BUSINESS COUNCIL of MONGOLIA NewsWire

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Issue 198 - December 16, 2011

NEWS HIGHLIGHTS: Business

Rio successful in arbitration against Ivanhoe;

Robert Friedland, Ivanhoe founder, steps down;

Mongolian Airlines triggers discount challenge;

OT power plant due for 2017;

EBRD aids manufacturing sector;

Entrée strikes gold at Shivee West;

Undur Tolgoi reaps over USD 7 million from private placement;

Real estate asset transfers to MSE-listed Asia Pacific Properties;

FeOre on ASX after USD 35 million IPO;

Monvest prepares to be first Mongolian entity to list on Deutsche Borse;

Mongolian Investment signs acquisition agreement;

Golomt upgrades its ATM network;

Medical supply firm head receives women's business owners’ award;

SouthGobi continues to develop its social license;

New Areva CEO plans for reform;

LSE poised for full acquisition of FTSE;

Sedgman takes Australian Exporter of Year award.

Economy

Inflation worries dull New Year's cheer;

Inflation hits the double digits once again;

Mongolia prepares for global bond sales;

Unemployment not a barrier to insurance;

Life expectancy of Mongolians on the rise;

ADB approves USD 170 million for road project;

Dips in exchange rate may be a sign of economic strength;

The price paid for coal;

Rio confident in face of commodity price swings;

Mining giants skip over production hurdles as junior struggle to leap;

Gold investors suffer from holiday blues;

Thermal coal prices look strong for the next 5 years, says IEA;

Chinese steel mills steer iron ore prices down;

Risks seen with Russia boosting domestic oil demand, curtailing exports;

Chinese government pledges for stable growth in 2012;

Producers and investors guessing what China will want next.

Politics

Parliament passes new law for 2012 elections;

Parliament sets new budget record for health care spending;

Elbegdorj attends U.N. conference in Qatar;

Prime Minister builds diplomatic relations at Bali Democratic Forum;

Mongolia aims for diplomatic relations with 100 percent of U.N. member nations;

China and Mongolia pledge for greater cooperation in law enforcement;

Teachers continue strike;

Poli-Sci conference to be held for diplomatic centennial;

Japan still hopes for inclusion in TT deal;

Moscow's new middle class takes to streets.

*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

Mongolian Properties Oxford Business Group

BCM MEETING RECAP

The meeting on 12 December with Laurenz Melchers in the chair was attended by 65 members and invited guests. Melchers announced the upcoming Coal Mongolia 2012 conference to be held on 9-10 February. The BCM 2012 membership drive now stands at 160 members as renewals ramp up. Those recently joined as new members are: 1.Hogan Lovells – This law firm helps corporations, financial institutions, and governmental entities with critical business and legal issues globally and locally. The firm has been involved in Mongolia since its peaceful democratic revolution in 1990 when one of its partners visited Ulaanbaatar as a member of

a delegation of consultants to advise the government on legal reform. Since then, Hogan Lovells has acted for clients on diverse foreign direct investment and merger and acquisition (M&A) projects in the mining, energy, infrastructure, and other sectors. It also has worked with the domestic firm GTs Advocates since 2007, and in June 2010 the two firms entered into an association agreement to establish Hogan Lovells as the first global firm with a permanent presence in Mongolia. It established an office in Ulaanbaatar on 1 October. 2. Altai Holding – Now a major investment and conglomerate company of Mongolia, Altai was established in 1991 as Altai Trading LLC and started its business during market economy transition period. Since then the company has expanded its business and invested in diversified areas such as retail sales, hospitality, information technology, telecommunication, and finance. Employing 700 employees through its subsidiary companies, Altai is considered a major contributor to Mongolia‘s economy. Its main businesses are Altai Cashmere, Chinggis Khaan Hotel, and Sky Trading. Its major investments are Skytel and Telemax. 3. Asia Pacific Investment Partners (APIP) – Founded in 2001, this investment firm focuses on pursuing economic opportunities in Mongolia. APIP is behind a number of Mongolia-based companies in five key industries with growth potential in Mongolia: property, natural resources, securities, construction, and construction materials. The management team features a unique, on-the-ground mix of local and international experience from a variety of backgrounds. The company works primarily with small investors, high-net-worth individuals, and a select group of corporate investors. 4. Asia Pacific Securities – formerly Altan San Securities, this company is one of the oldest brokerage firms in Mongolia with an experience in the market for over 15 years. It is a subsidiary of APIP. The firm offers an array of financial services to the marketplace, and acts as a bridge between overseas investors and the Mongolian financial market. The firm has offices in Ulaanbaatar, Tsetserleg Sum, Arkhangai Aimag, and Bayankhongor Sum. It also has global representatives in Hong Kong, London, the United Kingdom, and Denver, USA. 5. Mongolian Properties – This real estate firm first set out in 2002 to meet the growing needs of the foreign and domestic clients searching for the rental and purchase of properties in Mongolia. While the firm is primarily engaged in assisting clients in Ulaanbaatar, it has also assisted firms outside the capital. Founded by Asia Pacific Investment Partners, the company publishes the Mongolian real estate guide on a quarterly basis. The company also works closely with overseas relocation companies and primarily caters to large organizations with housing needs. 6. MMREC was established in 2010 to provide high quality, precise service to the mining and engineering sector in Mongolia. As a subsidiary of Maison Global, the firm provides engineering expertise to its customers. Services include lump sum EPC and construction, turn-key construction services, international trade of equipment and bulk materials, financing support. 7. Integrated Service Solutions Mongolia (ISSM) – This firm aims to offer its proven and comprehensive camp management approach, which is unique in the petroleum and military sectors. The group is led by a team of executives with experience in supporting military and commercial clients globally. ISSM works together with Ecolog and capitalizes on the latter‘s experience and capabilities to bring additional services. These include life support and food service operations, subsistence procurement and supply-chain management, manpower supply, and operations and management of facilities. 8. RSC Mongolia – This service company is an employee-owned company that established Mongolian Mineral Properties in 2011 to bridge the gap between Mongolian mineral license holders and the international exploration and mining companies seeking to partner with or acquire interests within Mongolia. RSC also provides assistance with establishing foreign invested companies; and immigration requirements, including visa applications, letters of invitation, and technical services. 9. Akica Group – With over 15 years experience working with the Mongolia government, Akica identifies and develops opportunities in support of Mongolia‘s emerging economy. It works closely with key contacts in government, understanding the needs of the country and the financial opportunities it offers. The firm works with strategic and financial partners to make these new projects operational and profitable. 10. IARUDI – Based in Ulaanbaatar, this company has key business division with IARUDI Consulting, IARUDI Human Capital, IARUDI Blue Sky Enterprises, and IARUDI Capital. The company provides services across a range of areas to its international clients already in Mongolia, those trying to enter Mongolia, and domestic businesses expanding their footprint internationally. IARDUI Consulting is based in Central Tower where it provides accounting and compliance services to foreign clients operating or looking to

enter the local marketplace, and Mongolian companies looking to expand or list on international stock exchanges. 11. Grata Mongolia – Grata is a leading law firm in Central Asia and the Caspian region with more than 90 lawyers and a network of branches. In Mongolia it advises foreign business organization and individuals on wide ranging matters of law and legislation. It is also trying to make a difference to contribute towards the process of integrating Mongolian legislative, judicial and executive branches of the government system with the best practices international jurisdictions can offer. 12. A&A Global – Partners of this Ulaanbaatar-based law firm organized as Young Lawyers ―Senator‖ group in 1997 and have been working together to provide legal consultation and services, and support education in law and training. Its partners and advocates have at least 10 years experience in areas such as mining and corporate law. It currently has about 20 partners and provides legal and advisory services in business services, property, private clients, foreign citizens, civil litigation, criminal litigation, and administrative litigation. 13. Buman-Olz - This firm has operations concerning mining exploration and exploitation at the Khuut coal deposit; construction and the production of materials for the housing project at Dornod Aimag; Restaurant and hotel services at various establishments in Dornod Aimag; road construction; regional and international transportation; and agriculture and livestock breeding within 4,656 hectares of land in Khalkgoi Sum. Its branch and daughter companies include East Palace branch in Dornod Aimag, Bumanlogistics LLC, and Buman Trans LLC. The evening continued with a presentation entitled ―Internal Audit: Role and Functions in Corporate Governance‖ by Scott Hansen, Manager of Internal Audit of Oyu Tolgoi. Hansen described internal audit as an independent objective assurance, and consulting activity designed to add value and improve an organization‘s operations. It helps to accomplish objectives and mitigate risks. The benefits of internal auditing include a diagnosis of the health of a company‘s internal control system, identify the root cause of problems and help develop solutions, better allocate resources, identify unknown problems, and facilitate continuous improvement. Internal audit involves two major processes: Internal control and internal audit. Internal controls are a systematic measure to mitigate business risk and help achieve corporate goals and objectives, while audit is an independent process to provide an assessment of the internal control environment. Internal audit is meant to review efficiency of operations; reliability of financial reporting, deterring and investigating fraud, safeguarding assets, and maintaining compliance with laws and regulations. The process ends with a report that will hopefully direct the company towards more efficiency and effective operations. Next R. Lkhagvasurven, a researcher at the Economic Policy & Competitiveness Research Center, spoke about his organization in his presentation ―Competitiveness Capabilities of Mongolia.‖ Established in 2010 by a consortium for economic growth, the EPRC provides services for economic policy education, analysis, and reports. It cooperates with various non-government organizations and domestic institutions to develop an enhanced business climate in Mongolia. Last March it released a booked with essays about adapting various economic theories in Mongolia by U.S. and European authors. Through its research, the organization has learned that Mongolia is weakest in infrastructure and transportation. To help improve this, it is looking for ways to grant greater access, organize debates, finding ways to liberalize the Mongolian market, and organize workshops. However, it also found Mongolia's greatest strengths are in its political framework, gender equality, and stability. Finally, Barry Evans of Churchill introduced his Training System Development, a program for quality assurance in food safety. The group‘s objective is to enhance the private sector and educate businesses. The pilot program has indicated a high need for this sort of work. As it stands one out of every four people in Mongolia will at some point suffer from food poisoning. The first priority is to provide training for internal auditing. This includes food safety for manufacturing, hazard analysis, and lead auditor training. So far, the program is responsible for training between 215 and 230 Mongolians, engaging the private sector, encouraging state auditors to apply to international standards, improving supply chains, and setting health and safety goals.

BUSINESS RIO SUCCESSFUL IN ARBITRATION AGAINST IVANHOE Rio Tinto PLC, 49 percent stakeholder in Ivanhoe Mines Ltd., said Tuesday it reserves the right to increase its stake in Ivanhoe, but does not have plans to make a full takeover offer after winning an arbitration with Ivanhoe. The news comes shortly after Peter Meredith, Ivanhoe Deputy Chairman, at the Mongolia Investment Summit in London, an event at which Meredith was introduced by Jim Dwyer, Executive Director of BCM, said a ruling would soon come. The Anglo-Australian miner was successful in its challenge to protect its rights against a poison-pill defense adopted by Ivanhoe. Rio may maintain its 49% stake if any bid for Ivanhoe triggers the smaller company's shareholder-rights plan adopted last year, said Ivanhoe. The decision by the arbitrator also frees Rio to increase its stake beyond the 49% cap agreed between the companies under a five-year-old pact due to expire 18 January, which many analysts believe is likely. "Rio Tinto may seek opportunities to increase its shareholding in Ivanhoe to a majority position but currently has no intention of making a full takeover bid for Ivanhoe's shares," Rio said. However, it said it reserves the right to change its intention in the future. Ivanhoe shares sank 22 percent to CAD 16.57 afterwards. Ivanhoe announced after the close of markets Monday that the decision by the arbitrator involved two aspects of the shareholders rights agreement adopted in October 2010. One ruling holds that anti-dilution rights granted to Rio in a 2006 private placement agreement with Ivanhoe would perpetuate even if Rio triggered the rights plan by becoming an ―acquiring person.‖ The arbitrator's decision also addressed Ivanhoe's counterclaim alleging Rio had breached certain obligations under the private placement agreement. ―The arbitrator determined that Rio Tinto had not breached such obligations,‖ said Ivanhoe in a release. "We will continue to strive to ensure that all Ivanhoe shareholders are treated fairly," said David Huberman, chairman of Ivanhoe. Read more… Rio initiated the arbitration proceeding after claiming the adoption of the poison pill breached a joint-venture agreement to develop the Oyu Tolgoi project. Ivanhoe, a 66 percent stakeholder in Oyu Tolgoi, has spent almost the entirety of 2011 keeping Rio at bay from a majority takeover. Last week Rio and Ivanhoe reached an agreement that makes the latter responsible for billions of dollars in financing and assume management of Oyu Tolgoi. Rio has committed to invest roughly USD 1.3 billion in Ivanhoe in coming months through a rights offering and the exercise of warrants as well as agreed to provide up to USD 1.8 billion in interim financing. The company also has the potential to invest hundreds of millions more in Ivanhoe if it decides to exercise various rights over the next few years. Source: Winnipeg Free Press, Wall Street Journal, Reuters

ROBERT FRIEDLAND, IVANHOE FOUNDER, STEPS DOWN Ivanhoe Mines (NYSE:IVN) founder and CEO Robert Friedland steps down. The resignation was following the firm losing a battle to keep a poison pill in place to fend off a bid from Rio Tinto (NYSE:RIO). He is giving up the Chairman‘s role as well, now serving as a co-chair with Carlos Cabrera.

Source: Mergers & Acquisitions

MONGOLIAN AIRLINES TRIGGERS DISCOUNT CHALLENGE The recently registered Mongolian Airline Group LLC plans to begin its operations in 2012. The firm will be the third to offer domestic flights. The company will operate from Chinggis Khaan International Airport and operate domestic flights to Dalanzadgad in the south, Khovd in the West, Moron in the North, Choibalsan in the East, and Bayankhongor and Arvaikheer in the center. A first trial domestic flight of the newly registered company took off on 18 November as a charter flight to Bayankhongor. In the past few years only two airlines, Eznis and Aero-Mongolia operated domestic flights. Competition between the three companies has begun already. The company offered a one-time discount of MNT 100,000 for a one-way trip to Choibalsan, to which Eznis responded with its own discount of MNT 120,600 for one-way tickets. Normally a ticket to Choibalson costs at least MNT 210,000. In 2012 the airline will offer domestic flights using four aircrafts. The new registration of Mongolian Airlines is a revival of a similar company with the same name

established in 1956, which flew an Antonov AN-2 aircraft. The original Mongolian Airlines company has changed forms and ownership several times, involving separation from MIAT in 1992. Bodi Group, a Mongolian business conglomerate, is responsible for the company's reorganization and owns the company outright. The first Fokker-50 aircraft with its new color scheme arrived in November and will be named Hunnu (marked on the aircraft's nose) to commemorate the 2,200th anniversary of the founding of the Hunnu state.

SOurce: Mongolian Airlines Group LLC

OT POWER PLANT DUE FOR 2017 Ivanhoe Mines Ltd., the 66 percent stakeholder in the Oyu Tolgoi copper and gold project, will need to build a new power plant by the summer of 2017. The due date is per its agreement with the Mongolian government for the project's development. ―We are required to build a power plant within four years of first production,‖ said Peter Meredith, Deputy Chairman of the Canadian-based firm at the recent Mongolian Investment Summit in London. The requirement is part of an investment agreement that Ivanhoe signed with the Mongolian government in 2009. The Mongolian government currently owns the remaining 34 percent stake in the project, but will be allowed to increase its stake after 30 years have passed since the agreement. Meredith said Oyu Tolgoi will need a 325 megawatt power plant for safety purposes, given the number of people that will be working underground. However, the company is considering a 600 megawatt plant, with a view to sell some of the power back to the grid. The project currently has access to enough power to meet its needs until August or September, said Meredith. After that, it will need to use diesel power generation to meet any additional needs. Since diesel power generation can be very expensive, Ivanhoe is in negotiations to secure a three-to-four-year contract to import energy from China. Ivanhoe could build a power plant now, but it would require an investment of USD 1 billion and require a workforce of 7,00 people. Ivanhoe is already spending several billions of dollars to reach the state of production. It employs 14,000 people and Oyu Tolgoi is now Mongolia's third largest city. The Oyu Tolgoi project is due for its first commercial production by mid-2013.

Source: Reuters

EBRD AIDS MANUFACTURING SECTOR The European Bank of Reconstruction and Development (EBRD) is providing a new loan of USD 5 million to wool and garment company Gobi JSC for partial financing of an equipment modernization program that will improve the quality of the group‘s products and increase its product capacity. For the program, Gobi will purchase new equipment in such areas as spinning, knitting, linking, weaving, and finishing. Established in 1981, Gobi is a fully integrated processor with capabilities ranging from primary processing to manufacturing cashmere and camel wool knitwear and woven products. The company is majority owned by the domestic firm Tavan Bogd Group and by HS Securities of Japan and is listed on the Mongolian Stock Exchange (MSE). During the past two years, Gobi has been restructured under new ownership and management following its privatization. This latest loan is a follow-up financing to a loan provided by the EBRD to Gobi in 2009. The project will enhance Gobi‘s competitiveness on both local and international markets. Cashmere processing is the second largest currency earner for the country after mining and is an important traditional sector where Mongolia can genuinely compete at an international level.

Source: Just-style

ENTRÉE STRIKES GOLD AT SHIVEE WEST Entree Gold Inc. has reported significant gold deposits at its Shivee West project, following the completion of its 2011 exploration program. ―Previously we had sporadic but encouraging gold results from surface trenching and drilling,‖ said Greg Crowe, president and chief executive officer of Entrée. ―From 2007 to 2010, rapid developments at the Oyu Tolgoi on porphyry copper-gold mineralization shifted our focus towards exploring for similar potential on the Shivee West property. ―In 2011, we decided to re-evaluate the gold potential at Zone III, in light of the rapid rise in gold

prices since 2008 and especially the more significant rise in 2011. The initial drill results are very encouraging and our plans for continued exploration there will be determined after all drill results have been assessed.‖ Exploration covered 1,120 linear-meters of excavator trenching and drilled holes totaling 1,600 meters. Exploration is now on hold for the winter season.

Source: Market Watch

UNDUR TOLGOI REAPS OVER USD 7 MILLION FROM PRIVATE PLACEMENT Undur Tolgoi Minerals Inc. has closed its second and final tranche of its non-brokered private placement of November. The firm has issued an additional approximately 5.13 million common shares at CAD 0.20 (USD 0.19) per share for proceeds of CAD 7.02 million. The proceeds from the placements will be used for general working capital purposes and to further continue the work program on the company's Mongolian exploration license, the Undur Tolgoi project. The license is for a 9,260-hectare site located in the south Gobi Desert in Mongolia, approximately 100 kilometers from the Oyu Tolgoi copper and gold mine. Canadian-based Undur Tolgoi is a mineral exploration company focused on Mongolia. The firm recently changed its name from Wedge Internal Energy Inc.

Source: Undur Tolgoi Minerals Inc.

REAL ESTATE ASSET TRANSFERS TO MSE-LISTED ASIA PACIFIC PROPERTIES Asia Pacific Investment Partners (APIP) has recently transferred two of its assets to Asia Pacific Properties, a company traded on the Mongolian Stock Exchange (MSE). Sudut JSC, a MSE-listed company, has changed its name to the aforementioned Asia Pacific Properties along with a change to the company's ticker from UHN to APP. Asia Pacific Properties will remain under the majority ownership of APIP. At a stockholder's meeting, shareholders unanimously approved a 100 percent interest injection of the Rural Development Corporation LLC and the Oasis luxury residential development project into Asia Pacific Properties. Rural Development Corporation is a real estate development company focused on developing and commercializing residential and commercial real estate projects in second and third tier cities in Mongolia that are in close proximity to the mining boom towns in the Gobi Desert. Rural Development current holds 13 properties in locations with high levels of excess demand for quality residential and commercial real estate assets and low levels of competition and land costs for construction. Currently valued at US 6 million, APIP transferred the company to Asian Pacific Properties hoping to build greater value for the asset. The Oasis luxury residential development is currently in its final stages of planning, with construction planned for early spring, and pre-emptive sales are reportedly strong. The complex will be located near to Seoul Street and will comprise of 30 luxury residencies. The firm expects construction to finish in 2013 with profits of about USD 4 million to accrue to APP shareholders. ―With the solid asset base and profitable business being injected into APP, we expect to see a strong surge in [Asia Pacific Properties'] share price over the next 6 to 12 months. This will be further accentuated with the high earnings multiples on offer on the [MSE].‖

Source: Asia Pacific Investment Partners

FEORE ON ASX AFTER USD 35 MILLION IPO FeOre, a Mongolia-focused iron ore explorer, has been admitted to the Australian Securities Exchange (ASX) following an initial public offering (IPO) of up to 140 million shares at AUD 0.25 (USD 0.25) each to raise up to USD 35 million. The company had just over 200 million shares on issue when it reached the ASX. FeOre will use the funds from the IPO for exploration and development of the 108.7 million ton Ereeny iron ore project, located 60 kilometers from the major Trans Mongolian railway line between Russia and China. The Ereeny project covers approximately 3.26 square kilometers and extends to depths of over 400 meters. It has an indicated JORC Resource of 57.3 million tons and an inferred JORC Resource of 51.4 million tons. The company aims to transport its first batch of iron ore over rail within 24 months of its listing on the ASX. FeOre has made a deal with China Railway Group subsidiary CRMI for 10-year deal for both the transport and sale of its production.

Source: Market Watch

MONVEST PREPARES TO BE FIRST MONGOLIAN ENTITY TO LIST ON DEUTSCHE BORSE Monvest Inc., the firm that operates Mongolia's national lottery, is preparing to become Mongolia's first enterprise to list on the Deutsche Borse's Frankfurt Stock Exchange (FWB). Monvest plans to lists its shares on the First Quotation Board on the FWB's Open Market in January. The firm plans to upgrade its entry standard on the German market shortly after it lists. ―Frankfurt is an important step in the capital markets strategy of Monvest Group,‖ said Nixon Yap, the founder and chairman of Monvest. ―Our aim is to be the first Mongolian FWB listing and to provide European investors with an opportunity to take part in the rapid growth of this booming emerging market.‖

Source: Monvest

MONGOLIAN INVESTMENT SIGNS ACQUISITION AGREEMENT Mongolia Investment Group Limited signed a memorandum of understanding with Yuan Tu for the proposed acquisition of the latter, along with other vendors, and Yuan Tu's management shareholders. Yuan Tu is a business for aerial photography, aviation and aerospace remote sensing image data processing, and the provision of geographic information system software and solutions. The acquisition may occur after Yuan Tu's release of approximately 4.1 billion to 6.9 billion new shares, followed by the issue by Mongolian Investment of convertible bonds with a principal ranging from approximately HKD 1.1 billion (USD 141.3 million) to HKH 1.2 billion, and HKD 59 million paid.

Source: Mongolian Investment Group

GOLOMT UPGRADES ITS ATM NETWORK Golomt Bank has selected BPC Banking Technologies to supply a new ATM network management solution. As part of the deal, Golomt Bank will use BPC's SmartATM solution to improve its ability to service and monitor its terminal networks. ―As the pioneer of introducing MasterCard and Visa card services in Mongolia, Golomt Bank has a strong focus on innovation in banking services and client satisfaction,‖ said Kh. Zorig, the head of card management. ―We are looking forward to benefiting from our early move advantage in the market and to strengthen our leadership position.‖ SmartATM will allow Golomt Bank to improve its ability to service and monitor its terminal networks. The bank will also be able to introduce new services to its clients using SmartATM‘s support for a range of standard ATM transactions. Extended ATM functions, such as payment services, repayments, cash recycling, and currency conversion are also supported.

Source: Golomt Bank, Banking Business Review

MEDICAL SUPPLY FIRM HEAD RECEIVES WOMEN'S BUSINESS OWNERS’ AWARD B. Bolorma of the Em Impeks concern received the Global Women's Business Owners‘ Award for the success of her company. Bolorma established the first medicine supply organization in Mongolia in 1933. Her company imports medicine from abroad and distributes to all 21 provinces throughout the country. Her aim has been to supply only the highest quality medicine and medical instruments to her customers.

Source: Unuudur

SOUTHGOBI CONTINUES TO DEVELOP ITS SOCIAL LICENSE SouthGobi Sands LLC has been actively participating in the development of the communities nearest to its mine sights. The mining firm has brought development aid to the Gurvantes, Noyon, and Sevrei communities. SouthGobi has brought employment to residents living in communities nearby its operations. The company aims to provide safe working conditions, while supplying its employees with fair wages and bonuses to employees. The firm is also responsible for the construction of a new kindergarten at Gurvantes Soum. It also takes its rehabilitation seriously, having restored 32 hectares of the land at nine water springs. SouthGobi partners with local residents in these efforts to offer more employment opportunities as well. South Gobi has operations including active mining activity at Ovoot Tolgoi, as well as the development

of the Soumber deposit and underground deposit at the same site. Source: Undesnii Shuudan

NEW AREVA CEO PLANS FOR REFORM For Luc Oursel, the new chief executive of Areva, it was a tricky to extol the ongoing strength of the nuclear sector. Areva, which currently explores for uranium in Mongolia, is struggling to make savings and find ways to market a product that has become highly unpopular. Oursel had just revealed that his atomic energy firm was going to take a EUR 2.4 billion (USD 3.1 billion) write-down, a loss of up to EUR 1.6 billion on an operating basis this year, and lay off at least 1,500 workers. But speaking this week in Paris, he insisted that Areva was ―working in a market that is developing and growing.‖ About EUR 1.5 billion of the write-down is related to the collapse in value of UraMin, a small uranium mining stock that Areva bought for USD 2.5 billion in 2007. Depending on who you ask, responsibility for that misstep lies with his predecessor Anne Lauvergeon (nicknamed ―atomic Anne‖) or Oursel himself, who had board responsibility for the project. Although Oursel refrained from criticizing his predecessor, he highlighted how the group has financed its expansion to mark a clear break with Lauvergeon‘s high-spending approach. The decision of Germany, Switzerland, and Belgium to give up atomic power is the bigger problem. Public opposition is also increasing in Japan. The company has also struggled with large cost overruns and delays on the first EPR project in Finland. Even EDF, Areva‘s fellow state-owned nuclear specialist, has said it will consider using cheaper rival suppliers. Regardless, Oursel was optimistic about bids in countries such as China, India, South Africa, the United States, and the United Kingdom. The International Energy Agency (IEA) has estimated that nuclear energy supply will increase by 2.1 percent a year until 2034, driven in large part by Asia. It is also targeting the post-Fukushima market for improving nuclear safety, possibly worth about EUR 3.5 billion annually. For Oursel, the difficulty over the next few years will be cutting costs, at a time when rivals are getting stronger, in the expectation that nuclear will regain popularity.

Source: Financial Times

LSE POISED FOR FULL ACQUISITION OF FTSE The London Stock Exchange Group PLC said this week that it will buy the remaining 50 percent stake in FTSE International Ltd. that it doesn't already own from Pearson PLC for EUR 450 million in cash (USD 705.2 million) as part of broader moves to diversify. As the London Stock Exchange (LSE) seeks to expand it has partnered with the Mongolian Stock Exchange (MSE) to help it develop and possibly privatize. The move by the LSE highlights the aggressive way in which the company is growing its business through acquisitions. Over the past two years, it has acquired Turquoise, an erstwhile competitor in European trading, as well as Sri Lankan technology provider MilleniumIT. Earlier this year, the LSE failed in its effort to acquire Canada's TMX Group Inc, operator of the Toronto Stock Exchange (TSX), but is currently in talks to buy a stake in clearing house LCH Clearnet Group Ltd. and is reportedly interested in buying a stake in the London Metal Exchange (LME). LSE Chief Executive Xavier Rolet was upbeat about taking full ownership in the index business, which it has jointly owned with Pearson for 16 years. ―This transaction further delivers on our diversification strategy, expanding LSEG's existing offering into deeper indices, derivatives and market-data products and services." "Immediately earnings-enhancing, we expect this transaction to create long-term value and growth for our customers and shareholders," Mr. Rolet said in a statement. The LSE said it will pay for its acquisition using surplus cash and debt, and also said it has secured another EUR 350 million in loan commitments. The LSE is reportedly ―comfortable‖ with its higher level of debt and that it will not hamper any possible future acquisitions. Read more… LSE Director of Information Services David Lester said was paying for the growth of FTSE, noting it has grown its EBITDA by an average of 22 percent over the past five years and is forecast to grow to ITS 2010 EBITDA of EUR 40 million by 30 percent in 2011. The LSE expects annual cost synergies of EUR 10 million and gross revenue synergies of EUR 18 million by the end of the third year of full ownership of the FTSE.

Under the terms of the agreement, the LSE will continue to use the FTSE name. The transaction is expected to close by the third quarter of 2012. Source: Bloomberg

SEDGMAN TAKES AUSTRALIAN EXPORTER OF YEAR AWARD Sedgman Limited was recently named the 2011 Australian Exporter of the Year. The firm has built the first coal washing facility in Mongolia for Energy Resources for approximately USD 200 million. The award is selected from the winners or 12 national categories, of which Sedgman won the National Minerals and Energy Award. This honor follows the company's award for Minerals and Energy at the Queensland's Export Awards in October. The Australian Export Awards is one of Australia's longest running and most prestigious business award programs. It honors the achievements of Australian exporters and celebrates their contribution to national prosperity.

Source: Sedgman Limited

ECONOMY INFLATION WORRIES DULL NEW YEAR’S CHEER Inflation may weigh heavily over excitement for unprecedented economic growth in 2012. Mongolia is anticipating between 16 and 20 percent growth in its gross domestic product (GDP) for next year. However, the Bank of Mongolia has warned that inflation, which has now reached 10 percent, is growing too. The head of the Central Bank has warned Parliament against continued expansion in state spending in light of inflationary risks, a notion echoed by the International Monetary Fund (IMF). Increasing intense domestic and foreign investment—and speculation—in real property in Ulaanbaatar, home to an estimated half of the nation's population, could also put the squeeze on Mongolian consumers. With back-to-back parliamentary and presidential elections in June 2012 and 2013 respectively, these inflationary pressures could have political consequences. Source: NAMBC

INFLATION HITS THE DOUBLE DIGITS ONCE AGAIN Last Friday the National Statistics Committee (NSC) reported that inflation continues to increase despite efforts by the Bank of Mongolia. The NSC said inflation reached 10.8 percent year-over-year nationwide in November. NSC officials explained the Consumer Price Index (CPI) increased by 1.3 percent from October to November. Prices for clothing and shoes went up by 2.3 percent. The officials said, despite Mongol Bank's strong monetary policy, inflation is increasing. The officials also said price increases tend to reduce consumer purchasing power. The NSC also reported that the state budget in revenue in November had reduced by MNT 142.8 billion, or 75.3 percent from previous proposals. NSC officials said commercial banks have increased interest rates on loans and are making fewer loans due to central bank policies. The taxation of incomes has also increased by 42.2 percent from 2010.

Source: News.mn

MONGOLIA PREPARES FOR GLOBAL BOND SALES While European nations reel from the threat of economic collapse brought on by its sovereign debt, Mongolia plans to tap into the global debt market. The Mongolian Development Bank announced that it would issue USD 600 million worth of Euro bonds with assistance from global financial giants such as ING, Deutsche Bank, and HSBC. The bank currently plans to sell the bonds in several stages over the Singapore Exchange (SGX) this December and into 2012. Mongolia first planned to issue sovereign bonds to combat the 2008 financial crisis. However, since then expectations have dwindled and bonds never reach the global market. ―Although the Mongolian Development Bank was formed only five months ago, it has already become an important tool to implement the financing of nationwide infrastructure development projects of the government,‖ said Prime Minister S. Batbold. According to the bank, bonds will finance projects such as new rail lines and a Sainshand petroleum refinery. Standard & Poor's recently rated the Development Bank of Mongolia's bonds ―BB-.‖ The situation in

Mongolia is generally safer than developed countries, where the potential for economic recession can spook investors. The economy has grown at a furious pace with World Bank data showing gross domestic product (GDP) growth at 20.8 percent in the third quarter, while debt stands at about 42 percent of GDP growth. The bonds would offer investors a chance to diversify their Asian sovereign bond portfolio and attract foreign investment banks interested in Mongolia. ―In a country like Mongolia, where there is a big conflict of interest between the public and private sector, we should make a perfect contract and make the entire process open and transparent in order to create these ambitious construction projects with credit,‖ said political commentator D. Jargalsaikhan. ―If we fail to implement the ambitious projects in a timely and efficient manner, then the credit rating of our government would be even worse.‖

Source: UB Post

UNEMPLOYMENT NOT A BARRIER TO INSURANCE Although unemployment is on the rise, the number of those insured has steadily risen. Unemployment reached 62,700 at the end of November, a 54.4 percent increase from last year. In the first 11 months of 2011, 629,500 registered for insurance. Of those who registered, 65.4 percent registered with their employers, while those remaining registered with government sponsored organizations. Social welfare pensions and benefits have been distributed to 56,000 people, a 1.1 percent increase from last year. Some MNT 667 billion from the Human Development Fund has been distributed to 2.7 million people.

Source: Montsame

LIFE EXPECTANCY OF MONGOLIANS ON THE RISE The average life expectancy of a Mongolian has increased by five years to 68.05 years. Mongolia's life expectancy now meets the average from all developing countries. According to the National Statistics Office, the life expectancy of males is 64.9 years, while females fall all 72.2 years. Ten year ago, the life expectancy of Mongolian was 63.1 years for males and 66.1 for females. It seems that promotions for healthier lifestyles, including more nutritious diets and regular exercise, have helped educate Mongolians to help them live longer lives. Some people have made changes to their daily routines, opting to climb the stairs rather than ride the elevator. However, some poor habits are still common within the population. Men have been the most reluctant to change their lifestyle, but alcohol and tobacco consumption is higher among women.

Source: Unuudur

ADB APPROVES USD 170 MILLION FOR ROAD PROJECT The Asian Development Bank (ADB) approved of aid up to USD 170 million for road improvements along a transport corridor in western Mongolia that will help reduce the region's isolation and spur development in one of the country's poorest areas. ―The remote western region of Mongolia suffers from high levels of poverty and underdevelopment, partly as a result of the lack of paved roads,‖ said Steven Lewis-Workman, the transport economic in ADB's East Asia Department. ―Building paved roads in an area where there are very few will bring broad social and economic benefits, including increased access to jobs and markets both within Mongolian and with neighboring countries.‖ The funds for the Western Regional Road Corridor Investment Program will be released through a multi-tranche financing facility, with an agreed first loan payment of USD 45 million. The program will construct over 290 kilometers of regional roads, rehabilitate and construct some connecting local roads, build and equip three road maintenance units, and provide training and other capacity development support for road sector institutions. The investment, which complements another ongoing road project in the corridor, will help complete the Western Regional Road. The route, which links Mongolia to both Russia and China is one of the Central Asia Regional Economic Cooperation (CAREC) program's priorities corridors, designed to boost trade, tourism and investment among member countries and beyond. The new program will target increased input from domestic contractors and help build the capacity of Mongolia's road sector. The first tranche loan, with a 32-year maturity, will come from ADB's concessional Asian Development Fund, with two further tranches to follow. The government will contribute USD 92 million for a total

investment cost of USD 262 million. The program will run for eight years with an expected completion date of December 2020.

Source: IEWY News

DIPS IN EXCHANGE RATE MAY BE A SIGN OF ECONOMIC STRENGTH The exchange rate for the tugrug reached its lowest point since June 2010. At MNT 1,370, the IMF has said a flexible exchange rate bodes well for the Mongolian economy. Last year the tugrug appreciated 13 percent against the U.S. dollar, compared to this year's 7 percent depreciation. As the currency depreciation begins to slow down, demand for foreign currencies have stabilized. According to Frontier Securities Chief Investment Strategist Dale Choi, the strength of the tugrug largely corresponds to this demand. ―Most important for enterprises with foreign exchange settlements is to have the correct expectations based on true and real information; not to trust various rumors; not to make incorrect decisions out of fear,‖ said Choi. The IMF has said that the flexible exchange rate is a good sign for the economy. A flexible currency will help control inflation and cushion against external shocks. It will also help ―facilitate the real exchange rate changes that are likely to take place over the medium term‖ due to growth in the mineral sector. Record high international reserves within the Bank of Mongolia could fortify the Mongolian economy against a sudden fall in commodities worldwide.

Source: Frontier Securities

THE PRICE PAID FOR COAL Although economically coal has been a gift to Mongolia, it is having a more detrimental effect on Ulaanbaatar. In winter the capital is the most polluted city in the world as traditional nomadic gers pump out enough coal smoke to exceed the World Health Organization's recommended levels 14 times in particulate matter, resulting in more deaths than from car accidents. To combat pollution, the government is rolling out an ambitious scheme to introduce 70,000 energy efficient stoves that will cut household emissions by 90 percent each. Funding from the Millennium Challenge Account (MCA) and additional support from the government allows the stove to sell at a heavily subsidized price throughout the provinces and around the city. In Ulaanbaatar one can buy a new eco-stove for just under USD 20. XacBank leads the sales and distribution of the stoves. ―We provide the loans and manage delivery of the stoves directly to their homes,‖ said B. Delgerjargal, XacBank's vice president of retail banking. ―Since July, we have sold over 25,000 stoves. Now with sales centers throughout the city, we expect to reach our target of 70,000 next year.‖ Estimates indicate that 175,000 families live in the capital's ger districts, accounting for over half of the city's population, or a quarter of the country. Increased migration to the city has exacerbated the situation. Temperatures of -40 degrees Celsius and below drive people to burn plastics and tires. A report by Simon Fraser University estimates that one in every 10 deaths can be attributed to the dire pollution in Ulaanbaatar, through respiratory illness and cardiovascular effects that often times can lead to heart attacks and strokes. If those involved can meet their target, this project would reduce pollution by over a fifth in the city. This program can by no means solve the problem completely. Mongolians will continue to burn coal and wood in open furnaces, placing a heavy toll on residents. Another government project, the 100,000 Homes project, plans to move people to the suburbs and free the city center of congestion, pollution and health risks.

Source: Business News Europe

RIO CONFIDENT IN FACE OF COMMODITY PRICE SWINGS Rio Tinto Group, the world's third-largest mining company and head of operations at the Oyu Tolgoi copper and gold project, said metal prices will fluctuate further as markets weight economic prospects for next year amid concerns that Europe's debt crisis will derail a global recovery. ―We should expect more of these gyrations of all of our prices as we move forward to 2012,‖ Tom Albanese, chief executive officer of the London-based company, said. Commodities are set for a ―difficult environment‖ in 2012, according to UBS AG, citing a possible dissolution of the European Union and a ―hard landing‖ in China, the biggest raw-materials consumer. The worsening debt crisis in Europe has prompted a slump in equities and commodities, including iron

ore and copper prices, and cuts to global growth forecasts. Rio has dropped 25 percent this year in London trading, cutting the company's market value to GBP 67 billion (USD 105 billion). As for Rio, it expects to increase capital spending by 17 percent next year and raised its iron ore expansion target. Iron-ore usage in China will double by 2020 from 2008, reported Rio. Iron ore prices will not drop below USD 120 a ton next year, said Vale SA, the world's largest exporter. Rio's operations in Australia's Pilbara region will reportedly fare well in those conditions. Rio is also set to win a bidding war for the Canadian uranium producer Hathor Exploration Ltd. Although some worry nuclear power demand will wane in the post-Fukushima disaster era, Albanese said he was confident a strong need for uranium will persist, especially in the Chinese market. Read more… Metal prices in London have slumped 17 percent this half, while iron ore prices have rebounded after tumbling 31 percent in October to below USD 12 a metric ton, the biggest loss since at least 2008. A slowing global economy and stronger dollar will limit potential for gains by commodities next year. The International Monetary Fund (IMF) will probably lower its global growth forecasts next month as well.

Source: Bloomberg

MINING GIANTS SKIP OVER PRODUCTION HURDLES AS JUNIOR STRUGGLE TO LEAP Although commodity prices have tumbled in recent months, production costs have risen, and the economies of China and the United States look to be heading towards slower growth, the biggest mining companies in the world aren't fretting. They continue to sink billions of dollars into project to expand production. Leading miners remain poised for long-term demand to run far beyond current levels. Unlike some juniors, which might have to scale back or close operations, the giants appear to have wide enough profit margins and big enough cash reserves to weather a rough stretch. Some investors are focused on the short term, reflecting in sharply lower share prices in the sector. Others are buying selectively, in the belief that the big miners have got it right. High costs ―make bringing on new supply very challenging,‖ says Ian Ashby, president for iron ore at Australian mining giant BHP Billiton Ltd. ―There's a tight labor market and bottlenecks for tires, trucks and consumables. While commodity prices grow, the labor squeeze has driven salaries well into the six figures for workers. Some miners have experimented with ways to replace workers with technology, such as automated trucks, trains and drill rigs, or plan to do so to help control labor costs. However, those efforts are still in their infantile stages. Energy costs are another major drain. ―The problem is you have 2007 costs with 2011 prices, so the margins are much lower,‖ said Willi Boehm, the treasure for Aquarius Platinum Ltd. ―Our cost problems are electricity and wages.‖ The story is different for big miners. Their profit margins are shrinking too, but they are much wider than their junior counterparts because the big companies, as big purchasers, are able to negotiate lower prices from suppliers. They also have plenty of cash on hand to fund expansion. Both BHP Billiton and Rio Tinto also they expect big increases in demand from China and other emerging economies in the next 20 years or so as industrialization and urbanization progress in those countries. Although investors may be weary, analysts at the major brokerage firms continue to rate them as share to buy.

Source: Wall Street Journal

GOLD INVESTORS SUFFER FROM HOLIDAY BLUES Gold fell below USD 1,600 an ounce for the first time early October after a decline in the euro to 11-month lows against the dollar and losses on stock markets unleashed heavy selling. ―Against a backdrop of falling stocks and a stronger dollar, you certainly can't hide anywhere,‖ said Ole Hansen, senior management at Saxo Bank. ―We are ending the year on a pretty sad note here and no asset class, no matter what you look at, can find itself shielded from this. Right now, it's all about position squaring and not many people are taking new decisions.‖ Gold usually trades inversely to the dollar as strength in the U.S. Currency usually encourages non-U.S. holders of bullion to book higher profits in their own currencies by selling the metal.

Source: Mining Weekly

THERMAL COAL PRICES LOOK STRONG FOR THE NEXT 5 YEARS, SAYS IEA The International Energy Agency (IEA) has painted a rosy outlook for thermal coal consumption and

prices over the next five years, forecasting strong demand in China and India until 2016 in its first ever report about the commodity. The Paris-based watchdog said in its Coal Medium-Term Market Report 2011 that consumption would continue to expand despite public calls for reducing reliance on the high-carbon fuel as a primary energy source. The IEA's outlook bodes well for mining companies in Mongolia such as Xstrata, the world's largest coal exporter, and U.S.-based Peabody Energy, which could have up to a 24 percent stake in the Tavan Tolgoi western block coal project. ―For all the talk about removing carbon from the energy system, the IEA projects average coal demand to grow by 600,000 tons every day over the next five years,‖ Maria van der Hoeven, IEA executive director, said. Thermal coal is used to fire power stations to produce electricity and remains this world's second most important source of energy after crude oil. The outlook for the commodity is, however, uncertain as the IEA said Chinese coal net imports could either jump to 180 million tons by 2016 from 92 million tons in 2010, or fall to 39 million tons, depending on the path of local production. Whatever the case, the IEA anticipated strong prices. The general upward trend prices in the next five years will be supported by mining companies struggling to expand quickly enough to meet rising demand, particularly from China and India. Beijing was until four years ago a net exporter of thermal coal but since has become the world‘s second largest net importer, behind Japan. Thermal coal prices could drop over the short term, however. Analysts said the economic slowdown in Europe is curtailing consumption. Source: Financial Times

CHINESE STEEL MILLS STEER IRON ORE PRICES DOWN Mining majors need to galvanize themselves for a new threat—coordinated negotiating from China's steel mills. Iron ore is a major commodity exported from Mongolia to China for processing. Although Chinese ore buyers have tried to present a united front in the past with little success as they vied to compete with one another, that has recently changed. In October iron ore spot prices saw an 18 percent month-to-month plunge and posted the sharpest one-week slide on record. With China's real-estate sector teetering on the brink, this clearly reflected a loss of appetite among steelmakers. However, in addition to this a unified negotiating position from Chinese mills also helped force prices down. Baosteel—one of China's largest mills—said it was working with other Chinese firms to try to get global miners to renegotiate ore contract prices. The spot market for steel fell about 20 percent from about USD 164 a ton for contract rates. Chine mills coordinated their effort to delay purchases, forcing companies such as Vale, the second-biggest mining company, to agree to contracted prices. For the mining majors, the good news is that China's demand is not as weak as it appeared. Negotiating tactics as well as fading constructive drove October's imports down. Yet now Chinese steelmakers have shown they can get their act together when it count.

Source: Wall Street Journal

RISKS SEEN WITH RUSSIA BOOSTING DOMESTIC OIL DEMAND, CURTAILING EXPORTS After a year of many unusual events hit oil prices—including the collapse of the 42-year long regime of Muammar Gaddafi in Libya—traders are not ruling out anything and have added Russia to their risk lists. Last summer a cut in exports from Russia sent oil and gas prices soaring in Mongolia. In response, Mongolia has decided to build up two-month reserves, in addition to a 15 day emergency reserve. Russia is the world‘s second largest oil producer and recent demonstrations in Moscow have spooked oil investors and traders. On Saturday, tens of thousands demanded a rerun of elections, Russia‘s largest opposition demonstration since Boris Yeltsin took on the Supreme Soviet in 1993. Although political unrest in Russia disrupting oil production may seem unlikely, war in Libya and turmoil throughout the Middle East was almost unthinkable a year ago. The turmoil in Moscow sparks two potential risks for the crude oil market. If protests spread and degenerate into strikes, oil production could be affected. On the other hand—and much more likely—the government is likely to respond to the protest with economic stimuli that will boost domestic oil demand, curtailing the exportable surplus. The International Energy Agency (IEA) estimates that Russian oil output hit a post-Soviet high of 10.7 million barrels a day in October. At the same time, however, oil demand is also rising strongly, hitting nearly 3.5 million barrels a day this year; up 5 percent from 2010.

The surge in oil consumption in Russia this year has already hit oil markets. Urals has traded above Brent for seven weeks, the longest period for this record. Lower fuel oil and diesel exports from Russia have also helped to push up the price of both in the global market. Russia has been a depressing force for oil prices since the early 2000s as the country boosted production to 10 million barrels a day from a low of 6 million barrels a day in 1996 after the collapse of the Soviet Union. Next year, for the first time in a decade, it could be a bullish force.

Source: Financial Times

CHINESE GOVERNMENT PLEDGES FOR STABLE GROWTH IN 2012 Chinese leaders have pledged to seek stable and more balanced growth while fighting inflation, ending a top-level economic planning session without major shifts in policy. Mongolia's dependence on China's consumption of Mongolian-born coal, petroleum, and minerals means a downturn in Chinese growth would throw Mongolia's economy into disarray as well. The pledge comes as Chinese authorities have shifted their focus away from controlling inflation—their top priority over the past year—and toward insulating China from Europe's economic troubles, which have already hurt Chinese export growth. China will focus on expanding domestic demand to counter a slowing global economy, said the government in a statement. ―This memo is definitely more pro-growth than the one issued a year ago,‖ Bank of America Merrill Lynch economist Lu Ting said in a message to clients. ―We believe that compared with 2011, fiscal policy in 2012 will be more proactive and monetary policy will be eased on the margin,‖ he wrote. China's leaders said in the statement that global economic risks ―have clearly risen.‖ It also said boosting domestic demand will be essential to protecting the Chinese economy. Read more… Lending has fallen slightly after two months of higher than monthly average rates in the third quarter. This shows authorities have been encouraging lending as credit growth typically falls toward the end of the year. Full-year bank lending could near CNY 7.4 trillion, in line with a CNY 7 trillion to CNY 7.5 trillion unofficial target that analysts believe the central bank has set. For next year, loans will be around CNY 8 trillion, said a UBS analyst. Next year China will also likely push forward with structural tax cuts, reform of business income taxes and value-added taxes, and experimental property tax reforms, said the statement from leaders. The yuan exchange rate will remain stable while continuing to reform the exchange-rate mechanism, the statement went on with repeated language that the government has been used for years. The country will also deepen market-oriented interest-rate reform, it said, without giving a specific time line for the long awaited liberalization of interest rates.

Source: Wall Street Journal

PRODUCERS AND INVESTORS GUESSING WHAT CHINA WILL WANT NEXT As the biggest and one of the fastest-growing developing economies, China is a voracious consumer of commodities. Much of the commodities exported to China are Mongolian-born, and exports will likely grow as key sites such as Tavan Tolgoi and Oyu Tolgoi open and ramp up production. However, its shifting needs are leaving producers and investors guessing what China will want next. If China's consumption continues to grow at the rate from the past 10 years, the world would have to pump almost as much additional crude oil as Saudi Arabia provides per year, grow over three times as many soybeans as Iowa produces (5 percent of global output), and extract nearly three times as much new copper as current annual production from Chile (Mongolia is set to produce about half as much as Chile's Escondida mine from Oyu Tolgoi). Demand for all sorts of other commodities would grow as well. Price growth is good news for commodities producers and investors, unless high prices abruptly choke off demand or spur buyers to seek alternative goods. Materials in tight supply or at risk of significant constraint could be vulnerable to share price increases. If other countries start to consume anything like China did over the past decade, they could also contribute to price gains. For many China watchers, the most probable scenario is an economy that keeps expanding strongly but at a less blistering place, with annual gross domestic product (GDP) growth rates in the high single digits. The result will be a tamer increase in consumption of base metals and other commodities. Even in a slower-but-steady world, however, demand could shoot up for some commodities, such as natural gas as more people use the fuel to heat or cool their homes and greater volumes are consumed by industry.

China is already such a big market that any increase in consumption can create a big chunk of fresh demand, and push up prices accordingly. China is after all still 1.3 billion people.

Source: Wall Street Journal

POLITICS PARLIAMENT PASSES NEW LAW FOR 2012 ELECTIONS Parliament has passed a draft election law with approval from 85 percent of MPs. The new law takes effect immediately, replacing the previous election law. It took Parliament nearly a year to pass the law because of disagreements between the Democratic Party (DP) and Mongolian People's Party (MPP). However both parties came to the agreement that next year's election will be held under the provision of a new law and eventually compromised. The new laws will allow for the election of 48 MPs from their respective electoral districts, while 28 will be elected at large based on a party's proportional vote. Parliament Speaker D. Demberel said a great deal of time and effort was needed to pass the law and extended gratitude to the working groups and the Election General Committee for their efforts. He also stressed the need to educate the public on the new provisions under the law.

Source: News.mn

PARLIAMENT SETS NEW BUDGET RECORD FOR HEALTH CARE SPENDING The 2012 state budget will spend more on health than ever before. The government has dedicated MNT 5.8 trillion to health care in its budget and plans to spend MNT 6.3 trillion in expenditures. This year's budget has increased from MNT 300 billion to MNT 500 billion, said the minister of health. Investments will rise from MNT 67 billion to 166.1 billion, including MNT 25 billion for spending on medical equipment. The government is also planning to renovate and build hospitals. The mining firm Boroo Gold will participate in the construction of the new Maternal Hospital No. 3 building. Total construction will cost MNT 8.7 billion, while MNT 5 million will be spent in 2012. Additionally, MNT 19 billion will be spent for the construction of another Mothers and Children Center in the Yarmag District. For research, the National Cancer Study center will receive MNT 3 billion for its development.

Source: Undesnii Medee

ELBEGDORJ ATTENDS U.N. CONFERENCE IN QATAR President Ts. Elbegdorj travelled to Qatar to take part in the fourth annual forum of the United National Alliance of Civilization in Doha. This year's theme for the forum was ―Intercultural Dialogue to Boost Development.‖ The president gave a speech on development goals, and organized a meeting about the role of education in promoting democracy. He also attended an event to discussing trust and tolerance for development goals cultural diversity in respect to development. Elbegdorj also met with Qatar's prince, prime minister, and foreign affairs minister to discuss mutual relations and conclude agreements.

Source: News.mn, Montsame

PRIME MINISTER BUILDS DIPLOMATIC RELATIONS AT BALI DEMOCRATIC FORUM Indonesian President Susilo Bambang Yudhoyono speculated upon future cooperative efforts in mining, energy, and agriculture during a recent meeting with Prime Minister S. Batbold. The prime minister met the Indonesian head at the Bali Democratic Forum where representatives of 82 countries—including 22 prime ministers—convened in Indonesia for the event. Susilo said the prime minister's visit opened doors for intensive development of bilateral relations. In response, Batbold said that both countries have an opportunity to boost mutually beneficial cooperation in strengthening of the democracy, peacekeeping actions, and the defense. Next he invited the Susilo to visit Mongolia, to which the Indonesian president gave his thanks. On that same day, Batbold attended meetings with leaders from Japan, Qatar, Turkey, East Timor, the United Kingdom, New Zealand, Brunei, and Bangladesh. Among these leaders, he mentioned Mongolia's expected 25 percent growth for next year, and shared Mongolia's experience with democracy.

Source: Montsame

MONGOLIA AIMS FOR DIPLOMATIC RELATIONS WITH 100 PERCENT OF U.N. MEMBER NATIONS The government is currently debating a motion to expand its diplomatic relations proposed by the Standing Committee on Foreign Policy and Security in Parliament. Members are currently considering the establishment of diplomatic relations with Malawi, Samoa, South Sudan and Sudan. The committee reported that Mongolia has established diplomatic relations with 157 U.N. Member nations and has approved of and submitted a proposal to the United Nations to expand its diplomacy to another 45 member nations. This proposal would allow Mongolia to enjoy diplomatic relations with every U.N. Member national.

Source: Udriin Sonin

CHINA AND MONGOLIA PLEDGE FOR GREATER COOPERATION IN LAW ENFORCEMENT Chinese State Councilor and Minister of Public Security Meng Jianzhu held talks Tuesday with his Mongolian counterpart and pledged to enhance cooperation on law enforcement between two countries. ―China and Mongolia are not only friendly neighbors, but also important partners,‖ Meng said during his talks with Ts. Nyamdorj, Mongolia‘s Minister of Justice and Internal Affairs. Cooperation on law enforcement and security constitutes an important part of the bilateral ties between the two nations, Meng said. Over the past few years, the countries‘ law-enforcement authorities have stepped up their cooperation to combat cross-border crimes, safeguarding stability and pushing ahead with the economic and social development of the border areas, Meng said. Nyamdorj said the Mongolian government attaches great importance to the friendship with China and is willing to further law enforcement cooperation to make more contribution to the stability of the two nations as well as the region. After their talks, the two ministers signed a memorandum of law enforcement.

Source: Xinhuanet

TEACHERS' STRIKE CONTINUES The prime minister has recently responded to a teachers strike currently underway. Delays in the government's promised salary increases have driven government workers to go on strike. ―We are going to deliver an official letter to T. Gandi, the Minister of Social Welfare and Labor. We won't end our strike until government accepts our decision.‖ At a meeting with Prime Minister S. Batbold and the representatives for the teachers on strike, teachers demanded two salary increases, greater funding per student attending a school, address to social issues, and an amendment to the law on education. In response Batbold said 33 percent of the budget has been dedicated to spending in education and an amendment to the law on education has been prepared by MPs. However, two salary increases will not be possible because of rising inflation and drew attention to criticism from the Employers' United Association regarding raises to the salaries of state workers because 70 percent of the labor force belongs to the private sector. A working group has been established to hold talks with the teachers' representatives. Secondary school and kindergarten teachers first went on strike on 12 December. This week 7,299 teachers from 87 different schools and 1,641 teachers from 61 kindergartens went on strike. Teachers have implored their students to follow the news and listen for salary raises, so they would know when they could return to school.

Source: Unuudur, News.mn

POLI-SCI CONFERENCE TO BE HELD TO FOR DIPLOMATIC CENTENNIAL The Ministry of Foreign Affairs plans to organize a political science conference in observance of Mongolia's 100 years of diplomatic service on 15 December. The conference will bring together members of the Standing Committee on Security and Foreign policy of Parliament, advisors to the president and prime minister, and academics from various universities. Presentations will be given by various experts, including the reports ―Policies and Positions of the Power States during Bogd Khaan's reign in Mongolia by senior diplomat T. Tumurkhuleg and ―Foreign Policy of Mongolia 1928-1945‖ by renowned economist and researcher Baabar. In addition, a ceremony will be held for the students who take first place at a science competition that focuses on foreign policy in Mongolia.

Source: Montsame

JAPAN STILL HOPES FOR INCLUSION IN TT DEAL Japan restated its interest in participating in the Tavan Tolgoi coal project at a recent meeting in Japan with Mongolian delegates. Speaker D. Demberel recently visited Japan following an invitation from the Speaker of the House of Councilors K. Hirata. The head of the Mongolia-Japan Parliamentarians‘ Group Su. Batbold and a delegation of officials met with their Japanese counterparts at a meeting closed to the press. Sources reported that the officials discussed way to work together. They decided that it would be best to strengthen relations between each nation‘s respective Parliaments and governments. The Mongolian delegates expressed interest in cooperating with Japan in food production, agriculture, technology, and substructure, while Japan was more interested in the Tavan Tolgoi project. Demberel said that Mongolia will continue to support Japan‘s proposal to become a member of the U.N. Security Council, while Japan supports Mongolia‘s initiative to join the Association of South East Asian Nations (ASEAN) and the Asia Pacific Economic Cooperation (APEC). The delegation also met with Mongolians living and studying in Japan after landing on Sunday. Currently there are 5,500 Mongolians living in Japan, 1,300 of which are students. Students with scholarships can receive up to USD 1,000 a month. The Mongolian Association in Japan reported that there are many specialists working in large firms, such as Toshiba and Mitsubishi. There are also Mongolians who have established their own companies and are operating them successfully.

Source: UB Post

MOSCOW'S NEW MIDDLE CLASS TAKES TO STREETS As a sort of paradox, Moscow residents of those of other large cities have expressed greater frustration with Prime Minister Vladimir Putin as his government has helped make them wealthier. Putin's announcement in September to run again for the presidency and the recent 49 percent victory in Russian parliamentary elections has affected protest in Russia. One explanation for the backlash is the high level of public corruption, which threatens new personal wealth. A second is a phenomenon seen in General Gugusto Pinochet's Chile that economic growth can inadvertently undermine autocratic rule by creating an urban professional class that clamors for new political rights.‖ ―This is not a protest of empty pots,‖ said Viktor Shenderovich, a political commentator. ―This is political, not economic. The coal miners came out because they were not paid. The people coming onto the streets of Moscow are very well off. These are people protesting because they were humiliated. They were not asked. They were just told, 'Putin is coming back.'‖ From 2000, the year he assumed the presidency, until 2008, wages grew at an average of nearly 15 percent a year. But while salaries continue rising, they increase more slowly today—at an average of 1.3 percent per year since the global economic crisis in 2008. As residents have become wealthier, they have grown prone to venting their frustration with the political system. Political rights were the main demand at a recent rally on Saturday, attended by students, parents, retirees, and young professionals. The leaders of the new opposition represent a diverse array of groups, including minority political parties, which typically oppose one another as much as they oppose United Russia, the governing party of Putin and current President Dmitry Medvedev. Read more… Meanwhile, officials have portrayed demonstrators as revolutionaries dedicated to a violent, Libya-style overthrow. Protesters have several demands: the immediate release of prisoners arrested last week in connection with the protests; the scheduling of new parliamentary elections; the dismissal of the head of the Central Election Commission; an investigation of election violations; and the registration of so-called non-system opposition parties, which have been unable to wins seats in Parliament or put forwards presidential candidates.

Source: New York Times

NEW MONGOLIAN LAWS AND REGULATIONS The following laws and amendments to laws were published in the latest weekly Government bulletin. Unless otherwise decided by Parliament, they will take effect ten (10) days after publication.

Date Laws and Amendments to Laws 12.12.2011 Law on Savings, Loan Cooperatives Amendments to Law on Legal Status of Financial Regulatory Commission Amendments to Law on Cooperatives Law on Automated System for Election Please visit BCM's website, Legislative Working Group, for a summary of new Mongolian laws. BCM members who wish to access complete versions of the laws and regulations in Mongolian language are welcome to email the BCM office: info@bcmongolia.org.

ANNOUNCEMENTS COAL MONGOLIA, 9-10 FEBRUARY, ULAANBAATAR The Coal Mongolia Conference will be held to attract technical and financial investments into the coal sector of Mongolia in Ulaanbaatar at the SS Convention Center on 9-10 February. The conference will cover topics for both extractive and mineral processing industries. Presenters will introduce advanced environmental and technical practices they believe Mongolia should embrace. The producers also hope the conference can be used to build corporate ties to ultimately strengthen Mongolia's competitiveness in the region and develop personal networks. The event is intended for Public sector representatives: - coal prospecting and mining companies, investment funds, banking and financial institutions, engineering and consulting firms, suppliers and vendors and professional associations, - Attendees can expect seminars and workshops, - exhibition showcasing various projects and companies, - a plenary session; an awards presentation dinner in honor of best performers of the coal sector, - and a site visit. Attendees can register early for the early bird fee of USD 1,040 or pay a standard fee of USD 1,300 after 15 January. For more information, call +976-70115590 or email info@coalmongolia.mn. ___________________________________________ FINANCIAL REPORTING TRAINING, 19-20 DECEMBER, ULAANBAATAR PricewaterhouseCoopers Audit LLC and the Institute of Finance and Economics will hold an Accounting and Financial Reporting training session on 19, 20, and 21 December. The training will provide participants with the practical understanding of the requirements under IFRS to enable them to prepare compliant financial statements. The training will be highly interactive to allow participants to practice key concepts. Day one will cover financial statements under the IFRS, critical IFRS disclosure requirements, and producing cash flow statements; day two will teach about accounting for tax and deferred tax, and accounting for groups; and day three will teach key issues to revenue, methods to identify and measuring liabilities, and asset accounting. Each day will start from 9:30 A.M. To 12; and from 1 to 5 P.M. Lunch will be provided to all who attend. Attendance is MNT 800,000 per student. One free placement will be provided for any single company with four paid students. For more information or to attend, contact Solongo Enebish at solongo.enebish@mnpwc.com. ___________________________________________ ―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 is 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 the Risk Management Forum co-organized by BCM and Mandal Insurance, speeches at Discover Mongolia 2011, speeches from BCM‘s 9 monthly meetings in 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. ___________________________________________ 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]

November 30, 2011 *10.8% [source: NSOM]

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

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

March 11, 2009 14.00% [source: IMF]

May 12, 2009 12.75% [source: IMF]

June 12, 2009 11.50% [source: IMF]

September 30, 2009 10.00% [source: IMF]

May 12, 2010 11.00% [source: IMF]

April 28, 2011 11.50% [source: IMF]

August 25, 2011 11.75% [source: IMF]

October 25, 2011 12.25% [source: IMF]

CURRENCY RATES – December 15, 2011 Currency Name Currency Rate U.S. dollar USD 1,377.24

Euro EUR 1,729.89

Japanese yen JPY 17.66

British pound GBP 2,132.31

Hong Kong dollar HKD 177.00

Chinese yuan CNY 216.16

Russian ruble RUB 43.34

South Korean won KRW 1.19

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