BUSINESS COUNCIL of MONGOLIA NewsWire

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Issue 147, December 3 2010

NEWS HIGHLIGHTS

Business: Rio hopes Oyu Tolgoi will start production in 2012;

Ivanhoe says it has plenty of options to head off takeover by Rio Tinto;

Voyager Resources acquires copper-gold project;

Centerra Gold clarifies status of Mongolian licenses;

Sedgman has positive outlook for 2011;

Entrée Gold to raise USD100 million;

Xanadu Mines to list Mongolian assets on Australian Stock Exchange;

Oyu Tolgoi focused on local community support, says the then CEO Marshall;

Haranga Resources IPO closes early and oversubscribed;

More big fish to be charged in Anod Bank case;

Toshiba to source rare earths from Mongolia;

5,000 people from 24 countries build Mongolia’s future in the Gobi;

Oyu Tolgoi targets 90 percent of work force to be Mongolian;

Arshad Sayed leaves World Bank for Peabody Energy;

Rio spends USD3.1 billion in expanding infrastructure.

Economy:

Approved budget has deficit equaling 9.9% of GDP;

This year’s budget prepares for the economic growth to come, asserts MP;

Mongolia to sell bonds worth USD500-USD600 million early next year;

Mining bans could deter speculators, says mining investment banker;

Mining licenses can be canceled only after compensation, say experts;

MNCCI Chairman rumored to be on way out;

Economists want Central Bank to be more proactive;

Coal exports rise 145% y-o-y;

Coal train reaches Russian port without hindrance;

Group set up to work on Erdenes Tavan Tolgoi shares;

Domestic companies claim more share in mining-related work;

No need to import wheat, reasserts Minister;

Copper likely to peak above USD11,000 in 2013;

Inflation adds to pressure for stronger yuan;

China allows first foreign consumer loan provider;

Beijing acts on surging food prices;

Manufacturing data show Asian divide;

Dollar recaptures its safe-haven role;

Peru seeks to double mining royalties.

Politics:

Standing Committee rejects opinion of Constitutional Court;

Prime Minister cancels visit to Britain;

Mongolia passed North Korea’s message to U.S.: WikiLeaks;

MPs want to know Mongolia’s gains from Ivanhoe share price rising;

MPP has 3 key posts to fill;

Judges in Ulaanbaatar district courts overworked;

Choibalsan statue also to be recast in bronze;

Speaker calls for equal justice for all;

All leather and wool processing plants to be shifted;

Number of environmental NGOs increases;

10 Darkhan officials charged with financial fraud;

Committee wants ban on smoking in all public places;

No stock at all of snow melting substances.

*Click on titles above to link to articles.

EARLY NOTICE FOR BCM MONTHLY MEETING

BCM has combined the November and December monthly meetings because of the holiday season. This will be held on December 13, 2010 at 5 PM at Kempinski Hotel Khan Palace, 2nd floor, Altai Ballroom, and will be followed by a "holiday" reception for all members. Outstanding Achievement Awards will be presented to a BCM corporate member and to a Government official. A more detailed meeting notice and agenda will be sent as usual to all members prior to the meeting.

BUSINESS

RIO HOPES OYU TOLGOI WILL START PRODUCTION IN 2012 Rio Tinto‘s copper division head Andrew Harding stated last week in a Mongolian investors' presentation in London that Oyu Tolgoi was on track to launch in late 2012, ahead of the so far estimated 2013. In the third quarter this year, Rio produced a record amount of iron ore, but copper output fell 19 percent. It said that copper output would fall 18 percent to 661,000 tons this year, and decline 10 percent next year. The outlook would be bright for its copper unit once the Mongolian project goes on steam. Rio Tinto is to nearly triple capital spending to USD11 billion next year as it expands lucrative iron ore mines in Australia, where it has found a further 2 billion tons of deposits. Chief Executive Tom Albanese told an investors' presentation high metals prices were generating strong cash flow and Rio might use some of this cash for takeovers. "Of course, that (capex) number excludes any small-to-medium-sized M&A deals that we may choose to execute. We have a number of opportunities being evaluated." Source: Mineweb.com

IVANHOE SAYS IT HAS PLENTY OF OPTIONS TO HEAD OFF TAKEOVER BY RIO TINTO Ivanhoe Mines has plenty of options as it fights a possible "creeping" takeover by Rio Tinto, its founder has said, noting sovereign wealth funds were keen on Mongolia, where Ivanhoe is developing a huge mine. Mr. Robert Friedland -- who is also executive chairman, CEO and a major shareholder -- told a Mongolian investment conference in London last week there was no shortage of possible investors. "There's a lot of alternatives ... many countries are interested in Mongolia. For example, the Middle Eastern sovereign wealth funds," he said. Abu Dhabi's investment council has invested in a Mongolian bank while both Kuwait and Libya were interested in the country, Mr. Friedland added. He was restricted on how much he could say because Ivanhoe was in the midst of a rights issue to raise up to USD1 billion, but he told journalists on the sidelines of the conference some news would emerge fairly soon. Ivanhoe is evaluating a range of options as it grapples with its biggest shareholder Rio Tinto about terms under which Rio can increase its stake in Ivanhoe. Ivanhoe owns 66 percent of the massive Oyu Tolgoi copper-gold project, which it is developing in partnership with Rio and the Mongolian government. Ivanhoe and Rio are involved in arbitration to resolve a dispute over a shareholder rights plan adopted by Ivanhoe in May, which Rio says violates

its contractual rights. Under a previous agreement, Rio can increase its 35 percent stake in Ivanhoe to 46.6 percent. Ivanhoe argues that its rights plan protects it from a creeping takeover. The arbitration proceedings are due to start in January. In the meantime, Ivanhoe is evaluating options with the help of their new head of strategic planning, Mr. Sam Riggall, a former Rio executive who helped negotiate the Oyu Tolgoi agreement with Mongolia. Ivanhoe, which needs to come up with its share of USD4.6 billion needed to build Oyu Tolgoi, is considering possible sales of subsidiaries, equity investments, project financing and various corporate transactions, it has said. The group is seeking to arrange more than USD2 billion of financing with 13 institutions, including the World Bank's International Finance Corporation, BNP Paribas and Standard Chartered. Read more… "Shareholder rights plans merely mean no one can do a coercive change of control of the company without paying an appropriate premium," Mr. Friedland said. "The shareholder rights plan just determines whether they (Rio) have to make an offer to everybody or whether they can keep creeping." Ivanhoe also cancelled a "strategic purchaser" deal with Rio, allowing other investors to buy a stake of more than 5 percent in Ivanhoe. Source: Reuters

VOYAGER RESOURCES ACQUIRES COPPER-GOLD PROJECT Voyager Resources Ltd. has announced its 100% acquisition of Khongor Copper-Gold Porphyry Project located in the Oyu Tolgoi copper belt in South Gobi province. A drilling rig is being mobilized to commence drilling.

Source: Voyager Resources

CENTERRA GOLD CLARIFIES STATUS OF MONGOLIAN LICENSES Centerra Gold Inc. has issued a statement further clarifying the status of its Mongolian licenses, in particular, the principal Gatsuurt hardrock mining license which is not on the list of alluvial licenses to be revoked. In July 2009, the Mongolian Parliament enacted legislation that would prohibit mineral prospecting, exploration and mining in water basins and forest areas in Mongolia and provides for the revocation of licenses affecting such areas. This ―Water and Forest Law" provides a specific exemption for "mineral deposits of strategic importance", and accordingly, the company's main Boroo mining licenses are not subject to the law. The Gatsuurt licenses and its other exploration license holdings in Mongolia, however, are currently not exempt. The Mongolian government has announced its intention to initiate the revocation of licenses under the Water and Forest Law on a staged basis, beginning with the revocation of 254 alluvial gold mining licenses. The Company has four licenses on the list of alluvial gold mining licenses that may be revoked. None of these licenses is material to the company. The principal Gatsuurt hardrock mining license is not on the list of alluvial licenses to be revoked. The company continues its constructive discussions with the Government of Mongolia to resolve uncertainty resulting from the Water and Forests Law and to obtain necessary approvals for the commissioning of the Gatsuurt project.

Source: www.centerragold.com

SEDGMAN HAS POSITIVE OUTLOOK FOR 2011 The 2011 financial year outlook for engineering company Sedgman Limited is positive, given the record levels of forward orders and targeted projects expected in the period, as well as an expected improvement in global business conditions, states the company‘s review for the 2010 financial year. It says that the company‘s Beijing office was opened in 2008 to secure coal projects that support China‘s industrialization to target emerging coking coal mines, particularly in Mongolia, and to provide a base to build an Asian procurement hub. The region has provided a foundation for rapid growth in the delivery of coal-handling plant project (CHPP) engineering and operations contracts in Mongolia, with opportunities also emerging in the metalliferous sector. Sedgman has completed the design of Mongolia‘s first five-million-ton-a-year CHPP for coking coal at the Ukhaa Khudag (UHG) coal mine, in southern Mongolia. The company has also started the procurement for the project, the construction of the UHG mine under an EPC and management contract and the design of a second-stage expansion to increase the mine‘s capacity to ten-million tons a year.

Source: www.miningweekly.com

ENTRÉE GOLD TO RAISE USD100 MILLION Entree Gold Inc. has received a receipt for a final short form base shelf prospectus with the securities commissions of each province of Canada, except Quebec, and a corresponding registration statement on Form F-10/A with the United States Securities and Exchange Commission. These filings will allow the company to make public offerings of common shares, warrants, subscription receipts up to an aggregate offering price of USD100 million. The net proceeds are expected to be used for acquisitions, development of acquired mineral properties and working capital requirements. Entrée Gold owns the Lookout Hill deposit in Mongolia surrounded by the Oyu Tolgoi project. Source: Eurasia Capital newsletter

XANADU MINES TO LIST MONGOLIAN ASSETS ON AUSTRALIAN STOCK EXCHANGE Xanadu Mines, an Australian-backed, Mongolian-focused minerals explorer and developer, has opened its Initial Public Offer (IPO) ahead of its proposed listing on the Australian Stock Exchange in late December. The IPO seeks to raise between AUD15 million and AUD21 million, valuing the company at between AUD90 and AUD100 million. Xanadu commenced exploration in Mongolia almost six years ago and in that time has assembled a portfolio of coal and copper/gold assets strategically located in proximity to rail infrastructure and the Chinese border. On completion of its IPO, Xanadu‘s strategy will be to step up the acquisition and exploration of new coking and thermal coal opportunities. In 2011, it plans to drill out its Galshar coal to JORC code classification. The company also intends to conduct further geophysics and an extensive drilling campaign on its two advanced South East Gobi porphyry copper and gold projects at Hutag Uul and Elgen-Zos. The offer is scheduled to close on December 8, 2010 unless brought forward, with Xanadu set to begin trading on the Australian Securities Exchange on December 21. Source: Xanadu Mines

OYU TOLGOI FOCUSED ON LOCAL COMMUNITY SUPPORT, SAYS THE THEN CEO MARSHALL The recent three-day Future Search conference, sponsored by Oyu Tolgoi LLC to focus on the future development path of Khanbogd and Manlai, the nearest towns to the mine site, drew some 70 delegates including local government and infrastructure officials, NGO representatives, local herders, businesses, students, health workers and investors. The company‘s then President and CEO, Mr. Keith Marshall, told the participants of the importance it placed on working with local communities. ―Since 2004 Oyu Tolgoi has invested USD3.4 million in South Gobi community support and development projects. We estimate that this project will last for the next 40-50 years, and we will work with you to ensure that all the people who live and work around the mine area are positively affected by our operations.‖

Source: OT Newsletter

HARANGA RESOURCES IPO CLOSES EARLY AND HEAVILY OVERSUBSCRIBED Haranga Resources, a Mongolia-focused iron ore exploration and development company, has closed its Initial Public Offer (IPO) on the Australian Stock Exchange to raise USD25 million early and was heavily oversubscribed. The Company will list on the exchange in early to mid December 2010. It has booked drill rigs and geophysical survey crews for immediate commencement of exploration. Haranga Resources is the majority owner and operator of five highly prospective Mongolian iron ore projects. Each project has the potential to host significant economic deposits of iron ore and is situated close to existing or proposed infrastructure in order to access the enormous market for iron ore in next door China. Source: Haranga Resources

MORE BIG FISH TO BE CHARGED IN ANOD BANK CASE As prosecuting authorities prove further into the affairs of Anod Bank, some more important officials, both in the bank and outside, are being suspected of wrongdoing. They include Mr. Ch.Togtokhbayar, who worked in the Monitoring Department of the Central Bank and is being accused of not paying back a loan he took from the bank and of taking money in return for overlooking irregularities. Another suspect is Mr. D.Bayarsaikhan, head of the Financial Regulatory Authority, who is believed to have misused his official position and connived in an unauthorized and fraudulent sale of shares in the bank. It has been revealed that he was a shareholder in the Anod Bank and owned a brokerage firm. Source: Undesnii Shuudan

TOSHIBA TO SOURCE RARE EARTHS FROM MONGOLIA Toshiba Corp. has signed a memorandum of understanding with Mongolia's MNFCC LLC agreeing to discussions on cooperation in the development of Mongolia's mineral resources, including uranium, rare earth and rare metals products. Many of the obscure minerals, metals and their oxides are used in electronics manufacture and have been rising in price in recent years as China has developed a monopoly position in their supply. Mr. Naoto Kan, the Prime Minister of Japan, met the Mongolian President, Mr. Ts. Elbegdorj, on November 19 and the two agreed to build a strategic partnership and to secure mutually beneficial cooperation in developing mineral resources in Mongolia. Further moves to promote an economic relationship between Japan and Mongolia are expected. Under the terms of the MoU Toshiba will conduct feasibility studies on key social infrastructure essential for securing Mongolia's continued economic growth, including thermal, nuclear and solar photovoltaic power systems and transmission and distribution networks and will seek to promote mutual development of mineral resources in an effort to secure a stable supply.

Source: EETimes.com

5,000 PEOPLE FROM 24 COUNTRIES BUILD MONGOLIA’S FUTURE IN THE GOBI Deep in the Gobi Desert, in one of the most remote and bleak parts of the world, the most talked-about copper-gold mine in history is going up with remarkable speed. Outside the Oyu Tolgoi mine site, the Gobi is as it always is: Empty landscapes carry on as far as the eye can see, interrupted by the occasional camel herd dotting the countryside. Inside, more than 5,000 people from 24 countries are hard at work, building a mine over a deposit holding an estimated 81 billion pounds of copper and 46 million ounces of gold, and just 80 km from commodity-hungry China. In any country, this would be a monumental project. In Mongolia, with only three million people, this is the most important and controversial capital project in its history, and nothing really comes close. When Oyu Tolgoi reaches full production by 2018, it is expected to make up a staggering 30% of the country‘s gross domestic product. The USD4.6-billion project is also Canada‘s most significant investment in Asia. While Oyu Tolgoi employs workers from all over the world, it is a Canada-led venture: Vancouver‘s Ivanhoe Mines Ltd. is the majority owner, and Canadian contractors like Moncton, New Brunswick‘s Major Drilling and North Bay, Ontario‘s Redpath Mining are doing much of the dirty work on the ground. Ivanhoe, which is made up of stakes in a loosely connected group of resource assets in the Asia-Pacific, has a market value of more than USD13 billion due mainly to the promise of riches at Oyu Tolgoi. Construction of the mine is still in its early stages. But it is going up on schedule, with initial production expected in late 2012. While construction costs look to be ticking higher, they have been kept in check so far. Read more… As investors know, getting to this point has not been easy. Oyu Tolgoi seemed like a pipe dream for much of the past decade. While Ivanhoe‘s legendary leader Robert Friedland travelled the world talking about its amazing potential, many doubted that a remote deposit in a land-locked country they knew nothing about would become a reality. It took years of on-again, off-again negotiations with the government for it to happen, and the mine dominated political discourse in Mongolia over that period. The project is now so big that it has become a litmus test for Western investment in Mongolia, which the government badly wants to attract. ―If we do succeed with this project, it will encourage many other Canadian and international companies to work in Mongolia,‖ says Mr. S. Batbold, the country‘s Prime Minister. Yet the future of Oyu Tolgoi is still cloudy. A dispute between Ivanhoe and joint-venture partner Rio Tinto Ltd. has overshadowed all the progress at the site and made investors nervous. Rio Tinto, a London-based mining powerhouse, has made it clear it wants the biggest piece of Oyu Tolgoi it can get. And Mr. Friedland is not eager to cede control as he tries to raise billions of dollars of financing. It all happened because Ivanhoe decided to drill deeper. The discovery of the Oyu Tolgoi site actually dates back decades. In 1983, local herders told Mongolian government geologist Dondog Garamjav about green-stained rocks they noticed in the South Gobi. He mapped out the area as part of a country-wide exploration program. It became known as Oyu Tolgoi, or ―Turquoise Hill,‖ because of the color of the copper ore in the rocks. By the mid-1990s, Mr. Garamjav was working for Australia‘s Broken Hill Proprietary Co. (later BHP Billiton), which got an exploration license for the area. BHP drilled 23 holes on the property over the next couple of years, and while it found some interesting mineralization, it never hit anything

significant. Its mistake was not looking deep enough, as it was just trying to find shallow copper systems. One hole that was halted for technical reasons came just 30 meters short of hitting the mother lode. Before long, BHP gave up and put the project up for sale. Copper prices were down around US65¢ a pound and the company was cutting back exploration around the world. In March 1999, at a mining conference in Toronto, Ivanhoe executive Douglas Kirwin took a look at BHP‘s drill core and saw potential to expand the copper resources. Ivanhoe bought the property in 2000 and started drilling shallow holes. The results were nothing special, and by the end of 2000, the company had not found anything close to a mineable resource. It was also burning through cash, and the company considered giving up on Mongolia. Project head Charles Foster decided to drill some deeper holes and see what happened. ―The result was incredible,‖ recalls Sanjdorj Samand, vice-president of the project. The drills passed through high-grade copper-gold mineralization that was hundreds of meters thick. It was clear right away that Ivanhoe had made one of the most significant mineral discoveries in decades. And from there, it just kept growing. A scoping study in early 2004 confirmed that Oyu Tolgoi was a world-class deposit, and Ivanhoe began negotiations with the government on a stability agreement covering the project. It turned out to be one of the longest and most protracted negotiations the mining industry has ever seen, and neither side made things easy. Mongolia has a long history of mining, but it was not equipped to deal with a project of this scale. It is, after all, a brand new country that only emerged as a fledgling democracy in 1990 after the collapse of the Soviet Union. It has remained fiercely independent despite being sandwiched between China and Russia, two less-than-democratic neighbors. Mongolians are not fond of either one, especially China. In its first 15 years of democracy, Mongolia enacted liberal mining policies to attract foreign investment, including extended tax holidays. It didn‘t help. Commodity prices were dreadful throughout the 1990s and early 2000s, and little money was coming in. That started to change by 2004, when prices moved up and investors took a keener interest in the country‘s resources. Like many developing countries at the time, Mongolia reacted with a wave of resource nationalism. ―It was a very natural reaction after we had these liberal policies for the first 10, 15 years,‖ says Ms. S. Oyun, a member of parliament and democracy activist. Ivanhoe saw this first-hand. By mid-2004, the company was already saying negotiations with the government were in the ―late stages‖. But at the same time, there were nationalistic forces in government and parliament that were against any type of deal with foreign stakeholders. Other officials were openly speculating about state ownership in the project. Mongolians were also not amused by comments Mr. Friedland made at a conference in 2005, when he joked that the Gobi Desert has plenty of room for ―waste dumps‖. He became a lightning rod for enraged local protestors. No agreement was signed into law, and in May 2006 the process took a huge turn for the worse when the government passed its infamous 68% ―windfall tax‖, imposing a punitive levy even at very low copper prices. The tax, which was an effort by some politicians to meet election spending promises, was a fiasco. It was rapidly voted on and approved on a Friday night when most politicians were not even in parliament, and gave credence to the doubters who wondered if Mongolia would ever forge good mining policy. Ivanhoe shares plummeted. ―It certainly didn‘t help the negotiations,‖ says Mr. Keith Marshall, the outgoing president and chief executive of Oyu Tolgoi LLC, the joint venture tasked with building the mine. ―Also, we were heading into parliamentary elections and change of government. You‘ve got to do these negotiations at the right time, which is really after government is elected and you know who you‘re dealing with.‖ By 2007, Ivanhoe had what it called a ―draft investment agreement‖ with the government, but there was still no sign of parliamentary approval. It ultimately took the most severe downturn in a generation to get things moving. When the economic meltdown struck in late 2008, Ivanhoe went into survival mode and laid off more than half its on-site personnel, going down to about 600 people. It was a wake-up call to the Mongolians that development of the project was not inevitable. In the summer of 2009, the two sides returned to the bargaining table with a renewed conviction to get a deal done. The talks were tortuous, with negotiations lasting until 2 or 3 a.m. every night in the last few weeks. Whether it was taxation, labor quotas or environmental impact, every topic took an enormous amount of time to negotiate. And given the size and scope of the project, most government ministries were involved at some point. The World Bank, a former Chilean minister and countless other experts took part at various stages. A deal was finally signed into law on October 6, 2009. It scrapped the windfall tax and gave the

government a 34% stake in the project with Ivanhoe holding the rest. ―It‘s a pioneering project,‖ says Mr. G. Batsukh, chairman of Oyu Tolgoi LLC. ―Since Mongolia had no experience with anything like this, the government took its time to make sure this could be a template for other strategic mining projects in the country.‖ Ivanhoe had all the development plans in place before the deal was signed, and with the green light given, contractors were able to mobilize fast to get things moving. Within months, the site exploded from about 500 people to more than 4,000. Today, it has moved above 5,600, with Mongolians making up more than 60% of the total. On site, everything is happening on a huge scale. About 3,000 tons of material is being trucked in every day. Foundations are being laid for a massive copper concentrator, and a 14-story pebble crusher already dominates the skyline. One underground shaft is already in operation, and a second 31-story shaft along with an open pit is in development. Exploration is also ongoing; with management all but certain it can add more resources and extend the mine life beyond the estimated six decades. The construction site turns into a raucous party at night, as the Mongolians head to an on-site pub to knock back drinks. Others play basketball or take in an English class, at which they practice their speech and sing a stirring rendition of Love Me Tender, in perhaps the last place in the world one would expect to hear that song. The Chinese workers are not part of the festivities — in a telling commentary on Mongolia-China relations, the Chinese keep to themselves in a separate compound. It is an arrangement that seems preferable for both sides. The festive atmosphere at the site has probably not carried over to Ivanhoe‘s head office in Vancouver, where a dispute with joint-venture partner Rio Tinto has overshadowed progress in Mongolia. When Mr. Friedland signed up Rio as a strategic investor in 2006, it was a perfect match. Ivanhoe needed both capital and a skilled mining partner to develop You Togo; Rio provided both. Rio also gave a stamp of approval to a project that seemed far-fetched to some investors at the time. But tensions have grown during the past several months. Rio chief executive Tom Albanese has made it clear that he is unhappy with the status quo, in which Rio holds a 35% stake in Ivanhoe and Ivanhoe holds a 66% stake in the project. In a perfect world, he wants direct ownership of the mine without having to take over Ivanhoe and acquire its many subsidiary assets. Ivanhoe, meanwhile, needs to raise billions of dollars to build You Togo, but wants to do so on its own terms. The first signs of trouble emerged last summer, shortly after Ivanhoe enacted a shareholder rights plan (or ―poison pill‖) to help prevent a creeping takeover. Rio disputed it and began arbitration. Around the same time, Rio publicly mused about converting its Ivanhoe stake into a direct stake in Oyu Tolgoi, and said it held talks with an outside company (Chinalco of China) about participating in the project as well. It was a strange disclosure from Rio, given that Ivanhoe is the company that controls the deposit. Mr. Friedland responded by terminating a clause that prevented Ivanhoe from bringing in new strategic investors. And most recently, Ivanhoe began a ―rights offering‖ that allows it to raise money without increasing Rio‘s influence in the company. The dispute also extends to the mine, where the two sides have disagreed over how quickly the project should be developed, and how much it will cost. Mr. Marshall, the joint-venture chief, maintains that it is not disrupting work in Mongolia, but he acknowledges that it is a concern. ―When we see they are going to arbitration and we see that they‘re publicly discussing each other‘s tactics, sure it affects everybody on the ground,‖ he says. Mr. Batsukh, who works closely with both companies, calls the dispute a ―disagreement between mother and father‖. ―I don‘t think they want to kill this beautiful daughter they‘re raising together,‖ he says. They don‘t. But it is also clear that the status quo cannot last forever. Both companies want to develop the project as quickly and affordably as possible. The dispute is purely about money, and the rapid progress of Oyu Tolgoi has raised the stakes for both sides. Investors are hoping for a quick resolution that would remove the uncertainty and firm up the project‘s ownership. In Ulaanbaatar, there is no talk about strategic investors or shareholder rights plans. People merely want to know when they will finally see some benefits from a mine that they have heard about for almost a decade. Some hold the view that it is going to fix the country‘s economic problems, particularly its 32% unemployment rate. ―There are unrealistic expectations,‖ Mr. Batsukh says. ―Oyu Tolgoi is a mine; it can‘t solve all the problems the country faces.‖ Of course, there will be benefits: The Mongolian government will receive about 54% of the revenue from Oyu Tolgoi once it begins production. And there will be significant job creation, particularly in the communities near the mine. Ms. Oyun, a former Rio Tinto geologist-turned-politician, says the

biggest risk is bad political decision-making. She wants to see the mining revenues invested in education and health, but worries that a bad call by government, like a repeat of the windfall tax, could undo many of the benefits from Oyu Tolgoi and other projects. ―I‘m very optimistic for the next five or 10 years, but I always put in brackets, ‗Subject to politics,‘ ‖ she says. Mr. Batbold, the Prime Minister, would probably agree. He and his Cabinet recently toured the project with Mr. Friedland, and came away impressed with what they saw. Once the Canadians and the British and everyone else are finished building, it will be up to Mr. Batbold to harness Mongolia‘s massive economic opportunity. Source: Financial Post

OYU TOLGOI TARGETS 90 PERCENT OF WORK FORCE TO BE MONGOLIAN The Human Resources Department of Oyu Tolgoi LLC is busy formulating ways to ensure that Mongolians constitute 90 percent of the work force when production begins in 2013. In September, 100 Mongolian nationals began a 10-month course at Erdenet Technical Training School and another 43 started a diesel mechanic course with Wagner Asia Mongolia at the Mongolian-Korean Technical College. Over the next five years Oyu Tolgoi will invest USD58 million in training and education to prepare the work force for the start of operations, and to support mining operations throughout Mongolia in the future. The signs of this investment can already be seen in the South Gobi capital Dalanzadgad, where the foundation for a new professional training and vocational centre was laid in a ceremony in August. Five vocational training schools in Ulaanbaatar will have their facilities and curricula upgraded. A USD10-million program of scholarships is also being developed, to support Mongolian students at Mongolian universities and abroad. Meanwhile at the Oyu Tolgoi site, on-the-job training programs are helping inexperienced or underqualified workers to improve their skill levels. Of the 5,758 workers now employed by Oyu Tolgoi, 3,741 or 63% are Mongolian nationals, and 928 of them are from the South Gobi province.

Source: OT Newsletter

ARSHAD SAYED LEAVES WORLD BANK FOR PEABODY ENERGY Peabody Energy, the biggest U.S. coal miner, has appointed Mr. Arshad Sayed as president of the group's Mongolia and India unit. Mr. Sayed recently ended a four-year stint as country manager and resident representative for the World Bank in Mongolia. He was with the Bank for more than 15 years. ―Arshad has extensive experience in Mongolia and India, and he brings with him strong relationships in the region that will allow him to advance Peabody's Asian growth initiatives," said Peabody president Richard Navarre. Source: www.miningweekly.com

RIO SPENDS USD3.1 BILLION IN EXPANDING INFRASTRUCTURE Rio Tinto has signed an AUD467-million framework agreement with Milan-listed Ansaldo STS for its rail development in the Pilbara region. The program of works, which would run over five years, would include engineering, systems integration and the technology required to support Rio‘s expansion and operational efficiency projects in Western Australia. In October, Rio announced that it would invest a further USD3.1 billion into expanding its iron-ore infrastructure in the Pilbara region, catapulting its infrastructure capacity to 283 million tons a year by 2013.

Source: www.miningweekly.com

ECONOMY APPROVED BUDGET HAS DEFICIT EQUALING 9.9% OF GDP Parliament passed the draft combined budget late in the evening on November 25, with 79.1% support from MPs present. Some earlier readings had received 97% support, and the reason for the later lack of enthusiasm was not clear, as there were few changes of any real import. The approved budget shows a total deficit of MNT779.5 billion or 9.9% of GDP, 1.3% more than estimated in the original draft that was later revised before final submission to Parliament. The main source of income is from copper export and the average price has been taken as USD8,425 per ton, as against the present USD8,900. If global prices fall, the Government and Parliament would seek an alternative source of income. The price of gold has been estimated at USD1,350 an ounce and that of processed coal at USD98.8 a ton.

The budget income includes MNT163.2 billion to come from Oyu Tolgoi LLC and MNT207.7 billion from the Erdenet factory. Non-tax income would be MNT385.4 billion and MNT69.8 billion will come from the oil exploitation sector. Marine transportation fees will bring in MNT300 million and the Central Bank will pay MNT5 billion. Privatization of state property in 2011 will yield MNT98.4 billion and MNT8 billion will come as foreign aid. The state budget alone will spend MNT737.9 billion, while the original draft had fixed this at MNT600 billion. Both the MPP and the DP supported paying a monthly allowance of MNT21,000 to every citizen. This would require MNT702.5 billion from the Human Development Fund. Paying MNT500,000 as tuition fees for each of 160,000 students would mean MNT102.5 billion more. The Government has included MNT504 billion as revenue without clearly indicating its sources. Read more… Contrary to speculation, the passage of the budget was smooth, with well-orchestrated shuffling back and forth between the full session and the Standing Committee on the Economy. The day began with Parliament going through a second reading of the draft. It was then sent to the Standing Committee for preparation for the third reading. This came back to Parliament at 9 pm, was returned to the committee and finally the full session approved the draft after a fourth reading when every provision was individually put to the vote. The budget expects the economy to grow by 7.5 percent, but warns that a bad winter can hurt the agricultural sector. Manufacturing and service industries are likely to grow beyond 10 percent. Inflation rates from 2011 to 2013 will be within 8-9 percent.

Source: Onoodor, Montsame

THIS YEAR’S BUDGET PREPARES FOR THE ECONOMIC GROWTH TO COME, ASSERTS MP The Chief of the Standing Committee on the Budget, Mr. Ts.Davaasuren, says the recently approved budget of 2011 is special in that it will lead to the beginning of a new period in the national economy. Things will be different from 2012 with large-scale expansion in mining and factories beginning production. The budget prepares for this economic growth and extension. However, even with expenses as high as equaling 52% of the GDP, the budget could not provide the money for construction and infrastructure projects and it has been left to the Development Bank to provide the capital for the railway, the processing factories and the electricity plant. He says the coming year will be a period to implement the Government‘s programs and projects to support economic expansion, strengthen the business environment and the social welfare system. The deficit amounting to 9.9% of the GDP is a matter of concern but there are ways of plugging it. For example, Mongolia‘s long-term debt ratings have been raised to B+ and this will enable the country to raise funds in the international finance market. ―We shall, however, prefer to get the money in the form of advance payment from the operator companies of mining projects,‖ Mr. Davaasuren said. He expected the proposed sliding royalties to net MNT207 billion, and the Stability Fund to provide another MNT183 billion to make up for the loss of revenue following the repeal of the windfall profit tax. Mr. Davaasuren justified the payment of monthly cash allowances by saying ―election promises have to be met, even at the risk of a negative influence‖. He hopes inflation will be under control. However, the price of both flour and rice has increased in the world market and ―we have to be careful‖. Conceding that the budget does not meet the goals of the Government‘s action plan, as pointed out repeatedly during the discussions in Parliament, he said, ―The plan cannot be implemented if we continue with our monetary extravagance.‖ The budget also does not include the allocation to MPs for work in their electoral districts. Source: Ardiin Erkh

MONGOLIA TO SELL BONDS WORTH USD500-USD600 MILLION EARLY NEXT YEAR Mongolia may launch its debut international bond early next year and the deal should total around USD500 million to USD600 million, according to Ms. E. Enkhjargal, chief representative of the London office of the country's Central Bank. "We believe a good size for the bond would be USD500-USD600 million, maximum USD700 million. I think it will be at the beginning of next year," she told reporters on the sidelines of a Mongolian investment conference in London last week. Ms. Enkhjargal, a former deputy governor at the Central Bank, said, "We believe (the yield) will be around 5-6 percent." Mongolia earlier this year shortlisted Deutsche Bank, Goldman Sachs, HSBC, ING and Morgan Stanley as potential lead underwriters for its debut bond. It had indicated earlier that the issuance could be for USD1.2 billion. The Central Bank advised the government to issue a smaller bond, Ms. Enkhjargal said, adding, "USD1.2 billion is too big."

Ms. Enkhjargal also said foreign direct investment (FDI) into the commodity-rich ex-communist country is expected to be USD1.4 billion this year, rising to USD3 billion in 2011. Mongolia received a ratings upgrade to B+ from Fitch last week, while Standard & Poor's rates it BB-. Ms. Enkhjargal said economic growth next year is seen at 8 percent. A senior Mongolian government official told the London conference 2010 economic growth was expected at 7.5 percent. Conference delegates were more bullish. Mr. Kevin Bortz, director of natural resources at the European Bank for Reconstruction and Development, told the conference the EBRD saw Mongolian GDP growth at 9 percent next year. Ms. Enkhjargal said, "We are very conservative at the Central Bank." While conference delegates expressed concern at Mongolia's high inflation rate of 11 percent, Ms. Enkhjargal said the bank is targeting a single-digit rate in 2011. Mongolia's currency has been appreciating sharply -- up 15 percent this year at 1,245 per dollar. Growth in the economy has been driven by Chinese demand, and the Central Bank has been acting to smooth volatility, Ms. Enkhjargal told the conference, with FX reserves at a record USD1.8 billion. "We do not want to see the MNT changing too much over a short period of time," she added.

Source: Reuters

MINING BANS COULD DETER SPECULATORS, SAYS MINING INVESTMENT BANKER Mongolia's decision to revoke hundreds of gold mining licenses has alarmed investors but the government's efforts to clean up its mining sector could have long term benefits, the head of a foreign fund said. Energy and Mining Minister D. Zorigt announced late last month that 254 gold mining licenses would be suspended for violating the country's environmental laws, while another 1,700 licenses would be put under review. The move came after a series of policy changes over the last year aimed at bringing the booming but still nascent industry under greater supervision and control. In April, President Ts. Elbegdorj ordered a halt to the issuance and transfer of mining licenses until parliament passed a new and stricter law. Small and unqualified miners were the main target of the new rules, Mr. Eric Zurrin, chief executive of ResCap, an investment bank active in Mongolia, said. "Too many outsiders were trying to pick up licenses in a bit of a lottery and trade, and you know what that can lead to. These licenses need to be properly explored and well thought through," he said. The gold projects suspended last week were said to contravene the country's new water and forest law, which bans mining activities in water basins and forests. Mongolia, under pressure to develop its economy, has sought to open up its mining sector to foreign investors, but it has already led to a backlash. In September, Mongolian environmental activists armed with hunting rifles opened fire at the site of a gold mine owned by China's Puraam and Canada's Centerra Gold about 100 km north of Ulaanbaatar, which they accused of running roughshod over local environmental laws. But the ambiguities in the legislation are causing uncertainty, experts have said. Mr. Graeme Hancock, senior mining specialist with the World Bank in Ulaanbaatar, has said that the law passed last year did not offer any definition of water basins or forest areas, leaving it unclear what projects would be under threat. "It was a knee-jerk reaction that isn't justified," he said. "The answer lies in creating a sound management framework, not in just trying to ban it. The problem now is that by banning these projects, they will be replaced by ninja miners -- and that is a worse outcome than what they had." Read more… The government has been struggling to find the right mix of policies that will enable it to avoid the mistakes made by other poor but mineral-rich countries, and some of its decisions have caused alarm. A Mongolian-based mining executive said that a policy allowing the government to turn any deposit into a "strategic national resource" was especially worrying. "If the Mongolian government can revoke our licenses with immediate effect and declare the mines to be a strategic national resource, where does that leave us?" he said. Investors said the windfall tax has slowed progress in Mongolia's mining sector. "Potential investors have been focusing on coal," said Mr. Zurrin, referring to a mineral not covered by the tax. "But the interesting one is the copper-gold belt, where very few are looking right now. Because of the 68 percent windfall tax investors just said, 'Forget it, I'll look for coal'." Source: Reuters

MINING LICENSES CAN BE CANCELED ONLY AFTER COMPENSATION, SAY EXPERTS Professional organizations feel that the announced revocation of 254 alluvial gold mining licenses in water basins and forest areas could prove unenforceable if they are challenged in court, as the law on mineral resources is clear that licenses can be canceled only after compensation is agreed upon

and paid. There can be no cancellation before compensation. There is no allocation in the budget for such compensation, so the mining entities can claim to continue with work under their existing licenses. The State Organization of Geology and Mining has thus urged the Professional Monitoring Agency to suspend the licenses, instead of canceling them, so that no further work is done until the issue is resolved. Mr. L. Davaatsogt, Head of the Department of Geology, Mining, and Cadastral Units at the Minerals Resources Authority, has said that their organization has the final responsibility for canceling licenses, and has not yet taken a decision on the Government resolution on November 17 to invalidate 254 gold mining licenses in environmentally sensitive areas. He said four requirements have to be met before they can act according to law. First, the government must define the specific boundaries where the offending licenses breach the law; second, it must also specify compensation procedures and rules; third, it must allocate the compensation money; and, fourth, there has to be an individual compensation agreement with every license holder. Source: English.News.mn, Udriin Sonin

MNCCI CHAIRMAN RUMORED TO BE ON WAY OUT There is a move afoot to replace Mr. S.Demberel as Chairman of the Mongolian National Chamber of Commerce and Industry, a post he has held since 1998. Officials of the Marketing and Management Institute have said there are several allegations against Mr. Demberel misusing his position for personal gain. He is currently in his third term as MNCCI Chairman and has been vocal in demanding a bigger role for the private sector and has often been critical of the Government‘s economic policies. Among politicians and businessmen who have shown interest in succeeding Mr. Demberel are former President N.Enkhbayar, the Head of Ajnai Corp. Mr. D.Bat-Erdene, and the Director of Buyan LLC, Mr. B.Jargalsaikhan. The MNCCI has 700 members in Ulaanbaatar and its branches have a further 300. It works under a law passed by Parliament in 1995 and meets its expenses from membership fees. Members fall into four groups and annual fees range from MNT300,000 to MNT1 million.

Source: News.mn

ECONOMISTS WANT CENTRAL BANK TO BE MORE PROACTIVE The Mongolian National Chamber of Commerce and Industry organized a public discussion on whether the present monetary policy was taking the country backward or forward on its way to economic growth. Among those who participated were the Director of Monetary Policy and Research at the Central Bank, Mr. D.Boldbaatar; MPs N.Batbayar and O.Chuluunbat; and economists G.Purevbaatar, N.Dashzeveg and B.Lkhagvajav. Most of the non-official speakers criticized the monetary policy of the Central Bank. Mr. Batbayar blamed it for money being scarce in the market, and for loan interest rates being high. They complained that the Central Bank took no steps to help entrepreneurs get bank loans on easier interest rates. Businesses in the agriculture and light industry sectors cannot progress because of this. Many of them referred to the fact that the Governor of the Central Bank was not a banking professional and wondered if he understood the finer points of policy making, especially in a country with a small domestic market. Mr. Dashzeveg said the wrong monetary policy followed for 20 years has seen a few commercial banks amass capital but no improvement in macro-economic indicators. In Mongolia, banks have got richer with people‘s savings. They hold on to their money, scaring away customers with their high interest rate, instead of lending more and charging less. The Central Bank should insist that a percentage of the money saved with them has to be lent. The Bank‘s status was also discussed. Most were against it being under the control of Parliament and wanted more independence for it. Some economists felt some Government supervision was necessary, but Mr. Lkhagvajav said this was not feasible as the Government budget amounted to between MNT3 and MNT4 trillion while the Central Bank had to look after the national economy worth between MNT17 and MNT18 trillion. He suggested a Constitutionally defined role for the Bank. After listening to the participants‘ opinions and criticism, Mr. Boldbaatar explained the monetary policy of the Bank which Parliament passed on November 25. He felt the budget would not be good for the economy, with a deficit standing at 9.9% of the GDP and expenses totaling 50% of the GDP. Defending the bank‘s performance, he said the business sector stagnates in Mongolia because the financial market has a weak structure. Source: English.News.mn

COAL EXPORTS RISE 145% Y-O-Y Figures released by the administration in Inner Mongolia reveal that Chinese imports of Mongolian coal in the first nine months of this year were 10.95 million tons, an increase of 145% over the same period last year. At present, China is the only buyer of coal from Mongolia.

Source: Zuunii Medee

COAL TRAIN REACHES RUSSIAN PORT WITHOUT HINDRANCE The train transporting Mongolian coal to the Russian port of Vostochnii has completed its trial run successfully. It took four days to reach the port from the border point without hitch. Infrastructure Development, the company which organized the transportation, carefully monitored the progress of the freight and has said the cost of carrying coal along this route will not be any more than exporting it from a port in China. The saving in time and cost because tracks in Mongolia and Russia have the same gauge, obviating the need to change the wheels of every single wagon if the Chinese railway were to be used, will be enormous when a consignment will consist of up to 8000 tons of coal, it said. Source: Udriin Sonin

GROUP SET UP TO WORK ON ERDENES TAVAN TOLGOI SHARES A working group was formally set up on Tuesday at the order of the Chief of the State Property Committee (SPC), Mr. D.Sugar, along the lines of a Government resolution on Erdenes Tavan Tolgoi LLC. The group will prepare the groundwork for disposal of the company‘s shares and devise the best ways of using the benefits from natural resources. It has already been announced that 10% of the company‘s shares will be distributed free to the people, 10% more will be sold to economic entities and 30% will be sold at stock exchanges. Erdenes Tavan Tolgoi LLC does not yet exist as a legal entity. It is expected to work as a daughter company of Erdenes Mongol which owns the licenses of the strategic deposit mine. An advertisement to select the new company‘s director was published on August 22 and the deadline for receiving applications was 12 noon of September 20. Another advertisement to select the operator company was published on August 31. The Representatives Managing Council should be appointed before the Director‘s selection, but the SPC is silent on when this will be done, except for saying that the committee will have between 7 and 9 members. There are reports that an Australian is likely to be appointed Director. The choice of the operator company appears to be restricted to one German and two Australian companies. The German company is not a large mining company and both Australian companies are subsidiaries of Leighton Holdings.

Source: News.mn

DOMESTIC COMPANIES CLAIM MORE SHARE IN MINING-RELATED WORK The aim of the recent Competitive Mongolia exhibition was to demonstrate that a ―strong Mongolia can be established only by allowing domestic producers, goods and service providers to participate in the grand development of mining in the Mongolian Gobi‖, according to its joint organizers, the Mongolian National Chamber of Commerce and Industry and the Mongol 999 national consortium. A large number of domestic companies in such diverse fields as mining, construction, catering, light industry, brokerage, dealership etc., including small and medium enterprises, participated in the fair, asserting their claim that the present practice of choosing only foreign companies as suppliers is harmful to the national economy as all the profits are exported. According to Mr. L. Ariunbold, Executive director of Mongol 999, domestic industries represent the Mongolian people and, as such, deserve ―strategic support‖ from the government, ―without which, no matter what our capacity is, we cannot succeed‖. He stressed the need for longer-term bank credit on easier terms to support ―Mongolians‘ courage and belief in themselves‖, and for the government to restrict certain areas to only domestic companies. He hoped the recent Memorandum of Understanding signed with officials of the European Council would bring in more capital for Mongolian entrepreneurs to increase their competitiveness.

Source: Onoodor, Zuunii Medee

NO NEED TO IMPORT WHEAT, REASSERTS MINISTER Deputy Minister of Food, Agriculture, and Light Industry Kh. Zoljargal has said the recent outbreak of the foot and mouth disease was the first in Mongolia since 2001, and actually came at a time when the Government was planning to write to the WHO that Mongolia was free of the disease. He guessed the infection had come from antelope which travel to and from China, but did not answer a question on whether ―China had deliberately sent infected antelope across the border‖.

He repeated his conviction that domestic production will meet the entire demand for wheat in the country and said flour mills will be kept busier than ever before. He denied that bureaucratic indifference had forced private companies to import wheat from Russia and explained that at one point Russia was selling wheat at a price cheaper than that of the Mongolian wheat kept in the national reserve. Source: Onoodor

COPPER LIKELY TO PEAK ABOVE USD11,000 IN 2013 A growing production deficit is expected to lift the price of copper through a series of all-time highs and a peak well above USD11,000 per ton in 2013, metals research and consulting firm GFMS has said in its Quarterly Three-Year Copper Forecast report. "The noteworthy deficits the market has seen recently will push the overall market balance for this year into negative territory," GFMS said in a news release on Monday. In the first half of 2011, GFMS sees slower economic conditions briefly tipping the global copper market into a modest surplus. But deficit conditions are expected to re-emerge in the second half of 2011 and should remain over the following two years, as supply struggles to keep up with consumption. In its three-year outlook, GFMS expects a higher price environment will lead miners to boost output, where possible, and secondary supply sources will continue to expand.

Source: Mineweb

INFLATION ADDS TO PRESSURE FOR STRONGER YUAN In the complicated cocktail of policies China has pursued in recent weeks to tackle an unwanted burst of inflation, one ingredient has been missing: a stronger yuan. But economists think that is likely to change. In the past two weeks, the Chinese yuan has barely budged against the U.S. dollar, though it is still up 2.4% this year. The tightly controlled currency is actually slightly weaker than it was on November 11, when official data was published showing China's consumer-price inflation at a two-year high of 4.4%, with food prices surging 10.1%. With inflation already sparking public discontent, the government has been working overtime since then to contain price pressures. While currency policy remains contentious, some observers think the renewed worries about inflation could help shift the balance of debate among policy makers and lead to renewed gains. "In the current situation, with inflationary pressures rising, there may be more people who would support an appropriate appreciation of the renminbi," said Mr. Zhang Yongjun, an economist with the China Center for International Economic Exchanges, a prominent think tank in Beijing. There are also noneconomic factors that could drive China toward continued gains in the currency, notably, the planned state visit by President Hu Jintao to the U.S. in January, the first by a Chinese leader in a decade. "In the months immediately ahead, there could be another round of relatively fast renminbi appreciation against the U.S. dollar" to ease political tensions, said Morgan Stanley economist Wang Qing. While a stronger yuan wouldn't be a cure-all for the recent rise in food prices, it could help lower the bill for China's huge imports of commodities, including iron ore, soybeans and crude oil. A higher exchange rate should also reduce the trade surplus, which would slow economic growth and thus also reduce broader inflationary pressures.

Source: The Wall Street Journal Asia

CHINA ALLOWS FIRST FOREIGN CONSUMER LOAN PROVIDER Home Credit Group, a Czech company operating mainly in Russia and eastern Europe, has beaten some of the world‘s largest financial groups to become the first foreign company to set up as a consumer finance lender in China. The company received a license from China‘s banking regulator this year and formally launched a pilot operation in the eastern city of Tianjin on Wednesday, providing small loans to consumers to buy products such as mobile phones or motorbikes on credit. Although Home Credit has operated in China since February 2008 and has built up a nationwide network of retail stores offering credit products, it was restricted by regulations such as a requirement to partner with local institutions. The average size of the 700,000 loans extended by Home Credit in China this year is just USD270 and it is targeting the 700 million or so Chinese consumers with salaries below USD500 a month. Most of these people lack a credit history and many have never opened a bank account. The company has ambitious plans in China, where it expects to break even by next year and be issuing more than 10 million loans annually within two or three years. Other companies that want to enter the Chinese consumer finance market include General Electric, HSBC, BNP Paribas, Citigroup and

AIG. Analysts say a traditional aversion to credit means older Chinese consumers in particular will be slow to take up offers from consumer finance companies, especially given the high fees and interest rates they charge.

Source: The Financial Times

BEIJING ACTS ON SURGING FOOD PRICES Students rioting over prices in their school cafeteria, local authorities handing subsidies to poor families, and government measures to bring down prices. It all points to one thing: high anxiety over rising food prices in China after inflation hit a two-year peak of 4.4 per cent in October. ―Inflation is the enemy of social stability,‖ says Mr. Hu Xingdou, professor of economics at the Beijing Institute of Technology, who expects inflation could reach 10 to 20 per cent next year, a gloomier view than that of most economists. In the first two weeks of November, the average retail price of 18 types of vegetables rose 62 per cent year-on-year, according to the ministry of commerce. Policymakers have responded with raft of measures to address escalating prices. A series of coordinated announcements over the past week has sought to boost supply – for example by allowing vegetable trucks to travel toll free on highways – and reassure the public that food prices will not keep rising. Government ministries are pitching in. The banking regulator is trying to boost loans to agricultural projects. Representatives of the State Council, China‘s cabinet, are traversing the nation on a food-price inspection tour, and the agriculture ministry is issuing optimistic updates on the planting of winter wheat. China‘s civil affairs ministry has ordered local governments to step up welfare payments to ensure the poor can afford food. Beijing is handing out one-time subsidies of USD15 to more than 220,000 low-income workers. In Shaanxi province, the government has set aside Rmb60 million to help university dining halls cover costs. These efforts, combined with a crackdown on speculation in futures markets, and rising expectations of tighter monetary policy seem to have had their intended effect, with futures for traded agricultural commodities sliding during the past two weeks. While the government appears to have had some success in putting a lid on rising prices in the short term, some analysts warn that structural pressures will make bringing prices down more difficult.

Source: The Financial Times

MANUFACTURING DATA SHOW ASIAN DIVIDE China‘s official measure of manufacturing industry performance rose for the seventh successive month in November, underlining a widening gap between Asia‘s largest economy and much of the rest of the region. The strong performance was underlined by a significant rise in the unofficial but widely watched HSBC Market purchasing managers‘ index for China, also released on Wednesday, which improved at the strongest pace for eight months. The strong Chinese numbers suggest that demand is continuing to improve, in spite of Beijing‘s attempts to slow the economy by raising interest rates and increasing the level of reserves that banks are required to hold as a way of discouraging lending. Figures published with the two surveys suggest that output and export orders are continuing to rise, but are being outpaced by input prices, which moved up firmly. The China figures follow a sharp decline in the comparable manufacturing index for Japan. HSBC‘s PMI indices for South Korea and Taiwan, also published on Wednesday, suggested continuing weakness, although both indicated a slight improvement over October. India said on Tuesday that the economy grew at an annual rate of 8.9 per cent in the quarter to the end of September, which was above expectations. The manufacturing indices reinforce the view that Asia‘s economy is dividing into two camps. Rapid growth in China and India is generating fears of destabilizing asset bubbles, but growth is weaker in Japan and much of emerging Asia, while remaining generally stronger than in the U.S. and Europe.

Source: The Financial Times

DOLLAR RECAPTURES ITS SAFE-HAVEN ROLE The U.S. dollar is recapturing its role as the primary safe-haven currency, eclipsing the yen and the Swiss franc, as tensions in Korea and Europe escalate. That re-emergence as the ultimate sanctuary for those fleeing risk will likely result in continued strength, analysts expect. Turmoil will remain a dominant factor in coming sessions as investors confront three key sources of stress: the rolling sovereign-debt crisis in Europe, the escalating military confrontation in Korea and

the fear of further policy tightening in China. Japan's proximity to Korea, which undermines the perceived safety of the yen, is clearly buttressing the dollar's safe-haven status. But beyond the specifics of this multipronged retreat from risk is the dollar's unique position as the "home" currency for global investors. As the flight from risk intensifies, the more investors will push aside other issues and seek out the perceived safety and liquidity of U.S.-dollar assets.

Source: The Wall Street Journal Asia

PERU SEEKS TO DOUBLE MINING ROYALTIES Peru's ruling APRA party is trying to get a bill through Congress that would double royalties paid by mining companies as part of an effort to lift fiscal revenues in the country at a time of high metals prices. The bill would raise the levy on mineral sales to between 2 percent and 6 percent of the gross sales amount. The range is currently between 1 and 3 percent. At the same time, copper would be charged a royalty of 5 percent and gold 10 percent. In addition to royalties, mining firms in Peru pay corporate income tax and pay a levy based on the amount of mineralized earth they mine. Peru is a leading global producer of gold, silver, copper, zinc, lead and tin. The mining sector generates much of its fiscal revenues and is responsible for about 60 percent of exports. But economists say the government's tax take is relatively low -- equal to about 15 percent of gross domestic product, about half as much as in the United States. Economists say Peru's low tax take has hindered its ability to build infrastructure and provide social programs.

Source: Mineweb.com

POLITICS STANDING COMMITTEE REJECTS OPINION OF CONSTITUTIONAL COURT The Standing Committee on Justice has rejected the opinion of the Constitutional Court, delivered on November 17, that district election committees or the General Election Commission are not the proper authority to decide on election-related disputes. The MPs‘ committee favors carrying on with the present practice and is against giving the court the final say on any electoral dispute.

Source: News.mn

PRIME MINISTER CANCELS VISIT TO BRITAIN Deputy Minister of Foreign Affairs B.Bolor has said the Prime Minister canceled his visit to Britain scheduled to begin on November 27 as he could not leave the country when Parliament was to discuss the budget. This is going to fool no one as the date of the visit had been fixed with the full knowledge that the budget had to be passed before December 1. It has also been suggested that he wants to express Mongolia‘s displeasure at the arrest of Mr. B. Khurts, Chief of Administration at the National Security Council, at Heathrow on September 17 and at the subsequent British refusal to release him despite Mongolian requests. It is difficult to understand why Mongolia should be displeased. After all, the Government has admitted that Mr. Khurts did forcibly abduct a man from French soil, and it is well known European nations value human rights. Can the real reason be that the Prime Minister was afraid the whole affair had given him a bad image and that he would not be able to answer questions in Britain? Official hints that the Prime Minister‘s decision was meant to ―assert our national dignity‖ hide the fact the real threat to this dignity lay in the fact that the Prime Minister would have been paying an official visit to Britain at a time when one of his seniormost officials was in prison there.

Source: Onoodor

MONGOLIA PASSED NORTH KOREA’S MESSAGE TO U.S.: WIKILEAKS North Korea attempted to reach out to the United States through Mongolia in 2009, suggesting that the Mongolians host disarmament talks between Washington and Pyongyang, American diplomats reported in a document obtained by the website WikiLeaks. A Mongolian diplomat passed that information to the U.S. Embassy in Ulaanbaatar after an August 2009 meeting with Mr. Kim Yong Il, North Korea's vice foreign minister, a leaked embassy cable recounts. "There are no eternal enemies in this world," the Mongolian official quoted Mr. Kim as saying. "VFM Kim said the DPRK is spending too much on weapons rather than on its children, but that the current reality dictates that they cannot get away from weapons for now," the cable states, using shorthand for the Democratic People's Republic of Korea. "Kim said the DPRK is not a threat and was only interested in self-protection."

The Mongolian diplomat who recounted the meeting described it as "notable" since the North Koreans "did not read from a prepared script, they were not aggressive and made no criticism of the United States, and they criticized China and Russia 'three or four times' for supporting recent U.N. resolutions aimed at the DPRK," the cable states. The North Koreans repeated their insistence that they would not return to the six-party regional talks aimed at persuading Pyongyang to dismantle its nuclear weapons program, according to the document. As they had in the past, they indicated that they wanted to discuss disarmament and the normalization of relations with Washington in one-on-one talks, which an embassy official suggested could be held in Mongolia, according to the Mongolian diplomat. The cable quotes Mr. Kim as saying that former President Clinton's visit to North Korea "has greatly improved the prospects for such talks". Mr. Clinton had gone to Pyongyang a week earlier to retrieve two American journalists held on charges of entering the country illegally.

Source: edition.cnn.com

MPs WANT TO KNOW MONGOLIA’S GAINS FROM IVANHOE SHARE PRICE RISING MPs S. Erdene (DP), B. Bat-Erdene (MPP), D. Gankhuyag (DP), G. Bayarsaikhan (DP), Ts. Davaasuren (MPP), and Ts. Shinebayar (MPP) have written to Prime Minister S. Batbold seeking information on certain aspects of the Oyu Tolgoi Investment Agreement in circumstances that have changed since the agreement was signed. A part of their letter reads, ―Since the agreement came into force, it has been reported that the price of Ivanhoe Mines JV (sic) shares has shown a tenfold increase, and the company has raised over USD10 billion. We would like to know how this affects Mongolia, and how much Mongolia, as the side which owns 34% of the company that is going to utilize this deposit, stands to gain, complete with interest.‖

Source: Onoodor

MPP HAS 3 KEY POSTS TO FILL The MPP is stuck with finding candidates for three top jobs. Mr. T. Ochirkhuu has resigned as Deputy Finance Minister to head Ulaanbaatar Railway, and the front runners to succeed him appear to be Mr. N. Bayartsaikhan, former MP and now Director of the Department of Budget Policy at the Ministry of Finance, and Mr. Ch. Gankhuyag, an advisor to the Prime Minister. The party would also like to have its nominees to lead the Specialized Inspection Agency and the Constitutional Court, but a choice is not proving to be easy in either case.

Source: Onoodor

JUDGES IN ULAANBAATAR DISTRICT COURTS OVERWORKED Officials of the Ulaanbaatar Court have told media that most judges at the eight district courts under it are overworked. At the end of September the courts resolved 2,095 of the 2,588 criminal cases submitted. The number of cases was 2.5% fewer than in the same period last year, but convictions were 7.8% higher. One judge presided over 216 cases on an average. Similarly, 10,882 of the 18,130 civil cases had been disposed of, with each of the 49 judges resolving 222 cases on an average. The number of violent attacks has increased. Cases of premeditated murder have risen 6.3%, those of unintended manslaughter 33.3%, those of grievous bodily harm 33.9%, rape 18.0%, assaults 1.4% and auto accidents 19.8%. There was no appeal against 90% of the judgments in civil cases, a slight fall from the 91.5% in 2009.

Source: Ardiin Erkh

CHOIBALSAN STATUE ALSO TO BE RECAST IN BRONZE Following the statue of Commander D.Sukhbaatar, that of Marshal Kh.Choibalsan in front of the Mongolian National University will also be recast in bronze. A new stone pedestal is being built. The Ulaanbaatar Civil Representatives Assembly will decide on where the new statue will be put up. As in the case of the Sukhbaatar statue, the original will be preserved as a cultural heritage item. Work on both is expected to be finished this year. A proposal in 2008 to get the statue of Sukhbaatar recast in bronze in South Korea had to be abandoned as the expenses worked out to USD1.5 million. Costs in Mongolia are much cheaper, and expenses on the two together would now be MNT900 million, of which MNT100 million will be needed for the statue of Choibalsan. Kh. Choibalsan was the leader of Mongolia from 1928 to 1952. The ―purge of rightist elements‖ in the 1930s, carried out under his orders, killed some 27,000 people, or 3% of the population. Of them, 17,000 were monks. The capital of Dornod amag is named after him.

Source: News.mn

SPEAKER CALLS FOR EQUAL JUSTICE FOR ALL Parliament Speaker D.Demberel has said it is unfortunate that the feeling is widespread in the country that someone stealing MNT100,000 gets to spend 10 years in jail, but those stealing several billions live in honor and dignity. ―More and more people wonder why it should be like this and conclude that the law does not confer equal rights,‖ he said. He called for ―a national fight‖ against this ―social anomaly‖ where monetary worth influences the course of justice. ―A country is corrupt when laws have two faces, for two sets of people.‖ In today‘s Mongolia, protest against corruption is actually suppressed, he said, adding, ―We have good laws, but those with money power stand in the way of their proper implementation.‖

Source: Onoodor

ALL LEATHER AND WOOL PROCESSING PLANTS TO BE SHIFTED The city authorities have accepted recommendations in a feasibility study conducted by the Ministry for Food, Agriculture and Light Industry on replacing the present Hargia waste water treatment plant with a new one that will use newer technology and have more capacity. MNT1.7 billion will be needed for this and work is expected to begin before the end of the year. It has also been decided to relocate all leather and wool processing units away from the city center, and Mayor G.Munkhbayar has identified 56.5 hectares of land in Khan-Uul district for this.

Source: Onoodor

10 DARKHAN OFFICIALS CHARGED WITH FINANCIAL FRAUD After four days of deliberation, a court in Darkhan has returned a case of embezzlement and misappropriation of State funds against 10 senior officials of the province for further investigation. It is not clear what more exactly the court wants to know as the charges against the accused appear straightforward. These include transactions in the name of non-existent individuals to transfer money to their own accounts, issuing payment orders without proper supporting documents, and ignoring regulations on procurement. Source: Onoodor

COMMITTEE WANTS BAN ON SMOKING IN ALL PUBLIC PLACES The Standing Committee on Social Policy, Education, Culture and Science has approved an amendment to the present law seeking to ban smoking in all public places. At present the ban applies to all forms of public transportation only. Mr. L.Gundalai wondered why taking snuff has been kept outside the proposed ban on tobacco and was told that a survey has shown only 1.8% of the population use snuff as a habit, and also that it causes less harm. The MPs also felt the warning pictures on cigarette packets were not effective and wanted a return to the cautionary words. Members viewed with concern reports of increased smoking among secondary school students. Minister of Health S.Lambaa said schools would soon offer lessons on the harmful effects of alcohol and smoking. Source: English.News.mn

NUMBER OF ENVIRONMENTAL NGOs INCREASES It has been revealed that the number of non-governmental organizations (NGO) in the environment field has gone up from 312 five years ago to 500. The growth has been simultaneous with the expansion in mining in the last few years. A recent workshop emphasized the need to continue with the regular cooperation between government agencies and NGOs in the same field. Their joint efforts have so far led to the adoption of amendments to 10 laws, and passage of 4 new laws and 14 new rules. Environmental NGOs say they want to actively involve private companies and religious organizations to improve ecological awareness among citizens. Source: Undesnii Shuudan

NO STOCK AT ALL OF SNOW MELTING SUBSTANCES As snow piles on the streets and makes them slippery, officials at the Mayor‘s office have found that the planning and service department in no Ulaanbaatar district has followed instructions to always keep in stock 30 tons of snow melting substances. It will be weeks before fresh supplies come, as a tender will be announced only on December 12. It will take some more days before the selected company can bring 140 tons of the substances from China. However, salt and sand are in stock and 40 tons of the former were used in all districts, and 20 tons

of the latter on the roads of Bayanzurkh and Songinokhairkhan districts. About 500 tons of salt is needed annually and the city has 130 tons of it at present. It is planned to sprinkle 300 tons of very small crushed stones in December when sand will no longer be effective, sticking to the snow. Source: Ardiin Erkh

NEW MONGOLIAN LAWS AND REGULATIONS The following new amendment was published in the latest weekly Government bulletin. Unless otherwise decided by Parliament, it will take effect ten (10) days after publication. Date Amendment 25.11.2010 Amendment to Law on Mongolia's administrative, territorial units and their

administrations Please visit BCM's website, Legislative Working Group, for a summary of new Mongolian laws. BCM members who wish to access complete versions of the laws and regulations in Mongolian language are welcome to call or email the BCM office: 332345 or info@bcmongolia.org.

ANNOUNCEMENTS

MINES & MONEY HONG KONG 2011, MARCH 22-25 The 2011 Mines and Money Hong Kong on March 22-25 will be the largest dedicated mining investment event in Asia with the exhibition set to increase by more than 50%. At least 80 exhibiting companies ensure a real showcase for anyone interested in investing in the resource industry. Just under 700 investment and mining professionals attended the event in 2010 and this is anticipated to increase to around 1,000 next year as interest in Hong Kong for the natural resource sector heats up. Mines and Money Hong Kong 2011 will provide networking opportunities for investors and mining companies through the exhibition, new meeting rooms and evening functions. In addition, the two-day conference and add-on workshops and summits allow delegates to get up-to-date information on the market as well as listening to mining companies detailing their investment opportunities. In 2011, either side of the two-day conference, are two separate investment summits focusing on the Indonesian and Mongolian mining industries. BCM is again a Supporting Organization for the Conference and Exhibition and Executive Director Jim Dwyer will be the moderator of the Mongolia Mining Investment Summit on March 25. BCM members receive a 15% discount. More information can be had at +852 2219 0111; info@beaconevents.com. ________________________________________________

MONGOLIAN MINING JOURNAL AWARDS -2010 The Mongolian Mining Journal has announced its annual mining awards in five categories for those working in the mining industry. The selection panel will comprise an MMJ Council, mining professionals, environmental experts, researchers and business management specialists. The choice will be made from among nominations received before December 15, 2010. Any individual or company may nominate itself or others. The reasons for the nomination should be explained in a maximum of four A4 pages. The winners will be promoted through different media, including TV and newspapers. The following are the categories for this year‘s awards: 1. Explorer of the Year: to be given to a person or a company for discovering the most significant new mineral deposit. 2. Mine Development: open to both foreign and domestic companies, which successfully started production, based on completed research. 3. Green Mining: will go to an exploration or extraction company, whose work was followed by successful reclamation to support sustainable development. 4. Best Mining Technology: relates primarily to safety and will go to the company that has implemented safe mining as well as used new technology and techniques. 5. Support for Mining Industry: for the Governmental or Nongovernmental organization or individual

that has initially worked to create better legal and investment environment in mining sector. __________________________________________ “BSPOT" on B-TV, Monday to Friday at 21:30 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.

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“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. ___________________________________________ NEW POSTINGS ON BCM WEBSITE'S 'PRESENTATIONS' AND 'MONGOLIAN BUSINESS NEWS' From last week‘s successful Mining Investment Summit UK 2010 in London on November 24-25, 2010, posted are 15 featured speaker presentations on BCM's website (www.bcmongolia.org) in the "Resource, Presentations" section 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.

SPONSORS

Khan Bank Eznis Airways

Mongolia Web Mongolian National Broadcasting

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]

October 31, 2010 *11.3% [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 – December 2, 2010

Currency name Currency Rate

US dollars USD 1,240.13

Euro EUR 1,617.87

Japanese yen JPY 14.84

British pound GBP 1,932.49

Hong Kong dollar HKD 159.66

Chinese yuan CNY 186.08

Russian ruble RUB 39.42

South Korean won KRW 1.08

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.