BUSINESS COUNCIL of MONGOLIA NewsWire

www.bcmongolia.org

info@bcmongolia.org

Issue 170, June 3 2011

NEWS HIGHLIGHTS: Business:

MMC to buy nearby rival in country’s largest acquisition transaction;

Prophecy’s Chandgana plant to have 4,200 mw capacity when completed;

Agreement with Bechtel signed;

Erdene receives mining license for Zuun Mod molybdenum-copper project;

Oyu Tolgoi to be asked for advance royalty and excise tax;

OT releases "a tide of growth that will float everybody's boat";

Origo Partners invests in advanced stage molybdenum exploration project;

Just Agro to raise MNT30 billion from “meat bond” sale;

ESTO first Mongolian road builder to receive ISO 9001;

Newcom Group building 50-mw wind power plant;

IFC invests in Suu JSC, Mongolian dairy processor;

Mongolia Development Resources focuses on UB and 2nd-tier cities;

Anod Bank officials return to jail after a day of freedom.

Economy: Mongolia "dreams big and aims high", Deputy Minister tells Investment Forum;

Government approves USD500 million loan from China;

Import from new sources will make oil more expensive, warns Minister;

Elbegdorj asks Putin to ensure stable supply of petroleum;

Central Bank confident it will rein in inflation and rising MNT, “two wild horses”;

Electricity may cost 75% more in 2014, warn energy officials;

MSE to introduce 24-hour trading this year;

New features to mark Discover Mongolia-2011 on September 8-10;

Banks and other players in financial sector set for rapid growth;

PM wants comprehensive plan to meet needs of South Gobi’s mining boom;

A piece of Mongolia's mine;

Mining, especially coal, is Mongolia’s economic future;

Deripaska loses fear and favor value in Mongolia;

Beijing softens stance on price increases, Unilever escapes punishment;

Chinese manufacturing growth falters.

Politics: Shenhua will own share of Mongolian Railways;

Russian Railways ready to invest USD1.5 billion in Mongolia;

Medvedev wants Russia-Mongolia trade to go beyond petroleum;

Russia blames Mongolia for delay in uranium JV;

PM thanks U.S. for “all-round support”;

DP group wants new ACA chiefs appointed;

18 trains canceled to save diesel fuel;

MP against having nuclear power plant, as “we are an irresponsible people”;

Judge explains why ACA officials’ appeal was rejected;

Group to work on relocation of ger district households;

Mongolia connects to Hong Kong with direct flights and consulate;

“Solar gers” under development;

A tale of two Mongolias.

*Click on titles above to link to articles.

BUSINESS MMC TO BUY NEARBY RIVAL IN COUNTRY’S LARGEST ACQUISITION TRANSACTION Mongolia Mining Corp. has agreed to buy coking-coal miner QGX Coal Ltd. for USD464 million, marking the largest acquisition by a Mongolian company of another company in the country. Hong Kong property-and-hotels conglomerate Kerry Group, among the holdings of tycoon Robert Kuok, bought 90% of QGX in 2008 for USD259 million. Kerry owns 8.1% of MMC, which late last year became the first Mongolian company to list its shares in Hong Kong. MMC will pay a Kerry unit USD379 million in cash and the rest through a USD85 million MMC convertible loan that expires in 18 months. If in 18 months the reserve calculation of the QGX mine exceeds 150 million tons of coking coal, MMC will pay Kerry an added USD105 million in cash. If not, the value of the convertible bond will be reduced. Depending on reserve calculations and including royalty payments, Kerry could be paid a maximum of USD950 million. UBS AG advised Kerry on the sale, while Citigroup Inc. advised MMC. QGX owns the Baruun Naran Coking Coal Project in southern Mongolia and has 282 million tons of resources and 185 million tons of reserves. MMC, which has properties near the QGX site, owns and operates an open-pit Ukhaa Khudag coking-coal mine located in the Tavan Tolgoi coal formation in South Gobi, Mongolia. MMC holds 500 million tons of resources and 286 million tons of reserves. “The sizable coking coal resources and reserves estimated in the Baruun Naran coking coal mine will open potential to diversify the group‟s coal products and enhance sources of revenue,” Mongolian Mining said. The company will also be able to share mine and transport infrastructure. “Demand for coking coal will continue to grow and the acquisition enables the group to further expand its coking coal mining business and to solidify the company‟s position as the leading coking coal miner in Mongolia,” the statement said. Source: The Wall Street Journal, Bloomberg

PROPHECY’S CHANDGANA PLANT TO HAVE 4,200 MW CAPACITY WHEN COMPLETED Prophecy Resources plans to use only “clean” coal in its Chandgana power plant, according to Mr. David Jan, CFO. Chandgana‟s location, between Ulaanbaatar and Beijing, makes it eminently suitable to supply electricity to both Mongolia and Beijing. The company is sure China will be interested as buying electricity from Mongolia will gain it carbon credits. The benefit of the project for Mongolia would lie in the use of coal to create a value added product. The power plant will have an initial capacity of 600 mw but the plan is to ultimately generate 4,200 mw. Chandgana is just 60 km from Mongolia's existing power grid and its output can be quickly integrated to the Mongolian system, putting an end to costly power import from Russia. Construction is expected to begin in the 1Q2013. International banks have shown interest in financing the project, and Monnis has invested in the company‟s operations in Mongolia. Prophecy is looking for Asian-listing to raise more capital. Source: Eurasia Capital

AGREEMENT WITH BECHTEL SIGNED The agreement appointing US-based Bechtel to provide general consultancy services for the Sainshand industrial complex was signed last week by Mr. Ch.Khashchuluun, head of the National Development and Innovation Committee (NDIC), and Mr. Steven R. Katzman, Director General of Bechtel Asia. The company has six months from now to work out a master plan, including preliminary technical and economic feasibility studies, draft terms of agreements with those who will set up the various factories, and financing plans. The complex will be built in several phases. Source: Montsame

ERDENE RECEIVES MINING LICENSE FOR ZUUN MOD MOLYBDENUM-COPPER PROJECT Erdene Resource Development Corp. has received a mining license for the Zuun Mod molybdenum-copper project in southwest Mongolia from the Government of Mongolia. “This is an important milestone for the project and our company", said Mr. Peter Akerley, President and CEO. "Our employees and Mongolian consultants have dedicated significant effort to this achievement, and the

receipt of the license is a testament to their ability to work with the Mongolian regulatory authorities. With the long-term mining license secured, we now have the ability to advance this wholly-owned project more rapidly." The Zuun Mod mining license covers an area of 6,041 hectares and contains the South Racetrack and North Racetrack deposits, which hosts all of the measured and indicated resources at Zuun Mod. The mining license also contains the Khuvyn Khar copper prospect and is valid for an initial 30-year term with provision for renewal for two additional 20-year terms. Approval of an application for a second contiguous mining license, south of the approved present one, is awaiting a decision by the Government on the definition of the boundaries of a water protection area overlapping the license area. This license application covers 358 hectares and contains the Stockwork deposit which hosts 15 percent of the Inferred resource at Zuun Mod.

Source: Erdene Resource Development Corp.

OYU TOLGOI TO BE ASKED FOR ADVANCE ROYALTY AND EXCISE TAX The Government last week instructed the Minister of Finance to prepare an agreement to receive from Oyu Tolgoi LLC in advance a part of the royalty and excise tax the company would be liable to pay once it begins extraction and sales operations. The agreement will come into effect next year and the amount paid will be adjusted against the taxes as and when they are due. The move will also reduce the interest on the Mongolian Government bonds held by Ivanhoe Mines Mongolia Inc to 1.59% from 3%. The company bought the bonds in October 2009 with the USD100 million it was to pay as the first installment of the advance payment as stipulated in the investment agreement. The company will thus month pay USD100 million as the third installment.

Source: Montsame

OT RELEASES “A TIDE OF GROWTH THAT WILL FLOAT EVERYBODY’S BOAT” Mr. Peter Nicholls, General Manager of Rio Tinto's Commercial Department, has said that with a potential mine life of 50 years Oyu Tolgoi is expected to withstand the lower end of the commodity price cycle. The Oyu Tolgoi investment agreement has seven main areas of commitment: the terms of investment, taxation, procurement, infrastructure, employment and training, regional development and environment. Mr. Nicholls said that Rio Tinto and Ivanhoe Mines have invested USD2 billion over the last four years and USD4.5 billion is budgeted for the completion of first phase of the project between 2011 and 2013. A total of 12 major construction projects in the South Gobi, Choyr and Darkhan are 100% managed by Mongolian contractors for a total of over USD40 million. OT LLC has so far engaged 2,833 Mongolian suppliers and last year signed contracts with 103 local suppliers in Khanbogd and Dalanzadgad for a total USD1.5 million. A study assessing the macroeconomic consequences of the project for Mongolia, commissioned by Rio Tinto and prepared by a team of independent economists led by Dr. Brian Fisher, Chairman and Managing Director of BAEconomics, shows, in Dr. Fisher‟s words, how "a tide of growth will float everybody's boat". According to the study the Mongolian economy is expected to grow more than 10% a year for the next ten years, meaning that by the year 2020 the size of the economy will more than double, as Oyu Tolgoi ramps up to full production. At the moment, Mr. Nicholls said, the economic impact is revealed by y-o-y rise in the production of wooden doors and windows by 258%, of sawn wood by 300%, and of cement by 200%. The net income of restaurants in Ulaanbaatar was up 800% in January this year. Economists predict that 4 additional jobs will be created in the country for every job at Oyu Tolgoi. The Mongolian Directors of the Oyu Tolgoi LLC recently visited Rio Tinto's headquarters in London and also its Salt Lake City copper mine in Utah, which has been in operation for over 100 years, to get an idea of how Rio Tinto is implementing in Oyu Tolgoi its best international practice learnt from operating in over 40 countries, in areas from the pristine tundra in the far north of Canada to the Namib Desert, and to the remote Kimberley region of Western Australia. Source: Eurasia Capital

ORIGO PARTNERS INVESTS IN ADVANCED STAGE MOLYBDENUM EXPLORATION PROJECT Origo Partners Plc has acquired a 20 per cent equity stake for USD10 million in Moly World Ltd, owner of an advanced stage molybdenum exploration project, covering an area of 2,360 hectares approximately 40 km north of Tsagaan-Uul district in Khuvsgul province in northern Mongolia. Origo's wholly owned commodities trading company, Origo Resources International Ltd., has been granted an off-take covering up to 20 per cent of all possible production for the life of the mine. Two independent assessments lead Origo to believe that the project has the potential to host a world class molybdenum resource, benefiting from high grade and near surface mineralization.

Moly World will use the proceeds from the sale to fund further exploration work, including exploration for extensions and infill drilling in order to produce a JORC compliant resource estimate, targeting a minimum of 300 million pounds of molybdenum by December 2011. A total of 8 drilling rigs are in the process of being deployed at the project in one of the largest exploration programs currently under way in Mongolia.

Source: Origo Partners

JUST AGRO TO RAISE MNT30 BILLION FROM “MEAT BOND” SALE Just Agro, a subsidiary of the Just Group, plans to raise MNT30 billion through sale of bonds soon, as revealed by its Director, Business Development, Mr. B. Enkhbat. The so-called "meat bond" will carry 16.2% interest and will be redeemed after a year. The company is valued at MNT45 billion and it is offering its sales agreements and meat stock of 16,000 tons as guarantee. The proceeds from the offering will be used for OPEX, procurement of livestock and increasing production capacity. The company plans to export 12,600 tons of beef and horse meat to Russia, and 4,500 tons of mutton to Arab countries, while selling 6,000 tons of meat in the domestic market. Just Agro‟s market share is 32% in livestock procurement, 26% in slaughter capacity and 30% in meat and semi-finished meat storage. Source: Eurasia Capital

ESTO FIRST MONGOLIAN ROAD BUILDER TO RECEIVE ISO 9001 ESTO Co. Ltd is the first Mongolian road construction company to be awarded the international ISO 9001 certificate by the National Center of Standardization and Measurement, following recommendations from its Quality Approval Council. The award testifies to the advanced quality of the operations system of the company. ESTO has been building and repairing roads in Mongolia since 2004, using international technology applied by a workforce which attends frequent refresher trainings to update their skills.

Source: Udriin Sonin

NEWCOM GROUP BUILDING 50-MW WIND POWER PLANT The diversified holding company Newcom Group, engaged in air transport, energy, real estate, financial services, telecom and other sectors, is currently focused on infrastructure related projects. It is building a wind power plant with a capacity of 50 mw, which will be the first plant to be connected to the national electricity grid since 1985. Mongolia possesses significant wind resources and the success of the project will be a boost for clean energy generation, according to Mr. Byambasaikhan, the Group‟s Managing Director.

Source: Eurasia Capital

IFC INVESTS IN SUU JSC, MONGOLIAN DAIRY PROCESSOR IFC, a member of the World Bank Group, has invested USD2 million in Suu JSC, Mongolia‟s leading dairy processor, helping expand economic opportunities in rural areas, while diversifying the country‟s natural resource-led economy and improving food safety. IFC‟s investment consists of an eight-year, USD2 million loan to help Suu increase production capacity and tighten quality controls. Suu will improve food safety by installing new equipment to test milk quality, and by implementing an environmental and safety management system that will set the standard for Mongolia‟s dairy industry. “IFC provides not only long-term financing, but also a stamp of approval for our socially responsible operations,” said Mr. D. Ganbaatar, Chairman of Suu. “We are committed to working with IFC to improve our food safety standards, quality control as well as our corporate governance practices.” IFC‟s investment will help Suu extend its network of raw milk suppliers to about 4,000 from the current 2,500 herders, thus contributing to their economic sustainability. The company buys raw milk through 19 milk collection stations in rural Mongolia and sells products through more than 100 distributors. France‟s Société de Promotion et de Participation pour la Coopération Economique (Proparco) and the Belgium Investment Company for Developing Countries (BIO) are also providing USD2 million each. “Supporting Mongolia‟s small and medium enterprises to generate employment and diversify its natural resources-led economy is a top priority for IFC as we expand our programs in the country, both in investment and advisory services,” said Mr. Hyun-Chan Cho, IFC‟s Country Manager for China and Mongolia. Revitalizing Mongolia‟s traditionally important dairy industry, which collapsed during the country‟s transition to a market economy in 1990, will largely depend on the success of dairy processors such as Suu and their capacity to increase production of quality milk through a well-

functioning supply chain at prices that compete with imports. Nomadic herding and traditional dairy pasturing are an important part of Mongolia‟s economy. Livestock contributes more than 20 percent to the country‟s gross domestic product and represents 40 percent of all employment in the country.

Source: The FINANCIAL

MONGOLIA DEVELOPMENT RESOURCES FOCUSES ON UB AND 2ND-TIER CITIES Real estate will be the sector most attractive to investors after mining, according to Mr. Marat Utegenov, Executive Director of Mongolia Development Resources, an MSE-listed property and infrastructure developer. The company raised MNT13.2 billion at an IPO on MSE in December 2007, and is currently one of the few listed companies which provide non-resource exposure to investors. Growing per capita income plus more advantageous mortgage terms will ensure rapid expansion in the property sector. As business grows more office space will be needed, and the company is focusing on Ulaanbaatar and second-tier cities such as Erdenet, Darkhan, and Dalanzadgad. It has acquired land IN Dalanzadgad to construct a 6-story building with a conference hall, office space and fully serviced apartments. The project is to be completed by 2012Q1 for sale and rent. Source: Eurasia Capital

ANOD BANK OFFICIALS RETURN TO JAIL AFTER A DAY OF FREEDOM Three former Anod Bank officials went back to jail on June 1, just a day after being released on bail. The Chief of the Representatives Managing Council, Mr. N.Enkhtur, and two of its members, Mr. N.Davaa and Mr. E.Gur-Aranz, were released on bail on May 31, but the Ulaanbaatar Prosecutors‟ Office submitted to the Judge General of Bayanzurkh district on June 1 that they should not stay free until investigation into their case is concluded. The judge agreed and overruled the previous order granting bail, giving the prosecutors one more month to finish their work. Five police officials went to Mr. Davaa‟s house to take him back to prison. The three have been convicted for misappropriating bank funds and for selling counterfeit shares to 1,200 people. The former Executive Director of the Bank, Mr. L.Ulambayar, was granted bail some time ago. Prosecutors are now reviewing the charges against them for the next stage of the trial. Source: Unuudur

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ECONOMY MONGOLIA “DREAMS BIG AND AIMS HIGH”, DEPUTY MINISTER TELLS INVESTMENT FORUM More than 150 participants, including Mongolian public and private sector leaders and international and regional investors from over 20 countries, attended the second annual Mongolia Investment Conference organized by Eurasia Capital on May 25. They heard of and discussed the investment opportunities Mongolia has to offer, and many of them left with their mind made up to come back. Deputy Minister of Finance Ch. Gankhuyag opened the conference by asserting that two decades of political and economic reforms have made Mongolia a robustly functioning market that is increasingly attractive to foreign and domestic investment. He did not gloss over hurdles such as lack of infrastructure, but his final call was "to dream big and aim high". Mr. Alisher Ali, Chairman of Eurasia Capital, said Mongolia would be a "global outperformer" over the next decade, and recommended 7 specific types of asset classes that investors should focus on: local equities, stocks of internationally listed companies, the MNT, fixed income instruments, private equity/pre-IPOs, property and infrastructure.

Source: Eurasia Capital

GOVERNMENT APPROVES USD500 MILLION LOAN FROM CHINA The Government on Tuesday approved in principle a proposal to take a loan for USD 500 million from the Government of China. The money will be transferred through an arrangement between Mongolia's Ministry of Finance and the Export-Import Bank of China. A formal order by the Prime Minister asking the Ministry to sign the agreement will be issued soon. Mongolia intends to use the loan to set up factories to process meat, milk, and flour, to buy small tractors and a grain elevator, to build roads and to construct flyovers. The loan is repayable in 20 years with 2% annual interest. Repayment will begin only after the seventh year.

Source: Montsame

IMPORT FROM NEW SOURCES WILL MAKE OIL MORE EXPENSIVE, WARNS MINISTER Minister of Mineral Resources and Energy D.Zorigt has asked Mongolians to be prepared for some unpalatable developments stemming from the planned diversification of fuel import sources. The most important of these could be a hefty price increase, because the proposed new sources will charge at international rates, which are high at the moment and likely to get higher. Apart from the loss of “generally cheaper Russian oil”, the country also faces a shortage of storage capacity, as the proximity of Russia had helped easy supply. Following the drastic increase in price and a resultant fuel shortfall in 2008, Parliament raised the minimum storage limit, but the cost of this so far has been MNT8 billion. The Minister has called for budgetary allocation for this permanent expense, if Mongolia has to stock enough oil to avert a crisis in supply like the present one.

Source: Zuunii Medee

ELBEGDORJ ASKS PUTIN TO ENSURE STABLE SUPPLY OF PETROLEUM President Ts.Elbegdorj told Russian Prime Minister V.V. Putin at their meeting in Moscow that curbs on fuel exports by Russia had put Mongolia to serious difficulties in agriculture, mining and public transportation. "There have been failures in delivery in recent months, and we have serious problems: now sowing has been delayed, production has become suspended and public transportation in cities has almost stopped," Mr. Elbegdorj said. Mr. Putin explained that Russia itself faced problems in fuel supply, but instructed Russian officials to see if Mongolia could be supplied from the reserves of Rosnefti LLC. Deputy Prime Minister I.I. Sechin will look into the matter. Mr. Elbegdorj said the Mongolian Energy Minister will be visiting Moscow to hold talks with Mr. Sechin to seek a long-term solution to the vexing problem. "Probably once they meet, the issue will be solved," he said. Faced by fuel shortages of its own, Russia, the world's largest oil producer, raised the fuel export tax by 44% last month. Mr. Putin has criticized Russia's oil groups, saying there was no lack of oil but that companies had restricted supplies to keep prices high. Several dozen Russian companies work in Mongolia. The two countries boasted more than USD1 billion in trade in 2010. According to Mr. Putin, the trade turnover between the two countries grew by 50% in the first quarter of 2011. "Of course we need to retain this growth," he said.

Source: News.mn, RIA Novosti

CENTRAL BANK CONFIDENT IT WILL REIN IN INFLATION AND RISING MNT, “TWO WILD HORSES” In his keynote address at the second annual Mongolia Investment Conference organized by Eurasia Capital on May 25, Central Bank Deputy Governor N. Zoljargal listed factors that made the

economic outlook for the next two years very positive. The Bank‟s monetary policy will be aimed at reining in "two wild horses", inflation and appreciation of the MNT. The National Development and Innovation Committee (NDIC) estimates the Mongolian economy will grow not less than 7.5% for the next ten years, GDP this year will grow 7.5%, reaching 20.6% in 2014 and gradually tapering off to 16.9% in 2020, making it one of the fastest growing economies in Asia. Referring to terms of trade (ToT), which shows the ability of a country to finance its imports, Mr. Zoljargal said the export: import ratio is stable and rising, though it is yet to reach its earlier peak. Month-on-month (m-o-m) ToT change is related to the international prices of oil, copper and coal. Net capital inflows started growing in April 2010 and in December reached the highest level ever, with the whole year‟s net capital inflow of USD1.6 billion growing 5.3 times compared to 2009. The growth continues, with this year‟s January to March figures up 2.7 times more y-o-y. He noted that the trend could create difficulties in managing capital inflows. The current account deficit in 2010 was USD931.5 million and could stay negative for some time until the import of all capital goods for production purposes ends and exports increase. However, capital and financial account surpluses will fully cover the current account deficit. In 2010 total capital account, direct investment and portfolio investment was USD2.14 billion, and the Bank‟s projection is that balance of payments (BOP) will reach USD870 million next year. Mr. Zoljargal said the Central Bank evaluates the purpose and composition of capital inflows, whether it is for long-term investment, short-term investment or for speculative purposes. The Bank will neutralize the effects of short-term net capital inflow, while encouraging that for long terms. The MNT has appreciated 3% so far this year and the Bank does not plan to intervene except when the volatility affects daily business or is excessive. Read more… Money supply increased 67% last year, but monitoring and timely measures kept inflation down to 13%. It was 7% and 5.5% in March and April, and Mr. Zoljargal was confident there would be nothing to worry this year. However, one third of the inflation is "imported" from China and Mongolia cannot do anything about prices rising there. Mr. Zoljargal said the loan-to-GDP ratio was substantially lower than in developed countries, but the Mongolian banking system is safe and stable. He rejected suggestions that the economy was overheating, saying Mongolia is in an early stage of development and “is just warming up”. Source: Eurasia Capital

ELECTRICITY MAY COST 75% MORE IN 2014, WARN ENERGY OFFICIALS Two senior officials in the Energy Regulation Department have said electricity rates are likely to be raised every year for the next four years, and the total rise effective in 2014 will be MNT60 or 75% more per unit than at present. This is the minimum increase generating companies will need to pay off their debts and losses totaling MNT70 billion now, an amount that will rise considerably if the coal companies succeed in convincing the Government to allow them to charge more for the coal they supply to power plants. Source: Zuunii Medee

MSE TO INTRODUCE 24-HOUR TRADING THIS YEAR Mongolian Stock Exchange (MSE) Chairman Bold has said that 24-hour internet trading will be introduced at the MSE latest by the end of this year. The MSE is waiting for the London Stock Exchange to give its recommendations on the key issue of whether the trading system will be a separate entity, or a subsidiary or part of the MSE. Source: Eurasia Capital

NEW FEATURES TO MARK DISCOVER MONGOLIA-2011 ON SEPTEMBER 8-10 Mr. P. Ochirbat, the first President of Mongolia, has joined the Organizing Committee of "Discover Mongolia-2011" as Chairman. The annual investment forum will this year take place from September 8-10 at the Children's Palace in Ulaanbaatar. The 9th edition of the "Discover Mongolia International Mining Investors' Forum”, to give the event its full name, will attract, as always, global mining executives, investment professionals, and parties interested in benefiting from the vast mining opportunities Mongolia has to offer. Ex-President Ochirbat is a mining engineer by training. “It is an honor to be joined by such a distinguished individual. His advice and input will improve the conference agenda,” said Mr. N. Algaa, a member of the Organizing Committee and Executive Director of Mongolian National Mining Association. "I have always been a keen supporter of this remarkable event and a promoter of responsible and mutually beneficial private sector investment in Mongolia's mineral sector. I am

pleased to serve this year on the Organizing Committee as its Chairman," said Mr. Ochirbat. This year‟s conference will offer a variety of new features. New mining projects will be introduced and various technical panel discussions will be running parallel to the open session. The Government Hour session will be more comprehensive with a broader range of Government officials invited and more time allocated during the second day of the conference. Online registration has started at www.discovermongoliaforum.com. BCM is a Supporting Organization and BCM members can register by paying the "early bird" rate of USD500 instead of the normal rate of USD700. Source: Discover Mongolia

BANKS AND OTHER PLAYERS IN FINANCIAL SECTOR SET FOR RAPID GROWTH Both the banking and non-bank financial sectors are set to grow rapidly, their representatives told the Mongolia Investment Conference last week. Trade and Development Bank President Randolph Koppa stated that bank loans grew 35% y-o-y in Q12011 and the annual figure is expected to be 50%. Mr. Batzaya of Khan Bank said its assets would double in 2011 and so there will be enough seed money for fresh loans. Banks represent 95% of the Mongolian financial sector, but Tenger Financial Group CEO Mr. Bold said the non-banking sector is also ready to take off in a big way. Once the pension and insurance markets are restructured, they would attract investors. With per capita income estimated to rise dramatically, the insurance sector in particular would offer several opportunities for innovation and expansion. Leasing is another interesting area, he added, though the concept is yet to fully develop. Source: Eurasia Capital

PM WANTS COMPREHENSIVE PLAN TO MEET NEEDS OF SOUTH GOBI’S MINING BOOM Prime Minister S.Batbold has called for a comprehensive policy straddling several sectors to keep pace with the expansion of mining in the South Gobi. For example, he feels it will be better for all to join hands in executing a total paved road construction program, instead of individual companies working on stretches to serve their individual needs. Similarly, he has instructed a working group led by First Deputy Premier N.Altankhuyag to draw up a middle-term working plan for energy, infrastructure and urban development encompassing the whole mining region, and to submit it to the Government by June 10. The group has started work on drawing up a strategic plan for the province‟s development and a master plan for the development of Tsogttsetsii, Khanbogd and Gurvantes districts. Their main features will be construction of two paved roads, one from Mandalgobi to Dalanzadgad (163 km) and the other from Dalanzadgad to Tavan Tolgoi to Oyu Tolgoi (251 km), expansion of the Gurvansaikhan airport, and installing 110-kw power transmission lines from Tavan Tolgoi to Dalanzadgad. The present population of Tsogttsetsii and Khanbogd districts is around 3,000 people, but this is estimated to rise to 10,000 before long. Existing hospitals, schools and kindergartens must be repaired and some new ones will have to be built. Related Ministers have been asked to make arrangements. Taking careful note of a report from the province governor, the Prime Minister has asked the Tavan Tolgoi company to act in a more transparent manner, and to restructure its internal organization, if that is found necessary. He also wants the company to begin some construction.

Source: Montsame

A PIECE OF MONGOLIA’S MINE After the collapse of the Soviet Union, Mongolia had a democratic revolution in early 1990. It has remained one of the region‟s more solid democracies since. The mining sector accounts for 81 percent of exports, 32 percent of government revenue and 30 percent of gross domestic product, a share that is likely to increase dramatically. So far, only about 27 percent of Mongolia has been mapped to a scale of 1:50,000, which shows that the country‟s resources remain largely untapped, according to data from the investment bank ResCap. For a long time, the star in the Mongolian resources firmament was Oyu Tolgoi, which looks set to become one of the world‟s top three copper mines, just across the border from the world‟s biggest copper consumer in China. But then came the news about a neighboring project, coal this time, at Tavan Tolgoi, which is the world‟s second-largest coal deposit, after China‟s Shengli. The Mongolian government will announce the winning bids to develop Tavan Tolgoi shortly. The western and central part of Tavan Tolgoi holds more than one billion metric tons of coal, 68 per cent of which

can be used for steelmaking and the rest as fuel in power plants. Last year coal production doubled to 25 million tons to become Mongolia‟s top export, encouraging the government to speed up Tavan Tolgoi‟s development. “We expect the Mongolian economy to grow up to 10 per cent this year, or 33 per cent in US dollar terms, due to the further estimated appreciation of the MNT against the dollar, and it may continue ranking among the three fastest-growing economies,” wrote Eurasia Capital in a research note. The problem is finding enough qualified locals to staff the mines. Mr. Seamus Brennan is chief adviser to a government committee examining duty-free zones. “I‟m very optimistic about the prospects for Mongolia. This is a young country, it‟s only 20 years old. There is a great future here,” he says.

Source: Irish Times

MINING, ESPECIALLY COAL, IS MONGOLIA’S ECONOMIC FUTURE Last year, something important happened in the coal markets. China actually imported coal for the first time. As recently as 2001, China exported 90 million tons. But in 2009, China imported around 86 million tons. That‟s a huge shift in less than a decade. Overall, that import total is just a drop in the bottle. China alone burned about half the world‟s total demand for coal last year, about 2.8 billion tons. Over the next five years, China may well need another billion tons of coal annually. What opportunities are there in satisfying China‟s demand for coal? Leaving aside the coal producers that export coal to China, there are a number of Chinese coal miners. These include China Coal, China Shenhua, Fushan Energy, Hidili Industry and Yanzhou Coal. As a group, they have lots of coal and big growth potential as they start to unlock those reserves. The biggest growth, though, may be just outside of China, in Mongolia. Yes, Mongolia. Mongolia is a big country, the 19th largest in the world, at over 600,000 square miles. It‟s also one of the emptiest countries in the world, with fewer than 3 million people. About 40% of that population lives in Ulaanbaatar, the capital city, which lies on a flat table of earth amid high mountains. Mongolia, though, is rich in resources – iron, tin, copper, gold and silver…and coal. Lots and lots of coal. Mongolia has 10% of the world‟s coal. Indonesia is currently the largest exporter of coal. Mongolia has double the amount of coal Indonesia has. Total coal reserves are around 125 billion tons, according to AME Mineral Economics. This spans the full spectrum of coal, everything from high-grade coking coal (used in making steel) to low-grade lignite. Yet Mongolia currently produces only around 10 million tons a year. AME reports only 40 of the 200 known coal deposits have active mining going on. There is no infrastructure in place to get the coal to market. But that‟s changing. Read more… Already, about 64% of all of Mongolia‟s exports go to China. For China, this is like having the „Saudi Arabia of coal‟ right across the border. For Mongolia, China is a meal ticket. Trade with China has created an influx of cash in the country. Mining, it seems, is Mongolia‟s economic future. One of only a handful of publicly-traded Mongolian coal companies is SouthGobi Energy, which trades in Toronto. It seems to be quite a gem, too. SouthGobi has low mining costs and high-quality coal – better than many Chinese companies. SouthGobi has one producing mine, Ovoot Tolgoi, and two other coal projects. Its producing mine is only about 25 miles from China‟s Ceke port, where the coal is then shipped by rail into China. This is a big advantage because sparse infrastructure in Mongolia can make it challenging to get coal to China. SouthGobi plans to boost production from about 4 million tons per year currently to 14 million tons by 2013. China Investment Corp. (CIC), the state-owned wealth fund that manages China‟s bulging reserves, put a big slug in the company and now owns 14%. (It would own 26% if it exercised certain options.) Temasek Holdings, the Singapore state-owned fund, owns 2%. Ivanhoe Mines owns 57%. So there are lots of insiders here who have just put fresh money in the deal. The CIC deal is important because it will surely help open doors for SouthGobi in China. Plus, the CIC would love to buy SouthGobi whole someday. SouthGobi, with prize assets, is an obvious goldfish among much larger fish. SouthGobi may be the first significant public company to capitalize on Chinese coal demand, but it won‟t be the last.

Source: The Daily Reckoning

DERIPASKA LOSES FEAR AND FAVOR VALUE IN MONGOLIA Mr. Oleg Deripaska has been losing ground to Russian rivals in Mongolia, and is facing unprecedented administrative sanctions in Ukraine and Russia. The commercial effect is to force upwards the cost line on his balance-sheets, squeezing the earnings from which he must pay his debts and shareholder dividends. The political effect is to undercut the perception that Mr.

Deripaska and his allies are too tough to resist. In Mongolia, the Mongolian tale of Tavan Tolgoi has been running for several years now. In the Gobi Desert, and with at least 6 billion tons of coking coal yet to be extracted, it is one of the largest deposits in the world. A year ago, the Mongolian Government halted the sale of a 49% share in the project on terms devised by JP Morgan and Deutsche Bank. Since then, the idea was adopted instead of retaining 70% of the project equity in government and domestic hands, and licensing the project operating rights in a two-stage tender. Fifteen international bidders have been recognized this year by the Mongolian mine owner, Erdenes Tavan Tolgoi. These include Chinese companies, Peabody of the US, Arcelor Mittal, Xstrata, Vale of Brazil and two Indian companies. Mr. Deripaska‟s bid was submitted by his En+ holding, which holds Deripaska‟s shares in Rusal, and owns outright Eurosibenergo, the group‟s electricity producer and Strikeforce Mining and Resources (SMR), a molybdenum miner. These two have failed in bids to attract Chinese investors and a Hong Kong share listing. Mr. Deripaska‟s appearance in the Tavan Tolgoi bidding without a Chinese partner is significant, because without Chinese commitments to buy the coal and finance the several-billion dollar cost of the project, EN+ lacks the credit to match the competition. The closest Mr. Deripaska comes to a railway – required to cover the ground between Tavan Tolgoi and the nearest Chinese coal-consuming steel mill – is RCTM, a plant producing railcars for a variety of bulk cargoes. Read more… Last September, EN+ and Eurosibenergo made this announcement of a no-money memorandum of understanding with the Mongolians. A link to the Tavan Tolgoi mine project is mentioned, but no source for the financing needed. A miner already established in Mongolia says the government in Ulaanbaatar is anxious not to allow China to dominate the terms of extraction and sale of Tavan Tolgoi‟s coal, nor the Russians either. If Mr. Deripaska is hoping that the EN+ bid will cover for the Chinese, he is likely to lose, the source notes. The traditional Mongolian tradeoff between the powerful neighbors to south and north (and Japan to the west) explains why Mr. Deripaska‟s Russian rivals in the Tavan Tolgoi contest are part of a geographically and politically more diverse lineup. Cash and railways are also the key to the Tavan Tolgoi tender, so state-owned Russian Railways has submitted a bid of its own, with more of both than EN+ has so far been able to muster. In this rival Russian bid, Russian Railways (RZD), run by Mr. Vladimir Yakunin, is partnered by Siberian Coal and Energy Company (SUEK), owned by oligarch-sized figures, Mr. Andrei Melnichenko and Mr. Sergei Popov. SUEK is Russia‟s largest coal-miner, specializing in steam coal, not coking coal. RZD and SUEK are consortium members of a syndicate led by Korea Resources Corporation, and including Japanese coal buyers and traders – Marubeni, Sumitomo, Sojitz, and Itochu. In February, SUEK chief executive Vladimir Rashevsky publicly confirmed SUEK‟s keenness to win the tender, and Mr. Yakunin followed suit a few days later. RZD has long-established relations with Mongolia in the railway sector, and in 2009 prepared a survey of the country‟s railways and future rail needs. RZD will not say it for the record, but sources make clear that Mr. Yakunin, Mr. Melnichenko and Mr. Popov do not want Mr. Deripasaka in their syndicate, and do not believe he adds to the Mongolian favor they already enjoy. Source: The Business Insider

BEIJING SOFTENS STANCE ON PRICE INCREASES, UNILEVER ESCAPES PUNISHMENT Beijing has signaled that its anti-inflation crusade does not preclude all price increases, even for politically sensitive products, after a top official of China‟s price watchdog said Unilever would not be punished for raising the price it charges retailers for some daily necessities. Unilever was fined 2 million yuan in May for publicizing its intention to raise some prices – a move which triggered widespread panic buying. This week, official media reported that Unilever had told some retailers it would increase the cost of some body care and beauty products. Unilever refused to confirm the news, and Carrefour said it would not immediately pass along the price rise to consumers. Ms. Li Qing, deputy director general of the department of pricing supervision at the National Development and Reform Commission (NDRC), China‟s top planning agency, told the official China Daily that Unilever would not be punished for the move. “Companies like Unilever have the right to decide whether to raise prices or not, it‟s their decision. We will not interfere,” Ms. Li said. Her language may assuage fears among foreign consumer goods manufacturers alarmed by the earlier decision to fine Unilever for talking about raising prices. The NDRC has explained its fine by criticizing Unilever for allowing its spokesman to tell local media that detergent and soap prices might be raised because of high raw material prices. Unilever had “intensified inflationary expectations among consumers” and “seriously distorted market order”,

Beijing said, hinting that the move was a subtle form of price collusion aimed at ensuring that other manufacturers also follow suit. “The government knows that it cannot cap prices forever and that at some point companies will have to raise prices,” says Mr. Shaun Rein of China Market Research Group in Shanghai. “Companies won‟t invest in China if they cannot turn a profit”. Unilever “is mainly mass-market, which means narrow margins, so any cost of production and distribution has to be reflected in retail prices,” says Mr. Matthew Crabbe, of Access Asia, a consumer consultancy, in Shanghai. Read more… Despite widespread government pressure on industry associations, supermarkets and individual companies to avoid raising prices of consumer goods, Chinese inflation has remained stubbornly high. Some consumer goods manufacturers have reacted to rising input prices by reducing package sizes, a kind of disguised price hike. Coca-Cola recently reduced its bottle size from 600 ml to 500 ml in China, saying the move was taken to “meet the demands of consumers which change over time in a dynamic and competitive market”.

Source: The Financial Times

CHINESE MANUFACTURING GROWTH FALTERS A key gauge of Chinese manufacturing growth edged lower in May but remained stronger than analysts had expected to suggest that the world‟s second-largest economy was gliding towards a soft landing. China‟s official purchasing managers‟ index, designed to provide a snapshot of conditions in the manufacturing sector, dipped to 52.0 last month from 52.9 in April. However, that was a touch ahead of most forecasts. A similar survey sponsored by HSBC registered 51.6 in May, also softer than last month but well ahead of a preliminary reading of 51.1 that unnerved markets last week. A reading of above 50 in PMI surveys indicates expansion, while a reading below that level indicates contraction. With developed markets still struggling to shake off the effects of the global financial crisis, economies from Brazil to New Zealand have become increasingly reliant on China as a locomotive of growth. Fears that it was sputtering to a slowdown have in recent months dented global markets and weighed on commodity prices, which are particularly sensitive to the strength of Chinese demand. The slowdown has to a significant extent been deliberately self-inflicted, as officials have increased policy tightening to rein in inflation that has been running at close to a three-year high. On the inflation front, the PMI provided a modicum of good news. The sub-index for input prices dropped sharply to 60.3 from 66.2 a month earlier, a third consecutive decline. That fall, which mainly reflects the easing of global commodity prices, points to reduced cost pressures for Chinese producers.

Source: The Financial Times

POLITICS SHENHUA WILL OWN SHARE OF MONGOLIAN RAILWAYS Mr. Ch. Khashchuluun, Chairman of the National Development and Innovation Committee, has revealed that China Shenhua will be one of the strategic shareholders of the newly formed Mongolian Railways LLC, which will seek an IPO that will leave the Mongolian Government with 51% of the stakes. Shenhua announced in March that it has won regulatory approval to build a railway in Inner Mongolia, China, costing USD725.1 million. Mr. Khashchuluun‟s statement strongly indicates the Mongolian railway and the one in Inner Mongolia will together form a large network. “We need a big network of railways to access 5 places in China to transport our mineral resources to China and to the world through the ports of China. One of the most important ports is Tianjin,” Mr. Khashchuluun said. The Mongolian Railways will seek strategic investors and launch an IPO this year or in 2012, and the railway project will be rushed to be finished in 2012. Source: QuamNews

RUSSIAN RAILWAYS READY TO INVEST USD1.5 BILLION IN MONGOLIA OAO Russian Railways, the country‟s rail monopoly, is ready to invest USD1.5 billion in Mongolia‟s train network to help the country exploit its natural resources, Chief Executive Officer Vladimir Yakunin has said. He also said the two countries signed an agreement during President Ts. Elbegdorj‟s visit to Russia to boost the capital of their 50-50 joint venture, Ulaanbaatar Railway, by USD250 million, while talks to increase Mongolia‟s share to 51 percent will continue.

Source: Bloomberg

MEDVEDEV WANTS RUSSIA-MONGOLIA TRADE TO GO BEYOND PETROLEUM Presidents Ts. Elbegdorj and Dmitry Medvedev signed on Tuesday a joint statement in Moscow, vowing to further promote ties between the two countries. Mr. Medvedev said he believes the Russian-Mongolian trade volume should not rely on petroleum products only, calling on diversification of bilateral trade. However, he promised to ask exporters in his country to devise ways in which regular supply of petroleum products to Mongolia could be assured.

Source: Xinhua

RUSSIA BLAMES MONGOLIA FOR DELAY IN URANIUM JV There has been little progress in Rosatom Corp.‟s venture with Mongolia‟s MonAtom to develop the Dornod uranium deposit, Mr. Sergei Kiriyenko, head of Russia‟s state-owned nuclear energy holding company, said on Wednesday. “Unfortunately, it is moving very slowly,” Mr. Kiriyenko said, declining to elaborate. He said, "We have already signed the final framework documents, which have yet to come into force. But it has been slightly delayed by procedural things on Mongolia's part. We have signed an action plan, according to which the Mongolian side is required to compile a list of property and assets it is ready to contribute to the joint venture."

Source: Bloomberg, UPI

PM THANKS U.S. FOR “ALL-ROUND SUPPORT” Prime Minister S. Batbold told a visiting U.S. delegation Wednesday that Mongolia appreciates Washington's comprehensive support. “Mongolia is thankful for the all-round support it has received from the U.S.,” the Prime Minister was quoted by the government press service as telling the visitors, led by Senator Roy Blunt, a Republican from Missouri. In reply, Mr. Blunt said that Washington is also grateful to Ulaanbaatar for its active participation in international peacekeeping operations. Source: Xinhua

DP GROUP WANTS NEW ACA CHIEFS APPOINTED The DP group in Parliament this week reviewed a report on the implementation of the Government program between 2008 and 2012 and concluded that the Government‟s performance has not been good, especially in areas such as industry, and infrastructure and urban development. The group also discussed the need to appoint a new head and deputy head of the Anti-Corruption Authority. The present incumbents, Mr. Ch.Sangaragchaa and Mr. D.Sunduisuren, have lost their appeal against jail terms and the MPs felt Parliament should choose their successors. The group will present their views at the next meeting of the Speaker‟s Council.

Source: Udriin Soniin

18 TRAINS CANCELED TO SAVE DIESEL FUEL Ulaanbaatar Railway has canceled 18 trains to Bor-Undur, Zuunbayan, Shariin Gol and Nalaikh, and reduced the number of wagons in other passenger and freight trains. This will save 60 tons of diesel daily. Source: News.mn

MP AGAINST HAVING NUCLEAR POWER PLANT, AS “WE ARE AN IRRESPONSIBLE PEOPLE” Mr. Sh.Saikhansambuu, MPP MP, has warned Mongolians not to go for an atomic power plant, “as we are irresponsible people and should not trust ourselves to take proper safeguards”. The experience of developed countries shows that operation of atomic plants is a challenging responsibility, and the MP says, “We should stop making tall promises on uranium usage until we attain a certain level of national responsibility.” He blames both senior officials and media for raising unconfirmed hopes in the popular mind and for talking without much consideration or understanding of the various issues involved.

Source: Zuunii Medee

JUDGE EXPLAINS WHY ACA OFFICIALS’ APPEAL WAS REJECTED The Judge General of Ulaanbaatar Court, B.Sarantuya, has sent to the Office of the President and to the Speaker explanatory notes on her rejection of the appeals of Anti-Corruption Authority (ACA) officials against their conviction by a primary court. She asserted that evidence had confirmed the charges against Mr. Ch.Sangaragchaa, Mr. D.Sunduisuren and Mr. U.Altangadas –- Chief, Deputy Chief and Head of Administration respectively of the ACA -- and that the provisions of the law had been rightly applied. The original investigation had not strayed from the law and further

investigation to deal with the appeal did not produce anything to support the claims of the convicted.

Source: News.mn

GROUP TO WORK ON RELOCATION OF GER DISTRICT HOUSEHOLDS Minister for Road, Transportation and Urban Development Kh.Battulga told Parliament last week that 75,000 apartments would be built in four areas in Ulaanbaatar as part of the New Creation program. The Mayor‟s Office has already established a working group to arrange for relocation of households from these ger districts identified for development. It will start work in June. The Government has allocated MNT350 billion to build infrastructure to serve the new apartment blocks and some work has begun. MNT20 billion of the total amount is likely to be spent this year. Mr. Battulga also said that auto roads would link all province centers with one another and the Ministry has already prepared the blueprint of building altogether 1,377 km of such roads. Another 4,500 km is planned. He added that domestic cement production is not sufficient to meet the demands of the road construction program. Mr. Battulga was making a statement answering questions Mr. S.Byambatsogt had asked Prime Minister S.Batbold on implementation of the program. Mr. Byambatsogt expressed satisfaction at the progress, but asked for more attention to be paid to the provinces.

Source: Ardiin Erkh

MONGOLIA CONNECTS TO HONG KONG WITH DIRECT FLIGHTS AND CONSULATE Mongolia has strengthened its ties with Hong Kong through the creation of a new consulate, and the establishment of bi-weekly direct flights to Ulaanbaatar. The links bring increased exposure to the financing and business opportunities in the country as Mongolia seeks to attract investors to help the nation develop its new-found wealth. Hong Kong provides the closest regional financial hub and global expertise required to service the development of this transition. Over the last few months, nearly every flight into Mongolia has been running at capacity, not just with tourists, but filled with investment bankers, hedge fund managers and investors keen to acquire a share in Mongolia‟s future. The financial base for a majority of the deals is in Hong Kong and the business community that invests in Mongolia is also based in Hong Kong. The opening of the new route, which is set to be very profitable for Mongolia‟s national airline MIAT, also signifies a stepping stone towards the eventual privatization of MIAT within the next couple of years. The non-stop route between Hong Kong and Ulaanbaatar will be served by a Boeing 737-800 aircraft every Thursday and Sunday, providing 12 seats for business class and 150 seats for economy class. On Thursday, the flight departs Hong Kong at 11:55 a.m. and departs Ulaanbaatar at 6:25 a.m.; on Sunday, it departs Hong Kong at 1:05 p.m. and departs Ulaanbaatar at 7:40 a.m. HKSAR passport holders can enjoy the convenience of up to 14 days visa-free access to Mongolia. Source: China Briefing

“SOLAR GERS UNDER DEVELOPMENT” There is good news for Mongolian nomads on both sides of the Russian-Mongolian border, as their centuries-old traditional dwelling is about to receive a welcome upgrade. The incredibly functional ger is easy to set up or take apart and is wonderful for escaping the cold of winter and reducing the heat of summer. But the modern nomad often has electrical devices -- small televisions or radios, electric lights, and so on. That has required transporting diesel generators on carts (plus canisters for carrying fuel) as the seasons force the nomads and their herds on to greener pasture lands. But now Russia's Republic of Tuva and Mongolia are jointly developing the "solar ger", made from photovoltaic fibers. Top Tuva official Sholban Kara-ool announced the project, noting that the solar fibers would be able to charge a mobile phone or flashlight and that energy accumulated over the course of a sunny day could power televisions and electric lights during the night. Mr. Kara-ool claimed that the project would have a huge effect on Mongolia's campaign to have "100,000 solar gers" for its herders.

Source: Radio Free Europe

A TALE OF TWO MONGOLIAS Recent reports in the press over ethnic tensions “in Mongolia” demonstrate there is still much to be understood about the region. Apparently, an ethnic Mongolian herder was killed by a Han Chinese lorry driver in an accident that has sparked unrest in the Chinese autonomous region of Inner Mongolia. Meanwhile, Mongolia itself remains an independent country and is utterly unaffected by the incident in China. Such reports however, tend to demonstrate poor standards of journalism, a

lack of appreciation of the dynamics between the two areas, and a disregard for historical fact. That the incident was widely reported in headlines as having taken place in “Mongolia” blurs distinctions and is indicative of lazy journalism. This article aims to describe the differences between the two as well as shed some light on the background to the incident in question. Many Chinese nationals still in fact regard all of Mongolia – including the sovereign nation to the north of Beijing – as being historically Chinese. Yet the reverse is true. While Mongolia was subsumed by the Han, it was the Mongols who were long the masters of the Steppes, creating under successive Khans an empire that stretched across Eastern Europe, Russia, most of Central Asia, China, Tibet and parts of India. Indeed, the very Dalai Lama himself is a symbol of Mongolian supremacy – the title was created by Altai Khan and bestowed upon the dominant Tibetan King of the day. The name itself is Mongolian, meaning “Ocean of Wisdom,” and is not Chinese. As Tibet sold religious favors to the Mongolians to legitimize the latter‟s command of the region, so Tibet fostered a type of trade in religious blessings in return for military protection. This system would later be inherited by the Chinese dynasties as the Mongolian empire eventually crumbled, leaving Tibet to bestow favors upon the new regional power. This only came to a halt when Chairman Mao decided he had no need for religion and derided it as “poison”. Those acts of “suzerainty” so often quoted by the Chinese as meaning sovereignty, were in fact introduced by the Mongols, not the Chinese. A case for Tibet being part of Mongolia is arguably stronger than the case for the Chinese settlement of the land, military force and might not withstanding. Indeed, the Chinese shame of having been invaded by the Mongols is such that history itself becomes warped – schoolchildren are taught that Genghis Khan was a Chinese Emperor. He wasn‟t, he was a “barbarian” invader who conquered all. Beijing is still modeled – in terms of the siting of the main Tiananmen Square, the Forbidden City and the main avenues – on the ancient Mongolian city plans. No wonder the Chinese have such a strange attitude towards their neighbor, with distinctions between the sovereign state and the Chinese autonomous region still being blurred today. Read more… With the demise of the Genghis Khan-led Mongolian Empire, which effectively lasted for about 400 years under different Khans, China eventually gained the upper hand and subsumed Mongolia towards the end of the 17th century under the Qing Dynasty. It was the collapse of the Qing Dynasty in 1911 that gave the Mongolians the contemporary initiative to declare independence, but this came just as the rise of the Bolshevik Revolution was occurring in Russia. Faced with a choice between going cap in hand back to the Chinese or sticking with the Russians, the Mongolians chose to be under strong Soviet influence until their withdrawal in 1991. Democratic elections were almost immediately held. Inner Mongolia as a region has historically been the subject of various kingdoms over the centuries before becoming part of the Mongolian Empire under Genghis Khan. Like Mongolia, it also fell to the Qing Dynasty in the late 1600s, but various regions of Mongolia were subjected to different rules. Inner Mongolians, unlike those elsewhere, were forbidden to travel to other parts of what had been the Mongolian Empire and a gradual assimilation by the Han Chinese began in a manner that did not occur elsewhere. Mass emigration of Han Chinese began in the late Qing period with the balance of ethnicity shifting to Han dominance, a position that remains today. With that has come settlement and the gradual destruction of the nomadic lifestyle. There are other curious differences between Inner Mongolians and Mongolians. Many of the former read and write traditional Mongolian script (which still appears on RMB banknotes today) while under the Soviets, Cyrillic was imposed and many Mongolian nationals cannot read Mongolian as a result (however a reeducation and implementation program is now taking place in Mongolian schools). As many Inner Mongolians over the past 300 years have intermarried with Chinese, Mongolian nationals often regard them as inferior. Plus the advance of settled farming runs counter to traditional Mongolian values and understanding of land management techniques. The incident in Inner Mongolia – which appears to have been the result of an ethnic Mongolian herdsman trying to prevent Chinese coal trucks driving across grasslands – is symptomatic of the entirely different social structures each have come from. While many Mongolians remain nomadic, the Chinese are essentially settlers, and put land to long term use. The conflict of cultures and wisdom comes from the way the Chinese manage the land as opposed to the Mongolians viewpoint. “Scientific” methods of communal farming are deemed superior to the “backward” methods of the nomads. It‟s a struggle as old as human habitation of the grasslands themselves, but one in which, in Inner Mongolia at least, the local ways are being pushed aside in favor of Han Chinese settlements and “advancement”. Such divisions cause friction in Inner Mongolia, but in Mongolia itself – where the traditional methods are still used without interference or ridicule – the wisdom of

the nomadic life over a sedentary existence soon becomes apparent. The results of the mass Han experiment in Inner Mongolia has had mixed results. In Inner Mongolia, the ethnic Mongolian‟s earn significantly less than the Han Chinese, which may indicate that on an ethnic basis, the Mongolian nationals are already better off than their Inner Mongolian counterparts. Such a wide disparity between per capita incomes also indicates the money is not going back to the province. Inner Mongolia has become a feeding basket for the rest of China, regardless of the consequences to the ethnic residents, and to an increasing extent, the imposition of “scientific” methods of increasing production. It is, in essence, a region being stripped of its assets and the re-sale value of them. That those scientific methods at the expense of traditional nomadic lifestyles are heralded as superior by the Han settlers seems beyond doubt. Yet Inner Mongolia is suffering some of the worst desertification of grasslands in the world. The eradication of wolves for example, to protect valuable sheep flocks is a case in point. Traditionally, Mongolians and wolves have had a love-hate relationship. Yes, wolves take livestock, but wiping them out, as has been the Han Chinese policy, does far more damage than good. The “scientific” evaluation of the Han settlers of wolves as a scourge has resulted in many areas of Inner Mongolia becoming over-populated with rabbits, resulting in a total destruction of the grassland. Once replaced, it can never be reclaimed, and the Gobi Desert is growing in Chinese Inner Mongolia at a rate of 2.4 percent a year. The accident that has sparked unrest in Inner Mongolia appears to have come from a similar lack of appreciation of land management by the Han. Apparently wanting to avoid a bumpy road, a convoy of coal trucks took a detour across nomadic pastures. It‟s the middle of lambing season right now, and sheep will abort if disturbed, while the damage to the pastures themselves should not be underestimated. The Mongolian who died apparently did so trying to protect the grasslands and was run over by a truck – some say deliberately. It‟s that distinction that marks the difference in the understanding of land management techniques between the Chinese and the Mongolians. Settlers versus nomads, and each year the Gobi grows larger. Back in Mongolia itself, there is little signage in Chinese and a subtle, yet profound, dislike for many Chinese. Wary of what happened to Tibet, and warier still of the damage being caused to millions of hectares of land to the south in Inner Mongolia, the Mongolian nationals retain their nomadic ways, and are passionate believers in democracy, Buddhism and the ways of the land. The link between traditional beliefs and a culture of awareness so in-tune with the land that it has become spiritual, ultimately manifests itself in the Dalai Lama being revered here. He still visits from time to time, and when that happens, the Chinese close the border in protest. A culture based on settlement and science, it seems, has no place for the sentimentality of the governing forces of nature. That is the major weakness in the Chinese attitude towards sustainable development. It leads instead to exploitation, while the Dalai Lama is regarded as a “splittist”. What that really means is he understands the desirability for a nomadic lifestyle in Tibet over mass settlement. Lhasa, meanwhile, has become clogged up with fumes, and the air quality is suffering in that most holy of cities. The Mongolians and the Tibetans, both used to harsh terrains, understand this. Not wanting to stress the land out, the nomadic existence still enjoyed by 50 percent of the entire national population of Mongolia is in reality far more scientific and sustainable than the “new technologies” of the Chinese. While that superior culture has ended up poisoning children with melamine tainted milk from Han Chinese-run Inner Mongolian-based dairies, no such event took place in Mongolia itself, another major dairy producer. Faced also with the new, massive wealth that Mongolia‟s numerous mining projects will bring, the GDP growth rate and per capita income will see Mongolia outstrip its southern neighbor in just a few years. Mongolia‟s per capita income by 2015 is expected to reach USD10,000, higher than that of Inner Mongolia and even surpassing the Shanghainese. For a nation of “backward, dirty, unsophisticated peasants” (as was described to me by one Han Chinese recently) its seems that maybe after all, the nomadic lifestyle and attention to detail as regards natural sustainability may be the way forward. It‟s been noticed by some Han Chinese as well. Lu Jiamin, writing under the alias Jiang Rong, wrote about this issue in his novel “Wolf Totem”. It‟s a book all Inner Mongolian-based cadres would be well advised to read, and makes one weep for the inevitability of the Han destruction of land through settlement farming in areas that simply cannot sustain such treatment. When scientific progress means milk laced with poisons, it‟s time to start looking at the traditional alternatives. The two Mongolias could not be more different.

Source: 2point6billion.com

ANNOUNCEMENTS "MONGOLIA: CAPITAL RAISING AND INVESTMENT", ULAANBAATAR, JUNE 7-8 This annual Frontier Securities conference provides a perfect opportunity for those interested in exploring the latest developments in Mongolia's business environment to receive direct information from key sources. Investors will be able to discover lucrative opportunities and Mongolian companies will learn of various methods of raising capital abroad. Senior managers from the Korea Stock Exchange, the Hong Kong Stock Exchange, the Australian Securities Exchange, Deutsche Börse AG and Tokyo AIM will share their knowledge and insights regarding capital raising with the audience. The other major theme at the event will be investment opportunities in Mongolian mining, real estate and other expanding sectors. Confirmed participants include investment banks and investors such as BOCI, CICC, Citigroup, J.P. Morgan, Quam Asset Management Fund, as well as professional entities such as Hogan Lovells, American Appraisal, Moody's Investors Service and CRU International. _________________________________________________

CORPORATE GOVERNANCE FORUM, ULAANBAATAR, JUNE 13 The Fourth Annual Corporate Governance Forum, organized by the Corporate Governance Development Center will bring together Mongolian business leaders and policy makers to identify and stress the linkages between corporate governance and capital market development. It will also present an open platform to discuss a number of topical issues relevant to the current state of corporate governance reform, and to help reach al consensus on the necessary policy and corporate level reform agenda. The forum will end with a resolution and an action statement by the participating business leaders on policies and legal and regulatory frameworks to remedy the current corporate governance challenges in Mongolia. The key discussion points would be: - Country experiences on the role of stock exchanges in corporate governance - Corporate governance reform process: progress and challenges for State-owned enterprises - Corporate governance in the banking sector: Impact of the new Banking Act, issues in CG assessment. Business Council of Mongolia is an Organizing partner of this forum. Requests for registration should be made to Ms. Tsend-Ayush Tel: 99105111, Email: tsendee51@yahoo.com or tsend-ayush.t@cgdc.org.mn. ___________________________________________ CHURCHILL’S TRAINING WORKSHOP, ULAANBAATAR, JUNE 14, 15, 28 Churchill's is organizing, with BCM support, a training workshop on how to develop and implement the Environmental Management System and the Occupational Health & Safety Administration System. Designed for company directors and senior managers, the seminar will provide an overview of the two international standards, and include templates and procedures from both standards for use in the development of working company systems. Delegate registration fee for three days is MNT120,000 (including refreshments). The Seminar dates will be June 14,15 and 28, 2011. It will be conducted in English & Mongolian at the Ministry of Agriculture Training Center. Registration: by email, churchills@magicnet.mn, Online http://www.isochurchills.com, Tel: 976-70111956 – 99731454 (E-M), 99151124 (E). ________________________________________________

INTRODUCTORY COURSE ON ARTIFICIAL NEURAL NETWORKS, ULAANBAATAR, JUNE 16-17 The Mongolian University of Science and Technology and the American Center for Mongolian Studies are co-sponsoring a short course on June 16-17 by Dr. Rajive Ganguli, Professor and Chairman of Mining Engineering at University of Alaska-Fairbanks, USA. This introductory course is on artificial neural networks with special focus on mining engineering. It will present best practices of neural network modeling, and will use an Excel based neural network software developed specifically for this course by the instructor. The areas to be covered include introduction to neural networks, architecture selection, activation functions, topology, and neural network architecture including training algorithms. Registration requests, along with a fee of USD100, will be received in Room 23 at the Second building in MUST from June 1 to June 12. For more information, call 99082864 or 99015671, and Еmail: altantuya@must.edu.mn, ariunbolorp@must.edu.mn

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COALTRANS MONGOLIA, ULAANBAATAR, JUNE 21-22 Coaltrans Mongolia will be a unique opportunity to see and understand at first hand the development of one of the last remaining coal frontiers. It will address: - Spectacular growth prospects for the Mongolian economy, coming on the back of the development of the country‟s wealth of mineral assets with reserves estimated in value of USD1.3 trillion. - Opportunities that many large scale coal investments offer – in particular the Tavan Tolgoi coal deposit containing 6.4bt of coking and thermal coal which will be privatized. - The prospects for exports of 25-40mt per annum of coal into China and in the longer term through Russia to Pacific markets. - The considerable challenges facing Mongolian transport infrastructure in delivering coal exports across the border into China‟s burgeoning steel industry and power sector. - The challenge of operating coal mines in extreme weather conditions as well as the scarcity of water supply. Among the speakers will be: - D. Zorgit, Minister of Mineral Resources and Energy - B.Enebish, Executive Director, Erdenes MGL - D.Batkhuyag, Chairman, The Minerals Authority of Mongolia - G.Battsengel, Chief Executive Officer, Mongolian Mining Corporation. Business Council of Mongolia is a Supporting Organization of the event. Enquiries about speaking opportunities are to be addressed to Gerard Strahan at gstrahan@euromoneyplc.com, and about benefits available in relation to sponsorship opportunities to David-Griffiths, at cdavid-griffiths@euromoneyplc.com. ________________________________________________

“MM TODAY” on MNB-TV, Fridays at 21:15 BCM is pleased to announce that Mongolian National Broadcasting continues its cooperation with BCM on “MM Today”. This English news program is aired every Friday for 10 minutes and is scheduled for 21:15 tonight. Tune in to watch this program that reports stories from today‟s BCM NewsWire. ___________________________________________ “HOW THEY SEE US” on BTV on June 08th at 19:05 Thursday, June 09 is the next date for “How they see us”, BTV‟s fortnightly program in Mongolian started in cooperation with BCM. The 15-minute program will be from 19:05, and will cover reports on Mongolia in international media, featured in the BCM NewsWire and other sources. ___________________________________________ NEW POSTINGS ON BCM WEBSITE'S 'PRESENTATIONS' AND 'MONGOLIA REPORTS' „Presentations‟ from BCM‟s 5 monthly meetings in 2011, summaries of the key addresses at Eurasia Capital‟s Mongolian Investment Conference on May 25, Jim Dwyer of BCM‟s interview on Mongolia National Broadcasting‟s “Face to Face” on May 16, and the very successful Mines and Money Hong Kong‟s „Mongolia Investment Summit‟ morning on March 25 as well as „Mongolia Reports‟ including the Polit Barometer-May 2011 from Sant Maral Foundation and the U.S. Embassy Mongolia‟s Commercial Section‟s “2011 Mongolia Investment Climate Statement” are among the presentations posted on BCM's website (www.bcmongolia.org) in the "Resource, Presentations" and “Resource, Mongolia Reports” sections for your review. We are now posting some news stories and analyses relevant to Mongolia on the BCM website's „Mongolian Business News‟ as they come, instead of waiting until Friday to put them all together in the weekly NewsWire. The NewsWire will, however, continue to be issued on Friday, and will incorporate items that are already on the home page, so that it presents a consolidated account of the week‟s events. ___________________________________________

ECONOMIC INDICATORS

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

Year 2007 *15.1% [source: NSOM]

Year 2008 *22.1% [source: NSOM]

Year 2009 *4.2% [source: NSOM]

April 30, 2011 *5.5% [source: NSOM]

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

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

March 11, 2009 14.00% [source: IMF]

May 12, 2009 12.75% [source: IMF]

June 12, 2009 11.50% [source: IMF]

September 30, 2009 10.00% [source: IMF]

May 12, 2010 11.00% [source: IMF]

April 28, 2011 11.50% [source: IMF]

CURRENCY RATES – June 1, 2011 (The Central Bank rates for June 2 were not posted until the time work on this issue was completed.) Currency Name Currency Rate

US dollar USD 1,245.35

Euro EUR 1,794.36

Japanese yen JPY 15.26

British pound GBP 2,056.88

Hong Kong dollar HKD 160.11

Chinese Yuan CNY 192.20

Russian Ruble RUB 44.55

South Korean won KRW 1.15

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.