BUSINESS COUNCIL of MONGOLIA NewsWire

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Issue 135, September 10 2010

NEWS HIGHLIGHTS:

Business:

Ivanhoe expects Oyu Tolgoi test production by Q4 2012;

Mongolia Mining lures big backers;

Banks likely to be penalized for failure to reveal ownership details;

Canadian companies putting Mongolia on the map;

PM leads team of Ministers, MPs to inspect work on Oyu Tolgoi project;

George Tumur says trust essential to secure foreign investment;

New 2-year agreement signed at Boroo Gold;

Mongolian Star Melchers opens new facility;

9 of 26 requests to withdraw from Mongol 999 granted;

13 participants in Boroo Gold’s annual mining safety contest;

Xanadu Mines makes key executive appointment;

Prophecy Resource secures loan to advance Ulaan Ovoo project;

15 Korean businessmen meet possible Mongolian partners;

100 businesses join exhibition on buying apartments on sale;

Anglo American seeks coking coal assets in Russia, Mongolia;

Chinggis Khaan Hotel joins Summit Hotels & Resorts.

Economy:

Government awaits more economic freedom as IMF restrictions near end;

Optimism the keynote at Mongolia Investment Conference;

‘Discover Mongolia 2010’ kicks off with positive figures for Mongolia;

Elbegdorj calls upon miners to be responsible;

Banks continue to pay high interest rates, at risk of instability;

Railway tender after Investors meet on September 11;

Minerals and Mining Exchange set up;

No phosphorus mining at cost to environment, PM assures Khuvsgul people;

Japan reiterates interest in Mongolian resources;

110 mining exploration licenses in Ulaanbaatar city area;

Announcement seeking management team for development bank being readied:

Ministry picks Erdenet for first copper smelter;

Ernst & Young reckons mining and metals deal making to accelerate;

Strong yuan would hurt China, economists warn;

China assures foreign business of fair treatment;

Chinese Minister says security concerns cannot excuse protectionism;

Global food price hike worries UN;

Cargo ship to China embarks on historic Arctic passage.

Politics: MPRP a step nearer to getting a new name, and a new ideological thrust;

Mongolia’s railway: balancing commercial value against political objective;

Mongolia must play its neighbors against each other to extract concessions;

PM says education must make Mongolians internationally competitive;

Institute to prepare foreign policy guidelines, diplomats’ training material;

Victims of past repression receive compensation;

Government wants to retain international law firm;

Discontent fuels Mongolia's far-right groups.

*Click on titles above to link to articles.

BUSINESS IVANHOE EXPECTS OYU TOLGOI TEST PRODUCTION BY Q4 2012 Full-scale construction is running on schedule at Ivanhoe Mines' Oyu Tolgoi project, and the company said on Tuesday it is now planning to process the first ore by the fourth quarter of 2012. “The steady progress being logged across the site every week means we are on track to be ahead of our construction schedule by the end of this year,” Ivanhoe CEO John Macken commented. At this rate, commissioning of the major production systems will start about two years from now, with the initial ore running through the primary crusher and into storage, Mr. Macken said. At the same time, at least one of the concentrator's two ore-grinding circuits will be in the commissioning stage. "The successful ramp-up to full-scale construction this year is a remarkable achievement by the project's workforce and contractors. Maintaining this pace will ensure that we will be commissioning major production systems within approximately two years, and we expect to meet our declared goal of beginning full commercial production at Oyu Tolgoi in 2013" Mr. Macken added. Vancouver-based Ivanhoe expects to hit full commercial production in 2013. The mine is expected to produce more than 544,000 tons of copper and 650,000 oz of gold a year in the first ten years of operations. The budget for Oyu Tolgoi construction in 2010 has been set at USD754 million, with an additional USD195 million earmarked for operations. The Oyu Tolgoi workforce has been steadily increasing in recent months and currently totals approximately 4,400. Read more… An independently prepared Integrated Development Plan for Oyu Tolgoi released by Ivanhoe Mines in May 2010 projected that the Oyu Tolgoi concentrator initially would process 100,000 tons of ore per day (36.5 million tons per year). Under the start-up plan outlined in the Integrated Development Plan, ore initially would be sourced from the open-pit mine that is to be built on the Southern Oyu deposits. At the same time, the adjacent, higher-grade underground mine on the Hugo Dummett Deposit is scheduled to be developed toward full production of 85,000 tons per day. The expansion would be timed to provide for the processing of ore to be mined from underground, as well as the open pit, when operations reach full capacity. Mr. Macken said two of the most striking indications of the rate of construction progress being achieved are the extensive foundations for the large, state-of-the-art concentrator plant and for the 31-storey-high, reinforced concrete headframe for the 10-metre-diameter main production shaft for the underground block-cave mine at the Hugo Dummett Deposit. "One nearer-term goal is to complete the foundations and allow the erection of the exterior steel to enclose the concentrator building before the onset of winter next year so that work can continue indoors until the start of the 2012 outdoor construction season. A newly assembled ready-mix concrete plant, the largest in Mongolia, can produce enough concrete every day to fill two Olympic-sized swimming pools."

Source: www.miningweekly.com, Ivanhoe Mines MONGOLIA MINING LURES BIG BACKERS Mongolia Mining, the first Mongolian firm to tap the Hong Kong IPO market, has already secured several strategic investors as it seeks to raise USD1 billion. They include Kerry Group, which owns a 10 percent stake and US fund Ancora Capital with 7.6 percent, while two Mongolian oil miners, Petrovis and Shunkhlai, own a combined 20.1 percent. The European Bank for Reconstruction and Development owns a 5 percent stake in Mongolian Mining Corp, under an investment agreement between Energy Resources (as the company used to be

called) and EBRD signed on February 24, 2009. The miner's largest shareholder is the MCS Group, which owns 57 percent of the company.

Source: The Standard, Hong Kong

BANKS LIKELY TO BE PENALIZED FOR FAILURE TO REVEAL OWNERSHIP DEATILS The Central Bank is likely to impose hefty penalties on all commercial banks that failed to reveal to the public the legally mandatory details about their capital base, shareholding pattern, internal administrative structure and audit procedures, amount and status of loans, assets and liabilities etc. The banks were expected to go public with the information by July 1 and when they failed to do so the deadline was extended to August 31. When this, too, did not lead to full disclosure, the Central Bank stepped in and posted the details on its own Website. Of the 14 banks operating in the country, the State Bank is State-owned; and three, Chinggis Khan Bank, Saving Bank, and Credit Bank are 100% foreign-owned; Trade and Development Bank, Khan Bank, National Investment Bank, and Transportation Development Bank have mixed foreign and domestic shareholding; and Golomt Bank, Capital Bank, Capitron Bank, Ulaanbaatar City Bank, Erel Bank, and XasBank are 100% owned by Mongolians. Read more… The total equity of all these banks is MNT252.1 billion. Saving Bank has the largest capital base of MNT60 billion, while Ulaanbaatar Bank, Erel Bank, and Transportation Development Bank all have MNT8 billion, the minimum capital permitted by the Central Bank. The following table gives the details. Ownership of banks as revealed by the Central Bank.

Sl.No.

Name of the bank

Equity fund amount

Principal share holders

1

Saving Bank

MNT60 billion

Emdi securities LLC (Just group)

2

Chinggis Khaan Bank

MNT39.3 billion

Millennium Securities Managements Ltd 50%,Coral Sea Holding Group 50%

3

State Bank

MNT28 billion

The Finance Ministry

4

Golomt Bank

MNT21.9 billion

Bodi International Ltd

5

Credit Bank

MNT14.1 billion

Basic Element Finance Limited Company (Cyprus), 100%

6

Trade and Development Bank

MNT14 billion

Global Investment and Development SCA Consortium 65.8%, T.Tsolmon 10.4%, Treasury stock 9.5%,US Global 6.4%,J.Battur 5.7%, 58 individuals own 2.2%.

7

Xac Bank

MNT13.3 billion

Tenger Financial unit 99.9%, and 4 individuals own the remaining 0.1%.

8

Khan Bank

MNT12.9 billion

Savada Holding Co.Ltd 40.2%, Tavan Bogd Trade LLC 35.3%, HS International (Asia) 12.8%, IFC 9.1%, DAI 1.8%, Mongolian Holding Limited Partnership 0.7%, Morrow Family Trust 0.2%.

9

National Investment Bank

MNT8.4 billion

D.Dagvadorj 55.6%,UB Diversified Ltd 22.2%,Firebird Global Master Fund Ltd 18.5%, Firebird Aurora Fund Ltd 3.8%.

10

Capital Bank

MNT8.1 billion

Bishrelt Holding LLC 99.9%, Tavan Bogd LLC 0.1%.

11

Capitron Bank

MNT8 billion

B.Medree 49.0%, P.Munkhsaikhan 46.3%, Trade and Development Bank 4.6%.

12

Erel Bank

MNT8 billion

B.Erdenebat 100%

13

Transportation Development Bank

MNT8 billion

Infrastructure 51%, D.Batkhuu 38.8%, D.Enkhtaivan 8.7%, D.Enkhtuya 1.6%.

14

Ulaanbaatar Bank

MNT8 billion

D.Erdenebileg79.9%, Ulaanbaatar Fund 20.0%, D.Batjargal 0.01%.

Total

MNT252.1 billion

Source: Udriin Sonin, English.News.mn

CANADIAN COMPANIES PUTTING MONGOLIA ON THE MAP The world's least populated country and one of the youngest democracies is experiencing a mining boom and is looking to Canada for leadership. A Major Drilling International drill stands in the Gobi desert. The New Brunswick firm was one of the first North American companies to set up shop in Mongolia. It has made a concerted effort to hire locals and has used local knowledge to run operations. The country decided to open its doors to foreign investment but has been hesitant to deal with neighbors China and Russia. Instead Mongolia has welcomed Canada. And a New Brunswick company is at the centre of the development. Moncton-based Major Drilling Group International Inc. has been at the forefront as Mongolia heads toward becoming a big league player in the international mining industry. Mr. Francis McGuire, president of Major Drilling, said the company was one of the first North American companies to set up shop in the country and he said good geological surveys, done by the Soviets when they ruled the region, made it attractive for development. Major Drilling did the initial work for the Oyu Tolgoi project. Canadian companies are streaming in to form the backbone of the industry's operational support and supply chain. Mr. McGuire said junior mining companies have been on the ground for the last few years but now senior companies such as Australia's BHP Billiton Ltd. are fast moving in. Read more… But being one of the first Western companies, the drilling company has faced some unique challenges doing business in the heavily rural country. The Mongolian language does not include words for many of the tools used in drilling and few locals speak English. Words had to be created so the Major Drilling workers could communicate with each other. Infrastructure on the ground is almost nonexistent and that includes roads, which means few Mongolians have experience driving. Motor accidents are rampant and truck loads of supplies sometimes just disappear. Fences surround the work sites because sand storms can be dangerous in the heart of the Gobi desert, where temperatures fluctuate between a frigid -40 C and a sweltering 40 C, said Mr. McGuire.The fences are not meant to keep the wildlife out, but to make sure employees don't wander out of the camp in the blinding sand storms. Many Mongolians have lived nomadic lives as herders and the outdoor, high-paying mining jobs are highly valued. Major Drilling has made a concerted effort to hire locals and has used local knowledge to run operations. Mr. McGuire said he has developed a great respect for the hard-

working people who take great pride in their heritage. Major Drilling received an award from the Mongolian government for being one of the country's best employers. The company started an English language and mechanical skills program to train the more than 300 local workers. Mr. McGuire said in the few short years that Major Drilling has been involved in the country, there has been a massive boom in economic development catering to mining. When it first started work, there wasn't even a tax system in place but since then Mongolia has partnered with Canada to establish its corporate tax plan. The country has been hesitant to deal with neighbors China and Russia, and for this reason Canada is seen as a very favorable choice for investment. Canada and Mongolia share more than wide open spaces; both countries are resource-rich northern climates and have politically powerful neighbors. Mr. David Lutz, a former New Brunswick representative to the Honorary Consul of Mongolia, has experience dealing with Mongolian government officials. He said that during his tenure, he met with many of the country's ministers. From Education to Agriculture, they are looking to Canada to help strengthen their economy, he said. But the rapid expansion of the mining sector has left governments scrambling to train enough welders and heavy machine operators. "Mongolia has the resources the world needs to build with," Mr. Lutz said. Government officials asked him to send Canadian instructors to teach English and other skills that could be put to use in the high-paying mines. The country is having a hard time keeping up with economic growth, he said. Ulaanbaatar is fast expanding and can't cope with the growth of tent cities on the outskirts of the city. With no sewage treatment or power, diseases such as tuberculosis are rampant. "Twenty miles out of the capital, it's 1867," Mr. Lutz said. Mr. Lutz said he worked to convince the Canadian Government to strengthen ties with the country. And in 2008, Canada established an embassy in the capital. He said Mongolia needs more than just investment in the mines. "If countries like Canada don't help, the young democracy might not survive," he said. The country is the only member of the World Trade Organization not participating in a regional trade agreement.

Source: New Brunswick Business Journal

PM LEADS TEAM OF MINISTERS, MPs TO INSPECT WORK ON OYU TOLGOI PROJECT Prime Minister S. Batbold recently led a first-hand inspection of the Oyu Tolgoi construction progress by members of the Government's Cabinet and members of Parliament. They expressed happiness with the progress and noted that Oyu Tolgoi would be three times larger than the Erdenet Copper Mine, in north-central Mongolia, which accounts for 40% of the value of Mongolia's exports and generates more than 30% of the country's gross domestic product. The Prime Minister said the government must work to ensure that Oyu Tolgoi begins production on schedule and contributes to Mongolia's economic growth. "Overall, the work is progressing smoothly and the mine will be in operation in two years," he said. Several Cabinet ministers were lowered 1,300 metres down Shaft #1 at Oyu Tolgoi and travelled through the growing network of tunnels providing mine development and exploration access to the copper-rich Hugo Dummett Deposit. Minister of Education, Culture and Science Yo. Otgonbayar confirmed that the government had signed a memorandum of understanding with Oyu Tolgoi for a USD58-million program that will provide technical and vocational training to equip up to 3,300 trainees to be eligible for jobs at Oyu Tolgoi. Training programs will begin at 12 vocational institutes in early October and extend to another 24 institutions next year. Two new vocational training centers will be built and five selected educational institutions will be upgraded. The program also will provide scholarships each year to 200 students studying at Mongolian and international universities. Read more… Following the Oyu Tolgoi visit, Cabinet members attended a ceremony to mark the laying of the foundation stone for a vocational training center in the South Gobi regional capital of Dalanzadgad. "We are pleased with this work; we are offering people from all over the country an opportunity to lend their hands in the Oyu Tolgoi Project, as well as other large developments," Prime Minister Batbold said. "The development of Oyu Tolgoi also will substantially help our problems with unemployment." The Oyu Tolgoi Project is committed to ensuring that Mongolians hold at least 60% of the available jobs during construction and 90% of the jobs during production. During the period from January 1 to August 15 this year, the Oyu Tolgoi Project signed 98 contracts with Mongolian companies, with a total value of USD206 million. Mongolian companies also filled 849 purchase orders totalling USD50.2 million during the same period, accounting for 86% of all purchase orders for the project.

Source: Ivanhoe Mines

GEORGE TUMUR SAYS TRUST ESSENTIAL TO SECURE FOREIGN INVESTMENT Mr. George Lkhagvadorj Tumur, Managing Director of Hunnu Coal, has said the most important thing in successfully running a company once it has gone public is retaining the trust of investors, which can be achieved only by keeping them fully informed of developments, and by total transparency in operation. Asked how it felt to be the only Mongolian managing director of a foreign listed mining company, Mr. Tumur said honesty and hard work mattered and since there was no shortage of talent in Mongolia, he hoped his success would be replicated in numbers. He also answered questions on how the Hunnu Coal developed from a concept to reality, and what the process involved. Mr. Tumur stressed Hunnu‟s policy of employing as many Mongolian contractors as possible for drilling and geophysical work, and said the company hoped to have three operational mines in the next four years. It also planned to get itself listed in the Hong Kong stock exchange in the next 12 or 18 months to raise funds for further expansion.

Source: Udriin Sonin NEW 2-YEAR AGREEMENT SIGNED AT BOROO GOLD A new Collective Agreement covering the period July 1, 2010 to June 30, 2012 was signed at Boroo Gold on August 30. The Agreement sets the compensation, benefits and working conditions of Boroo employees at a highly competitive level and was signed by representatives of the management and the Trade Union of Boroo Gold. Both parties to the agreement have been actively collaborating for many months to get the Government to issue the outstanding approvals required to re-start Heap Leach and to start mining at Gatsuurt. Obtaining these approvals will result in continuity of employment for many Boroo workers, contractors and suppliers and will contribute significant economic and social benefits to Mongolia and to local communities.

Source: Boroo Gold

MONGOLIAN STAR MELCHERS OPENS NEW FACILITY Minister of Road, Transportation, Construction, and Urban Development Kh. Battulga was among the 350 people attending the “grand opening” of a new facility, dealership and office of Mongolian Star Melchers (MSM) on September 3. He congratulated the company, which supplies and services the Mongolian market with industrial equipment, automobiles and trucks, fast moving goods, and medical tools, on its growth and appreciated its contribution to the country‟s economy. MSM employs over 300 highly educated and motivated people.

Source: Onoodor

9 OF 26 REQUESTS TO WITHDRAW FROM MONGOL 999 GRANTED Mr. L. Ariunbold, a Board member of Mongol 999, the consortium of Mongolian companies seeking to operate the Tavan Tolgoi mines “so that the wealth generated by the country‟s natural resources stays within it”, has said that they how have 1,937 companies registered as shareholders, and a capital base of USD1.4 million, with every company having contributed the same amount of MNT1 million. Asked about rumors that quite a few of these companies are seeking an exit and want a refund of their money, Mr. Ariunbold said all shareholders had joined voluntarily and there is no provision for return of any money at the moment. This can be done only when the shares are traded, giving a chance to anybody to sell his stake. However, following special and urgent requests from 26 of the original 1,946 shareholding companies to be allowed to withdraw from the consortium, the board decided to make an exception in 9 cases. Incidentally, Mr. Ariunbold claimed during the interview that of the estimated 30,000 active companies registered in Mongolia, only 3,200 actually pay VAT.

Source: Udriin Sonin

13 PARTICIPANTS IN BOROO GOLD‟S ANNUAL MINING SAFETY CONTEST A total of 13 teams participated in the annual mining safety competition o r gan i z ed by Boroo Gold LLC in its mine site on September 2. Called Rescuer, the competition has been held every year since 2006, with the a im of test ing and updating the ski l ls and competence of mine rescue teams, introducing new technology, and allowing competitors to exchange their experiences. This year‟s competitors represented the National Emergency Agency , Boroo Gold, Erdenet, Shariin Gol, South Gobi Sands, Energy Resources, and others. The hosts scored the most points.

Source: Mongolian National Mining Association

XANADU MINES MAKES KEY EXECUTIVE APPOINTMENT Xanadu Mines has appointed Dr. Andrew Stewart Country Manager and Chief Geologist for its operations in Mongolia. This senior appointment will underpin Xanadu‟s plans to advance its exploration strategy and drive a vigorous exploration program on its portfolio of 9 coal and 4 copper gold licenses. Commenting on the appointment, Xanadu‟s Chairman Brian Thornton said, “Andrew‟s talent and country experience will provide Xanadu with a much needed boost to its exploration and development drive in Mongolia given his previous roles and extensive country knowledge coupled with its undisputed coal and copper/gold endowment. It is a vote of confidence in both the company and its Mongolian exploration and development strategy to have secured a key executive of this caliber.” The appointment will also reinforce Xanadu‟s credentials with potential international investors as the company moves towards an IPO in the fourth quarter of 2010. Read more… Dr. Stewart will work with and direct Xanadu‟s existing in-house team of executives and staff who are all based in Ulaanbaatar. He has spent the past 12 years working as an exploration/project geologist for some of the world‟s largest mining companies. These include Ivanhoe Mines Mongolia, Vale (Mongolia, China and Indonesia) and Oxiana Limited. Xanadu Mines is an unlisted public company exploring for and developing energy and metals projects in the South East Gobi and Trans Mongolian Railway corridor in Mongolia. The company is developing two key coal assets; the Khar Tarvaga project located 200 km south east of Ulaanbaatar and the Galshar Project, located 200 km from the Chinese border in the south of the country. Its current coal resources exceed 500Mt. In addition, it has a number of advanced copper and gold exploration licenses in the South East Gobi.

Source: Xanadu Mines

PROPHECY RESOURCE SECURES LOAN TO ADVANCE ULAAN OVOO PROJECT Prophecy Resource has arranged a secured debt facility of up to USD10 million with Waterton Global Value. Mr. John Lee, CEO and Co-Chairman of the company, has said the proceeds will fully fund Ulaan Ovoo's 2010 capital expenditure to production, which includes continuing road improvement, infrastructure upgrade at the mine site and at the rail station, fleet purchase, and personnel recruits. “We now also have a marketing budget to increase investor and community awareness throughout Mongolia, Asia and North America," he added.

Source: Prophecy Resource Corp.

15 KOREAN BUSINESSMEN MEET POSSIBLE MONGOLIAN PARTNERS The South Korea-Mongolia Economic Cooperation Partnering Meeting in Ulaanbaatar on Monday was the first major business consultation event between the two countries. It aimed to help Korean investors find local partners for new business opportunities. According to the Korea Trade-Investment Promotion Agency, 15 officials from 13 South Korean firms met with some 100 local business representatives. The Korean delegation included officials from Hyosung Group, the parent company of textile maker Hyosung Corporation, Korea Institute of Maritime and Fisheries Technology and renewable energy developer Eco Energy Holdings.

Source: Ardiin Erkh

100 BUSINESSES JOIN EXHIBITION ON BUYING APARTMENTS More than 100 business entities participated in a three-day trade exhibition on apartments in Misheel Expo that ended on September 6. It was jointly organized by The Ministry of Road, Construction, Transportation and City Planning, and the Advice and Information Center for Consumers to give a fillip to the construction sector, Visitors were offered information on where they can find what type of apartments and got an idea of how costs vary depending on location and mode of payment. The most expensive location is naturally the city center where new apartments, with 2 to 5 bedrooms, cost MNT2.5 million a square meter. At many places rates are somewhat lower for those who pay the entire price in advance. Moving away from the city center, to places like the banks of the Selbe, promises less noise and pollution and also brings costs down to an average MNT900,000 a sq m for those paying 100% in advance. In the districts of Ulaanbaatar there is a wide range of price options, from USD499 to USD1,550 per sq km.

Canadian wood houses were a special draw. They cost between MNT500,000 and MNT600,000 a sq m. Those that can be used also in winter cost between USD900 and USD1,100, while more fashionable log houses are between USD2,200 and USD2,500 per sq m. Those looking for a place in the ger districts could see several heating systems and sewage connections.

Source: Ardiin Erkh

ANGLO-AMERICAN SEEKS COKING COAL ASSETS IN RUSSIA, MONGOLIA Anglo American Plc, the world‟s third- largest producer of steelmaking coal, is seeking an acquisition that may more than double existing output to meet rising Chinese and Indian demand. Anglo is looking for assets with potential annual output of as much as 20 million metric tons in Russia, Mongolia, Indonesia and Mozambique, said Mr. Seamus French, head of the London-based company‟s coking coal business. Anglo joins Brazil‟s Vale SA, China Shenhua Energy Co. and South Korea‟s Posco in seeking coal assets in developing countries after Chinese imports surged fivefold last year and Indian demand gained. Contract prices rose twice this year as the economic recovery spurred supply competition between steelmakers in Japan and China. China Shenhua, the country‟s biggest coal producer, BHP Billiton Ltd. and Xstrata Plc are among companies looking to invest in Mongolia‟s Tavan Tolgoi coking coal deposit.

Source: Bloomberg

CHINGGIS KHAAN HOTEL JOINS SUMMIT HOTELS & RESORTS Chinggis Khaan Hotel has joined Summit Hotels & Resorts, a brand of Preferred Hotel Group. Mr. Mark Simmons, Area Managing Director - Asia of Preferred Hotel Group, has said, “Ulaanbaatar is a unique destination with thriving industries that attract the international corporate travel sector and adventure travelers en route to the famed Gobi Desert. Summit Hotels & Resorts is thrilled to include the city‟s finest business hotel in our collection.”

Source: HospitalityBiz India

ECONOMY GOVERNMENT AWAITS MORE ECONOMIC FREEDOM AS IMF RESTRICTIONS NEAR END Finance Minister S.Bayartsogt has said the Government will soon be ready with a time frame and phases of funding for several major projects. Two priorities have to be coordinated. The first relates to exploitation of resources and the other to use of the revenue from these resources to set up other major projects. If financing is to be kept independent of the State budget, so that projects may proceed quickly and match the development policy, there must be careful planning. Laws have to be amended to allow this financing mechanism to operate smoothly. The Government will need be given the legal authority to pledge future revenue against present loans for certain infrastructure projects. Also, the proper conditions and regulations governing the operation of the Development Bank have to be enacted. “At the moment there are certain restrictions on how we can use our revenues but once the stand-by program approved jointly with the IMF expires on October 1, we shall have total independence to formulate and pursue our own economic policy. We shall then go ahead with plans to issue Government bonds in international markets to raise money for certain projects. Many reputable investment banks have offered their services to help us with the bonds,” Mr. Bayartsogt has said.

Source: The Mongolian Mining Journal

OPTIMISM THE KEYNOTE AT MONGOLIA INVESTMENT CONFERENCE In his speech at the 1st Annual Mongolia Investment Conference on September 7, Prime Minister S. Batbold reminded investors that Mongolia‟s predicted economic growth was fueled not only by the country‟s rich resources but also by Mongolia‟s democratic political system, open economy and the low tax regime. The conference, organized by Eurasia Capital and Monbiz with The Business Council of Mongolia and the Corporate Governance Development Center as partners, brought together 22 leading international investor groups, executives and decision makers from the Mongolian government, Mongolian banks and leading Mongolian corporate executives. The Prime Minister had to cancel his appearance at the last minute, and his speech was read out by Mr. H. Gankhuyag, his Economic Advisor and CEO of Tenger Financial Group. Mr. Batbold reiterated his commitment to develop Mongolia‟s capital market by assigning a working group to overhaul the stock exchange and to bring in changes in the regulatory framework around capital markets. He also hoped to announce soon the choice of an international management team to restructure the

Mongolian Stock Exchange. The Government had received a number of bids from international stock exchanges and the progress of selection was “so far so good”. The Prime Minister urged major international companies operating in Mongolia to allow some of their shares to be traded on the Mongolian capital market so that local investors can take part in the success of these companies. The actual proceedings began with a presentation from Mr. Alisher Ali Djumanov, Chair of Eurasia Capital. In „Mongolia 2010-2020 Outlook‟, he predicted that Mongolia will experience the highest GDP rate globally at 19% per annum for the next 10 years, a growth that will be propelled by the “development of mineral resources, very active multi-billion dollar investments, surging exports and robust maintaining prices for commodities going forward”. Read more… With the estimated monetary value of Mongolia‟s underground mineral resources put at USD1.3 trillion, Eurasia Capital analysts estimate that in 2020, the country‟s GDP will grow from the current USD5 billion to USD30 billion. “2010 could be a transformational year for Mongolia, a beginning of the multi year bull market for various Mongolian key assets,” said Mr. Djumanov, drawing examples from the phenomenal success of other frontier markets like Qatar and Kazakhstan. He also cited the Mongolian Stock Exchange, which went up by 125% this year, as a leading indicator of investor optimism. “We believe this is the beginning of the global out-performance of the Mongolian local equity market,” he said, adding, “The MNT has gone up 9% so far this year against the USD, making it the second best performing currency globally.” Mr. Djumanov expected the banking sector to increase its current assets of USD2.8 billion to USD25 billion by 2020. “Banks will be one of the main beneficiaries of the mining-led Boom in Mongolia and the industry will grow 9 to 10 times in the next 10 years,”, he said, adding with a chuckle that the main challenge for the Central Bank will lie in defending the appreciation of the MNT. Not just mining, banking and real estate, “all assets across Mongolia will do very well, particularly local equities,” Mr. Djumanov said. In a presentation on the macroeconomic outlook for the country as part of the fist panel discussion, Mr. N. Zoljargal, Deputy Governor of the Central Bank, projected a growth rate reaching 7.5% by the end of this year. However, the biggest policy challenge was in deciding where the money should go. The high poverty rate of 36% and a salary raise for Government employees were the biggest pressures on the budget, he said, reminding investors that “any capital inflow is going to create jobs”, which would mitigate poverty and unemployment. Lack of economic diversification, absence of a regulatory framework and an underdeveloped domestic capital market were other key challenges he felt could affect the overall macroeconomic stability of the country. According to Mt. Philip Ter Woort, Head of Resident Office of the EBRD, adoption and implementation of the Fiscal Stability Law and establishing a Fiscal Stability Fund are crucial to maintaining a stable economic environment in the country. “There is a general will in Mongolia to make the mining sector work and as a consequence people understand that to attract the international investor, a stable economic environment is required,” he said. Answering participants‟ questions on investment options in the country, Mr. Woort admitted that the mining sector was still the first choice with the mining supply chain coming next. However, the meat industry and the banking sector also have potential investment opportunities. Panel members including Dr. D. Batkhurel from the Department of Development Policy and Strategic Planning and Mr. Mandar Jayawant, Managing Director of Mongolia Opportunities Fund also answered questions on infrastructure development hurdles and possible side-effect on GDP predictions. The second Panel discussion saw the CEOs of Khan Bank, Xac Bank and Trade and Development Bank answering questions on the banking sector‟s role in the country‟s projected growth, building equity funds and wealth management. Answering panel moderator Mr. Kh. Gankhuyag‟s question on whether international banks were set to enter the Mongolian stage, the new CEO of Khan Bank, Mr. Simon Morris, replied in the affirmative. “I think the local banks do not have properly prepared balance sheets, and in most cases, they lack the technical expertise to structure some of the deals that will be needed to finance some of the projected growth,” he said. At least one foreign bank has been applying to open a representative office in Mongolia, acknowledging the growing interest in Mongolia by international bankers. The CEO of TDB, Mr. O. Orkhon, shared his optimism for development of banking related services and products in Mongolia. “We shall have everything related to investment banking and your role in developing this market is to be vital because you will be the beneficiaries and clients,” he told the participants while announcing that TDB now had a new company TDB Capital to run investment banking services. The later half of the conference was dedicated to project overview presentations by

representatives of leading foreign mining resource companies including Ivanhoe Mines, SouthGobi Energy Resources, Prophecy Resources, Gobi Coal and Energy and Mongolia Energy Corporation. The audience was given a solid background of each company‟s project scale, infrastructure development, mining costs, production schedules and investment opportunities in the field. Participants of the final session representing Mongolian Corporates included leading local companies Mongolia Development Resources, Newcom group and Just Group. Newcom Group was the only non-resource company present at the conference. The company has recently launched a Joint Venture Company with ERBD called Clean Energy to harness energy from Mongolia‟s first wind farm with a capacity of 50mw which will supply the National Power Grid. Answering an investor‟s questions on privatization of power sector, Mrs. Dulamsuren Begzjav, Managing Director of the Newcom Group, replied that the Government sees the need to liberalize the power sector but mentioned it had taken the company six years to work with the government to put the legislation in place as an indication of how slow progress can be. While mining resource companies and financing and banking were the main sectors represented at this year‟s conference, Mr. Djumanov saw future possibilities for other sectors like mining supply chain, telecommunications, services, retail and consumer goods. “I think all these sectors will get representation and maybe even have separate dedicated events,” he told BCM. International participants included Aberdeen Asset Management (Singapore, Hong Kong), Argo Capital Management (UK), East Capital (Sweden), Prosperity Capital Management (UK), Cartesian Capital Group (US), Nicholas Edwards Investments (Japan), Morgan Stanley (Taiwan, Shanghai) and Ivory Capital (US).

Source: BCM NewsWire „DISCOVER MONGOLIA 2010‟ KICKS OFF WITH POSITIVE FIGURES FOR MONGOLIA Mongolia ranks 7th in the list of safest countries to invest in after Australia, Canada, Chile, US, Mexico and Brazil, according to latest risk assessment study carried out by Behre Dolbear, a globally recognized mineral industry advisory firm. The figure was presented by Mr. Bernard Guarnera, President of the firm and guest of honor at the two-day Discover Mongolia 2010, the 8th Annual International Mining Investors Forum that kicked off on September 8. The ranking was based on criteria such as existing economic and political systems, social issues affecting the mining sector, permitting process and delays, corruption, stability of currency and tax regime. Mr. Guanera presented a very favorable mining investment environment for Mongolia and pointed out that foreign direct investment had increased five-fold between 2004 and 2008. Proximity to power hungry China which “needs to expand its power grid by an amount equivalent to the UK‟s total consumption each year for the next 15 years”, spells huge potential for Mongolia coal exports, he said. Talking about challenges investors face, Mr. Guanera put bureaucracy and corruption at the top. Citing the latest Transparency International survey where Mongolia drops its global rank from 102 to 120, Mr. Guanera announced that Mongolia “will be downgraded for corruption in the next ranking”. He, however, spoke favorably of the tax structure. “Income tax is at 10% while corporate tax is at 25%; these are relatively low figures and we like it,” he said. Read more… However, investment attractiveness could be derailed by government action, he said, reminding participants of the enactment of the windfall profits tax which resulted in a sharp drop in investments before it was decided to rescind it with effect from January 1, 2011. “The government‟s take and takings will be decisive in maintaining mining investor interest,” Mr. Guanera said, ending his keynote address with a pithy pronouncement, “When you get too greedy the goose goes.” Taking stage as the next guest of honor, Mr. Tim Goldsmith, Partner and Global Mining Leader of PricewaterhouseCoopers (PwC), reiterated China‟s role as a „hungry dragon‟ for Mongolia‟s mineral resources. This spells out positive investment opportunities for resource-rich Mongolia. ”Demand is in great shape and will outweigh supply,” he said before announcing the official opening of a PwC country office in Mongolia. China‟s importance as an export market for Mongolia‟s coal was brought up again by Mr. Alexander Molyneux, CEO of SouthGobi Resources. “Coal in Mongolia is principally an export commodity for China,” he said, pointing out the Chinese Government‟s North West development program, which is much more closely linked to Mongolia than to coal mines along China‟s Eastern regions . Referring to the Government‟s recent decision to link Tavan Tolgoi with the Russian rail link, Mr. Molyneux reminded the audience of Russia‟s self sufficiency in coal and the cash costs required. “Transporting coal though Russia to the northern ports spells a negative margin despite possible

robust prices,” he said. In its 10th year, Discover Mongolia is the country‟s biggest International Mining Investor‟s Forum that attracts world leading mining companies, geologists, mineral consultants, mining equipment suppliers, financial institutes, investment consultants, investors, academia and media.

Source: BCM NewsWire

ELBEGDORJ CALLS UPON MINERS TO BE RESPONSIBLE In a message to “Discover Mongolia-2010”, President Ts.Elbegdorj expressed appreciation for the work of investors who have explored Mongolia‟s natural resources. “Your efforts and investment have revealed our wealth to the world and now Mongolia has embarked on an ambitious journey of socio-economic development, based on the revenue from its mines,” he has said. “Our success must acknowledge the contribution of your specialists with wide experience and admirable skills, and of your use of progressive technology and techniques.” The President urged participants at the forum “to recognize the need to work with a sense of responsibility”. Exploring and exploiting underground minerals “must be accompanied with the obligation to not damage nature, the world and society”. He expected miners to contribute to the “development of regions where they work, and to restore to the maximum extent possible all damage mining may cause to historical and natural features of the area”. He defended his order some months ago to suspend issue of fresh mining licenses. “As the country‟s President and the Head of its National Security Council I have a duty to ensure that the issuing process is transparent and that the license holder knows he has to follow the law of the land. Nobody should have the impunity to ignore human rights, neglect the environment, and disregard the law. These are all symptoms of the criminal corruption that stalks today‟s human condition. I appeal to you to join the struggle to correct the distortion,” the message said.

Source: The Office of the President

BANKS CONTINUE TO PAY HIGH INTEREST RATES, AT RISK OF INSTABILITY No bank has as yet brought down its interest rate to one that is lower than the Central Bank rate of 11%, as proposed by Parliament when it amended the law guaranteeing the security of all deposits in banks. At about 18%, Capital Bank and Transportation Bank appear to pay the most interest for MNT deposits, higher than the Central Bank policy. The other banks pay only a marginally lower rate. The Government is worried that banks could make imprudent use of funds they collect with promise of higher returns and this could result in a big burden for it as guarantor of deposits. The international practice is for commercial banks to take its cue from the policy rate of the country‟s central bank, but this is not happening in Mongolia. This poses risks to the entire economic system, particularly to the stability of the banking sector.

Source: News.mn

RAILWAY TENDER AFTER INVESTORS MEET ON SEPTEMBER 11 Minister of Road, Transportation, Construction and City Planning Kh. Battulga answers questions on the new railway has said an international open tender for construction of the new railway, in three stages, will be announced after a meeting of investors on September 11 in Ulaanbaatar. Apart from some Mongolian companies, serious interest has been shown by companies in Germany, Russia, South Korea, and China, he said.

Source: Onoodor

MINERALS AND MINING EXCHANGE SET UP A Minerals and Mining Exchange has been set up, to act as a central entity to offer support to enterprises and individuals in the mining sector in their business, providing information to facilitate access to capital, trading partners, markets for mining products, better prices, supply chains, and to equipment. It will also coordinate trade and business activities in the sector so that entities can cooperate and reach a position of strength. The main function of the exchange in the initial period will be to establish a mining business information network. This will offer details on modern practices of minerals exploration and extraction, and help provide assistance to establish link-ups with international and other domestic organizations, and also help organize meetings, exhibitions, and forums.

Source: Udriin Sonin

NO PHOSPHORUS MINING AT COST TO ENVIRONMENT, PM ASSURES KHUVSGUL PEOPLE Lake Khuvsgul is locally called the Mother Dalai (sea) and people in the area want to make sure that any possible move to begin extraction work in the Burenkhaan phosphorus deposit does not in any way harm the ecology of this iconic lake of the country. Prime Minister S. Batbold‟s recent visit to the province renewed speculation that the Government was planning something. The general attitude of local citizens is that the economic temptations must be tempered with the need to keep the lake as it is, so that the next generation can also enjoy its bounties without loss. However, they are not against exploitation of this abundant deposit if use of appropriate technology guarantees environmental protection. The Prime Minister, however, was categorical that the Government had nothing up its sleeve. He said there was no question of any decision without a feasibility study. The phosphorus deposit is a substantial and also strategic deposit, but environmental protection was imperative and the Government has no plans to compromise with it. Mining Burenkhaan will certainly generate wealth for the nation, but so would properly planned tourism opportunities in an area where nature could be enjoyed in its pristine glory. Either way the needs of the local economy will be taken care of. He asserted that the feasibility study would consider the environmental aspects with all due care and any decision to proceed with mining would be taken only the chosen extraction technology was safe. He assured people that their emotions were no less important than economic imperatives.

Source: Onoodor

JAPAN REITERATES INTEREST IN MONGOLIAN RESOURCES In the first visit of a Japanese foreign minister to Mongolia in six years Mr. Katsuya Okada reiterated to both his counterpart G. Zandanshatar as well as President Ts Elbegdorj Japan's strong interest in participating in the exploitation of Mongolia's coal, copper, and uranium resources. Mongolia, in turn, is expected to work to establish a better investment environment for Japanese companies. Several Japanese companies are already involved in the mining sector, but both parties appear to desire Japan's deeper involvement. Mr. Okada had delivered very much the same message when he met Mr. Zandanshatar in Hanoi in July. These issues were also discussed when Mongolian Minister or Mineral Resources and Energy D. Zorigt visited Tokyo at the beginning of August. A Japanese government official, however, said the flurry of high-level visits between Japan and Mongolia does not signify any major new development, but is rather part of the "normal" friendly discourse between the two nations.

Source: PanOrient News

110 MINING EXPLORATION LICENSES IN ULAANBAATAR CITY AREA It may surprise some that there are 110 mining exploration licenses covering areas under the Ulaanbaatar city jurisdiction. These include 56 in Khan-Uul district, 38 in Nalaikh, 14 in Songinokhairkhan, 13 in Baganuur, 2 in Bayanzurkh and 1 in Sukhbaatar district, which is the city center. What these licenses will come up with is not known, but mining proper is as yet away from the city proper. Companies active in exploitation work are in districts such as Baganuur, Bagakhangai, Nalaikh, Songinokhairkhan and Khan-Uul, mining coal and various raw material for the construction sector. These latter include sand and gravel, and the Tuul river has always been a major source for these. This has major environmental consequences and the Mayor ordered a stop to mining for gravel in 2007. Visible and organized mining has ceased but every night a large number of people collect sand and gravel from Sonsgolon bridge area and transport them to construction sites in small trucks. There is of course extensive coal mining in Baganuur and Nalaikh, with the latter accounting for as many as 63 entities. However, these all use old technology and equipment, and do not pay proper attention to workers‟ safety. There were 11 mining deaths in 2009 alone. Cave-ins will only increase with time if no measures are taken. Pollution concerns led to the shifting some time ago of 33 iron foundries from Ulaanbaatar city to Baganuur and Bagakhangai districts. Stone grinding units should also be similarly relocated, away from the congested areas.

Source: English.news.mn

ANNOUNCEMENT SEEKING MANGEMENT TEAM FOR DEVELOPMENT BANK BEING READIED Mr. Ch. Khurelbaatar, Head of the Cabinet Secretariat, has told journalists that the State Property Committee and the National Development and Innovation Committee are now working on preparing the details of the announcement seeking bids from professional teams with international experience to run the newly established National Development Bank (NDB). The NDB will be

charged with providing finance for large development projects, such as Tavan Tolgoi, 100,000 Apartments, and the proposed new railway.

Source: Onoodor

MINISTRY PICKS ERDENET FOR FIRST COPPER SMELTER The Ministry of Minerals and Energy began studies on setting up a copper smelter following the Parliament resolution in its Spring session that Mongolia would have one by 2012. Its report, to be submitted to a working group of MPs, suggests Erdenet as the most suitable site for a smelter with a capacity of 90,000-130,000 tons. Mr. B. Batkhuu, Director General of a department in the Ministry, has said the cost would be around USD 500million. The Ministry has started formulating a draft law that would exempt technology and equipment to be used in coal processing and copper smelting from paying Customs tax and VAT when they are imported, on the ground that they will be used to generate value addition. The proposed smelter will be using ore produced in the Erdenet mines, but many in the Ministry feel that a larger one will be needed when copper begins to be mined at Oyu Tolgoi and Tsagaan Suvarga.

Source: Undesnii Shuudan

ERNST & YOUNG RECKONS MINING AND METALS DEAL MAKING TO ACCELERATE Ernst & Young's Global Mining & Metals Leader, Mr. Mike Elliott, says the volume of completed deals in the mining and metals sector during the first half of 2010 is up 20% to 544 on the same period last year, while deal value is up 46% to USD40.6 billion. "Transactions activity began to really pick up in late 2009 and has continued to gather momentum," he says. "The pace of deal activity will continue to accelerate, with the value of pending deals at 30 June four times the value of deals done in the first half of the year and the sector showing no sign of slowing." Mr. Elliott says resource security is the key driver of transaction activity, with China joined by the other Asian economies - notably Japan, India, Singapore and South Korea as the biggest buyers. "At the same time, we will continue to see the global diversified miners pursue bolt-on acquisitions. While resource security continues to be the driving force behind increased deal activity in the mining and metals sector, a number of other factors are also helping to fuel transactions - including the improved cashflow and availability of capital to do deals, ongoing industry rationalisation and the desire for greater vertical integration."

Source: Mineweb.com STRONG YUAN WOULD HURT CHINA, ECONOMISTS WARN China must resist external pressure for yuan appreciation because a stronger exchange rate would take a big bite out of economic growth, according to a pair of senior government researchers. Mr. Li Jianwei and Mr. Yu Bin, economists in a think tank under the State Council, or cabinet, said that a substantial rise in the yuan could cut growth next year to 8.4 percent from their baseline forecast of 10.2 percent. They did not spell out what they meant by "substantial." Writing in the latest issue of the Chinese-language Reform magazine, the two also said that Beijing should enhance the yuan's flexibility if the euro depreciates -- in effect, suggesting that the yuan should be allowed to fall against the dollar in those circumstances. While their comments do not necessarily reflect official thinking, they do underscore how many high-level economists in the government think that a strong currency could deal a serious blow to China when the global economy is still on shaky ground. China lifted the yuan, also known as the renminbi, from a nearly two-year de facto peg to the dollar on June 19 and vowed to steer its currency regime toward greater flexibility. But nearly three months on, the promises appear to have amounted to little. The yuan has gained just 0.6 percent against the dollar since the depegging, even if the pace of appreciation has increased a touch in recent days. Mr. Hu Xiaolian, a Chinese central bank vice governor, has said that more focus should be placed on the yuan's nominal effective exchange rate -- its value against a basket of currencies, not just the dollar. On that basis, the yuan has weakened over the past three months, because it has been closely tied to a broadly weakening dollar.

Source: Reuters.com

CHINA ASSURES FOREIGN BUSINESS OF FAIR TREATMENT Mt. Xi Jinping, the Vice-President, has reassured overseas companies that China will treat them fairly and is committed to becoming the world‟s most attractive destination for foreign investment.

The European Union Chamber of Commerce in China recently released a report that was highly critical of China for throwing up obstacles to foreign business. Lady Ashton, the European Union‟s foreign policy chief, raised worries about the difficulty of doing business in China during a meeting last week with Premier Wen Jiabao, the latest in a series of complaints by foreign politicians and executives that China is not opening up its market as promised when it joined the World Trade Organisation in 2001. Foreign businessmen were particularly angry at draft Chinese rules issued last year that would have required government entities to prioritise “indigenous innovation” in public procurement. Speaking at an investment forum in the south-eastern coastal city of Xiamen, Mr Xi affirmed that Beijing has revised the regulations and will treat foreign companies on the same basis as local ones. “We have adjusted our definition of indigenous innovation and confirm that foreign businesses are part of China‟s manufacturing force,” Mr Xi told an audience of foreign government officials and business executives. Mr Xi, expected to succeed Hu Jintao as head of the Communist party in 2012, said Beijing was in serious talks to join the WTO‟s government procurement accord, which enshrines equal access to bidding on public sector tenders. Foreign companies generate 28 per cent of China‟s industrial output and employ 45 million people, he noted. “As China opens wider, foreign investors will enjoy more scope for development and richer returns,” he said.

Source: The Financial Times

CHINESE MINISTER SAYS SECURITY CONCERNS CANNOT EXCUSE PROTECTIONISM Blocking investment deals in the name of national security is a form of protectionism, Chinese Commerce Minister Chen Deming has said. Mr. Chen did not mention any particular country, but appeared to refer to a recent case in which a State-owned Chinese steel firm faced opposition in the United States over plans to invest in a steel plant there. "For a very simple plant, some argue that it is a threat to national security, and dozens of congressmen jump out to oppose the project," he said. Mr. Chen was speaking at the UNCTAD World Investment Forum in the southeastern city of Xiamen. He said China's outbound investments would reach USD60 billion in 2010, up from USD56.5 billion in 2009. China was the fifth-largest source of foreign direct investment in the world last year. Mr. Chen added that China would continue to welcome foreign investment because it still needs the management expertise and technology that foreign firms can bring.

Source: Reuters

GLOBAL FOOD PRICE HIKE WORRIES UN Agricultural experts are casting a wary eye on the steep rise in the cost of wheat prompted by a Russian export ban and the questions looming over harvests in other parts of the world because of drought or flooding with memories still fresh of food riots set off by spiking prices just two years ago, Food prices rose 5 per cent globally during August, according to the UN, spurred mostly by the higher cost of wheat, and the first signs of unrest erupted as 10 people died in Mozambique during clashes ignited partly by a 30 per cent leap in the cost of bread. “You are dealing with an unstable situation,” said Mr. Abdolreza Abbassian, an economist at the UN‟s Food and Agriculture Organisation in Rome. “People still remember what happened a few years ago, so it is a combination of psychology and the expectation that worse may come,” he added. “There are critical months ahead.” Read more… The FAO has called a special session of grain experts from around the world on September 24 to address the supply question. Given that the fields stretching out from the Black Sea have been the main source of a huge leap in wheat trade over the past decade, the fluctuating weather patterns and unstable harvests there will have to be addressed, he said. It is an issue not limited to Russia alone. Harvest forecasts in Germany and Canada are clouded by wet weather and flooding, while crops in Argentina will suffer from drought, as could Australia‟s, according to agricultural experts. The bump in prices because of the uncertainty about future supplies means the poor in some areas of the world will face higher bread prices in the coming months. Food prices are still some 30 per cent below the 2008 levels, Mr. Abbassian said, when a tripling in the price of rice among other staples led to food riots in about a dozen countries and helped topple at least one government. The wheat crop this year globally is also the third highest on record, according to the FAO, but the sudden supply interruptions make the markets jittery. In June, Russia was predicting a loss of just a

few million metric tons due to hot weather, but by August it announced it would lose about one-fifth of its crop. Wheat prices more than doubled in that period.

Source: The New York Times

CARGO SHIP TO CHINA EMBARKS ON HISTORIC ARCTIC PASSAGE The MV Nordic Barents is lugging 40,000 tons of iron ore from Norway to China on an Arctic Ocean shortcut through melting ice -- and making a little history in the process. Steaming east along Russia's desolate northern coast, the ship departed on September 4 as the first non-Russian commercial vessel to attempt a non-stop crossing of a route that skirts the receding Arctic ice cap. "We're pretty much going over the top," said Mr. John Sanderson, the Australian CEO of the Norwegian mine where the iron ore comes from. By using the northern route from Europe to Asia, the Nordic Barents could save eight days and 5,000 nautical miles of travel thought to be worth hundreds of thousands of dollars to the owners of its cargo. While many scientists are alarmed by the widening expanse of open water that the ship will traverse, blaming it on global warming, shippers see a new international route. Mr. Sanderson's Northern Iron Ltd has sent 15 ships to China since it began mining in the northern Norwegian town of Kirkenes last October. All steamed south, then east through the Suez Canal or around the Cape of Good Hope. Read more… To reach Chinese steel mills hungry for ore, they had to brave pirates in the Indian Ocean.The Arctic route is no picnic either. On Saturday the polar ice sheet remained almost as big as the U.S. mainland. But over the summer it has shrunk about as far from the Russian coast as it did during the biggest Arctic melt on record, in 2007. Mr. Willy Oestreng, chairman of research group Ocean Futures, called the trip of the Nordic Barents "historic." Excluding icebreaking fees, a bulk ship that takes the Arctic route from Hamburg to Yokohama can save more than $200,000 in fuel and canal expenses, Mr. Oestreng said. "Today the route is basically competitive with the Suez Canal, and we can subtract the piracy risk," he said. Two days after Russia and Norway agreed last April to settle a 40-year-old dispute over economic zones in the Barents Sea, government and business leaders of the two countries met to sweep away hurdles to international shipping. Russian law still requires icebreaker escort even where ice danger is small, due to a lack of onshore mechanical or medical support. But fees and rules are starting to loosen. Lots of Russian vessels have plied the passage, and two German ships traversed it last year with small cargos delivered to Russian ports. But the Nordic Barents, an ice-class Danish bulk carrier chartered by Tschudi, is the first non-Russian ship with permission to pass without stopping. Rosatomflot has assigned two 75,000-horsepower icebreakers to the vessel for about 10 days of the three-week voyage, not saying how much it is charging Mr. Sanderson said he could send another four to six shiploads of ore over the top of Eurasia each summer. "Somebody's got to blaze the trail and prove to the rest of the world that this is a commercially viable route that can be transitted quite safely," he said.

Source: Reuters.com

POLITICS MPRP A STEP NEARER TO GETTING A NEW NAME AND A NEW IDEOLOGICAL THRUST A primary conference of the MPRP approved on September 7 the proposal to change the name of the party, though a final decision will be taken only at a larger general assembly fixed for. The present conference also heard Prime Minister S.Batbold, as Charman of the party, present a plan for a six-pronged reform of the party, including a change in its ideological thrust. The General Secretary of the party, Mr. U. Khurelsukh, has admitted both are sensitive subjects for most members but feels there is widespread awareness of the need to review the ideology of the founders and to change the name as times, too, have changed. What is now the MPRP was founded by General D.Sukhbaatar, D.Bodoo and S.Danzan in 1921 as the Mongolian People‟s Party (MPP). The word “Revolutionary” was added at a party conference in 1925. Referring to former President N.Enkhbayar‟s publicly stated opposition to both proposals, and to his statement that the present leadership of the party has not been effective, Mr. Khurelsukh said, “He has his own assessment but we do not agree with it. The goal of developing the country remains the same but the ideological tools need reshaping. Reform is an eternal process in the life of a political party. The MPRP believes in democracy and all members can express their personal opinion and views.” However, a change in name and ideological priorities “does not mean we have to

abandon our leftist orientation or forsake the principles of the Socialist International of which we are a member,” Mr. Khurelsukh said, adding that pragmatism was the order of the day.

Source: English.News.mn

MONGOLIA‟S RAILWAY: BALANCING COMMERCIAL VALUE AGAINST POLITICAL OBJECTIVE Linking Mongolia's desert mines with foreign clients will require billions of dollars of investment over a decade and some investors fear suspicion of China, rather than pure economic logic, is shaping its plans. Deputy Minister of Transportation A. Gansukh has said that the country would need to spend USD8.8 billion to build 5,600 km of critical railway infrastructure over the next few years to deliver its surging mineral output to foreign markets. Analysts say the country's dependence on its powerful and resource-hungry neighbor China worries policy makers. So instead of building a direct route south, it has chosen a more circuitous and expensive option that will connect its mines to Russia and the Pacific via a huge new industrial park aimed at adding value to its mineral reserves. Mr. Graeme Hancock, senior mining specialist with the World Bank, says overdependence on China was a concern but the difference between a 1,500-km trip to a Chinese port and a 4,500-km trip to the Russian Far East was considerable. "If you can make a margin of USD70 a ton selling through China or USD5 a ton selling through Russia, which would you do? You have to look at the economic fundamentals. Sacrificing commercial value for a political objective needs to be very carefully weighed." Read more… The southern Gobi desert, close to the Chinese border, is home to what many regard as the world's biggest untapped copper deposit at Oyu Tolgoi and the biggest coking coal mine at Tavan Tolgoi -- capable of producing 50 million tons per annum. China offers a guaranteed market for both. Three quarters of Mongolia's exports went to China in 2009, with millions of tons of coal heading south through an already overwhelmed rail link, and foreign investors say their future could depend on easing the bottleneck. Mr. Peter Geerdts, geologist with Gobi Coal and Energy, which owns mines in Mongolia's southwest, said his company would initially use trucks to ship 2 million tons of coal a year to China's northwestern regions of Gansu and Xinjiang, but once output reaches 10 million tons, that will not be feasible. "We will really need the railway," he said. Mongolia eventually plans to build a rail route crossing the country from west to east, but Mr. Gansukh said it was unclear when construction on the western section of the project would begin. Mongolia first wants to ease its dependence on China and seek out other options -- which inevitably involve Russia. In June, Mongolia's Parliament said priority would be given to a rail link from the Tavan Tolgoi project to an as yet uncompleted industrial park in Sainshand, where it can be processed and shipped north to Russia. Foreign mine investors expressed worry at the decision, saying it made little economic sense and had no funding. According to a World Bank report, shipment costs via a rail link to the Chinese city of Baotou would stand at USD33 per ton, but it would cost USD95 to transport it to the Russian border. The decision was made even though private financing had been made available for a 270-km route from Tavan Tolgoi to the border with China. That project has been consigned to the second phase. Mr. Gansukh said discounts had already been negotiated with Russia's rail network, and the Pacific option could even be cheaper than the route to China's ports. "Mining companies are saying it is too expensive, but we are arranging it so it is not so expensive," he said. "We have negotiated with Russian Railways and they have already given us a 65 percent discount." He said after the concessions are granted, the cost of delivering a ton of coal to Russia's far eastern coast would stand at USD27, compared to USD35 to the Chinese port of Tianjin. He said financing the project would also be straightforward. "We're going to set up a joint venture, and we are already negotiating with two big potential investors in South Korea." Much of the discussion has also concerned the rail gauge to be used in Mongolia. Russia was believed to be putting pressure on Mongolia to use its own unique broad gauge system even though China and the rest of the world use a narrower one. Mr. Gansukh said Mongolia had no choice but to work with the existing infrastructure, which was built by the Russians. "If we bring in the narrow gauge then it won't be integrated with the rest of our network," he said. Mr. Jim Reichert, infrastructure expert with the World Bank in Ulaanbaatar, said Mongolia's resources were likely to go where the demand is, and the China option would probably prevail in the end. "The view here at Tavan Tolgoi is that they are going to need the route to the south," he said. "The border crossing can't handle what they've got already and if you start putting 20 million tons of coal through there, that could force the issue."

Source: Reuters

MONGOLIA MUST PLAY ITS NEIGHBORS AGAINST EACH OTHER TO EXTRACT CONCESSIONS Mr. L.Purevbaatar, deputy chairman of the newly established logistics center, has said that talks with China on transit transportation have been stalled since Mongolia announced its decision to build the railway to Russia, and not China. At present, Mongolia enjoys no preferential treatment from China as a landlocked country. “We could discuss railway transit through China only if it offers discounts, and I personally think we would profit by letting our two neighbors compete with each other on offering better terms to us. That is what our negotiation strategy should be. Maybe our decision to take the railway to the north was an attempt to nudge the southern neighbor,” he has said in an interview. If its big neighbors follow the strategy of “moving a big rock by manipulating a small rock”, Mongolia can also try to “push a large rock with another as big”. He has said, “We must take advantage of the strategic interests of others to see that ours are met.”

Source: The Mongolian Mining Journal

PM SAYS EDUCATION MUST MAKE MONGOLIANS INTERNATIONALLY COMPETITIVE Prime Minister S. Batbold has reiterated his view that the whole concept of education needs to be reexamined in the light of new needs evolving from the way the world is rapidly changing around us. At a recent meeting with representatives of the educational sector, including those from secondary schools, universities, and professional institutes, he urged them to produce the human resources that will act as catalyst for the country‟s leap into a prosperous future. He said, “Our educational policy is quite clear. We must have Mongolians with the confident capacity to compete internationally in all spheres,” and added that the two most important things were long-term planning and a clear vision.

Source: Udriin Sonin INSTITUTE TO PREPARE FOREIGN POLICY GUIDELINES, DIPLOMATS‟ TRAINING MATERIAL Minister of Foreign Affairs G.Zandanshatar has signed a four-year agreement with Mr. B.Tsogoo, Director of the National Development Institute in the Science Academy,that asks the institute to prepare a comprehensive report on the best policy for Mongolia to follow in its foreign relations, especially with its two neighbors. The institute will conduct research, and hold meetings and seminars to elicit expert opinion. It will also prepare training modules and news material for Mongolian diplomats so that they can better disseminate information on the country‟s social, economics, scientific and technological progress.

Source: Ardiin Erkh

VICTIMS OF PAST REPRESSION RECEIVE COMPENSATION MNT16 billion has been paid in the last 15 years as one-time compensation to the families of 17,000 identified victims of political repression in the decades of socialism. This year, too, the national commission chose 21 persons, or their families if they are dead, to receive the grant. Mr. D. Battulga, Head of the President‟s Office, presented the money to them, saying, “Those days are gone, but they left black dots in Mongolian history and your grief lingers. Our national vow as a democracy is never to allow such things to happen.”

Source: Onoodor

GOVERNMENT WANTS TO RETAIN INTERNATIONAL LAW FIRM The Government has resolved to retain a law firm to represent the interests of Mongolia in foreign courts and arbitration proceedings and also to help prepare agreements, and assist in negotiations for future significant projects and programs. This became necessary considering the number of projects that will be undertaken for infrastructure development, and setting up mining and processing factories, and the need to keep them free of any legal complication during and after completion. The choice of the firm will consider its international reputation as also familiarity with Mongolian conditions.

Source: News.mn

DISCONTENT FUELS MONGOLIA‟S FAR-RIGHT GROUPS On a hillside high above Ulaanbaatar, the Zaisan Memorial commemorates the soldiers who lost their lives in World War II. Mongolians helped the Soviets defeat the Nazis and, for decades after, Moscow's influence was strongest here.

But these days China pours more money into this country than any other does. Some of it is aid. Some of it is investment. China's People's Liberation Army has handed over nearly USD3 million this year in aid to the Mongolian military. At a signing ceremony at the Defense Ministry, senior officers from both countries toasted each other after two generals signed their latest agreement. Everyone smiled. But some Mongolians are suspicious of these close ties. They want to know what China really wants. They suspect their powerful neighbor is a bully, not a benefactor, and that such co-operation could, in time, start to undermine the Mongolian way of life. The signs of their resentment are not hard to find. Swastikas and slogans are daubed on walls across the city. On the internet the groups show how they are fighting back against what they see as attempts to dilute the Mongolian race. A YouTube video shows a man shaving the head of a Mongolian woman. Next to her a Chinese man sits with his hands over his face. It is a very public warning to Mongolian women. This is what happens if you sleep with Chinese men. It was posted by a member of a far-right group called Dayar Mongol. Erdenebileg Zenemyadar is its founder. His group's website shows members carrying Nazi flags. The swastika is part of the group's logo. However, he insists he is a nationalist, not a Nazi. He comes to meet us in traditional dress - the kind of outfit nomadic herders wear out on the steppes. Read more… His organization is blamed by human rights groups for dozens of attacks on women, foreigners and others they see as threatening the purity of their race. Violence he condemns, but he defends the shaving of the woman's head. "I think this is right," he says. "If you ask the Mongolian people what they think about it, the majority of people would support that act." While he says his organization does not order or sanction attacks, he offers this explanation for them. He says the Mongolian nation should remain "pure"."Young people see foreigners breaking the law and they're not happy," he says. "So they're threatening them, sometimes robbing them. It's wrong but it's happening a lot. Sometimes they are our members but the majority are not. Maybe they're our supporters but we don't know them." One of his members joins our conversation. Soronzon Jamsran is 28 years old. He is an electrician and a new recruit to Dayar Mongol. He is wearing combat trousers, a black t-shirt and, round his neck, a swastika on a chain. "In Mongolian we call this the khas symbol," he says. "Germany's nationalists tried to cleanse their nation, so for me [the swastika] stands for keeping our nation pure. It's not like I support Germany or I'm a Nazi. It's just nationalism." Robyn Garner, a gay activist in Ulaanbaatar, is sympathetic to the concerns many Mongolians have about the activities of foreign corporations here. "You have a large section of the population watching resources, assets being sold off to foreigners," she says. "I can understand that people are looking for scapegoats, for ideologies to channel their concerns." But she is worried that the discontent is fueling the violent agenda of the far-right groups who are targeting her community. Two transgender women had to flee the country after they were assaulted. A 19-year-old gay man was stripped and beaten in the suburbs after leaving a monthly gay party. Otgonbaatar Tsedendemberel, another activist, says he has to be constantly on guard against the threat of attack when walking down the street. "I'm in constant fear," he says, "and unless we do something it's just going to get worse and worse." Luvsandendev Sumati, a Mongolian opinion pollster, points out that in the 2008 parliamentary elections, the party associated with these far-right groups won less than 1% of the vote. They are still operating on the margins, he argues, although he does feel they reflect concerns that many share here. “Small cultures are dissipating and disappearing," he said. "It's a real threat. In some ways Mongolian society should react to that. The question is: will it react in a civilized way or will it try to go to extremes?" Some here argue these groups are adopting the symbols of the Nazis because they are not yet a strong enough political force to create their own ideology. But those targeted by them feel they are a real threat and their influence is growing. Perhaps that is no surprise. We found one city centre bar filled with Nazi memorabilia. There were swastikas painted on the floor, reproductions of propaganda posters on the wall, even mannequins dressed in Nazi uniforms. Inside there were not extremists, just girls on a night out, a couple drinking quietly in one corner - no-one, it appeared, giving a second thought to the idea that these symbols would provoke offense elsewhere. The threats, the violence, the use of Nazi symbols all help to garner attention for the extremist groups here - Nazis or nationalists, the label does not really matter. They seem to enjoy the notoriety it brings. The challenge for Mongolia's authorities will be to address the concerns that fuel their anger and resentment and win them support, while limiting their opportunity to do real harm.

Source: BBC News Asia-Pacific

ANNOUNCEMENTS

“MONGOLIA: MONEY & MARKETS”, ULAANBAATAR, OCTOBER 5-6 “Mongolia: Money & Markets”, a financial forum jointly organized by PrimeInfo Centre and the Mongolian Financial Regulatory Commission, will be held in Ulaanbaatar on October 5-6. BCM is the official supporting organization of the event. The forum will be the first of its kind in Mongolia, bringing together policymakers, financial market participants like banks, insurance and share-dealing companies, investment banking, non-banking financial service providing companies, saving and lending partnerships. They will discuss government policy on financial market regulations, and all other issues related to it. The Forum‟s official website www.mongoliamoneymarkets.mn will be launched on September 13. Enquiries can also be made at 99118770, 99081203, and 70111403. ______________________________________ MONGOLIA INVESTMENT SUMMIT 2010, HONG KONG, OCTOBER 14 The Mongolia Investment Summit 2010 in Hong Kong on October 14 will explore the many exciting investment opportunities on offer, as Mongolia takes advantage of its mineral-rich geology and location next to China - the world‟s fastest growing consumer of natural resources. Conference highlights include * A range of 10-minute company presentations showcasing major investment opportunities in Mongolia * Insights into the investment climate in Mongolia from a range of high-level government and industry speakers including D. Zorigt, Minister of Mineral Resources and Energy * Update on the privatization of State-owned enterprises from D. Sugar, Chairman, State Property Committee * Insights from the leading companies in Mongolia‟s banking and investment community * Keynote from Rio Tinto on the Oyu Tolgoi project and the implications for future investment To view the full line up of speakers at the Summit, visit www.MiningInvestmentInsight.com. Mongolia Investment Summit is co-organized with Foreign Investment and Foreign Trade Agency (FIFTA) ensuring the full support of the Mongolian government and key organizations within Mongolia including the Business Council of Mongolia and the Mongolia National Mining Association. The Business Council of Mongolia is a supporting association for this event and as such there is a 15% discount for their members. Please indicate your membership when registering online. Trade and Development Bank of Mongolia is the Platinum Sponsors, and the Gold Sponsors are Khan Bank, Mongolia Development Resources, Mongolia Energy Corporation and SouthGobi Resources. To book please visit www.mininginvestmentinsight.com or call +852 2219 011.

________________________________________ GIANT STEPPES OF JAZZ INTERNATIONAL FESTIVAL (SEPT 28 - OCT 2) Jazz is coming to town again. The fourth Giant Steppes of Jazz International Festival will bring together international and local jazz artists to add more charm to Ulaanbaatar sunny autumn. This year‟s festival line-up includes performers of a variety of jazz styles from Germany, Norway, Switzerland and the US alongside the best of Mongolian jazz. A gala concert will be held at the Khan Bank Theater on October 1, with nightly performances at River Sounds on September 28, 29, 30 and October 2. There will also be evening jam sessions at The Square in Central Tower. For more information, please call 9999-3321 (Eng), 9911-1061, 8803-3300. ____________________________________

“BSPOT" on B-TV BTV (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. ____________________________________ “MM TODAY” on MNB-TV BCM is pleased to announce that Mongolian National Broadcasting continues its cooperation with BCM on “MM Today”. This English news program is aired every Friday for 10 minutes and is scheduled for 21:15 tonight. Tune in to watch this program that reports stories from today‟s BCM

NewsWire. ____________________________________ NEW POSTINGS ON BCM WEBSITE‟S „MONGOLIAN BUSINESS NEWS‟ The draft Tavan Tolgoi Investment Agreement which was submitted by the Government to Parliament on Thursday of last week is posted to BCM‟s Mongolian website (www.bcm.mn), „Mongolian Business News‟ for your review. As some of you might have noticed, 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.

SPONSORS

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]

July 31, 2010 *9.8% [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]

CURRENCY RATES – September 9, 2010

Currency name Currency Rate

US dollars USD 1,319.59

Euro EUR 1,673.90

Japanese yen JPY 15.77

British pound GBP 2,038.30

Hong Kong dollar HKD 169.80

Chinese yuan CNY 194.14

Russian ruble RUB 42.65

South Korean won KRW 1.12

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.