mongolia investment outlook

Mongolia Investment Outlook

June 19, 2013

By Masa Igata, Founder & CEO Frontier LLC

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Agenda

1. Cooler investment outlook in the world 2. Mongolian economic outlook 3. Mongolia’s Achilles tendon 4. Doing business in Mongolia 5. Mongolia investment outlook 6. Railway 7. Oyu tolgoi / Tavan tolgoi

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1. Cooler Investment outlook in the world

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Coal price forecast

Chinese Economy

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2. Mongolian Economic Outlook

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Components in total export

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Weaker Coal Exports and Stocks

Coal Export Volume Stock Prices for Mining Companies

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3. Mongolia’s Achilles Tendon

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Rating Agencies are starting to worry

Rating agencies’ concerns:

Heavily dependent on mineral exports Pro-cyclical fiscal policy may lead to overheating in Mongolia Fiscal discipline and external borrowing

Factors that could change the rating down: High inflation Weak fiscal policy framework Uncertainty in Mongolia’s investment regime Excess external borrowings Source: Khan Bank Presentation

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What will be the measures Government should take?

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4. Doing Business in Mongolia

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Mining and quarrying 39%

Real estate 6%

Bonds 8%

Construction Activities

4%

Cash 26%

Banking and Financial Services

6%

Tourism 1%

Manufacturing 9%

Wholesale and Retail Trade

2%

Sector Weight

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5. Mongolian Investment Outlook

Model Portfolio

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$14.40

$16.75 $7.75

$9.40

Versus Mongolia Cost of ?

Mine to Chinese Port - Total Transport Cost 6. Railway

Why so much cheaper than Mongolia Rail?

• Super efficient Australia & Mozambique &

Brazil • 0.5 cents to 1.5 cents per rail ton-km • Ultra low ocean ship rates @ ~ 0.02 cents per ocean

mile

• Versus planned UBTZ and MTZ rail rates at ~ 3 cents per ton-km plus rail gauge interchange costs per ton

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7. What kind of economic impacts are expected in case current situation continues?

Impact of OT and TT are huge

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