BUSINESS COUNCIL of MONGOLIA NewsWire

www.bcmongolia.org

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Issue 178, July 29 2011

NEWS HIGHLIGHTS: Business:

Drill results confirm continuity of copper-gold-silver zone at Erdene Project;

NIC and Uniservice Solution chosen to supply fuel and support services to MMC;

MEC has sales agreements for 2 million tons of Khushuut coking coal;

Prophecy Coal announces adoption of shareholder rights plan;

Xanadu finalizes farm-in agreement on Javkhlant exploration project;

Guildford completes acquisition of further 50% in Terra Energy;

Blue Wolf announces closure of IPO;

Lucky Strike hopes to begin 1,500-meter due diligence drilling in August;

TVN Corporation exits trading halt with happy tidings from Nuurst project;

Haranga issues June 2011 Quarterly Activities Report;

Voyager pursuing “aggressive exploration program”;

Management changes at East Asia Minerals;

Asia Coal expands into coal transportation;

Chinese smelters banking on concentrate supply from Oyu Tolgoi.

Economy:

Erdenes TT sells coal to China's Chalco to help fund IPO costs;

Report forecasts 400% increase in mining output by 2015;

Coal freight rise unlikely to affect exports;

Foreign debt USD4.1 billion, currency reserve USD2.5 billion;

South Korea still to name Executive Director of Development Bank;

ACA believed to be probing charges against MP, head of Central Bank;

Provinces report restriction on AI-92 sales;

Microfinance lenders like XacBank face forex risks;

Mongolia prepares for flood of money as minerals „supercharge‟ economy;

Chinese manufacturing set to contract.

Politics:

Japan complains to Mongolia over Tavan Tolgoi choice;

Japan talking to Mongolia about Tavan Tolgoi, not complaining;

Ministers harp on Japanese companies‟ hope to invest in TT;

Mongolia lukewarm about nuclear fuel repository plan;

Reports say Khurts has lost his appeal, Foreign Ministry silent;

Households not taking new stoves to be relocated;

Mongolia to buy 5 fighter jets from Russia;

Moscow‟s energy arm twisting likely to continue;

Why Mongolia matters;

The memories that stalk Mongolia and its neighbors;

Strategy means sensitivity to reality;

Leave Genghis Khan out of it;

London Gallery commissions statue of Chinggis Khaan;

Rains that do not wet make herders‟ life even harder;

Asia's mistrust of China based on its past behavior and strategic culture.

*Click on titles above to link to articles.

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MCS Property

BUSINESS DRILL RESULTS CONFIRM CONTINUITY OF COPPER-GOLD-SILVER ZONE AT ERDENE PROJECT Erdene Resource Development Corp. has listed the following as highlights of the final analytical results from a six-hole drill program, totaling 1,023 meters, from its wholly-owned Nomin copper-gold project in southwestern Mongolia. - Drilling identified narrow, steeply dipping, parallel zones of high-grade gold, silver and copper bearing massive sulphide along a north-south strike length of approximately 150 meters - The mineralized zones are located under a series of shallow historic mineral workings - The mineralization was drill-tested to a vertical depth between 30 to 60 meters below the ancient pits - The most northerly hole contains 13.3 g/t gold, 3.0% copper and 26 g/t silver over 0.5 meters - The most southerly hole contains 1.2 g/t gold, 24.0% copper and 65 g/t silver over 0.25 meters - The deepest intersection, at approximately 60 meters vertical depth, was also the thickest and included 2 meters of 2.4 g/t gold, 6% copper and 16 g/t silver - The mineralization is open to the north, to the south and at depth. Erdene is finalizing plans for additional drilling at Nomin. Source: Erdene Resource Development Corp.

NIC AND UNISERVICE SOLUTION CHOSEN TO SUPPLY FUEL AND SUPPORT SERVICES TO MMC NIC and Uniservice Solution have been selected, through competitive tendering process, as a supplier of fuel products to the Mongolia Mining Corporation Group and as a service provider for the provision of supporting services for its offices in Ulaanbaatar and at camps located at the UHG deposit, Baruun Naran deposit and TKH. On 22 July 2011, The Group entered into the following

agreements on July 22: (i) Service Agreement between Uniservice Solution and the Group, whereby Uniservice Solution conditionally agreed to provide office and camp supporting services to the Group for a period commencing from the date of the EGM at the earliest to December 31, 2013 for a total consideration of USD73,193,551; and (ii) Fuel Supply Agreement between NIC and the Group, whereby NIC conditionally agreed to supply fuel products to the Group for a period commencing from the date of the EGM at the earliest to December 31, 2013 for a total consideration of USD667,471,067. NIC may sub-contract its obligations under the Fuel Supply Agreement to Shunkhlai and Gobi Oil. The Office and Camp Supporting Service Agreement will be terminated on the date of the EGM when the Service Agreement becomes effective. Uniservice Solution is a wholly-owned subsidiary of MCS Holding which indirectly owns a 100% shareholding interest in MCS Mining Group Limited, a substantial shareholder. NIC is an associate of Petrovis Resources Inc, a substantial shareholder.

Source: Mongolia Mining Corporation

MEC HAS SALES AGREEMENTS FOR 2 MILLION TONS OF KHUSHUUT COKING COAL Mongolia Energy Corporation says in its Annual Report 2011 that market conditions for the Khushuut coking coal product remain favorable and encouraging. The company has secured sales agreements for up to 2 million tons of coking coal product for this year from two customers. Turnover for the Project will be formally recognized when it commences commercial production. Trial production and the first shipment from Khushuut began in October 2010. Since then, the company continued the production of coking coal through its indirectly wholly owned subsidiary in Mongolia, MoEnCo LLC. The small volume trial shipments continued from October 2010 through the end of the Financial Year for a total of approximately 5,300 tons of raw coking coal. Ramp up of coal shipments was slower and smaller than expected and was attributed to various factors including the completion and acceptance of the Khushuut Road. The contract miner, Leighton, is in place and prepared to ramp up production as soon as the approval is received. The company is the first to transport coal from Western Mongolia to Xinjiang in China via the Yarant/Takeshenken border. This posed various challenges in the delivery process for both the company and border officials. The company is working with Mongolian Government officials for an expansion of the border, longer and flexible opening hours and continued improvement of operational efficiency to increase the border-crossing capability to meet long term production capabilities. Currently, 304 km out of the 310 km of the Khushuut Road has been built and 295 km out of the 310 km of the road has been paved. In order to receive the Government‘s approval and to begin formal commercial production, a few issues are required to be addressed.

Source: Mongolia Energy Corporation

PROPHECY COAL ANNOUNCES ADOPTION OF SHAREHOLDER RIGHTS PLAN Prophecy Coal Corp. has adopted a shareholder rights plan designed to encourage the fair treatment of its shareholders in the event of an unsolicited take-over bid for shares of the company. The Rights Plan is designed to give the company's shareholders sufficient time to properly assess a take-over bid without undue pressure and to give the Board of Directors time to consider alternatives that allow the shareholders to receive full and fair value for their common shares. Mr. John Lee, Chairman of Prophecy Coal, has said the ―management believes the company is very undervalued, thus vulnerable given the rise in value of its equity holding in Prophecy Platinum". Although the Rights Plan is effective immediately, it is subject to TSX Venture Exchange approval and must be ratified by the shareholders. It is similar to shareholder rights plans adopted by numerous other Canadian corporations. Neither the Board nor senior management of the company is aware of any current, pending or threatened take-over bid for the company.

Source: Prophecy Coal Corp.

XANADU FINALIZES FARM-IN AGREEMENT ON JAVKHLANT EXPLORATION PROJECT Xanadu Mines Ltd. has finalized a farm-in agreement on the Javkhlant exploration project, as part of its strategic alliance with Noble Group Limited. The project is located in the southwestern Gobi Altai Province of Mongolia. The earn-in agreement will be undertaken via Ekhgoviin Chuluu LLC (EC), the Joint Venture vehicle established to seek out and develop new coking coal opportunities as part of the strategic alliance between Xanadu and Noble. Under the terms of the agreement, EC can earn up to 80% of the

Javkhlant coal exploration license by meeting various spending commitments over two years. These include up to USD 230,000 on drilling to earn the first 60%, followed by a commitment to complete a JORC resource to earn a further 20%, taking EC's interest to 80% of the Project.

Source: Reuters Key Development

GUILDFORD COMPLETES ACQUISITION OF FURTHER 50% in TERRA ENERGY Guildford Coal has completed the exercise to increase its stake in its Mongolian subsidiary Terra Energy LLC from 20% to 70%. Non-Executive Chairman Craig Ransley has said the move was taken because of the positive results generated from exploration to date on the South Gobi coking and thermal coal project and the Middle Gobi thermal coal project. ―The highly prospective Terra Energy LLC projects have the potential to define large scale thermal and coking coal mineral resources and represent an opportunity for Guildford to become producer within 12 months,‖ he said. Guildford continues to conduct due diligence on a number of additional tenements in Mongolia which have synergies with and complement the existing project portfolio.

Source: Guildford Coal

BLUE WOLF ANNOUNCES CLOSURE OF IPO Blue Wolf Mongolia Holdings Corp. said last week that the underwriters for its initial public offering have exercised their over-allotment option in full and that it has closed the offering for gross proceeds of USD80.5 million - 8.05 million units at USD10 a unit. Each unit issued in the initial public offering consisted of one ordinary share and one warrant to purchase one ordinary share at an exercise price of USD12 per share. The company is a newly-organized ―blank check‖ company formed for the purpose of acquiring or merging with an operating business.

Source: Blue Wolf Mongolia Holdings

LUCKY STRIKE HOPES TO BEGIN 1,500-METER DUE DILIGENCE DRILLING IN AUGUST Lucky Strike Resources has received three bids from drilling companies in Mongolia to perform a 1,500-meter due diligence drilling on the CN Coal Properties, and expects to commence the work in August. The drilling is expected to confirm the present estimate that the potential coal tonnage within and surrounding the CN Coal Properties, including licensed and non-licensed areas in the vicinity, amounts to Mongolian P1 resources of 232 million tons, P2 resources of 1,017.9 million tons and P3 resources of 271.4 million tons, for a total of 1.52 billion tons historical resource.

Source: Lucky Strike

TVN EXITS TRADING HALT WITH HAPPY TIDINGS FROM NUURST PROJECT TVN Corporation has lifted the trading halt on the company by announcing some very significant coal drilling results from the Nuurst project in central Mongolia. The highlight is the continued significant coal sequence 192 meters thick, with multiple seams including a single seam of a substantial 115.5 meters thick. Most importantly for the company - initial assays confirm high quality thermal coal. Nuurst has an exploration target of 50 to 100 million tons of thermal coal.

Source: TVN Corporation

HARANGA ISSUES JUNE 2011 QUARTERLY ACTIVITIES REPORT In its June 2011 Quarterly Activities Report, Haranga Resources Limited has highlighted the following as part of its exploration activity: - Drilling has commenced at the its flagship Selenge iron ore project - Iron mineralization intersected in the initial diamond holes appears to be significant and of a similar nature to that reported from the previous drilling completed at the prospect - The 4,000-meter diamond drill program will likely be expanded and further augmented by an RC drill program - Currently drilling the first of four priority targets identified within the project area - First pass drill programs completed at the Sumber and Tumurtei Khudag iron ore projects - Iron mineralization discovered in magnetite skarn at Tumurtei Khudag - Magnetic survey completed over entire Shavdal project license, revealing further magnetic targets.

Source: Haranga Resources

VOYAGER PURSUING “AGGRESSIVE EXPLORATION PROGRAM” The June Quarter Activities Statement of Voyager Resources says the company commenced an

aggressive exploration program during the quarter, taking advantage of the warmer months during the Mongolian summer. Four drilling rigs will be in operation during the first week of August at the Khul Morit (KM), Khongor and Daltiin Ovor Projects. Initial results from the ongoing geophysical and geochemical surveys at the KM Copper Porphyry Project identified several high order anomalies. As a result the company has expanded the current drilling program with the fast tracking of two diamond core drilling rigs to site. Activity on site has grown rapidly with an estimated 60 to 70 people currently located at the recently established camp. Voyager has also advanced exploration programs at its Khongor Copper Gold Porphyry Project during the quarter. Surface mapping was completed over areas of interest at various scales, and led to the discovery of two new porphyry copper mineralized zones.

Source: Voyager Resources

MANAGEMENT CHANGES AT EAST ASIA MINERALS East Asia Minerals Corporation has announced changes to its management structure, effective immediately. Mr. Michael Hawkins has resigned as CEO-President-Director, and is replaced by Dr. Darryl Clark as CEO and Mr. Alex Granger as President. Mr. Edward Rochette is now Chairman of the Board of Directors. Mr. Hawkins, credited with bringing into the company its successful portfolio of uranium properties in Mongolia, will continue with East Asia Minerals as a consultant during this period of transition. Dr. Clark has earlier worked as Country Manager, Vale Mongolia. Mr. Rochette was once Senior Vice President of Ivanhoe Mines Ltd., where his responsibility included the negotiation to acquire the world class Oyu Tolgoi copper-gold project. Source: East Asia Minerals

ASIA COAL EXPANDS INTO COAL TRANSPORTATION In its just published Annual Report, Asia Coal Limited has said the Group continued to engage in coal mining business and also expanded into coal transportation business. In the coal mining segment, the Group continues to hold the mining right to the Saikhan Ovoo coal deposit in Bulgan province. The JORC compliant Resources Report prepared by an independent technical adviser shows estimated resources there to be in excess of 190 million tons. The Group has engaged Wuhan Design & Research Institute of Sino-Coal International Engineering Group for the feasibility and coal mine and washing plant design in relation to the deposit. The design calls for an estimated production capacity of 2.5 million tons of raw coal per annum. The Group has also expanded into the coal transportation business and provides trucking transportation in Mongolia and from Mongolia to China. It has encountered various problems such as border crossing control and truck driver management which has limited the transportation volume and is now in the process of correcting the problems.

Source: Asia Coal Limited

CHINESE SMELTERS BANKING ON CONCENTRATE SUPPLY FROM OYU TOLGOI Chinese smelters expect supplies of copper concentrate to rise as early as late 2012, paving the way for higher charges, as the Oyu Tolgoi copper and gold mine starts to come on-stream. That may prompt Chinese smelters to raise term treatment and refining charges (TC/RCs). The startup (of Oyu Tolgoi) may help improve the concentrate shortage in the Chinese domestic market," Mr. Yang Changhua, senior analyst at state-backed research firm Antaike said. Higher charges, typically seen when supply rises or demand falls, cut concentrate import prices. China's location makes it a natural buyer for Oyu Tolgoi concentrates, which are now being offered to Chinese smelters for term contracts starting in 2013. The mine is set to start production tests in June 2012, with Chinese buyers expecting some spot concentrate sales in the fourth quarter of 2012. Commercial production is scheduled to start in the first half of 2013. Spot concentrates typically are ad-hoc and offered only when they are available, compared to planned term sale. "Oyu Tolgoi presently is under full-scale construction and is on course to become one of the world's largest copper-gold-silver producers," Ivanhoe Mines said in an email to Reuters."While present estimates anticipate the delivery of first ore from the open-pit mine to the concentrator during 2012, no sales commitments are being made for any potential production from the new mine in 2012." Antaike's Yang said the mine output will not be sufficient to cover China's concentrate deficit, adding that Chinese smelters may still use the anticipated additional supply from Oyu Tolgoi as a bargaining chip to demand higher term TC/RCs in 2012. Industry sources said six large- and

medium-sized Chinese copper smelters were in talks with Rio Tinto for 3-year term contracts for concentrates to be produced by the Oyu Tolgoi mine.

Source: Reuters

ECONOMY ERDENES TT SELLS COAL TO CHINA‟S CHALCO TO HELP FUND IPO COSTS State-owned Erdenes Tavan Tolgoi has agreed to sell USD250 million worth of coal from the east Tsankhi deposit to Aluminium Corp of China Ltd (Chalco), a move insiders said was aimed at raising cash to help fund its impending IPO listing fees. Under the agreement, Chalco would resell 30 percent of the coal to Japanese trading houses Itochu Corp and Mitsui as well as state-owned Korea Resources Corp (KORES), Erdenes TT LLC said in a statement seen on Wednesday. Erdenes TT said a signing ceremony was attended by China's ambassador to Mongolia and delegates from Chalco. It has also signed purchasing agreements with Itochu, Mitsui and Kores. The Mongolian Government has split the massive Tavan Tolgoi coal field into two sections for development. The east Tsankhi area is owned by Erdenes TT, which is planning an initial public offering worth an estimated USD10 billion, while the west Tsankhi block is being auctioned to miners via an international tender. A source involved in the listing of Erdenes TT said the Government has been working hard to raise USD500 million of initial funding needed to kick off the IPO process. "The overall capex for the project is well into the billions over the life of the mine so USD500 million is just a drop in the bucket to get this project moving," said the source who asked not to be identified as his firm was still competing to win deals related to the IPO. Erdenes TT did not say how much coal would be sold to Chalco under the USD250-million deal, but it said the agreement would expire within one to 1-1/2 years. However, a newspaper report quoted Mr. B. Enebish, head of state-run Erdenes MGL, as saying the deal would last for five years. Once the deal expires, Chalco would have to pay market price for the coal, Erdenes TT said. But it was unclear whether Chalco would continue to be the sole recipient of the coal from east Tsankhi deposit when the agreement expires. Erdenes TT could not be reached for comment.

Source: Reuters

REPORT FORECASTS 400% INCREASE IN MINING OUTPUT BY 2015 The latest Mongolia Mining Report expects that mining sector output will grow to USD11.5 billion by 2015, marking a fourfold increase from 2010 levels of USD2.6 billion. Most of this rapid growth will occur in 2012 and 2013 as the Oyu Tolgoi mine comes on line. It sees a dramatic reversal of the trend of static growth in mining output, with rapid rates of growth across the mining complex over the coming years. From 2011 to 2015, the annual average growth rate is forecast to be 31.4% in gold output and 46.2% in copper production. In terms of coal, the report predicts an annual average growth rate of 17.0%, reaching 27.0 million tons per annum by 2015. There are substantial upside risks to this coal outlook as the Tavan Tolgoi mine, currently owned by the Mongolian government, is due to commence output by 2015. Mongolia has made significant progress over the last decade to improve its business environment. Recently, however, there has been a slight deterioration in the country's business environment as the government suspended almost half of the country's mining licenses on environmental grounds, having previously cancelled two exploration licenses for the Canadian miner, Khan Resources.

Source: Business Wire

COAL FREIGHT RISE UNLIKELY TO AFFECT EXPORTS At a media briefing last week UB Railways representatives said the decision to increase by 15% the rate to transport domestic coal was not against the principles of fair competition and consumer rights. It was a commercial decision meant to cut down on escalating losses. Transportation of domestic coal has for many years been a loss-making service, and in 2010 the Railways incurred losses of MNT16 billion from transporting 5.7 Mt of coal. The increased rates would still leave 38% of the losses uncovered, but the quantum of loss is unlikely to drop below MNT16 billion as the volume of freight will be rising. The price of coal has been raised 19 times since 1990, but this was only the third time freight rates have gone up. The Railways does not rule more increases. Revenue from copper and iron ore transportation subsidize the losses from coal, construction materials, foodstuffs and passenger transportation. An expert on Mongolian mining, Dr. Graeme Hancock feels the present decision will further increase the costs of freight movement on the northeastern route, encouraging miners to ship coal to the

south. He thinks it is possible the Railways will offer special rates for bulk shipments north. The sector does not see the rise impacting export as it is mostly mines near the border that export their output. Hardest hit would be producers such as Baganuur and Shivee Ovoo, where, interestingly, the government has stakes.

Source: Frontier Securities

FOREIGN DEBT USD4.1 BILLION, CURRENCY RESERVE USD2.5 BILLION Addressing their monthly press conference, Central Bank officials revealed on Thursday that Mongolia‘s foreign debt stands at USD4.1 billion. This is the first time the Central Bank has released the figure of foreign debt. Foreign currency reserve stood at USD2.5 billion at the end of June. Companies and individuals have sold 1,409 kg of gold to the bank up to July 26. This is 440.5 kg or 1.4 times more than the corresponding figure from last year.

Source: News.mn

SOUTH KOREA STILL TO NAME EXECUTIVE DIRECTOR OF DEVELOPMENT BANK Last week‘s scheduled meeting of the Representative Managing Council of the Development Bank could not be held as South Korea has not yet named the Executive Director of the Bank. The last date for this was July 20. The meeting was meant to discuss the sale of Government bonds worth MNT800 billion, some issues of internal administration, and ratification of the appointment of the Executive Director.

Source: Unuudur

ACA BELIEVED TO BE PROBING CHARGES AGAINST MP, HEAD OF CENTRAL BANK Unconfirmed reports say the Anti-Corruption Authority is investigating MP Kh. Narankhuu on a charge of misappropriating Erdenet factory funds. It is also looking into charges that the President of the Central Bank, Mr. L.Purevdorj, misused Zoos Bank funds for his personal benefit. If any truth is found in the allegations, the ACA will have to refer the cases to Parliament. It is believed that more MPs can be investigated as the Parliament election draws near.

Source: Ardiin Erkh

PROVINCES REPORT RESTRICTION ON AI-92 SALES Despite official reassurance that there is enough fuel in stock, consumers in several provinces have been facing shortages. Deputy Governor of Arkhangai G.Chuluunbaatar has admitted that customers at petrol stations are not being allowed to buy more than 20 liters of AI-92 in one purchase. Workers at the stations say they have been told fuel reserves are low. Referring to the same kind of restriction in Khuvsgul province, the Chief of the Citizens Representatives Assembly has said the sale of AI-92 had to be controlled as many guests came to the province during Naadam and much more petrol was sold than estimated. He assured that there is enough stock, but petrol stations are selling between 20 and 40 liters in one purchase just as a precautionary measure. The Chief of the Citizens Representatives Assembly of Bayankhongor province, however, has denied any restriction on the sale of AI-92 there.

Source: Uls Turiin Toim

MICROFINANCE LENDERS LIKE XacBank FACE FOREX RISKS Global banks have figured out how to hedge against unexpected exchange-rate movements in the euro, yen and Swiss franc. But what happens when they try dealing with the MNT? Hedging foreign-exchange risks in major markets is becoming less of a problem for savvy institutions, but it is a growing issue for smaller companies that make philanthropic loans in tiny economies--investing known as microfinance, in which lenders such as Ulaanbaatar-based Xac Bank offer USD2,500 loans to local entrepreneurs to try jump-starting economic development in small countries. These kinds of loans are rapidly spreading around the world as rich-country investors make charitable loans to people who otherwise wouldn't usually have capital. One recent report says microfinance banks currently have about $6 billion in outstanding international loans. The problem is, the countries that are poor enough to need microfinance lending usually have extremely illiquid currencies, which make them all but impossible to hedge against. Banks are afraid to send large sums of their currencies there because if the local currency suddenly devalues, the borrowers can't pay back their loans and the lenders end up short. What happens when microfinance lenders try to make loans without this hedging help? Mongolia's XacBank offers micro-loans to nomadic yak herders and small manufacturers. The bank has to make the majority of its loans in USD even though its borrowers need MNT, a currency that is extremely

volatile because it's so illiquid, says Mr. Ts. Banzragch of the bank's treasury department. That forces the bank to make convoluted loans in which it deposits dollars from abroad into a local bank, then switches them to MNT, and then lends those out to herders. This leaves XacBank exposed to the risk of the MNT devaluing and borrowers having no way to fully repay their loans. Read more… Although the world has been moving toward freely floating and potentially volatile exchange rates for three decades, people in the microfinance field didn't take into account the idea that they could lose drastic sums of money because of currency fluctuations until the 2008 financial crisis. Enter TCX, a USD750 million fund founded in 2009 and backed by two dozen government agencies, including the development banks of Germany, Belgium and Japan. The fund holds huge quantities of currencies from emerging markets such as MNT. The idea behind holding all of these currencies is that if one of them unexpectedly moves in value, another's movement will balance it out, similar to how hedge funds operate. Banks that are interested in working with TCX know that being government-backed, it isn't always necessarily trying to squeeze every last penny out of its business deals like other major banks.

Source: The Wall Street Journal

MONGOLIA PREPARES FOR FLOOD OF MONEY AS MINERALS „SUPERCHARGE‟ ECONOMY Hurrying into her cramped office deep within Mongolia‘s huge Soviet-era Government House, Parliament member Sanjaasuren Oyun, 46, is flushed with excitement, a smile creasing her usually serious face. She hands papers to her young female assistant and exchanges some quick words in the low guttural murmur of Mongolian. Dressed in a pinstriped suit, with a pearl necklace, hair cropped to a business-like shoulder length, and an iPad tucked under her arm, she turns to a waiting reporter. ―Sorry to make you wait,‖ she said, switching smoothly to English, which she picked up as a student at Cambridge. ―It‘s an important debate we are having today. We are considering a freeze on new exploration licenses.‖ Outside, it‘s a still-chilly, late-May afternoon in Ulaanbaatar, no sign of green along its

potholed dirt roads. But the capital city of about 1 million people is already being transformed by forces greater than the change of seasons. A freeze on licenses to explore for minerals is no small matter in Mongolia, a country undergoing a resources boom, as miners such as London-based Rio Tinto Group and China‘s Shenhua Group compete for the right to extract coal, copper, gold, molybdenum and uranium. It‘s a resource play that‘s expected to bring a flood of money into the impoverished country over the next decade, centered around huge mining projects such as the Shivee Ovoo and Tavan Tolgoi coal reserves, valued at about USD300 billion and USD400 billion, respectively, and the copper and gold mine Oyu Tolgoi, worth some USD300 billion, according to Quam Asset Management Ltd. in Hong Kong, which runs a Mongolia-focused investment fund. Ms. Oyun is at the center of the country‘s efforts to pick its way between wealth and wise use. She is a geologist who once worked for the biggest investor in Mongolia‘s mining industry, Rio Tinto, yet she has made a career pushing for the rights of ordinary Mongolians and fighting corruption. She is also part of the nation‘s young democratic history. On the wall in her office is a picture of her brother Zorig, a member of Parliament who seemed on his way to becoming prime minister when he was killed in 1998. His murder is still unsolved. Read more… On the Parliament floor, members are demanding that the Mineral Resources and Energy Minister Dashdorj Zorigt step down for his handling of negotiations with foreign investors. ―The situation is a bit different from before,‖ Ms. Oyun says, gesturing at a television broadcasting the debate. ―When we made our first mining legislation in 1997, we were desperate to attract investment, but no more. We can be more demanding.‖ She acknowledges that the politicians may be grandstanding, aiming to embarrass rivals in the run-up to 2012‘s presidential elections. The energy minister didn‘t step down, though the freeze on new licenses has been extended through 2011. The discussion about ensuring Mongolia benefits from its resources is a struggle that pits nomadic herdsmen and environmentalists against well-connected players such as Prime Minister Sukhbaatar Batbold and Baasangombo Enebish, executive director and chief executive officer of coal company Erdenes MGL, as well as global resource giants such as Rio Tinto and Peabody Energy Corp. Ms. Oyun realizes it‘s time to meet her daughter and rushes outside, where her driver waits with the 5-year-old. As the car pulls out around Sukhbaatar Square, in front of Parliament, Ms. Oyun

points out an ongoing protest: Three round felt tents, known as ―yurts‖ or ―gers‖ in Mongolia, have been set up at the far end of the square. Their occupants are demanding the government close the mining industry to foreign companies. ―The gentleman who organized this protest has become something of an extremist --- I‘m not sure that‘s the right word,‖ she says, referring to Tsetsgee Munkhbayar, a former herdsman turned environmentalist. ―He fired guns near mining equipment last year and now says he and his followers may have to take up arms against the government,‖ she continues, frowning. ―He is a resource nationalist. But here in Mongolia we need to strike a balance. How to be sensible but also populist -- yes, we face this tension.‖ Mongolia is empty and remote, perhaps one reason Genghis Khan -- or Chinggis Khaan as his name is spelled locally in English -- set out to take over most of Eurasia eight centuries ago. On the two-hour-plus flight north from Beijing, the blankness of the Gobi Desert dominates before becoming the sweeping yellow and green of the steppe, then finally long ranges of treeless mountains as the plane approaches Ulaanbaatar. Other than the broad changes in landscape below, little else is seen. There are no buildings, no roads, no people, no trees, nothing much at all, really. Squeezed between China and Russia, and equal in size to western Europe, Mongolia has just 2.8 million people, making it one of the most sparsely populated countries in the world, notwithstanding the livestock. Mongolia‘s National Statistical Office estimates there are 33 million head of livestock in the country, including goats, sheep, horses, cattle and camels. More than a third of Mongolians live in the rundown capital, while about a quarter are still semi-nomadic, living in gers and moving their herds along with the seasons. While it may be short on humans, Mongolia is one of the richest nations in terms of natural resources, and that‘s just the known deposits. Four-fifths of the country is still unsurveyed. Over the next decade, copper production is expected to double, iron ore to triple, coal to grow by six times, and gold and oil by 10 and 13 times, respectively. Demand-driven growth Much of that growth will be driven by demand from China, predicts Eurasia Capital, an Ulaanbaatar-based investment bank that focuses on Central Asia and Mongolia. The biggest prize is Oyu Tolgoi -- or Turquoise Hill --named after the color of copper oxide as it seeps from the ground, and one of the largest deposits of copper and gold. Situated deep in the Gobi Desert, it‘s just 80 kilometers (50 miles) from China‘s northern border. Canadian company Ivanhoe Mines Ltd. and Rio signed an agreement with Mongolia to develop it in 2009 after the project developer Ivanhoe tried for more than six years to reach a mining accord. Securing the deal wasn‘t easy; disputes over how much control Mongolia should cede to the foreign miners led to bitter negotiations as well as protests where effigies of Ivanhoe‘s founder Robert Friedland and then President Nambaryn Enkhbayar were burnt. It was ―readily acknowledged‖ that participants in the demonstrations were paid to parade, Ivanhoe Capital Corp. spokesman Bob Williamson said. ―It is one of the flagship projects that Rio has,‖ said Cameron McRae, President and CEO of Oyu Tolgoi LLC, in his expansive office in the Monnis Tower, one of Ulaanbaatar‘s new high-rises. With an expected USD6 billion in annual revenue from the mine, ―it gives the copper group the opportunity to move into one of the top three in the world,‖ McRae said. Oyu Tolgoi employs close to 3,000 Mongolians. By early 2013 the company plans to invest USD7 billion, including building 100 kilometers of road from the mine to the Chinese border, an 85-kilometer pipeline to bring water to the operation, a 180-kilometer transmission line, and eventually a power station that may cost USD1.5 billion. ―We are very aware this is transforming Mongolia‘s economy,‖ says David Paterson, Vice President for Regional Development and Communications at Oyu Tolgoi, also noting that capital spending on the project‘s first stage alone is equal to Mongolia‘s annual gross domestic product. Simply getting ready to mine is supercharging the tiny economy. GDP grew 6.1 percent last year and was up 9.7 percent in the first quarter of 2011 from a year earlier. ―The mining sector could very well carry Mongolia for the next 50 years,‖ says Parmeshwar Ramlogan, the Ulaanbaatar-based resident representative for Mongolia at the International Monetary Fund. Ramlogan predicts Mongolia could grow at double-digit rates for at least the next 10 years, raising per capita income -- now at USD2,470 -- fourfold within a decade and making it one of the fastest-growing economies in the world. ―There is a time in these transforming economies when normal economic growth goes out the window,‖ says Richard Harris, CEO of Quam Asset Management. ―It‘s like a geological fault that the economy goes through. You are talking about a nomad or shopkeeper in a small town who suddenly

becomes a truck driver or a miner. And he goes from earning a few dollars a day to a few dollars an hour. Then you see the economic changes that go with that.‖ Policy makers in Mongolia have created a so-called human development fund in large part through prepaid taxes from foreign investors in the Oyu Tolgoi mine, and it doles out MNT21,000 (USD17) to every Mongolian once a month. Government negotiators are also demanding that the foreign companies that will develop part of the Tavan Tolgoi mine, which holds an estimated 6.4 billion metric tons of coal, pay their taxes early. Plans call for listing shares in the other half of the project in London or Hong Kong, then granting 10 percent of them to Mongolians, making every citizen a shareholder. No place is likely to change as much as Ulaanbaatar. Mongolia was a satellite state of the Soviet Union from 1921 to 1990, and the years of neglect are still evident in the capital, with block after block of battered-looking cement residential buildings lining rutted roads. A statue of Lenin still stands in front of the Ulaanbaatar Hotel, built in 1961 to house visiting dignitaries from the Soviet bloc. Ms. Oyun‘s grandfather, a Russian explorer, geographer and ethnologist who spent 26 years in Mongolia, was forcibly returned to the Soviet Union in 1939 and died there in a gulag in 1942. His family never learned the nature of his ―crime‖. Hard work and high life Already high-rises are springing up around Sukhbaatar Square. Louis Vuitton, Emporio Armani, Burberry and Ermenegildo Zegna boutiques vie for attention in the blue-glass Central Tower on the southeastern edge of the square. In the Monet Restaurant, on the building‘s 17th floor, businessmen in expensive suits dine on Norwegian salmon and Australian prime beef, finishing with a platter of Gouda, Camembert and Roquefort cheeses with wild blueberry crackers. A bottle of Mouton Cadet Reserve Sauternes can be had for MNT135,000 (USD108) while diners gaze over the square and beyond to the distant new sports stadium, built with Chinese money. At night a wilder side emerges in places such as Seoul Street‘s Grand Khaan Irish Pub, known for its hamburgers, beer and occasional fistfights, and in the city‘s numerous strip clubs. In the notorious Marco Polo Club, Australians and Americans working for mining-equipment companies mingle with visiting European investment bankers, drink Chinggis Khaan-brand vodka mixed with Red Bull, and watch topless Mongolian women pole dance. Harris Kupperman, 30, runs his own hedge fund, Praetorian Capital Management, based in Miami Beach. On a trip through North Asia last August, he was struck by the economic potential of Mongolia. He‘s bought a house in the high-end neighborhood of Zaisan with views over Ulaanbaatar. In February he started the Mongolia Growth Fund, raising USD36.6 million. ―All it takes is for you to put your feet on the ground here, you can feel the energy everywhere,‖ he said. ―It‘s unlike anywhere in the world in terms of sheer energy, apart from New York and maybe Hong Kong.‖ Kupperman has started an insurance company and plans to buy, renovate and rent the dilapidated Soviet-era apartments that fill the core of the capital. After looking at other resource economies such as Qatar, Dubai and Kazakhstan, Kupperman and his partners concluded that real estate and finance are two industries that flourish in mineral boom economies, but without the capital costs and political risks of mining. Sipping on a Heineken in the View Lounge, a stylish bar on the rooftop of the 11-story boutique Corporate Hotel, Kupperman notes that he‘s not the only investor in town. ―You go out on the street any day at noon and you will see dazed and confused hedge-fund guys walking around, with a Mongolian as a guide, with dust all over their USD1,000 shoes. And you know they are thinking, [how can I] invest in this country?‖ Mongolia continues to court start-up money. When Prime Minister Batbold went to China in June, Mongolia‘s President Tsakhia Elbegdorj was in the U.S., visiting, among other places, the offices of Bloomberg BusinessWeek. Elbegdorj, 48, is a former journalist and two-time prime minister. Like many of the parliamentarians making decisions about the country‘s future, he studied abroad. He has a master‘s degree in public administration from the John F. Kennedy School of Government at Harvard. On his June 17 visit he noted that Mongolia is planning to issue dollar-denominated bonds ―in the near future‖ to finance expansion of the mining industry and build roads and bridges. It has yet to do so. Ms. Oyun is a technocrat in her own right. In 1992, as a student majoring in geology at Cambridge, she flew with a prospecting team organized by Rio Tinto deep into the Mongolian desert to examine the potential of Tavan Tolgoi, then an undeveloped mine. Ms.Oyun graduated from Cambridge in 1996 with a doctorate in earth sciences and joined Rio Tinto in Newbury, England, at the branch then responsible for new projects. In October 1998, one day after returning to England from a one-month trek in the Tianshan

Mountains of Kyrgyzstan, Ms. Oyun received a call at two in the morning from a Mongolian colleague working in Rio‘s Ulaanbaatar office. Her brother Zorig, then infrastructure minister in the government, had been stabbed to death in his small apartment in the capital, just before an election that would have likely made him prime minister. In an interview just before his death, Ms. Oyun recalls, ―he said he was very worried that vested interests were taking precedence over the national interests of Mongolia.‖ According to Oyun, many Mongolians are convinced that her brother‘s unsolved murder was a politically motivated assassination, possibly involving Russian mafia interested in the country‘s then-largest coal mine, Erdenet. Days after Zorig‘s murder, Ms. Oyun returned to Mongolia for his funeral. ―There was this outpouring of public grief that, even for me, was overwhelming to see,‖ she remembers. She moved back to Mongolia to begin a political career, founding Civic Will, an opposition party. Since 2009 the country has been governed by a ―Grand Coalition‖ of the Mongolian People‘s Party and the Democratic Party. Civic Will‘s platform in large part centers on fighting corruption, especially the growing influence of money in Mongolian politics. ―I entered politics in 1998 because of my brother‘s murder,‖ Ms. Oyun says. ―I didn‘t join either party because I didn‘t find support from either of them for clean politics.‖ Ms. Oyun is fixated on transparent and clean governance, concerned that the new money will be siphoned off through corruption. “Economics is not all” Transparency International, a corruption watchdog, last year rated Mongolia in the bottom third of 178 countries, putting it on par with Mali and Mozambique. Of particular concern are the close links between government and large businesses. A ―majority of the 76 MPs have significant commercial interests in a range of sectors,‖ London-based risk consultants Exclusive Analysis said in a 2009 report on Mongolia. ―People are obsessed with money,‖ said Ts. Munkhbayar, 45, organizer of the protest in Sukhbataar Square. With a face brown from years in the sun, Munkhbayar usually dresses in traditional Mongolian garb: a deel, the long robe generally worn with a sash, and a rounded, pitched helmet-like hat. ―The traditional Mongolian perspective of loving nature and mother earth is being forgotten,‖ he said. ―As a people we are at a dead-end. We must get ourselves away from the idea that economics is everything and that economics will save us.‖ Munkhbayar heads a coalition of environmental and nationalist groups called Fire Nation, which organizes protests against the rush to develop the mineral economy. Self-trained in environmental legislation, he hands out copies of the national mining law to a visiting reporter. Frustrated by what he says is the mining industry‘s tendency to ignore land protection, Munkhbayar and others have taken to violent civil disobedience. Last September, Munkhbayar was part of the group that fired bullets into mining equipment owned by Canadian and Chinese companies that he says were breaking the law. While he claims no employees were directly threatened, he says without remorse that the incident was intimidating as staff ―ran or tried to get out of the way.‖ On June 3, Munkhbayar led a group of about 50 horsemen into the center of the city where they shot arrows at Government House. They were protesting the lack of official response to calls for a national referendum to elect a new government. Munkhbayar does much of his work out of a small office in Ulaanbataar‘s Sukhbaatar district, where on a May visit two volunteers are tapping on ancient, generic computers. Camping gear, including traditional Mongolian wooden saddles, is piled against one wall. His wife and 8-year-old daughter, youngest of four children, watch a tiny television. ―International corporations are bribing our government officials so they can take over Mongolia,‖ Munkhbayar said.―People should stop buying stocks from international mining companies that are involved in exploiting Mongolia. Instead of spending money to buy stocks they should use that money to help movements like ours.‖ With a national election looming next year, some financiers and politicians fear Parliament could take a few pages from Munkhbayar and vote in policies that might damp economic growth. It has happened before. Since leaving the Soviet Union, Mongolia has zigzagged between privatization and nationalization. In the mid-1990s, Mongolian politicians, inspired by Newt Gingrich, even wrote a ―Contract with Mongolia.‖ Later, populist calls to nationalize industry coincided with the passage of the highest profits tax on gold and copper in the world. It was repealed two years ago. As commodity prices rise, Mongolia may be swinging back toward the populists. Despite passing a stringent fiscal stability law last year, requiring that the deficit not exceed 2 percent of the

budget, the government plans to run up a deficit more than four times that amount this year. That may bring inflation into double digits and drive up the value of the MNT, making non-mineral parts of the economy, such as Mongolia‘s cashmere industry, less competitive. It could also bring on the so-called Dutch disease, says Rogier van den Brink, lead economist for Mongolia at the World Bank. That‘s when the discovery of natural resources leads to the decline of a country‘s manufacturing industries. ―It is always very tempting for government and politicians to say we are rich,‖ says van den Brink. ―The only problem is, it‘s still in the ground. So let‘s spend all this money in advance. That puts fuel on the fire of an already overheating economy.‖ Policy extremes It‘s true Mongolia has veered between policy extremes, concedes Ms. Oyun, now sitting in the second-floor office of the Zorig Foundation, in an old, high-ceilinged building next door to Mongolia‘s Foreign Ministry -- where Ms. Oyun served as minister from 2007 to 2008. A large map of Mongolia covers much of one wall, next to an assortment of five photos of Zorig, including one of him perched on a supporter‘s shoulders addressing crowds during a 1990 protest. Student volunteers wander in to ask Ms. Oyun about her schedule for the next week. ―If we stick to the golden middle -- if we stick to the main international trends of doing business and having good governance -- not going to either the right or left extremes, then we don‘t have to be what economists call the darling of the ultraliberals in the West, but we don‘t have to introduce the highest windfall tax in the world either,‖ she said. ―There is finally, after 20 years, a real opportunity for Mongolia to grow, and to create jobs and income for the population. I can‘t expect us politicians to be clever, but if we don‘t come up with stupid decisions, then we should be fine for at least the next few years,‖ she said with a laugh. ―As Genghis Khan apparently said, it‘s easy to ride on a horse and conquer a country, but much more difficult to get down from the horse and run it.‖

Source: Bloomberg BusinessWeek

CHINESE MANUFACTURING SET TO CONTRACT China‘s manufacturing sector could be heading for its first contraction in a year as new orders drop and factories battle against persistent inflation, according to a survey published last week. The HSBC flash purchasing managers‘ index for China, designed to provide an early snapshot of industrial conditions, has fallen to 48.9 in July, the lowest in 28 months. The final figure for this month will be published on August 1. A reading below 50 would denote a retrenchment in activity. The weak PMI added to concerns that sustained monetary tightening by the government is weighing on growth, but analysts cautioned against overreacting, saying that the world‘s second largest economy was still poised to perform strongly in the second half. Mr. Qu Hongbin, chief China economist with HSBC, said that ―resilience of consumer spending and continued investment in a massive amount of infrastructure projects‖ would prop up the country‘s growth at about 9 per cent over the rest of year. China‘s economy expanded 9.6 per cent in the first half, making it the fastest-growing major economy in the world. Premier Wen Jiabao recently said week that the government had to strike a balance between suppressing price pressures and preventing sharp swings in the pace of growth. Taking a longer-term view, the International Monetary Fund said in its annual report about the Chinese economy that the country remained ―on a solid footing‖, in part thanks to the employment and wage growth that have fuelled domestic consumption. However, it warned that food-driven inflation, a property bubble and declining credit quality all posed risks.

Source: The Financial Times

POLITICS JAPAN COMPLAINS TO MONGOLIA OVER TAVAN TOLGOI CHOICE Japan has joined South Korea in complaining to Mongolia over the bidding process for part of Tavan Tolgoi, as firms from both countries appear to have been excluded even though they were allied with some of the apparent winning bidders. Japan's complaint adds to the confusion over the hotly contested deal to develop the world's biggest untapped coking coal deposit after South Korea earlier this month called the process "unclear and unfair". (The Dow Jones report that appears immediately after this, however, gives a different nuance to Japan‘s reaction.) The complaint said Mongolia had persistently called on Japan to help with the development of its mineral resources and that President Ts. Elbegdorj in a visit last November had stressed that

bilateral partnerships in minerals development would be mutually beneficial, a government source, who asked not to be identified, said. "If it transpires that Japanese firms are not included in the winning camps, it would go against what the two governments have been working towards", the Japanese letter was quoted as saying. "It would be extremely regrettable." Both Japanese and South Korean government officials said they have not yet received any official response from Mongolia. Mongolia said this month it had picked U.S. miner Peabody Energy, China's Shenhua and a Russian Railway-Mongolia consortium out of six preferred bidders to develop the west Tsankhi deposit, but later said the decision was not final. Japanese and South Korean firms were not mentioned in the announcement even though they are part of the consortium that includes Russian Railway. Instead, the announcement said Russian Railway was now part of a consortium with Mongolian firms, but it was unclear which firms were being referred to. Japanese trading firm Mitsui & Co was also not mentioned although it is a partner of China's Shenhua. Read more… Mr. Oscar Mendoza, chief operating officer of the Ulaanbaatar-based Frontier Securities, said while some of the original bidders have been informed that their bid has been rejected, there was no indication that the Japanese and Korean firms had been formally eliminated from the process. He said Mongolia originally wanted Shenhua, Peabody and the Russian consortium to decide what stakes would be allocated to their Japanese and Korean partners. "Erdenes (the state-owned firm in charge of Tavan Tolgoi) said the allocations would be decided internally and it would be up to each company what the percentage would be. If it is going to Shenhua, they have the discretion to decide how much is going to Mitsui." Company sources said the four Japanese trading firms in the consortium with Russian Railways -- Itochu Corp, Sumitomo Corp, Marubeni Corp and Sojitz Corp -- have also jointly filed a complaint with Mongolia but have yet to receive an official response.

Source: Reuters

JAPAN TALKING TO MONGOLIA ABOUT TAVAN TOLGOI, NOT COMPLAINING Japan's Ministry of Foreign Affairs says there have been recent high-level talks with Mongolia over the role of Japanese companies in developing the country's huge mineral reserves, but there was no official complaint from Tokyo about the bidding for the project. "We have not confirmed if Japanese companies are indeed excluded in the first place," a ministry official said. "We are still trying to find out." Separately, a senior Mongolian government official last week said that talks were continuing. "The Japanese and the Koreans are unhappy and are working to get themselves in," he said.

Source: Dow Jones

MINISTERS HARP ON JAPANESE COMPANIES‟ HOPE TO INVEST IN TT Whatever may be the exact diplomatic term for the nature of Japan‘s reaction to the choice of investors in Tavan Tolgoi, its Government leaders are taking every opportunity to tell their Mongolian counterparts that Japanese companies hope to actively participate in the development of the deposit. Mr. N.Koga, a member of the Japanese Diet and a senior leader of the Japan-Mongolia Friendship Group, delivered to Premier S.Batbold a letter from Prime Minister Nato Kan saying this. At their meeting on the sidelines of a regional security meeting in Bali, Japanese Foreign Minister Takeaki Matsumoto expressed to his Mongolian counterpart Gombojav Zandanshatar the hope that Japanese companies will be able to invest in projects to develop the Tavan Tolgoi coal mine, Japanese officials said. Earlier, the Japanese Ministry of Foreign Affairs said in a statement on its website that Vice Foreign Minister Yutaka Banno told Mongolia's Minister for Road, Transportation and Construction Kh. Battulga at a meeting in Tokyo last week that he hoped "Japanese companies would participate in developing Mongolia's mineral resources including the Tavan Tolgoi coal mine". Mr. Battulga responded by saying Mongolia "expects Japanese companies' participation in mineral resource development projects and related infrastructure businesses such as railroad," the statement said.

Source: Kyodo news agency, Dow Jones, Montsame

MONGOLIA LUKEWARM ABOUT NUCLEAR FUEL REPOSITORY PLAN Mongolia has reservations about a plan to build a facility there to store or dispose of spent nuclear fuel from other countries, Japanese Foreign Minister Takeaki Matsumoto said on Wednesday. He told the Japanese parliament that when he had met with his Mongolian counterpart G. Zandanshatar last week, the Mongolian minister said his country would find it difficult under

domestic law to take in nuclear waste from overseas. Mr. Zandanshatar brought up the issue when the two were discussing cooperation on civilian nuclear power generation, including the development of uranium in Mongolia, on the fringes of a regional security meeting in Bali. Japan, the United States and Mongolia have informally discussed a plan to establish a nuclear fuel repository in Mongolia, but the talks have not yielded any conclusions, Mr. Matsumoto said. Toshiba Corp. has lobbied a senior U.S. government official to realize an international nuclear fuel supply scheme that includes the construction of a nuclear waste repository in Mongolia, according to a copy of a letter by the company's president obtained by Kyodo News.

Source: Mainichi Japan

REPORTS SAY KHURTS HAS LOST HIS APPEAL, FOREIGN MINISTRY SILENT Local media have reported that a British court has rejected the appeal of Mr. B.Khurts, Administration Chief at the National Security Council, against his extradition to Germany. Mr. Khurts was arrested at Heathrow Airport on September 17, 2010 and has been in detention ever since. The Mongolian Foreign Ministry has refused to comment on the issue, saying it has received no official information. It has promised to hold a press conference on Saturday.

Source: News.mn

HOUSEHOLDS NOT TAKING NEW STOVES TO BE RELOCATED The Ulaanbaatar Administration has decided that households in selected areas that do not change over to using less polluting stoves will be penalized under the law on air pollution reduction, and will also be evicted. Altogether 200,000 less smoky stoves will be distributed to households in areas marked as air quality improvement zones in five districts of the capital between August and October. Families will have to pay only 30% of the market price of the stoves. Air pollution of Ulaanbaatar is expected to fall at least by 50% when the new stoves are used.

Source: News.mn

MONGOLIA TO BUY 5 FIGHTER JETS FROM RUSSIA The Mongolian Defense Ministry will buy 5 Mikoyan MiG-29s, fourth generation fighter jets, from Russia this year, according to local media. Minister of Defense L. Bold also said Mongolia has plenty of good pilots who were trained in Russia. To date, there is no MiG-29 in Mongolian Air Force. The media said from 1977 to 1984, Mongolia bought 44 MiG-21 aircraft from Russia, but only 10 are now still in use. Mongolia also wants to buy a military transport aircraft to deliver troops, weapons and other military equipment.

Source: Xinhua

MOSCOW‟S ENERGY ARM TWISTING LIKELY TO CONTINUE The recent shortage of Russian-supplied fuel underscored Mongolia‘s dependency on its giant neighbor. Some experts and officials in Ulaanbaatar are now publicly speaking out about a need to reduce their country‘s energy reliance on Russia. The Mongolian shortage first hit in May after Moscow, citing domestic shortage, raised duties on fuel exports by over 40 percent. Prices almost doubled overnight. Many observers suspected the Kremlin was playing a game that it has carefully honed over the years – using energy policy and exports to coerce economic and political concessions from vulnerable, neighboring states. In Mongolia‘s case, Russian pressure may be related to Tavan Tolgoi, the world's largest coking coal deposit. Ulaanbaatar is due to announce a tender winner this summer and the three short-listed bidders include Russian, Chinese and American companies. "There could not be a better time for Russia to halt oil exports and, in the meantime, for Mongolia to be reminded of its dependency on its northern neighbor," said a commentary on a local business website, mongolianeconomy.mn. By late June, after hurried negotiations with neighboring China and fresh agreements with Russia, officials declared the situation under control. Beijing agreed to send 10,000 tons of fuel per month, while Russia's Rosneft promised another 50,000 tons per month. Even so, not everyone is convinced the crisis has passed. Fuel prices are currently back to the same as before the crisis, but public transport fares remain inflated, as if anticipating another petrol price jump. The situation may not stabilize until September, when outdoor work slows and demand drops, says Mr. G. Erdenebayar, manager at New Star Energy, which runs a small chain of gas stations. Mr. Erdenebayar believes the Mongolian government's rejection of a 2008 proposal from state-run Rosneft, Russia's largest oil company, to set up 100 gas stations in Mongolia could also have played a part in the Kremlin‘s tariff policy. He acknowledged that Russia did experience a domestic

shortage. But he remains convinced that, since his country‘s fuel demand is relatively small, Russia‘s chief intent with the tariff hike was to bully Ulaanbaatar. Insecurity over Russia's ―arm twisting‖ and dominance in the sector is justified, says Mr. L. Sumati, political analyst and director of Sant Maral Foundation, a polling agency. "Russia has a very clear geopolitical strategy here. They are not hiding their interest in local energy resources and they will do whatever they can to retain their stranglehold here," Mr. Sumati said. Read more… In a turn of events that also likely displeased Moscow, Ulaanbaatar recently announced plans to stockpile petrol reserves and develop its first modern domestic refining capacity, a move that would bolster its energy independence. Unrefined crude oil is among the country's top five exports – Mongolia exported roughly 2.2 million barrels in 2010, according to government figures. All of its production was extracted by Chinese companies and was exported to China. Some estimates say the country has up to 6 billion barrels of recoverable oil. "Mongolia had small refineries between 1949 and 1969. For 20 years we could produce up to 30 percent of our domestic requirement. We have oil, so why not now?" said Mr. N. Boldkhuu, deputy director of fuel policy at the Ministry of Mineral Resources and Energy. But there has been little progress on reestablishing refining capabilities, despite international interest. "Over the years, 17 companies have been given the license to build the refineries, but there are still many issues to settle like environmental impact assessments. … There has been no conclusive resolution from the parliament yet," admitted Mr. Boldkhuu. In October 2010 Marubeni, a Japanese firm, signed an agreement with a local company for a $600-million project to build a refinery in Darkhan, 200 kilometers north of Ulaanbaatar, to be ready by 2014. But little is known of the project‘s status. Marubeni refused repeated requests for comment. Given the time required for the refining projects to kick off, for now the only option for Ulaanbaatar is to continue to broker deals with Moscow. "China will step in to help only if their investments here are affected. They barely have enough oil themselves. But to drive our cars, we'll still need Russia," said Mr. Erdenebayar from New Star Energy.

Source: Eurasianet

WHY MONGOLIA MATTERS If ever there was a country that lost the lottery on neighbors, it was Mongolia, sandwiched between a sometimes hostile, bullying Russia and an even more bullying China. The Mongolian government is actively reaching out for friends who might respect its independence as both its neighbors play hardball. It has courted both Australia and South Korea. Alas, while Mongolians are friendly and pro-American, they recognize they cannot rely on the United States as a friend. President Obama does not treat allies well, and so many realists find it sophisticated to bash allies in order to cultivate enemies. Such attitudes represent strategic blindness. In 1911, Mongolia declared itself independent from China, a move the Chinese did not recognize. Mongolia turned to the outside, including to the United States, for help. Despite all of Woodrow Wilson‘s talk of self-determination, he refused to provide much in the way of even moral support for Mongolia, and so the Chinese tried to reoccupy the country in 1919. With friendship spurned with the West, the Mongols turned to the only friend who would have them: Bolshevik Russia. Mongolia hence became only the second communist republic. It was, like the others, a brutal dictatorship and provided the Soviet Union with a forward airfield abandoned only in 1992. What realists fail to realize when they make dispassionate cost and benefit calculations, is that there is an intrinsic benefit to friendship and alliance, but that such a benefit cannot be realized if the United States fails to embrace friendship for friendship‘s sake. What may appear inconvenient now may become a critical asset down the road, if only the American foreign policy elite would be farsighted. (This is edited from an article written by Mr. Michael Rubin.)

Source: Commentary

THE MEMORIES THAT STALK MONGOLIA AND ITS NEIGHBORS Michael Rubin makes a good case for why we should care about Mongolia as well as why we should reject the realpolitik that would have the United States eschew friendship with small states that border on larger, dangerous countries. But even as we embrace the freedom of small nations, we must still remember just as history didn‘t end with the fall of the Berlin Wall, it didn‘t begin with the Treaty of Versailles either. The worm has turned several times since today‘s victims were yesterday‘s bad guys, but historical memory sometimes is longer than we think.

Though we in the West find it absurd that Russia, which has spent most of the last three centuries seeking hegemony over the small nations on its borders in the Baltic, Eastern Europe as well as in Asia, might fear these countries, that sentiment is deeply embedded in their culture. There was once a time when it was the Poles who invaded Russia, not the other way around. To note, this is not to excuse Russian paranoia and imperialism, but ignoring the roots of the problem doesn‘t help us understand it. If you look to the East, Michael rightly says that contemporary Mongolia has ―lost the lottery on neighbors‖ as it is sandwiched between large bullies in Russia and China. Yet several centuries ago, it was the Russians and the Chinese who had good reason to lament their borders with the Mongol Empire. While we can sympathize with Mongolia‘s troubles in the last century, any country that accords Genghis Khan–one of history‘s great mass-murdering conquerors–the status of founding father, undermines its stance as a lonely democracy fighting for independence against authoritarian bullies. (This slightly abridged ―Contention‖ is by Jonathan S. Tobin.)

Source: Commentary

STRATEGY MEANS SENSITIVITY TO REALITY Rubin says that it is ―strategic blindness‖ to neglect Mongolia, but at no point does he explain how greater American friendliness would change the reality that Mongolia is a poor country dependent on its larger neighbors for energy. Neither does he explain why the U.S. should increase ties with a landlocked state wedged in between two of the world‘s major powers, or how Mongolia would ever be a ―critical asset‖ for the United States. If the advantages of a closer relationship are unclear, the downside is obvious. It would revive Russian fears of U.S. encroachment into Russia‘s ―near abroad‖ and alarm China at the same time. In addition to creating a new irritant in the relationship with both governments, it could stoke tensions between Mongolia and its neighbors. That would hardly serve the interests of Mongolia, and it isn‘t clear that it would help the U.S. in any concrete way. Rubin is also mistaken if he thinks that the U.S. has stopped paying attention to Mongolia. Mongolia has been developing increasingly close security ties with the United States. Through the International Security Assistance Force (ISAF) in Afghanistan, Mongolia contributed about 150 soldiers from the elite Mongolian Expeditionary Task Force (METF)—a sizeable number considering the country‘s population—to help train the Afghan National Army in mobile field artillery techniques. Such moves have bolstered the broader relationship with both NATO and the United States. This deployment has also built on the US goodwill Mongolia secured through its troop contributions to the Iraq War. And the Obama administration has indicated that it intends to build on this progress. Last August, the Mongolian Armed Forces (MAF) and the U.S. Pacific Command conducted its annual joint-training exercise, ‗Khaan Quest,‘ which was first undertaken in 2004 and is aimed at further enhancing the MAF‘s expertise in peacekeeping and counterterrorism. This has not gone unnoticed by China, and intensifying military cooperation with Mongolia in the future could come to be seen as unacceptable. A 2009 analysis by Wang Peiran explains how, if the American military presence in Mongolia becomes too influential, from China‘s point of view, it essentially means being encircled by the United States. Although Beijing has not directly publicized its stance on military cooperation between Mongolia and the United States, Russia and other countries, there still exists a relatively clear ―red line‖, namely that the current composition of Northeast Asian security cannot be dismantled, and even more, the situation cannot take a turn in a direction that is detrimental to China. Mongolia seems to be sensitive to Beijing‘s concerns, and the two nations‘ cooperation and exchange on security and defense are also progressing step by step. If Mongolia isn‘t going to enter into any alliances aimed at China, which is what any alliance with the U.S. would be whether we admit it publicly or not, that would seem to render the issue moot. It is not the business of the U.S. to be more pro-Mongolian than the Mongolian government.

Source: The American Conservative

LEAVE GENGHIS KHAN OUT OF IT Jonathan Tobin agrees with Rubin on the importance of Mongolia, but worries about the Mongolian enthusiasm for Genghis Khan. Seriously? Yes, Genghis Khan was a brutal conqueror and empire-builder, and contemporary Mongolian attitudes towards him rely on greatly minimizing all of the destruction that went into building the beginning of the Mongol world empire, but it is really quite silly to hold this against

them. Nations that have regained real political independence only in very recent times are understandably going to look back to moments in the past when their nation was independent, influential and powerful, and they are going to celebrate the famous leaders in their national history. Genghis Khan was undeniably the founder of the most organized political structure in Mongolian history up to that point, and it was because of his wars and the wars of his successors that the Mongols briefly dominated much of Eurasia. Good luck cultivating friendship with Mongolia by disparaging their most famous leader. By the same token, the enduring popular admiration for Stalin in the ―fledgling democracy‖ of Georgia ought to discredit its stance as well. One important difference between Georgia and Mongolia is that Mongolia has done a reasonably good job of building a functioning democratic state, and Georgia has stagnated as a semi-authoritarian or ―hybrid‖ state. Freedom House rates Mongolia as free with civil liberties and political rights scores that are better than Georgia‘s. According to Freedom House, Georgia is ―not an electoral democracy‖ by their standards, and rates as only partly free. The Economist Intelligent Unit‘s Democracy Index ranks Mongolia 64th in the world and considers it a ―flawed democracy‖. By comparison, the EIU report counts Georgia as a ―hybrid‖ regime and ranks it 103rd between Bhutan and Pakistan. Mongolia matched or outperformed Georgia in every category that the EIU uses. That doesn‘t mean that the U.S. should repeat its Georgian mistake in Mongolia, but it should tell us that the admiration Mongols have for Genghis Khan has no relevance for how Mongolia governs itself today.

Source: The American Conservative

LONDON GALLERY COMMISSIONS STATUE OF CHINGGIS KHAAN London will have a statue of Chinggis Khaan in January, 2012. Mr. Dashi Namdakov, Master of Modern Fine Arts of Buriatia, has been commissioned by Halcyon Gallery of Great Britain, for the work, and he is now busy supervising the bronze cast.

Source: Ardiin Erkh

RAINS THAT DO NOT WET MAKES HERDERS‟ LIFE EVEN HARDER A scientific research team led by Mr. Clyde Goulden, an ecologist at the Academy of Natural Sciences of Philadelphia, set up a seasonal research camp in the Dalbay valley in Northern Mongolia valley in 1994, and he has been returning there every year since. At first Mr. Goulden studied the ecology of Lake Hovsgol, a long skinny body of water nicknamed the Blue Pearl, in testimony to its beauty and purity. Lake Hovsgol is 100 miles long and contains about 70% of all of Mongolia‘s surface water. About a decade ago Mr. Goulden noticed that the government meteorological station in Hatgal, the town nearest to his study site, had recorded rapidly rising temperatures. It made him wonder if global warming might be causing mischief at his research site, 70 miles away. Studies by others have since shown that Mongolia has heated up more than almost anywhere else on Earth. Averaged over its entire surface, Earth has gotten about 1.5 degrees Fahrenheit hotter in the last century. Mongolia, in contrast, has grown nearly four degrees hotter since 1960. Many of Mongolia‘s lakes and rivers have shrunken or disappeared entirely. Its rangeland has become less lush, a fact one leading Mongolian scientist says is due in equal parts to over grazing by livestock and to soil desiccated by higher temperatures. Mr. Goulden wanted a detailed, long-term record of how the weather had changed all around the region by Lake Hovsgol. But he could not ask a weatherman which way the wind blows—since the entire region had only one meteorological station with a good long-term record. Fortunately, though, he did not need one. He realized that the herders he had gotten to know casually in years of bumping along the jeep trails here watch the weather vigilantly. He decided to survey them on local weather changes and whether any differences in weather had affected their lives. What he found surprised and disturbed him. When I had arrived at Mr. Goulden‘s research camp, he was just completing his third season of surveying herders. One herder and his wife described changes they had seen in the 30 years they have grazed animals in the valley. Summer winds are colder and stronger now than they used to be. When they were younger they could easily anticipate a day‘s weather and dress accordingly. Now they cannot. When they were young the pastures were watered by long gentle rains known in Mongolian as shivree rain. Now showers fall torrentially and only briefly, events called adar rains. They said the adar downpours fall so hard and pass so quickly that the water flows directly into nearby streams and the lake instead of soaking into the soil. A Mongolian wildlife biologist calls adar showers ―rains that don‘t wet‖. The herder said their pasture‘s vegetation is stunted, making it harder to fatten their livestock. ―If the animals die, what‘s the future for us?‖

Read more… Mr. Goulden has not yet systematically analyzed the approximately 100 herder surveys he has conducted in the last two years. He has not published his results in any scientific journal. But eyeballing his data, he says that what the herder and his wife said tracks closely the responses of the vast majority of his informants. He hopes to confirm what the herders said about changes in rainfall patterns after inspecting rainfall records collected by the Mongolian government. If what the herders say is borne out, and if past trends continue, they will have to invest more time looking for good pastures, and the extra work will make herders‘ tough lives tougher.

Source: The National Geographic

ASIA‟S MISTRUST OF CHINA BASED ON ITS PAST BEHAVIOR AND STRATEGIC CULTURE U.S. Secretary of State Hillary Clinton surprised the Chinese last year at the Association of Southeast Asian Nations Regional Forum by declaring that Washington wants to play a role in resolving disputes over the South China Sea. This year‘s forum last weekend saw fewer fireworks, as all sides were eager to announce some progress, no matter how slight. Diplomats reached agreement on guidelines for behavior in the troubled waters, although a binding code of conduct remains out of reach. Feel-good gestures aside, the nations of Southeast Asia have grown only more fearful of Beijing since last year, and with good reason. In recent days, Chinese forces have continued to harass vessels from the other claimants in the South China Sea. This has many observers mystified. Pushing its neighbors closer to Washington is hardly in China's interests, especially when it needs many more years of "peaceful rise" before it can challenge the U.S. military. And yet the behavior persists. So the U.S. and its regional friends need to look for other reasons why Beijing's leaders are acting this way. The best explanation is that they are influenced by their past rhetoric, domestic politics and perhaps most important, China's strategic culture. In this light, it's worth remembering that China has fanned the flames of nationalism in the past, making de-escalation difficult. The People's Daily articles praising the brave soldiers defending the motherland's tiniest specks of territory in the South China Sea seemed harmless 20 years ago, when those men were camped out in rudimentary shacks on the reefs. But now the country has the military capability to back up its expansive claims. The leaders who run the Party's security apparatus are ascendant, and they are using appeals to nationalism as a way to bolster social stability. Read more… It's also the case that China doesn't always value consistency or reciprocity in its relationships. Beijing has declared that its exclusive economic zone is off limits to foreign navies, a creative reinterpretation of the Law of the Sea. When a U.S. Navy ship reconnoitered in international waters off Hainan Island in March 2009, China's maritime militia, disguised as fishermen, drove it away. But Chinese vessels have conducted similar activity in Japan's EEZ. Finally, there is the fact that Chinese strategists have always valued the element of surprise, going back to Sun Tsu's "Art of War" some 2,500 years ago. At the start of all major conflicts of the last 60 years—in Korea, Tibet, India and Vietnam—Chinese forces struck without warning. The People's Liberation Army does not reveal its true budget and gives only a limited view of its capabilities. As in the 2009 case, the PLA navy employs disguised fishing boats in South China Sea conflicts, which makes its moves more stealthy and also more difficult to defend without risking civilian casualties. This makes the neighbors fear China, since as long as disputes are not resolved, it is impossible to discount the possibility that the PLA will strike. Public statements are not a reliable guide to intentions; when the threats and provocations stop, that could be the most dangerous time. China has also taken advantage of periods when the superpowers were drawing down in the region: The PLA Navy invaded islands held by the Vietnamese in 1974, after the U.S. withdrew from South Vietnam, and in 1984, after the Soviets left Cam Ranh Bay. China's neighbors are well aware of her history and culture, and that is why they mistrust her and want the U.S. to continue to be the guarantor of peace in the region, as it has been for the last 60 years. They certainly hope that Beijing will return to its smile diplomacy of a few years ago and pledge to abide by a binding code of conduct in the South China Sea. diplomatic and military ties in East Asia.

Source: The Wall Street Journal

ANNOUNCEMENTS JOB OPENING: RESIDENT DIRECTOR, AMERICAN CENTER FOR MONGOLIAN STUDIES, ULAANBAATAR The American Center for Mongolian Studies (ACMS) is seeking a Resident Director for its Ulaanbaatar, Mongolia office. The ACMS is a non-profit, non-governmental educational organization that supports the development of Mongolian Studies and academic exchanges with Inner Asia. The ACMS is a member of the Council of American Overseas Research Centers (CAORC) with funding from the US government, private foundations, member institutions and individuals. The ACMS Resident Director is responsible for the management of the ACMS Ulaanbaatar office, staff and programs, and the development of new programs, partners and funding sources. The position requires an ability to work effectively with international and Mongolian academic institutions, scholars and students, diplomatic staff, international donor agencies, and the business sector. Experience in the US higher education system through study or work and experience working or studying in Mongolia or Inner Asia is required. The position is salaried and full-time, with a basic housing and benefit allowance. Short-term research and personal leaves are negotiable. For more information, please visit: http://www.mongoliacenter.org/index.php?option=com_content&task=view&id=415&Itemid=129 _________________________________________________

STRATEGIC THINKING AND MANAGEMENT WORKSHOP, ULAANBAATAR, AUGUST 17-18 A 2-day intensive workshop on Strategic Thinking and Management will be held in Ulaanbaatar on August 17-18, with Dr. Paul Tiffany, a leading international strategy expert and a Senior Professor at the Haas School of Business, University of California, Berkeley as facilitator. Dr. Tiffany will define a model to formulate an organization‘s strategy, based on a comprehensive analysis of its currently followed plans and policies and of how well they fit with the realities of the market. The workshop aims to help participants understand the fundamentals of strategic planning and execution, and will teach the latest developments and concepts in this field. The workshop is being organized by The American University of Mongolia‘s Center for Executive Education, established by Newcom Group in partnership with the University of California, Berkeley, Haas School of Business. BCM and its Education Working Group support the event and BCM members will get a special discount. Enrollment is based on first come-first served basis. A program flyer and enrollment forms can be downloaded from www.aum.mn. Please contact Ms. Muggie Davaa, Program Manager, at munkhjargal@newcom.mnor by phone or at 9911 7429 for further information. ________________________________________________

METALS MONGOLIA, ULAANBAATAR, AUGUST 26 The main objective of the international investment conference, to be held in Government House, is to provide a discussion platform and assist in medium- and long-term planning and implementation associated with the Government‘s intentions to achieve value-added production at industrial parks through downstream processing of ferrous and non-ferrous metal products. It is aimed to provide potential investors with an insight into the Government‘s policies pertaining to metallurgical industry, related exploration, extraction, processing, and infrastructure projects; to facilitate such investments; provide opportunity for open discussion and possible solutions through involvement of representatives of both public and private sector and professional organizations on the opportunities and challenges in project financing, tax and legal environment. The conference will have main and branch sessions involving over 800 representatives of parties engaged in ferrous and non-ferrous metal projects, manufacturers, suppliers, foreign and domestic investors, academics, professional associations, state administrative bodies, embassies. The main conference will cover the present situation and future trends in Mongolia‘s metallurgical industry. A special feature will be the Government Hour, which will feature an open discussion on strengthening PPP in the metal-based industrialization process. The branch conferences will be on: 1. Opportunity to develop rare-earth based industries 2. Developing base metal industries 3. Developing iron and steel industries 4. Issues facing provision of required infrastructure to ferrous and non-ferrous metals based industries-experiment and opportunity. Each branch conference will include thorough discussions of resources and reserves of the type of

metal discussed, applicable market conditions, investment projects, technology and equipment. BCM is a Supporter of the event. For more information, Visit: http://www.metalsmongolia.mn/, or call +976-70115590, Fax: + 976-70125590, or Email: info@metalsmongolia.mn. _________________________________________________

INVESTMENT FORUM, ZUUNMOD, TUV PROVINCE, AUGUST 30 The government of Tuv province, the National Committee for Regional Development, and the GIZ Investment Policy and Advisory Service Project are jointly organizing the Investment Forum aimed at promoting investment in Mongolia. Detailed business plans will be presented to allow a focused dialogue between potential investors and Mongolian companies seeking capital for further expansion. Targeted presentations by experts from the business community and public administration will highlight the relevant framework. BCM is a Supporting Organization of this event. For further information, please contact ipas@giz.de. _________________________________________________

COMPETITIVENESS AND CORPORATE SOCIAL RESPONSIBILITY CONFERENCE, ULAANBAATAR, SEPT 6-7 This conference, organized by GIZ Integrated Mineral Resource Initiative, will be focused on debating whether corporate social responsibility increases the competitiveness of an economy and its players in the long run or whether it is rather a disadvantage that, particularly in structurally weak economies such as Mongolia, prevents the establishment of globally competitive value chains. The main areas for discussion will be: - CSR and Sustainable Economic Development - Economic Globalization and CSR - CSR and Enterprises. BCM is a Supporting Organization for this event. For any questions please contact imri@giz.de. _________________________________________________

MONGOLIA TRADE & COMMODITY FINANCE CONFERENCE, ULAANBAATAR, OCTOBER 13 This landmark conference at the Chinggis Khaan Hotel will only welcome leading experts within the trade and commodity finance sector, utilizing a format that includes detailed case studies, informed debate and invaluable networking opportunities. Among topics to be discussed: - Considering the threat posed by volatile commodity prices - Utilizing Mongolia‘s competitive advantage to improve product diversification - Improving underdeveloped promotion services to demonstrate the unique appeal of Mongolia - Raising capital from foreign investors to develop projects and infrastructure - Developing an export financing structure - Expanding trading relations beyond traditional allies to become a truly global trade partner - Reducing dependence on foreign imports - Forging relationships between local and international banks to provide vital liquidity. Speakers include: - Ganhuyag Chuluun Hutagt, Vice Minister, Ministry of Finance of Mongolia - Alisher Ali, Chief Executive Officer, Eurasia Capital - Bat-Ochir Dugersuren, Chief Executive Officer, XacBank - Randolph Koppa, President, Trade & Development Bank of Mongolia - Jim Dwyer, Executive Director, Business Council of Mongolia - Laurenz Melchers, Director, Mongolian Star Melchers - Marat Utegenov, Executive Director, Mongolia Development Resources - James Polson, Executive Director, AIDD - B. Byambasaikhan, Managing Director, Newcom Group - B. Enkhbat, Vice-President, Operations, Just Group - Vincent O'Brien, Chair, Market Intelligence Group, ICC Banking Commission BCM is a Supporting Organization for this event and special offers are available for BCM members. The conference brochures with agenda will be available in the BCM office and will also be distributed at BCM‘s next monthly meeting on August 22. Please contact Ms. Monika Kuzniewski, Marketing Executive, at monika@exportagroup.com or by

phone at +44 (0) 20 8772 3013 for further information. ________________________________________________

MM TODAY” on MNB-TV, Fridays at 21:15 BCM is pleased to announce that Mongolian National Broadcasting continues its cooperation with BCM on ―MM Today‖. This English news program is aired every Friday for 10 minutes and is scheduled for 21:15 tonight. Tune in to watch this program that reports stories from today‘s BCM NewsWire. ___________________________________________ “BSPOT” on B-TV, Monday to Friday at 21:30 B-TV (Business TV) now telecasts a 10-minute English-language news program called BSPOT every evening from Monday to Friday at 21:30, taking most of the stories from the BCM NewsWire. _________________________________________________

POSTINGS ON BCM ENGLISH WEBSITE'S 'PRESENTATIONS' AND 'MONGOLIA REPORTS' and BCM MONGOLIAN WEBSITE‟S „NEWS‟ SECTIONS As a key component of BCM‘s Mongolian website, ―News‖ section, articles from the Government‘s ―Open-Government.mn‖ site will be regularly posted. Also several draft laws, still to be discussed in Parliament, are posted on BCM‘s English website in the Legislative Working Group section. ‗Presentations‘ from BCM‘s 6 monthly meetings in 2011, Peter Nicholls, OT‘s EVP-Operations, at Global MInES in Sydney on July 4, summaries of the key addresses at Eurasia Capital‘s Mongolian Investment Conference on May 25, Jim Dwyer of BCM‘s interview on Mongolia National Broadcasting‘s ―Face to Face‖ on May 16, and the very successful Mines and Money Hong Kong‘s ‗Mongolia Investment Summit‘ morning on March 25 are posted in BCM website‘s "Resource, Presentations" for your review. ‗Mongolia Reports‘ including Z. Batbayar, Deputy Director of the Water Authority, at BCM‘s Environmental Working Group‘s recent meeting, the Polit Barometer-May 2011 from Sant Maral Foundation and the U.S. Embassy Mongolia‘s Commercial Section‘s ―2011 Mongolia Investment Climate Statement‖ are among the reports posted on BCM's website (www.bcmongolia.org) in the ―Resource, Mongolia Reports‖ section. We are now posting some news stories and analyses relevant to Mongolia on the BCM website's ‗Mongolian Business News‘ as they come, instead of waiting until Friday to put them all together in the weekly NewsWire. The NewsWire will, however, continue to be issued on Friday, and will incorporate items that are already on the home page, so that it presents a consolidated account of the week‘s events.

ECONOMIC INDICATORS

INFLATION Year 2006 6.0% [source: National Statistical Office of Mongolia (NSOM)]

Year 2007 *15.1% [source: NSOM]

Year 2008 *22.1% [source: NSOM]

Year 2009 *4.2% [source: NSOM]

Year 2010 *13.0% [Source: NSOM]

June 30, 2011 *6.2% [source: NSOM]

*Year-over-year (y-o-y)

CENTRAL BANK POLICY LOAN RATE December 31, 2008 9.75% [source: IMF]

March 11, 2009 14.00% [source: IMF]

May 12, 2009 12.75% [source: IMF]

June 12, 2009 11.50% [source: IMF]

September 30, 2009 10.00% [source: IMF]

May 12, 2010 11.00% [source: IMF]

April 28, 2011 11.50% [source: IMF]

CURRENCY RATES – July 28, 2011 Currency Name Currency Rate US dollar USD 1,254.04

Euro EUR 1,809.71

Japanese yen JPY 16.14

British pound GBP 2,054.43

Hong Kong dollar HKD 160.95

Chinese Yuan CNY 194.65

Russian Ruble RUB 45.60

South Korean won KRW 1.19

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