BUSINESS COUNCIL of MONGOLIA NewsWire

www.bcmongolia.org

info@bcmongolia.org

Issue 149, December 17 2010

THIS IS OUR LAST REGULAR ISSUE IN 2010, AND WILL BE FOLLOWED BY A YEAR-ENDER COMPENDIUM NEXT FRIDAY.

NEWS HIGHLIGHTS:

Business

USD2.3 billion announced for Oyu Tolgoi construction in 2011;

Ivanhoe chief locked in for Oyu Tolgoi;

Rio Tinto buys 10 million Ivanhoe shares from Friedland at USD25.35 each;

Ivanhoe considering two-part sale;

Xanadu Mines closes oversubscribed IPO ahead of listing;

SouthGobi Resources signs two additional coal supply agreements;

Entree Gold successfully tests conceptual targets on Shivee West;

Erdenet may merge with another JV, offer IPO, says Putin;

Large mining vehicles flown from Scotland to Monnis International;

Erdenet team visits Oyu Tolgoi;

Investors put off by Areva’s uncertain long-term strategy;

Rio Tinto scholarships for 20 students;

GE sees growth at core units, to focus on emerging markets;

Key project order business picking up pace: Sandvik.

Economy

ADB funds USD72 million state-of-the-art logistics center at Zamyn Uud;

Social, economic data;

Goodbye to the 68% tax, but Central Bank may not receive more gold;

Central Bank buys USD43.8 million from banks at auction;

Loans fall m-o-m;

101 of 337 regulations to be cancelled;

Korea Development Bank suggests cooperation to PM Batbold;

MPs want international audits of state-owned companies;

Mongolia’s story has begun, but a happy ending is a long way off;

Ivanhoe-Rio deal great news for Mongolia;

Russians know more about uranium here than Mongolians;

Transit cargo agreement soon, says communique;

Men earn more than women;

Need felt to use women to operate heavy machinery;

Peru sees approving key copper projects soon;

China sets policy to rein in inflation;

China’s exports surge more than expected;

U.S. report asks China to improve market access;

IMF warns Moscow to cut deficit or face inflation.

Politics 20th anniversary of Democratic Revolution comes to an end;

Russia, Mongolia reach agreement on uranium joint venture;

“Only totalitarian methods can reduce smoke in city,” says Minister;

Fees from polluters to accrue in conservation fund;

Mongolia to pay USD3.8 million to settle debt to Russia;

Household corruption drops to record low, but bribe amounts rise;

S. Demberel re-elected head of MNCCI;

Citizens’ Chamber completes one year;

Notary law drafts make progress in Parliament;

Coal movement damages roads, causing accidents, deaths;

Canadian companies to build solid waste generation plants in Mongolia;

U.S. Embassy supports study trip on disability issues.

*Click on titles above to link to articles.

BCM MONTHLY MEETING RECAP

A total of 87 members attended the last monthly meeting of the year, held on December 13, with Mr. Laurenz Melchers in the chair. Executive Director Jim Dwyer reported that renewals to date were 125, as against 85 in the same period last year, and hoped there would be more in the coming days. Jim also introduced the four new members since the last meeting. They are: 1. Monet LLC, formerly known as Bats Invest, and a leading brokerage, dealing and underwriting companies focused on the emerging market in Mongolia, providing a full range of investment banking products and services including strategic advice, capital-raising, restructuring, risk management and research. 2. Siemens, the world‟s No. 1 supplier of manufacturing, transportation, building and lighting systems, with end-to-end automation technologies and a comprehensive array of industry solutions. Siemens is the only supplier worldwide with comprehensive know-how encompassing the entire energy conversion chain and, in particular, plant-to-grid connections and other types of interfaces. As a non-bank financing provider, it supplies Siemens and business-to-business customers worldwide with capital for infrastructure, equipment and operations. 3. The New Cleos, established in April 2010 as a 100% foreign invested company to provide logistic solutions to the mining industry. It offers truck transportation of mining products, spare parts and equipment as well as mining staff, and plans air transportation on request. 4. The New Media Marketing Agency, a digital marketing, social community engagement, and creative development firm, providing services to businesses across many sectors in digital marketing, PR, corporate design, and program development. It also promotes brands, products and services in domestic and foreign markets. Jim also announced the BCM Tax Working Group would hold a workshop for senior Mongolian tax officials in mid-January. The first presentation of the evening was by Mr. Mergen Chuluun, Director, Web Guru, on how companies can increase sales through their website. A properly prepared website helps customers make better informed decisions, can reduce the need for and number of support staff, and tie all the marketing efforts of a company at one place. It generates and nurtures sales leads, and improves their conversion rate. Better online visibility generates more trade enquiries. But for all this to be effective, the contents of the site have to be regularly reviewed and analyzed and assessed for what is working and what is not, allowing readers to focus on the essentials. Ms. B. Gantuya, Acting Executive Director, Mongolian U.S. Government Alumni Association, was next, and talked about how the Association is “Making a Difference Together”. Its members are all participants of scholarships and exchange programs sponsored by the U.S. Government and it has some 100 active and 700 potential members. It provides networking and information exchange opportunities, and has taken part in several productive, professional, societal, and cultural programs, including one to teach English to disabled Mongolians. Mr. L. Batbayar‟s presentation was on The Journalism for Development Center, an NGO working

since April 2010 on preparing Mongolian journalists to become better writers and analysts of economic news and to provide them with new management skills. It has produced guidelines and organized training, and has gone beyond Ulaanbaatar, to hold workshops for local journalists in southern Gobi areas where most of the mining is and will be. It is also preparing those in the electronic media for the planned total digitalization of television from 2015. Mr. Randolph Koppa, President, Trade & Development Bank, showed “Mongolia: Investment Needs and Opportunities”, his presentation at last month‟s Mongolia Investment Summit in London. This details Mongolia‟s potential, plans, and prospects and also lists the problems that lie before they can be turned into reality. Around USD50 billion needs to be invested but it is an achievable target, notwithstanding the imponderables that are always there. The meeting ended with the presentation of two annual awards BCM has instituted from this year to recognize excellence in the corporate and non-corporate sectors. This year‟s Achievement Awards went to Oyu Tolgoi LLC and to Dr. Ch. Khashchuluun, Chairman of The National Development and Innovation Committee.

BUSINESS

USD2.3 BILLION ANNOUNCED FOR OYU TOLGOI CONSTRUCTION IN 2011 Mr. Robert Friedland, Executive Chairman and CEO of Ivanhoe Mines, and Mr. John Macken, President, announced on Tuesday that a USD2.3-billion capital budget has been approved for 2011 in what will be the peak year of construction activity on the first phase of the Oyu Tolgoi project. Approval of the budget by the Ivanhoe Mines Board of Directors followed earlier full approval of the 100,000-ton-per-day project by the Ivanhoe Mines-Rio Tinto joint Technical Committee, which is overseeing the project, and the board of Oyu Tolgoi LLC, the Mongolian company that holds the Oyu Tolgoi licenses and is 66% owned by Ivanhoe Mines and 34% owned by the Mongolian government. "Our ramp-up to full-scale construction during 2010 was so successful that we now are targeting to deliver the first ore to the concentrator up to six months earlier than previously projected. Oyu Tolgoi should be making its first sales of copper and gold in concentrate produced from ore from the Southern Oyu open pit during the fourth quarter of 2012," Mr. Macken said. "The announcement of a series of financing measures last week as part of a new agreement with Rio Tinto will enable us to proceed in coming weeks with the signing of the largest contracts of the entire phase-one construction program," he said. The principal elements of the 2011 construction program include: - USD561 million for the copper-gold concentrator, which will see completeenclosure of the building, completion of steel work for the overland ore conveyor, installation of one of four ball mills and installation of all material-handling equipment in the pebble crusher. - USD186 million to purchase the initial mining fleet of trucks, shovels and ancillary equipment, and to start pre-stripping of the Southern Oyu open-pit mine. - USD713 million for project infrastructure and electrical power, including completion of the central substation, completion of the process-water supply, completion of the truck maintenance shop and phases one and two of the operations camp. - USD211 million for ongoing underground mine development at the Hugo North Deposit, construction of the headframe on Shaft #2 and further sinking of Shaft #2, which are critical elements of the development of the block-cave mine planned to begin production in 2015. Total capital required for phase one from January 1, 2011, to the start of commissioning of the ore processing plant, which is planned for the second half of 2012, is projected to be USD3.5 billion. This includes approximately USD2.9 billion to complete construction of the Southern Oyu open-pit mine, processing plant and essential infrastructure, including electricity, water, roads, a paved airport runway and Mongolian-designed passenger terminal; it also includes taxes and continued underground development of the phase-two Hugo North mine. Read more… The commissioning will be followed later in 2012 by initial phase-one production, and then by commercial production expected during the first half of 2013. Capital required from January 1, 2011, through to completion of the phase-one, 100,000-ton-per-day project is expected to total approximately USD4.5 billion. This estimate makes no allowance for potential revenues from the sale of copper-gold concentrate produced from the milling of a projected nine million tons of stockpiled ore in the weeks of initial production in 2012. Mr. Macken said that the engineering and construction stages have recognized the need to accommodate a major increase in ore processing capacity in the future while minimizing potential disruption to operations that will be under way at the time. "Wherever possible, we have taken the

opportunity to allow for expansion with minimal impact on operations. Our plans call for initial production of 100,000 tons of ore per day and we expect to move to between 150,000 and 160,000 tons per day when ore from the underground mine becomes available.” In another development, the Oyu Tolgoi Technical Committee has decided to increase the capacity of the mining fleet's trucks, opting for 290-ton units that will help move an estimated 112 million tons per year of ore and waste - a 12% increase over an earlier plan. Pre-stripping of the open-pit mine will begin in 2011 to ensure that planned production levels can be achieved.

Source: Ivanhoe Mines

IVANHOE CHIEF LOCKED IN FOR OYU TOLGOI Rio Tinto's grasp on Ivanhoe Mines and the USD6-billion Oyu Tolgoi copper and gold project in Mongolia has substantially tightened. In the latest agreement between the two companies, Ivanhoe executive chairman Robert Friedland has been banned from selling his Ivanhoe shares without Rio Tinto's permission. The full agreements show Mr. Friedland has agreed he will not directly or indirectly transfer any of his or his affiliates' securities, except for some limited exceptions, before January 18, 2012, without Rio's written consent. He has also agreed to grant Rio a right of first refusal and/or rights of placement with third parties in a transfer of his securities to a third party. Rio, with 35 per cent, and Mr. Friedland, with 18.2 per cent, are Ivanhoe's two biggest shareholders. While having signed an agreement to manage Oyu Tolgoi, Rio does not have direct ownership in the project -- 66 per cent owned by Ivanhoe. The heads of agreement also shows Ivanhoe is unable to use the proceeds from a sale of any of its other assets, which include a 62 per cent stake in Ivanhoe Australia, to acquire new assets or fund existing projects other than Oyu Tolgoi or the Altynalmas gold project in Kazakhstan.

Source: The Australian RIO TINTO BUYS 10 MILLION IVANHOE SHARES FROM FRIEDLAND AT USD25.35 EACH Rio Tinto last week bought 10 million common shares of Ivanhoe Mines Ltd. from the company‟s director, Mr. Robert M. Friedland, as the two companies start collaborating in bringing into production the Oyu Tolgoi project, with enough reserves of copper and gold to keep the mine in business for 60 years. According to an announcement made by Mr. Friedland, who is CEO and executive chairman of Ivanhoe, Rio paid USD25.35 for the common shares sold by Mr. Friedland who owns 18.2 percent of Ivanhoe.

Source: Vancouverite

IVANHOE CONSIDERING TWO-PART SALE Ivanhoe Mines is likely to put itself on the block in a two-step process, which will first see it sell or spin off all its assets except its stake in the Oyu Tolgoi mine, according to a source familiar with the matter. After disposing of all of the assets except for the Oyu Tolgoi stake, Ivanhoe would look for a buyer for the part of the company not owned by its largest shareholder, Rio Tinto. Ivanhoe is valued at more than USD15.5 billion. Ivanhoe's plans could still change, the source said. Ivanhoe and Rio Tinto have put aside an ongoing spat, agreeing to a new financing plan that moved Oyu Tolgoi a step closer to getting built. Rio Tinto is in the process of lifting its ownership stake in the Canadian miner to 42.3 percent and currently has the right to buy up to 49 percent of the company. Rio and Ivanhoe have a standstill agreement that expires in January 2012 that keeps the Anglo-Australian mining company from taking majority control of Ivanhoe. Ivanhoe opened the door to other buyers in July by terminating a clause in their agreement that restricted sales to other strategic investors. But Rio still has the right to make its own offer if Ivanhoe decides to sell itself. Ivanhoe's other assets include a majority stake in Mongolian coal company SouthGobi Energy, currently worth more than USD1 billion, a stake in Ivanhoe Australia worth more than USD800 million, and a gold venture in Kazakhstan. Ivanhoe is led by colorful mining financier Robert Friedland, who already made a fortune selling an undeveloped nickel deposit. The company said in January that it had hired advisers from Citigroup and mining sector specialist Hatch Corporate Finance to eye possibilities to enhance shareholder value. Analysts have previously said that Friedland is maneuvering to prevent Ivanhoe from being acquired too cheaply by the much bigger Rio. Rio has long coveted the Oyu Tolgoi project, which it has called one of the "most attractive undeveloped copper-gold projects in the world". But other big copper miners including BHP Billiton, Xstrata, and Anglo American could be competitors for the asset. China's Chinalco, Rio Tinto's biggest

shareholder, has also expressed interest in taking a stake in the project. Source: Reuters

XANADU MINES CLOSES OVERSUBSCRIBED IPO AHEAD OF LISTING Australian-backed and Mongolia-focused minerals explorer and developer Xanadu Mines Ltd. closed its Initial Public Offer (IPO) oversubscribed and expects to list on the Australian Securities Exchange (ASX) on December 21. Through its IPO, Sydney-based Xanadu sought to raise AUD21 million at 60c a share and the offer received a significant level of support from a broad cross section of local and international investors. Due to strong demand, Xanadu‟s Board of Directors has elected to issue a further 5 million shares to accommodate oversubscriptions, taking the total amount of funds raised to AUD24 million. Apart from drilling, the additional AUD3 million raised will be used to accelerate the acquisition and consolidation of coal licenses in the Galshar Basin and to step up exploration in the South East Gobi for both coal and copper gold. Post IPO, Xanadu will be in a strong financial position to pursue an aggressive exploration program in 2011 for coal and copper gold. Xanadu Chairman Brian Thornton welcomed the Company‟s new shareholders which join a host of existing blue-chip investors in Xanadu, including Singapore-listed coal producer Straits Asia Resources Limited, The Talbot Group and Australian Investors Ltd.

Source: Xanadu Mines SOUTHGOBI RESOURCES SIGNS TWO ADDITIONAL COAL SUPPLY AGREEMENTS Mr. Alexander Molyneux, President and CEO of SouthGobi Resources Ltd., has said that the company has signed a coal supply agreement with North Asia Energy Group Limited (NAEG) for the sale of 450,000 tons of coal in 2011 and another for 500,000 tons of coal in 2011 with a large international company. NAEG is a venture between North Asia Resources Holdings Limited and China Railway Mongolia Investment LLC, which is a member of China Railway Group Limited, a significant Chinese state owned enterprise involved in railway construction and management. Importantly, CRG is a shareholder and involved in management of the new Chinese railway line from Linhe to Ceke. Ceke, approximately 45 km south of SouthGobi‟s Ovoot Tolgoi coal mine in southern Mongolia, is a major Chinese coal distribution terminal with rail connections to key coal markets in China. Pricing for the coal in both contracts will be determined by mutual agreement in advance of each quarter. “We welcome NAEG and the large international company as new customers,” said Mr. Molyneux. “These agreements are consistent with our plan to continue to increase the sales volume of SouthGobi‟s coal and broaden our customer base”. SouthGobi, which began mining coal in 2008, sold 1.3 million tons of coal in 2009. The company is on track to sell approximately 2.5 million tons in 2010.

Source: SouthGobi Resources Ltd. ENTRÉE GOLD SUCCESSFULLY TESTS CONCEPTUAL TARGETS ON SHIVEE WEST

Entrée Gold has successfully tested a number of deep conceptual targets on its 100%-owned Shivee West property in Mongolia, adjacent to the company's flagship joint venture property that surrounds the massive Oyu Tolgoi project. The 2010 exploration program on Shivee West was designed to evaluate and gain a better understanding of deep induced polarization targets, with the focus on finding mineralization at depths similar to those encountered throughout the Oyu Tolgoi mineralized system. Entrée completed ten deep holes and one shallow diamond drill hole to systematically test four target areas. While the original discovery at Oyu Tolgoi is marked by a prominent surface showing, Shivee West contains no surface indications of porphyry-style mineralization and thus the exploration team is relying on a combination of advanced exploration tools to determine possible target areas at depth. Diamond drilling commenced in June and the crew demobilized from the field in November 2010. Eleven holes were completed up to a depth of 1,650 meters for a total of 11,634 meters. The property remains prospective and results of the 2010 program will be evaluated over the winter prior to a decision on the nature and focus of a 2011 program. Surface work and drilling continues on the Javhlant and Shivee mining licenses that are in joint venture with Ivanhoe Mines, the project operator. Testing to the north of the Hugo North Extension has been under way for the past few months, but technical difficulties have delayed the program. Two core holes were completed earlier in the year on Heruga Southwest. Future drilling may be proposed on what is considered to be a highly prospective target that could extend the Heruga mineralized system southwards towards Entrée's southern Javhlant property boundary. Rio Tinto and Ivanhoe Mines are major shareholders of Entrée, holding approximately 13% and 12%

of issued and outstanding shares, respectively. Source: Entrée Gold Inc.

ERDENET MAY MERGE WITH ANOTHER JV, OFFER IPO, SAYS PUTIN Two Russian-Mongolian joint ventures, Erdenet and Mongolrostsvetmet, may merge and market their stock, Prime Minister V. Putin said after talks in Moscow with Mr. S. Batbold, his Mongolian counterpart. “We have discussed the possible merger of the two companies and an IPO,” he said. “Large-scale modernization of Erdenet and Mongolrostsvetmet is in progress, and I am confident that this process will considerably improve their competitiveness and have a positive effect on the Mongolian economy, whose personnel, resources and technological potential will grow,” Mr. Putin said. The two companies produce almost 20% of Mongolian GDP, while Erdenet provides nearly 40% of the Mongolian national budget. Mr. Sergei Chemezov, CEO of industrial conglomerate Rostekhnologii, said the governments were setting up a working group to consider the construction of a copper smelter near Erdenet‟s facilities in Mongolia. The Mongolian government and Rostekhnologii hold 51% and 49% in each of the two companies, respectively. Erdenet produces copper, while Mongolrostsvetmet focuses on mining non-ferrous metals. “Russian companies – several dozens of them are working in Mongolia – actively invest in transport infrastructure, new railroad lines, mineral survey and mining,” Mr. Putin said. “These projects build up the export potential of Mongolia, in particular, through the use of Russian seaports in trade with third countries. These are Far Eastern seaports, in the first turn,” he said.

Source: ITAR Tass, PRIME-TASS

LARGE MINING VEHICLES FLOWN FROM SCOTLAND TO MONNIS INTERNATIONAL Volga-Dneper Airlines has shipped two large mining vehicles from Prestwick in Scotland to Mongolia for use by Monnis International. The shipment consisted of two mining vehicles on caterpillar belts manufactured in Northern Ireland. Each vehicle weighed 37 tons and measured 18.8m x 3m x 34m.

Source: Heavy Lift

ERDENET TEAM VISITS OYU TOLGOI A team of 12 senior executives and specialists from the Erdenet Mining Corporation recently visited the Oyu Tolgoi project site to observe the grand development going on there. Considering that they run similar operations, there was a lot of exchange of ideas and information between the visitors and their hosts and they agreed to cooperate and to keep in regular touch. The Erdenet group was appreciative of the use of the most modern techniques and technology at Oyu Tolgoi project when compared with their own experience.

Source: Zuunii Medee

INVESTORS PUT OFF BY AREVA’S UNCERTAIN LONG-TERM STRATEGY Selling 15% of Areva to strategic investors was supposed to herald a fresh start for France's state-owned nuclear-technology champion after years of dithering. Instead, the government has come up with a temporary fix in raising USD794 million by selling just 4.8% to Kuwait's sovereign-wealth fund. Getting more strategic investors on board next year may be difficult given doubts about Areva's long-term strategy. Areva, valued at €11 billion, certainly needs a capital boost. It had net debt of €5.2 billion as of June 30, equivalent to 10 times this year's forecast earnings before interest, taxes, depreciation and amortization, or Ebitda. Delays and cost overruns have led to €2.6 billion in provisions for the nuclear plant it is building in Finland. Capital spending is running at more than €2 billion a year, twice forecast 2011 and 2012 Ebitda. Buying Siemens out of a joint venture will cost another €2 billion by 2012. Drumming up investor interest in such a politically sensitive business has proved tough. Negotiations with Mitsubishi Heavy Industries broke down over opposition from Electricité de France, the state-owned nuclear operator, to a rival equipment-maker taking a stake in Areva. So did talks with Qatar's sovereign-wealth fund, which wanted to invest directly in Areva's uranium mines, something Paris wouldn't countenance. The government has topped up the Kuwaitis' investment with €300 million of its own. But there are good industrial reasons why even long-term investors are wary of Areva. Outside of China, growth in new nuclear capacity is sluggish. Areva's new-generation reactors are too expensive and too big for many potential customers. France recently lost out to a cheaper Korean bid for a contract in Abu Dhabi.

Read more… Areva's vertically integrated business model is another reason its finances are stretched. Its business spans uranium mining, reactor design and fuel reprocessing. It has branched out into wind and solar power. The government has hinted at a more profound restructuring, such as merging its mines with 26%-held mining group Eramet. Amid such uncertainty, Paris has had to guarantee the Kuwaitis not to sell Areva stock below the subscription price for 18 months, sensible insurance for the only investor yet to show some confidence in France's nuclear ambitions.

Source: The Wall Street Journal Asia

RIO TINTO SCHOLARSHIP FOR 20 STUDENTS Rio Tinto, working in cooperation with Zorig Foundation, has awarded scholarships to 20 students of domestic universities in the present academic. They are majoring in geology, mining, economics, and law. At a recent ceremony to formally announce the recipients MP S. Oyun, representing the Foundation, expressed her thanks to the company for its gesture, while the Executive Director of Rio Tinto, Mr. Tom Albanese, emphasized that “even with its abundant natural resources Mongolia‟s biggest asset was its young, energetic, and educated people”. The company, he said, was happy to have granted scholarships to 56 students since 2006. Apart from covering their entire tuition fees, the program pays USD200 to every student per month.

Source: Zuunii Medee

GE SEES GROWTH AT CORE UNITS, TO FOCUS ON EMERGING MARKETS General Electric Co.'s chief executive Jeffrey Immelt has said the company's giant industrial arm will return to growth in 2011 and help generate solid earnings gains over the next two years, reflecting continued improvement in the economy and GE's core businesses. A year ago, Mr. Immelt acknowledged that investors had been "put through a lot" after GE was forced to make a historic dividend cut to conserve cash and lost its cherished Triple-A credit rating. This year, the company has been steadily climbing back. Last week, it announced its second dividend increase in five months and said GE Capital could start making cash payments up to GE again in 2012. GE has moved to bolster its industrial businesses via acquisitions, particularly in the energy field. Executives at the conglomerate said in October that GE has the firepower to spend "USD30 billionish" on acquisitions over the next two to three years. Mr. Immelt said investors should expect more "bolt-on" acquisitions of USD1 billion to USD3 billion in size. "I have no compulsion to spend $20 billion on acquisitions in coming years," he said. "There's never going to be one magic bullet with GE." GE is also ramping up spending on R&D, producing products for a wider range of budgets and focusing on emerging markets like China and India, where it has struggled to meet growth targets in the past. GE also plans to invest more than $2 billion through 2012 to boost research and development in China and fund new local joint ventures in areas such as technology and financial services. It has major joint ventures with Chinese companies in areas such as aviation, wind power and high-speed rail. "There's no one strategy in China," Mr. Immelt said. "We have a nuanced strategy in China."

Source: The Wall Street Journal Asia

KEY PROJECT ORDER BUSINESS PICKING UP PACE: SANDVIK Engineering group Sandvik, which works in Mongolia, has said its key project order business picked up pace after it unveiled mining orders worth USD317.5 million last week. Sandvik announced orders for bulk materials handling and mining and construction gear in South America, Africa and Asia, in what it said was a sign that demand stemming from major capital investments in mines had begun climbing. "There is nothing surprising regarding this order booking. These are things we have known about. It has been a question of timing, and they have now come through," Sandvik Mining and Construction unit head Lars Josefsson said. In recent months mining companies such as Brazilian iron ore giant Vale and Rio Tinto have announced sharp increases in their planned investments, setting the stage for more business for Sandvik.

Source: Reuters

SPONSORS

Khan Bank Eznis Airways

Mongoilia Web Mongolia National Broadcasting

ECONOMY ADB FUNDS USD72 MILLION STATE-OF-THE-ART LOGISTICS CENTER AT ZAMYN UUD Mongolia with support from the Asian Development Bank (ADB) will build a state-of-the-art road/rail linked logistics facility that will help expand and speed up trade, and increase the landlocked country's global competitiveness. ADB's Board of Directors approved loan and grant assistance of USD45 million equivalent for the Regional Logistic Development Project, which will put up a container terminal with road and rail links in Zamyn Uud, a poor, isolated desert area on the southeast border with China. In recent years, strong economic growth has seen Mongolia's trade volumes rise sharply with more than 80% of imports now coming from China, via Zamyn Uud, while the bulk of exports also pass through the same border point on the way to Tianjin port. The growth in traffic has sharply outstripped existing facilities, resulting in lengthy delays in trade and traffic movements, with up to 50 to 60 days needed to get shipments to Ulaanbaatar. With the discovery of large reserves of coal and minerals destined for markets in the China, the need to upgrade and modernize the crossing point has become acute. According to ADB, the new terminal will have modern customs and quarantine facilities and road and rail access which will reduce transit times, expand capacity and improve staff productivity. Management of the facility will be contracted out to a private operator. ADB will also provide training and other support to government staff engaged in implementing and overseeing the project. It will also create livelihood opportunities in the service sector for poor, rural herders living in areas surrounding the center, as well as opening up prospects for public-private partnerships and private investment in other transport-related infrastructure. ADB's assistance will make up almost 63% of the total project cost of about USD71.6 million. It will include a 32-year loan of USD40 million with an 8-year grace period carrying an annual interest charge of 1%, rising to 1.5% for the balance of the term. It is also extending a grant of USD5 million. The Government of Mongolia will provide the remaining USD26.6 million. The Ministry of Road, Transportation, Construction and Urban Development is the executing agency for the project which is due for completion in December 2015.

Source: The Financial

SOCIAL, ECONOMIC DATA The National Statistics Office has released figures for key indices in several sectors. They relate to November or to the period January-November, unless otherwise stated. The comparisons are with the corresponding period in 2009, unless, again, otherwise stated. Consumer price index The national consumer price index rose 1.5 percent over the previous month, 10.3 percent over the end of 2009, and 11.1 percent over November last year.

Unemployment Of the 1,192,700 people aged 15 and above and fit for work, 53.4 percent are men. Of the total, 103,100 were unemployed, of whom 59,500 were male. The percentage of unemployment was 8.6 nationwide, a fall of 1.9 percent, and 10.5 percent in Ulaanbaatar, 3.1 percent less than in 2009. The number of registered job hunters at the end of November was 2.2 percent more than in 2009. Budget, tax receipts The General Government Budget showed a surplus of MNT 71.0 billion at the end of November. The current account surplus stood at MNT 669.0 billion. Tax revenue was MNT 916.7 billion or 65.3 per cent more than in 2009. Receipts from the windfall profit tax rose MNT 221.5 billion or 250 percent, from corporate income tax MNT155.6 billion or 84.9 percent, from value added tax MNT209.8 billion or 72.8 percent, and from excise tax MNT97.9 billion or 67.5 percent. Industrial output Industrial output rose 12.0 percent in the first 11 months of 2010. External trade The total turnover of trade with 130 countries in the first 11 months of 2010 reached USD 5,421.8 million, a rise of 51.0 percent. Exports accounted for USD 2,550.6 million of this, showing an increase of 52.0 percent, while imports amounted to USD 2,871.1 million, rising 50.2 percent. External trade balance deficit stood at USD 320.5 million, rising 37.1 percent. Household economics Average monthly household income in the third quarter of 2010 was MNT425,200, 24.2 percent more than in the same period of 2009. Average expenses were MNT465,400, a rise of 23.2 percent. Construction Altogether 90.7 percent of the total construction and installation work in the first 11 months of 2010, valued at MNT 207.1 billion, were executed by domestic entities. Passengers, freight The number of railway passengers in the first 11 months of 2010 rose 13.0 percent and the volume of freight by 19.0 percent. The revenue from railway transport increased by 36.5 percent. The number of air passengers grew by 27.1 percent, and the volume of freight by 21.6 percent. Revenue from air transport increased by 13.6 percent. Social insurance, cash allowance Altogether 556,800 people were registered in social insurance, of whom 342,700 or 61.6 per cent were from Government establishments, and the rest from the private sector. The total amount of pensions paid in the first 11 months of 2010 was MNT322.9 billion, of which retirement pensions accounted for 73.6 per cent, pensions for the disabled 12.6 percent, breadwinner loss pension 7.1 per cent, and military pension 6.7 percent. In these 11 months, social welfare pensions and benefits were paid to 55,700 people, 1,200 or 2.2 percent more than in the same period of 2009. The total amount paid was up by MNT1.9 billion or 8.3 per cent. Altogether MNT228.6 billion was distributed to 2.6 million people from the Human Development Fund on the first 11 months of 2010.

Source: Montsame

GOODBYE TO THE 68% TAX, BUT CENTRAL BANK MAY NOT RECEIVE MORE GOLD It is funny or tragic depending on which side you see it from. Recently, 13 Koreans going home were caught with altogether 13 kg of gold stuffed in their rectum. Such extreme measures may not have been very common, but regular smuggling out of gold ever since the 68% windfall profit tax was imposed has been very common. Indeed, the mandatory deposit of gold at the Central Bank dropped from 15.2 tons to just 2 tons this year. Mr. P. Ochirbat, Mongolia‟s first President and now Director of Sustainable Development Center, has said the tax “pushed the entire gold trade outside the law”. With just days left before the 68% tax becomes history on January 1, what are the chances that substantially more gold would be deposited at the Central Bank? Most extractors would be happy to abide by the law if they find it reasonable. However, the implementation of the law banning gold mining in river basin and forest areas has upset all calculations. It is well known that many in both

the Ministry of Mineral Resources and the Central Bank feared that the law would go against the country‟s economic interests, especially as the global price of gold hits the roof. Extractors were hoping to grab the chance, but now do not know where they stand.

Source: Onoodor

CENTRAL BANK BUYS USD43.8 MILLION FROM BANKS AT AUCTION The Central Bank purchased the entire amount of USD 43.8 million in various currencies offered by commercial banks at the regular currency auction last week. It defended its action on grounds of the current market situation, the state of the currency flow, and extreme fluctuation in exchange rates.

Source: Zuunii Medee

LOANS FALL M-O-M Money supply (broad money or M2) at the end of November was 1.7 percent more than at the end of October, and 45.0 percent more than at the end of November last year. Loans outstanding at the end of November fell 2.6 percent from the end of October, but increasing 14.4 percent over the same period last year. Principals in arrears rose 14.2 percent over the end of October, and 46.0 percent over the end of November, 2009. Non-performing loans were 32.0 percent less than at the end of October, and 40.1 percent less than at the end of November, 2009.

Source: The Central Bank 101 OF 337 REGULATIONS TO BE CANCELLED Deputy Prime Minister M.Enkhbold, head of the working group charged with implementing business environment reforms in 2010, has said it has been decided to cancel 101 of the 337 regulations enforced by 11 ministries and 25 agencies. NGOs will be responsible for enforcing 10 of those remaining. This freedom from unnecessary paperwork and bureaucracy will be most visible in the construction sector where end of work on a building needs to be certified by 118 officials at present. The group seeks to bring this down to 56. The group‟s decision will need some laws to be changed and this will need Parliamentary approval.

Source: Ardiin Erkh

KOREA DEVELOPMENT BANK SUGGESTS COOPERATION TO PM BATBOLD A Korea Development Bank (KDB) delegation headed by Mr. Euoo-Sung Min, its Chairman and CEO, called on Prime Minister S.Batbold last week to express their interest in cooperating with Mongolia in running its recently established National Development Bank. The KDB also wants to collaborate with Mongolia in developing its capital and financial market, creating capital accumulation, sharing experiences in attracting investments and training experts. Mr. Batbold was favorable to the suggestion and asked the KDB to submit a detailed proposal on the form the cooperation will take.

Source: Montsame

MPs WANT INTERNATIONAL AUDITS OF STATE-OWNED COMPANIES Two DP MPs, Mr. Ya. Batsuuri and Mr. E. Bat-Uul, have expressed concern that state-owned companies are “used as milch cows” by those in power and said that until there is operational transparency in them, they “will remain hotbeds of corruption”. Some time ago, they wrote to Prime Minister S. Batbold demanding that the accounts of all large state-owned companies be “audited by firms with an international profile”. They included the Erdenet Factory, Ulaanbaatar Railway, MIAT, the Civil Aviation Authority, all power stations, and some coal mines among entities they would like to be so audited and asked for the audit reports to be presented to Parliament. The Prime Minister has not yet responded to the letter but the Head of the Cabinet Secretariat, Mr. Ch. Khurelbaatar, attended a debate in Parliament on the issue. During the debate Mr. Bat-Uul made the point that political parties and politicians consider corruption only as an election issue and ignore it the rest of the time. Allegations of corruption are regularly brushed under the carpet. When he asked Parliament to be more active “to arrest this damage to society”, Mr. Ts. Nyamdorj, Minister of Justice and Internal Affairs, interjected to say that “there is no need for this”. Mr. Khurelbaatar later said “concentration of power in Parliament is one reason of increased corruption”. Centralization of authority gives MPs too much leeway and transferring some budgetary and monetary rights to local governments would help reduce corruption. He wanted Parliament to retain the right to monitor the performance of local governments, but not control

their work. He felt MPs should behave less as executive officials and focus on their monitoring role. Source: Udriin Sonin

MONGOLIA’S STORY HAS BEGUN, BUT A HAPPY ENDING IS A LONG WAY OFF In a recent survey carried out by Canadian group Fraser Institute, Mongolia was dubbed the second-worst destination for mining companies, dumped unceremoniously behind the likes of Venezuela and the Democratic Republic of Congo. But, nestled deep between Russia and China, this once-overlooked country plays host to potentially some of the world's largest mineral deposits - a fact that cannot be ignored by the global mining industry. Despite bearing witness to little exploration, it is believed Mongolia has one of the largest undeveloped copper, gold and uranium deposits in the world, as well as the largest untapped supply of coal. Its location leaves it perfectly positioned to take advantage of the ferocious appetite for metals and coal from neighboring China, which will be the principal driver of demand for Mongolia's mineral wealth. Unfortunately for Mongolia, there is little in the way of domestic investment, so foreign investment is vital if it has any hope of overhauling its economy and transforming its poor transport infrastructure. At present, just 5% of its population is involved in mining - the very industry that is shaping up to define the country's future. Net foreign direct investment jumped by 62% in the second quarter of this year, principally driven by investment flows for mining. "Powered by the growth in the mining sector, specifically demand for copper and coal from China, the economic outlook for the country looks stable and positive," says analyst Edwin Lloyd at Edison Investment Research. Mongolia continues to try and forge a relationship with countries outside of neighboring Russia and China, developing a "third neighbor policy" and making efforts to develop business relationships with Korea, Japan, the U.S., Canada and the EU. These efforts would appear to be paying off, with the World Bank Report for 2010 ranking Mongolia 60th in terms of ease of doing business - ahead of China at 89 and Russia at 120. The country passed the tipping point when it finally signed a large and significant deal with Rio Tinto and Ivanhoe Mines to develop the largest undeveloped copper and gold deposit in the world, Oyu Tolgoi. The International Monetary Fund said of the deal: "Mongolia's economic prospects received a big boost with the signing of the Oyu Tolgoi investment agreement." Read more… And it came one step closer to getting built last week after the partners struck a new financing plan. "The Oyu Tolgoi project is a natural fit with our strategy of focusing on low-cost, long-life assets with significant growth potential. Together with Ivanhoe and the government of Mongolia, we are determined to develop Oyu Tolgoi in a sustainable, mutually beneficial manner for the people of Mongolia," Rio Tonto chief executive Andrew Harding said. Mr. Lloyd says the development of the Oyu Tolgoi mine alone will be "transformational", with Mongolia poised to "generate the highest rate of growth of GDP of any country in the world over the next 10 years". But more importantly, the deal, struck towards the end of last year, was seen as a crucial turning point in the way the nation viewed foreign direct investment, helping to pave the way for a pipeline of other contracts to be negotiated. Nevertheless, there remain hurdles in the road for the government which is torn between encouraging foreign investment and satisfying nationalistic sentiment. It has pledged handouts to every person in the country, and in October announced a 30% increase in public sector wages. On top of this, the Windfall Profits Tax expires in January, which accounted for up to 20% of government revenues, and there are no further plans for continued support from the International Monetary Fund and World Bank. "Combined, these mean the government has to implement a strict fiscal policy over the next 18 to 24 months. This increases the need for foreign investment to exploit the mining sector," Mr. Lloyd explains. However, while it may require greater foreign investment, environmental issues have thrown a spanner in the works. Earlier this year, Canadian miner Khan Resources saw its uranium mining permits canceled - a decision it continues to fight - while just last month, Mongolia's minister for mineral resources and energy, Mr. D. Zorigt, revoked 254 gold mining licenses, while a further 1,700 licenses have fallen under review, as a result of the Water and Forest Law, which prohibits mining operations in water basins and forest areas. It is believed small and unqualified miners were the target, with fears that the licenses were not properly explored and well thought through. However, it highlights the struggle the country faces as it seeks to find the right balance between surging foreign interest and avoiding the mistakes made by other poor but mineral-rich countries.

Mr. Lloyd warns: "The government needs to balance a political mindset with the need to develop the enormous opportunities available, for which foreign direct investment is required. There are practical issues to investment too with a chronic lack of infrastructure." He also notes that Mongolia would need to be careful to avoid misusing the revenues from mining. "The current redistribution of wealth is because of pressure to give away some of these mining revenues. As elections in 2012 draw nearer there will inevitably be pressure on politicians to buy voters," he concludes. So while Mongolia has all the markings of a 'rags to riches' tale, it looks like the happy ending still has some way to go.

Source: Interactive Investor

IVANHOE-RIO DEAL GREAT NEWS FOR MONGOLIA Mongolia has passed an important milestone underpinning the core of its growth for much of the next century. Any market uncertainty around Ivanhoe‟s Oyu Tolgoi construction being completed on time was diluted this week with Rio Tinto stepping forward as the lender of last resort. The often impatient capital markets were disappointed as Rio Tinto was not about to launch a takeover with the Ivanhoe share price trading off 14%, but in what would have only altered focus for construction and shifted attention to board room discussions around bid price and documentation for six months, it was an overall clear and simple win for Mongolia. With Rio Tinto underwriting Mongolia‟s growth for the better part of the next century, the country will see spending of USD4.6 billion in next two years at OT vs. current GDP of only USD5 billion. With on-site workers doubling to 14,000 in 2011, Mongolia will benefit with further import of skills, training and development. And with copper climbing over USD4/lb again, it is a mere 730 days before OT will start to begin “paying back” to Mongolia in an initial but quickly improving way.

Source: ResCap

RUSSIANS KNOW MORE ABOUT URANIUM HERE THAN MONGOLIANS Uranium exploration in Mongolia was under the coal and oil exploration program until 1960 when geologists from the Soviet Union took up the job. Then the Governments of the then Republic of Mongolia and the Soviet Union signed an agreement in 1970 setting up a uranium geological mapping program under the Ministry of Geology, and the work was mainly restricted to Eastern Mongolia. The program was run with Soviet Union funds, technology, equipment and human expertise between 1970 and 1990. Work over these two decades discovered six uranium deposits, in Dornod, Gurvanbulag, Mardai, Nemer Kharaat, Narst and Ulaan. The total reserve was estimated to be 1.5 million tons. The State Mineral Resources Commission of the Soviet Union approved the estimate and the Dornod deposit was chosen to be mined first in the open method and the Erdes mining factory was established. The maps were on a scale 1:1 500 000 and prepared in as much detail as was possible those days, indicating the scientific basis of all possible future uranium exploration. All the data contained in 190 reports pertaining to the six deposits are in Russia, while Mongolia was given copies of just 34. Therefore, Russians know Mongolian uranium better than Mongolians. Read more... Mongolia and Russia jointly owned the Mardai deposit mine in Dornod province and mining ended in the 1990s when Russians went home. But the Erdes factory was also 50% owned by Mongolia‟s state-owned Uran factory from 1993. However this was winded up following a Government decision in 1998. The Gurvansaikhan LLC was established with Russian participation in December, 1994 with shares held by Mongolia, Russia and a Bermuda-based company. The agreement was that Mongolia‟s 15% share lay in it providing the research area including Choir, Ulziit, Khairkhan, Undurshil and Gurvansaikhan. MNT1.5 million was paid to the state-owned Uran factory. Russia was to provide the research equipment and manpower and to own 15% to the Geolograzvedka concern. The Bermuda company, Energy Fuels, was to invest all the capital and to own 70% of shares. These have since been transferred to International Uranium Ltd, a company under the Denison Mines so the Gurvansaikhan LLC has become Mongolia-Russia-USA invested company. Mongolians started to show interest in uranium from 2000 and since then 129 exploration licenses have been granted to 18 foreign and domestic invested economic entities. Russia retains a keen interest in the uranium field and we wait to see what the shareholding will be in the proposed Russia-Mongolia cooperation venture Dornod Uran.

Source: Ardiin Erkh

TRANSIT CARGO AGREEMENT SOON, SAYS COMMUNIQUE The joint communique issued at the conclusion of Prime Minister S.Batbold‟s visit to Russia says the two sides will soon sign an agreement on transit of cargo from Mongolia across Russia and will coordinate the enlargement of the charter capital of the Russian-Mongolian Ulaanbaatar Railway, both shareholders contributing equal amounts, which will modernize the company and promote the development of the Mongolian railroad infrastructure. Mr. Putin later said that Russia would pay its share without waiting for Mongolia to make its contribution. In addition, the sides will coordinate terms of the participation of the Infrastructural Development Russian-Mongolian joint venture and its partners in the construction of new railroads to be linked to the Ulaanbaatar Railway and transit of mining products from Mongolia to the Russian Far Eastern seaports.

Source: ITAR Tass

MEN EARN MORE THAN WOMEN The National Statistics Office has found that the average salary for women workers is 13.5% less than for men. The key reason is that more men are employed in higher-paid sectors such as mining, construction, transportation, energy, finance, state management and defense, while women mostly work in education, health, trade, service, hotels, restaurants and social welfare fields. For instance, women are 94% of primary school teachers, 71% of teachers in intermediate classes of secondary schools, and 60% of those in professional training schools. Even in sectors where women are a majority, men get more salary as they hold management positions. The Center of Development of Gender Equality has suggested preparing women for non-traditional jobs that pay more.

Source: Ardiin Erkh

NEED FELT TO USE WOMEN TO OPERATE HEAVY MACHINERY The Mongolian National Mining Association and Energy Resources LLC recently decided after a meeting that the present manpower situation in the country called for a review of a 1999 decree that bars women from operating heavy machinery. The mining industry needs more heavy machine operators than they get now and that is why it is considering employing women.

Source: The Mongolian National Mining Association

PERU SEES APPROVING KEY COPPER PROJECTS SOON Mines and Energy Minister Pedro Sanchez last week said Peru expects to approve the environmental impact studies for copper projects of Southern Copper, Xstrata and Chinalco by the middle of 2011, which would give the green light to USD7 billion in investments. Peruvians in the southern region of Arequipa have opposed the USD1-billion Southern Copper project over worries about water supplies. Southern Copper is a unit of Grupo Mexico and one of the world's largest copper producers. Mr. Sanchez also said that his ministry will approve the environmental study for Chinese miner Chinalco's $2.2 billion Toromocho project before the end of this year. Chinalco recently said that it expects to open the Peruvian copper mine -- which will produce 900,000 tons of copper concentrates per year -- in the second-quarter of 2013 instead of late 2012 as it works to get all its permits from the government. Peru will also expect to approve Anglo-Swiss Xstrata's copper project Las Bambas before the end of President Alan Garcia term in July of 2011, Mr. Sanchez said. Las Bambas will require investments for USD4.2 billion and produce some 400,000 copper concentrates per year. Peru is the world's second biggest copper producer after neighboring Chile.

Source: Mining Weekly

CHINA SETS POLICY TO REIN IN INFLATION China will step up efforts to fight inflation next year after prices rose more than 5 per cent in November, according to a statement released after an annual economic policy meeting in Beijing. The 5.1 per cent rise in the consumer price index in November was higher than expected, and up from 4.4 per cent in October. It is also well above the government‟s 3 per cent inflation target and will increase pressure on the authorities to raise interest rates and further rein in the huge monetary stimulus of the past two years. State media said on Sunday, at the end of a three-day conference to set economic policy for 2011, that the government‟s goal would be to battle inflation without jeopardizing growth. “The priority is to actively and properly handle the relationship between steady and relatively fast economic growth, economic restructuring and managing inflation expectations,” state radio reported.

“Strategic economic restructuring will be accelerated and stabilizing price levels will be given a more prominent position.” State media also reported that conference had reiterated that Chinese currency policy would remain basically stable next year. China remains under heavy international pressure to allow the renminbi to appreciate. Read more... The annual economic meeting chaired by Mr. Hu Jintao, China‟s president, reaffirmed a shift to a “prudent” monetary policy from the previous “appropriately loose” stance. The shift was announced by the Chinese Communist party‟s ruling body last week, raising expectations for an imminent increase in interest rates. The central bank raised reserve requirements for commercial banks on Friday – for the sixth time this year and the third in just over a month – to drain liquidity from the financial system. The weekend‟s inflation data, combined with a renewed surge in fixed asset investment and exports, will fuel concerns that the economy is overheating. The biggest contributor to rising inflation was food prices, which increased 11.7 per cent year-on-year, against 10.1 per cent in October. Non-food inflation also rose from 1.6 per cent in October to 1.9 per cent.

Source: The Financial Times

CHINA’S EXPORTS SURGE MORE THAN EXPECTED China recorded another large trade surplus in November of USD22.9 billion as both exports and imports grew strongly, putting more pressure on the Chinese authorities to raise interest rates and let its currency appreciate. Exports grew 34.9 per cent in November over the same month the year before, much faster than forecast, and potentially a sign that demand from developed economies is picking up. In October, exports rose 22.9 per cent. Imports to China were also well ahead of forecasts, increasing by 37.7 per cent over the year before, compared to an increase of 25.3 per cent in October. The trade surplus was down from the USD27.15 billion registered in October, but ahead of forecasts and still one of the biggest ever recorded. Economists said the strong surge in exports and large surplus comes amid continued international pressure for China to allow the renminbi to appreciate more quickly, especially as the Chinese currency has actually been getting weaker against a basket of its main trading partners‟ currencies in recent weeks. China‟s State Council, the cabinet, recently formally changed the description of monetary policy from “moderately loose” to “prudent” over the next year. Interest rates have been hiked once already. Inflation in October jumped to 4.4 per cent, well above the government‟s 3 per cent target. However, some economists believe that the Chinese authorities have been too slow to tighten policy and control inflation, which could be made worse by the surprising strength in exports.

Source: The Financial Times

U.S. REPORT ASKS CHINA TO IMPROVE MARKET ACCESS The U.S. has raised the pressure on China to improve market access for foreign companies with the release of a highly critical report examining Beijing‟s policies. A package of Chinese policies aimed at encouraging local innovation are “expected to make it difficult for foreign companies to compete on a level playing field in China”, said the International Trade Commission, a U.S. government agency, in a report released on Monday night just ahead of the annual meeting of the Joint Commission on Commerce and Trade. The ITC report is the first of two which, on the request from the U.S. Senate, will attempt to measure the impact of intellectual property rights infringement in China and Chinese innovation policies on the U.S. economy. If the second one, due next May, diagnoses sizeable damage to U.S. companies and jobs, it could become the basis for U.S. trade action against Beijing. The ITC also said US receipts of royalties and license fees from exports to China suggested widespread infringement of intellectual property rights and market access problems. In addition, it criticized Chinese policies aimed at promoting innovation that had spurred a boom in opportunistic and predatory patent filings used against foreign companies, and said that China‟s practice of establishing rival standards often amounted to a discrimination against overseas suppliers. Read more… The ITC report‟s findings echo growing complaints from foreign companies operating in China, most clearly expressed in a rare outburst by Mr. Jeffrey Immelt, GE chief executive, earlier this year. In July, Mr. Immelt accused the Chinese government of becoming increasingly protectionist. Chinese

officials have repeatedly addressed this mood with public pledges that foreign companies continue to be welcome. However, key Beijing policy measures which could have an opposite effect are still looming. These include the creation of a catalogue of products eligible for favoured status under an innovation program in government procurement and a definition of information security related products which could determine the range of future market access for foreign investors in the technology sector. Industry executives believe either could come before the end of the year.

Source: The Financial Times

IMF WARNS MOSCOW TO CUT DEFICIT OR FACE INFLATION Russia must reverse stimulus spending which was ramped up during the country‟s economic meltdown last year, or face stagnant growth rates and rising inflation for years to come, the International Monetary Fund has said. An IMF mission headed by Mr. Juha Kahkonen, deputy director of the Fund‟s European department, told a press conference last week that Russia must substantially reduce its non-oil budget deficit – the gap between federal revenues and expenditures, minus oil revenues, which had ballooned over several years. These increases were mainly in pensions, which went up by 4.5 per cent of gross domestic product in 2009 and 2010, designed to both stimulate the economy and ensure political stability as unemployment rose during the crisis. In 2009 Russia ran the first budget deficit in 10 years in an attempt to stimulate GDP growth, which fell 7.9 per cent for the year. The problem, said the IMF, was that much of the increase in stimulus spending, such as the pensions increase, was permanent commitments which could not be easily rolled back, meaning Russia would have to find other places to cut spending. The Fund supports the government‟s target of 4.7 per cent of GDP for the non-oil budget deficit, which it recommends be reached by 2015. However, Russia‟s current three-year budget plans foresee a reduction of the non-oil deficit to only 10.5 per cent of GDP. “A more ambitious, growth- friendly, and credible government budget deficit reduction than currently planned is needed,” said Mr. Kahkonen. “Russia should rely on the private sector, as the public sector is not an engine of growth,” he said.

Source: The Financial Times

POLITICS 20TH ANNIVERSARY OF DEMOCRATIC REVOLUTION COMES TO AN END The 20th anniversary celebrations of the Democratic Revolution came to a close last week with a special meeting in Government House attended by several who led the movement to break free of the totalitarian regime. Mr. D.Battulga, head of the President‟s Office, read out President Ts.Elbegdorj‟s congratulatory message to “all the heroes on the path to democracy and to the Mongolian people who have made a success of democracy”. The President said independence in the real meaning of the term was the national dream, and needed effort and struggle to achieve. “I am confident that we can strengthen democratic values, providing citizens with a chance to actively participate in decision making and instil a sense of justice in Mongolia. This will come only when every citizen works with responsibility and honesty, and leads a life of commitment and conviction,” he said. Deputy Prime Minister and the Chairman of the DP, N.Altankhuyag, said the celebration would be incomplete without remembering those who have died in the past 20 years, many at a young age like S.Zorig, J.Narantsatsralt, S.Batchuluun, G.Gankhuyag, B.Galsandorj and S.Batsukh. He also mentioned the head of the MPRP Politburo, J.Batmunkh, and a member of it, Ts.Namsrai, who played important roles in ensuring a peaceful transition to democracy. The meeting stood up to honor their memory. Read more... Mr. Altankhuyag also congratulated all those living and apologized to them for mistakes that have been made, reminding them that the democratic revolution is not over and is not yet perfect. The second stage would consist in eradication of poverty and unemployment with the growth of industry. MP and the Head of the Democratic Union of Mongolia, Mr. Kh.Battulga, said in his speech, “I do not want to be a rich businessman of a poor country. Affluent ministers and MPs should remember the poor people they represent. We have to pay attention to the economic disparity among the population, not the least because national security is linked with economic freedom.” Publicist Baabar said there has been success in increasing the number of livestock to 50 million, in

quadrupling the GDP, and raising average life expectancy. However, human trafficking continues, and the drug trade is spreading, along with AIDS and smuggling. Baabar ended his speech by saying, “I believe in Mongolia‟s great future and may God bless Mongolia.”

Source: English.News.mn

RUSSIA, MONGOLIA REACH AGREEMENT ON URANIUM JOINT VENTURE Russia and Mongolia have signed an agreement specifying general principles of creating a joint venture to develop Mongolia‟s biggest untapped uranium field, the Dornod resource. The agreement was signed in Moscow between Rosatom Corp., Russia‟s nuclear power company, Russia‟s government-run ARMZ Uranium Holding, Mongolia‟s state-owned KOO MonAtom and the country‟s Nuclear Energy Agency. The company's board will consist of ten members, evenly representing Russian and Mongolian interests. Share allocation will be 49% to ARMZ, and 51% to Monatom, ensuring Mongolian control. The agreement further thwarts the hopes of Canadian based Khan Resources, which had intended to develop the Dornod deposit after acquiring a mining license and conducting a feasibility study in 2009. The mining license was then suspended twice as the company became swept up in new ownership laws that require compulsory state ownership of at least 51% of any uranium venture. In a dragged out battle, Khan was then subject to a hostile takeover bid by ARMZ late in 2009, and in April 2010 the NEA ruled that Khan's mining license was invalid, although a later Mongolian high court decision overruled this. Russian investment in the first stage of the project is USD300 million, Rosatom chief Sergei Kiriyenko said. Production may start next year. ARMZ Deputy General Director Tigran Khachaturov said the agreement was supplemented with an action plan, which said that the joint venture would start to function in 160 days. Mr. Khachaturov estimated the Mongolian uranium reserves at 30,000 tons. The new company “will survey, mine and process uranium”, he said. “We did not discuss the possible turnout because we needed to draft a feasibility study first,” he said.

Source: Bloomberg, ITAR Tass, World Nuclear News

“ONLY TOTALITARIAN METHODS CAN REDUCE SMOKE IN CITY,” SAYS MINISTER Minister of Justice Ts.Nyamdorj (MPRP) has said only “totalitarian methods can reduce the smoke in Ulaanbaatar”. A strict ban has to be imposed on use of firewood and coal in the city and this will never be possible “if we talk about democracy and human rights”. The Government will keep on spending billions of MNT to reduce the smoke without result. He was taking part in a Parliamentary discussion on proposals suggesting some definite improvement measures in the power sector. MPs expressed concern that a study has warned that generation will not meet the country‟s energy demand as early as 2013. Power stations survive on subsidies from the Government and their total indebtedness now is MNT500 billion. Mr. L.Gantumur (DP) called for electricity to be free during certain hours of the night so that heating ger districts at night would lead to less pollution. This will require use of advanced techniques and technology but he was confident Mongolian engineers would prove capable of this. The Ministry of Mineral Resources and Energy was asked to make a detailed study of the possible impact of the apparently unenforceable suggestion. Mr. D.Enkhbat (Green Party) said the entire amount of the MNT805 billion proposed to be given as allowance should be used to upgrade the electricity sector, especially to provide ger districts with adequate electricity and heating. He also felt the present system, which ultimately leads to ger district residents subsidizing electricity and heating expenses of apartments, must end.

Source: English.News.mn

FEES FROM POLLUTERS TO ACCRUE IN CONSERVATION FUND Ulaanbaatar‟s air pollution has been talked about for many years. At last, a law on fees for air pollution has been adopted. The main concept of the law is that a person or an organization that pollutes the air will pay money and air pollution will be reduced with this money. As it is a new form of duty, it will not be effective on a broad scale and the legislation imposes fees on 6 subjects. For instance, a duty of MNT1 is imposed on each kg of coal being extracted by industries. With the accumulated money, a conservation fund will be founded. The law also includes a clause that if a coal mine operates a processing plant, it will be 100 percent exempted from the fee. Additionally, the law creates a mechanism to not burden coal extractors. For example, coal extractors in Nalaikh and Baganuur districts can be exempted from the fee if they process coal. The law on air pollution fees is not just a way of receiving money, but is directed

in the reduction of air pollution and creates leverage for companies to produce end-products. In the law, automobiles that operate on electricity and gas, or new cars, have been exempted from the fee. Depending on the amount of carbonic acid gas emitting from automobiles in the air, different fee amounts will be imposed. It means that the fee will be higher if an automobile has a larger engine. State administrative organizations responsible for road and transportation are working to settle size of fees in collaboration with the government. Read more… Besides smoke, the smells from organic solvents pollute the air as well. People who stay in rooms whose walls were painted with Chinese paint are particularly vulnerable to suffer from allergic and asthmatic reactions. The fee is to be imposed on organic solvents because there are main air polluters among them. The government sets a fee worth MNT10-30 per a kg on organic solvents depending on their toxicity and evaporability. Moreover, power stations and thermo stoves are involved in the fee because they emit smoke and dust. Mr. Ts. Banzragch, chief of Sustainable Development and Strategy Department at Environment and Tourism Ministry, has said, “It is the newly adopted law. The ministry‟s main principle „polluter shall pay‟ has become the main principle of this law. In other words, recent activities are conducted to reduce air pollution of Ulaanbaatar with all tax payers„ money while only some people pollute the air. All people should obey the law. I would like to give one example. I saw a person on TV saying, „Condensed fuels provided by the city administration is not good and I would like to use crude coal. ‟ Using crude coal is harmful not only for him but his family members as well. It is not just the work of the Environment and Tourism Minister and UB Mayor, but all citizens are responsible for reducing air pollution. Citizens need to pay attention to these matters.” The government approved the „Fresh Air Fund‟ rule and monies from the fee will be accumulated in this fund, not the State Budget. It is estimated that MNT30 billion will be accumulated in 2011. It is intended to reduce air pollution by 10 percent in 2011 and 50 percent by 2015. Source: Mongolian Views

MONGOLIA TO PAY USD3.8 MILLION TO SETTLE DEBT TO RUSSIA An intergovernmental agreement has settled Mongolian debts to Russia, which formed in the Soviet period, Russian Prime Minister V.V. Putin told media after his talks with his Mongolian counterpart, S. Batbold. The debts were settled “on terms most preferential for Mongolian friends”, he remarked. Russia wrote off 97.8% of the Mongolian debt of USD172 million, Deputy Prime Minister and Finance Minister Alexei Kudrin said. Mongolia would pay the remaining debt of USD3.8 million in one transfer. Source: ITAR Tass

HOUSEHOLD CORRUPTION DROPS TO RECORD LOW, BUT BRIBE AMOUNTS RISE Although there is a significant distance to cover before Mongolia eradicates corruption, many signs are pointing in the right direction, according to the Asia Foundation‟s 10th Corruption Benchmarking Survey (CBS), released recently. The survey is the only tool that measures both public perceptions of institutional corruption, and the impact of petty corruption on the day-to-day life of Mongolian households. Conducted twice a year in collaboration with the Sant Maral Foundation, it provides a unique and robust tool for government policy-makers, enforcement bodies, and civil society groups to observe and assess the impact of government and non-government initiatives to fight corruption in the nation. Through random, face-to-face interviews, a sample of 1,000 adults was asked about bribe requests, frequency, and amount, as well as their confidence in government and public institutions in combating corruption. While some figures suggest that Mongolia is chipping away at its long battle to combat corruption – corruption dropped from the third to the fourth biggest concern of the respondents, and the percentage of households that paid a bribe in a 3-month timeframe decreased to 13 percent – average bribe amounts jumped to an all-time high of MNT 416,000.

Source: The Asia Foundation

S.DEMBEREL RE-ELECTED HEAD OF MNCCI Contrary to speculation in the press, Mr. S. Demberel was reelected Chairman of the Mongolian National Chamber of Commerce and Industry (MNCCI) for another four-year term at its recent 18th annual conference recently. He received the support of 68% of the 523 members present and voting, with the rest favoring the only other candidate, Mr. B. Lkhagvajav, Director of Urbanek. The MNCCI has 831 members, including 294 importers, 106 exporters, 100 from the construction

sector, and 96 from the mining sector. Interestingly, 618 of the member companies have men as their CEO. Conceding defeat, Mr. Lkhagvajav said the election had been fair and transparent and that he had contested to emphasize the need for a change at the top, after one individual man had held power for too long.

Source: news.gogo.mn

CITIZENS’ CHAMBER COMPLETES ONE YEAR Ms. Sezin Sinanoglu, the UN permanent coordinator and the UNDP representative here, called on President Ts.Elbegdorj on Wednesday to congratulate him on the first anniversary of the Citizens‟ Chamber, fostering participatory democracy. The brainchild of the President, the Chamber has so far organized 19 open debates attended by 1,643 citizens, 49 meetings attended by 2,781 citizens, and discussed 68 issues where 4,424 citizens gave opinions and suggestions. The Chamber is meant to involve people in affairs of the state, discussing policy, giving their views on proposed and existing laws, and generally being a part of the state structure, to make it more transparent and responsible. In the coming days, it will ask NGOs to give their experience-based views on important issues and then prepare draft laws on their basis.

Source: English.News.mn

NOTARY LAW DRAFTS MAKE PROGRESS IN PARLIAMENT Parliament last week decided to set up a working group to further discuss the law draft on notary submitted by 17 MPs and another similar draft submitted by the Government. The concerned Standing Committee will also process the drafts for a second reading in Parliament. Both drafts seek to bring down the number of documents requiring notarization to 40 from the 70 at present. This requires changing 53 provisions of 29 laws. Some MPs criticized the Government for submitting its own draft at a time when another was under consideration. Justice Minister Ts. Nyamdorj explained that the timing was a coincidence but the Government draft had features not there in the one prepared by the MPs. Many MPs raised the issue that the notary service puts pressure on citizens for its own business interests. There was a suggestion to cancel all present signatures as a way to stop counterfeit documents being signed. The Head of the Notary Chamber, Mr. Ch.Otgonbayar, defended notary officials saying they performed an important function with responsibility and their charges were reasonable. If the draft is approved, 283 notary offices could find themselves without sufficient business but life for citizens and economic entities would be smoother, with much less paperwork and difficulty.

Source: News.mn

COAL MOVEMENT DAMAGES ROADS, CAUSING ACCIDENTS, DEATHS A recent report from the Professional Monitoring Agency has underscored the need for proper roads to serve the heavyweight trucks carrying increasing quantities of coal to China. Wide cracks on the roads to Gashuun Sukhait and Shivee Khuren and the sight-blocking dust that is raised have been causing accidents, and these have resulted in 11 deaths until the end of November. The paved road from Ukhaa Khudag to Gashuun Sukhait, being built by Energy Resources LLC since May, is expected to improve matters but this will be hardly enough in the coming days. A 55.2-km auto road from Nariin Sukhait towards Shivee Khuren, built by Chinhua Mah Nariin Sukhait LLC, as part of a 2008 agreement with the Government, is seen as the beginning of the south-north Millennium Road. However, it cannot be used by heavyweight coal trucks.

Source: Ardiin Erkh

CANADIAN COMPANIES TO BUILD SOLID WASTE GENERATION PLANTS IN MONGOLIA Maple Leaf Reforestation Inc. has entered into a joint venture with CF Lacey & Associates to build and run solid waste power generation plants in Mongolia and China. Maple Leaf will receive an operator's fee of USD50,000 per month while Lacey will act as technical developer and receive USD15,000 per month. The length of the agreement was not released. Lacey will spend USD300,000 to cover startup costs, and up to USD60 million to fund construction.

Source: The Winnipeg Free Press

U.S. EMBASSY SUPPORTS STUDY TRIP ON DISABILITY ISSUES The U.S. Embassy recently supported a group of 10 activists – seven of them physically disabled –

belonging to the NGO Wind Bird - to make an intense two-week visit to the USA to: - discover how people with disabilities live, work and study there; - learn how U.S. federal, state and local governments support people with disabilities; - observe how the Americans with Disabilities‟ Act (ADA) works “in practice”; - meet with U.S. NGOs that promote and protect the rights of people with disabilities; and, - learn how the media can be used as an educational and promotional tool for people with disabilities. Ms. Badamkhand, a Mongolian journalist and the leader of the NGO, said she had been inspired to organize this project after participating in an “English Camp for the Disabled,” a 2009 program organized by the Mongolian-U.S. Government Alumni Association. After the group returned to Mongolia, U.S. Ambassador Jonathan Addleton hosted a debriefing session at his residence. The participants said this trip had changed their lives and their perception of their own strengths, and that the greatest lesson they learned was not to let their disabilities prevent them from doing more and living life to the fullest. Several of them outlined their plans to follow up on this experience -- promoting English and computer education for the disabled, improving rehabilitation and independent living services in Mongolia, and advocating for a law such as the ADA to protect the rights of the disabled.

Source: The U.S. Embassy

ANNOUNCEMENTS HOLIDAY GREETINGS ON BTV BTV will air a prerecorded prime-time program on December 24, Christmas Eve, in which businesses get 2/3-minute slots to offer greetings for the festive season to their customers and stakeholders. The channel will give a discount to BCM members. Those interested should call 91029799 or send an email to ider_s@btv.mn for further inquiry. Early booking is recommended. ___________________________________________

COAL MONGOLIA CONFERENCE, ULAANBAATAR, FEBRUARY 24-25, 2011

Coal Mongolia will be holding a conference of international investors in the coal sector in Ulaanbaatar on February 24-25, 2011, to focus on the huge potential of Mongolian coal, its diverse qualities, size of deposits, accessibility and what is required to bring the coal to market. China may look the most logical destination for Mongolian coal, but great efforts are being made to open up links to Russian as well as to Chinese eastern sea ports, and on to other Asian countries. The Coal Mongolia Conference will discuss all these through speeches and panel discussions. BCM is the supporting organization of the event.

The objectives of the conference are:

- To put Mongolian coal on the international market, and to expand channels of coal sales - Internationally, to open up corridors of coal transport - To attract investment in coal exploration and extraction projects - To develop coal supply networks - To publicize the coal sector policy and plans to investors. All sessions will be held in Mongolian, English and Chinese languages.

Participants can avail themselves of the following services:

- To publicize product or services

- To get exposure on TV and newspapers through holding a press conference

- Use of meeting rooms, and facilities such as telephone, fax, internet, copy machine, office manager.

_________________________________________________

MINES & MONEY HONG KONG 2011, MARCH 22-25 The 2011 Mines and Money Hong Kong on March 22-25 will be the largest dedicated mining investment event in Asia with the exhibition set to increase by more than 50%. At least 80 exhibiting companies ensure a real showcase for anyone interested in investing in the resource industry. Just under 700 investment and mining professionals attended the event in 2010 and this is anticipated to increase to around 1,000 next year as interest in Hong Kong for the natural resource sector heats up. Mines and Money Hong Kong 2011 will provide networking opportunities for investors and mining companies through the exhibition, new meeting rooms and evening functions. In addition, the two-

day conference and add-on workshops and summits allow delegates to get up-to-date information on the market as well as listening to mining companies detailing their investment opportunities. In 2011, either side of the two-day conference, are two separate investment summits focusing on the Indonesian and Mongolian mining industries. BCM is again a Supporting Organization for the Conference and Exhibition and Executive Director Jim Dwyer will be the moderator of the Mongolia Mining Investment Summit on March 25. More information can be had at +852 2219 0111: info@beaconevents.com. _________________________________________________

“BSPOT" on B-TV, Monday to Friday at 21:30 BTV (Business TV) now telecasts a 10-minute English-language news program called BSPOT every evening from Monday to Friday at 21:30, taking most of the stories from the BCM NewsWire.

_______________________________________________________________________________

“MM TODAY” on MNB-TV, Fridays at 21:15

BCM is pleased to announce that Mongolian National Broadcasting continues its cooperation with BCM on “MM Today”. This English news program is aired every Friday for 10 minutes and is scheduled for 21:15 tonight. Tune in to watch this program that reports stories from today‟s BCM NewsWire. __________________________________________________________________

NEW POSTINGS ON BCM WEBSITE'S 'PRESENTATIONS' AND 'MONGOLIAN BUSINESS NEWS' From the successful Mining Investment Summit UK 2010 in London on November 24-25, 2010, posted are 15 featured speaker presentations on BCM's website (www.bcmongolia.org) in the "Resource, Presentations" section for your review. We are now posting some news stories and analyses relevant to Mongolia on the BCM website's „Mongolian Business News‟ as they come, instead of waiting until Friday to put them all together in the weekly NewsWire. The NewsWire will, however, continue to be issued on Friday, and will incorporate items that are already on the home page, so that it presents a consolidated account of the week‟s events.

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]

November 30, 2010 *11.1% [source: NSOM] *Year-over-year (y-o-y)

CENTRAL BANK POLICY LOAN RATE

December 31, 2008 9.75% [source: IMF]

March 11, 2009 14.00% [source: IMF]

May 12, 2009 12.75% [source: IMF]

June 12, 2009 11.50% [source: IMF]

September 30, 2009 10.00% [source: IMF]

May 12, 2010 11.00% [source: IMF]

CURRENCY RATES – December 16, 2010

Currency name Currency Rate

US dollars USD 1,212.76

Euro EUR 1,612.55

Japanese yen JPY 14.45

British pound GBP 1,907.00

Hong Kong dollar HKD 156.01

Chinese yuan CNY 182.14

Russian ruble RUB 39.49

South Korean won KRW 1.05

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.