BUSINESS COUNCIL of MONGOLIA NewsWire

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Issue 187, September 30 2011

NEWS HIGHLIGHTS: Business:

Renegotiating OT jeopardizes future investment in Mongolia, says Rio;

Ivanhoe and Rio bear uneasy relationship for OT;

Petro Matad receives good results from DT-4 sample;

TVN expands its exploration target;

General Mining acquires new exploration license;

Garrison and subsidiary engrossed in legal battle;

LSE heads further towards clearing house acquisition;

New credit service for European imports opens at Golomt;

Tourist network updates Mongolia's tourist industry;

Citi presses on Asia for new returns;

Rio maxes out on Ivanhoe stock;

Ivanhoe shares hit new low;

Boroo presents mine rescue competition;

GE hosts alternative fuel challenge;

Oyu Tolgoi celebrates 50 percent operational benchmark;

Mongolia Trade and Commodity Finance Conference;

“Dispute Settlement, Judicial and Legal Reform” panel at NAMBC conference.

Economy: Government puts fair business practice aside for self interest;

IMF signals its confidence in Mongolia;

China adds to inflation pressures in Mongolia;

Mongolia to improve energy efficiency;

No use making sense of base metal reserves any longer;

Mongolia experiences growth in its coal market;

Enthusiasm wanes for precious metals;

China instigates panic for copper;

Doctor Copper trades its MD for course in Chinese medicine;

Gold supplies running dry;

Uranium reserves may develop to huge futures market;

Billiton chairman advises nations to pay mind to global competition in tax law;

Asia catches the west's economic illness.

Politics: Elections move Parliament to reconsider OT deal;

TT deal legally sound thus far, says MP;

Parliament's agenda for autumn session;

Mongolia to revamp its electoral process;

Mongolian official Khurts released by Germany;

Government supports employment in 2011;

Mongolia to open Cambridge branch pilot schools;

Mongolia and Kuwait to engage in media exchange program;

Shinebayar founds Khamug Mongol party;

Ulaanbaatar air quality among the worst;

Development threatens tradition in Mongolia;

Outsourcing the government shows benefits;

More of the same for Russia's leadership.

*Click on titles above to link to articles.

SPONSORS

Khan Bank Eznis Airways

Kempinski Hotel Khan Palace Mongolian National Broadcasting

Mongolian Star Melchers Breakthrough PR

MCS Property Oxford Business Group

BCM MONTHLY MEETING RECAP

The meeting on 25 September with Laurenz Melchers in the chair was attended by 80 members and invited guests. Executive Director Jim Dwyer announced BCM's Renewal dinner for 31 October. The evening will feature food, drinks and entertainment as well as awards to outstanding businesses, government organizations, and working groups. Membership now stands at 193 members from 162 members one year ago. Those recently joined are: 1. Global Minespec LLC is a Mongolian-Australian joint venture welding and safety equipment supplier to operations in Mongolia. It provides to the mining and fabrication industries in Mongolia a much needed supply of high quality items. Established in 2010, Global Minespec has worked with companies such as Major Drilling and Boroo Gold. 2. Mongolia Growth Group is a financial group focused on acquiring investments in real estate and building the country's insurance industry. Its goal is to leverage the tremendous growth currently found in Mongolia. Attracted to Mongolia for its rich mineral wealth, on-going development of world class mines, high gross domestic product (GDP) growth, and ambitious society; the group wishes to capitalize on the development opportunities available. Planning to focus its energies on real estate, insurance, and asset management, the group plans to help direct policy and development. 3. Standard Chartered was first formed in 1969 after the merger of The Standard Bank of British

South Africa (founded in 1863) and the Chartered Bank of India, Australia and China (founded in 1853). The bank aims to be the world's best international bank; leading the way in Asia, Africa, and the Middle East. It focuses on attractive, growing markets where it can leverage its relationships and expertise, promising competitive position, and management discipline. Its brand promise is ―here for good.‖ 4. Falcon Drilling is an international diamond drilling service supplier with world wide experience in providing drilling services to the local and international geological exploration community. The company was established in 1986 and has operated in Mongolia since February 2006. Its specially manufactured drills are designed and manufactured in Canada to suit a variety of different objectives. Local manufacturing and quality control ensures maximum reliability and minimum down time. 5. Citigroup (Citi) has years of experience meeting the world's toughest challenges and seizing its greatest opportunities. The group aims to serve its clients with financial solutions that are simple, creative, and responsible. Citi is an institution connecting 1,000 cities, 160 countries, 200 million clients and millions of people.

The evening began with a presentation by General George D. Miller, chairman of the board at Rolph Jensen Agency. His group aims to deliver the best fire protection strategies as a non-government agency. It works to develop consensus codes with help from interested parties, such as experts in the hotel industry. He warned that since Mongolia is developing very quickly, fire safety management should be implemented correctly and quickly. He gave examples such as at MGM Hotel in Las Vegas where a fire accident ruined tourism. The group has significant experience, including advisory for the Disney Concert Hall, Beijing Film Museum, and China Pavilion for the Shanghai Expo 2010; in addition to numerous corporate and residential high-rise buildings. His agency can help ensure necessary codes are put in place and properly administered. B. Lambolgor, BD Sec market analyst, gave a presentation on the history and future of the Mongolian Stock Market (MSE). Currently the market is worth a total MNT 2 trillion. Current activity on the market includes the initial public offerings (IPO) of Silkrat and Sharyn Gol, and the corporate bond issuance of Just Agro LLC worth MNT 30 million. Reform on the market includes competition laws, stock market laws, and investment fund laws. Working with the London Stock Exchange (LSE) the MSE will improve using the Millennium IT software for electronic trading. Currently 15,000 companies are paying taxes to the Mongolian government, but just 2.2 percent are listed on the MSE; and only 13 of the Mongolian Top-100 can be found there as well. Economist, blogger, and TV talk show host D. Jargalsaikhan introduced the government spending watchdog group ‗Fair Taxes, Wise Spending‘. As the only legitimate critique of tax laws and protector of tax payer rights, the group observes government spending and fights for greater transparency in government. Jargalsaikhan identified three risks to Mongolia: dependence on China; unpredictable and non-transparent government; and rising inflation. The group works to raise the status of tax payers and shine a light on wasteful spending. Too much money is handed out to people, giving no incentive for work and the middle class is not seeing the growth that Mongolia's richest are benefiting from, he said. Mongolia needs a predictable tax system that accounts for every tugrug spent. Naranbaatar, Managing Director of Glogex, discussed the upcoming Metals Mongolia 2011 metal development economic forum organized by his company. The forum will be held from 3 to 4 November to discuss the various metal commodities in Mongolia, and how the ore mining sector can be better developed. Currently MNT 2.5 billion worth of exports are shipped from Mongolia, MNT 1.2 billion of which are metals; including iron copper, and uranium. The government wants to supply a fully processed product, but the skills and infrastructure available to Mongolia are not enough. The conference's goal is to attract investment to deposits and consider policy recommendations. The five session topics are the metal industry and its outlook; practices and methods for mining and processing; world metals and a market outlook; mining and metal projects available to Mongolia and future prospects; and international cooperation in the mining sector.

BUSINESS

RENEGOTIATING OT JEOPARDIZES FUTURE INVESTMENT IN MONGOLIA, SAYS RIO If Mongolia attempts to alter its investment agreement for the Oyu Tolgoi project, it risks tarnishing its reputation with investors, warned Rio Tinto Country Director to Mongolia Cameron McRae. The government wishes to renegotiate its 2009 deal with Ivanhoe Mines for a 50 percent stake in the project.

Prime Minister S. Batbold and Cabinet Secretary Ch. Khurelbaatar sent a letter to Ivanhoe and Rio to invite them for a discussion on the Oyu Tolgoi investment agreement. Ivanhoe currently holds at 66 percent stake in the project, while Rio holds indirect ownership with a 49 percent stake in Ivanhoe. A faction of 20 MPs have rallied against the deal, believing they have given too much away of Mongolia's wealth to foreign companies. Rio Tinto plans to invest USD 6 billion into the Oyu Tolgoi copper and gold project, hailed as the world's greatest untapped copper deposit. Construction is half complete on the mine and production is expected to begin next year. The agreement made gave Rio Tinto the confidence to invest ―such a mammoth sum‖ into Oyu Tolgoi, said McRae. ―What we are demonstrating is the investment agreement is a contract. We're going to honor it and we expect the government to honor it.‖ Shareholders plan to raise a sum up to USD 4 billion to finance the project's development. This would be the largest project financing ever in mining history, said McRae. Rio has invested more than USD 3 billion into the project in the past five years. Ivanhoe spent more than six years negotiating an investment pact with the government for the 2009 agreement. Rio believes the entire project will cost up to USD 10 billion.

Source: Bloomberg, AFP, Financial Times

IVANHOE AND RIO BEAR UNEASY RELATIONSHIP FOR OT Rio Tinto and Ivanhoe Mines' already strained relationship is being tested by disputes between the two companies and the possibility of interference from Mongolian government on the Oyu Tolgoi copper and mine project. Ivanhoe Chief Executive Robert Friedland accused Rio of releasing ―unauthorized and incomplete information.‖ Ivanhoe owns 66 percent of the project, while Rio has indirect ownership with a 49 percent stake in Ivanhoe. Rio is also the head of operations, but is currently barred from increasing its stake in Ivanhoe to a majority because of a ―standstill clause‖ due to expire in January. It is possible the comments of Rio Tinto Copper head Andrew Harding struck a nerve with Friedland. Harding said last week that scheduling targets may be delayed if the operators could not deliver electricity with a preferred method. "Ivanhoe Mines remains confident that the necessary agreements between Mongolia and China will be satisfactorily concluded to secure the timely supply of interim, high-voltage electric power from China to ensure that Oyu Tolgoi can begin commercial production on schedule," said the firm in an official release. Meanwhile, both partners must deal with a faction in government hoping to renegotiate the investment agreement made for the Oyu Tolgoi project. Ivanhoe spent six years negotiating with the Mongolian government before it reached its 2009 agreement. Under the current agreement, Mongolia must wait 30 years before it can raise its stake to 50 percent. A group of 20 MPs have demanded a renegotiation to the Oyu Tolgoi project, believing it deserves a 50 percent stake in the project. Mongolia will hold parliamentary elections next year. ―The investment agreement for the Oyu Tolgoi project remains a fair and legally binding contract that deserves and requires the unqualified support of all parties,‖ said Ivanhoe in a official release. The Oyu Tolgoi copper and gold project makes up almost as much the same area as Manhattan Island and is expected to produce about 1.7 billion pounds of copper and one-million ounces of gold at its peak years of production.

Source: Sydney Morning Herald, Mining Weekly

PETRO MATAD RECEIVES GOOD RESULTS FROM DT-4 SAMPLE Analysis from Petro Matad‘s Davsan Tolgoi 4 well (DT-4) returned positive results. The firm extracted 22 liters of oil without any traces of water. The sample consisted of 42.5 degree API, a high quality oil type that confirms Petro Matad's beliefs about the prospects at Davsan Tolgoi. Extracting a sample without water content indicates good progress is being made on the development of the well. ―The testing of DT-4 has provided valuable information regarding the reservoir characteristics in the deeper parts of the Davsan Tolgoi area,‖ said Petro Matad Chief Executive Doug McGay. ―The Lower Tsagaantsav reservoir characteristics at DT-4 compare favorably with historical production data from Block XIX, the adjacent block owned by Petro China, where all but four wells are reported to have required fracture stimulation, and where fracture stimulation is believed to have substantially increased production.‖ He went on further to say that in comparison to the oil obtained by Petro China at a nearby site,

the samples from wells DT-1 and DT-4 indicate a medium to high quality form petroleum at the site. Petro Matad is the parent company of a group focused on oil exploration and future development and production in Mongolia. Its principle asset is the Production Sharing Contract (PSC) over Matad Block XX, a petroleum block in the far eastern part of Mongolia, near the Chinese border.

Source: Petro Matad

TVN EXPANDS ITS EXPLORATION TARGET TVN Corporation uncovered a 189-meter thick coal sequence that could expand its earlier exploration target at its Nuurst thermal coal project. A second rig began drilling at the project and a third will begin in min-October to ensure that the exploration program completes before the end of this year. The previously targeted deposit at Nuurst was between 50 and 100 million tons, but was based on an eight-meter-thick coal seam. Drilling will continue for further analysis of the coal sequences at this part of the coal basin. TVN is an Australian-based mining and exploration firm with operations in Mongolia. The Nuurst project is a 3,451-hectare exploration license, located 120 kilometers south of Ulaanbaatar, in an area with a number of operating coal mines. Source: Proactive Investors

GENERAL MINING ACQUIRES NEW EXPLORATION LICENSE General Mining Corporation (GMM) has acquired a 100 percent interest 19.6 square-kilometers exploration license in Mongolia for coal exploration. The licensed land is near its subsidiary Golden Cross's current exploration property in Uvs Aimag. It is 200 meters west of the Khuden coal deposit. It covers parts of an inter-mountain basin apart from the major Uvs Basin. The Khuden coal deposit was discovered in 1971 during exploration through the 1970s to the 1980s. Most of the geology outside the area with exposed coal is unexplored. The company began preliminary exploration activities this year including past exploration data. At the site is a sealed high linking Ulaangom Soum, the provincial capital, and the Russian city Kyzyl. A high-voltage power line is available and a railway that will connect to the Trans-Siberian Railway will have completed construction before the end of 2014. The land found at the licensed are is known to hold at least 7 black coal seams discovered at the Khuden project at the center of this basin. Established in 2007, GMM founded the subsidiary Golden Cross LLC in 2008. The company has applied for and been granted 10 licenses in the north-west of Mongolia. Its projects include the Uvs Basin potash project. Source: General Mining Corporation

GARRISON ENGROSSED IN LEGAL BATTLE WITH FORMER ASSOCIATES A legal battle has erupted between Garrison International and former associates of its Mongolian subsidiary Garrison Asia. However, both parties are accusing the other of fraud and there is contention over where the court setting should be. George Cohen and Daniel Neelon accused Garrison International of fraud and are seeking to have a civil trial for Quebec in Canada, although the company has no operations there. The dispute is over a loan of USD 209,000 Garrison Asia in 2010 that Cohen alleged the company defaulted on before seizing shares of Garrison Asia. The party filed a suit against Garrison for USD 17,301,724 in August. ―It is regrettable that we must spend management time and resources on these matters, but we must consider the motion filed in the province of Quebec to be a frivolous attempt to distract attention from the correct jurisdiction of this matter being the courts of Mongolia,‖ said Blair Krueger, president and chief executive of Garrison. ―Although Mr. Cohen Neelon [and his associates] has accused the directors of Garrison of fraud, in actuality we are of the opinion that the facts show the situation to be exactly the opposite. The case against Cohen and Neelon is currently under investigation by the Mongolian police. Neelon is barred from leaving Mongolia during investigations. Cohen left Mongolia in February this year after completing a transfer of the Garrison subsidiary into his own name, for which Garrison is claiming fraud. Read more… Garrison International is a mining firm focusing on small-scale, low-cost open pit production to generate capital for exploration and acquisition of Mongolian assets. All of Garrison's operations in Mongolia are conducted through its subsidiary, Garrison Asia.

Source: Garrison International

LSE HEADS FURTHER TOWARDS CLEARING HOUSE ACQUISITION The London Stock Exchange Group (LSE) is in exclusive talks with LCH.Clearnet Group after the latter's recent failure to merge with TMX Group. Due to Mongolia's partnership with the LSE, the software for the trading platform being installed by the LSE at the MSE will include the operations of the Mongolian Clearing House. If the LSE could acquire LCH, it could see greater returns in its post-trade business and make it a bigger competitor against rivals. The LSE may pay up to EUR 21 a share for 51 percent of the company, valuing the clearing house about approximately EUR 1 billion (USD 1.36 billion). ―Clearing has so far not shown to be a hugely profitable business,‖ said Kevin McPartland, director of fixed-income research at Tabb Group. ―However being able to offer a full suite of services is becoming more attractive to market participants, and I think that is a large part of why the LSE is willing to pay a premium price for LCH, which will saw the LCH owners to take the money and run.‖ Skeptics believe the EUD 500 million needed for a majority may be too much. The LSE is already performing well so there may not be much need for an expansion of services.

Source: Wall Street Journal

NEW CREDIT SERVICE FOR EUROPEAN IMPORTS OPENS AT GOLOMT Golomt Bank signed an exports finance agreement with BHF Bank of Germany to expand loan services to businesses operating between Europe and Mongolia. The agreement will create long-term, low interest loans for Mongolian-European businesses. The goal of the agreement is to stimulate trade, investment, and the circulation of goods between Europe and Mongolia. The agreement will allow merchants to finance purchases goods and repay those loans with a flexible repayment plan. Golomt made a similar agreement with Commerzbank a month ago. It is working in cooperation with Credit Suisse, Czech Export Bank, and Komercni Bank of Czech Republic in support of the new service.

Source: Udriin Sonin

TOURIST NETWORK UPDATES MONGOLIA'S TOURIST INDUSTRY A network for tourist camps is producing better returns to its members. ―Thanks to the network, camps will eliminate dependency on bigger tourist companies, and their revenue would rise by 30 percent, said D. Nyamsuren, director of the tourist agency. Although Mongolia has 340 registered tour camps, only one-third of those have stable operations. This network allows tourists to search on the Internet for a camp of their choice and make a reservation.

Source: Zuunii Medee

CITI PRESSES ON ASIA FOR NEW RETURNS International banking firm Citigroup (Citi) will use its entrance into retail banking in Asia as evidence of expansion. Citi Chief Executive Officer Vikram Pandit is optimistic about the prospects available in emerging markets as opposed to his expectation of slow growth in the West. Pandit, who has run the company for nearly four years, has been criticized for his inability to cut costs. Investors would also like to see a return capital through dividend or share buybacks. Pandit will use investment into Asia as a means of solving both problems. ―I think you'll get some more guidance on expenses and how we expect to fine-tune our business in light of what could be a slower environment, in the U.S. particularly,‖ Pandit said. ―From our perspective, this is a very strong capital generation story,‖ Citi placed 85 percent of its total investment into retail banking. The firm increased deposits in Asia 10 percent to USD 240 billion. It plans to continue it expansions to 700 branches in Asia as well. The bank says it is Asia's largest bank manager, holding about USD 200 billion in assets. Source: Wall Street Journal

RIO MAXES OUT ON IVANHOE STOCK Rio Tinto increased its interest in Ivanhoe Mines to 49 percent, the maximum limit agreed upon by the two firms. Rio bought Ivanhoe shares at CAD 19.75 (USD 19.15) a share totaling CAD 73.1 million via Credit Suisse to gain the extra half percentage point. Last December Ivanhoe established a standstill agreement that prohibits Rio from purchasing more than 49 percent of its stock, but granted Rio operating control over the Oyu Tolgoi copper and gold

project. The standstill agreement is set to expire on January 18, 2012. Ivanhoe holds a 66 percent stake in Oyu Tolgoi while Rio has indirect ownership through its Ivanhoe stake. Rio has steadily increased its interest on Ivanhoe from 19.7 percent at the start of the year. An outcome of the arbitration between Rio and Ivanhoe is expected for the near future. Oyu Tolgoi is the world largest untapped copper deposit located 80 kilometers north from China. Source: Wall Street Journal

IVANHOE SHARES HIT NEW LOW Perhaps concerns about the state of the Oyu Tolgoi project and copper prices may have gotten investors nervous. Ivanhoe Mines stock hit a 52-week low this week at USD 16.97, below its previous 52-week low of USD 17. Ivanhoe Mines has a market cap of USD 13.9 billion. A total 38 million shares traded last Wednesday. Average volume has been 1.9 million shares over the past 90 days. Shares are down 14.4 percent from last year. Ivanhoe Mines operates as an exploration and development company. Its principal resource property is the Oyu Tolgoi copper and gold project in Umnugobi Aimag.

Source: Wall Street Journal

BOROO PRESENTS MINE RESCUE COMPETITION Boroo Gold Company held a mine rescue competition at its Gatsuurt site this Thursday. ―For mine rescuers, the important thing in the competition is not to triumph, but to share their experiences and learn from each other,‖ said G. Odbayar, Boroo safety superintendent. This competition is the sixth annual competition organized by Boroo. The aim of the firm is to prevent potential accidents with exercises in rescue operation in emergency situation and promote rehabilitation and safety practices. A total of 13 teams were competing, including contestants from the Mongolian Mine Rescue Service, Centerra's Kumtor Mine staff from the Kyrgyz Republic, Oyu Tolgoi, Energy Resources, Leighton Asia, and the Erdenet Mining Corporation. The competition included four events, including rescue operations and first aid administration to victims of chemical spills and gas leakage.

Source: Unuudur Sonin

GE HOSTS ALTERNATIVE FUEL CHALLENGE General Electric (GE) opened a USD 100 million contest in China to fund innovative gas-energy projects. General Electric currently has a representative office in Mongolia and is exploring opportunities in this area. The ―Ecomagination Challenge‖ in China challenges competitors to find innovative alternatives to gas power, including natural gas, biogas, shale gas, and coal bed methane gas. Winners of the contest could receive cash awards, opportunities to work at GE's research and development facilities in China and possible equity investments in their ventures. The firm is working with seven venture capital partners to provide the USD 100 million prize. GE's Partners include Citic Capital Partners and Sequoia Capital China. Source: Wall Street Journal

OYU TOLGOI CELEBRATES 50 PERCENT OPERATIONAL BENCHMARK Oyu Tolgoi held a celebration for the completion of 50 percent of development of its huge project. Oyu Tolgoi is the world's greatest untapped copper deposit and will create a huge market for Mongolia. Rio Tinto has already spent USD 2.9 billion on the development of the project and plans to spend up to USD 6 billion on the project. The company plans to have its first production on 12 June next year. ―We want for Oyu Tolgoi to be a mine that will be the envy of the world,‖ said Rio Tinto Chairman Jan Du Plessis. Officials such as Minister of Mineral Resources and Energy D. Zorgit and board member and former President N. Bagabandi were in attendance, in addition to media representatives from The Economist, Financial Times and Bloomberg. Source: Zuunii Medee

MONGOLIA TRADE AND COMMODITY FINANCE CONFERENCE The Mongolia Trade and Commodity Finance conference will be held on 13 October to bring together trade leaders to discuss the vast opportunities found within Mongolia.

The conference will present leading experts within the trade and commodity finance sector, utilizing a format that includes detailed case studies, informed debate and networking opportunities. In addition to the conference will be a complimentary training workshop ―Trade Financing for Small and Medium Enterprises (SME),‖ hosted by the Mongolian National Chamber. Confirmed speakers for the event include Vice Minister of the Ministry of Finance Ch. Gankhuyag, XacBank Chief Executive D. Bat-Ochir, and Business Council of Mongolia Executive Director Jim Dwyer.

Source: Oxford Business Group

“DISPUTE SETTLEMENT, JUDICIAL AND LEGAL REFORM” PANEL AT NAMBC CONFERENCE The North America Mongolia Business Council (NAMBC) will host a panel on ―Dispute Settlement, Judicial and Legal Reform,‖ at its 14th Annual Investors Conference in UB on 5 October. Lawyer Jonathan Greenberg will discuss a range of issues related to investor-state disputes in Mongolia. Special attention will be drawn to those issues in the mining sector. The presentation will be divided into three parts, analyzing the dispute between Khan Resources and the Mongolian government. Khan Resources is suing the Mongolian for USD 200 million for revoking of its exploration license. Greenberg is a part of Canada's law firm Heenan Blakie. The information presented will also be used as a case study for the course International Investment Law and Dispute Resolution he will teach at Stanford Law School. For the complete three part study, see the BCM website, ―Legislative Working Group‖ section.

Source: NAMBC

ECONOMY GOVERNMENT PUTS FAIR BUSINESS PRACTICE ASIDE FOR SELF INTEREST Analysts are puzzled by MP‘s initiative to revise 2009 Oyu Tolgoi Investment Agreement. If the Mongolian government tries to revise the Oyu Tolgoi agreement, it may send a disturbing message to investors. The government's decision to renegotiate its investment agreement has left analysts unsettled. Finance Minister S. Bayarsogt confirmed to journalists that Parliament is seeking to discuss possible changes to the agreement with Ivanhoe Mines. ―Coming on the heels of the Mongolian National Security Council rejecting the government's Tavan Tolgoi plan,‖ said a Toronto analyst following Mongolia's mining sector for over seven years, ―the cancellation of about one-third of mining licenses in 2010 because of the River and Water Law, the requirement in the 2009 Nuclear Energy Law Authority that uranium license holders surrender between a third and a half of their licenses ownership as a gift to the government without compensation, the idea that the government will now seek to renegotiate the OT agreement is a real attention grabber.‖ The possibility of another revision of the mining law is as interesting to analysts as it is intimidating to investors, she said. Source: NAMBC

IMF SIGNALS ITS CONFIDENCE IN MONGOLIA Satisfied that Mongolia's economy has reached a point of stability, the International Monetary Fund (IMF) will withdraw its resident representative from Ulaanbaatar. The decision to end the stay in Mongolia of Parmeshwar Ramlogan, a representative of the IMF who had been observing Mongolia from up-close, comes from the Mongolian economy's quick recovery from the 2008 crisis, rising income per capita, and the IMF's own organization budget constraints. The group said it will maintain a local office to be managed from a regional office in Tokyo. ―This success reflected the authorities‘ commitment to pursue sound macroeconomic policies, a recovery in copper prices, and timely support from the international community,‖ said the source. ―With coal output rapidly increasing and two massive mining projects in the pipeline, Mongolia has a bright economic future and an opportunity to spread prosperity to all of its citizens.‖ However, it did warn against a string of risks. Inflation is on the rise and if not dealt with, will be a detriment to the private sector. Government spending, which is up 30 percent, is a key factor driving inflation. A six percent increase in spending, as the government has already proposed, would be highly risky, said the IMF and advised against it. It also advised Mongolia against abusing its Development Bank as a tool to circumvent its fiscal stability laws or for undisclosed spending. This would add fiscal risk and create a barrier to

transparency, which would ultimately undermine the credibility of the institution. For the Central Bank, it advised an increase in interest rates to combat inflation and measures to slow economic growth. Source: IMF

CHINA ADDS TO INFLATION PRESSURES IN MONGOLIA Inflation in China is starting to have repercussions in Mongolia. A 34 percent increase in commodities in China has exacerbated inflation in Mongolia. Inflation is on the rise throughout Asia, especially now due to the economic crisis plaguing North America and Europe. According to reports from the World Bank, Mongolia's inflation rate has increased by 11.4 percent compared to last year. China's rising inflation is effecting inflation in Mongolia as well. Mongolia is heavily dependent on the export of goods from China.

Source: Zuunii Medee

MONGOLIA TO IMPROVE ENERGY EFFICIENCY Mongolia will receive EUR 8.5 million for its ―Energy Benefits-2‖ projection for its fourth power station. The project aims to reduce consumption of raw coal, used for energy production. With aid from the German government, Mongolia will be able to produce energy cleaner and more efficiently. The agreement was made last week at a cabinet meeting with the additional aim of improving relations with Germany. The agreement with the Reconstruction and Credit Bank of Germany, which is valid for two years, has 0.75 percent interest attached and a 40-year repayment plan.

Source: Montsame

NO USE MAKING SENSE OF BASE METAL RESERVES ANY LONGER China and the U.S. Federal Reserve are distorting the price of base metals to the point that their values have very little meaning anymore. There used to be a time when inventories could drive the price of metals. If stocks rose to excess, then prices fell and vice-versa. However, low interest rates have made it cheap to buy up large stocks of base metals for when construction picks up again. Analysts estimate the majority of exchange stocks of aluminum, for example, are tied up in financial deals like this. Thus, only a small portion of the approximately seven million metric tons is available to meet demand. This kind of hoarding will drive up prices. As for China, its construction projects have been a magnet for copper, aluminum, lead, nickel, and zinc. China's consumption has risen from 23 percent in 2005 to 42 percent today. However, it is unclear where these supplies are coming from. Although China's copper imports fell 36 percent in the first seven months of 2011, copper prices held firm. This is leading many to believe China is either recycling or drawing from unreported reserves. Local Chinese commodity merchants have also used metal as collateral for loans, boosting imports, but keeping demand at a standstill.

Source: Wall Street Journal

MONGOLIA EXPERIENCES GROWTH IN ITS COAL MARKET Growth in the coal market has stirred up asset deals and new gains for Mongolia. Mongolia holds the world's ninth largest coal supply with a total 12.7 million tons of coal exported already. Within Mongolia's borders is 20 billion tons of coal; between 7 billion and 8 billion of which is high-grade thermal and coking coal for steel production valued at USD 2 trillion. ―Most gains are coming from favorable price growth,‖ said Frontier Securities Chief Investment Strategist Dale Choi. ―Mongolia is on its way to becoming one of the price setters in the region.‖ Experts believe Mongolia's exports will reach 22.5 million tons per year by 2025. Chinese imports 15 million tons of coking coal each year from Mongolia and is expected to double by 2013. Mongolia's coal is the cheapest supply for China and is similar to Australia's product, yet about twice as cheap. Outside of its market to China, Mongolia is seeing growth as well. Xstrata and Tohoku recently settled a contract with Japan to begin selling coal for USD 126.50 per tons beginning 1 October. Mongolia's price still falls below the benchmark price of its competitors. ―Increasing coal M&A activity is confirmation of global and regional coal companies' interest in valuations in Mongolia‘s coal sector,‖ said Choi. Read more… Eurasia Capital estimated that Mongolia has experienced 42 mergers and acquisition (M&A) deals since 2007 totaling at USD 1.22 billion. Baruun Naran coking coal mine in Umnugobi is Mongolian

Mining Corporation's (MMC) greatest acquisition yet, said the source. It is already in advanced stages of development and its close proximity to MMC's other property, Ukhaa Khudag, provides many synergy opportunities for production and transportation. The recent bid for Hunnu Coal by Banpu Minerals is evidence of the huge growth of that company. Gobi Coal may be another target for acquisition. When the mine reaches full production this year it will produce 5 million tons of high quality coking coal each year for the Chinese market.

Source: Frontier Securities

ENTHUSIASM WANES FOR PRECIOUS METALS The rally towards precious metals may be approaching its end. Investors having forsaken them as a safe haven, gold and silver prices took a nose dive in one of the largest mass shedding of bullions since the 2008 credit crisis. Spot gold dropped 6 percent and silver 14 percent. U.S. gold futures' benchmark December contract was also down 6 percent to trade under USD 1,635 after a session low below USD 1,632. ―We're making new lows and the bull case for gold is on pause for the near term,‖ said Adam Klopfenstein, senior market strategist for precious metals at Lind Waldock in Chicago, ―In the near-term, the flight-to-quality interest in owning gold is also out of the window as people are not interested in buying it even in the face for fears in the economy. Until it stabilizes, I'm staying out of this market.‖

Source: Mining Weekly

CHINA INSTIGATES PANIC FOR COPPER Copper prices continued its three-month drop to hit its 14-month low this week. Three-month copper fell more than 7 percent to USD 6,800 per ton on the London Metal Exchange (LME). Copper prices have dropped 20 percent this year in total. Analysts believe there will be some buyers looking to buy up reserves while prices are cheap, but the market volatility could create caution even in China. China is responsible for 37 percent of the world's copper demand. Many investors may have been scared off by the possibility China's demand may slow down. ―There will be some buying over the next weeks, but right now considering the national holidays at the beginning of October, I think any buying will be very cautious,‖ said Eugene Weinberg,‖ analyst at Commerzbank. ―You get the feeling it's hitting bottom. The supply and demand equation still remains tight,‖ Diego Hernandez, Chief Executive of Corporacion Nacional del Cobre (Codelco). Chile's Codelco project is the world's largest copper producer. ―We're optimistic about copper in the medium-to-long term,‖ he added. Read more… Aluminum, zinc, and lead fell along with copper as well. Three-month aluminum fell to its lowest level since September 2010, closing at USD 2,206; zinc fell it its lowest since mid July 2010, closing at USD 1,915; and lead hit its lowest prices since July 2010 at USD 1,927. Losses were also seen in tin and nickel. Economists now expect China's Purchasing Manager Index, due next Thursday, to signal a contraction in the manufacturing sector for the first time since February 2009. The economic perils of Europe and the North America, which are responsible for 19 percent and 11 percent of the world's copper demand respectively, will likely exacerbate the issue. Source: Mining Weekly, the Street, Market Watch

DOCTOR COPPER TRADES ITS MD FOR COURSE IN CHINESE MEDICINE Copper may not be a barometer for the world economy any longer. Once dubbed Doctor Copper for its supposed ability to gauge the global economy, copper prices now stand high and will likely stay there thanks to China, reported the source. Copper is important to Mongolia and its Oyu Tolgoi project will be an important source of copper to China. Copper's jumps and stumbles in price are believed to correlate with shifts in the world economy because how closely it is connected with commodities. An excellent conductor of electricity and heat, copper is used for cables and pipes throughout the world. An average car contains of 25 kilograms of copper, and electronic hardware uses copper for wiring and contacts. Thus, rising demand should provide some indication that manufacturing and construction is on the rise as well. However, the base metal is now apparently less tied to the global economy than China's growth. China consumers at least 40 percent (some guess as high as 50 percent) of global output of around 16 million tons in 2010. The source estimates global demand to rise by more than 40 percent to 27

million tons by 2020. Copper production will not grow much either. Only a few new, large copper deposits currently exist. The largest production of copper comes from Chile at its Escondida project, peaking at around 1.5 million tons in 2007. Mongolia's Oyu Tolgoi is the only other project that comes close to that kind of production but may produce only about half that amount. New supply will depend increasingly on smaller mines extracted from deeper underground and of a lesser grade product. Extracting copper from existing mines will likely suffer the same fate because copper production methods generally extract the best minerals at the beginning of production. Copper does not have many substitutes, either. Aluminum can sometimes be used, but it requires a lot more of it for the same effect. Several accidents where U.S. homes with aluminum burned down in the 1970s because of sparks from poorly connected wirings resulted in the ban of its use by building codes. The volume needed counts it out for the various gadgets that seem to be shrinking each year. In the short-term, copper may fall due to slow growth in the United States and Europe. However, over the long-term, high prices are a permanent fixture, analysts believe.

Source: The Economist

GOLD SUPPLIES RUNNING DRY Another wave of mergers and acquisitions in the gold mining sector is expected, but tapping the same sources may not bear great rewards for much longer. Although there is uncertainty in the markets, it would be no surprise to see majors exploiting the low valuations of gold they overlooked in the last crisis. Gold prices plunged by over USD 100 per ounce last week. If gold is experiencing a minor setback as it did in 2008 from a wave a pessimisms, companies could see tremendous rewards if they act now. ―I've had a number of these bigger companies say privately to me that they really made a mistake in 2008 and 2009,‖ said Dahlman Rose analyst Adam Graf. ―In the midst of the financial crisis, most of the juniors were trading at extremely low valuations and they had a great opportunity to buy tremendous assets and instead they just froze and didn't know what to do.‖ A number of firms from around the world are showing similar predictions for growth over the next few years, but come to a dead halt after 2016 as mines go dry. Exploration and new investment seems to be the best opportunity.

Source: Mining Weekly

URANIUM RESERVES MAY DEVELOP TO HUGE FUTURE MARKET Although it policies are unfavorable to investors, the government is eager to develop its uranium sector. Studies of Mongolia's deposits indicate that Mongolia has vast potential for great earnings if it can develop this market. The International Atomic Energy Agency (IAEA) ranked Mongolia 16th amongst the world's greatest uranium reserves with 62,000 tons of uranium, according to 2007 data. According to IAEA reporting, Mongolia was ranked #16 worldwide with 62,000 tons of uranium proven reserves based on 2007 collected data. Other data suggests that Mongolia harbors 1.39 million tons of untested reserves, which if prove would make up the world's largest reserves. However, another study gives the more conservative total of 500,000 tons. Most of the identified uranium reserves are at the Dornod Uran deposit, holding a possible 20,345 tons, in northeastern Mongolia. The Dulaan Uul deposit in Dornogobi Aimag could hold as much as 9,88 tons, the Gurvanbulag deposit 5,345 tons, Ulaan Nuur with 8,462 tons, the Harihan and Haraat with a combined 10,000 tons The Nuclear Energy Law adopted in 2009 includes up to 51 percent of state participation for free. Mongolia's drive to develop this sector was apparently unaffected by the Japanese nuclear disaster last spring.

Source: Frontier Securities

BILLITON CHAIRMAN ADVISES NATIONS TO PAY MIND TO GLOBAL COMPETITION IN TAX LAW Countries should take care to maintain global competitiveness when reviewing their tax laws, cautioned BHP Billiton chairman Jac Nassar in its company's annual report. The executive spoke to countries like Mongolia who could unreasonably tax mining companies at the expense of their own mineral sector's future. Although tax law review is standard, Nassar advised countries to pay mind to global competition in their respective mining sectors and consider ongoing investment in jobs, skills, growth, and

development of other sections. BHP Billiton has paid approximately USD 12.3 billion in taxes and royalties during the 2011 financial year. It gave an addition USD 195.5 million to a variety of community programs. "Resources are fundamental for the economic growth of developing countries as they are needed for buildings, transport, and infrastructure. Over the past decade, these economies have contributed more to global growth than the developed world," said Nassar. About 25 countries have raised taxes or plan to do so this past year, including Australia, South Africa, and Peru, reported Ernst & Young. Global imbalances and high levels of debt in both Europe and the United States could result in market volatility. However, he described a positive outlook for the global economy in developing countries, specifically mentioning China. Economic development will likely support demand and create projects for companies like BHP Billiton. BHP plans to invest more than USD 80 billion in the next five years in central resource destinations and approved 11 major projects worth USD 13 billion in the last financial year.

Source: Mining Weekly

ASIA CATCHES THE WEST'S ECONOMIC ILLNESS It seems Asian currencies finally got the news that there' is economic crisis in the rest of the world. Last week's steep decline in Asian currencies proved that Asia is not invulnerable to the economic crisis originating in the west. Fears that the United States will fall back into recession and the European is amidst a debt crisis are finally reaching the eastern world. Until just recently, Asian currencies were performing well. However, an index of 10 Asian currencies complied by JPMorgan and Bloomberg fell 2.1 percent against the U.S. dollar last weeks, lower than when it started this year. India's rupee declined 4.7 percent to a 28-month low, in addition to declines for Malaysia‘s ringgit by 3 percent, and the South Korean won by 4.7 percent. Many central banks in Asia were buying up their currencies foreign exchange markets this week to control the decline. However, banks founds themselves overwhelmed the surge of selling from investors. ―The reality is that it does not matter how confident we or anyone else may be on the medium-term outlook for China and the rest of Asia,‖ said analysts at the research firm Gavekal. ―If there is a recession in the U.S. in the next 12 months or a major default event in Europe, Asian markets will continue to fall, in tandem with the U.S. and Europe, despite the higher growth prospects.‖ Read more… The strong appreciation of the China's yuan finally gave way to the global rush for dollar liquidity. Although the yuan was the favorite within China, it fell by more than 2 percent abroad. Traders reason Asian currencies will continue to struggle until western nations are willing to trade again. The situation could grow even worse if the liquidation in currencies spread to the foreign bond market. If this were to occur, Asian currencies would likely fall even further.

Source: Financial Times

POLITICS ELECTIONS MOVE PARLIAMENT TO RECONSIDER OT DEAL An invitation from the cabinet to Rio Tinto and Ivanhoe Mines to renegotiate its investment agreement has created concern among investors. Ivanhoe Mines has a 66 percent stake in the Oyu Tolgoi copper and gold project while Rio Tinto, the project chief, has an indirect stake in the project with a 49 percent stake in Ivanhoe Mines. A faction within Parliament would like to see the government's stake in Oyu Tolgoi rose to 50 percent from its now standing 34 percent stake. Currently the government is unable to increase its stake until after 30 years have passed. ―I think there is an opportunity to say to investors, the people of Mongolia don't want to change the agreement as a whole, but to discuss two issues: Mongolia's stake and additional payment for use of our reserves,‖ said Elbegdorj. Rio Tinto Country Director and Oyu Tolgoi head of operations Cameron McRae warned the government against altering the deal at the ―Discover Mongolia‖ mining forum. Reversing the deal would tarnish Mongolia's reputation as a fair climate for investment and risk the livelihood of Mongolian workers, he said. Both Ivanhoe Mines and Rio Tinto insist the deal is fair. ―The investors agreement is a great deal for Mongolia,‖ said a representative from the Oyu Tolgoi Company. ―The government gets more than 50 percent of pre-tax profits when you include equity,

dividends, taxes, royalties, and VAT. That's more than five tugrugs out of every 10 going directly to Mongolia before you even think about what the mine will do for jobs, local suppliers, and technology improvements.‖ This week the ―anti-coalition faction‖ of government opposing the investment agreement addressed a letter to Rio Tinto and Ivanhoe claiming that the agreement violates Mongolia's 57th resolution. The faction claims that the resolution in question mandates a 50 percent stake in the project. The letter does not explain, however, why this particular project requires such a large stake as opposed to others. Read more… ―When the price of minerals rises several times on world market it is not influenced by any country or company, it is related to increase in demand for that specific mineral,‖ said the letter. ―It is not fair to view that investors must benefit from increased profit more than the owners of the resource.‖ The letter goes on further to say that a ―generation of Mongolian taxpayers‖ has funded the exploration for Oyu Tolgoi. The copper and gold at the site is worth a total USD 400 billion for which initial investment can be recouped within two or three years. According to the 57th resolution, Mongolia is entitled to 60 percent of profits, but doesn't even earn 50 percent under the current agreement. The uncertainty from the Mongolian government's involvement in the project will likely create some volatility in Ivanhoe‘s stock, said Dale Choi, chief investment strategist at Frontier Securities. Based on the companies' experience with the government, he was confident an agreement could be reach to satisfy the public before this year's elections. Source: Frontier Securities

TT DEAL LEGALLY SOUND THUS FAR, SAYS MP The Tavan Tolgoi deal being made is not in violation to any previous resolutions made by Parliament said Parliament Chief N. Altankhuyag. Some opponents to the Tavan Tolgoi have claimed that the government cannot divide the Tavan Tolgoi between an east and west site. Claims against the division of Tavan Tolgoi are the result of a misunderstanding said Altankhuag. Currently there is a debate over the interpretation of Resolution No. 39 between political parties that is driving the argument against this action. ―Some think that Tavan Tolgoi and its licenses are divided, but in actuality all of the licenses will be transferred from Erdenes MGL to Erdenes Tavan Tolgoi,‖ said Altankhuyag. ―If the parties have different views or understandings of the law, they should sit down and reach mutual understanding.‖ The MP went further to quell any fear of delays on the operations. He said operations have already begun at the Eastern Tsankhi and coal export to China has already begun. As for the Western Tsankhi, a resolution allowed for the bid of 15 companies and is now in negotiations with a short list of 6 companies. However, despite the investment from foreign companies, Tavan Tolgoi will remain state-owned, he said. Source: Business Mongolia

PARLIAMENT'S AGENDA FOR ITS AUTUMN SESSION The following is a list of amendments and bills scheduled for Parliament autumn session. Many of the laws to be discussed in Parliament concern the adoption of new methods in the electoral process for next year's elections. The council is still able to make changes to its agenda. The standing committees and working groups on amendments will meet before the autumn session begins. Parliament will hold a special session in October for an address by German Chancellor Angela Merkel. - Draft for Law on Companies (revision) - Draft for Law on Budget - Draft for Law on the Parliament elections (revision) - Draft for Law on Drivers Insurance - Draft for Law on Utilization of Water supply and Sanitation Sewerage System in Urban Areas (revision) - Draft for Law on the Courts Package - Draft for Law on Regulations for Disposing Hazardous and Toxic Chemicals - Draft for Law on Amending 2011 Budget of Mongolia - Draft for Law on Budget of Mongolia in 2012 - Draft for Law on Budget of Human Development Fund of Mongolia in 2012

- Draft for Law on Social Insurance Fund of Mongolia in 2012 - Draft for Resolution of SGK for the Adoption of Main Principles for the 2012 State Monetary Policy - Draft for Law on the Regulation for Amending Constitution of Mongolia - Draft for Law on Savings and Credit Cooperatives - Draft for Law on Civil Health Insurance (revision) - Draft for Law on Amending Civil Service, Education, Health Care, Excise Tax Draft, Exemptions to Customs Tax and Value-added Tax, and Resolution of SGK on ―Sum for Outside Settlements and Gobi zone‖ - Draft for Law on Amendments to Local Parliament Election - Draft for Resolution of SGK on ―Adopting the State Policy of Border Point‖ - Draft for Resolution of SGK on ―Amending Addendum of Resolutions‖

Source: Zuunii Medee

MONGOLIA TO REVAMP ITS ELECTORAL PROCESS The government will introduce reforms to its election process to be implemented in next year's upcoming election. Officials from the Election General Committee (EGC) presented a list of issues concerning the structure and system to the Standing Committee on State Structure working group. In attendance at the meeting was the head of Election General Committee head N. Luvsanjav and official from the General Authority for State Registration (GASR). Under the current law, many news ideas and practices for the election process currently being developed by Parliament will be introduced during next year's election. Mongolians living abroad will be able to take part in the election for the first time using the Internet. The EGC reported it is planning to import e-voting machine by January 2012 and to train IT specialists to work with the machines by the following April. Officials from the GASR said they have finished voter registration for its news voting scheme. The government agency will deliver a ―smart card‖ to 1.9 million Mongolian voters by 1 April 2012.

Source Undesnii Shuudan

MONGOLIAN OFFICIAL KHURTS RELEASED BY GERMANY The Mongolian security official who was extradited to Germany from Britain has been released and arrived back in Mongolia. National Security Council head Bat Khurts was arrested under the suspicion of kidnapping D. Enkhbat, a Mongolian refugee in Europe in 2003, to return him to Mongolia. Khurts arrived in Ulaanbaatar from a Mongolian national carrier flight from Seoul, Korea on Tuesday afternoon. He was greeted by his family and Vice Foreign Minister B. Bolor. ―I was freed from a German prison on 22 September and the next day I flew to South Korea,‖ said Khurts. ―I was in South Korea for medical checks and today, I have flown to Ulaanbaatar with my family.‖ The Mongolian government said he was on a ―special mission to meet with British officials and discuss bilateral cooperation on security issues.‖ Britain extradited Khurts to Germany on 19 August. Enkhbat's children's filed charges against Khurts, claiming their father's death was a result of the harsh treatment he received in Mongolian prison and the violence against him from special agents led by Khurts. Details of Khurts' release from the German prison were not disclosed by Mongolian officials. Enkhbat was under suspicion for the murder of a Mongolian S. Zorig, but never confessed to the crime. Zorig, remembered for his stance against corruption, was murdered just as he was expected to be appointed prime minister.

Source: Xinhua

GOVERNMENT SUPPORTS EMPLOYMENT IN 2011 The government has aims to create 70,000 new jobs this year. Proclaiming 2011 to be the year of support for employment, 51,138 new jobs have already been created. Of those jobs created, 17.1 percent are in agriculture, 10.2 percent are in mining exploration, 9.6 percent in the processing of raw materials, 17.7 percent in structural development, 13.9 percent to retail and wholesale service, and 12.3 percent in the services. The government has connected employers and job searchers through the website for the Labor Bureau. The government has also gone further to aid workers, such as its exemption to herders and farmers from valued-added taxes.

Source: Zuunii Medee

MONGOLIA TO OPEN CAMBRIDGE BRANCH PILOT SCHOOLS After 20 years of neglect in Mongolia, the education sector is finally seeing improvement, reported the source. Since his appointment to prime minister, S. Batbold has appealed to Parliament for education reform. One of which will be the introduction of the Cambridge system. Beginning this year, two secondary schools will become certified as a Cambridge school. It is this program will expand to include more schools if Parliament sees success here. The Cambridge system is an internationally recognized education taught in English. Graduates of a Cambridge branch school have the opportunity to enroll in any world class university or college. However, how well Mongolia will adopt this system remains to be seen. Source: Zuunii Medee

MONGOLIA AND KUWAIT TO ENGAGE IN MEDIA EXCHANGE PROGRAM Mongolia will take part in an exchange program for media and information with Kuwait. The program is a part of the two nations' efforts to build cooperative ties. Kuwait will host a delegation representing the Mongolian media in the second half of October with a Kuwaiti media delegation set to also visit Mongolia. Mongolian Ambassador to Kuwait Sairran Kader expressed his hope that the greater cooperation between the two nations would create a possibility to formulating joining media cooperation programs.

Source: Kuwait Times

SHINEBAYAR FOUNDS KHAMUG MONGOL PARTY A new labor party has joined the arena of Mongolian politics. The Khamug Mongol party is now Mongolia's 20th in politics. MP Ts. Shinebayar and philosopher S. Molor-Erdene formed the Khamug Mongol party to represent a growing movement initiated by Shinebayar following his decision to step down as party leader leave the Mongolian People's Revolutionary Party. The organization held its first conference last week to formerly declare the party's existence and adopt a platform. Over 570 new party members attended the conference. Shinebayar was selected as party chairman and vowed Khamug will introduce a new aim to Mongolian politics.

Source: Udriin Sonin

ULAANBAATAR AIR QUALITY AMONG THE WORST Ulaanbaatar ranks among the worst cities for air pollution, according to a survey conducted by the World Health Organization. Cities in Iran, India, and Pakistan contain the worse, while some in the U.S. and Canada are among the best. WHO released the list to promote the reduction of outdoor air pollution, which is estimated to cause 1.34 million premature deaths annually. If government invested to lower pollution levels, they could reduce health care costs said the organization. The list relied upon country-reported data from the past several years. The study reveals that Ulaanbaatar has an annual average PM10x density of 279 micrograms per cubic meter. Although the causes for high pollution levels vary, rapid industrialization with the use of poor quality fuel for transportation and electricity generation are principle sources. It also found that a lack of public transport encourages consumers to buy their own cars. The sudden surge of privately-owned cars and SUVs from a booming economy exacerbates air pollution.

Source: Washington Post

DEVELOPMENT THREATENS TRADITION IN MONGOLIA The relationship between development and tradition is a contentious one for Mongolia. Although Mongolia's mining sector promises economic growth and greater standards of living, it has also interfered with traditional nomadic ways of life and is scarring its landscape. The coal production company Mongolia Mining Corporation (MMC) has recently begun utilizing its 147 kilometer, two-lane road designed for the transport of coal to China. Before the road's construction, overloaded trucks drove through the Gobi Desert on dirt paths. The bumpy roads puts sulfurous dust into the air and the overloaded trucks put great strain on the land. The road is one of a variety of projects MMC is using to minimize its environmental impact. Yet, the people who populate the Gobi Desert, where Ukhaa Khudag projects reside, struggle as well. Herders are beginning increasingly displaced from their traditional pasture lands. "We are nomads, and we move from one place to another—the mining stops us from moving

around,‖ said a herder struggling to continue his traditional occupation in this new era. ―Mining is not a good thing for us because it is spoiling our pastoral land." Mongolia is also beginning to realize how important it is to develop responsibly. In addition to the future of its environment and people, Mongolia must protect its economy. To do so, it must learn from the past mistakes of others. Mongolians point to nations such as Switzerland as an example of a country it would like to follow in the footsteps of. Mongolians admire how the European nation turned a basic resource economy to a high-end banking and manufacturing sector. Currently, however, Mongolia's economy is too heavily dependent on China and its mining sector exacerbates that problem. Now, the nation must learn how to manage it policies to preserve its cultural traditions while moving forward as a globalized nations. "Herders tell us that mines are really causing a problem and that the water is deteriorating," he said. "There is no question there are herders giving up herding, and the question then is what are they going to do?"

Source: Reuters

OUTSOURCING THE GOVERNMENT SHOWS BENEFITS Mongolia's decision to allow foreign entities to help manage its state-owned enterprises may be a positive trend. To those who feel Mongolia's government is doing a poor job benefiting its people and attracting investment, hiring foreign teams seems to be a viable option. The London Stock Exchange (LSE) will help update the Mongolian Stock Exchange with its Millennium IT stock trading software and policy advice. The Korean Development Bank will manage the newly established Mongolian Development Bank and although MIAT recently walked away from an Irish management team, the government plans to hire another foreign management team and pilots. Meanwhile, every entity the Mongolian government seems to influence is in disarray. If Mongolia continued to utilize teams of foreign experts with solid reputations, it could reduce corruption and possibly increase efficiency. However, implementing such a scheme could be more difficult than developing with trial and error.

Source: Jargaldefacto

MORE OF THE SAME FOR RUSSIA'S LEADERSHIP The rotation of Russia's executive offices appears to be a waltz, where each partner changes position in time and ends where each began. Russian President Dmitri A. Medvedev will step down as to reclaim his position as Prime Minister to allow Vladmir Putin's return to the presidency. Putin served as president from 2000 to 2008, stepping down in accordance to the constitution which prohibits more than two consecutive terms. The decision ends speculation whether Putin would allow a change in power. The decision will undoubtedly have a large impact on Mongolia as Putin plans to address issues on its export of its natural resources. ―We must speak openly about the dependence of our economy on raw materials, about the dangerous level of social inequality, violence, corruption, about the feeling of injustice and vulnerability that people feel when they are dealing with government bodies, courts, and law enforcement,‖ said Putin. Amongst other plan, Putin said Russia must address its economic dependence on raw materials. He will likely face a shortage of oil production and a realization of the projection that consumer goods imports will exceed that of oil. Oil prices continue to climb and will likely reach USD 116 per barrel next year. The absence of Alexi Kudrin, Russia's finance minister, will likely effect greater woe in investors since they are wary of Putin in office. Kudrin has the reputation of a fiscal hawk and strong proponent for economic reform. His role to public finances, which are sensitive to changes in the oil sector, was also of great importance. His dismissal does not speak well of the direction Russia's economy will likely take. Source: New York Times, Wall Street Journal

ANNOUNCEMENTS NAMBC INVESTORS CONFERENCE, UB, OCTOBER 4-6 The 14th Annual NAMBC Investors Conference & Ikh Tenger Roundtable begins the evening of 4

October and ends the evening of 6 October. The optional Oyu Tolgoi trip is 7 October. Golomt Bank and Newcom LLC are warmly welcomed as additional sponsors of our 14th Annual Investors Conference in UB, October 4-6. Previously announced was the "Centennial" host sponsorship at which we commemorate the 100th anniversary of Mongolia regaining independence by Rio Tinto and Oyu Tolgoi LLC, and sponsorships by Wagner Asia, Erdenes MGL, Erdenes Tavan Tolgoi LLC, and our brother organization, the Business Council of Mongolia (BCM). A preliminary schedule is available for the Investors Conference. For the first time, we will have full professional simultaneous interpretation in Mongolian and English for all sessions of the Investors Conference, thanks to the sponsorship of Oyu Tolgoi LLC and Rio Tinto. For a registration form and reserving group rate rooms at the Kempinski Khan Palace Hotel, please visit www.nambc.org ___________________________________________ GIANT STEPPES OF JAZZ FESTIVAL, UB, OCTOBER 5-8 The Giant Steppes of Jazz Festival is back in town! The Festival produced by its namesake society for the 5th time now will be held in Ulaanbaatar on Oct 5-8, 2011. A Gala Concert will be held at the Philharmonic Hall on Oct 6 from 7 PM. Evening Club Performances at River Sounds on Oct 5, 7 and 8 from 7 PM. There will be Late Night Jam sessions at the Kempinski Khan Palace Hotel‘s Kharkorum restaurant on Oct 4 at 10 PM and at The Square (3rd floor, Central Tower) on Oct 5, 7 and 8 starting approximately at 9:30 PM. This year‘s festival line-up includes a variety of jazz styles: - The Marc Brenken-Jean-Yves Braun Quartet (bass, guitar, piano, drums, Germany- France) - ―In The Country‖ (piano trio, Norway) - Mr. Bob Bellows (vocals/piano, USA) - Ms. Deb Rasmussen (vocals, Canada) - Arga Bileg ethno jazz band (Mongolia) - Enkhmonkh (vocals/piano, Mongolia) - Chinbat (horn, Mongolia) - Enkhchimeg (flute, Mongolia via Germany) As in past Festivals, a trip to Lotus Children‘s orphanage for performances for the kids will be on Oct 8. Only a limited supply of tickets remain available. For ticket information, please call 8865-4466 (Mgl), 9999-3321 (Eng), 9911-1061 (Eng&Mgl). Tickets will be on sale at The State Philharmonic Ticket Office, The Square Restaurant (Central Tower, 3rd fl) and Hi-Fi Store (MegaStore, Seoul Street). ___________________________________________ MONGOLIA TRADE & COMMODITY FINANCE CONFERENCE, ULAANBAATAR, OCTOBER 13 This landmark conference at the Chinggis Khaan Hotel will only welcome leading experts within the trade and commodity finance sector, utilizing a format that includes detailed case studies, informed debate and invaluable networking opportunities. Among topics to be discussed: • Considering the threat posed by volatile commodity prices • Utilizing Mongolia‘s competitive advantage to improve product diversification • Improving underdeveloped promotion services to demonstrate the unique appeal of Mongolia • Raising capital from foreign investors to develop projects and infrastructure • Developing an export financing structure • Expanding trading relations beyond traditional allies to become a truly global trade partner • Reducing dependence on foreign imports • Forging relationships between local and international banks to provide vital liquidity. BCM is an Institutional Partner for this event and special offers are available for BCM members. The conference brochures with agenda will be available in BCM office and will also be distributed at BCM‘s September 26 monthly meeting. Please contact Ms. Monika Kuzniewska, Marketing Executive, at monika@exportagroup.com or by phone at +44 (0) 20 8772 3013 for further information. ___________________________________________

MONGOLIA INVESTMENT SUMMIT 2011, HONG KONG, OCTOBER 26-27 A newly updated program and brochure for the Mongolia Investment Summit 2011 has just been released and is available for you to download from the summit website. Click on Mongolia Investment Summit 2011 Brochure to download your copy today and take a look at the latest list of speakers, sponsors and exhibitors confirmed for the event. Find the next Hunnu at the Mongolia Investment Summit 2011. Mongolia hit the headlines again last week with the news that Thai coalminer Banpu had made a takeover offer for Hunnu Coal of AUD$1.80 a share, just eighteen months after the company went public at just 20 cents a share. With Hunnu‘s sister companies Haranga Resources and Voyager Resources participating in the Mongolia Investment Summit 2011, this is an event you will not want to miss. New sponsors are signing up each week. We are delighted to announce that two of Mongolia‘s largest securities brokerage houses have signed up as sponsors of the conference this week. Asia Pacific Securities, part of the Asia Pacific Investment Partners group of companies and BDSec will both join the summit as Silver Sponsors. With their many years‘ experience of helping clients invest on the Mongolian Stock Exchange, these two companies bring to the Summit unrivalled expertise on the local investment environment. We welcome their support and that of the other 23 companies sponsoring and exhibiting at the show. New investment speaker announced. This week we can also announce that Mr. Hyun-Chan Cho, Country Manager - China and Mongolia of the International Finance Corporation will give a presentation sharing the IFC‘s perspectives on nine years of investment in Mongolia. The IFC has invested in a range of sectors including agribusiness, mining services and financial services and Mr. Cho‘s presentation promised to offer invaluable lessons for any prospective investor into the country. To join IFC, Asia Pacific Securities, BDSec, Haranga, Voyager and 300+ delegates at the Conrad Hong Kong on 26-27 October, register today – it couldn‘t be easier, simply: Call us on +852 2219 0111. Email us at info@beaconevents.com. Visit Mongolia Investment Summit 2011 Registration. Register now and we look forward to welcoming you to the Conrad Hong Kong in October. ___________________________________________ 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. ___________________________________________

M&A PRIVATE EQUITY PANEL, UB, 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 Newcom Group and 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 acting 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 speeches from BCM‘s 8 monthly meetings in 2011, several speeches at Discover Mongolia 2011, and the address by Peter Nicholls, OT‘s VP-Operations, 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.

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]

August 31, 2011 *9.0% [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]

CURRENCY RATES – September 29, 2011 Currency Name Currency Rate U.S. dollar USD 1280.83

Euro EUR 1749.49

Japanese yen JPY 16.45

British pound GBP 1988.69

Hong Kong dollar HKD 163.11

Chinese Yuan CNY 200.19

Russian Ruble RUB 40.25

South Korean won KRW 1.09

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.