1st ANNUAL BCM SUMMIT

MONCEMENT BUILDING MATERIALS LLC

MONGOLIA’S CEMENT SECTOR OUTLOOK

2

CEMENT SECTOR IN NUMBERS

16.1 Million Large scale projects: Cement demand in Mongolia is expected to increase due to government’s push

for large infrastructure projects, leading to 16.1MLN tons of cement needed in the next five years.

1.6 Million to 4.4 Million Demand: Mongolian cement consumption is expected to grow from 1.6 MLN tons in 2015 to 4.4MLN tons

in 2020 (implied CAGR of 22%) driven primarily by construction projects such as Urban re-planning project,

and infrastructure projects such as Steppe highway project a 7,000km of new roads.

0.8 Million to 3.5 Million Supply: Mongolia’s cement production is expected to increase in the base case from 0.8 MLN tons

(0.4MLN official) in 2015 to 3.5MLN tons in 2020 (implied CAGR 34%); as a result Mongolia’s cement self

sufficiency will increase from 26% to 80% from 2015-2020.

4 Integrated plants The market is characterized by a couple of large integrated plants, small capacity grinding units and

unionized cement traders who have been relying on imported cement. The top 2 producers are expected to

account for almost 70 per cent of the total cement supply in the country.

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MONGOLIA’S ANNUAL CEMENT DEMAND

Cement demand - 2001-2020

Million tons

4.4

2.0

1.3

0.40.2

Cement

intensity

(kg/capita) 64 169 463 650 1,477

▪ Consumption is expected to grow

from 1.6MLN tons in 2015 to 4.4MLN

in 2020 driven primarily by

construction projects such as Urban

re-planning project, and infrastructure

projects such as Steppe highway

project, as a result Mongolia’s cement

consumption will grow from 572

kg/capita in 2015 to 1477 kg/capita by

2020

▪ Currently, the housing sector is the

biggest demand driver of cement,

accounting for about 42* per cent of

the total consumption in Mongolia.

The other major consumers of cement

include infrastructure at 26* per cent,

commercial construction at 29* per

cent and remodeling at 3* per cent.

*approximate value based on 2015 statistics on

construction

CAGR

Percent

2001-10 2010-15

9 20

2015-20

22

2020F 2015 2010 2005 2001

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MAJOR INVESTMENT IN THE SECTOR

Existing

player

Under

construc

tion

Location

▪ Dornogobi

▪ Selenge

▪ Tuv

▪ Darkhan

▪ Dornogobi

▪ Dornogobi

Companies

Moncement

Khutul

Munkhiin

Erel

MAK

Hermes

Estimated production

2010 2015 2020

-

183

-

20

-

-

50

450

100

50

-

800

800

800

100

800

800

Status Timeline

▪ Commissioned 2016

▪ Commissioned 2015

▪ Commissioned 2016

▪ Expansion in 2017

▪ Delayed to 2016

▪ Unclear status

Some of the major investments in Mongolian cement industry in recent years:

• Moncement Building Materials, subsidiary of Monpolymet group, has commissioned 1 MTPA

capacity plant in Urgun Soum, Dornogobi province in 2015.

• Khutul Cement and Lime Plant has expanded and commissioned 1 MTPA line in Saikhan

Soum, Selenge province in 2014.

• Munkhiin Bayan Gal, subsidiary of CNBC, has commissioned 1MTPA plant in Sergelen Soum,

Tuv province in 2015

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MONGOLIAN CEMENT PRODUCTION

Self

sufficiency

Mongolia annual cement production – 2001-2020

‘000 tons, 2001-2020

800 410

800

4,500

4,000

3,500

3,000

2,500

2,000

1,500

1,000

500

0

2020

800

2015 2010 2005 2001

5,000

147 89 320

2,037

3,541

800

Demand Moncement

Total

Hutul MAK

Munkhiin Bayan

Other existing players

58% 34% 30% 26% 80%

Implied CAGR

Percent

2001-10 2010-15

45 15

2015-20

34

▪ The current estimated capacity of

Cement producers is around 1.5

MTPA. To meet the rise in demand,

cement companies are expected to

add another 2 MTPA capacity over

the next three years. The country's

per capita consumption stands at

around 500 kg.

▪ Mongolia’s cement production is

expected to increase in the base case

from 0.8MLN tons in 2015 to 3.5MLN

tons in 2020; as a result Mongolia’s

cement self sufficiency will increase

from 26% to 80% from 2015-2020.

▪ In mid term, we expect less than 4 key

players in the market with

Moncement, Khutul, Munkhiin Bayam

leading the market with 20-25% share

each on average.

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MAJOR PROJECTS IN NEAR TERM

Urban Re-

planning

Project

Government

plan for roads

and highways

National

railroad project

Description Time horizon Cement intensity

▪ Government project to build 100,000 units of

residential apartments to accommodate

projected sharp rise in future demand for

proper housing

▪ Average unit size is expected to be ~45m2

▪ 75% of units will be in Ulaanbaatar, the rest in

rural areas

▪ 15% of units have

already been completed

as of 2015.

▪ Remaining 85% to be

completed by 2020

▪ 190-210 kg of cement required

for 1 m2 of floor space on

average

▪ Plan has been approved by for 5155 km of

roads to be built to improve connectivity in the

country

▪ Of the above, 200 km of urban roads to be

constructed in Ulaanbaatar

▪ In addition, ~1000km national highway will be

developed

▪ 15% of planned road

network completed by

2015

▪ 85% of the planned road

and highway system to

be completed over 2016-

2020

▪ ~300 kg of cement required

per 1 km of a simple 2 lane

road

▪ Additional construction fixtures

(e.g., bridges, dividers) for

parts of road system, like the

highway will increase cement

consumption

▪ 2487 km railway planned by the government

will require close to 5 million concrete sleepers,

~2500 culverts and ~155 bridges

▪ Potentially delayed,

construction expected to

begin earliest start of

2017

▪ Expected to be

completed in 2020

▪ ~100 tons of cement for 1 km

of the railway’s basic structure

▪ Additional construction

required for certain parts, e.g.,

tunnels, bridges which will

increase cement intensity

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CONSTRUCTION SECTOR LEGAL ENVIRONMENT

Government of Mongolia is supporting construction sector development through various

legislative initiatives as well as project financing support:

Tax support for eligible investments • Agreement/certificate to stabilize tax rate on four major taxes

• CIT

• Mining Royalty

• Customs duty

• VAT

• Customs and VAT deferred payment on equipment and machinery imports

• Protective tariff on Cement and Clinker imports

Non tax support for eligible investments • Land lease for up to 60 years with extension of 40 years.

• Foreign high skill employee quota exemption as well as fee relief

• Project financing via Development bank of Mongolia: Khutul, Moncement, MAK

Challenges remaining for the sector: • High electricity and fuel prices and unstable supply

• High transportation tariff and bottlenecks

• Mining licenses for raw materials

• Absence of cement quality standards and regulation

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ROAD AHEAD

Need support on:

• Tax incentives for large scale projects: The investment law provides deferred

payment incentive of up-to two years of Customs duty an VAT payable on imported equipment. In most

cases, construction period for large scale projects go long beyond two years. As such, it is more effective

from cash flow point of view, that the two year period starts upon commissioning.

• Stability of power supply: For any industrial projects, power is the main cost driver. Since

2013, the electricity tariff increased from MNT 116.16 per kWh to over MNT 160 per kWh and increase of

almost 50%. This fact negatively affects the project financing in significant ways. Some countries, power

authority negotiate lower tariff for first few years and gradually make up the subsidy in future years when the

project is more financially prudent.

• Logistics bottleneck: Volume based, flexible tariff policy; investment by UBTZ in additional

cement hopper wagons

• Sustainable supply chain: Incentive to procure raw materials locally to eliminate

transportation burden if locally available; license and permission to extract raw materials locally

• Need for quality standards: Much of the cement used in new construction is composed of

low quality imported cement resulting buildings to be deteriorated in quality sometimes before they are

finished. Major concern for public safety for residential and office buildings increasing maintenance costs

and quick depreciation of real estate value.

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MONCEMENT PROJECT HIGHLIGHTS

Project company: Moncement Building Materials LLC

Investor: Monpolymet Group

Project Financing: EBRD, Development Bank of Mongolia

Capacity: 1 MTPA with expansion plan in 2019

Products: OPC 42.5, PC 42.5, PC 52.5 Portland cement

Limestone proven reserve: 249.4 million tons

JORC proven reserve: 264.2 million tons

First Cement: August 2015

First Clinker: November 2015

Strictly confidential 10

Created 300 jobs in Rural area

Significant contribution to Industrial development and economic diversification.

European Standard Cement products offered at stable yet competitive price to compete with imported cement.

Strategically located production and distribution facilities in Ulaanbaatar and Sainshand region to overcome logistics bottleneck.

Environmentally friendly, sustainable production encompassing the Best Available Technology on the global cement industry.

MONCEMENT PROJECT HIGHLIGHTS

MONCEMENT BUILDING MATERIALS LLC

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