MINERAL SECTOR OF MINERAL SECTOR OF MONGOLIAMONGOLIA

Presenter J.BILEGSAIKHANPresenter J.BILEGSAIKHAN

Head of Mining Department of Mineral Head of Mining Department of Mineral Resources and Resources and

Petroleum Authority of MongoliaPetroleum Authority of Mongolia

22

99.1 % of the Mongolian territory is covered by geological 99.1 % of the Mongolian territory is covered by geological mapping on a scale of 1:200 000,mapping on a scale of 1:200 000,

24.8 % of the Mongolian territory is covered by general 24.8 % of the Mongolian territory is covered by general exploration work and geological mapping on a scale of 1:50 exploration work and geological mapping on a scale of 1:50 000,000,

84% 84% of the Mongolian territory is covered by hydro-geological of the Mongolian territory is covered by hydro-geological mapping on a scale of mapping on a scale of 1:500 000,1:500 000,

22.5 % 22.5 % of the Mongolian territory is covered by gravimetric survey on of the Mongolian territory is covered by gravimetric survey on a scale of a scale of 1:200 000 and 1:100 000, 1:200 000 and 1:100 000,

60 % 60 % of Mongolian territory is covered by aerial magnetic survey on a of Mongolian territory is covered by aerial magnetic survey on a scalescale of 1:200 000, of 1:200 000,

32 % 32 % of the Mongolian territory is covered by aerial multispectral of the Mongolian territory is covered by aerial multispectral survey on a scale of survey on a scale of 1:50 000 and 1:25 000.1:50 000 and 1:25 000.

Present level of Present level of Geological Geological

investigation in investigation in MongoliaMongolia

33

24.8% of the Mongolian territory is covered by general exploration work & geological mapping on a scale of

1:50000. This figure is expected to increase every year by 0.2 to 0.5 %.

44

35.8%

56.1 mil.hectar

45.1%

70.4 mil.hectar

13.4%

21 mil.hectar

5.2%

8.1 mil.hectar

0.5%,

0.8 mil.hectar

100%

156.4 mil.hectar

55

Exploration budgetExploration budgetMillion us dollarMillion us dollar

66

Exploration expenditure in Exploration expenditure in 20062006

77

The mineral sector’s impact on the The mineral sector’s impact on the Mongolian economyMongolian economy (1)(1)

The mineral sector’s impact on the The mineral sector’s impact on the Mongolian economyMongolian economy (1)(1)

   20022002 20032003 20042004 20052005 20062006

GROSS DOMESTIC GROSS DOMESTIC PRODUCTPRODUCT 10.10%10.10% 12.7012.70

%%17,3%17,3% 18.00%18.00% 30.1%30.1%

GROSS INDUSTRIAL GROSS INDUSTRIAL PRODUCTPRODUCT 47.30%47.30% 49.6049.60

%%64,7%64,7% 65,5%65,5% 72.2%72.2%

EXPORTEXPORT 56.70%56.70% 58.9058.90%%

70.80%70.80% 75,8%75,8% 76.1%76.1%

88

Production and Investment in Mining

Production and Investment in Mining

Pre

limin

ary

estim

atio

ns b

y

MR

PA

M

18161412

41.6 33.2 33

53

8272

800.0

953.0

752.9

434.6435.8355.2342.3

271.1229.1222.0

0

10

20

30

40

50

60

70

80

90

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 years

Inve

stm

ent /m

il.$

/

0

200

400

600

800

1000

1200

Min

ing

prod

uction

/bil. t

ug/

Investment /mil.$/ Mining production /bil.tug/

99

Mining sectorMining sector

1010

Mining and petroleum Mining and petroleum productionproduction

20042004 20052005 20062006

Copper in concentrate, Copper in concentrate, th.tnth.tn 130,0130,0 126,3126,3 129.7129.7

Molybden in concentrate, Molybden in concentrate, th.tnth.tn 1140,91140,9 11531153 1403.91403.9

Cathode copper, tnCathode copper, tn 2376,02376,0 2474,52474,5 2618.42618.4

Gold /chemical pure/, kgGold /chemical pure/, kg 18,618,6 21,921,9 20.520.5

Fluorspar concentrate, th.tnFluorspar concentrate, th.tn 104,8104,8 93,793,7 108.3108.3

Metallurgical fluorspar, Metallurgical fluorspar, th.tnth.tn 206,7206,7 233,4233,4 226.6226.6

Coal, th.tnCoal, th.tn 66794,7794,7 8255,88255,8 7885.57885.5

Crude oil, th.barrCrude oil, th.barr 197,6197,6 200,3200,3 366.8366.8

Petroleum Exploration BlocksPetroleum Exploration Blocks

Petroleum Exploration Petroleum Exploration BlocksBlocks

Active exploration under PSC:Active exploration under PSC:Petro China Daqing Tamsag – XIX, XXI, XII; Dongsheng Gazriin Petro China Daqing Tamsag – XIX, XXI, XII; Dongsheng Gazriin tos – 1997PSC; Petromatad – XX; China Golden Sea Petroleum - tos – 1997PSC; Petromatad – XX; China Golden Sea Petroleum - XVXV

Application under consideration:Application under consideration: Block number – II, III, IV, V, VI, XI, XII, XVI,XVII, XVIII, XXIII,Block number – II, III, IV, V, VI, XI, XII, XVI,XVII, XVIII, XXIII,

Blocks for receiving applications:Blocks for receiving applications: Block number – VII, IX, X north, X south, XXVI,Block number – VII, IX, X north, X south, XXVI,

Block receiving applications by countries: Block receiving applications by countries: Canada -1, Australia-1, Russia-2, Mongolia-2, China-2Canada -1, Australia-1, Russia-2, Mongolia-2, China-2

Open blocks:Open blocks: Block number – VIII, XIII, XIV, XXIVBlock number – VIII, XIII, XIV, XXIV

Investment and Production Investment and Production Petroleum SectorPetroleum Sector

Investment and Production Investment and Production Petroleum SectorPetroleum Sector

0.1 6.417.7 14.8 18.0

37.3

6.6 8.2 11.6 13.0 10.6 18.2

123.3

200.0

10.4

139.2

82.865.571.849.5

183.1197.6 200.3

366.9

403.3

0.0

50.0

100.0

150.0

200.0

250.0

300.0

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Inve

stm

ent in

million U

SD

0

50

100

150

200

250

300

350

400

Pro

duct

ion in thousa

nd b

arre

ls

Investment in million USD Production in thousand barrels

1414

TAXES APPLICABLE TO TAXES APPLICABLE TO MINING OPERATIONSMINING OPERATIONS

0015%15%VALUE ADDED TAXVALUE ADDED TAXON GOLD ON GOLD PRODUCTIONPRODUCTION

5%5%7,5%7,5%2,5%2,5%ROYALTY FOR ROYALTY FOR PLACER GOLD PLACER GOLD PRODUCTIONPRODUCTION

2,5% / 5%2,5% / 5%2,5%2,5%ROYALTYROYALTY

0015%15%

VALUE ADDED TAX VALUE ADDED TAX (VAT) ON IMPORTED (VAT) ON IMPORTED MINING EQUIPMENTMINING EQUIPMENT

10% / 25%10% / 25%15% / 30%15% / 30%15% / 40%15% / 40%CORP. INCOME TAXCORP. INCOME TAX

20062006200420042003200320022002

1515

WINDFALL TAXWINDFALL TAX

In 2006 the Mongolian parliament passed In 2006 the Mongolian parliament passed a law on excess profits tax (windfall tax). a law on excess profits tax (windfall tax).

The windfall tax is imposed on gold when The windfall tax is imposed on gold when its LME-price exceeds 500 USD/ounce its LME-price exceeds 500 USD/ounce and on copper above a LME-price of 2600 and on copper above a LME-price of 2600 USD/t. USD/t.

A tax rate of 68% applies to revenues A tax rate of 68% applies to revenues that exceed above-mentioned price that exceed above-mentioned price levels.levels.

1616

Taxes in the mining sector of Mongolia

15.8

11.0 12.9 17.9

12.0

9.2

13.0

19.0

20.0

-

5

10

15

20

25

2003 2004 2005 2006 2007

per

cen

tag

e

year

Effective tax rate on gold production

MRPAM Otto, G

22.8 23.0 23.7

39.1

23.0 20.0 20.0

23.0 24.0

0

5

10

15

20

25

30

35

40

45

2003 2004 2005 2006 2007

per

cen

tag

e

year

Effective tax rate on copper production

MRPAM Otto, G

Effective tax rate

0

5

10

15

20

25

30

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

year

perc

enta

ge

Gold, % Copper, %

1717

Tax rates based on gold pricesTax rates based on gold prices

Gold price Gold price US$/ounUS$/oun

cece

Effective Effective tax tax raterate

Tax rate Tax rate on total on total

costscosts

700700 28%28% 68.5%68.5%

750750 32%32% 71.9%71.9%

800800 34%34% 74.2%74.2%

850850 37%37% 76.1%76.1%

Effective tax rate/gold/

0%

10%

20%

30%

40%

50%

60%

70%

80%

700 750 800 850

US$/ounce

Effective tax rate

Rate in total expense

1818

Tax rates for different copper Tax rates for different copper pricesprices

Price of Price of coppercopper US$US$//tonton

Effective Effective tax ratetax rate

Rate on Rate on total coststotal costs

40004000 16%16% 23%23%

50005000 24%24% 34%34%

56005600 26%26% 37%37%

60006000 29%29% 41%41%

65006500 32%32% 45%45%

70007000 36%36% 51%51%

Effective tax rate /Copper/

0%

10%

20%

30%

40%

50%

60%

4000 5000 5600 6000 6500 7000

US$/ton

Effective tax rate

Rate in total expense

1919

Effective tax rate as calculated in paragraph 61 of Minerals Law

0

5

10

15

20

25

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

years

%

Gold, %

Copper, %

2020

AMENDMENTS OFAMENDMENTS OFTHE NEW MINING LAWTHE NEW MINING LAW

Strengthened issues on environmental Strengthened issues on environmental protection and rehabilitationprotection and rehabilitation

Extended rights of local administrative Extended rights of local administrative bodiesbodies

License holders duties are increasedLicense holders duties are increased Mining licenses are granted in two Mining licenses are granted in two

different ways:different ways:• First come first serve basis on new First come first serve basis on new

exploration areasexploration areas• Tender biding on other areas Tender biding on other areas

2121

AMENDMENTS OFAMENDMENTS OFTHE NEW MINING LAWTHE NEW MINING LAW

Classification of Mineral deposits:Classification of Mineral deposits: - Deposits of strategic importance- Deposits of strategic importance - Deposits of conventional mineral- Deposits of conventional mineral - Deposits of common mineral - Deposits of common mineral

Governments Participation and Guarantee:Governments Participation and Guarantee: the state may participate up to 50% jointly with a the state may participate up to 50% jointly with a

private legal person in exploitation of a mineral private legal person in exploitation of a mineral deposit of strategic importance where state funded deposit of strategic importance where state funded exploration was used to determine proven reserves. exploration was used to determine proven reserves.

The state may own up to 34% of shares of the The state may own up to 34% of shares of the investment made by a license holder of a mineral investment made by a license holder of a mineral deposit of strategic importance where proven deposit of strategic importance where proven reserves were determined through funding sources reserves were determined through funding sources other than the State budget.other than the State budget.

2222

Strategic deposits in Strategic deposits in production production

11 ERDENETERDENET

Copper Copper molibdeniumolibdeniu

mm

B+C1 = 3,2 mil t Cu, B+C1 = 3,2 mil t Cu, B+C1 = 90 thous t B+C1 = 90 thous t

Mo, Mo, Orkhon Orkhon

ErdenetErdenet

66 BOROOBOROO GoldGold 36 t36 tSelenge Selenge

MandalMandal

22BAGANUURBAGANUUR

Brown CoalBrown CoalA+B+C1 = 511,4 mil A+B+C1 = 511,4 mil

ttCentral Central BayandelgerBayandelger

33SHIVEE SHIVEE

OVOOOVOO Brown CoalBrown CoalA+B+C1 =564.0 mil A+B+C1 =564.0 mil

tt GovisumberGovisumber

44

NARIIN NARIIN SUKHAITSUKHAIT

Hard CoalHard Coal A+B+C1 = 88.9 mil tA+B+C1 = 88.9 mil t

Southgovi Southgovi GurvanteGurvantess

55

TOMURTIIN TOMURTIIN OVOOOVOO

ZincZinc B+C1 = 1.329 mil tB+C1 = 1.329 mil t

Sukhbaatar Sukhbaatar SukhbaatSukhbaatarar

2323

Uranium deposits of Uranium deposits of strategic importancestrategic importance

11 Mardain Mardain golgol

UraniuUraniumm

C1 =1063 t (9.8 thous C1 =1063 t (9.8 thous t)t) Dornod Dornod

GurvanbulagGurvanbulag

22 Gurvan Gurvan bulagbulag

UraniuUraniumm C1+C2 =16073 tC1+C2 =16073 t Dornod Dornod

BayandunBayandun

33 DornodDornodUraniuUraniu

mm C1+C2 =58933 tC1+C2 =58933 tDornod Dornod

DashbalbaDashbalbarr

2424

Strategic deposits in pre-Strategic deposits in pre-operation stageoperation stage

11

TAVANTOLGOITAVANTOLGOI Cooking Cooking and hard and hard coalcoal

A+B+C1 = 2,5 A+B+C1 = 2,5 bil. tbil. t

Southgovi Southgovi TsogttsetsiiTsogttsetsii

22TOMURTEITOMURTEI

IronIronB=57,0 mil t, B=57,0 mil t, C1=100,7 mil.tC1=100,7 mil.t

Selenge Selenge ErooEroo

33OYU TOLGOIOYU TOLGOI Copper and Copper and

goldgold   Southgovi Southgovi HanbogdHanbogd

44

TSAGAAN TSAGAAN SUVARGASUVARGA

CopperCopper

B+C1=1,08 mil.t B+C1=1,08 mil.t Cu, B+C1=170,9 Cu, B+C1=170,9 mil.t Ìî,mil.t Ìî,

Dornogovi Dornogovi MandahMandah

55 ASGATASGAT SilverSilver C1=976,6 tC1=976,6 tBayan-Ulgii Bayan-Ulgii NogoonnuurNogoonnuur

66 BURENHAANBURENHAANPhosphoruPhosphoruss

C1+C2 = 40,5 C1+C2 = 40,5 mil.tmil.t

Hubsgul Hubsgul Alag-ErdeneAlag-Erdene

2525

LICENSELICENSE Period of validity of exploration licenses shall Period of validity of exploration licenses shall

be 9 years. be 9 years. /3+3+3//3+3+3/ Pre-mine development operation Pre-mine development operation //in in з з years years

under agreementsunder agreements// Periods of validity of mining licenses shall be Periods of validity of mining licenses shall be

70 years. 70 years. /30+20+20/ /30+20+20/ Minimum exploration expenditure. Minimum exploration expenditure. / 0.0, 0.5, / 0.0, 0.5,

1.0, 1.5 1.0, 1.5 $/h$/hа /а / Limited license transferring and mortgaging. Limited license transferring and mortgaging.

Added an item stating that licenses can not Added an item stating that licenses can not be used for trading. be used for trading.

2626

RoyaltyRoyalty

Royalties for domestically sold coal or Royalties for domestically sold coal or other conventional mineral resources are other conventional mineral resources are equal to 2,5% of sales revenueequal to 2,5% of sales revenue

Royalty for minerals other than specified Royalty for minerals other than specified above shall be 5,0% of sales revenue above shall be 5,0% of sales revenue

Distribution of Royalty revenues:Distribution of Royalty revenues:70 % into the State budget70 % into the State budget20 % into the budget of the aimag or capital city20 % into the budget of the aimag or capital city10 % into the budget of the soum or district10 % into the budget of the soum or district

2727

INVESTMENT AGREEMENTINVESTMENT AGREEMENT

Investment agreement can be concluded if an Investment agreement can be concluded if an investment of more than 50.0 mill USD is made investment of more than 50.0 mill USD is made within the first 5 years.within the first 5 years.

50,0 - 100,0 50,0 - 100,0 million USDmillion USD 10 10 yearsyears 100,0 - 300,0 100,0 - 300,0 million USDmillion USD 15 15 yearsyears 300,0300,0 million million or more USDor more USD 30 30 yearsyears

The agreement with an investor will be made The agreement with an investor will be made jointly by cabinet members responsible for jointly by cabinet members responsible for financial, geological, mining and environmental financial, geological, mining and environmental issues. issues.

2828

Estimated resourcesEstimated resourcesGoldGold 1000 t1000 tCopperCopper 32 mil. t32 mil. tShare holderShare holderRio TintoRio Tinto 10%10%Government of Government of MongoliaMongolia 34%34%

Ivanhoe minesIvanhoe mines 56%56% Tax holidayTax holiday

Windfall taxWindfall tax

0 during the 0 during the invetstment invetstment agreementagreement

Other taxes under Law Other taxes under Law of Mongoliaof Mongolia No tax holidayNo tax holiday

Time scheduleTime scheduleOpen pit mineOpen pit mine 20102010Underground mineUnderground mine 20142014Copper smelterCopper smelter 20152015 Export and importExport and import

Gold productGold product100% to bank of 100% to bank of

MongoliaMongolia

Power supplyPower supply100% national 100% national

power stations will power stations will supply supply

Share price of Ivanhoe mines

Early result from negotiation on the investment agreement of Oyu Tolgoi deposit

2929

ERDENET CORP.

OUY TOLGOI

COPPER DEPOSIT LOCATIONS FOR MINING-NON-FERROUS COPPER DEPOSIT LOCATIONS FOR MINING-NON-FERROUS METALLURGICAL FACTORY PROJECTMETALLURGICAL FACTORY PROJECT

HUTUL

SHARIIN GOL

TAVAN TOLGOITSAGAAN SUBRAGA

TOMURTEI

TSAVULAAN

3030

No. Name of deposits

Kinds of minerals Reserves

1 Khust uul Iron (Fe) 4.4 million tons Fe

2 Tsav Lead, zinc 3.5 million tons ore, 226.2 thousands tons Pb, 123.3 thousand tons Zn

3. Bargilt Iron ( Fe) 31 million tons Fe

4. Tumurtei Iron ( Fe) 229.3 million tons Fe

5. Oyu Tolgoi Copper, gold 24 million tons Cu, 720 tons Au

6 Tsagaan suvraga

Copper, molybdenum

240.0 million tons ore, 1.3 million tons Cu, 48.2 thousand tons Mo

7. Ulaan Lead, zinc 14.8 million tons ore , 186.4 thousand tons Pb, 245.8 thousand tons Zn

8. Mardai Uranium 924.6 thousand tons ore, 1104 tons U

9. Tavan Tolgoi

Coal 7.0 billion tons

Promising projects

3131

Prospective of production and predicted Prospective of production and predicted investment during the implementation of high investment during the implementation of high

promising projectspromising projects

1345

15671509

1591

126313141099

1018936854953753

435436

693

833

498

901

858

191

836

176

33 33

53

82 7871

10286

105 102

122 116

138 138

328

346357

343

320

269250

190

0

500

1000

1500

2000

2500

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Inv

es

tme

nt,

mill

ion

US

D

0

50

100

150

200

250

300

350

400

pro

du

cti

on

, bill

ion

tu

gri

g

Mining production During the implementation of high promising project

Investment During the implementation of high promising project

3232

Strategic AlliancesStrategic Alliances

Rio Tinto-IvanhoeRio Tinto-Ivanhoe (Copper, gold)(Copper, gold) Erdene Gold-Xstrata (Coal)Erdene Gold-Xstrata (Coal) Barrick-QGX (Gold, copper)Barrick-QGX (Gold, copper) Mitsui-Ivanhoe (Power, coal, infrastructure)Mitsui-Ivanhoe (Power, coal, infrastructure) BHP-Asia gold-Ivanhoe (Coal, copper)BHP-Asia gold-Ivanhoe (Coal, copper) Troy resources-Rio TintoTroy resources-Rio Tinto Phelps Dodge-Fortress (Copper)Phelps Dodge-Fortress (Copper) Basic Element, Renova and Severstal (Coal)Basic Element, Renova and Severstal (Coal) IUC-Denison-Mongolian and Russian IUC-Denison-Mongolian and Russian

Governments (Uranium)Governments (Uranium)

3333

No. Name of CompanyNumber of exploration

licensesNumber of mining

licenses Area in hectar

Canada

1 Erdenemongol LLC 27   496 127

2 ENTRE LLC 8   373 028

3 Redhill LLC 2 8 57 539

4 Jaruslav Ruza 8   79 400

5 EAM energy LLC 21   655 763

6 UGL-Enterprises LLC 22   334 973

Subtotal 88 8 1 996 830

Great Britain

1 Rio Tinto 1 2 15 987

2 Batu Mining 81 2 030 989

3 Asia Gold 87 1 984 799

4 Ivanhoe mines 80 4 3 542 764

5 Gobi gold 49  2 1 871 342

6 QGX 78 678 332

Subtotal 376 8 10 124 213

Australia

1 Zanadu mine Inc. 13   403 972

2 Troy Resourses Mongolia 28 1 533 296

Subtotal 41 1 937 268

Total 505 14 058 311

Investors from Common Wealth in Mongolia

3434

THANK YOU FOR YOUR THANK YOU FOR YOUR ATTENTIONATTENTION