural deficit

within 2 percent of nominal gross domestic product (GDP). Koppa said government had spent less

overall, with a fiscal surplus in the first quarter of the year.

The banking sector has substantial exposure to the mining sector, which accounts for about 11.5

percent of total loans outstanding across the banking system so far this year; almost MNT 800

billion. At the end of 2012, mining accounted for 14.3 percent of total loans outstanding. Bank

assets grew by 28 percent to reach MNT 11.99 trillion by the end of 2012, but this was down from a

record 50 percent increase in 2011, largely because of lower coal prices and volumes of exports.

Moody's has assigned a negative outlook to Mongolia's banking system, stating that performance

would ―reflect the challenges the banks face in managing what will likely be a period of loan

growth in an economy that is increasingly exposed to commodity-driven boom-bust cycles.‖ Moody's

also mentions the banks' limited capital reserves that can provide only a weak buffer to any losses

that might occur.

Source: Cover Mongolia, Euromoney

July

Issue 282-283

ANALYSTS PREDICT 20.9 PERCENT GROWTH IN GDP PER CAPITA IN 2013

Analysts [the Source does not name analyst sources -ed] have reported projected growth of 14.7

percent gross domestic product (GDP) per capita to MNT 7 million a head for 2014.

Other projections were 11.8 percent growth for GDP per capita in 2015 and 14.6 percent in 2016.

However, all of these projections would fall short of 2013's per capita growth of 20.9 percent.

Analysts are expecting growth in sectors such agriculture (3.9 percent), manufacturing (24.8

percent), and the service sector (31.7 percent), in addition to growth in other non-mining activities

of 10.4 percent.

The Oyu Tolgoi copper-gold mine is expected to double or triple manufacturing growth between

2014 and 2016 from 2013 figures, and there is also an expected boost from the Tavan Tolgoi coking

coal mine as the West Tsankhi enters rotation. Additionally, Mongolia has plans to expand Thermal

Plant No. 4 and the Khutul cement plant in 2014. There are also plans to develop a powdered milk

factory at the Sainshand industrial complex.

Source: UB Post

FDI FALLS 36 PERCENT Y-O-Y IN MAY

This May, foreign direct investment (FDI) increased to a total USD 231.3 million.

Despite the gain in May, 2013 FDI in Mongolia is still lagging behind 2012's numbers. According to

preliminary performance in May, FDI fell by 36 percent year-over-year compared to May, 2012. As of

May, 2012 FDI of USD 1.8 billion was invested in Mongolia, compared with MNT 1.2 billion this year

from 1 January.

Analysts believe the increase was a result of the amendment to the Strategic Entities Foreign

Investment Law (SEFIL). Although FDI has slowed, economists say indicators show it will likely

recover in the near future. Mongolia's investment in foreign countries was equal to USD 4.9 million

as of the first half of this year.

Source: UB Post

MSE TRADE ACTIVITY FALLS BY 80 PERCENT FOR H1

Trading on the Mongolian Stock Exchange (MSE) fell 79.8 percent year-on-year, or MNT 48.6 billion,

in the first half of 2012. Trade activity on the MSE totaled MNT 12.3 billion with 22 million shares

sold.

The fall in trade activity has likely been caused by disruption from the transition to the Millennium

Exchange software trade platform, introduced by the London Stock Exchange (LSE) as part of its

partnership agreement with the MSE. Head officials at the MSE said the stock market would likely

see improvement after the new Securities Law takes effect on 1 January, 2014.

Source: Zuunii Medee

IN TAX CASE, MONGOLIA IS THE MOUSE THAT ROARED

Turquoise Hill Netherlands is a little-known Amsterdam-based company with three employees, no

office, and not even its own mailbox. To the government of Mongolia, though, the company

represents billions in taxes that it will never see.

Turquoise Hill was created in 2009, five years after Mongolia and the Netherlands signed a tax

treaty to avoid double taxation and boost investment in Mongolia. But in 2011, Mongolia decided to

cancel the pact, arguing that it would cost the country income from one of the most lucrative gold

and copper mines in the world. The move was rare—tax experts say only a handful of such deals

between countries have ever been canceled—and it highlights a big contradiction.

―We started to question why these countries would have greater advantages in Mongolia than us,‖

said Vice Finance Minister Surenjav Purev.

Under normal circumstances, Mongolia would levy a 20 percent withholding tax on dividends paid by

mine companies. But the dual taxation agreement allowed Dutch-registered firms to channel

income from dividends, royalties and interest earned in Mongolia through their Dutch company, so

pay no withholding tax. Terminating the treaty means firms that use countries such as the

Netherlands to channel tax-free earnings from Mongolia could lose the tax benefits, or be forced to

seek a different low-tax route. However, a Rio Tinto PLC spokesman told Reuters in an email that

the cancellation of the Dutch treaty will not affect Oyu Tolgoi's use of its Dutch holding company,

because the firm has a separate investment agreement with Mongolia that ―stabilizes‖ treaties that

were in force in 2009.

As international pressure mounts for countries to stem tax avoidance, the Dutch are now

considering whether their treaties do more harm than good. Dutch State Secretary of Finance Frans

Weekers said he was already reviewing tax treaties with five developing countries to determine if

they may be unfair, and will re-negotiate if they are. So far he is not looking at the Mongolia case,

but Finance Ministry spokesman Remco Dolstra said that Weekers plans to visit soon and will discuss

the matter.

For the Dutch, too, the benefits are ambiguous. The sums involved in its network of brass-plaque

companies may sound enormous—money flows are more than 10 times annual Dutch GDP—but the

country is little more than a means of transit for most of that. The 12,000 Special Financial

Institutions contributed EUR 3.4 billion to the Dutch economy, according to a report by Amsterdam

University's Centre for Economic Research (SEO)—that amounts to less than half a percent of Dutch

gross domestic product (GDP).

Source: Reuters

ASIAN TIGER KOREA TAKES WATCH OVER A WOLF

Korea, a so-called Asian Tiger Economy, is taking notice as Mongolia runs with its title the ―Wolf

Economy.‖

Mongolia's recent windfall from mineral resources has caused a lot of hand wringing among its

political class and fierce debate in recent elections. After the so-called ―resource curse‖ laid low

energy-producing nations in the 1990s, Mongolians worry resource wealth could actually hinder

economic growth, as well as exacerbate corruption and atrophy in other economic sectors.

―Of course we understand the risks,‖ said Mongolian Ambassador to Korea Baasanjav Ganbold.

―Mongolia is working hard on the country's legal framework for investment in its strategic sectors

including mining. [The legal framework] should be very finely tuned so that regulations do not scare

off foreign investors but, at the same time, also establish clear limits.‖

Two-way trade between Mongolia and South Korea totaled USD 500 million in 2012, making Korea

Mongolia's fourth-biggest trading partner after China, Russia, and Japan. Korea is also Mongolia's

seventh-largest investor with cumulative investments of USD 300 million. Korea is involved in major

projects including Samsung C&C's plan to build a new international airport in Ulaanbaatar scheduled

to be completed in 2016. POSCO is now putting the finishing touches on a deal to build

Ulaanbaatar's fifth coal-fired power plant. Korean companies will also get a piece of a sprawling

USD 10 billion development project in Sainshand that will include coking coal plants, a copper

smelter, factories producing iron pellets and cement, and facilities to process food and make

clothes.

Ganbold said bilateral relations got a boost when former President Lee Myung-bak visited in August

2011. Lee upgraded ties to a ―comprehensive partnership.‖ People-to-people exchanges are at a

moderate level with about 100,000 people traveling between South Korea and Mongolia in 2012.

Some 26,000 Mongolians live and work in South Korea and an additional 5,000 study there at

universities around the country. About 3,000 Koreans live in Mongolia.

Source: Korea Herald

Issue 284

STATE BANK TAKES OVER SAVINGS BANK AS CONTROLLING SHAREHOLDER DEFAULTS ON LOANS

Khadgalamch Bank, Mongolia's fifth-largest lender, has been declared insolvent after affiliated

companies defaulted on loans, and will be taken over by a state-owned competitor, the central

bank said.

Toriin Bank, or State Bank when translated to English, will take over the 503 branches of

Khadgalamch Bank, also known as Savings Bank in English, said Danjilaa Ganbat, director of the

banking supervision department at the Bank of Mongolia on 22 July. Savings Bank was owned by Just

Group, a holding company based in the capital, whose other assets include Just Oil LLC. The

takeover is the first by the government since 2009.

With 1.7 million customers in a nation of 2.9 million, Savings Bank accounts for about 8 percent of

active banking assets and 55 percent of government financial services, such as disbursement of

pensions and payment of utility bills, according to the central bank. Other lenders are healthier,

said Dambadarjaa Jargalsaikhan, an economist and commentator on the television show De Facto.

―The central bank now has things under control,‖ Jargalsaikhan said. ―I don't think all the banks are

like this, but we should draw certain lessons. There was too much risk on one individual and there

was a problem with poor corporate governance and conflicts of interest.‖

Sharavlamdan Batkhuu, Just Group's controlling shareholder, and other companies in that group

have defaulted on loans since 2011, Ganbat said. Savings Bank is the third lender to be taken over

by the government, following Anod Bank JSC in 2008 and Zoos Bank JSC in 2009. The lender has

losses of MNT 180 billion and its working capital is MNT 94 billion lower than its assets, the central

bank said. All 503 Savings Bank branches were closed the day of the announcement as the assets

were moved to State Bank, Ganbat said.

Source: Bloomberg

August

Issue 285

FRC APPROVES TWO TENDER OFFERS

The Financial Regulatory Commission approved two separate tender offers made by Buyan JSC and

Shimtleg's shareholders. Buyan's 49.2 percent common shareholders have proposed to buy other

shareholders' shares for no less than MNT 200, and Shimtleg's 73.69 percent common shareholders to

buy shares for no less that MNT 1,000 over a 60-work-day period beginning 17 July.

Source: Mongolian Stock Exchange

MONGOLIAN BANKS FACE CLOSER INVESTOR SCRUTINY

The failure of Khadgalamj Bank LCC (Savings Bank) last week is dividing opinion on the credit

worthiness of the country‘s banking industry.

Savings Bank was the fifth-biggest lender in Mongolia with a market share of about 8 percent before

the Bank of Mongolia stepped in on 22 July and declared it insolvent, transferring all of its equity,

liabilities and good assets to the much smaller Toriin Bank LLC (State Bank), a government-owned

lender. The central bank took over its bad loans.

The event prompted Fitch to warn investors on 29 July about ―Mongolia‘s deteriorating business

environment and weaknesses in corporate governance and regulation of the banking sector.‖ The

rating agency said that subsidized loans, a depreciating currency and weakening construction and

mining industries are all ―key pressure points‖ that could hurt depositors‘ confidence in the banking

system.

But not everyone is concerned about the Savings Bank collapse. To some, the government‘s quick

response and its commitment to bailing out all the bank‘s creditors was reassuring, as they figured

it would be even more committed to rescuing the country‘s biggest bank. [It is also worth noting

that the bank‘s failure was largely due to a single bad loan taken out by the bank‘s majority

shareholder –ed] Even so, Savings had assets of about USD 660 million. Nomura estimates the

potential recapitalization costs will be roughly USD 68 million, which it says should be ―very

manageable‖ for Mongolia.

Trade and Development Bank of Mongolia (TDB) LLC, the country‘s biggest bank and the most

popular among foreign investors, is more broadly owned and its majority shareholder, Erdenbileg

Doljin, who holds 73.1 percent, is one of the richest people in the country, with an estimated net

worth of USD 700 million. Comparatively, Nomura posited that TDBM was much better guarded.

―Although a large part of his wealth was derived from TDBM, it still shows that the financial support

from its shareholder should be quite strong,‖ said Nomura. ―Overall, we think that the chances of

Trade and Development becoming insolvent for similar reasons should be quite remote.‖

Source: Finance Asia

SOVEREIGN BONDS RECEIVE COLLATERAL DAMAGE FROM OT DISPUTE

Mongolia was one of a handful of developing countries that had the opportunity to borrow money

cheaply, riding the wave of money originated by the Federal Reserve's stimulus. In addition to

Mongolia, Zambia, Slovenia, Rwanda, and Nigeria became the new territories in the global hunt for

yields.

Mongolia sold USD 1.5 billion five- and 10-year dollar bonds in November last year with a yield of

4.125 percent and 5.125 percent, respectively. Their size was equivalent to one-fifth of the

Mongolian economy. Impressive growth rates and big mining resources were a main selling point.

The five-year bond yields around 5.9 percent, the 10 year around 7 percent. During this time the

bond has suffered from the country's political uncertainty while a bumpy relationship with Rio Tinto

PLC over the Oyu Tolgoi copper-gold mine threatens to damage further investments in the country.

Source: Wall Street Journal

Issue 286

TDB CAPITAL LAUNCHES ONLINE TRADING PLATFORM

TDB Capital LLC has become a first mover by introducing a service for the trade of Mongolian

securities over the Internet. The service will allow clients to place orders for securities and check

account balances from anywhere on the planet, at any time.

Source: Mongolian Stock Exchange TSE

SAVINGS DEPOSITS DIP 1.9 PERCENT

The total amount of savings in deposits in Mongolia fell by 1.9 percent or MNT 98 billion over the

previous month alongside a 15.4 percent gain year-on-year.

A total of MNT 4.041 trillion gains represent a year-on-year increase of 15.4 percent or MNT 673.4

billion for savings. Meanwhile, foreign currency denominated savings accounts continued to

decrease and in 5 August stood at MNT 1.1 trillion. The foreign currency accounts reached their

peak in September 2012 when the equivalent tugrug value reached MNT 1.496 trillion.

Corporate savings accounts denominated in tugrug decreased by 9.9 percent, MNT 65.4 billion from

May of this year. However, this amount increased by 2.6 times or MNT 367.1 billion year-on-year. At

the end of June 2013 locally denominated savings accounts represented 78.2 percent of the total

savings accounts in Mongolia. This represented an increase in market share of 7.7 percent for

locally denominated accounts over the total value of savings deposits in Mongolia.

The weighted average interest rate of locally denominated savings accounts increased by 1.1

percent year-on-year and reached 12.1 percent over the 12 months ending in June of this year.

However, the weighted average interest rate for foreign currency denominated savings accounts

dropped by 0.3 percent to 6.5 percent over the same period.

Source: Mongolian Investment Banking Group

BANKS PROVIDE MN 581.2 BILLION IN MORTGAGES

The Bank of Mongolia reported on 1 August that commercial banks have thus far received request

for a total of MNT 787.3 billion for refinancing mortgages and MNT 244.9 billion for new mortgages.

Banks have converted MNT 408.3 billion of 14,452 mortgages holders to 8 percent. Another MNT

172.9 billion has been granted for 3,310 new mortgages holders at the 8 percent rate.

Source: Cover Mongolia

TENGER EXECUTIVE DIRECTOR CALLS FOR MORE ACCOUNTABILITY TO BANKS

The head of TenGer Financial Group has advised that commercial banks do a better job screening

clients taking out loans in light of the recent downfall of Khadgalamj Bank LLC.

―Banks overestimate the capacity of its borrowers to pay,‖ said Magnai Bold, executive director of

TenGer. ―In actuality borrowers aren't able to pay back their loans. They're deceiving banks by

giving them wrong information and hiding their real circumstances.‖

He pointed out the large difficulty that both banks and borrowers, given the crisis in foreign

markets, falling commodity prices, and inflation. Bold said greater accountability was needed from

banks and the banks should have opportunities to share ideas. He warned that poor decision making

in deciding on loans could be ―destructive‖ to the economy, noting that TenGer has a policy of

removing itself from politics and that it does not push any political party or agenda onto its

employees.

Source: UB Post

MONGOLIAN BONDS SUFFER AMID FRONTIER CORRECTION

One day you are hot, the next day you are not—and so it is with Chinggis bonds which have suffered

a sharp market correction in the wake of June's market rout.

Back in November, eyebrows were raised in the emerging markets debt investment community

when Mongolia managed to raise USD 1.5 billion at a price below Spain's borrowing costs. At the

time, many took the sale, which was 10 times subscribed and attracted USD 15 billion in bids—as

yet another sign that investors who were flushed with cash and desperate for yields were jumping

into markets that they did not understand.

Fast forward eight months and the skeptics appear to have been proved right. The USD 500 million

five-year tranche of the issue is now trading at 92.837 cents to the dollar. Priced at the outset at

4.125 percent, yields that investors are demanding to hold the bond have jumped to nearly 6

percent. It's a similar story for the larger 10-year USD 1 billion tranche, which was priced at a yield

of 5.125 percent.

In many ways, the sharp correction in frontier market sovereign and corporate debt should not

come as a surprise. The surge in investor interest for debt from frontier markets has been mainly

driven by hollowed-out returns in the developed and more established emerging markets. But with

the U.S. Federal Reserve expected to begin scaling back its massive bond buying program leading to

higher interest rates, the investment calculation no longer makes sense.

―It's reality reasserting itself back into valuation,‖ said Robert Abad, emerging markets specialist at

Western Asset Management. He added, ―The hunger for yield which spawned new issuance from

places that, in normal credit cycles, wouldn't have had easy access to the international capital

markets ultimately distorted investors' sense of valuation and risk... Relatively unknown issuers with

no 'credit history' accessing the market for USD 1 billion or more at 5-6 per cent yields was surreal

back then and even more so in retrospect.‖

Source: Financial Times

MONGOLIA TO SIMPLIFY FDI FOR STATE-BACKED FIRMS

The Mongolian government expects to pass a new foreign direct investment law this year to

streamline the approval of investments by foreign state-backed firms, according to a senior official.

Saikhanbileg Chimed, a member of parliament and the chief of the cabinet secretariat, said, under

proposed legislation, investment by foreign state-backed firms in Mongolia's strategic industries

would be vetted by the Ministry of Economic Development.

―The process is quite time consuming now, [and] the new law will simplify and quicken the

process,‖ he said, adding that the industries covered included banking, mining and

telecommunications.

Current law stipulates that foreign state-backed firms buying more than a 49 percent stake in an

asset in the industries need approval from Parliament, he said, which will resume from recess in

October. The proposal to cut red tape comes as the country grapples with slower economic growth,

as commodity prices, especially those of its key exports—coal and copper—fall. The landlocked

nation tightened its vetting of foreign investment in May last year, just before a parliamentary

election that saw a change in government. The move was seen as a populist sop to gain votes amid

a heightening of resource nationalism.

In April this year, Ulaanbaatar revised the law to exempt privately owned foreign firms from the

new restrictions.

Source: South China Morning Post

Issue 287

TUGRUG DOWN 12.32% VS. DOLLAR CAUSES PANIC

Last week the tugrug saw perhaps the most depreciation in 2012 as the exchange rate for the U.S.

dollar was at MNT 1,527 at the beginning of the week to MNT 1,564 at the end.

The spike has caused panic in the economy, as the president of Mongolia summoned the prime

minister and the Parliament speaker to call fro an extraordinary session of Parliament to address

the economy. The Source believes the extraordinary session will likely take place at the end of

August 2013. and many discuss the changes to SEFIL to promote foreign direct investment into

Mongolia.

The lack of foreign direct investment (FDI) as well as falling export commodities prices such as coal

and copper had been the demand factor of the recent move in the tugrug. On the other hand, the

central bank's aggressiveness in issuing low-interest mortgage loans as well as issuing loans to

petroleum importing organizations had caused the oversupply of the tugrug in the market.

Speculation about the government budget losses mounting up as well as the recent bailout of

Savings Bank had caused panic among Mongolians last week.

The Bank of Magnolia has actively been engaged in keeping the tugrug value relatively stable in

comparison to the dollar. So far in 2013, the central bank had been the buyer of dollars in only one

instance, overall the central bank had injected USD 647.5 million in addition to approximately USD

185 million worth of Chinese yuan into the local economy and states that it is ready to do more.

―We believe the MNT will not strengthen until the end of 2013, as the seasonal weakness in MNT

will start in September,‖ said the Source. ―Even though the politicians create favorable

environment for FDI, the economic activity for the fall and winter will be too small to create any

significant demand for the MNT. At MIBG we are expecting MNT to depreciate much further to the

1680-1730 range by October as the seasonal spike in imports start to take place.‖

Source: Mongolian Investment Banking Group

MONGOLIA ECONOMIC GROWTH ACCELERATES AS STATE SPENDING INCREASES

Mongolia's second-quarter economic growth accelerated from the first three months of this year as

the government boosted spending on infrastructure.

Gross domestic product grew 14.3 percent in the three months from April through June, compared

with 7.2 percent in the first quarter, according to the National Statistical Office. Expansion in the

first half was 11.3 percent, compared with an annual pace of 12.4 percent in 2012.

Mongolia, which raised USD 1.5 billion in a sale of bonds last year, has increased government

spending this year as foreign investment plunged and slowing demand from China, which buys more

than 90 percent of its exports, cut sales of coal by almost half. The Mongolian central bank has

reduced its policy rate three times this year to aid growth.

Spending of proceeds from the bond sale ―contributed much to the economy in the second

quarter,‖ Ganbaatar Gerelt-Od, senior vice chairman of the National Statistics Office, said in an

interview from Ulaanbaatar. A more than 20 percent increase in agricultural production also fueled

growth, he said. Projects funded by the bond sale include the construction of roads linking six

provinces to Ulaanbaatar, according to Deputy Minister of Economic Development Ochirbat

Chuluunbat.

Foreign investment in the first half declined 43 percent from a year earlier to USD 1.41 billion,

according to central bank data. Mongolia's coal exports fell to USD 542.4 million from USD 1 billion,

government data showed. Total exports in the first half slid to USD 2.35 billion from USD 2.53

billion, according to the statistics office. Mongolia's currency ha fallen 13 percent this year, hitting

a four-year low last week. In the first seven months of this year, Mongolia exported USD 595.5

million of coal, down from USD 1.16 billion a year earlier. Gold exports increased to 4.7 tons from

1.2 tons, it said.

Source: Bloomberg

BUDGET DEFICIT REACHES MNT 145.6BN IN JULY

The state budget saw total generated revenue of MNT 3.04 trillion as well as expenditures and net

lending of MNT 3.19 trillion, representing a deficit of MNT 145.6 billion in the months up to July in

2012.

The fall in net lending and spending was an effect of an increase of MNT 33.4 billion or 94.3 percent

in lending minus repayments, 14.3 percent in expenditure of goods and services, while interest

payments grew 2.4 times. The budget saw falls, however, of MNT 18.9 percent in capital

expenditure and 20.7 percent in subsidies and transfers.

Source: Montsame

FDI FALLS 43 PERCENT FOR H1

Foreign direct investment fell by 43 percent for the first half of 2013 compared with the year

before, according to the Ministry of Economic Development and Central Bank

Investment in mineral exploration and geological work fell 32.07 percent, banking and finance

investment fell 92.48 percent, tourism fell by 98.5 percent, with total investment totaling MNT

960.9 billion compared with MNT 1.688 trillion in 2012.

Source: Montsame

MONETARY STATISTICS ALTERED WITH NEW STANDARDS IN PLACE

The Bank of Mongolia has made adjustments to its record of transactions made from June 2010 after

following instructions given by PriceWaterhouseCoopers.

Data has notably been revised from December 2012 to May 2013, based on the the International

Standard of Monetary and Financial Statistics. Net foreign assets and other net items listed in

monetary surveys decreased from between MNT 1.4 to MNT 31.8 million. Other net items increased

by MNT 14 to MNT 16.1 million.

Source: Bank of Mongolia

Issue 288

MANDAL PREDICTS 8% GROWTH FOR 2013

Mandal Asset Management released a comprehensive assessment of the first half of 2013, updating

its gross domestic production (GDP) projection to 8 percent.

In the first half of 2013, on the surface the country seems to perform fairly well, despite

unfavorable external conditions. However, fundamental structural weaknesses exist in the

economy. Subsiding inflation, stable exchange and low non-performing loan rates have contributed

to positive results. Downward moves were resulted by sliding a GDP growth rate, high foreign trade

deficit and state budget deficits.

As predicted, there were a few major factors influencing the economy in 2013. Issues have not been

settled regarding the Oyu Tolgoi copper mine and its operations, creating a drag on the

performance of the overall economy as well as on investor sentiment. Additionally, the role of the

government in the economy is growing as the government pursues a policy to increase the size of

public investments from the state budget funds, and government euro bond proceeds. Even stronger

involvement can be seen through the central bank policy programs. On monetary policy and

inflation targeting, the Bank of Mongolia has taken some bold actions and was able to reach

concrete results (the annual inflation rate is down to the single digits), however sustainability of

this raises doubts with loosening policy as money supply grows and policy rates are lowered. The

ever-increasing deficit did not have a steep reversal in the first half of 2013, with trade turnover

falling by some 9 percent year-on-year to stand at USD 1 billion.

The Source updated its GDP growth forecast in 2013 from 10 percent to around 8 percent. While

Oyu Tolgoi copper mine production will contribute to GDP, other mining, especially junior mining

and exploration projects, will continue to shrink. Substantial shifts will continue to occur in 2013,

from a private-sector to increased public-sector role, from mining sector growth to a larger share of

infrastructure, logistics and construction, from predominantly foreign investment and international

financial institutions.

Source: Mandal Asset Management

EIU OUTLOOK FOR 2013-2014 PERIOD

The Economist Intelligence Unit has released its assessment of the first half of 2013 and a forecast

for the 2013-2014 period.

Disagreements between the Democratic Party and the formerly ruling Mongolian People's Party

could pose risks to political stability in the forecast period. Policy toward foreign investment in the

mining sector will continue to vacillate alarmingly. New legislation covering the issue is set to be

passed, possibly before the end of 2013, but will not resolve the uncertainty. Despite strong GDP

growth and higher tax receipts, rapidly rising government expenditure will result in wide fiscal

deficits in 2013 and 2014.

Factors have continued to weigh on growth in the first half of 2013, but the pickup in economic

growth in the April-June periods shows that they are beginning to be offset by other factors. The

overall outlook for Mongolia's economy is likely to improve in the coming months as external

demand conditions strengthen and export shipments from the Oyu Tolgoi copper and gold mine

gather pace. Recent data from China, the destination for 86 percent of Mongolia's exports in July,

have suggested that the worst of threat country's economic slowdown may be past.

Second-quarter GDP data suggests that there are upside risks to the Source's forecast that the

economy will expand by 12.2 percent in 2013, but assessment of other measures of economic

performance in the next few weeks will be needed before making a decision on whether an

adjustment will be needed.

Source: Economic Intelligence Unit

SAVINGS INSURANCE CORP. WAITS IN THE WINGS TO INSURE SAVINGS

Government-owned Savings Insurance Corp. is prepared to insure up to MNT 20 million in bank

accounts.

Parliament in January approved its Law on Savings Insurance, which established Savings to receive

0.5 percent commission from banks' total deposits to build up reserves. It also received MNT 50

billion from government and the Bank of Mongolia.

Mongolia has seen the failure of three banks since 2008, with the most recent being Khadgalamj

Bank LLC in July.

Source: Undesnii Shuudan

Issue 289

CHINESE EXPERT CALLS FOR ADJUSTING INVESTMENT MODE IN MONGOLIA

China should adjust cooperative strategies with Mongolia to promote relations between the two

countries, officials and experts urged.

The government should help improve infrastructure in Mongolia and help large Chinese enterprises

establish a presence in the country, said Gao Shuqing, former ambassador to Mongolia. Gao was

speaking at the Fifth Economy and Trade Fair between China, Mongolia and Russia in Erenhot, in the

Inner Mongolia Autonomous Region, China on Tuesday.

Gao also called for further contact to help build greater awareness and trust between China and

Mongolia to avoid misconceptions toward Chinese enterprises. He expressed hopes that the

Mongolian government will continue to develop a market-friendly economy. The region borders

Mongolia and Russia and has many advantages, said Li Xin, director of the Russia and Middle Asia

Research Center of the Shanghai Institutes for International Studies.

―If we could enhance border transportation, trade and cooperation would be made even more

convenient and efficient,‖ said Li.

Source: China Daily

September

Issue 290

FIREBIRD ENACTS REVERSE TAKEOVER OF CANADIAN FLUORSPAR COMPANY

Prima Fluorspar Corp. announced on 30 August its entrance into a non-binding letter of intent with

three funds managed by affiliates of New York-based Firebird Management LLC, to negotiate the

purchase of holding companies through which Firebird controls its 99.8 percent ownership stake in

Berkh Uul JSC.

Berkh Uul owns the Delgerkhan fluorspar mine in Khentii Aimag. The transaction would grant

Firebird a controlling stake in Prima, which would emerge as a significant fluorspar company with a

diversified portfolio of fluorspar assets. The transaction will be considered a reverse takeover of

Prima by Firebird, and will result in Prima's stock being halted from trading on the TSX Venture

Exchange.

"As a result of a disciplined sourcing approach, we identified the Berkh Uul as an ideal acquisition

target. This transaction provides the potential for Prima to become a near-term producer,‖ said the

president and chief executive of Prima, Robert Bick. ―The consolidation of the Delgerkhan mine in

Mongolia with our Liard Fluorspar Property in Canada will position Prima as a potential global

fluorspar producer and supplier."

Delgerkhan has an indicated resource of 6.6 million tons of resources, with an inferred resource of

three million tons. China, Berkh Uul's target market, is expected to be a net importer of fluorspar.

Prima has an experienced management team and industry partnerships set to drive activity.

Source: Prima Fluorspar Corp.

EBRD USD 25 MILLION LOAN TO BOOST KHAN BANK‟S SME LENDING

The European Bank for Reconstruction and Development (EBRD) and Khan Bank LLC are teaming up

to develop an innovative financial instrument for the Mongolian market under the rubric ―value

chain finance,‖ to improve access to finance for small businesses and to help strengthen value

chains in the country.

While a major portion of the USD 25 million loan will be dedicated to loans for the financing of

micro, small and medium-sized enterprises (MSMEs), USD 5 million will be invested in the

development of value chain finance. This kind of financial mechanism exists in other developing

countries to support SMEs, especially in agriculture, but also in manufacturing in more developed

countries. The instrument allows smaller suppliers and distributors doing business with big

corporations to obtain cheaper financing, thanks to credit enhancement support from the

corporations.

―Together with the EBRD, we hope to improve access to finance for micro, small and medium-sized

enterprises that work with large corporations as suppliers or distributors,‖ said Norihiko Kato, chief

executive of Khan Bank, during the signing ceremony. ―Value chain financing will promote the

linkage between suppliers and distributors, and the large corporations within a value chain, and this

will ultimately make the whole chain more resilient. We are also pleased to be able to offer our

MSME clients more financing thanks to the EBRD loan.‖

Source: European Bank for Reconstruction and Development

MONGOLIAN ECONOMIC DOWNTURN NOT LIKELY TO REVERSE IN 2013, SAYS MIBG

Mongolia may continue to see weakening economic performance for the remainder of 2013. With a

current exchange rate against the U.S. dollar of MNT 1,616, some economists and market bloggers

are predicting an exchange rate of MNT 2,000.

The source is predicting more negative implications for the Mongolian public to follow before the

economic ―crisis‖ passes. In addition to the impact on the Mongolian people, companies will also

continue to face hardship.

―We know of many corporations both in mining and other sectors that have been forced to downsize

due to a decrease in business activity. To this end, we believe that the widely publicized 1,700 jobs

cut at Oyu Tolgoi's underground development could be the tip of the iceberg.‖

During the month of July, the unemployment insurance fund incurred MNT 8.1 billion in costs, a 153

increase from the same period last year and 80 percent more than the same period in 2011. Overall

the profitability of the fund has sunk to 8.99 percent in 2012 compared to 60 to 80 percent

profitability in previous years. The source predicts inflation to increase moderately in the near term

due to the weakness of the local currency and Mongolia's dependence on imports.

Overall foreign trade has fallen 7.5 percent during the first eight months of 2013 compared to the

same period of the previous year. However, notably, imports have fallen by 8.1 percent compared

to the fall in exports, which reached 6.6 percent. A drop in imports for domestic consumption is

likely, said the Source, and may lead to an increase in inflation, which would likely be supply

driven. The Consumer Price Index (CPI) at the end of July was 8.3 percent annualized. However,

the Source expects CPI to climb up to the 9 to 10 percent range by the end of 2013, which is higher

than Mongol Bank's target rate of 8 percent.

Source: Mongolian Investment Banking Group

MONGOLIA AND EBRD TO STRENGTHEN FINANCING IN TUGRUG

The European Bank for Reconstruction and Development and the Bank of Mongolia have taken a key

step toward the development of the country's local currency money and capital markets.

On 2 September, EBRD President Suma Chakrabarti, central Bank Governor N. Zoljargal and Deputy

Finance Minister S. Purev signed a memorandum of understanding under the EBRD's Early Transition

Countries (ETCs) Local Currency Lending Program. According to the Memorandum, the Ministry of

Finance and Bank of Mongolia confirm that Mongolia wishes to be part of a targeted local currency

risking-sharing program for ETCs, supported by the EBRD and international donors.

The program has two main features. First, the EBRD and Mongolian authorities will agree on reforms

and an action plan to develop local capital markets and to enhance opportunities for local currency

financing in the medium-to-long term. Second, donors will share the loan risk, allowing the EBRD to

provide local currency loans at affordable interest rates. Borrowers will be micro, small and

medium-sized enterprises that sell their goods and services in local currency, and are thereof most

vulnerable when borrowing in foreign currencies. EBRD will provide loans either indirectly to MSME's

through local partner banks or directly to local corporates.

―This agreement between Mongolia and the EBRD is a very important step in our joint efforts to

deepen the tugrug capital markets,‖ said EBRD President Sir Suma Chakrabarti, during the signing of

the memorandum.

―Mongolia is now the sixth country where our ETC Local Currency Program will be able to improve

access to local currency loans for local companies. With the signing of this memorandum, the EBRD

can potentially double its financing to SMEs in Mongolia.‖

Source: European Bank for Reconstruction and Development

Issue 291

DBRB, XACBANK SIGN AGREEMENT ON EXPORT FINANCE

The Development Bank of the Republic of Belarus (DBRB) and XacBank LLC signed a framework

agreement on export finance on 5 September.

During the first Belarusian-Mongolian business forum in Ulaanbaatar, representatives of DBRB held

talks with Mongolia‘s major financial institutions. Following these talks the framework agreement

was signed with XacBank. On behalf of Belarus the document was signed by DBRB Chairman Bank

Sergei Rumas and XacBank President Jambal Ganbaatar signing for Mongolia. The agreement

contains the arrangements on the general terms of the issue of export loans by the DBRB to XacBank

to finance the acquisition of goods, works and services from residents of Belarus with the insurance

to be provided by Exmigarant of Belarus.

"The agreement will contribute to the strengthening of trade and economic relations between

Belarus and Mongolia, including exports of Belarusian goods, works, services to Mongolia," the Bank

said.

Source: Belarusian Telegraph Agency

RATING AND OUTLOOK REST ON ECONOMIC STABILITY AND INVESTMENT CLIMATE, SAYS

MOODY‟S

Moody's Investors Service said that Mongolia's B1 sovereign bond rating and stable outlook hinges on

the absence of significant fiscal pressures, relative macroeconomic stability, and the maintenance

of a favorable investment climate in the mining sector.

Moody's assessment was contained in its just-released "Credit Analysis Mongolia" which serves as an

update to investors and is not a rating action. Moody's looks at four, overall methodological factors

and scores them as follows for Mongolia: economic strength—low; institutional strength—low;

government financial strength—low; and susceptibility to event risk—high. Moody's noted that the

country's credit strengths include its strong growth, which is based on rich natural resources, but

also underscores credit challenges, stemming from a narrowly-diversified economy, pro-cyclical

fiscal policy, and an unpredictable investment regime.

Source: Moody‘s Investors Services

FINANCE MINISTRY TO CUT SPENDING DUE TO GROWING DEFICIT

Mongolia is facing a budget deficit of MNT 222 billion before spending of MNT 830 billion remaining

in budget expenditures, said Finance Minister Ch. Ulaan in a budgetary update to foreign

representatives in Mongolia.

Mongolia is likely to see a revenue shortfall of MNT 950 billion to MNT 1 trillion for the year, said

Ulaan. He said Mongolia would likely decline on the option for MNT 500 billion in foreign loans. The

Finance Ministry is also prepared to cut some MNT 170 billion in expenses and reduce spending in

other areas by MNT 300 billion.

Source: Info Mongolia

SECURITIES LAW TO INTRODUCE OVER-THE-COUNTER TRADING AND CUSTODIAL SERVICES

The Mongolian Stock Exchange (MSE) has a released an account of key features to be introduced

when the Securities Law takes effect on 1 January 2014.

The revised Securities Law aims to create a legal framework which develops the local capital

market in line with international standards, enhances regulation of market participants, increases

market transparency, protects and investors' rights interests, increases state authority in

regulating, monitoring, and ensuring the sound operation of the securities market, said the Source.

A key feature is over-the-counter trading of securities, meaning licensed persons entering into

agreements directly related to the purchasing and selling of financial instruments not otherwise

prohibited are authorized by the owners of trade. The law provides detailed provisions for the

payment system, stating that trade settlements shall be made within three business days of the

transaction.

The law also details the role of custodial services, or the deposit of securities and services related

to the rights of ownership of securities. The Bank of Mongolia and Financial Regulatory Commission

shall together approve procedures for conducting custodial services.

Source: Mongolian Stock Exchange

Issue 292

MONGOLIA TO SELL UP TO $1B IN SAMURAI BONDS, PREMIER SAYS

Mongolia plans to sell as much as USD 1 billion worth of Samurai bonds this year and offer foreign

investors a new way into its largest coal project as Prime Minister Norovyn Altankhuyag seeks to

revive growth.

―This year we‘re hoping to launch a yen-denominated bond issue, which will be equivalent to as

much as USD 1 billion,‖ the prime minister said, citing expanding relations with Japan for the

fundraising plan.

Mongolia will also offer stock in its biggest coal project to foreign investors in power, rail and water

projects around the Tavan Tolgoi basin, he said.

Companies that build the infrastructure at Tavan Tolgoi, which has reserves of more than 6.4 billion

metric tons, will later have the chance to swap their investments for equity in the mine,

Altankhuyag said. Investors may also choose to get paid in coal, he said.

State-owned Erdenes Tavan Tolgoi LLC is in talks with China‘s Shenhua Group and Peabody Energy

Corp. of the U.S. on ―strategic partnerships,‖ Erdenes TT‘s Chief Executive Yaichil Batsuuri said.

Coal exports to China plunged to USD 542.4 million in the first six month of the year from USD 1

billion a year earlier as total first-half exports fell 10 percent, Mongolian state data show.

Mongolian Mining Corp., which accounts for 42 percent of Mongolia‘s coal exports to China, said last

month that average prices for its washed coal used in steelmaking fell 29 percent in the first half,

versus the same period of 2012.

The government sold its first international bonds in November with a USD 1.5 billion issue in the

U.S. currency. Yields on the 10-year government debt known as Chinggis bonds have risen 273 basis

points this year to 8.171 percent as of 13 September.

The Development Bank of Mongolia sold USD 580 million of five-year debt denominated in the U.S.

currency in March last year in its first public bond sale. The yield on the bonds rose to 8.99 percent

as of 13 September from a low of 3.833 percent on 23 October last year.

Source: Bloomberg

MONGOLIA TUGRIK RIVALS SYRIA AND IRAN AS BIGGEST EXOTIC CURRENCY LOSER

After Syria and Iran, Mongolia is delivering the world‘s worst currency returns this quarter as

tumbling international investment and coal revenue starve the country of the foreign exchange

needed to fund imports.

Mongolia‘s tugrik sank 15 percent to 1,692.50 per dollar since June 30, the third-biggest loss among

more than 100 foreign-exchange rates tracked by Bloomberg and the largest drop of about 80 exotic

currencies. The former Soviet satellite‘s tender weakened in all but three of the last 19 years and

sank to a record 1,728 on 1 September.

Currencies of some of the smallest developing economies are taking a hit at the prospect for the

Federal Reserve to announce a withdrawal of monetary stimulus reduces the cash pursuing higher-

yielding assets. A 15 percent drop in coal prices this year eroded earnings from Mongolia‘s biggest

export by 47 percent, while foreign direct investment to the nation slumped 46 percent, both

weighing on the tugrik.

―There‘s no foreign-currency revenue right now, it‘s simply not coming in,‖ Norihiko Kato, the

Ulaanbaatar-based chief executive officer of Khan Bank LLC. ―We may end up with a dollar

crunch.‖

China buys more than 86 percent of Mongolia‘s exports, leaving the country exposed to a slowdown

in Asia‘s biggest economy. Mongolia‘s exports dropped 5.9 percent to $2.7 billion in the first eight

months of 2013, while imports fell 8.6 percent to $4.3 billion, the government said September 10.

Coal exports declined to $693 million from $1.3 billion and accounted for 26 percent of total

shipments. The nation ranked seventh among the world‘s top 10 coking coal producers last year,

according to the statistics office. Mongolia‘s central bank has intervened in the currency market

since November to stimulate business, promote growth and stem accelerating inflation, according

to Sandagdorj Bold, the bank‘s chief economist. Foreign-exchange reserves fell 27 percent to USD 3

billion in July from a year earlier, according to the Bank of Mongolia‘s website. Consumer prices in

Mongolia rose 9.4 percent in August from a year earlier, compared with 8.3 percent in July, the

National Statistics Office said 10 September.

Investors interested in the commodity-rich economy aren‘t ―running for the hills,‖ Howard Lambert,

the chief representative at ING Groep NV in Mongolia. The country has attractive features such as a

democratic political system, a convertible currency and a well-educated population, he said.

The tugrik has slipped 14 percent since Fed Chairman Ben Bernanke signaled the central bank may

trim bond purchases on 22 May. Fed policy makers have kept their benchmark interest rate in a

range of zero to 0.25 percent since December 2008, while the European Central Bank cut its key

rate to a record 0.5 percent from in April.

Source: Bloomberg

CENTRAL BANK SETS MNT 1,700 EXCHANGE RATE THRESHOLD

The Bank of Mongolia has pledged to help stabilize a currency exchange rate of MNT 1,700 per U.S.

dollar.

Last week the tugrug appreciated from MNT 1,780 to MNT 1,680 per dollar, with some economists

predicting a further appreciation.

Source: Undesnii Shuudan

MONGOL BANK MAKES PLEDGES FOR THE ECONOMY

The Bank of Mongolia has pledged to continue a monetary policy for the creation of jobs, supporting

investment, and developing internationally competitive industries.

The Central Bank pointed to the shortfall in government revenue as to the cause of sluggish growth

in the country. Over the last nine months, the Central Bank has taken measures to mitigate the

impact on the economy, such as increasing the money supply when necessary, effectively protecting

citizens' incomes, stimulating economic activity, and reducing damages to the economy. The

Central Bank is working to provide a better exchange rate for the tugrug while maintaining

flexibility. The 20 percent depreciation of the tugrug against the U.S. dollar since the start of the

year is a sign of reduced foreign currency inflow and worsening foreign trade conditions, and the

Central Bank hopes to minimize negative impacts from foreign markets to the domestic economy

while supporting production at home and exports, reducing imports, and improving economic

competitiveness.

The Source feels the actions taken by Parliament and government to improve the investment

environment, revive investors‘ trust, and increase the currency inflow will support stable economic

growth for the long term. The government‘s focus to not exceed this year‘s budget deficiency by 2

percent of GDP in accordance with the Law on Budget Stability will build trust in state credit rating

agencies, investors, and international organizations and will help provide a sustainable macro

environment for Mongolia.

Source: Info Mongolia

Issue 293

STANDARD CHARTERED TO OPEN MONGOLIA BRANCH

Standard Chartered PLC bank has applied to open a branch in Mongolia said a company

representative.

Standard Chartered is planning to provide corporate services only to organizations, providing loan

interest that would be slightly higher than used internationally. The bank opened its representative

office in Mongolia in 2011.

Source: Unuudur

GOVERNMENT INCOME 6.2 PERCENT BELOW BUDGET FOR AUGUST Y-T-D

Mongolia saw less money from projects amid gains in total revenue for the year up to August.

Government revenue from projects for August reached MNT 3.45 trillion, falling 3.6 percent or MNT

128.5 billion. Income increased 11.3 percent compared to the same period of last year, or by MNT

349.6 billion. Total income for the state was 6.2 percent, or MNT 158.1 billion, short of projections

in the budget year-to-date.

The revenue shortfalls seem to be most-influenced by fewer imports and lower prices and demand

for minerals. The government decided to discuss implementation of the law on the state budget and

organize actions regarding operational costs and financial investment.

Source: Udriin Sonin

October

Issue 294

SHARYN GOL CLOSURE OF TENDER FOR SMOKELESS FUEL ASSET

Sharyn Gol JSC announced the closure of a previously announced tender offer for Naco Fuels JSC,

with the acquisition of 11,723,989 shares, representing 92.9 percent of Naco.

Naco owns a coal enrichment and briquetting plant located in Darkhan, Mongolia. Sharyn Gol

intends to return Naco's plant, which is ideally situated to enrich Sharyn Gol's coal into clean

burning char and smokeless briquettes, to operation in October 2013.

There is strong demand for smokeless fuel in Mongolia amounting currently to an estimated

500,000 tons of smokeless fuel in UB city alone, with additional markets in the industrial cities of

Darkhan and Erdenet, plus other industrial users. The replacement of raw coal with smokeless fuel

as the primary heat source in the informal housing (ger) districts would significantly reduce air

pollution in Ulaanbaatar and elsewhere.

"The Naco acquisition represents a logical expansion of Sharyn Gol into the highly attractive market

for coal briquettes,‖ said Graham Chapman, Sharyn Gol's chief executive. ―Sharyn Gol intends to

aggressively expand its smokeless fuel business and will continue to make opportunistic investments

to maximize revenue and cash flow growth for the benefit of all its shareholders."

Source: Digital Journal

MONEY SUPPLY INCREASES 20%

The volume of money circulating increased 20 percent year-to-date in September.

Money supply was focused on keeping jobs and supporting some industries, resulting in stable

economic activity and job availability, noted economists. For example, the Bank of Mongolia

provided MNT 2.9 trillion for the government-backed 8 percent mortgage program and other

initiatives since the start of the year. Money supply has increased by 40 percent a year, on average,

over the last three years. However, much of the money supply was used for welfare purposes rather

than to stimulate the economy.

Source: Zuunii Medee

Issue 295

TDB SIGNS DUAL TRANCHE LOAN

Trade and Development Bank (TDB) of Mongolia LLC has signed a dual tranche loan.

Originally valued at USD 100 million, the loan was revised and signed off at USD 82 million after one

development bank backed away from the deal. TDB has split the loan between a USD 35 million

five-year term loan ‗A‘ and a USD 47 million two-year term loan ‗B.‘

Bookrunners and mandated lead arrangers were ING Bank, the Dutch Development Bank FMO and

TDB Capital. The smaller tranche was covered by FMO and the International Investment Bank, while

the second tranche was syndicated by ING and seven other banks. AKA Export Finance Bank of

Tokyo-Mitsubishi UFJ and VTB Bank acted as arrangers. Commerzbank was lead arranger and

Atlantic Forfaitierungs, MG Leasing and Chailease Finance were arrangers. The original transaction

comprised of two USD 50 million tranches. One tranche was to be solely provided by FMO, while the

second was a syndicated loan further split into two, three and five-year options.

Source: Trade Finance

FINANCE MINISTER LAYS OUT 2014 BUDGET PLANS

Finance Minister Chultem Ulaan gave a summary of the 2014 budget plans, specifying targets for

loan repayment and salary increases.

Ulaan said next year's budget would have greater defense against price fluctuations in minerals, and

that the budget deficit would be below 2 percent of gross domestic product. He specified that

expenditures would be no greater than that of 2013. Losses in the budget would be made up with

financing in the local market with shares of state-owned companies and low-interest foreign loans.

―Current foreign debt stands at 45 to 47 percent of gross domestic product, the repayment of which

will be made as planned,‖ said Ulaan.

He said that although loans repayments would likely go on as scheduled, the government would

have to seek options for the repayment of the USD 250 million loan from Oyu Tolgoi and USD 350

million from Tavan Tolgoi. He said Mongolia would have to allocate MNT 450 billion from the state

budget for loan repayment.

Additionally, the budget will see MNT 200 billion allocated to salary increases, allowances and

pensions, without specifying how much growth would be seen in any of these areas.

Source: Undesnii Shuudan

MONGOLIAN BANKS PREPARE FOR A SECOND ROUND OF 8 PERCENT MORTGAGES

The Bank of Mongolia is preparing to move to the next stage of its subprime mortgage program.

The central bank will provide a second round of mortgages totaling MNT 994.6 billion from a total of

16,122 mortgage requests, said D. Gantugs, the executive director of the Mongolian Mortgage

Corporation, which is working together with the central bank to implement the program. She added

that refinancing to the 8 percent mortgages has totaled MNT 451.2 billion. Banks have granted a

sum of MNT 463.1 billion to 8,129 lenders.

Mongolia is also planning to release a MNT 200 billion bond offering to fund secondary loans.

Mongolian Mortgage is targeting an interest of 5 percent on the bond, said Gantugs.

Source: Zuunii Medee

Issue 296

FRC SIGNS MOU WITH HONG KONG SECURITIES COMMISSION

Hong Kong‘s Securities and Futures Commission (SFC) and the Financial Regulatory Commission of

Mongolia (FRC) on 11 October entered into a memorandum of understanding in Ulaanbaatar.

The memorandum—signed by the chairman of the SFC, Carlson Tong, and the chairman of the FRC,

Dashdondov Bayarsaikhan—establishes a framework for mutual assistance and facilitates the

exchange of information between the two regulators.

"This memorandum signifies the importance of close cooperation between the authorities and

exchange of information to assist each other. I firmly believe that the SFC and the FRC relationship

has been taken to a new level with this MoU which promotes shared interests and cooperation for

more effective financial regulation through knowledge sharing and benchmarking," Bayarsaikhan

said.

Source: Securities and Futures Commission - Hong Kong

EXCHANGE RATE HEADS FOR MNT 1,700 AGAIN

The tugrug exchange rate against the dollar is on another downward slide, depreciating since 9

October.

The tugrug was between MNT 1,693 and MNT 1,695 for three days compared with MNT 1,620 at the

end of September. The tugrug has continued its depreciation despite intervention by the Bank of

Mongolia. On 15 October the Mongol Bank sold USD 22 million and CHY 100.5 million as scheduled.

Some experts predict the dollar will continue its appreciation as the bank burns through its dollar

reserves.

Source: Undesnii Shuudan

IMF CUTS GROWTH FORECASTS FOR MONGOLIA IN 2013, SLASHES FORECASTS FOR 2015, 2016

The International Monetary Fund (IMF) has cut its 2013 growth forecast for the Mongolian economy

in the latest World Economic Outlook released on 7 October.

GDP is now expected to grow by 11.8 percent in 2013, revised down from the IMF‘s previous growth

forecast of 14 percent in April. Economic growth in 2014 is expected to be around 11.7 percent,

slightly higher than the 11.6 percent previously forecast. Of most concern, GDP growth forecasts for

2015 and 2016 have been slashed. The Mongolian economy is now expected to grow by a modest 5.8

percent in 2015, down from 7.6 percent forecast in April, while 2016 growth is expected to be only

3.6 percent, down from 9.5 percent forecast in April. Inflation is expected to be lower than

previously expected, but is still forecast to hover just below double digits. The Consumer Price

Index is forecast to grow by 9.7 percent in 2013 (down from 11.7 percent forecast in April), and is

expected to fall to around 7.5 percent next year.

―Mongolia is facing an uncertain external environment. Advanced economies are getting ready to

exit from the very supportive monetary policies implemented in recent years,‖ said IMF mission

head Geert Almekinders reinforced this message at the completion of a recent IMF mission to

Mongolia. ―China‘s economy is expected to re-balance away from a mostly investment-based growth

model toward a more consumption-based growth model. Both these factors are bound to have

major spillovers globally and especially in the region.‖ Mr. Alemekinders warned that based on this

assessment of the global situation, ―Mongolia needs to change course to avoid becoming highly

exposed to these external shocks and risks of crisis.‖

Emerging economies including Mongolia share five policy priorities, according to the IMF report.

Policymakers should allow exchange rates to respond to changing fundamentals but may need to

guard against risks of disorderly adjustment, including through intervention to smooth excessive

volatility. Where monetary policy frameworks are less credible, efforts may need to focus more on

providing a strong nominal anchor and reestablishing inflation targets.

Source: Economic Policy and Competitiveness Research Center

MONGOLIA AFFECTED BY GLOBAL FINANCIAL TURBULENCE, SAYS ADB

Softer than expected economic activity in China and India and concerns about the United States

quantitative easing program has destabilized emerging economy financial markets, including in

Mongolia, says a new Asian Development Bank (ADB) report.

"Shifting expectations on the timing of the scaling down of the U.S. Federal Reserve's quantitative

easing program sparked the recent exodus of foreign capital from emerging markets, including

India, Indonesia and Mongolia," said ADB Country Director for Mongolia Robert Schoellhammer.

In an update of its flagship publication, Asian Development Outlook 2013, ADB revised down its 2013

gross domestic product (GDP) growth forecast for the Asia-Pacific region to six per cent from 6.6

percent seen in April, as growth moderates in the region's two largest economies—China and India.

In China and India, according to the report, authorities are engineering a medium-term transition to

a more sustainable growth path than one led by exports and investment.

However, the region is in a comparatively strong position to cope with the slowdown, with many

economies running current account surpluses and holding large foreign reserve stockpiles. For 2014,

growth is now projected at 6.2 per cent from 6.7 percent in April. Meanwhile, resurgence in the

U.S. economy is expected to pick up in the coming months. Signs are also emerging that the euro

area is turning the corner, and Japan's economic growth is accelerating.

For Mongolia, growth is forecast to slow to 12 percent in 2013 and 13 percent in 2014, supported by

the modest recovery in the global economy and the start of commercial mining at the vast Oyu

Tolgoi copper and gold mine. The short- to medium-term prospects for the Mongolian economy are

subject to trends in China and the global economy, and expansionary fiscal policies historically

make it vulnerable to external shocks.

Source: Bernama

Issue 297

GOLOMT TO ISSUE MONGOLIA'S FIRST AMERICAN EXPRESS-BACKED CARDS

American Express and Golomt Bank LLC have signed a partnership agreement that will allow it to

issue bank cards backed by them.

―We are very pleased to expand our partnership with Golomt Bank, reflecting our strategy of

building relationships with the best partners around the world,‖ said Mike Trattles, vice president

for partner card services at American Express. ―We look forward to working with Golomt Bank to

bring new benefits and services to their customers which reflects our commitment to outstanding

value and first class service.‖

The agreement leaves Golomt responsible for creating the products, issuing the cards, overseeing

the credit management and managing customer accounts and billings.

Source: Golomt Bank LLC

RESERVES OF USD REDUCED BY 6.26 PERCENT

The Bank of Mongolia reported that U.S. dollar reserves had declined 6.26 percent year-on-year due

to spending for the stabilization of the economy.

Inflation stood at 9.9 percent nationwide with 8.4 percent inflation in the capital city. Money

supply grew 19.3 percent to MNT 8482 billion total.

Dollar reserves were down 1.68 percent month-on-month.

Source: Zuunii Medee

November

Issue 298

STANDARD BANK AGREES TO SELL $1BN WORTH OF ASIA LOANS

South Africa's Standard Bank Group has agreed with BNP Paribas SA and others to sell its Asian loan

portfolio worth around $1 billion, according to two sources.

Africa's biggest bank has been looking to sell the loans, which include financing of mining projects

in Mongolia, Indonesia and other countries, according to the sources, who declined to be identified

because the information is not yet public. BNP Paribas has agreed to buy the Mongolian portion of

the portfolio, which represents about $350 million worth of loans, as well as some other loans in

Asia, said one of the sources.

Source: Reuters

JAPANESE BANK TO OPEN REPRESENTATIVE OFFICE

The Bank of Tokyo-Mitsubishi UFJ, Ltd. has acquired a license to open a representative office in

Mongolia. The Bank of Mongolia gave permission on 10 October.

Source: Unuudur

Issue 299

WORLD BANK CUTS MONGOLIA'S GROWTH FORECAST TO 12.5 PERCENT

The World Bank on Wednesday lowered its growth forecast for the Mongolian economy, while urging

the government to tighten its fiscal policies to achieve economic stability.

In its latest Economic Update, the World Bank said though the Mongolian economy will likely record

another double digit growth this year it is still exposed to downside risks.

The forecast for this year has been revised down to 12.5 percent from 13 the lender had projected

in the earlier report published in April. The downgrade reflects the slower-than-expected growth in

China, and the weaker recovery in the domestic mining sector than estimated earlier.

The mounting balance of payments imbalance poses a significant challenge to the Mongolian

economy as foreign investments continue to decline and mineral exports remain weak. The fiscal

and monetary policies should be tightened further to address the growing current account deficit

and stabilize the economy.

"Loose monetary policy has led to accelerating credit growth in recent months, particularly in

construction and housing sector," the Washington-based lender said. "The recent acceleration of

credit growth needs close attention from the monetary authorities."

The report, meanwhile, noted that the government's fiscal consolidation plan is a positive step

toward a more sustainable fiscal path.

Source: RTT News

MOODY'S WITHDRAWS THE RATINGS OF GOLOMT BANK

Moody's Investors Service has withdrawn the ratings of Golomt Bank LLC because it believes it

currently does not have sufficient or otherwise adequate information to support the maintenance of

the rating.

The ratings withdrawn are: E+ standalone bank financial strength rating (equivalent to a b1 baseline

credit assessment, BCA); B1 issuer rating; B1 local currency long-term deposit rating; and B2 foreign

currency long-term deposit rating. Domiciled in Ulaanbaatar, Golomt reported total unaudited IFRS

assets of MNT2 .5 trillion as of 31 December 2012. The bank is 84.6 percent owned by Bodi

International LLC (unrated), 10.1 percent by Swiss MO Investment AG (unrated), and 5 percent by

Trafigura Beheer B.V. (unrated).

―The audited financial statements will become publicly available as a reference for our valued

clients and partners in the immediate future. We look forward to re-engaging with Moody‘s

thereafter,‖ said a representative of Golomt in response to the decision.

Source: Moody's Investors Service, Cover Mongolia

Issue 301

FITCH AFFIRMS KHAN BANK AND XACBANK AT 'B'; „OUTLOOK STABLE‟

Fitch Ratings 14 November affirmed the ratings of two Mongolian banks—Khan Bank LLC and

XacBank LLC. The Long-Term Issuer Default Ratings (IDRs) and Viability Ratings (VRs) are 'B' and 'b'

for both banks. The Outlook on each bank's international depository receipt (IDR) is ―Stable.‖

The IDRs of both banks capture the volatile operating environment in Mongolia and the banks'

limited loss absorption capabilities in the event of a sharp deterioration in the operating

environment. Pre-impairment profits—the banks' first line of defense—and capital are under

pressure in part due to rapid loan expansion at rates that are capped under the government's loan

program. Heightened currency risk and tighter liquidity from strong loan growth are

counterbalanced by various actions by the government, including providing a swap facility and

cheaper funding.

Khan Bank's and XacBank's ratings are vulnerable to negative rating actions if the operating

environment deteriorates. In particular, a material revision to Fitch's expectations for the

economy's performance and the outlook for external liquidity could lead to a revision to the

outlooks. The ratings are also sensitive to changes around the government's credit stimulus and its

approach to foreign exchange intervention. This is based on the Source‘s view that the withdrawal

of the stimulus could result in asset quality deterioration as economic growth slows and-or inflation

accelerates. The banks may also be exposed to potential foreign-currency deposit withdrawals if

the government itself has limited access to foreign currency and imposes restrictions on currency

conversion. Both banks' ratings will also come under pressure if there are any changes in their

steady access to capital from private-sector owners.

Source: Reuters

KHAN BANK TO COOPERATE WITH RUSSIA‟S INTERNATIONAL INVESTMENT BANK

Khan Bank LLC will cooperate with the International Investment Bank (IIB) on November 15 for a

long-term strategy partnership.

Khan‘s executive director, Norihiko Kato, and the IIB chairman, Nikolay Kosov, signed a partnership

agreement with both sides expressing intent to cooperate in loans granting, small and medium

businesses support, trade finance, the IIB's member-countries foreign trade support, inter-banks

loans, foreign exchange market, and in banks' hi-tech technology sector. IIB, headquartered in

Moscow, Russia, supports small-and medium-sized businesses and infrastructure projects in

Bulgaria, Vietnam, Cuba, Mongolia, Russia, Romania, the Slovak Republic and the Czech Republic.

Source: Montsame

MONGOLIA TAKES STEPS TO BOOST FDI

In a move aimed at reviving flagging foreign direct investment (FDI) levels, Parliament has approved

legislation it hopes will remove uncertainty over investor rights and facilitates the flow of overseas

capital into key sectors of the economy.

FDI inflows have fallen sharply in 2013, weighed down by investor caution which was heightened by

previous legal changes introduced last year. However, while regulatory reforms under the new

legislation should bring greater clarity regarding tax rates on foreign-owned enterprises, slowing

global demand for commodities and ongoing investor wariness could lengthen the time it takes for

FDI to regain momentum. The legislation, which went into effect on 1 November, introduces so-

called tax stabilization certificates that ensure stable tax treatment for a defined period of time,

ranging from five to 22 years, depending on the industry. The new rules will apply to value added

tax (VAT), corporate income tax, mining royalties and Customs duties. Under the law, local and

foreign investors will be charged the same rates.

―Tax stabilization measures and provisions that will help to prevent future changes to the

legislation should provide investors with the confidence that they need to return to the market,‖

said Chris MacDougall, managing director of Mongolian Investment Banking Group.

While Mongolia‘s revised regulations governing investment could help boost FDI levels, a recent

report by a parliament working group highlighted a number of obstacles to investment. The report,

submitted to the Standing Committee on Economics in late September, concluded that while the

tax rates Mongolia imposed on foreign investors, alongside its regulations and tariffs, were similar

to those of other developing economies, the country was still perceived as a risky destination.

Other factors keeping investors away, on top of uncertainty over tax issues, included inadequate

infrastructure, excessive bureaucracy and an underdeveloped financial sector, the report said.

Some of these issues, such as providing clarification about the tax regime and improving access to

more economic sectors, look to have been addressed by the new law. However, investors may well

still opt to wait until the amended legislation begins producing results before returning to Mongolia.

Source: Oxford Business Group

DEALS CONTINUE DESPITE POOR SENTIMENT

While many were under the impression that Mongolia had lost its growth momentum other parties

are still confident that Mongolia has enormous potential and continued business ‗as usual‘. In

reality, many strategic cooperative agreements have been signed or started during this time.

One example is Baganuur Energy Corporation, which signed a co-operative agreement between MCS

Group and Korea‘s POSCO, to build a coal-to-liquid factory based on Baganuur thermal coal and

Ukhaa Khudag thermal coal deposits. Plans are to have the plants operational by 2017. China‘s

SINOPEC has signed a cooperation agreement to build a coal-to-gas factory with the Ministry of

Mining, during the Prime Minister‘s visit to China.

Japan‘s Marubeni and Mongolia‘s Beren Group have agreed to build a steel smelter factory.

Mongolian Mining Corporation (MMC) has secured a supply contract for fuel, office and site supplies

and security services with other Mongolian companies for about USD 1 billion, which include NIC,

Shunkhlai and Transgobi as fuel suppliers (USD 953.6 million), USS and Energy Resources as office

and site suppliers (USD 43 million) and MCS Armor and Energy Resources as security services

provider (USD 7.6 million).

Other sectors such as banking and private investment sectors have been providing good news

stories. Three weeks ago Overseas Private Investment Corporation (OPIC) and Schultze Global

Investments (SGI) signed for the U.S. government to provide USD 20 million through SGI to local

small businesses. Khan Bank LLC and the International Monetary Fund have announced USD 111

million in new loan commitments. This includes USD 71 million in syndicated senior debt and USD 40

million in subordinated debt. The funds will be used for long term funding to Khan Bank‘s customers

as well as improve the bank‘s capital base. Separately, USD 31 million will be made available as

part of a syndicated loan from Sumitomo Mitsui Banking Corporation (SMBC), AKA Export Finance

Bank, DHB Bank (Netherlands) N.V., Intesa Sanpaolo S.p.A., ING Bank N.V., and RosEvroBank JSCB.

The OPIC Fund for International Development is expected to contribute another USD 20 million

parallel type loan.

Another highlight from the banking sector was the cooperation agreement between Golomt Bank

LLC and American Express (AMEX) that will make Golomt the issuer and credit manager of AMEX

cards held by Mongolian customers. Opening of the representative office of the SMBC in Ulaanbaatar

was also significant, with another Japanese banking group MUFG Bank of Tokyo Mitsubishi UFJ Ltd.

also preparing to open a representative office in Ulaanbaatar.

Source: National Securities

PARLIAMENT REJECTS BILL TO RAISE DEBT CEILING

Parliament blocked a bill to raise the debt ceiling, a move that could limit the government‘s ability

to raise money for infrastructure needed to develop the mining sector.

The bill to amend the Fiscal Stability Law and raise the debt limit to 60 percent of gross domestic

product from 40 percent failed to muster the necessary two-thirds approval yesterday, said

Purevbaatar Gantsogt, the State Secretary for the Ministry of Finance. Mongolia is increasing its

spending on road, rail and power projects as mining companies including Rio Tinto Group invest

billions in mineral deposits. Much of the country‘s spending on infrastructure this year has been

facilitated by proceeds from the sale of dollar bonds in 2012. Government debt this year will be

49.5 percent of gross domestic product (GDP), just shy of the 50 percent mark allowed for 2013,

Gantsogt said. The 40 percent limit goes into effect starting from 2014.

―The plan was to issue more bonds to finance infrastructure development so yesterday‘s decision

restricts this,‖ Gantsogt said. ―Next year we will probably not do what we had planned.‖

Mongolia‘s Fiscal Stability Law, adopted in 2010 as a way to smooth spending habits and generate

savings from mineral revenues, imposes limits on expenditure growth and caps the structural

budget deficit to two percent of GDP, separate from the 40 percent cap on outstanding debt.

Mongolia‘s currency, the tugrug, fell to the lowest since at least 1993 today, reaching 1742.50 to

the dollar and foreign direct investment has been cut in half this year.

Instead of selling international debt, Gantsogt said parliament is planning to approve the sale of 1.4

trillion tugrug in local bonds, to be issued in 2014. The bonds, issued in tugrug, will be used to plug

revenue shortfalls, Gantsogt said. Mongolia posted 17.4 percent growth in 2011 and 12.4 percent

growth in 2012. Growth over the first three quarters of this year stood at 11.5 percent. By stopping

the sale of international bonds Mongolia‘s GDP to debt ratio is forecast to fall to 40 percent by the

end of next year from 49.5 percent because of increases to GDP, Gantsogt said.

Source: BusinessWeek

THE OTHER BUDGET (UB)

The budget for Ulaanbaatar has long suffered from a lack of transparency, according to the 2011

―Budget Transparency Rating of Local Governments in Mongolia‖ report by the Open Society Forum,

which describes the budget drafting process in Mongolia as ―undisclosed.‖ This year, however, the

budget is being discussed openly as part of a new initiative to gather the opinions of citizens. Yet, if

any difference is to be made people will have to take an interest.

In the past, Ulaanbaatar's citizens were kept in the dark on the budget. Budgetary controls and the

system for accountability have been little more than symbolic in the past, and the budgets of those

years were largely squandered. The development of Ulaanbaatar has been significantly hampered

by the lack of accountability in government.

Operating costs in the city budgets have doubled while asset values have grown six times. This year

the city will receive MNT 1.1 trillion of investment, including MNT 2.5 billion from the Local

Development Fund, which is used to create green spaces. According to a preliminary estimate by

the city council, the 2014 budget will be worth MNT 443.3 billion, of which MNT 416.7 billion will

come from taxes. About nine of Ulaanbaatar's districts and 43 agencies have requested a total MNT

354.1 billion for costs in 2014.

―Approximately 80 percent of Ulaanbaatar‘s total revenue came from its own resources while 21

percent of financial support has come from the state budget‖, reported the World Bank in its report

―City Finances of Ulaanbaatar‖ from this year.

Total expenditures for Ulaanbaatar in 2008 was MNT 39 billion and grew to to MNT 141 billion in

2011. The majority of costs were for transport subsidies for students and the elderly, representing

49 percent of the total city budget and 25 percent of administrative cost.

For most, the state budget is of greater concern to Ulaanbaatar's citizens than the city budget.

Although some people may choose to skip news on the local budget, it means more to them than

they might first realize.

Source: Mongolian Economy

Issue 302

WORLD BANK‟S MONGOLIA ECONOMIC UPDATE

The Mongolian economy will likely show another double digit growth in 2013 but is exposed to

downside risks, said the World Bank for its November economic update.

The baseline growth forecast for 2013 has been revised to 12.5 percent from its previous forecast

(13 percent) in the April Economic Update, reflecting the softer growth in China than had been

previously projected in April and lower-than-expected pace of recovery in mining. Inflation

remained at a single-digit level but shows growing inflationary pressure in recent months. The

national headline inflation picked up to 9.4 percent in August and further to 9.9 percent in

September on year-on-year basis, after a steady downward trend earlier this year.

Rising off-budget spending remains a concern as large portion of the Chinggis bond proceeds have

been used to finance public investment projects outside the budget, mainly through the

Development Bank of Mongolia. The monetary authorities have embarked on aggressive monetary

easing programs in 2013 to offset the slowing credit growth early this year. Loose monetary policy

has led to accelerating credit growth in recent months, particularly in construction and housing

sectors.

The current loose economic policies are not sustainable given the mounting balance of payments

pressure and will undermine macro-economic stability going forward. The downside risk will likely

be exacerbated if the Mongolian economy faces growing headwinds from an unfavorable global

economic environment. In light of the growing external imbalances and uncertain global

environment, the growth-oriented economic policies need to be tightened toward economic

stability. Fiscal policy should be further tightened and start rebuilding fiscal space and should focus

more on ―spending well.‖ Monetary policy should be adjusted toward economic and financial

stability. Supervision and monitoring of the banking system should be strengthened. Continuous

improvement of investment climate is important.

Source: World Bank

December

Issue 303

MONGOLIA„S FDI IN OCTOBER DECLINES 30% YEAR-ON-YEAR, SAYS MONGOL BANK

Mongolia‘s foreign direct investment (FDI) in October declined to USD 148.2m from USD 211.2m a

year earlier, according to the nation‘s central bank.

January-October foreign direct investment was USD 1.966 billion compared with USD 3.995 billion a

year earlier, the Bank of Mongolia said in statement. FDI for the first nine months was revised to

USD 1.818 billion from a preliminary figure of USD 1.923 billion, according to the Bank of Mongolia.

Source: Bloomberg First Word, Cover Mongolia

Issue 304-305

MSE CANCELS KHANSH INVEST‟S BROKERAGE LICENSES

The Mongolian Stock Exchange has invalidated the brokerage and securities dealing licenses of

Khansh Invest LLC on 4 December.

―The company‘s clients will be transferred to other brokerage firms that conduct professional

services in the market with licenses for broker-dealer related issues and it shall be governed

according to the concerning jurisdiction and regulations,‖ said the Source.

Source: Mongolian Stock Exchange

IX. ELBEGDORJ TAKES A SECOND TERM

2013 Presidential election

January

Issue 254-255

PRESIDENTIAL ELECTION SLATED FOR 20 JUNE

Parliament adopted a Law on the Presidential Election, setting the date for the vote to 20 June.

The election will use electronic voting machines, as it has done since last June's election.

Source: Udriin Sonin

February

March

Issue 263

GEC DETERMINES SPENDING THRESHOLD

The General Election Committee (GEC) has capped campaign spending for the 2013 presidential

election at MNT 3 billion per candidate and MNT 5.1 billion for a single party.

GEC approved the limit before the deadline set by the Law on the Role of the President, which

mandates spending requirements be determined before 1 March.

The day for the vote should be determined 65 days in advance, according to Mongolian law.

Source: News.mn

April

Issue 269

PRESIDENTIAL ELECTION SCHEDULED ON 26 JULY

The General Election Committee (GEC) has scheduled the presidential election for 26 June.

The Standing Committee on State Structure held a meeting to discuss the issue on 9 April. It was

then that the GEC chairman proposed the date June 26.

One MP, R. Burmaa, criticized the budget allotment, saying it was increased without any basis.

According to the Standing Committee, total election expenditure is set at MNT 17.2 billion, of

which, MNT 392 million will be spent for the parliamentary re-election and MNT 91 million for

media observation.

Source: News.mn, Undesnii Shuudan

Issue 271

PARTIES SET FOR PRESIDENTIAL RACE

The country is preparing for election season for this summer‘s election.

Campaigns for the 2013 presidential election is set to begin 22 May with candidates to be named on

17 May. Each party with representatives in Parliament is permitted to name a candidate. It will be

up to the General Election Committee to decide the campaign schedule.

Source: Udriin Sonin

May

Issue 273

ELBEGDORJ LEADS IN RE-ELECTION BID, POLL SHOWS

President Tsakhia Elbegdorj leads his nearest rival by 13 percentage points heading into June 26

elections, according to a new poll from the Sant Maral Foundation, making it unlikely that he will

face a serious challenge as he seeks a second terms.

Asked whom they would choose as president, 19.2 percent of respondents named Elbegdorj, the

Sant Maral Foundation poll said. In second with 6.2 percent was Nambar Enkhbayar, the head of the

Mongolian People's Party, who serves a two-and-a-half-year jail term on corruption charges. No one

else received more than 3.2 percent.

A win for Elbegdorj, president since 2009, may ensure continuity as Mongolian leaders debate the

role of foreign investors in exploiting the country's mineral resources. While Elbegdorj has made

conflicting statements on whether the government should take greater control of strategic mines,

he is seen as a known quantity, consultant Dale Choi said.

―Elbegdorj has shown himself to be a very inconsistent,‖ Choi, founder of Ulaanbaatar-based

Independent Mongolian Metals and Mining Research, said in an email. ―Even in view of these

shortcomings, it would be good if he were re-elected because it would mean the government

authorities can continue functioning as they are.‖

The Sant Maral poll, which did not give a margin for error, said 53.2 percent of respondents were

fairly satisfied or very satisfied with the current government.

―Elbegdorj has no rival and it will be quite problematic for anyone to stand against him in the time

remaining,‖ Sant Maral Foundation Director Luvsandendev Sumati said. ―If he does not make some

major mistake, he should get through.‖

For the complete Sant Maral April 2013 Politbarometer, see BCM website Mongolia Reports section.

Source: Bloomberg

DP BACKS ELBEGDORJ'S RE-ELECTION CANDIDACY

President Tsakhia Elbegdorj received 100 percent confirmation from his Democratic Party for the

president's candidacy to run for re-election in the 2013 presidential election. The president

received confirmation at a party meeting on Tuesday.

Source: Montsame

MPP NAMES WRESTLING CHAMPION AS PRESIDENTIAL CANDIDATE

The Mongolian People's Party (MPP) has nominated a former champion wrestler as its standard-

bearer for the June presidential election.

Party members voted at a weekend conference to name Bat-Erdene Badmaanyambuu as presidential

candidate to challenge incumbent president Tsahkia Elbegdorj from the ruling Democratic Party in

the 26 June vote.

As a lawmaker, Badmaanyambuu was instrumental in the passing of a controversial law to ban

mining along river and water basins in 2009 and demanded revision of the multi-billion U.S. dollar

investment with Anglo-Australian mining giant Rio Tinto PLC.

Source: Xinhuanet

MNDP POISED TO NOMINATE ENKHSAIKHAN AS PRESIDENTIAL CANDIDATE

The Mongolian National Democratic Party (MNDP), the partner to the Mongolian People's

Revolutionary Party (MPRP) to form the Justice Coalition, is poised to nominate M. Enkhsaikhan as

its candidate for the presidential election.

The Administrative board of the MNDP consists of 11 members who agreed to discuss the issue at an

assembly meeting on Friday, 10 May, said MP D. Battsogt.

Source: News.mn

CW-GP MEMBERS ABANDON SHIP

All 40 of the Civil Will-Green Party's members have left the party, saying that there was no internal

democracy in the party.

Party Deputy Chairman Kh. Bat-Yalalt led the mass exit, saying that the party's decisions were

dictated by a single person's will and that there was a lack of transparency regarding the party's

inner workings. Members of the CW-GP, which has two of its members sitting in Parliament, said

fraudulent methods were being utilized within the party.

Bat-Yalalt said the party members would start a new movement called Neg Mongol, which translates

to one Mongolia in English, to represent their interests.

Source: Unuudur

MONGOLIANS LIVING ABROAD TO VOTE 14-16 JUNE

Mongolian citizens living in foreign countries will be able to vote for the 2013 election from 14 to 16

June, announced the Working Group on Elections.

An election committee made up of 39 Mongolian diplomatic representatives has been formed to

register citizens living in foreign countries in person or by fax, email or phone.

The state registration committee has submitted a list of 39,800 Mongolian citizens living abroad to

the election committee.

Source: Udriin Sonin

Issue 274

THREE PRESIDENTIAL CANDIDATES NAMED

This year's presidential election has become a three-way race, with the first female presidential

candidate in Mongolia's history.

The Mongolian People's Party was the first to announce a candidate to oppose incumbent president

Tsakhia Elbegdorj. MP B. Bat-Erdene won the nomination after four party votes, with three

consecutive ties with MP O. Enkhtuvshin. Bat-Erdene beat his opponent by nine votes during an MPP

assembly. The presidential hopeful is seen widely as an opponent against illegal mining activity.

Natsag Udval received the Mongolian People's Revolutionary Party nomination on Saturday 11 May,

making her the country's first female candidate for president. She is currently serving her second

appointment as minister of health and is secretary general of her party.

Elbegdorj is seen as the front-runner for the election and is portrayed as the most experienced of

the three with two non-consecutive terms as prime minister. The Mongolian National Democratic

Party and Civil Will-Green Party have opted not to endorse any of their own candidates, instead

throwing their support behind Elbegdorj.

Source: News.mn

ENKHBAYAR CLINCHES UDVAL‟S NOMINATION FOR MPRP

The Mongolian People's Revolutionary Party nominated Health Minister Natsag Udval as its

presidential candidate after she received an endorsement from incarcerated former President

Nambar Enkhbayar.

The MPRP chose Udval over four other candidates. First consensus was for D. Terbishdagava, but he

declined the offer. Enkhbayar, who is the party's leader, made his endorsement of Udval from

prison.

Source: Udriin Sonin

OSCE TO OBSERVE ELECTION

The Organization for Co-operation in Europe (OSCE) Office for Democratic Institutions and Human

Rights (ODIHR) on 13 May opened an election observation mission to monitor the 26 June

presidential election in Mongolia.

ODIHR was invited by the government of Mongolia to observe the presidential election, in line with

the country's commitments as an OSCE participation state. This is the first ODIHR election

observation mission deployed to Mongolia. The mission, which draws 39 experts and observers from

24 countries. will assess the presidential election for compliance with OSCE commitments and other

international standards for democratic elections, as well as with domestic legislation. Observers

will follow campaign activities, the work of the election administration and relevant state bodies,

implementation of the legislative framework and the resolution of election disputes. The mission

will also monitor the media coverage of the campaign.

A statement of preliminary findings and conclusions will be issued the day after the election. A final

report on the observation of the entire electoral process will be published approximately two

months after the completion of the election process.

Source: Organization for Security and Co-operation in Europe

Issue 275

MPP CLAIMS CASE AGAINST ELBEGDORJ

The Mongolian People's Party (MPP) has lodged a complaint against President Tsakhia Elbegdorj with

the Authority for Fair Competition and Consumer Protection for appearing on television before

Mongolian law allows for campaigning.

The MPP said Elbegdorj violated Mongolian law by appearing on a popular television program on 17

May, six days before national campaigns could commence. According to Article 33.1 of the Law on

the Election of the President, the official campaign season began on 22 May.

Source: News.mn

Issue 276

THE RACE IS ON IN MONGOLIA

Investors are watching the presidential race in Mongolia closely for a clue to what coming years

have in store for them.

―Previous presidents never dealt with billion-dollar projects before,‖ said Otgonshar Nagi, vice

president of Ulaanbaatar's Resource Investment Capital. ―Mongolia is heading towards a

development phase where it is seeing significant projects heading its way.‖

The main contest will be between the current president and favorite, Tsakhia Elbegdorj, and the

opposition Mongolian People's Party (MPP) celebrity wrestler candidate, Badmaanyambuu Bat-

Erdene. Elbegdorj is regarded as one of the founders of Mongolian democracy, someone who rallied

the public to demand a new, democratic government in 1990. He is also one of Mongolia's educated

elite, having worked as a journalist and political activist in his youth before entering politics, and

claims Harvard University as his alma mater. He is also likely to be the candidate investors will be

cheering on.

Bat-Erdene, on the other hand, is known for his highly critical position toward protecting the

environment. Bat Erdene's celebrity factor is an important element to his campaign, as wrestling is

an important facet of Mongolian culture and its champions are adored nationwide. His most notable

political feat to date was his introduction of a 2009 environmental law that interfered with the

operations of both domestic and foreign firms, such as Toronto-listed Centerra Gold Inc. The gold

miner was looking towards shutting down its current Boroo mine and replacing it with another in

Mongolia, the Gatsuurt gold project, but Bat-Erdene's law has prevented it from getting permission

to do so.

One other contender has stepped into the fray: Natsag Udval—who currently serves as health

minister as a member of the Mongolian People's Revolutionary Party (MPRP). She is notable as the

country's first female candidate to run for president and is regarded as the proxy vote for

incarcerated former President Nambar Enkhbayar. Enkhbayar still remains the MPRP leader and has

been a vocal proponent of the nationalization of Mongolia's mines. It's entirely conceivable that

Enkhbayar's supporters will cast their votes for Udval instead of Bat-Erdene.

There's little polling data available in Mongolia, so a report from the Sant Maral Foundation in

April—released before Elbegdorj's opponents were announced—offers some clues as to how the

election will go. The most relevant question asked was who would make the best president for

Mongolia: 19.2 percent named Elbegdorj, while just 2.2 percent said Bat-Erdene. Although Bat-

Erdene and Elbegdorj were not directly compared, Sant Maral head Luvsanvandan Sumati still thinks

the data gives strong indications about the electorate's intentions: ―[Elbegdorj] has a much better

chance than the two others. ―If he doesn't make a mistake, he should win without problem.‖

Source: BNE

PRESIDENTIAL CANDIDATES OPEN CAMPAIGN FUNDS

The three presidential candidates have launched their campaign financing funds.

Mongolian law prevented campaign funding to begin before 27 May, and then required the opening

of an account five days after registering with the General Election Commission via a written notice.

Campaign funds are to be funded from his or her personal finances or via donations from supporters

and the party.

Source: News.mn

TWO MORE PARTIES BACK ELBEGDORJ

The Republican Party and Motherland Party have both thrown their support behind Democratic

Party (DP) incumbent President Tsakhia Elbegdorj.

Prime Minister Norov Altankhuyag signed a memorandum of cooperation on Wednesday at the

Government Palace with B. Jargalsaikhan, chairman of the Republican Party, and B. Erdenebat,

head of the Motherland Party. Both parties have promised to back the DP candidate in the election

for his platform in support of ensuring continued development in Mongolia, develop society,

development planning, and protections of society's common interests.

Source: Montsame

DEMOCRATIC PARTY OR NATIONAL WRESTLING PARTY?

Another famed Mongolian wrestler has received credentials for membership into the Democratic

Party (DP), following the addition of former sumo yokozuna Dolgorsuren ―Asashoryu‖ Dagvadorj.

―I had chosen to support democracy and respect the principles when I was young, two decades ago.

I think President [Tsakhia] Elbegdorj, who is being supported by the DP in the presidential election,

is the best politician who has been in charge of a high-ranking position for the country,‖ said former

wrestling champion A. Sukhbat.

Sukhbat announced his inauguration into the DP on Wednesday. The fledgling politician said he

would like to focus on legislation pertaining to the national Naadam festival that would target

specifically the children jockeys participating in horse-racing competitions. He also said he wanted

to focus on the development of communities outside of Ulaanbaatar, naming Sergelen Sum, Tuv

Aimag as one place needing assistance in the development of its infrastructure.

Source: News.mn

June

Issue 277

1.89 MILLION VOTERS REGISTERED

Mongolia has seen some 1.89 million voters register for the presidential election slated for 26 June

from 1,896 electoral districts throughout the country.

Source: Undesnii Shuudan

6,000 ABSENTEE VOTERS REGISTERED ABROAD

An estimated 6,000 Mongolians abroad have registered to vote in the 26 June presidential election.

The deadline for registration was 31 May. Government established a Temporal Electoral Commission

to lead the voting procedures abroad. Mongolians living abroad will be permitted to vote from 14 to

16 June.

Source: News.mn

Issue 278

PRESIDENTIAL CANDIDATES SPEAK ON OT

The candidates for Mongolia‘s June 26 presidential election have made their statements to how

they would approach the Oyu Tolgoi investment agreement as president.

Incumbent President Tskhia Elbegdorj said he could not state any conclusions on the investment

agreement or make any promises. Mongolian People‘s Party presidential candidate has promised to

improve the Oyu Tolgoi Investment Agreement with an option [not further explained by the source]

that is mutually beneficial and balanced. Mongolian People‘s Revolutionary Party Naatsag Udval has

stated that the investment agreement was passed under corrupt intentions for election purposes.

She said as president she would resolve issues concerning the Oyu Tolgoi mine and other strategic

deposits with the best possible outcomes for the people of Mongolia.

Source: Zuunii Medee

MONGOLIA ENLISTS 300 OBSERVERS FOR JUNE ELECTION

Over 300 observers from 32 countries have been granted certificates for short-term observation

during the election of the president.

According a report by the General Election Committee, foreign observers will visit electoral districts

in the cities and provinces and observe the printing process of ballot papers and programming of

the voting machines. Observers are expected to take note of advertising practices, voter

participating as well as the preparations made in the lead up to the election.

Source: News.mn

Issue 279

ELBEGDORJ LEADS THE POLLS

Two polls show that Elbegdorj has a wide lead over his opponents for the 26 June presidential

election.

The Sant Maral Foundation released a poll surveyed from 14 to 16 June on the very last day

Mongolian law allows polls to be published. The poll surveying 1,480 people in Ulaanbaatar showed

that 54 percent intended to vote for incumbent president Tsakhia Elbegdorj, 37 percent for

Badmaanaymbuug Bat-Erdene, and 9 percent for Natsag Udval. On turnout, 70 percent said they

were definitely planning to vote on 26 June. Voters indicated that the most important issue was

―standard of living‖ (selected by 26 percent of those polled), closely followed by unemployment

(25.6 percent).

A separate exit poll of the 273 of the 2,724 overseas voters who voted in Washington D.C., San

Francisco, London and Seoul was also published. However, as the number of overseas voters

represents only a fraction of one percent of the total electorate, the ballots are not likely to

provide much sway over the election, with exception for an extremely tight race. The poll reported

195 votes for Elbegdorj (71 percent), 69 votes for Bat-Erdene (25 percent), and nine for Udval (3

percent).

Although the methodology employed for the exit poll appears less than scientific, the group who led

the poll, We have a Right to Vote, defended its accuracy by pointing to last year's election. The

group noted that its polls of overseas voters showed 46.3 percent and 24.9 percent favored the

Democratic Party (DP) and Mongolian People's Party (MPP), respectively, compared with eventual

turnout of 45.3 percent of the electorate for the DP and 24.9 percent for the MPP.

Click here to view the whole poll published by the Sant Maral Foundation.

Source: North America-Mongolia Business Council

PRESIDENT'S CHIEF OF STAFF DENIES ALLEGATIONS OF MINING SWINDLE

Presidential Chief of Staff P. Tsagaan has denied claims by foreign news that associates of the

president had conned a South Korean investor into donating to the president's campaign in return

for a gold mine license that was later found to be empty.

Tsagaan was mentioned in a report from Asian News International and disseminated on the Indian

news website Zeenews.com that said an unnamed Korean citizen was offered a gold mining license

for a deposit worth USD 10 million. The report claimed that the license was a gift for ―humanitarian

assistance‖ that helped reduce winter smog in Ulaanbaatar by installing heated floorboards to gers

that would otherwise burn coal. In return presidential cabinet members asked for a donation of USD

2 million. Due diligence, alleges the report, showed there was no gold at the deposit.

―Such slanders and libels started the month before the presidential election campaign was

launched,‖ he said. ―There were numerous attempts to discredit the president, his team, and his

advisors. But each time such defamations and unabashed accusation were proven to be lies, by

law.‖

Tsagaan said that the inclusion of the presidential election date indicated that the article may be

related to election interests. The chief of staff said that President Tsakhia Elbegdorj was

committed to combating corruption and no mineral license had been issued since June 2010 [to

clarify, no exploration license has been issued -ed]. He noted that licenses issued after that were

later revoked by Mongolian courts. He noted that similar lies were spread in the 2009 election

before Elbegdorj was first elected as president and that it was also possible that more slander

would be spread.

―Those who libel us must be aware of the responsibility they bear in front of the law,‖ Tsagaan

said. He added, ―Libels, slander, lies such as this one will not break our will to fight down

corruption. They will not break the desire of the Mongolian people to live in a just and fair society.‖

Source: News.mn

OSCE RELEASES PRE-ELECTION REPORT

Election observers from the Organization for Security and Co-operation in Europe have delivered a

report on the presidential election in advance of when citizens will head for the polls on 26 June.

The report covers what it had monitored from 10 May to 3 June, making their analysis on the legal

environment of election and electoral system, election organization, registration, nominating

process, advertisements, press, and complaints from citizens. The report noted that the General

Election Committee was competent in preparing for the election and the electoral process was

moving forward without incident.

The 300 observers come from 24 European countries will be in attendance to observe the election

at the polls.

Source: Udriin Sonin

CAMERAS TO BROADCAST FROM POLLS

The General Election Committee (GEC) has ordered the installation of IP cameras at polling stations

in Ulaanbaatar to protect against vote tampering during the 26 June election.

GEC is cooperating with the Information Technology Authority (ITA) to install the cameras in 368

electoral districts. Cameras in 66 sub-electoral districts will be connected via fiber optic cables to

broadcast video from the polling station in real time. ITA has sent six teams to install the cameras

by 23 June.

Source: News.mn

MONGOLIANS ABROAD CAST THEIR VOTES

A total of 6,233 Mongolians abroad exercised their rights to vote in the presidential election from 14

to 16 June at all Mongolia's diplomatic missions.

The voter's registration was held from 5 to 19 May through 39 sub-commissions, and 6,478 people

had earlier been listed to vote in the election. However, 240 of them were ―crossed out‖ due to

some documentation problems. The largest number of voters was registered in Seoul, South Korea

with 1,454 people and in Washington DC, United States, with 838 people.

The voting process was held until 10 p.m. at all diplomatic missions, and the ballot papers were

sent to the General Election Commission (GEC) before being sent to Mongolia. These papers will be

counted together with the ballot papers from the polling stations in Mongolia. Instructions on how

Mongolians abroad will vote were also given by the Ministry of Foreign Affairs, General Authority of

Registration and GEC.

Source: Bernama

PROVING THE NAYSAYERS WRONG

Observers say he is a sure thing. His party hopes he is. In what is a three-way competition,

Mongolian President Tsakhia Elbegdorj will be seeking to retain power in the presidential election

scheduled for 26 June, keeping his Democratic Party the dominant force in government at least

until the next legislative election.

Elbegdorj is the tried and tested candidate whose political career dates back to the country's

democratic beginnings, when he helped launch the democratic revolution in 1990s. He's been prime

minister twice, non-consecutively, and is a proponent of foreign investment to keep the Mongolian

economy growing. His main rival Bat-Erdene is one of a younger breed of politicians who has largely

campaigned on the strength of his ―clean hands.‖ The final challenger, Natsag Udval, is something

of a stand-in for the currently incarcerated Nambar Enkhbayar and also runs on the novelty of being

the country's first female candidate for the presidency.

―Some say there are those who try to own this democracy, but democracy is quite widely

accepted,‖ said Perenlei Erdenejargal, executive director of the Open Society Forum‘s office in

Mongolia. ―The Mongols are traditionally very individualistic people, and the nomadic culture

always exercises individual freedoms and human rights. Those 70 years were a change, but

historically this is how we lived.‖

Mongolia has in recent years introduced new voting regulations and measure to prevent voter fraud.

For the parliamentary election last year, the country used electronic voting machines for the first

time and it has distributed new identification cards that come with a computer chip to verify a

person's identity. The 2012 election also saw the acceptance of ballots from Mongolian citizens

living outside the country. Most telling, though, was the successful dispute against three candidates

for breaking the election law, which eventually resulted in two of them having their results

forfeited.

Erdenejargal is confident this year's election will be uncontroversial. The only uncertainty is

whether or not a run-off vote would be needed. Victory requires 50 percent of the electorate plus

one vote. But whatever the final tally, for Mongolia an uneventful election is a successful one.

Source: The Diplomat

Issue 280

ELBEGDORJ WINS RE-ELECTION

Mongolian President Tsakhia Elbegdorj defeated a wrestling champion and a pediatrician to win re-

election without the need for a run-off vote.

Democratic Party (DP) candidate Elbegdorj won 50.23 percent of the vote with all counting

completed, Choinzon Sodnomtseren, head of the General Election Commission, said at a briefing in

Ulaanbaatar. Former wrestling champion Badmaanyambuu Bat-Erdene took 41.97 percent and

Health Minister and former doctor Natsag Udval was third with 6.5 percent. The results will be

made final within five days.

―The Parliament of Mongolia, the government of Mongolia and the president of Mongolia will work

as one team in the remaining period,‖ Prime Minister Norov Altankhuyag said at a briefing late

yesterday. ―We work to improve the lives of all Mongolians and eradicate corruption.‖

Source: Bloomberg

MONGOLIA SEES AT LEAST 63.89 PERCENT VOTER TURNOUT

Voter attendance for this week's presidential election was 63.89 percent of voters nationwide by 9

p.m., while polls closed on 10 p.m. that day.

General Election Commission head Ts. Sodnomtseren reported that 65.13 percent of voters cast

their vote in Ulaanbaatar. The highest voter turnout was in Dungobi with 69.36 percent and the

lowest in Dornod with 57.21 percent.

Source: Montsame

TOUTED DEBATE FIZZLES INTO Q&A EXERCISE

Last Monday's presidential was one of few surprises and did little to deter observers calling the

election in favor of Elbegdorj.

During the debate on 24 June, incumbent President Tsakhia Elbegdorj looked presidential, if a bit

stiff, and did not make a mistake. Natsag Udval was surprisingly engaging and fairly moderate in her

statements. Badmaanyambuu Bat-Erdene was awkward.

After the opening statements, the first seven questions focused on the following: values,

representing Mongolia abroad, current socio-economic situations, judiciary, military, mining and its

impact on the economy, Mongolian traditions, and education. In the answers to these questions

there were no surprise announcements, nor did any of the candidates make any radical statements

of any kind. Answers were generally similar, as the platforms were, and differed in style and

emphasis but not in substance.

Udval received the best audience reaction when she noted that 30 percent of Mongolians are poor

and that she was the poor one among the candidates. Somewhat surprisingly, Elbegdorj

immediately jumped on electricity as the most important issues for the socio-economic situations.

Udval's answer on mining was somewhat surprisingly mild in that she did not really embrace any

kind of explicit elements of resource nationalism, either as an ideology or in terms of practical

policy implications. Elbegdorj emphasized the needs to be not just a policy on production, but also

on mining exploration, while Bat-Erdene mentioned the need for a build-up of processing capacity

in addition to mining itself.

Udval won the debate, but it will most likely not make that much of a difference to the outcome

other than she might be taking more votes from Bat-Erdene than anticipated. Elbegdorj played it

safe with an incumbent's campaign and did not fumble any of the questions. Bat-Erdene did not

shine and likely did not improve his chances significantly. The debate may have significant impact

on undecided voters, but it is hard to imagine that many were swayed by Bat-Erdene's performance.

Source: Mongolia Focus

July

Issue 281

MONGOLIA ELECTION MAKES SPACE FOR GREATER POLICY CLARITY, SAYS FITCH

President Tsakhia Elbegdorj's victory in last week's Mongolian presidential election creates space for

the authorities to reduce policy uncertainty, particularly around foreign investment in mining and

macroeconomic management, Fitch Ratings said. This could potentially result in higher growth and

improved fiscal performance and external finances, which would support Mongolia's sovereign credit

profile.

Elbegdorj's victory should consolidate the hold on power by the Democratic Party, the largest

member of the coalition government. A period of political stability could allow the Mongolian

authorities to clarify their plans for the country's mining regime through a new mining law, and its

foreign investment regime through amendments to existing laws. These key policy areas have been

subject to some uncertainty in recent months, against a backdrop of populist pressure to reassert

Mongolian ownership of resource assets, especially since last year's parliamentary elections.

Since the Source affirmed Mongolia's ―B+‖ rating the ―Stable Outlook‖ in November 2012, some

credit negative policy uncertainty has emerged. The biggest and most visible example has been the

delay of copper exports from the huge Oyu Tolgoi mine jointly owned by the Mongolian government

and Rio Tinto PLC beyond their scheduled start date in mid-June. Mongolia's fiscal deficit

deteriorated sharply from 4.8 percent of GDP in 2011 to 8.4 percent in 2012, as revenue intake fell

short of expectations and was far outpaced by expenditure growth (despite capex being under-

executed).

The government's ability to comply with the Financial Stability Law, which caps the structural

deficit at 2 percent of gross domestic product and limits expenditure growth from this year, will be

severely tested as the law implies significant tightening of spending. The Bank of Mongolia has cut

its policy rate and credit growth has begun accelerating again, reaching 34.4 percent in May from

23.9 percent in December. This has contributed to market pressure on the tugrug, which has

depreciated by 3.7 percent so far this year against the dollar.

The Source expects an improvement in the balance of payments once the Oyu Tolgoi mine comes on

stream, while further unexpected delays could intensify pressure on Mongolia's external finances.

Source: Reuters

MONGOLIA ELECTION FAIR AND EFFECTIVE, YET RESTRICTIVE, SAYS OSCE

Mongolia's presidential election was characterized by a competitive campaign conducted in an

environment that respected fundamental freedoms, concluded the Organization for Security and

Co-operation in Europe (OSCE) election observation mission in a statement released today. At the

same time, restrictive legal provisions prevented the media from providing sufficient information to

voters.

―On election day, voters were able to cast their votes freely, and voting was assessed positively in

99 percent of the cases observed,‖ said Ambassador Audrey Glover, the head of the election

observation mission of the OSCE Office for Democratic Institutions and Human Rights (OSCE/ODIHR).

―However, secrecy of the vote was not always safeguarded.‖ She added, ―Election commissions of

all levels administered the technical aspects of the election effectively, but not always in an open

and transparent manner, nor did the General Election Commission always take the necessary steps

to ensure the consistent and uniform implementation of the election legislation.‖

The three candidates contested the presidential election without hindrance. Among the concerns

identified in the statement, however, was that the legal framework provided only parliamentary

parties and coalitions the right to nominate presidential candidates. This and other eligibility

requirements are overly restrictive and not in line with OSCE commitments and other international

standards, the statement said.

The campaign environment was characterized by respect for fundamental freedoms and the legal

framework generally provides for freedom of expression, the statement said. At the same time, it

noted that media ownership is not transparent and that interference in the content of new

programs undermines the media's independence.

Source: OSCE

ELBEGDORJ RECEIVES PARLIAMENTARY CONFIRMATION OF RE-ELECTION

Tsakhia Elbegdorj on Wednesday received 94.4 percent confirmation from Parliament for his re-

election in the presidential race last week. An inaugural ceremony will be held on Wednesday, 10

July.

Source: Montsame

A SECOND CHANCE FOR THE PRESIDENT

President Tsakhia Elbegdorj won a second and final term in office in a close race on 26 June,

becoming the second president to be re-elected in the country's democratic history. The result

signals stability and offers hope for new investment and improved citizen welfare in a country that

has recently captured the attention of investors and analysts around the world.

During Elbegdorj's last term, the giant Oyu Tolgoi gold and copper mining project, in which the

government owns a minority stake, has moved rapidly toward production. The project contributes

greatly to Mongolia's growth. The president is likely to continue discussions regarding the specifics

of the country's relationship with the multinational mining company Rio Tinto PLC, who controls the

Oyu Tolgoi project.

Over the past 12 months, foreign investors' interest in Mongolia remained strong outside the country

but much more muted inside. The sale of the USD 1.5 billion Chinggis bond had financial advisors

around the world add Mongolia to their watch list. By contrast, many investors who are directly

involved in Mongolia have been scared away by legislation concerning foreign investment, mining

and other related areas. The perception of increasing risks in Mongolia has caused many projects to

be scaled back or rethought. But Elbegdorj is likely to attack necessary tasks with vigor.

Beside economic growth, Elbegdorj has also focused on judicial reform and the battle against

corruption. Together with Minister of Justice Khishigdemberel Temujin, he has pursued reforms

through legislative initiatives, such as assigning more specific definitions of conflict of interest. He

has also actively used his presidential powers to appoint trusted Democratic Party members to

positions of power in the judicial system. But this does not necessarily guarantee a clean

government. Proof will be whether examinations are made to the records of fellow party members

as well as political opponents.

Difficulty lies ahead, but there are signs that a re-elected and reinvigorated president will help

bring about positive changes for Mongolian citizens and foreign investors alike.

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

Asian Research and blogs at MongoliaFocus.com.

Source: Wall Street Journal

Issue 282-283

ELBEGDORJ SWORN IN PLEDGING RAPID DEVELOPMENT

Mongolia's re-elected President Tsakhia Elbegdorj was sworn in on 10 July promising rapid

development amid a resource boom.

The ceremony was held outdoors for the first time, in front of a huge statue of Chinggis Khan in

Ulaanbaatar. Several thousand supporters cheered after Elbegdorj, 50, wearing a long white

traditional deel and white hat, took the oath before the image of the warrior who unified the

nation 800 years ago and went on to build an empire stretching across Asia. The Soviet-trained

former military journalist and Harvard graduate helped overthrow Mongolia's 70 year-old one-party

system in 1990, and has twice served as premier. He was first elected president in 2009.

Roads would be built from each region to Ulaanbaatar, and the capital would have highways and a

metro. ―New towns will be built in Mongolia,‖ he added.

Source: AFP