BUSINESS COUNCIL of MONGOLIA NewsWire

www.bcmongolia.org info@bcmongolia.org

Issue 209 – February 17, 2012

BCM WOULD LIKE TO WISH ALL OF ITS READER'S A HAPPY TSAGAAN SAR WHILE

NEWSWIRE TAKES A SHORT HIATUS FOR THE HOLIDAY. THE NEXT ISSUE WILL

APPEAR 2 MARCH.

NEWS HIGHLIGHTS:

Business

Junior miners share in Rio‟s glory over Ivanhoe majority purchase;

Mongolian Growth Group to venture into construction;

Centerra reports near 300,000 ounces of gold at Boroo;

SouthGobi Resources opens coal processing plant;

FLSmidth to construct cement plant for MAK;

Coal Mongolia 2012 recap;

Energy Resources head admits to losses due to infrastructure limitations;

Southgobi Resources executive tells all;

Domestic producer showcase at „Made in Mongolia‟ exhibition;

MNCCI declares best investors at Silk Road Awards;

Boroo Gold recognized as top member of MNMA;

Oyu Tolgoi scholarship program invests in skilled workforce for tomorrow;

Cameco outlook sours amid bitter sentiment for uranium;

Rio Tinto carries the Alcan-can;

Leighton Holdings digs hole in Middle East;

Winsway steps into Canadian asset deal.

Economy

Mongolia challenges Australia‟s reign over coking coal market;

Mongolia opens wheat trade with China;

More Government spending, more problems;

Innovative development, investing in health;

Unemployment perpetuates despite greater job availability;

Mongolia as mine-golia pays the price;

Banks strapped for cash as development projects heat up;

Lack of equity poses hurdle for financial sector;

How „Private Equity‟ does it;

Big opportunities for energy export to China;

Another chance to go long the Mongolian tugrug?;

Trafigura Fund strategizes for growth for 2012 commodities market;

Dire headlines but little cause for alarm for Chinese economy;

Appreciating China's shift.

Politics

The disappearing, reappearing HKEx Tavan Tolgoi listing;

Initial E-TT share par value estimated at 60 cents;

Parliament postpones recess;

Vacant ministry positions to be filled in March;

Government workers prepare to declare property holdings and incomes;

Parliament approves USD 300 million loan from South Korea;

MPRP and MRP form political union;

DP commissions working group to investigate mining operations;

Ger district residents take to energy efficient stoves;

Parliament directs more funding towards air pollution;

Government drags its feet with E-TT dealings;

Short on financing, railway network suffers further delays;

Road network to link provinces to UB;

Canadian PM takes a reign check while Mongolia settles government affairs.

*Click on titles above to link to articles.

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BCM MONTHLY MEETING NOTICE

BCM‘s next monthly meeting for members will be Monday, February 27, at 5 pm at the Kempinski

Hotel Khan Palace, 2nd floor, Altai ballroom. Parking will be reserved in front of the hotel for BCM

members.

The bilingual meeting will feature the following presentations:

- Call to order/Business Council of Mongolia: Laurenz Melchers, Chairman, BCM

- BCM report: Jim Dwyer, Executive Director, BCM

- B. Naidalaa, Managing Director, Mongolia Economic Forum NGO –“Mongolia Economic Forum 2012”

- Christopher de Gruben, Managing Partner, M.A.D Investment Solutions – “Ulaanbaatar's real

estate market - opportunities and challenges”

- Philip S. Cargill, Consul, Consul Section of US Embassy in Ulaanbaatar - “US Embassy in

Ulaanbaatar – Consul Section services”

- Elisabeth Koppa, Director, Valiant Art & Interior LLC –“Face the challenge & opportunity”

- Dr. Ch. Khashchuluun, Chairman, National Development and Innovation Committee – “Cluster

Development of Mongolia”

A networking reception will be held for all attendees immediately following the business portion of

the meeting in ―Oasis‖ restaurant, 1st floor, Kempinski Hotel.

BUSINESS

JUNIOR MINERS SHARE IN RIO‟S GLORY OVER IVANHOE MAJORITY PURCHASE

Rio Tinto Group's decision to pay CAD 300 million (USD 299.4 million) to become the majority

shareholder in Ivanhoe Mines Ltd. last month was greeted by investors worldwide with open arms,

but junior minors in Mongolia are also welcoming the Anglo-Australian mining giant‘s latest move as

they expect more global attention to their projects as a result.

By increasing its shareholding in Vancouver-based Ivanhoe Mines to 51 percent, Rio Tinto will

effectively take ownership of the Canadian group's existing investment, including its crown jewel,

the Oyu Tolgoi copper and gold mine. The drama behind Oyu Tolgoi's change in ownership has also

placed Mongolia under the radar of investors across the globe, which is a ―great thing, there's no

doubt about that,‖ according to Igor Kovarsky, chief executive officer of Vancouver-based Kincora

Copper Ltd.

Kovarsky pointed out that the more interest and confidence that investors have in Oyu Tolgoi and

Mongolian investments in general, the more the local government will commit to building up

supporting infrastructure in addition to attracting more foreign capital. Kincora Copper's own

Bronze Fox project is 140 kilometers northeast of Oyu Tolgoi, and the company hopes to have

detailed results of feasibility studies by the end of the year.

Source: BusinessInsider.com

MONGOLIAN GROWTH GROUP TO VENTURE INTO CONSTRUCTION

Mongolian Growth Group (MGG) has decided to focus on larger property assets, having found

disproportionate revenue to time and effort needed for small apartment rentals to expatriates and

nationals in Ulaanbaatar, while indicating an interest in building properties. The company head said

that he is comfortable that the 22-person property team is capable enough to accept more

responsibility while he focuses on larger issues.

―A small residential unit takes just as much management time to administer as an entire floor of an

office building—while providing only a fraction of the revenue,‖ said Harris Kupperman, chief

executive officer and chairman of MGG.

The company found that although expatriates typically pay more for their rentals, since they are

likely to need furnishings, they need too much attention and are likely to leave Mongolia once the

harsh winter comes. The company said this aspect of the business requires too much time and

resources, thus it might be better suited to sell its down-town apartments instead. He added that

larger assets would be easier for lenders to identify to use as collateral as well.

The company plans to begin venturing into building properties, intending to start small and

minimize risks as the firm learns more about the construction industry. For 2012 the company plans

to include additions to existing properties and explore the construction of its first ―de novo‖

structure.

Source: Mongolia Growth Group Ltd.

CENTERRA REPORTS NEAR 300,000 OUNCES OF GOLD AT BOROO

Centerra Gold Inc. has reported a total reserve of 298,000 ounces of gold at its Boroo mine. The

Boroo operation could potentially feed the mill for over two years, utilizing existing low-grade

stockpiles.

―2011 was another successful exploration year for Centerra,‖ said Steve Lang, president and chief

executive officer of Centerra Gold.

Centerra Gold is a Canadian-based gold mining and exploration company engaged in the operation,

exploration, development and acquisition of gold properties in Asia, the former Soviet Union and

other emerging markets worldwide. In Mongolia it has interests at the Boroo and Gatsuurt mines. At

the Gatsuurt project, proven and probable reserves remain unchanged at 1.5 million ounces of

contained gold.

Source: Centerra Gold Inc.

SOUTHGOBI RESOURCES OPENS COAL PROCESSING PLANT

Operations have begun at SouthGobi Resources Ltd.'s dry coal-handling facility at the Ovoot Tolgoi

coal mine.

The plant is to process 9 million tons of run-of-mine coal per year. The facility includes a 300-ton-

capacity dump hopper, which will receive processed coal to feed a rotary breaker and screens that

will size coal to a maximum of 50 millimeters and reject oversize ash.

―The new dry coal-handling facility will improve the quality of our coal and enable us to achieve

better consistency,‖ said Alexander Molyneux, the President and Chief Executive Officer. ―It

represents the first step towards more integrated processing at Ovoot Tolgoi, which will create

more value than mining and selling raw coal.‖

The plant will be upgraded in 2012 to include dry air separation, as well as covered load-out

conveyors with fan stackers to transfer processed coals to stockpiles that will enable blending.

Source: Marketwire

FLSMIDTH TO CONSTRUCT CEMENT PLANT FOR MAK

Danish engineering group FLSmidth & Co. will supply a cement plant to Mongolia for about EUR 86

million (USD 114 million).

FLSmidth will deliver all the equipment, engineering and commissioning for the cement plant,

which will have a capacity of 3,000 tons per day, the company said.

―The order will contribute beneficially to FLSmidth's earnings until 2014,‖ FLSmidth said in a

statement.

The Greenfield plant for the Mongolyn Alt Group (MAK) will be located about 300 kilometers from

the Mongolian capital.

Source: Reuters

COAL MONGOLIA 2012 RECAP

Infrastructure was the word on everyone's tongue at

the Coal Mongolia 2012 event last week in

Ulaanbaatar. This year saw 1,703 participants from

250 companies from 25 countries at the annual

event held to promote investment into Mongolia's

coal sector, and encourage discussion and

cooperation within the sector community.

Highlights from government speakers include talks

by Ch. Khashchuluun, chairman of the National

Development and Innovation Committee, discussing key indicators for the macro economy; and B.

Enkhbaatar, the World Bank's director of mining infrastructure investment, who discussed the key

challenges facing the development of Mongolia's rail system, which included integrating regional

infrastructure policy (the hitch is energy and rail policies are separate), negotiating infrastructural

development with the private sector, expanding border capacity, and strengthening the currently

vague legal environment with mechanisms for the enforcement of policies.

Enkhbaatar explained that a limitation of the rails that would not allow for heavy loads of coal is

another challenge for the outdated Soviet-era rail system. China's cooled interest in developing the

Erlian border port, which resides on Chinese soil, has caused further delays.

From business the most anticipated speakers were from General Electric Co. (GE), Trade and

Development Bank of Mongolia (TDB), and Erdenes-Tavan Tolgoi (E-TT). TDB president Randolph

Koppa had the biggest surprise, having announced the 4.8 percent investment in his company by

Goldman Sachs Group Inc.

For B. Enebish, the head of E-TT, and Ts. Tumentsogt, GE's chief representative, the conversation

turned back to infrastructure. In addition to GE's partnership with Newcom Group to develop the

Salkhit wind farm, it also would like to be involved in the development of Mongolia's rail

infrastructure. Enebish said the lack of infrastructure would likely affect the float of shares. The

limited capacity at the border point also has the company settling with transporting only about half

of the one million tons of coal extracted thus far. For 2012 the company plans to extract up to 4

million tons.

Source: BCM

ENERGY RESOURCES HEAD ADMITS TO LOSSES DUE TO INFRASTRUCTURAL LIMITATIONS

The head of Energy Resources LLC, G. Battsengel warned that Mongolia's present infrastructure is

causing Mongolia's mining industry to lag behind its competitors during his presentation at the Coal

Mongolia 2012 forum. He said while Mongolia continues to hesitate on building up its railway

infrastructure, Russia is already putting rails in place to sell its own coal.

―In order to sell Mongolian coal, we have to discuss the problem with Russia and China to cross their

country on the government level,‖ said Battsengel, Energy Resource's executive director.

The executive said a main objective for the firm was to begin selling processed coal for better

profits. The company has exported 20,000 tons of coal to Japan through Russia at USD 280 per ton,

USD 170 of which is lost in transportation costs. Comparatively, coal sold to China is priced at USD

120 a ton with only USD 10 a ton lost from transport.

Battsengel added that the government has issued documents for the construction of railways, but

implementation has had problems.

―However,‖ said Battsengel, ―we understand the complexity of the problem. It is a really time

consuming job.‖

Source: Undesnii Shuudan

SOUTHGOBI RESOURCES EXECUTIVE TELLS ALL

SouthGobi Resource Ltd.'s chief executive officer Alex Molyneux spoke in depth about his company,

discussing how he plans to raise profits, possible good news about the potential of the Soumber

mine, and why he thinks SouthGobi Resource is undervalued.

The Canadian firm, which mines some 45 kilometers away from the Chinese border, is a coking coal

exporter that plans to be exporting 10 million tons of coking coal before the end of 2015. With a

supply of 535 million tons of coals resources, its mine has a projected lifespan of at least 25 years.

Molyneux said 2011 was an important year for his firm because it was able to reach its target of 4

million tons in sales and made headway into expanding the capacity at the Ceke border for greater

export. While seaborne coking coal demand fell this year, the demand, and prices, for dry-land-

based coking coal remained steady. Although operations are smooth at both the Soumber and

Ovoot Tolgoi mines, said Molyneux, he hinted that there might be a big surprise in store for

Soumber in particular.

―It's possible that Soumber will be a bigger mine that we expected,‖ said Molyneux. To give an idea

how much larger, he added, ―It's hard to say, but we're excited about what we're finding. ―As we

prove up additional tonnage at Soumber, we can either extend the projected mine life or increase

annual production.‖ He said he thought extending the life of Ovoot might be possible too.

Making the most out of the company's product being a major priority, the chief executive explained

the different value-adding processes the company plans to introduce to bring an addition USD 7.50

per million tons. Those would be on-site dry crushing and screening to begin by the end of the

month, and third-party wet washing in China starting in March. He also explained how new rail spurs

would reduce the extent the customers of his company rely on trucks and reduce trans-loading of

coal back and forth from the train to the trucks for better efficiency. These infrastructural aids

could bring USD 25 to USD 30 in savings per million tons, he said.

―There's a finite number of well-positioned, established mining companies that are located in highly

desired geographies and are selling highly sought after commodities,‖ said Molyneux. ―We're one of

them.‖

Read more…

Confident in the value of his company, Molyneux compared SouthGobi Resources to Macarthur Ltd.,

which was bought up by Peabody Coal Corp., and Riversdale Mining Ltd., acquired by Rio Tinto

Group. He said all three companies have had similar sales performance and expectations by

analysts. Given the whirlwind of merger and acquisition activity in the mining sector, he said he

thought it odd that there has been no ―discernible takeout premium‖ in SouthGobi Resource‘s share

value.

Source: Seeking Alpha

DOMESTIC PRODUCER SHOWCASE AT „MADE IN MONGOLIA‟ EXHIBITION

The ‗Made in Mongolia‘ exhibition at the Misheel Expo Center had over 180 individuals and private

companies with around 800 product brands taking part in the exhibition.

At the event were 41 companies from the food industry, 21 for wool, 28 for skin and hides. There

were also vendors selling jewelry and medicinal products. Some retailers had reduced their prices

by as much as 30 percent for the event.

―The ultimate goal of this exhibition is to show people the current progress of Mongolia's domestic

producers, and develop the domestic market by providing more information about domestic

production,‖ said Ts. Nyam-Osor, director of the Small-and Medium-Sized Enterprises (SME)

organization.

He added that an additional benefit was to provide people with discounted products just before

Tsagaan Sar, Mongolia's lunar New Year celebration.

Meeting domestic demand before exporting their products was a major priority, said Nyam-Osor. He

said his organization has spent at least USD 20 million on imports for dry milk and vegetable oil.

Source: UB Post

MNCCI DECLARES BEST INVESTORS AT SILK ROAD AWARDS

At the Silk Road Awards Mongolia recognized the efforts by foreign organizations, programs,

projects, and foreign-invested companies working for development here. Held once every two

years, the event is hosted by the Mongolian National Chamber of Commerce and Industry (MNCCI).

Highlights include the selection of Mongol Altan Tos Co., Ltd. as ―Best Investor and Introducer of

Advanced Technology in Mongolia,‖ and Sankou Solar Mongolia Co., Ltd. as ―Best Green Investor.‖

Mobicom took ―Best Socially Responsible Investor‖ and Oyu Tolgoi LLC took ―Best Investor on

Creating Employment.‖

Source: MNCCI

BOROO GOLD RECOGNIZED AS TOP MEMBER OF MNMA

Boroo Gold LLC was awarded as "Best Member of the Mongolian Mining Association for 2011" by the

Mongolian National Mining Association (MNMA).

The company has attributed its popularity within the mining sector to the implementation of its

standards in the general mining community.

"The Boroo employees are the people who most succeed in habituating safe operations among its

permanent and contractor staff and operating without the loss of human life since founded," said

the company.

In its code of ethics the company names objectives such as transparency, multi-stakeholder

participation, environmental and human safety, and benefits to Mongolia. With the award, the

MNMA recognizes Boroo Gold's efforts to develop safe and responsible mining in Mongolia as a leader

in the industry.

Source: Udriin Sonin

OYU TOLGOI SCHOLARSHIP PROGRAM INVESTS IN SKILLED WORKFORCE FOR TOMORROW

Oyu Tolgoi LLC has agreed to and signed a memorandum of understanding with the Ministry of

Education, Culture and Science to develop a training program as a part of its larger effort to

support education.

The company responsible for one of the world's largest gold and copper mines has launched a

student scholarship program to support education in mining engineering, mine operations, and

environmental studies. The company will sponsor the education of 120 students attending Mongolian

universities and 30 students at international universities. Additionally, the company is offering

internship opportunities for students majoring in the aforementioned studies.

The program has selected E. Enkhtaivan, a third year student from Otgon Tenger University, as the

best performing student from its staff of interns at an annual award ceremony by the Mongolian

Youth Federation honoring the achievements of students. Each year students are selected from a

pool of the nation's 70 best performing students at various universities. Students are selected based

on the criteria of a minimum 95 percent grade point average for three consecutive quarters and

having performed outstanding work in the fields of economics, social science, medical science,

linguistics, and technology, in addition to active participation in the community.

"Oyu Tolgoi's objective is to select interns and scholarship recipients from students who are key

pillars to the future development of Mongolia based on academic achievement, social participation,

initiative, and future perspective to contribute to the Mongolian mining sector in the long term; and

boost enthusiasm and the future confidence of the students," said Cameron McRae, president and

chief executive officer of Oyu Tolgoi.

Source: Montsame

CAMECO OUTLOOK SOURS AMID BITTER SENTIMENT FOR URANIUM

Uranium producer Cameco forecast lower sales and highlighted doubts about the takeup of nuclear

power in its stronger than expected quarterly results, and its shares edged lower on Friday, in line

with the overall market. Cameco owns a subsidiary exploration company in Mongolia‘s emerging

uranium market.

On the positive side, the Saskatoon, Saskatchewan-based uranium producer reported a 29 percent

increase in quarterly earnings and a 45 percent boost in revenues, late on Thursday. Quarterly sales

volumes hit their highest level since the fourth quarter of 2006, with full-year sales heavily weighed

to the final quarter. But Cameco, the worlds‘ number one publicly-listed uranium producer, also

lowered its 2012 uranium production outlook by 3 percent to 21.7 million pounds and said delays

and cancellations after last year‘s Fukushima nuclear disaster could hit prices.

Germany, which represents about 5 percent of the global market for uranium, plans to phase out its

reactors by 2022. Japan shut down most of its reactors for testing after the March 2011 earthquake

and tsunami that crippled the Fukushima Daiichi power plant, and is expected to take its remaining

three reactors offline for maintenance in the next few months.

In the long term, Cameco sees uranium demand gaining strength as construction of new reactors in

China outweighs the decommissioning of plants in Japan and Germany. China has some 27 reactors

under construction and plans to boost its nuclear output to 80 gigawatts from 11 gigawatts within a

decade. Cameco also plans to boost uranium production to 40 million pounds a year by 2018.

Source: Reuters

RIO TINTO CARRIES THE ALCAN-CAN

Rio Tinto, an indirect stakeholder in the Oyu Tolgoi copper-gold project, has been forced to write

off another USD 8.9 billion from its Canadian aluminum business Alcan, bringing total write downs

to half of its initial USD 38 billion investment in 2007. This turn of events is a timely reminder of

how badly wrong-mega deals can go in the mining sector.

Rio has offered investors an olive branch with a 34 percent dividend hike, despite a 59 percent fall

in full-year earnings. But it's not planning any more share buybacks beyond the current program due

to end in March. Chief executive Tom Albanese said the world is now a more ―somber, sober place‖

than when he sanctioned the Alcan deal. Rio's aluminum business has suffered from persistent

industry over capacity, driving down prices.

Even in iron ore, rising expenses are biting into earnings, rapidly reducing any benefit from higher

commodity prices—a trend other miners are suffering too. Despite this, Rio is confident enough in

emerging market demand for commodities to raise the dividend. But since Albanese took over at Rio

Tinto in May 2007, the company has provided investors with a 64 percent total return, compared

with BHP's 113.5 percent, highlighting their divergent performance.

Looking ahead, Albanese noted that growth in demand for aluminum remained strong, adding,

however, that the industry had been running surpluses for the past five years. He said that Rio was

working diligently on improving the performance of its aluminum business, and completed a

strategic review during 2011. Despite the uncertainty in the global economic markets, Rio would

continue with its investment in its high reward project portfolio, while also tackling cost issues. He

added that growth in excess of 8 percent in 2012 in China continued to underline the company‘s

expectations of a ―soft landing‖ the Chinese market.

Source: Wall Street Journal, Mining Weekly

LEIGHTON HOLDINGS DIGS HOLE IN MIDDLE EAST

Leighton Holdings Ltd. has lost AUD 154 million in the six months to 31 December. The construction

company, which has a major presence in Mongolia through the mining services firm Leighton Asia,

said it expects to collect only about half of what it has owed in outstanding contracts in the Middle

East over the next two years. Over the course of the past year, it has written down the value of its

Al Habtoor Leighton Group joint venture by 55 percent, or AUD 466 million. Worse still, Leighton

Holdings has disclosed a potential violation of Australian law over work-related payments in Iraq.

Despite these matters, Leighton Holdings' management is pouring more cash—and effort—into the

region. The firm, which has a market cap of about AUD 7.7 billion, said this week it extended an

additional USD 127 million of funding to the joint venture. The total investment will reportedly

reach AUD 1.25 billion. Management also said new work in the Middle East is one of its top priorities

for 2012. However complications due to the so-called "Arab Spring" call for democracy in the region

and a slow down for construction in the region will make that a difficult pledge to keep.

Leighton Holdings must find more fertile ground closer to home. Australia's mining boom is fueling

construction activity and the company is well-placed to reap the benefits. Leighton Holdings said

the total value of construction in Australia by the private sector could be almost USD 800 billion

between 2012 and 2016. Beyond that, projects in Mongolia, as well as Hong Kong, and India offer

promise too.

Source: Wall Street Journal

WINSWAY STEPS INTO CANADIAN ASSET DEAL

Winsway Coking Coal Holdings Limited has entered into a deal with Marunbeni Corporation to

acquire all of the shares of Grande Cache Coal Corporation.

The joint venture, 60 percent owned by Winsway and 40 percent by Marubeni, has received

approval from the Ministry of Industry in Canada for the arrangement under the Investment Canada

Act. The official said he was satisfied that the deal would benefit Canada.

Winsway was the largest offtaker of Mongolia coal in 2010. Winsway has procured approximately

some 11.5 million tons of coal between 2008 and 2010. It has cooperated with Mongolia-based

suppliers since 2006.

Source: Winsway Coking Coal Holdings Ltd.

ECONOMY

MONGOLIA CHALLENGES AUSTRALIA‟S REIGN OVER COKING COAL MARKET

Despite a decline in coking coal prices spurred by a market surplus, a variety of new projects and

market expansions will continue to swell global supply for the foreseeable future. Australia and

China are current heavy weights to the supply and demand game, but Mongolia may arrive as a third

contender (for supply) once the Tavan Tolgoi coal projects ramp up to sell to China and beyond.

Fortunately for coking coal producers, China returned to the market last year. The pace of imports

was somewhat slow in the first half but fairly strong in the second half. Yet an increasing portion of

China‘s imports—as much as half—is now coming from producers in neighboring Mongolia. Although

many industry observers are assuming that most or all of Mongolia‘s coking coal production will find

its way to China, Gerard McCloskey of McCloskey Group thinks differently.

―I have already seen one cargo [of Mongolian coking coal] go all the way up into Russia,‖ he said,

adding that Japanese interests are also getting involved in the land-locked country. ―I think we will

see Mongolian coal reach the sea… I think it will go to more markets.‖

China remains key to iron-ore demand, in part because demand in other markets is weak, especially

in Europe. If all but one European steelmaker (Arcelor Mittal) closed down, there would still be 14

percent overcapacity in the regional market, McCloskey said.

Despite the looming oversupply picture, many new players are waiting in the wings. Projects are in

various stages of development in regions as varied as Mongolia, Indonesia, Mozambique, Russia, and

Canada. The volumes these projects are likely to produce are expected to be relatively modest, and

much of it will not be a factor until the next decade, McCloskey said.

Australia is likely to continue to dominate the industry, however. McCloskey indicated that while

major producers are not likely to launch new coking coal operations if they think it would disrupt

the market, a number of projects are already in progress.

Source: ResourceInvestor.com

MONGOLIA OPENS WHEAT TRADE WITH CHINA

Mongolia has agreed to export 100,000 tons of wheat to China this year, said G. Gantulga, the

Minister of Finance.

Mongolia harvested some 430,000 tons of wheat this year, with 240,000 stored in reserves for a fund

to support agriculture, said Gantulga. With current prices stable, the government could declare a

surplus of wheat to sell abroad.

The minister said the agreement to sell 100,000 tons of wheat to China would aid the agriculture

sector as well as begin an effort to help feed the world. The minister admitted that the return for

the government would be very low, as the country buys wheat wholesale for MNT 350,000 a ton

from farmers to later sell abroad at MNT 400,000.

Source: Undesnii Shuudan

MORE GOVERNMENT SPENDING, MORE PROBLEMS

Although government may be aiming to reduce poverty with its furious spending habits, it may

actually be exacerbating the problem, said Steven Barnett, the International Monetary Fund‘s

(IMF‘s) Assistant Director for Asia and the Pacific.

Government spending increased 60 percent last year, resulting in more money in the hands of

people and more spending, said Barnett. Foreign companies benefit most, as most people are

buying imported products. For Mongolia, it only means higher inflation, he explained.

―The reason is when there‘s a 60 percent increase in spending, there cannot be a 60 percent

increase in domestic production, and you can‘t have 60 percent more restaurants or cafes. That

demand has to fall on some combination of people importing goods from abroad and higher prices

at home.

Barnett pointed to government handouts as a prime instigator for inflation. He said the best thing

for a government to do in many cases is to separate economics from politics, specifically monetary

policy. Opposition from the IMF allowed the 2012 budget to pass with reduced yet more

expenditures than the IMF would have liked. However, Barnett did mention decisions by

government to be happy about. He said the Fiscal Stability Law, a law to cut state spending

proportional to government revenue to take effect in 2013, is a huge change in attitude towards

state spending.

Currently the government is borrowing money from future mining profits to pay for cash handouts,

and this law would be the best defense against this from continuing. The economic debt crisis in

Europe and economic instability in the United States threatens to result in price falls for mining

commodities if growth slows, so to borrow from profits not yet received on current market trends is

risky.

Source: UB Post

INNOVATIVE DEVELOPMENT, INVESTING IN HEALTH

As Mongolia sits on the verge of a resource-related boom, government officials are hoping the

Human Development Fund (HDF) can channel revenues from mining projects to health and

education. D. Zorigt, the minister of minerals resources and a leader the HDF working group, told

local media in January that the fund is for building wealth for future generations and to bring

vulnerable social groups such as students and herders under the government's umbrellas of health

insurance.

―Mining and infrastructure are important,‖ said Zorigt. ―But more important is the development of

health, education, social insurance and a place to live. The money in the fund will be invested in

these.‖

Parliament endorsed the National Development Strategy in 2008 aiming to raise the country's human

development status to that of developed countries by 2020. Initial capital for the fund was drawn

from the Oyu Tolgoi copper and gold mine project, with the USD 2 billion Tavan Tolgoi coal project

to be an additional source.

The HDF will allocate MNT 128,000 to every citizen, with an additional MNT 1 million to go to senior

men and women, as well as the disabled. The government has directed MNT 9.3 billion from the

fund toward attracting new members to the country's health insurance scheme. As the world's least

densely populated country, Mongolia faces unique challenges for health care provision. As of 2009

there were 2.57 physicians per 1,000 heads in urban areas, with 2.75 physicians per 1,000 heads in

rural areas. The country then had 16 specialized hospitals, four regional diagnostic and treatment

centers, 17 provincial general hospitals, 12 ger district general hospitals and six rural general

hospitals.

While Mongolia's HDF has the potential to vastly contribute to the nation's well being through

improving health services, exactly where funds are to be allocated will continue to be a divisive

political issue, with implications to parliamentary elections this year, as well as presidential

elections in the next. Improving the long-term capacity of the country's health sector, however,

could prove a prudent way to invest the mining sector's forthcoming wealth back into the country.

Source: Oxford Business Group

UNEMPLOYMENT PERPETUATES DESPITE GREATER JOB AVAILABILITY

A study by the Central Labor Exchange has reported 10,000 vacant positions in the country and

projected growth of 7.4 percent, or 47,000 new jobs, by June. Despite these projections, a lack of

skills and qualifications among the country's workforce shows little reason for optimism for the

unemployed.

Commissioned by the Ministry of Social Welfare and Labor, the agency has conducted a study to

measure employment between 2011 and 2912. However, these projections may be more related to

positions without any currently qualified applicants. Efforts to find qualified people for the

vacancies related in the studies usually brings few results, said the report. Difficulties usually stem

from bad attitudes toward work, poor qualification, an inability to manage large workloads,

inconsistent work habits, poor responsibility and discipline demonstrated by workers, insufficient

abilities in foreign languages, inexperience or lack of skill with specialized equipment, and workers

unwilling to accept the salaries offered, said employers.

Data regarding unemployment has shown varying levels of education. It found 38.2 percent of

unemployed have only a secondary education, and 22.9 percent without even a secondary

education, and the lowest portion at the highest bracket with higher education. The study

attributes unemployment among educated people as related to a lack of communication skills,

computer literacy, skills in foreign languages, and an ability to work in teams.

Currently 47,068 Mongolian citizens are actively looking for employment, while another 10,640 have

been registered at the Central Labor Exchange. There are about 50 public and private organization

cooperating with the agency, of which more than 20 are engaged with labor mediation.

Source: Udriin Sonin

MONGOLIA AS MINE-GOLIA PAYS THE PRICE

There are two dueling worldviews concerning the effect the mining industry is having on Mongolia.

While environmental groups anticipate dire repercussions, proponents of the mining boom contend

it will result in great wealth for the country.

The potential environmental troubles on the open steppes, the site of much of the mining activity,

are mirrored by the dwindling of the country's forests, reported the World Bank. Ts. Munkhbayar, a

herder and environmental activist, and his environmental organization has sued the government for

failing to protect watersheds and forests as required by a 2009 law. Last fall the highest court ruled

that the government must enforce its environmental laws.

Yet the chief executive of E-TT has emphasized that the company will pass out shares to all

Mongolians when its initial public offering (IPO) is made this spring. The economic victories and

machinations around the country's mining bounty are reflected a bit more straightforwardly in daily

reports from the Mongolian Metal Exchange or the Business Council of Mongolia. The latter‘s Web

page has been buzzing with the news of the final steps in consolidation of control over the Oyu

Tolgoi mine and its gold and copper deposits by Rio Tinto Group.

At least one group, the Zorig Foundation, has tried to promote a future that is not a wasteland

environmentally or economically through its work with the Oyu Tolgoi LLC scholarship program.

While offering scholarships abroad for studies concerning the mining industry, it also aims to

identify and curb government corruption, which has been exacerbated by the mineral boom.

Source: New York Times

BANKS STRAPPED FOR CASH AS DEVELOPMENT PROJECTS HEAT UP

While the rest of the world talks about monetary easing, in Mongolia there is a credit crunch. Gross

domestic product (GDP) growth in excess of 15 percent last year has sparked fears of overheating

and inflation concerns that have prompted the government to tighten monetary policy. As a result

banks have faced a liquidity crunch since last autumn and commercial loans are hard to come by in

Ulaanbaatar these days.

Raised capital adequacy ratios and interest rates have come in a bid to cool inflation, which has

become a hot political issue with parliamentary elections coming up this summer.

―The banks are out of money now,‖ said Peter Morrow, former chief executive of Khan Bank.

―Liquidity was very high a year ago, but it's been burned up because there is such high growth and

high lending.‖

Bankers and analysts in Ulaanbaatar believe that in the current climate Mongolian banks will

increasingly look overseas for capital. Right now the banks have foreign liabilities of around 8

percent, but that is expected to increase as banks go abroad to issue bonds.

―Banking assets to GDP are around 87 percent, so one might get the impression that banks are well

capitalized,‖ said Sardor Koshnazarov, an economist at Eurasia Capital.

He said that the numerous mining projects, infrastructural developments and urbanization programs

taking off will require substantial investment, which would not be available from the banking

sector. However some foreign banks such as Goldman Sachs Group Inc., who recently purchased a

4.8 percent stake in Trade and Development Bank of Mongolia (TDB), have already begun testing

the market.

Source: Financial Times

LACK OF EQUITY POSES HURDLE FOR FINANCIAL SECTOR

Following rapid economic growth and numerous proposals for development, Mongolia's banking

sector is rapidly attracting international investors. Although the financial sector is considered one

of the most geared to Mongolia's rapid economic growth, fueled by the development of its world

class mineral resources, banks will need greater capital if they will be able to keep up.

Investors from Japan, Russia, the United States, and the United Arab Emirates have already arrived,

representing about a third of Mongolia's banking sector. The recent 4.8 interest investment in Trade

and Development Bank of Mongolia (TDB) by Goldman Sachs Group Inc. will provide a needed

capital injection of up to USD 30 million in liquidity to one of Mongolia's top three banks during this

period of economic growth and high loan demand.

The Mongolian banking sector expanded at a record rate of 50.1 percent in 2011, with total net

earnings exceeding USD 130 million. Assets surged to USD 6.7 billion and the bank assets to gross

domestic production (GDP) ratio reached the new high of 86.5 percent. Current accounts and

deposits grew to USD 4.1 billion thanks to increasing disposable income and corporate profits as

well. Expanding businesses fueled lending growth with total loans outstanding increasing 73.4

percent to USD 4 billion. The source predicts growth in the banking sector to expand by about 30

percent year-on-year (y-o-y) in 2012. It said banks will need sources to long-term capital on

international markets to compensate for their current shortcomings. Domestic banks still do not

have the capital needed to finance the upcoming large-scale mining, infrastructure and housing

projects. XacBank plans to issues USD 150 million worth of Euro-medium term notes in Singapore in

2012, while Khan Bank and Golomt Bank may also turn to international markets later this year.

Source: Eurasia Capital

HOW „PRIVATE EQUITY‟ DOES IT

With banks currently unable to meet growing demand to finance a number of large resource

projects, Mongolia is ripe for ‗Private Equity‘ (PE). Looking at how firms are making due now may

provide some insight into how companies could enact the same strategies in Mongolia with two

resources known to exist here: shale and oil.

A deal earlier this month for a Gulf of Mexico oil producer offers a revealing glimpse into how PE

firms make money in the oil patch. SandRidge Energy Inc. agreed this month to pay nearly USD 1.28

billion in cash and stock for Dynamic Offshore Resources LLC (DOR), a private-equity-backed oil

producer. But before that deal had been struck, Dynamic hand been laying groundwork for an initial

public stock offering.

For this sort of scheme, PE firms often hire advisers for stock offering preparations and others to

look for a buyer. The goal for Riverstone Holdings LLC, the founding firm of DOR, was to combine

castoff Gulf of Mexico fields from which additional output could be squeezed. Now investors are

coming away with collective profits exceeding USD 880 million.

Advances in drilling techniques have made it easier to extract oil and natural gas from shale,

creating an opening for private-equity firms to place big bets. Firms can employ large sums of

capital for quick work to create large returns, but shale drilling is relatively new, which adds a bit

of uncertainty to the equation regarding the lifespan of wells. While those just entering now are

paying more for their late arrival to the game in the United States, exploitation of shale in Mongolia

is still largely untested and uncharted.

Volatile commodity prices make it hard to use debt in these investments, something private-equity

firms use to their advantage. The case of Laerdo Petroleum Holdings Inc. where it raised about USD

300 million in an initial public offering (IPO) to see shares rise 48 percent is an example of how the

gamble can pay off. There, Warburg Pincus LLC, the holding company behind the deal, took its

stake form USD 1.7 billion to USD 2.6 billion.

Source: Wall Street Journal

BIG OPPORTUNITIES FOR ENERGY EXPORT TO CHINA

Although Mongolia has taken steps to move towards alternative energy sources, coal-fired power

plants still provide the majority of power generation in Mongolia. The seven plants in Mongolia have

a total power capacity of 580 mega watts. The development of new coal-fired power plants should

still be a priority for the country. In addition to coking coal, Mongolia has a large supply of thermal

coal. Its demand for power necessitates that Mongolia develop new thermal coal power plants,

while its proximity to China, coupled with Chinese demand, also creates an opportunity for

Mongolia to export electricity rather than raw materials.

Since moving from a communist state to a democracy in the early 1990s, Mongolia has been moving

toward fully embracing a free-market economy. The Mongolian government facilitates a pro-

business environment through secure business practices, low taxes, and encouragement of foreign

direct investment (FDI) and trade with few limitations for the flow of capital across the border.

According to the Coal Industry Association of Mongolia, almost 100 percent of Mongolian coal and

copper exports went to China in 2009, 30.38 million tons of which was coking coal. Imports from

Mongolia to China increased from 30 percent to 45 percent in 2010, passing Australia as its top

coking coal supplier. Mongolia's competitive pricing, delays in production due to severe flooding in

Australia, and proximity to China all account for this change.

Due to high and imbalanced electricity demand, mainland China imports vast amounts of electricity

and sources of power from its neighbors. According to China Customs, electricity import reached

7.503 million kilowatts per hour between the months of January and November in 2011. With

enough electricity in a new coal-fired power plant, Mongolia would be in a position to export

electricity to China via existing Ultra High Voltage lines in its Eastern Energy System, which is

connected with the city Erlian, the largest China-Mongolia port.

Source: Mining.com

ANOTHER CHANCE TO GO LONG THE MONGOLIAN TUGRUG?

Investors who missed going long on the Mongolian tugrug now have a chance to make up for lost

time.

Despite a boom to the economy, largely driven by the Oyu Tolgoi and Tavan Tolgoi mining projects,

Mongolia is still underdeveloped. Its currency was the best-performing of 2010, up 15 percent for

the year, topping the Australian dollar, the Chinese Yuan, the Euro, and the Brazilian Real. At its

high point, one could only get MNT 1,233 for every dollar—but it has since cooled off. Meanwhile,

Mongolia's government is trying to curb double-digit inflation.

Easy come, easy go.

Source: Nada

TRAFIGURA FUND STRATEGIZES FOR GROWTH FOR 2012 COMMODITIES MARKET

The Galena Fund of Trafigura, a trader of Mongolian-borne iron ore and coal, aims to expand by

nearly 50 percent this year to around USD 3 billion as opportunities abound in a choppy market for

commodities and energy, the fund's head said in an interview.

―You've got to be large. The relationship between Trafigura and Galena is a good one, it works. We

want to continue to leverage off it,‖ Jeremy Weir, its chief executive and Trafigura board member

said.

Galena currently manages about USD 2.1 billion in assets, but Weir expects new funds and the

growth of existing funds to boost that amount. The fund manager expects this year, like 2011, to be

a challenging trade environment characterized by turbulent politics and a lack of clear trends. The

hedge fund had a mixed year in 2011, logging an 11.32 percent gain in its flagship Metals Fund but a

28.02 percent loss in its Special Situations Fund, which is invested in commodities and equities, due

partly to concerns about growth in China.

Weir is confident, however, that its agile traders will profit still through relative-value trades,

picking the best spot on futures curves and a mixture of long and short positions. A former metals

trader who has been at the helm of Galena since it started in 2003, Weir warned there are no clear

and easy trends emerging in commodities for 2012. However, there could be some potential for

longer-term trends for commodities such as copper.

So far, Galena's January estimates point to a muted start of the year with gains of 2 to 4 percent on

its metals fund, energy fund, and special situations fund. Despite the weak start to the year, Weir

sees this as a promising growth area for Galena as European banks withdraw from the sector

because of a lack of dollar funding and increasing regulatory pressures. By April Galena plans to

launch a private equity fund of up to USD 1 billion focused on spotting small to mid-sized companies

in the mining sector.

Source: Reuters

DIRE HEADLINES BUT LITTLE CAUSE FOR ALARM FOR CHINESE ECONOMY

Trade data for January has China economists howling at the Lunar New Year moon. The collapse in

export growth to -0.5 percent year-to-year in January—down from 13.4 percent in December—looks

like a disaster. A 15.3 percent year-to-year decline in imports looks even worse. A decline or ―hard

landing‖ for the Chinese economy would have a dramatic impact on Mongolia as its chief consumer

of Mongolian commodities.

But before giving up on the Chinese market, investors need to take account of the Chinese New

Year effect. Fewer working days this year than in January 2011 (when the New Year fell in

February) is a key factor explaining the decline. The month-to-month growth rate provides more

clarity. January's exports fell 14.2 percent from December, less than an average 17.6 percent

month-to-month fall in the comparable month in the last decade.

As the United States limps out of recession and the European crisis rumbles on China's exporters are

set for a tough year—but not nearly as bad as the January data suggests. Imports performed worse

with a 22.4 percent month-to-month fall compared with an average fall of 17.4 percent for the New

Year month in the past 10 years. Again, the details of China's commodity purchases suggest it is not

that bad. In volume, crude-oil imports are up and so is iron ore.

February's data will provide a clearer read on the direction of travel for the world's second-largest

economy. But delving beyond the headlines, January's data provides little cause for alarm.

Source: Wall Street Journal

APPRECIATING CHINA'S SHIFT

The trade imbalance that characterized China's economic relations with the rest of the world for

the best part of the past decade has all but disappeared. More sales to China‘s domestic population

and dwindling dependence on exports means a better defense against global economic downturns

for Mongolia‘s number one consumer of its goods.

China's current-account surplus for 2011 shrank to USD 201.1 billion, from USD 305.4 billion in 2010.

More important, as a ratio of gross domestic product (GDP), the surplus fell to about 2.7 percent,

that is close to a decade low and below the 4 percent threshold that suggests an exchange rate out

of whack with equilibrium. The argument in the past has been that the fall in China's surplus is

cyclical, the result of the investment-heavy domestic stimulus that led to a surge in commodity

imports, and recession in major trade partners that crimped exports.

But the International Monetary Fund (IMF) predicts China‘s current-account surplus will be 3.8

percent of GDP in 2013, way down from a forecast of 6.2 percent last September. Taken together

with an unusual fall in the value of China's foreign-exchange reserves in the financial quarter of

2011, it is a serious challenge to the argument that the yuan is undervalued.

Source: Wall Street Journal

POLITICS

THE DISAPPEARING, REAPPEARING HKEX TAVAN TOLGOI LISTING

A new amendment proposed to Parliament may allow the Erdenes-Tavan Tolgoi LLC (E-TT) initial

public offering (IPO) to list on the Hong Kong Exchange (HKEx) after recently being discounted

because of the distribution of shares to the population.

The amendment would have E-TT shares distributed to Mongolian citizens for free, with most to

receive 1,072 shares each. Citizens could next opt to take cash instead, in which case the

government would keep its shares. Some MPs complained that the government was not a good

manager, and if it ended up with too many shares it might not be able to sell the remaining share

on markets abroad. Other MPs warned that giving away 20 percent of shares could devalue the IPO.

Erdenes MGL LLC Director B. Enebish said the company plans to issue shares of E-TT on the London

Stock Exchange (LSE), in addition to the HKEx and the Mongolian Stock Exchange (MSE). The market

in London could issue as much as 25 percent of the shares.

Questions also arose about how shares should be allocated to students, who have already received

MNT 500,000 to MNT 1 million stipends for tuition fees. A working group said students who receive

MNT 500,000 stipend will be eligible to receive 536 shares, while those who take MNT 1 million will

still be eligible for a monthly allowance of MNT 21,000, but not shares.

Source: News.mn

INITIAL E-TT SHARE PAR VALUE ESTIMATED AT 60 CENTS

With Parliament having passed its amendment to the 39th resolution, an initial estimate for the

value of the Erdenes-Tavan Tolgoi LLC stock been stated to be about MNT 800, or USD 0.60 per

share.

Approved by the Economic Standing Committee, the amendment will allow Mongolians to accept

their promised shares of E-TT for free or take MNT 1 million cash instead. The government will buy

stocks from those who opt for cash instead, and afterwards will sell those shares to Mongolian

companies at an equal value. Students are able to receive MNT 1 million in tuition aid, while seniors

and disabled citizens can receive the same amount for living assistance.

The government said its research shows that there is a high probability that about 50 percent of all

citizens will choose to sell their shares to the government. While some have wondered how the

government could afford to pay citizens the money promised to them, in the scenario described the

government would have enough for those citizens, said the taskforce commissioned to look into the

matter.

Former MP S. Bayartsogt has said the money from shares sold to domestic firms would go into the

budget in the form of privatization revenues. The government has set aside MNT 330 billion to meet

the needs of senior citizens and disabled citizens.

MP D. Zorig, the former chairman of the Economic Standing committee has estimated a value of

some MNT 800 per share, but admitted that it was impossible to determine the true value at this

point. He added that this value could increase to a figure between MNT 1,500 and MNT 3,000 once

infrastructure and export management is improved.

Source: Frontier Securities

PARLIAMENT POSTPONES RECESS

Parliament has decided to extend the fall session to make time to decide on lingering issues.

Parliament Chairman D. Demberel announced the extension this week in a statement to the press

and signed a decree to make the decision official.

Parliament has decided it must discuss amendments and alterations to the 2012 budget, the Law on

the 2012 Social Insurance Fund, the Law on Local Elections and the legal package to determine the

status of judges. In addition to these affairs are lingering issues regarding the Tavan Tolgoi coal

deposit and an amendment to the 39th Resolution that would affect the initial public offering (IPO)

of Erdenes-Tavan Tolgoi LLC (E-TT), the state-owned firm operating there.

Source: Unuudur

VACANT MINISTRY POSITIONS TO BE FILLED IN MARCH

Government has ordered that the vacant positions within various ministries be filled by next month.

The selection of some will be delayed, however, while a court decides on the agencies those jobs

pertain to.

The Civil Service Council is considering applicants for vacant positions at the Ministry of Foreign

Relations, Ministry of Health, General Authority for State Registration, and the Department of

Roads. The selection process will be held from 15 to 16 March. Positions at the Nuclear Energy

Agency will remain vacant while the Sukhbaatar District Court comes to a decision regarding the

postponement of filling those positions. The same goes for the Center for Standardization and

Measurements until it decides on the reappointment of the agency's former director, who claims he

was dismissed unfairly. As for the council's ruling on the director of the Petroleum Authority, who

was dismissed because of the hike in gas prices last month, it found his dismissal illegal.

Source: Unuudur

GOVERNMENT WORKERS PREPARE TO DECLARE PROPERTY HOLDINGS AND INCOMES

The Law on Anti-Corruption is requiring 270 high-ranking government officials to now declare their

2011 property holdings and incomes to the Anti-Corruption Authority (ACA) by 15 February. By the

end of last week, 160 officials had already declared their incomes.

The law will also require another 58,000 lower-ranking state workers to report their earnings as

well by the same date. However, those minor government officials will have to report to the agency

they work for rather than the ACA. Thus far 46,000 of those workers have already done so.

Source: News.mn

PARLIAMENT APPROVES USD 300 MILLION LOAN FROM SOUTH KOREA

After initially rejecting a USD 300 million loan from South Korea for development projects,

Parliament made a last minute decision for its approval.

The government has ultimately decided to accept a USD 300 million 30-year loan with annual 0.15

percent interest from the government of South Korea. The loan will be used to fund a medical

center for diagnosis and treatment, a wholesale trade center, a coal gasification facility near the

Baganuur mine, and a new 1:25,000 scale map of the country, as proposed by South Korea.

Representatives from South Korea have suggested that Mongolia could fund two projects a year

from the above list.

Initially Parliament members voted against the loan, in a 24-26 decision. MP L. Gundalai questioned

how reliable of a partner South Korea has been. He called the proposals attached to the loan

"useless things" and said loan agreements should focus on projects necessary for the country's

development. He also objected to the fact that the wholesale shopping center would sell goods

from South Korea.

MPs Ya. Batsuuri and Su. Batbold chimed in for agreement and said the project would have been of

poor quality and would use outdated technology. They pointed to the power plant in Umnugobi that

often freezes as an example of this.

After the initial decision to reject the loan, Gundalai left the session room, exclaiming, "I won,"

before the decision was shortly reversed following his leave. Though members criticized the lack of

effectiveness of past loans from South Korea, they said they would put faith in its government one

more time.

Source: Undesnii Shuudan, News.mn

MPRP AND MRP FORM POLITICAL UNION

The Mongolian Republican Party (MRP) has entered into a pact with the Mongolian People's

Revolutionary Party (MPR), announced B. Jargalsaikhan, chairman of the MRP.

In a meeting with multiple parties, policy makers discussed that state of government and concluded

the situation was unfit. People questioned the safety of the people in a country without a properly

functioning government and claimed that curbed democracy had infringed upon people's rights.

During this meeting Jargalsaikhan announced his party's decision to cooperate with the MPRP for a

political union. Afterwards various party members from both parties gave presentations on

democracy and policies they believed were needed for Mongolia. Afterwards the two parties

decided they would meet in April.

Source: Unuudur

DP COMMISSIONS WORKING GROUP TO INVESTIGATE MINING OPERATIONS

A new working group formed by the Democratic Party (DP) will study the company Entrée Gold.

Currently there is some confusion whether Entrée Gold has relations to a new reserve found. If a

relationship is found, the group will look into future measures for use of the deposit.

The group will also investigate into some of the problems surrounding the Tavan Tolgoi coal

deposit. These include a transition from an exploration to a mining license for the company and the

process of separating the Ukhaa Khudag mine from the Tavan Tolgoi mine. Under the direction of

MP D. Gankhuyag, the group plans to present its findings to the DP in Parliament.

Source: Zuunii Medee

GER DISTRICT RESIDENTS TAKE TO ENERGY EFFICIENT STOVES

The Clean Air Project sponsored by the Millennium Challenge Account (MCA) plans to better insulate

the homes in ger districts and promote the use of energy efficient stoves to reduce air pollution in

Ulaanbaatar.

The project is making 80,000 energy efficient stoves at reduced prices available to households of

the ger districts this winter. Selenge Construction LLC has committed to supplying 70,000, with

another 10,000 from Royal Ocean LLC. So far the clear favorite is Royal Oceans ―Dul‖ model. People

prefer it because it is easy to set up and can be used with a traditional Mongolian wok. However,

because this particular model is not widely available, stores selling it often have long lines at their

stores.

The companies have supplied 50,000 stoves to residents of five districts of the capital so far. If a

typical household has four or five family members, the project is serving about 200,000 citizens. To

ensure safe and proper use, sales people are giving customers safety advice and lessons on how to

use the stoves, as well as receive feedback from customers.

These companies are also cooperating with states organizations, the Clear Air Project and the Clean

Air Fund to organize a public awareness campaign to teach people how to use the stoves properly.

Source: News.mn

PARLIAMENT DIRECTS MORE FUNDING TOWARDS AIR POLLUTION

Parliament passed a financial agreement that would direct USD 15 million towards a program to

reduce air pollution in Ulaanbaatar.

This week Parliament met with the Standing Committees on the Budget and the Economy to discuss

the details of the Ulaanbaatar Clean Air program. This project would need a USD 15 million loan

with 1.25 percent interest over 25 years. The program would provide water boilers for heating.

In addition to this program is an initiative by the Millennium Challenge Corporation (MCC) to supply

smoke-free stoves within the next two or three years. These stoves would reportedly reduced air

pollution by up to 90 percent in the next four years.

After concluding that these new heating devices would not be enough alone to reduce air pollution,

MPs also discussed a proposal to construct new apartment buildings through the 100,000 Families

program, an initiative to provide subsidized housing to potential home owners. However, that

project would not be completed until 2016 at the earliest.

After debating the issue and reasoning that migration from the countryside to the capital city would

certainly increase each year, Parliament voted in favor of the loan agreement.

Source: Unuudur

GOVERNMENT DRAGS ITS FEET WITH E-TT DEALINGS

Erdenes-Tavan Tolgoi LLC (E-TT) Chief Executive Officer B. Enebish has remained quiet on all

worries concerning the company while holding to a May date for the initial public offering (IPO).

To all questions concerning the distribution of E-TT shares and infrastructure, Enebish conceded

responsibility to the government. The government has become increasingly more involved in the IPO

of E-TT, a state-owned company, hoping to use it as tool for the upcoming June election. In regards

to an amendment to the 39th resolution before Parliament that would affect the issue of shares,

the chief executive said the company would follow the lead of the government.

"As our company is a state company, we will follow the decisions from the Mongolian Parliament

and the government," said Enebish.

Concerns for delays also stem from the fact that the selection of investors has still not been

finalized. Enebish said the government has been negotiating with companies from Korea, Japan,

and the United States for nine to 10 months.

He said this year the company hopes to extract between three million and four million tons of coal,

compared with one million last year. After two years of production, he said Mongolia could

negotiate a higher price.

Source: Zuunii Medee

SHORT ON FINANCING, RAILWAY NETWORK SUFFERS FURTHER DELAYS

The ambitious plan to build a railway network capable of delivering surging coal output to foreign

markets is likely to be delayed as a result of financing difficulties and bureaucratic deadlocks,

government officials said on Friday at the Coal Mongolia Conference.

P. Luvsandavag, vice-chairman of the Mongolia Railway Authority, said that the government had not

even raised the USD 50 million required to fund a series of feasibility studies and projects designs

drawn up last year.

―We still don‘t have permission from the government to announce an open tender to build the

railways, and in general there is still a deadlock when it comes to funding and building

infrastructure,‖ he said.

He said the government had sought funding for the projects through overseas equity markets,

instead of the railway authority‘s preferred option involving public-private partnerships with

investors from Japan and South Korea. J. Bat-Erdene, state secretary at Mongolia‘s transportation

ministry told the conference on Thursday that the government was planning to list 49 percent of

state-owned Mongolian Railway Corp. on the Mongolian Stock Exchange (MSE) to raise funds for

construction.

The government plans to build an extensive cross-country railway that would eventually connect its

huge Tavan Tolgoi coal project in the south Gobi desert to the rail networks of Russia, giving it

access to markets in Japan and South Korea, but critics have said the route is not economically

feasible. The government remains reluctant to give permission for Mongolian Mining Corp. (MMC) to

construct its own 267-kilometer private railway into China, saying a pre-existing route into China

would make it more difficult to attract financing for the route east into Russia.

Construction on the two routes—east into Russia and south in China—is expected to begin at the

same time, but B. Enkhbaatar of the World Bank‘s mining infrastructure investment support project

told the conference that neither project was likely to begin before 2017.

Source: Reuters

ROAD NETWORK TO LINK PROVINCES TO UB

Ts. Dashdorj, Minister of Road, Transportation, and Urban Development, has reported on plans to

build a total of 598.6 kilometers of road from Ulaanbaatar to six different provincial capitals.

The government has budgeted for a total of MNT 346.9 billion toward the construction of roads and

bridges. Although construction has not yet begun, the ministry has plans to connect Dornod,

Sukhbaatar, Umnugobi, Uvs, Zavkhan, and Khuvsgul Aimags to Ulaanbaatar for the cost of MNT 311

billion. The government plans to build a total of 2,919 kilometers of roads and 3,465 meters of

bridges in 2012.

Cabinet members have asked the minister to begin road construction for some provincial capitals to

Ulaanbaatar, finance bridge construction, and consider suggestions from other ministers on road

construction.

Source: News.mn

CANADIAN PM TAKES A RAIN CHECK WHILE MONGOLIA SETTLES GOVERNMENT AFFAIRS

Due to the recent cabinet reshuffle in Parliament and other factors, the Canadian government has

decided to reschedule Prime Minister Stephen Harper‘s visit to Ulaanbaatar to a later date instead

of immediately after his visit to China, as originally planned.

The prime minister is personally interested in successfully concluding a bilateral Foreign investment

Protection and Promotion Agreement (FIPA). The sixth round of FIPA negotiations with Mongolia was

held last January, with negotiations beginning in 2009.

At the end of his Beijing visit last week, Harper announced on 13 February that Canada and China

had concluded negotiations on a FIPA, in addition to 20 other bilateral agreements. Both countries

will now conduct a legal review of the agreement and then sign and ratify it, at which point the

FIPA will come into effect. Canada now has FIPA agreements with 24 countries and is engaged in

active negotiations with Mongolia and nine other nations.

Next year will also be the 40th anniversary of diplomatic relations between Canada and Mongolia.

Source: NAMBC

ANNOUNCEMENTS

MONGOLIA 2012: REPORT FROM OXFORD BUSINESS GROUP, LAUNCH EVENT, 1 MARCH

The Report: Mongolia 2012 from Oxford Business Group will be launched on the 1st of March. The

book includes interviews with the President of Mongolia, Tsakhiagiin Elbegdorj, and Prime Minister

Sükhbaataryn Batbold, as well as opinions from Minister for Foreign Affairs and Trade G.

Zandanshatar, Vice-minister of Finance Ch. Ganhuyag, Chairman of the Foreign Investment and

Foreign Trade Agency B. Ganzorig and the Executive Director of the Business Council of Mongolia

Jim Dwyer. Angela Merkel, German Chancellor, Joe Biden, US Vice-President are also contributors.

The report, which marks the culmination of more than six months of on-the-ground research by a

team of analysts from the group, has been produced in collaboration with the Foreign Investment

and Foreign Trade Agency (FIFTA), the Business Council of Mongolia, MICC, Ernst & Young and Hogan

Lovells and will be available in print form or online.

Registration for the official launch event: mongolia@oxfordbusinessgroup.comor +976 99040503.

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MONGOLIA ECONOMIC FORUM 2012, 5-6 MARCH

As Mongolia's largest venue for a dialogue on development among society's core stakeholders, this

year's Mongolia Economic Forum 2012 will be held from 5-6 March at the Government Palace in

Ulaanbaatar. As an official supporter, BCM is offering its members a special discount rate for

registration.

The forum brings together government, scholarly circles, businesses, the media, foreign partners,

and non-governmental and civic society bodies for a series of discussions and debates on pressing

issues to the Mongolian economy and society at large. Discussion topics for development include

―Inclusive Growth,‖ ―Competitiveness: Green Growth,‖ and ―Innovation Policy,‖ each held at

separate venues within the Government Palace.

As Mongolia attains development at an accelerating speed with growth maintained within double-

digit figures, Mongolia is seeking out the best practices and examples for development. BCM

members will receive a special discount (mailcode: BH650WANT), bringing the cost from MNT 1.5

million to MNT 999,000. For more information or registration, visit the website meforum.mn or

email registration@meforum.mn.

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MINER & SUPPLIER 2012 FORUM 15-16 MARCH

The Mongolian Mining Exchange will hold its Miner & Supplier 2012 Forum on 15 to 16 March at the

Chinggis Khan hotel. As an official supporting organization for this conference, BCM members will

receive a 10 percent discount when registering.

This year's slogan for the event is ―Eco Mine: Sustainable Development.‖ On par with its slogan, the

event aims to improve the mining industry's contributions to society and the economy, promote

environmental friendly products and technology, and increase business coherence between

suppliers and business people in the mining industry.

For more information or registration contact Buyanaa at Mongolian Mining Exchange at +976 9192

7088 or email buyanaa@infomine.mn

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SAFETY FIRST FORUM, 22-23 MARCH

The Safety First forum and exhibition will be held on from 22 to 23 March at the Chinggis Khan

Hotel to introduce mining sector safety to the Mongolian mining industry.

Although Mongolian mining firms have paid more attention to safety in their operations, there is no

consolidated policy on safety concerning standards and regulations, and many are outdated. The

Safety First event intends to bring the mining community together to find a solution to this

problem.

The forum will have sessions on topics such as government policy on safety, company practices

(case studies), safety management, and the best safety technologies.

For registration, visit safetyfirst.mn or for more information call 31 4877 or +976 9916 9954.

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NEW YORK INTERNATIONAL AUTO SHOW 2012 - APRIL 6-15

The Business Council of Mongolia in collaboration with the U.S. Embassy‘s Commercial Section is

now registering Mongolian business delegation to participate to ―New York International Auto Show

2012‖ which will be organized in the Jacob K. Javits Convention Center, New York, NY, USA

between April 6-15, 2012.

For over one hundred years, the ―New York International Auto Show 2012‖ continued its pioneering

tradition of bringing new and innovative ideas to a national and world stage, which makes the event

one of the most important automotive event in the world. The show offers virtually every make and

model vehicle sold in the U.S. under one roof giving consumers the unique opportunity to see

everything the auto industry has to offer.

Please contact 70114442 or tugi@bcMongolia.org for registration and any other additional

information about the event. Registration deadline is 5:00 PM, February 21.

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“MM TODAY” on MNB-TV, Fridays at 18:30 [TONIGHT]

BCM is pleased to announce 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

18:30 tonight! Tune in to watch this program that reports stories from today‘s BCM NewsWire.

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“BSPOT” ON B-TV, MONDAY TO FRIDAY AT 18:20

B-TV (Business TV) now telecasts a 10-minute English-language news program called BSPOT every

evening from Monday to Friday at 18:20, taking most of the stories from the BCM NewsWire.

___________________________________________

POSTINGS ON BCM‟S ENGLISH WEBSITE 'PRESENTATIONS' AND 'MONGOLIA REPORTS' SECTIONS

AND BCM‟S MONGOLIAN WEBSITE „PRESENTATIONS‟ AND „NEWS‟ SECTIONS

New for 2012 is a ‗Presentations‘ section on the BCM Mongolian website which can be reached via

link to bcm.mn/itgeluud. About 10 presentations already posted!

As a key component of BCM‘s Mongolian website, ‗News‘ section, articles from the Government‘s

―Open-Government.mn‖ site are regularly posted.

On BCM‘s English website, ‗Resource, Presentations‘ section, for your review are 7 speeches from

the Mongolian Investment Summit on December 8-9 in London, several speeches at the Risk

Management Forum on November 8 co-organized by BCM and Mandal Insurance, speeches at

Discover Mongolia 2011, speeches from BCM‘s 10 monthly meetings in 2011, and the address by

Peter Nicholls, OT‘s VP-Operations, at Global MInES in Sydney on July 4. Latest additions to this

section include a presentation entitled "Cracking the Commercial Oyster: Reflections on the 25th

Anniversary of US-Mongolia Bilateral Relations" by Jonathan Addleton, Ambassador extraordinary

and plenipotentiary of the United States of America to Mongolia.

Also on BCM‘s English website, ‗Resource, Mongolia Reports‘ section, please note "Mongolia's

Booming Economy" by Dr. Alicia Campi, Preident of US-Mongolia Advisory Group Inc, "Mongolia - The

World Bank Survey FY 2011" by the World Bank and Economic Policy & Competitiveness Research

Center and "Executive Summary of Mongolian Real Estate Report 2012" by M.A.D Investment

Solutions.

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.

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NETWORK WITH BCM

The Business Council of Mongolia (BCM) has expanded its reach to your favorite social networks.

Keep up to date on the latest business deals in Mongolia and how the climate for investment is

improving each day with BCM.

Add BCM on Facebook at http://www.facebook.com/pages/THE-BUSINESS-COUNCIL-OF-

MONGOLIA/129826330435540 to read the latest announcements and comment on events with the

community. Hear breaking news and announcements as they happen when you follow BCM on

Twitter at http://twitter.com/#!/bcMongolia. Connect with BCM on Linked-in to join the diverse

group of professional contacts creating a better business environment in Mongolia today.

Of course for news information, interviews, and announcements regarding our organization, visit

the official BCM website at bcMongolia.org and bcm.mn.

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]

Year 2010 *13.0% [source: NSOM]

Year 2011 *10.2% [source: NSOM]

January 31, 2012 *10.2% [source: NSOM]

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

CENTRAL BANK POLICY 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]

August 25, 2011 11.75% [source: IMF]

October 25, 2011 12.25% [source: IMF]

CURRENCY RATES – February 16, 2012

Currency Name Currency Rate

U.S. dollar USD 1,333.15

Euro EUR 1,735.96

Japanese yen JPY 16.95

British pound GBP 2,091.45

Hong Kong dollar HKD 172.02

Chinese yuan CNY 211.54

Russian ruble RUB 44.10

South Korean won KRW 1.19

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.