BUSINESS COUNCIL of MONGOLIA NewsWire

www.bcmongolia.org info@bcmongolia.org

Issue 191, October 28 2011

NEWS HIGHLIGHTS: Business

Day One at Mongolian Investment Summit 2011 in Hong Kong;

TT West: plans for November discussions on investment agreement;

Chinalco to purchase 15 million tons of TT East coal;

Mongolia to sell 49 percent of Mongolian Railway on capital market;

Rio bets on India and China to float steel prices;

Vale contends with falling currency and iron prices in Q3;

Peabody Q3 profits benefit from higher pricing;

OT and Rio grant 55 full scholarships;

General Mining gears up for exploration;

Xanadu reports success on various projects;

Boroo Gold hosts cyanide safety demonstration;

Rio tops Cameco’s offer for Hathor;

Government asks, “Who's the boss at Baganuur?”;

Molycorp accelerates development at U.S. rare earth mine;

Arcelor pulls out from bid with Peabody for Macarthur;

Rio vows to engage local governments.

Economy

PM promises social benefits and continued spending in 2012 budget;

Mongolian 2012 budget may be too risky, says IMF’s Barnett;

Copper prices tumble from economic anxiety;

Retailers open doors in Mongolia;

Mongolia puts dollar-denominated bonds on hold;

FDI reaches USD 2.6 billion;

The return of double digit inflation;

Mongol Bank ups its policy rate;

Mongolian savings on the rise;

Mongolia climbs to “middle-income” country per World Bank and IMF;

New applications for copper promise greater demand;

Destination Mongolia: in search of rare earths;

BHP cautions against volatile market;

BHP disputes worries over Chinese growth;

Chinese metal groups feel pinch of credit squeeze.

Politics

9 MPs lose confidence in Prime Minister;

Prime Minister defends OT agreement;

Finance Minister assures great rewards from OT agreement;

Elbegdorj meets U.K. Prime Minister;

Elbegdorj speaks at Oxford University;

Ceremony marks beginning of Darkhan oil refinery project;

DP moves to reform privatization laws;

Supreme Court orders government to enforce environmental laws;

Environmentalists host convention;

“Resources can drive human development,” says UN chief;

Mongolia targets new goals for aviation;

Another Mongolian herder killed in Inner Mongolia;

Ancient Mongolian ship discovered near Japan.

*Click on titles above to link to articles.

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BCM MONTHLY MEETING NOTICE

BCM‟s next monthly meeting for members will be Monday, October 31, at 5 PM at the KEMPINSKI HOTEL KHAN PALACE, 2nd floor, Altai Ballroom. Parking will be reserved in front of the hotel for BCM Members. The bilingual meeting will feature the following presentations: - Call to Order/Business Council of Mongolia: Laurenz Melchers, Chairman, BCM - BCM Report: Jim Dwyer, Executive Director, BCM - BCM Tax Working Group Report: Sebastian Merriman, Co-Chairman, BCM Tax WG - Ganhuyag Ch. Hutagt, Deputy Minister, Ministry of Finance - “Economic Overview of Mongolia” - Ts. Amarsanaa, Vice President, Mandal General Daatgal LLC - "Risk Management in Mongolia" - George Lkhagvadorj Tumur, Managing Director, Hunnu Coal - “Creating a Mongolian success story for international investment community.” A networking reception will be held for all attendees immediately following the business portion of the meeting in the same conference room, 2nd floor, Kempinski Hotel Khan Palace. At 7 PM, those 150 of you with reservations for BCM‟s Membership Renewal Dinner should proceed to the “Oasis Restaurant” on the 1st floor, Kempinski Hotel Khan Palace.

BUSINESS DAY ONE AT MONGOLIAN INVESTMENT SUMMIT 2011 IN HONG KONG A huge turnout arrived at the Mongolian Investment Summit 2011 in Hong Kong with 450 registrants, almost double last year's attendance. Jim Dwyer, Executive Director of BCM, as Chairman of Day One opened the Summit with upbeat remarks on investment in Mongolia. Yadmaa Ariunbold, Consul General of the Consulate of Mongolia-Hong Kong delivered the opening address, followed by superb keynote addresses presented by Bold Baatar, Chairman of the Mongolian Stock Exchange (MSE), and Simon Morris, Chief Executive Officer of Khan Bank. Randolph Koppa, President and Chief Executive Officer of Trade and Development Bank spoke on meeting the challenges of development. Erdenes Tavan Tolgoi‟s new Chief Operations Officer, Graeme Hancock, and Oyu Tolgoi‟s Vice President-Commercial, Peter Nicholls, gave major mining project updates which were extremely well received. The morning included a Panel discussion, "Key trends, influences, threats and opportunities shaping the Mongolian growth story." Top officials presented several interesting spotlight presentations showcasing Mongolian investment opportunities in natural resources including Undur Tolgoi, Lucky Strike Resources, Haranga Resources, Sharyn Gol, Voyager Resources and Erdene Resource Development. S. Otgonbat, Advisor to the Minister at the Ministry of Minerals Resources and Energy, gave a thoughtful presentation entitled "Policy Update on Mongolia's Minerals and Energy Sectors," providing up-to-date news on many topical points. Day One ended with an Investor round table: "Why Mongolia? Perspectives on investing in Mongolia from across the investor community." Copies of all Summit presentations will be made available by the summit organizer, Mines & Money's Beacon Events. Presentations will be posted on BCM's website next week.

Source: Business Council of Mongolia

TT WEST: PLANS FOR NOVEMBER DISCUSSIONS ON INVESTMENT AGREEMENT The government plans to hold discussions for an investment agreement for the Tavan Tolgoi Western Tsankhi in November. The site holds up to 7.5 billion tons of coal; a large portion of which is coking coal, used for steel production. An initial plan to grant 40 percent of the project to China's Shenhua Group, 36 percent to a Russian-Mongolian consortium, and 24 percent to Peabody Energy Corp. of the United States was rejected by the Mongolian Security Council and branded as “unfair” by bidders from Japan and South Korea. “Once the terms of engagement on the west block are clear, that will have an impact on the IPO valuation,” said Graeme Hancock, Chief Operating Officer of Erdenes Tavan Tolgoi, the state-owned entity in charge of the project. “I am hoping there will be resolution on this in the very near future so

this can be built into our future cash flow. MP D. Terbishdagva said if an agreement was not signed within three months, the international IPO would have to wait until after Mongolia's parliamentary elections in June. Analysts have expressed concern that political jockeying ahead of next year's elections was disrupting Mongolia's economy and harming its investment climate. Terbishdagva was one of the MPs who signed a petition earlier this year urging the government to renegotiate an agreement signed with Canada's Ivanhoe Mines Ltd. and Rio Tinto Group in 2009 for the Oyu Tolgoi copper-gold project.

Source: Reuters

CHINALCO TO PURCHASE 15 MILLION TONS OF TT EAST COAL Chinalco plans to buy 15 million tons of coking coal a year from Mongolia to help fulfill its tremendous demand over the next three year. The firm struck a deal with Erdenes MGL for coking coal imports from its Tavan Tolgoi East Tsankhi site. Chinalco received its first delivery of coking coal from Mongolia last week. It plans to resell 30 percent of its purchase to Japan's Itochu Corp and Mitsui & Co, and Korea Resource Corp. (KORES). Chinalco supplies 400 million tons of coking coal for the domestic market in China, but that has been hardly enough to meet demand. The government split its massive Tavan Tolgoi coal field into two sections for development. Erdenes TT is responsible for the site's Eastern Tsankhi and is planning for an initial public offering valuing TT East at an estimated USD 10 billion. The government is currently choosing investors to develop the West Tsankhi. The demand for coking coal is expected to rise further because of the steel industry's expansion following Chinese economic development.

Source: Undesnii Shuudan

MONGOLIA TO SELL 49 PERCENT OF MONGOLIAN RAILWAY ON CAPITAL MARKET Mongolia intends to sell 49 percent of the state-owned Mongolia Railway company to fuel development of Mongolia's rail infrastructure, said D. Bailikhuu, advisor to the State Property Committee. “With the new law, 51 percent of Mongolian Railway would stay in the possession of the state and 49 percent can be sold on the stock market,” he said. “It would enable us to attract much needed foreign investment for our new railway.” He added that he hopes investment banks can assist in its funding as well. McKinsey & Company gave a technical and economic feasibility study for the construction of 1,800-kilometer rail line. The railway would be built within three years and would cost an estimated USD 5.2 billion. It would connect Mongolia to Eastern China and consequently Korea and Japan. The government hopes the rails will benefit mining at Tavan Tolgoi.

Source: Undesnii Shuudan

RIO BETS ON INDIA AND CHINA TO FLOAT STEEL PRICES Rio Tinto Group expects steel demand to rise in China and India as the countries continue to industrialize, underpinning demand for the commodities produced by the world's second-largest mining company. “Iron ore and coking coal are the two crucial ingredients for making steel, and steel is the crucial ingredient as emerging economies urbanize and industrialize,” said Sam Walsh, chief executive officer of the London-based company's iron ore unit. “The long-term steel outlook remains positive.” Demand in China, which reported 9.1 percent economic growth in the third quarter, will help boost profits at Rio. The firm relies on China for 27 percent of its sales and a great deal of the copper produced at Oyu Tolgoi, where Rio heads operations, will export there as well. The company last month maintained its long-term outlook for aluminum, copper, and iron ore, saying demand will double over 15 to 20 years. Rio's shares gained as much as 2.7 percent to AUD 67.43 in Sydney. The stock has declined 22 percent this year, compared with an 11 percent drop in Australia's benchmark Standards & Poor‟s (S&P) and Australian Securities Exchange (ASX) 200 Index.

Source: Business Week

VALE CONTENDS WITH FALLING CURRENCY AND IRON PRICES IN Q3 Vale, the world's largest iron ore miner, experienced a hit in net profits in the third quarter. Profits fell as a result of currency depreciation and a slump in demand, particularly from China. Vale has operations in Mongolia and was a bidder for the Tavan Tolgoi Western Tsankhi coal project, which is due for revision. The Brazilian company said net income fell 18 percent to USD 4.94 billion from USD 6.04 billion in the same period of last year. This figure falls well below analysts' average estimate of USD 6.49 billion. Iron ore spot prices fell about 27 percent to USD 131.70 per ton since August after Vale sold just over 20 percent of its iron in the spot market during the second quarter ended June 30 with the rest supplied on fixed-price contracts, according to Barclays Capital research. Barclay's said that during the second quarter, 60 percent of the company's iron ore was sold to Asia with most of the remainder going to the United States and Europe. The big iron ore miners, which include Vale and Rio Tinto, used to sell under an annual contract price until the financial crisis of 2008 and 2009 led to the demise of that system. Global slowdown is now threatening the longevity of quarterly contracts, which are based on a three-month average of spot quotations for the period ending one month before the new quarter. Exacerbating the issue, Brazil's currency dropped over 15 percent against the dollar during the third quarter as investors fled emerging markets, taking many of the country's companies by surprise. After booking a USD 257 million profit from the exchange rate in the same period last year, Vale was struck by a USD 2.19 billion currency loss in this year's third quarter and a further loss of USD 568 million in derivatives.

Source: Financial Times

PEABODY Q3 PROFITS BENEFIT FROM HIGHER PRICES Peabody Energy's quarterly profits beat Wall Street estimates as the largest U.S. coal producer realized higher pricing in all regions and domestic volume increased. The Mongolian government awarded Peabody 26 percent interest in the Tavan Tolgoi Western Tsankhi coal project, but that may change as the government has decided to revise that decision. Third-quarter profit rose to USD 283.5 million or USD 1.01 per share, from USD 237.6 million, or USD 0.83 per share one year ago. Revenue rose 9 percent to USD 2.04 billion, beating estimates of USD 2.02 billion.

Source: Reuters

OT AND RIO GRANT 55 FULL SCHOLARSHIPS Oyu Tolgoi LLC and Rio Tinto Group will offer full scholarships to 55 students studying at Mongolian Universities and abroad. The companies initiated the scholarship program to help create a skilled and competent workforce for the mining sector. Hundreds of students applied for the scholarship, and 55 students will be awarded grants. Seven students received full scholarships to study overseas, while the others will study in Mongolian universities.

Source: Udriin Sonin

GENERAL MINING GEARS UP FOR EXPLORATION General Mining Corporation is preparing to begin a coal exploration program next June at Uvs Basin. The firm has hired a consultancy group with experience in Mongolia and begun drilling to do so. The firm plans to continue its potash exploration activities at the Uvs Basin. It recently completed the first stage of drilling to complete three of six holes planned. Exploration activity has not uncovered any potash mineralization. Historical coal exploration reports along with two geological reviews from 2008 suggest the possibility of deeper coal at the Khuden deposit and a possible extension of the Khuden coal seams to the west of the outcropping area. An historical potash intersection in the Russian part of the basin, about 30 kilometers from the company's exploration license gives reason to believe potash mineralization may exist. General Mining Corporation has established a subsidiary in Mongolia, which has applied for and has been granted 10 licenses in the north-west of Mongolia. Its projects include the Uvs Basin potash project. It is expanding its scope for exploration by acquiring a license to an area adjacent to its exploration properties at the Uvs Basin and farming into another license covering the central part of the Khuden black coal deposit.

Source: Proactive Investors

XANADU REPORTS SUCCESS ON VARIOUS PROJECTS Exploration drilling at the Nuurstei Coking coal project has uncovered a 500 meter thick coal bearing sedimentary sequence, reported Xanadu Mines in its recent quarterly report. The formation is believed to contain at least 16 coal seams, ranging in thickness from 12 meters to less than 1 meter. Xanadu has drilled 10 diamond holes for exploration at Nuurstei. The site is located 13 kilometers south by southwest of Moron Soum and 8 kilometers from the proposed northern Mongolian Rail line linking Moron with Erdenet. The coal contains low total moisture and low sulfur, and ash varied from 19.03 to 39.38 percent. Washability tests indicate several seams can yield a product with approximately 12 percent ash. Xanadu commissioned Logantek Mongolia for a detailed ground magnetic survey for a better understanding of the structure and architecture of the coal bearing basin. At the Javkhlant coking coal project, the firm is exploring for premium coking and thermal coal deposits of Permian and Carboniferous age. Activities have identified numerous coal and carbonaceous mudstone subcrops containing coal fragments. The firmed contracted an RC drill rig to conduct a scout program of 3,000 to 4,000 meters of drilling to test the coal subcrops. Read more… At the Galshar thermal coal project coal, final coal quality results are complete and a report is being compiled. An initial review of the coal quality analysis from the 2011 drill program confirms that the coal is suitable for power generation or conversion from coal to liquids (CTL). The firm continues its copper and gold operations at Sharchuluut and Elgen-Zos. Detailed lithological and alteration sampling over the main prospect at Sharchuluut confirmed the presence of copper, molybdenum, gold, silver, and barium. An interpretation of ground gravity data compiled by Logitech will be available in November. Exploration at Elgen-Zos will continue and focus on the Zost and Suug hot springs. At Suug the company has sent the core of the first drilling for tests and results are expected soon.

Source: Xanadu Mines Ltd.

BOROO GOLD HOSTS CYANIDE SAFETY DEMONSTRATION Boroo Gold hosted demonstration trainings for businesses using or preparing to use cyanide at its Boroo gold mine site in Selenge Aimag. This is one in the training series organized by the National Committee in charge of policy coordination of toxic and hazardous chemical substances at the Ministry of Nature, Environment, and Tourism. Laws and regulations as well as proper management of chemical substances including the proper handling, use and storage practices are being introduced to employees of businesses and governmental organizations. “Boroo Gold is an experienced and leading company in terms of cyanide safety and occupational safety,” said L. Jargalsaikhan, head of the national committee office in charge of policy. Therefore we are organizing the training at its site.” Cyanide is one of the substances limited in its use by the government. Laws mandate that it must be used under specific supervision for a specific purpose at a specific amount. A person exposed to cyanide must be provided with clean air and lots of oxygen. Victims are given a vitamin and a respiratory device. The site of contamination must also be quarantined. Dry cyanide is highly dangerous if combined with water because of a risk of creating cyanide hydrogen gas. Therefore, rescuers must measure the amount of hydrogen, carbon dioxide, methane, and oxygen present in the air. They must also wear protective clothing and masks to risk exposure, and then it all must later be disposed.

Source: Zuunii Medee

RIO TOPS CAMECO‟S OFFER FOR HATHOR While uranium takeover are offering investors big potential payoffs, Hathor Exploration Ltd. is trading 8.4 percent above a bid from Rio Tinto Group, the head of operations at Oyu Tolgoi. Less than a year after the partial meltdown of Japan's Fukushima nuclear plant, the demand for nuclear energy from developing nations is stirring up merger and acquisition (M&A) activity. Cameco, the world's biggest uranium producer, took its takeover offer for Hathor directly to shareholders after the companies couldn't agree on a price. The proposal would give Hathor's

shareholders CAD 3.75 a share in cash, valuing the uranium explorer at CAD 520 million. After investors pushed the stock to 12 percent above Cameco's offer, Rio Tinto topped Cameco‟s bid with an offer of CAD 4.15 a share, or CAD 578 million. “Investors thought that another offer would come and it did,” said John Kinsey, a Toronto-based fund manager for Caldwell Securities Ltd. “Rio had a look at it and said, 'well if Cameco wants it, maybe we should have a look at it.” Hathor, the owner of a uranium deposit in northern Saskatchewan has become the target of a bidding war, while talks to buy Kalahari, which owns a 43 percent stake in the developer of what will be the world's third-largest uranium mine, have reignited as energy demand surges in developing nations. China, India, and Russia are still constructing or planning to build at least 125 nuclear reactors combined in the wake of the 11 March earthquake and tsunami that caused radiation leaks in Japan. While Hathor's board unanimously recommended investors accept Rio Tinto's offer, the stock closed yesterday at CAD 4.50 a share, 8.4 percent higher than the agreed price, signaling investors are still betting on a higher bid. After the agreement with Rio was disclosed, Cameco said it was reviewing the announcement and would update shareholders “when appropriate” regarding its offer. The companies are vying for control of Hathor's Roughrider uranium deposit in Saskatchewan's Athabasca Basin. Hathor is trading further above Rio Tinto's offer than any other pending, agreed-upon deal greater than USD 500 million in North America.

Source: Business Week

GOVERNMENT ASKS, “WHO'S THE BOSS AT BAGANUUR?” The question of who exactly is running operations at Baganuur Mine has sparked controversy in government. Baganuur is a state-owned coal mining company providing most of the coal used in the capital. However, the company lacks an exploration license to seek out new deposits at its licensed area. Some believe the firm has contracted out this job to Altai Gold, a company with a reputation for poor mining practices. Altai Gold first obtained its license to explore the area in 1996. However, the government suspected its exploration was a pretense. Later in 1997 the firm received its license to mine after some battles in court, but is now believed to have illegally cooperated with Baganuur Mine to operate against the interests of the state. Current management at Baganuur is preparing to appeal its case to the National Security Council.

Source: Unuudur

MOLYCORP ACCELERATES DEVELOPMENT AT U.S. RARE EARTH MINE Molycorp, the biggest non-Chinese rare earths producer, said it will bring production forward by three months at the Mountain Pass mine it is refurbishing in California. China has had a long-time stranglehold on rare earths production, but its reduction of production and exports has caused manufacturers to look elsewhere for supplies and for alternatives to production. The entrance of a new producer could convince producers there is still use for rare earths just as other miners are beginning to look to Mongolia for its potential for rare earth production. “Every month that we accelerate our start-up provides that much more product to customers who need it now,” said Chief Executive Officer Mark Smith in a statement. “This acceleration also expands the diversity of global supply, which is an increasingly urgent matter for rare-earth consumers.” Despite a recent softening in rare-earth prices, the market would remain in a “substantial” deficit as China, which accounts for over 90 percent of global supplies, cuts production, said Smith in an Internet broadcast. The government has been following through with its intentions to close rare earths mines in the Asian country and its biggest producer, Batou this week said it would temporarily halt output. Business Development Vice President Doug Jackson later added that the price difference between rare-earth exports from China and those inside the country would align. Prices for rare earths inside China are significantly cheaper than those sold to outside buyers, because the government has implemented hefty export taxes and cut production. Jackson predicted that domestic prices would rise more than export prices would drop in China.

Source: Mining Weekly

ARCELOR PULLS OUT FROM BID WITH PEABODY FOR MACARTHUR ArcelorMittal pulled out of its joint USD 5 billion bid with Peabody Energy for Australia's Macarthur Coal, days after the target's top shareholder accepted the offer and left the steelmaker with a higher-than-expected cost. Both Peabody and Arcelor showed interest in Tavan Tolgoi's Western Tsankhi coal project, but it seems only Peabody will get the chance. Peabody was apparently happy with the decision, as completing the acquisition single-handed would help it reap the benefits sooner. However, its shares fell over 7 percent as analysts and investors worried over the burden of finances and the potential need for a dilutive share issue. Peabody, however, said there were no plans to issue equity any time soon and brushed off worries over financing the bid alone. “We are prepared to finance this acquisition solely through cash and debt, and at debt levels that are very manageable,” said Michael Crews, chief financial officer of Peabody. The debt ratio would rise from a current 32 percent to a figure near 50 percent if it takes 100 percent of Macarthur shares, he added. Macarthur named Eric Ford, Peabody's chief operating officer, as its new Chairman on Wednesday, while Julian Thornton was named chief executive. Thornton was previously head of Peabody Energy Australia. Read more… Arcelor shares are down more than 40 percent from the time of the bid in July, closed almost 2 percent weaker. Peabody and Arcelor bid AUD 16 per share for the coal miner and said they already had a relevant interest in about 59.85 percent of the shares. The Macarthur deal is the latest in a string of acquisitions in Australian coal, as firms snap up mines positioned to feed off demand from Asian steel mills, while M&A interests in coal globally is increasing as share prices and valuations weaken. Peabody has long targeted Macarthur but its previous efforts failed, with a bid last year collapsing after Peabody cut its offer, flaming a new government mine tax.

Source: Reuters

RIO VOWS TO ENGAGE NATIONAL GOVERNMENTS Rio Tinto chief executive officer Tom Albanese that company was striving to increase its engagement with government representatives in the countries where it operations, but acknowledged that more could be done. Albanese's comments at the Commonwealth Heads of Government Meeting (CHOGM) and Business Forum in Perth came after the revival of an 11-year old genocide and war crimes lawsuit in the U.S. Federal Appeals Court. Rio Tinto is the head of operations for the Oyu Tolgoi copper and gold project. “As I look at the Rio Tinto journey over the past ten years, I think we have done a better job, at the local level, of addressing the highest standards of environment, employing health and safety measures, as well as community engagement,” he said. “But frankly we haven't done enough in terms of engagement of host countries. The claim relates to violent clashes between the government of Papua New Guinea and residents of the Bougainville Island in the late 1980s, where Rio operated at the Panguna copper and gold mine until 1989. The suit was revived on behalf of around 10,000 current and former residents of the Bougainville Island, who claimed that the mine polluted the island and forced native workers to live in “slave-like” conditions. The report also stated that residents contended that after workers began to sabotage the mine in 1988, Rio Tinto goaded the government into exacting retribution and conspired to impose a blockade that resulted in the deaths of some 10,000 civilians by 1997. While not addressing the claims, Albanese told the CHOGM and Business Forum that the company was working towards not only being a local partner, but also a stronger national partner. Albanese said that it was his onion that the next generation of significant resource projects would be found in Africa.

Source: Mining Weekly

ECONOMY PM PROMISES SOCIAL BENEFITS AND CONTINUED SPENDING IN 2012 BUDGET Prime Minister S. Batbold's speech in Parliament regarding the 2012 budget gives plenty to cheer about for the expanded social benefits, but its plans for spending may do more harm than good. The PM introduced key goals aimed at improving the livelihood of citizens and developing infrastructure,

however there appears to be a focus on cash handouts and grants. Mongolia has officially risen to the ranks of a “middle-income country” per the World Bank and the IMF. Analysts estimate that gross domestic product (GDP) per capita will reach 6.4 million (USD 5,362) in 2012 in addition to 25.6 percent GDP growth for the country. About half of the economy will be in the service sector and the other half to the industrial sector. The government plans to submit an amendment to its tax laws. For income tax, the government will levy tax on both resident and non-resident taxpayers in Mongolia. Currently Mongolia has double taxation treaties with 35 countries. The expanding economy and increased investment from abroad to the mining sector, foreign companies are taking advantage of some weaknesses in those treaties. The government plans to address this in the near future. Although the government plans to take out significant loans and spend a great deal on programs such as the Human Development Fund, which gives financial assistance to people such as students, the elderly and the disabled, it will likely contribute to inflation. Rather than contend with inflation, the government has sought to return to macroeconomic policies that resulted in the last crisis in 2009. Read more… “The heightened domestic risk of macroeconomic instability comes at a time when the global economic outlook is weak,” said Frontier Securities chief investment strategist Dale Choi. “Should international commodity prices fall sharply, Mongolia's exports and budget revenues would both be hit hard.” Choi recommended fiscal restraint on spending and tight monetary policies to address inflation pressures.

Source: Frontier Securities

MONGOLIAN 2012 BUDGET MAY BE TOO RISKY, SAYS IMF‟S BARNETT Mongolia's fiscal situation may be one of envy to the world in light of fiscal problems in the United States and debt issues in Europe. In the second quarter this year, the gross domestic product grew 17.3 percent, and the success of the mineral sectors seems to assure steady growth will continue. However, although the 2012 budget promises to bring some relief to Mongolians, it may need some revision. The two major parties, the Mongolian People's Party (MMP) and the Democratic Party (DP), have both said they will abstain from cash election promises regarding cash handouts. However, the government does plan to raise salaries and pensions for government workers by 53 percent this year and continue a monthly allowance of MNT 21,000 to every citizen through to at least the first half of 2012. Pensioners and disabled people are set to receive payments of MNT 1 million. Students will receive MNT 500,000 each for tuition fees and a MNT 70,000 a month stipend. The 2012 budget is the largest in Mongolian history. It set a record, with spending at MNT 7.1 trillion (39.5 percent of the total GDP) while creating a MNT 700 billion deficit. “This is obviously an election budget,” said former Prime Minister D. Byambasuren. “According to the Fiscal Stability Law, the budget deficit cannot be set at 2 percent from 2013. However, the government already had huge deficits in 2010 and 2011 in order to fulfill its political promises. The budget of 2012 is clearly an election ploy and it must destroy a country's economy.” The International Monetary Fund (IMF) has warned that cash handouts are ineffective in the long-term and will only raise inflation. Investments in health and infrastructure would be a wiser use of public funds, said Steven Barnett, chief of the IMF working group. “It is too risky that the government set a record with its 2012 budget at a time when the Mongolian economy is overheating and the global economic outlook is worsening,” said Barnett. “The policies to address both high and rising inflation and to lessen vulnerabilities are clear: restrain fiscal spending and tighten monetary policy.” Read more… Reports indicate that the GDP will grow 25.6 percent next year, but this will depend on the minerals market. The government expects copper to value at USD 9,760 per ton next year, while gold is estimated at USD 1,723 per ounce. Perhaps the Ministry of Finance is being optimistic in its predictions. Analysts have revised their base metals price forecasts for next year in light of a poor global economic outlook. A poll of 23 analysts produced an average of USD 8,950 a ton next year for copper, down 10.5 percent from a July poll. During the 2008 parliamentary elections, the DP offered MNT 1 million to every citizen, causing the MPP to trump its promise with MNT 1.5 million. This was the latest in a long-running trend to buy political votes from the populace. The 2007 windfall profit tax of 68 percent on copper and gold mines was a

poorly developed scheme to make good on its promises. Source: UB Post

COPPER PRICES TUMBLE FROM ECONOMIC ANXIETY Copper tumbled more than 6 percent to two-week lows last week. Copper is a major export of Mongolia, with the bulk of its production headed for China. Metals, seen as a proxy for underlying economic conditions due to their wide use in industry, were heavily hit due to fears of a slowdown. Lead, zinc, and aluminum all plunged to their lowest in more than a year. Benchmark copper hit a session trough at USD 6,170 a ton, its lowest in two weeks. “People are saying these metals are not trading on the fundamentals, they are trading on the macro, but there is nothing more fundamental in the world than the economic outlook,” said analyst Stephen Briggs of BNP Paribas. BNP believes that Europe will resolve its debt issues, but there is evidence that market is less sure. A high-profile EU Summit will go ahead on Sunday as planned, but it will not reach a decision on leveraging the euro zone resource fund, the European Financial Stability Facility (EFSF). BHP Billiton, the world's largest miner, warned last week of increasingly wary customers. However, it said orders from China are still strong. China is the world's largest copper consumer, accounting for roughly 40 percent of global demand of refined metal. Signs that Chinese buyers have returned to international markets quelled some concerns that China's tightening measures, or the European debt crisis, will impair copper demand. Monthly imports of copper products rose to a 16-month high in September. Read more… Zinc slid 5.3 percent to USD 1,740 from USD 1,838 last week. It hit a session low of USD 1,718.50 a ton, its lowest since July 2010. The global refined zinc market will see a surplus of 317,000 tons this year and a more modest excess of 135,000 tons in 2012, predicted the International Lead and Zinc Study Group. Battery materials lead also fell to at 15-month low of USD 1,775 last week. Tin closed at USD 21,200 from USD 21,925. Aluminum ended at USD 2,085 from USD 2,182; and nickel fell 4 percent to USD 18,025.

Source: Mining Journal

RETAILERS OPEN DOORS IN MONGOLIA With Mongolia's mining resources set to generate huge national wealth in coming years, a rise in consumer and investor confidence will likely see the retail sector expand rapidly. “There's lots of new money here,” said Zoljargal, the marketing manager for Shangri-La Ulaanbaatar earlier this year. The rise in foreign interest is based on stellar economic growth driven by a booming mining sector. Gross domestic product (GDP) per capita is on target to hit USD 5,000 by the end of 2012 from the current USD 2,470. Wholesale and retail trade accounted for 23 percent of GDP in 2010, while the sector had the lowest level of non-performing loans. Government plans to create 70,000 jobs in 2011 as part of its Employment Support Year will likely impact favorably on the population's spending power as well. However, as more shoppers descend on Ulaanbaatar's newest mall, Central Tower, the risk of inflation returning remains. Inflation, which climbed to nearly 30 percent year-on-year after the 2008 financial crisis, surged by 10.5 percent over the previous year ended September. In response the Central Bank raised its policy rates to 12.25 percent this week. Inflation risks and their likely impact on household incomes are not, however, deterring foreign investors. U.S. computer giant Apple, for example, authorized an official store. Read more… “Cartier, Dior, Shangri-La, Hilton, Boss, Mont, Blanc, BMW, and Benneton have all set up shop with many more international brands reconnoitering the city's prime retail territory,” said M.A.D. Investment Solutions in an article on the store. “It is only logical that Apple is keen on to be present in the early stages of this incredible development story. While many international brands chose to locate in the modern Central Tower, operated by Shangri-La Ulaanbaatar, the country's 90-year-old State Department Store is working hard to keep up. Both are also joined by the Ulaanbaatar Department store, a 30,000-square-meter shopping mall that opened in

January 2010. Home to brands including Ralph Lauren, Gucci, Dolce & Gabana, and Giorgio Armani, the mall is Mongolia's largest.

Source: Oxford Business Group

MONGOLIA PUTS DOLLAR-DENOMINATED BONDS ON HOLD Mongolia delayed its plans to sell its first U.S. dollar-denominated bonds until 2012 as surging coal exports puts the economy on target to grow 20 percent this year. “Mongolia will definitely take a look at the global bonds, maybe next year,” said former Governor of the Central Bank O. Chuluunbat. “Almost all the global banks have already made a proposal to the government” to manage sales of dollar-or-yen-denominated debt.” Mongolia has the equivalent of USD 172 million of bonds due by the end of 2016 according to data compiled by Bloomberg. The government talked with investment banks in June about a possible sale of dollar bonds and an additional USD 700 million of local currency debt to help fund spending on rail, roads, and power infrastructure The Finance Ministry has sold USD 150 million of tugrug-denominated securities over the past three months. The nation's foreign debt to gross domestic product ratio is at 50 percent. The commodity-driven boom in Mongolia has fueled a tenfold jump in Mongolia's benchmark stock index in the past five years, while hurting traditional industries such as cashmere. With new laws in the works to allow Mongolian companies listed abroad also to trade shares in Ulaanbaatar and the state's plan to privatize more of its assets, the country's stock market value could jump to USD 45 billion within five years from USD 2 billion today. However, the boom has driven inflation to 15 percent this year and the IMF has warned that government spending and growth is exacerbating the problem.

Source: Business Week

FDI REACHES USD 2.6 BILLION Total foreign direct investment (FDI) in Mongolia has reached 2.6 billion. Equity capital is USD 1.09 billion with reinvested earnings of USD 161.9 million. Other capital reached USD 1.19 billion. Total stock of portfolio investment into Mongolia was USD 1.37 billion as of the first quarter this year. Direct Investment abroad came to USD 37.9 million year-to-date, including equity capital of USD 37.3 million and other capital of USD 0.6 million. Portfolio investment abroad came to USD 21.9 million year-to-date, including equity securities of USD 2.3 million and money market instruments of USD 19.5 million resulting in a net portfolio investment of USD 4.8 million.

Source: Frontier Securities

RETURN OF DOUBLE DIGIT INFLATION The Bank of Mongolia reported 10.5 percent inflation with 11.9 percent inflation in Ulaanbaatar city, as of September 30 year-over-year. “The economy is overheating,” said Dale Choi, chief economic strategist of Frontier Securities. “Inflation is already high and likely to rise further.” He went further to warn that inflation erodes the ability of the private sector to operate effectively. The monetary policy is loose and interest rates are growing at a similar rate of inflation. Meanwhile credit is growing as well. If credit grows too quickly, it made create problems in the banking system. Rising inflation has brought real interest rates on local currency deposits closer to zero, which the public must rely on because it is most accessible to them. Nominal interest rates on U.S. dollar deposits are high by international standards, reaching 14 percent at times. High rates such this may be a cause for concern because it may be a symptom of liquidity problems instead of an unusually high profitability from lending for projects.

Source: Frontier Securities

MONGOL BANK UPS ITS POLICY RATE The Central Bank of Mongolia raised its policy interest rates by 0.5 percent to 12.25 percent this week. The bank said the decision was necessary to combat rising inflation. Inflation has been on the rise for the past few months in Mongolia. It has reached 10.5 percent for the whole of Mongolia and 11.9 percent in the capital. Continued spending by government, the distribution of cash handouts from the Human Development

Fund and the growth of debt have all contributed to inflation. Compared to the beginning of last year, the prices of all commercial goods except food have risen 11.3 percent. Due to unchecked growth in the 2012 budget, the Central Bank will likely have to raise interest rates again. However, the bank's reserve of USD 2.6 billion seems to indicate that it still has control of the situation.

Source: Udriin Sonin

MONGOLIAN SAVINGS ON THE RISE Mongolian savings are increasing, reported the Mongol Bank. The total savings of Mongolians have increased by 3.6 percent in October from September and by 61.9 percent compared to 12 months earlier. Savings growth has been stable in recent months, but fell slightly in September due to foreign currency fluctuations The Mongolian tugrug accounts for 75.7 percent of total savings. Tugrug savings increased by five percent compared to October 2010.

Source: News.mn

MONGOLIA CLIMBS TO “MIDDLE-INCOME” COUNTRY PER WORLD BANK AND IMF Mongolia has been officially declared a “middle-income country” by the World Bank and International Monetary Fund (IMF). Mongolia's upward movement from a low-income to middle-income is a result of its rapid development and economic growth. Much of this wealth and improvement comes from the mining sector, industrialization, and strong annual gross domestic product (GDP). The economic growth increased 20 percent this year, and could grow as high as 26 percent next year. According to experts, not many countries have managed to reach 20 percent growth. Better still, Mongolia may be able to consistently maintain double digit growth over the course of the decade. Inflation, however, is hot on the heels of all this growth and is also expected to stand in the double digits. The World Bank and IMF both suggested that the government toughen its current monetary policy.

Source: Montsame

NEW APPLICATIONS FOR COPPER PROMISE GREATER DEMAND A study has shown that copper kills bacteria on contact points to an expansion of possible uses for the industrial metal, which is already found in a range of products. Copper is a major export of Mongolia with major production to come from the now famous Oyu Tolgoi deposit. The prospects of hospitals around the world installing copper surface have copper producers predicting an increase in demand. Yet, efforts to use more copper in medical environments are still largely in the research sage, and it's unclear if consumption will rise. “Certainly, it's one of several potential sources of demand growth for copper over the next few years,” said Nicholas Snowdon, a base-metals analyst with Barclays Capital. “It's something that's been on the radar for some time, but it's still not known what degree of uptake there's going to be.” Concerns about the demand for copper have driven futures prices for much of this year. Strong demand from China, the world's top consumer of the metal, helped futures traded in New York settle above USD 4.60 a pound in February, an all-time high, while concerns that the euro zone's debt crisis would cause a global economic slowdown sent prices to just about USD last week. A study funded by the U.S. Department of Defense found copper surfaces in rooms in intensive-care units cut the amount of bacteria present by 97 percent and reduced the rate of hospital-acquired infections by 41 percent. Copper's superior ability to conduct electricity may be what helps the metal prevent the spread of germs. All living things generate electricity, and when bacteria come into contact with a copper surface, the metal siphons off their electrons until they are without energy. Global adoption of antimicrobial copper by the health-care industry would effect an increase in world copper demand by upward of 500,000 metric tons a year, said Jurgen Leibbrandt, executive vice president of commercial development at the world's largest copper mining industry, Codelco of Chile.

Source: Wall Street Journal

DESTINATION MONGOLIA: IN SEARCH OF RARE EARTHS To many, Mongolia is a beacon of hope for an alternate supply of rare earths. The month-long

suspension of Batou's rare earth production may stimulate a growth in prices after a recent 25 percent price drop. Rare earths are needed in a variety of high-tech production for pharmaceuticals, military equipment, green energy technology, and information technology. The drop in prices is result of the tsunami in Japan, which slowed down production in the major export nation and consequently reduced global demand; further market weakness from the lingering global economic crisis; and efforts world-wide by producers to reduce dependence on rare earths. China controls more than 95 percent of the global rare earths market, which makes its mining sector quite sensitive to sudden price drops. Yet, its quasi-monopoly allowed Beijing to influence world market prices considerably. The recent halt of operations could similarly affect prices. China Batou is responsible for about half of all global rare-earth production and shutting it down could remove 5,000 metric tons of rare earths from the market. Also, in August China shut down a number of production facilities and confiscated unapproved stockpiles. Meanwhile, fearing a shortage in rare earth supply coupled with the increased competition of Chinese companies, Western manufacturing giants began establishing joint ventures with non-Chinese mining companies to build their own production sites and thus guaranteed future access. Germany hopes its recent resource trade agreement with Mongolia will secure its energy supply and promise limitless raw material exports to European countries. The agreement prevents Mongolia from implementing future export restrictions for raw materials and calls upon the country to eliminate any existing programs in cases where they impact trade with Germany. The deal is only one of many that aim to secure free trade in natural resources.

Source: International Center for Trade and Sustainable Development

BHP CAUTIONS AGAINST VOLATILE MARKET BHP Billiton, the world's largest miner, sounded a note of caution last week in the face of short-term market volatility, warning of softening prices and increasingly cautions customers. “Our order book remains full, and the developing world industrial operating rates are healthy,” said Chief Executive Marius Kloppers to shareholders at a meeting in London. “We have, however, seen a softening of prices over the last months. We are also seeing that customers are looking closely at their inventory levels as they operate their businesses, cognizant of the potential need to tailor their plans if the global economic uncertainty continues. The firm has indicated it will increase its production of iron ore, despite falling prices and indicated demand is holding up despite falling equities and commodity prices. However, major players including Rio Tinto have also warned of anxiety among customers. It said some clients have asked to delay shipments of metals. However, it remains confident that China and India will keep demand stable. Last week BHP approved a USD 12 billion proposal for expansion at its Olympic Dam uranium and copper mine. It has also made acquisitions in the past year.

Source: Mining Weekly

BHP DISPUTES WORRIES OVER CHINESE GROWTH The Chinese economy would continue to grow by 7 percent and 8 percent, without any major changes to its economic model, said BHP Billiton, the world's largest diversified miner. The statement came as a response to economic predictions of turmoil in the not too distant future. “Everything we see from our offices in China points to the fact that the country, without doing anything extraordinary, can continue to grow at 7 percent and 8 percent,” BHP chief commercial officer Alberto Calderon said. Calderon was responding to renowned economist Nouriel Roubini, who said at the forum that China is soon in for a “hard landing” because of its “unsustainable model” of significant over investment. The economist cited 60 years of history where over investment has led to periods of economic difficulty. He predicted that China's growth may halt by 2013 or 2014.

Source: Mining Weekly

CHINESE METAL GROUPS FEEL PINCH OF CREDIT SQUEEZE China's metal industry is warning Beijing's monetary tightening has gone too far, causing domestic customers to delay orders and raising the risk of payment default. China, Mongolia's top trade partner, has been a beacon of hope during this period of economic turmoil, but a sign of weakness could be a

great upset. In one of the clearest signs yet of deteriorating sentiments, Baosteel, China's second-largest steel producer said its customers were pushing back scheduled deliveries “due to declining economic growth and tightening credit.” The Chinese steel and base metals industry is the world's largest, shaping global price trends for commodities from iron ore to aluminum, and affecting large mining companies such as Vale, Rio Tinto, and BHP Billiton. Although China has tightened its monetary policy to combat inflation, the country has been purchasing large amounts of raw materials. Copper, a major export of Mongolia, hit a 16-month high last month due to large consumption by China. Yet, China buys such a large share of global commodities production that even small changes in demand have an oversized impact. Growing worries from China's large industrial groups are due to the impact that credit tightening is having on their customers. China's steel demand growth is expected to slow this year and analysts say that producers' miscalculations led to a glut of steel inventories building up in September, leading to a drop in steel prices during the past month. The falling steel prices promoted some small and medium-sized mills in China to shut down in recent weeks, further cutting into iron ore prices and forcing some mining companies to renegotiate supply contracts with Chinese steelmakers.

Source: Financial Times

POLITICS 9 MPS LOSE CONFIDENCE IN PRIME MINISTER Nine MPs submitted a letter to Parliament demanding the resignation of Prime Minister S. Batbold. The letter follows the government's decision not to pursue a renegotiation of its Oyu Tolgoi investment agreement. The letter said that government has done nothing to put the investment agreement more to its favor. Last month 20 MPs banded together to demand a 14 percent increase to the government's stake in the project ahead of schedule. In an effort to retain investor confidence in Mongolia, the government finally decided it would not pursue the motion. The 9 MPs have criticized the joint statement by the government to Ivanhoe Mines and Rio Tinto, the foreign firms running operations at Oyu Tolgoi, reaffirming the 2009 investment agreement. The group believes that the joint statement was made by the Prime Minister alone rather than a collective decision by the cabinet. When it became apparent that he could not gather any more signatures, N. Batbayar made additional statements that he was searching for new ways to bring down the prime minister. This week Batbayar announced to Parliament that his proposal is for the resignation of only the prime minister, so he may not need the full 20 signatures. He also requested a face-to-face meeting to discuss the Oyu Tolgoi agreement with Prime Minister S. Batbold, Finance Minister S. Bayartsogt, and MP S. Bayar.

Source: Udriin Sonin

PRIME MINISTER DEFENDS OT AGREEMENT Prime Minister S. Batbold compared Oyu Tolgoi to 5 Erdenet mines for production of minerals and value to Mongolia in a statement to the press. He spoke in support of the Oyu Tolgoi Investment Agreement as a means of demonstrating continuity in Mongolian policy and as evidence that firms can successfully implement large-scale projects in Mongolia. “Oyu Tolgoi is a project that is putting Mongolia on a new level of investment and economic production,” he said. “We have no doubt whatsoever that its successful implementation must continue.” The prime minister cited economic change in growth as goals of the government. He said Oyu Tolgoi goes beyond simply implementation of a project, but reaches out to create a new level of economic growth. The project will aid in the development of Mongolia's capital market, the mentality towards economic relations, open governance, and improvements in profit-making. In regards to the controversy surrounding the investment agreement last month, he said government should act more prudently. He advised the cabinet to thoroughly discuss issues internally before behaving rashly. Although he said he could sympathize with the desires of the 20 MPs who protested the agreement, progress must continue without distractions. Last spring the government negotiated with OT investors proposing increased interest and participation in the Oyu Tolgoi project. He warned that

sudden changes could seriously hinder progress and create delays. This year's economic growth could reach as high as 18 to 20 percent, he added. The government aims to keep stable growth and to introduce processing plants to create greater value of its exports.

Source: Frontier Securities

FINANCE MINISTER ASSURES GREAT REWARDS FROM OT AGREEMENT Finance Minister S. Bayartsogt in a presentation defended the government's decision to uphold its investment agreement with Ivanhoe Mines and Rio Tinto for the Oyu Tolgoi copper and gold project. Last month a group of 20 MPs protested the agreement and demanded a revision, but the government opted to retain the current agreement instead. “The investors will earn USD 25 billion from the dividend,” said Bayartsogt. “They will receive the profit after the mining operations have started. But Mongolia will be granted a profit the moment the operation begins. Therefore, there are more advantages to the Mongolian side.” He went on to express his confidence in the government's decision to uphold the agreement and quoted President Ts. Elbegdorj's remark after the signing of the document, “Mongolia has advanced with one step.” He also cited the International Monetary Fund and World Bank's approval of the agreement as further evidence of its fairness. “If we don't receive 59 percent of the profits from Oyu Tolgoi, we will take responsibility, no matter what,” he said.

Source: UB Post

ELBEGDORJ MEETS U.K. PRIME MINISTER President Ts. Elbegdorj met with U.K. Prime Minister David Cameron this week in London. Elbegdorj discussed current affairs in Mongolia, his nation‟s prospects and policies, and proposed ways to enhance Mongolian-British relations and cooperation. The two officials shared their views on widening ties and developing ties in trade, finance and industry. Cameron noted that a Mongolian-British Business Forum has already been successful in London, and affirmed the United Kingdom's intention to invest into Mongolia's development. He added that the plans to visit Mongolia sometime next year. Both reached an agreement to cooperate on the international arena to develop democracy and human rights, combat corruption, and support North African countries in their transition to democracy. Elbegdorj said Mongolia is ready to cooperate with an anti-corruption law and is implementing it successfully, to which Cameron gave praise. Following this was a discussion between Mongolian Ambassador to the United Kingdom, L. Purevsuren, an advisor to the president on foreign policy, and officers of the British Ministry of Foreign Affairs and the Commonwealth.

Source: Unuudur

ELBEGDORJ SPEAKS AT OXFORD UNIVERSITY President Ts. Elbegdorj delivered a brief description of Mongolian history at Oxford University this week. His speech followed the line of history from the Khunnu state, the empire of Chinggis Khan, the socialist era, and the democratic revolution of 1990. Elbegdorj said Mongolia's economy is quickly developing, and the government is investing its revenue earned from the minerals sector into health, education, and infrastructure. Both China and Russia respect the choices of Mongolia, showing deference to the nation. Mongolia has implemented its “third neighbor” policy to develop nations with other nations around the world. Despite its rapid development, Mongolia also retains its nomadic tradition, balancing its old customs with its modern lifestyle.

Source: News.mn

CEREMONY MARKS BEGINNING OF DARKHAN OIL REFINERY PROJECT A ceremony was recently held to celebrate the beginning of a project for the construction of an oil refinery in Darkhan. The meeting was attended by representatives from Parliament and the Japanese oil industry. Parliament Speaker D. Demberel and other delegates from Mongolia, in addition to representatives from the Japanese firm Toyo Engineering Marubeni came to witness the opening ceremony. The project will be funded by Japan's International Cooperation Bank, Just Group, Petrovis, and Magnai Trade. The

firms and organizations are banding together to create a consortium to lead the project. Source: Zuunii Medee

DP MOVES TO REFORM PRIVATIZATION LAWS A majority within the Democratic Party (DP) is moving forward to amend the laws on the privatization of state properties. The MPs are interested in drafting an amendment to the appendix of a parliamentary resolution on privatization from 2010 to 2012 and approving the basic guidelines for reform. The bill was initiated by MP D. Odkhuu. After a meeting on Monday, party head Ch. Saikhanbileg introduced an official proposal to the faction of the Mongolian People's Party (MPP) for parliamentary election. The MPP said that it would consider the proposal after making certain decisions in its regard. Saikhanbileg went further to announce that his party has not discussed the matter of Prime Minister S. Batbold's resignation.

Source: Montsame

SUPREME COURT ORDERS GOVERNMENT TO ENFORCE ENVIRONMENTAL LAWS The Supreme Court issued an order to the government that it must implement its law prohibiting mining activities too near designated water sources and woods. Many believe that although mining firms are leaving these sites, there is no authority to keep artisan “ninja” miners from mining at designated prohibited zones. “The law was made to crack down on the negative results of gold mining mania—hundreds of rivers and thousands of hectares of forests have disappeared just for a few kilos of gold,” said G. Bayarsaikan, one of the lawmakers who drew up the original legislation. The environmental group, The United Movement for Rivers and Lakes, demanded that the government estimate and announce the amount of ecological damage inflicted by mining activities as a result of its failure to enforce its laws intended to protect the environment. Parliament passed an environmental law to prevent mining companies from damaging land at the Ongi, Zavkhan, Tuul, Khangiltsag, Khuder, Ulf, Peru, and Gatsuurt river areas through exploration and excavation. The 2009 band was drawn up by parliamentary backbenchers and passed despite opposition from the government. Many foreign investors were expecting the law to be revoked during the current session of Parliament. The organization said companies are responsible for restoring damaged land in return for the privilege to mine. The court of appeals initially rejected the organization's appeal. However, the Supreme Court accepted it and ordered the government to enforce the law.

Source: Udriin Sonin, Mining Weekly

ENVIRONMENTALISTS HOST CONVENTION The Nature Protection Office and the Ecology Technology Development school have banded together to organize a research conference this week. Teachers and scholars from the National University of Mongolia and the University of Agriculture participated in the conference to educate its audience on the environment and steps needed to protect it. A.P. Saveliev, director of the Hunting Institute of Russia, read from Experience and Results of Beaver Introduction in Euro Asia for his speech At the conference speakers also discussed the properties of Ulaanbaatar's soil, research on the effects of pollution, the deterioration of soil at pastures, data on desertification, the capital's “green zone,” and water reserves to the city and the effect of pollution. Solutions to issues were also discussed to problems such as air pollution, plant growth, and animals living in the green zone.

Source: News.mn

“RESOURCES CAN DRIVE HUMAN DEVELOPMENT,” SAYS UN CHIEF The recent economic growth in Mongolia due to a boom in its mining sector represents an opportunity to reduce poverty in the country, said United Nations (UN) development chief Helen Clark. Clark has recently returned from a visit to Ulaanbaatar. “I am convinced the natural resources can drive human development if they are managed in transparent, inclusive, and sustainable ways,” said Clark. Clark went on to reflect on the many cases where countries experienced rapid growth in gross domestic

product (GDP), but it did little to alleviate poverty. She warned that Mongolia should avoid falling prey to the “resource curse,” referring to the theory that countries with an abundance of natural resources, particularly non-renewable ones such as minerals and fuels, tend to experience less economic growth than countries with fewer resources. Mongolia has shown an average growth of 9 percent per year largely due to rising copper prices and gold production, but poverty has persisted with more than 30 percent of the population living on less than USD 1.25 a day. Clark said the government should have a long-term development plan that provides quality public services such as education and health care to ensure sustainable economic growth continues. During her visit Clark also met with government officials and civil society organizations, as well as with women leaders to exchange ideas on promoting women's political empowerment.

Source: United Nations

MONGOLIA TARGETS NEW GOALS FOR AVIATION The International Civil Aviation Organization (ICAO) and Asia-Pacific Civil Aviation Directorate met this week to discuss improvements to the aviation sector in Mongolia. P. Ariungerel, the head of aeronautical information services division of the Mongolian Civil Aviation authority listed a number of objectives her organization hopes to fulfill. Aeronautical management will shift to radar management system by the end of the year, said Ariungerel. Mongolia will introduce international standards for paved roads at the airports in Bayan-Ulgii and Uvs Aimag. The ICAO also aims to upgrade its Aeronautical Information services to Aeronautical Information Management.

Source: Unuudur

ANOTHER MONGOLIAN HERDER KILLED IN INNER MONGOLIA An ethnic Mongolian herder in China's Inner Mongolia died in a similar incident to one in May which led to protests in the region. The earlier crime resulted in wide protests in the region. A human rights group said the herder had been trying to protest grazing land from Chinese oil trucks in Inner Mongolia when he was knocked down. The local government said in a statement that he had been killed while trying to overtake the truck on a motorcycle. The driver had been taken into custody, it added. Thousands of ethnic Mongolian staged angry protests in May after a similar incident. A herder named Mergen was killed on 10 May as he tried to stop a coal truck driving over pasture land. His death led to a series of demonstrations in towns and cities across Inner Mongolia which the security forces acted quickly to put down. The truck driver who hit him was executed in August. Ethnic Mongolians make up less than 20 percent of Inner Mongolia's population. They say Han Chinese settlers and developers are eroding their rights, especially with mining projects. The region has traditionally been home to nomadic Mongolian herders, but has seen an influx of companies keen to exploit the regions resources.

Source: BBC

ANCIENT MONGOLIAN SHIP DISCOVERED NEAR JAPAN Archaeologists discovered the wreck of a Mongolian ship, believed to be headed toward Japan more than 700 years ago. It is believed difficult weather conditions sunk the vessel during a campaign led by Khublai Khan to invade Japan. Divers with underwater cameras explored the ship and took photos of the wreckage this week below the seabed of Nagasaki. They discovered 36 feet of keel under seabed using ultrasound equipment and 4,000 artifacts, including cannonballs and stone anchors. Archaeologists say the Mongolian ruler Khublai Khan sent the ship as part of an invasion back in 1281. Japanese legend claims to “divine winds,” known as the Kamikaze, destroyed Mongol invasion fleets. Two separate typhoons laid waste to hundreds of vessels, forcing the Mongol hoard to give up on its efforts to conquer the island nation.

Source: 12 KDRV, Daily Mail

ANNOUNCEMENTS METALS MONGOLIA, ULAANBAATAR, NOVEMBER 3-4, 2011 The main objective of the international investment conference, to be held in Government House, is to provide a discussion platform and assist in medium- and long-term planning and implementation associated with the government‟s intentions to achieve value-added production at industrial parks through downstream processing of ferrous and non-ferrous metal products. It is aimed to provide potential investors with an insight into the government‟s policies pertaining to the metallurgical industry, related exploration, extraction, processing, and infrastructure projects; to facilitate such investments; provide opportunity for open discussion and possible solutions through involvement of representatives of both public and private sector and professional organizations on the opportunities and challenges in project financing, tax and legal environment. The conference will have main and branch sessions involving over 800 representatives of parties engaged in ferrous and non-ferrous metal projects, manufacturers, suppliers, foreign and domestic investors, academics, professional associations, state administrative bodies, embassies. The main conference will cover the present situation and future trends in Mongolia‟s metallurgical industry. A special feature will be the “Government Hour,” which will feature an open discussion on strengthening PPP in the metal-based industrialization process. The branch conferences will be on: - Opportunity to develop rare-earth based industries - Developing base metal industries - Developing iron and steel industries - Issues facing provision of required infrastructure to ferrous and non-ferrous metals based on industries-experiment and opportunity. Each branch conference will include thorough discussions of resources and reserves of the type of metal discussed, applicable market conditions, investment projects, technology and equipment. BCM is a Supporter of the event. For more information, visit: http://www.metalsmongolia.mn/, or call: +976-70115590, Fax: +976-70125590, or email: info@metalsmongolia.mn. ___________________________________________ JOIN THE ARTS STUDIO TOUR IN UB, NOVEMBER 5 The Arts Council of Mongolia will host an Art Studio Tour Saturday, 5 November, from 10 AM to 2 PM starting from the State Drama Theater at 10 AM. The tour will feature visits to various art studios, guides and translations, and mediation services. The price for admission is MNT 25,000, not including transportation. For more information or to RSVP call 11-319015 or 11-319017. ___________________________________________ M&A PRIVATE EQUITY PANEL, ULAANBAATAR, NOVEMBER 8 Mergermarket, a part of Financial Times Group, will host the Mongolia 2011 Mergers and Acquisitions (M&A) Private Equity Panel Discussion on 8 November. The event will be presented in association with David Polk & Wardwell and the Business Council of Mongolia. The conference intends to initiate an in-depth discussion about M&A and private equity investment opportunities and deal execution in Mongolia. The event will bring together leading professionals in Mongolia and across the Asia-Pacific, setting the stage for an international networking opportunity around Mongolian M&A activity. Panelists will include Bold Baatar of the Mongolian Stock Exchange (MSE), Mandar Jayawant of Mongolian Opportunities Partners, George Lkhagvadorj Tumur of Hunnu Coal, Mark Lehmkuhler and Bonnie Chan of Davis Polk, and Jim Dwyer of the Business Council of Mongolia as moderator. Areas for discussion will include the development of the investment climate for M&A and private equity in Mongolia over 2012; the countries to act as primary bidders for inbound opportunities; the key differences between listed and unlisted companies with regard to M&A; the role private equity will play in the development of Mongolia's investment market; the IPO prospects for Mongolia; the difficulties in sourcing and completing transactions in Mongolia; and the key risks facing bidders interested in Mongolia. For more information or to register, email eventsapac@mergermarket.com or call Amy Chau at

852 3158 9782. ___________________________________________ 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. ___________________________________________ “BSPOT” ON B-TV, MONDAY TO FRIDAY AT 21:30 B-TV (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. ___________________________________________ POSTINGS ON BCM‟S ENGLISH WEBSITE 'PRESENTATIONS' AND 'MONGOLIA REPORTS' AND BCM‟S MONGOLIAN WEBSITE „NEWS‟ SECTIONS As a key component of BCM‟s Mongolian website, „News‟ section, articles from the Government‟s “Open-Government.mn” site will be regularly posted. Also several draft laws, still to be discussed in Parliament, are posted on BCM‟s English website in the Legislative Working Group section. On BCM‟s English website - „Resource, Presentations‟ section for your review are several speeches at Discover Mongolia 2011, speeches from BCM‟s 8 monthly meetings in 2011, and the address by Peter Nicholls, OT‟s VP-Commercial, at Global MInES in Sydney on July 4. Also on BCM‟s English website, „Resource, Mongolia Reports‟ section please note "Blitz and Lead" by Sant Maral Foundation, August 2011, Z. Batbayar, Deputy Director of the Water Authority, at BCM‟s Environmental Working Group‟s recent meeting, the Polit Barometer-May 2011 from Sant Maral Foundation and the U.S. Embassy Mongolia‟s Commercial Section‟s “2011 Mongolia Investment Climate Statement” - www.bcmongolia.org. 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. ___________________________________________ NETWORK WITH BCM The Business Council of Mongolia (BCM) is expanding its reach to your favorite social networks. Keep up to date on the latest business deals in Mongolia and how the climate for investment is improving each day with BCM. Add BCM on Facebook at http://www.facebook.com/pages/THE-BUSINESS-COUNCIL-OF-MONGOLIA/129826330435540 to read the latest announcements and comment on events with the community. Hear breaking news and announcements as they happen when you follow BCM on Twitter at http://twitter.com/#!/bcmongolia. Connect with BCM on Linked-in to join the diverse group of professional contacts creating a better business environment in Mongolia today. Of course for news information, interviews, and announcements regarding our organization, visit the official BCM website at bcmongolia.org and bcm.mn.

ECONOMIC INDICATORS

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

Year 2007 *15.1% [source: NSOM]

Year 2008 *22.1% [source: NSOM]

Year 2009 *4.2% [source: NSOM]

Year 2010 *13.0% [source: NSOM]

September 30, 2011 *10.5% [source: NSOM]

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

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

March 11, 2009 14.00% [source: IMF]

May 12, 2009 12.75% [source: IMF]

June 12, 2009 11.50% [source: IMF]

September 30, 2009 10.00% [source: IMF]

May 12, 2010 11.00% [source: IMF]

April 28, 2011 11.50% [source: IMF]

August 25, 2011 11.75% [source: IMF]

October 25, 2011 12.25% [source: IMF]

CURRENCY RATES – October 27, 2011 Currency Name Currency Rate U.S. dollar USD 1,300.27

Euro EUR 1,811.73

Japanese yen JPY 17.13

British pound GBP 2,082.06

Hong Kong dollar HKD 167.29

Chinese Yuan CNY 204.72

Russian Ruble RUB 42.56

South Korean won KRW 1.15

Disclaimer: Except for reporting on BCM‟s activities, all information in the BCM NewsWire is selected from various news sources. Opinions are those of the respective news sources.