BUSINESS COUNCIL of MONGOLIA NewsWire

www.bcmongolia.org info@bcmongolia.org

Issue 237 – August 31, 2012

NEWS HIGHLIGHTS:

Business

Discover Mongolia: Day One

Mining minister seeks larger stake in OT;

Rio “confident” of securing power supply for OT from China;

Aspire Mining receives approval for Ovoot mining license;

IFC proposes USD 900 million financing for OT;

Haranga in agreement with government on allocation of rail capacity;

Manas begins drilling for oil;

Rosnefti provides extra fuel supplies;

Suu expands product line, production capacity;

Golomt prices tugrug above competitors;

Fitch withdraws expected rating for XacBank’s notes;

BDSec sees 31 percent growth in earnings for H1 2012;

Noble Group to return to form with base metals push;

Centerra experiences quarterly loss.

Economics

North Korea proposes to open port to TT coal;

Mayor staggers school hours of operation;

New timetable targets reduced city traffic;

Sainshand-Choir road to open September 2013;

Mongolia to join expanded Trans-Siberian rail line;

Government debt climbs to MNT 750 billion;

Sainshand to introduce materials handling;

Mongolia attempts to break free of foreign fuel dependence;

Construction and industry top students' interest;

A window of opportunity;

Former ambassador helps send Mongolian students to U.S. college;

Chinese discrimination in Mongolia;

Volatility in cashmere;

Government looks to stimulate wool industry;

Big coal faces steel slowdowns;

Copper prices plunge amid economic uncertainty.

Politics

Cabinet restructures government;

Local elections scheduled for November;

Government prepares for election of citizens’ assembly;

8,000 band together to demand land promised to them;

Government to distribute student stipends of up to MNT 140,400 a month;

Foreign minister arrives in Iran for NAM summit;

China vows to support upgrade of Mongolia's industries;

China commits to USD 7.9 million grant;

Mongolia confirms new U.S. ambassador;

Politicians juggle nationalism with dependence on China;

Mongolia and North Korea’s lingering ties with Russia;

Chinese cultural heritage month launches in UB;

Mongolia, Australia celebrate 40 years of diplomatic relations;

Khaan Quest 2012 concludes;

The just.

ECONOMIC INDICATORS:

MSE Top 20 Index by Market Capitalization;

Foreign-listed Companies with Mongolian Assets;

Supermarket Price Comparison – August 2012;

Inflation;

Central Bank policy rate;

Currency rates.

*Click on titles above to link to articles.

SPONSORS

Khan Bank Eznis Airways

Kempinski Hotel Khan Palace Mongolian National Broadcasting

Breakthrough PR Oxford Business Group

BCM MONTHLY MEETING RECAP

The meeting on 27 August with Laurenz Melchers in the chair was attended by 125 members and

invited guests. Melchers introduced the recently arrived new U.S. ambassador to Mongolia, Piper

Campbell. Campbell greeted the audience, expressing her wishes to introduce ways to aid business

relations between the two nations and foster greater cooperation.

BCM Executive Director Jim Dwyer announced that 130 volunteers are currently working in BCM's

various working groups. The tax working group has been busy arranging a training session in October

for over 50 Mongolian Tax Authority (MTA) officials. He added that the International Monetary Fund

(IMF) had asked the BCM to arrange a meeting on August 24 with large tax paying entities to derive

additional issues and recommendations for their ongoing consulting program with the MTA and its

Large Taxpayer Office. Additionally, with the start of the new school year the education working

group will soon restart its ‗BCM in the Classroom‘ program.

BCM membership now stands at 239 compared with 188 a year ago, an increase of 51 members. The

12 most recent new members are:

1. GEE - offers to supply highly experienced personnel, including Mongolian personnel or foreign

personnel for any position. It has available highly experienced personnel of all disciplines, from

engineers, managers, geologists, contracts, admin, schedulers, planners, safety supervisors and all

other disciplines and all levels of seniority.

GEE has a huge personnel data base of some 3,000 Mongolian personnel and 30,000 foreign

personnel of all nationalities. Customers include some of the major mining and exploration

companies in Mongolia.

2. HarrisMoure Mongolia - is a boutique U.S. law firm (16 lawyers, 5 paralegals), headquartered in

Seattle, Washington, working exclusively in international business transactions and dispute

resolution matters. Its Mongolia office was established to offer its global reach and experience to

clients.

Russell Murphy is the partner leading the Mongolia practice based in Ulaanbaatar, along with firm

founder Charles Moure in the Seattle office.

3. International SOS - provides medical and security assistance to companies operating in Mongolia.

The medical services division assists organizations operating in Mongolia to assess health risks and

deliver high-level medical services to employees working in some of the most remote and difficult

environments in the world.

4. KPMG Audit – has a Mongolia team of approximately 50 professionals, providing a full range of

audit, tax, advisory and consulting services to major local and international clients across a range of

sectors and industries.

5. Modern Capital Vest - was incorporated in Mongolia in 2011 to manage and operate jointly the

first international Jackpot lottery games in Mongolia with Biz INVIN LLC, a Mongolian company

incorporated in 2009. Biz INVIN is a majority-owned subsidiary of Monvest Group. The lottery

business is operated under the name of Mongolia National Lottery.

6. Monrusconsulting - is a full service corporate law firm committed to helping its clients negotiate

the often intricate and confusing Mongolian and Siberian legal and regulatory environments. It has

a strong international team of American, Russian and Mongolian attorneys who all have extensive

experience working in Ulaanbaatar.

7. Netcapital – is a non-banking financial institution that operates in the areas of loans, deposits,

currency exchange, and consulting. Itsmission is to continue maintaining a leading role in the

microfinance sector through services tailored to the needs of customers and employees who are

highly productive.

8. Sod Gazar - was established in 2005 and has its main office in Ulaanbaatar. Since its

establishment the company has performed geological surveys every year. It has discovered several

new ore deposits, including coal, iron, fluorspar and molybdenum.

9. Specialized Career Consulting - specializes in search and selection to access the very best

Mongolian and international candidates within management, sales, logistics, procurement, safety,

mining technical and back office financial positions.

10. Sustainable Environment Consulting - was founded in 2008 by a group of well-known

environmental experts. It is specialized in conducting environmental and social impact assessment

and rehabilitation projects.

Some of its big environmental projects include environmental and social impact reports for Oyu

Tolgoi, SouthGobi Sands, and Energy Resources.

11. Traverse Resources - is a world-class drilling company servicing the resources industry

throughout multiple geographical locations. It specializes particularly in remote and challenging

environments, and currently operates in Papua New Guinea, Fiji, Indonesia and Mongolia.

12. Woodmont International - is a public and government affairs firm headquartered in Ulaanbaatar

that provides clients meaningful solutions to external issues such as media, community

engagement, and government relations. It also assists a wide range of investors from around the

world on understanding opportunities in Mongolia.

The evening's presentations began with an introduction by Nigel Finch, director of admissions and

associate professor at the University of Sydney Business School. Dr. Finch and Professor Andrew

Terry, also of the University of Sydney, will be developing a plan to give training to officials for

greater transparency at the Ministry of Finance, the Mongolian Stock Exchange (MSE) and the

Financial Regulatory Commission (FRC).

The goals of this operation for the public sector are to identify deficiencies, build capacities, and

design a process for the dissemination of information to inform investors.

Finch pointed to benchmarks such as the World Bank's Doing Business report and Transparency

International's Perception of Corruption Index as evidence that Mongolia needs assistance in

cleaning up its public sector.

―The general trend is Mongolia is ripe for improvement in transparency,‖ said Finch.

Finch said the program is hoping to help raise Mongolia's sovereign credit rating two notches for a

target of ―BBB- which could save up to USD 500 million in interest per year on the forecasted

national debt.‖

Next, Peter Benson, team leader of the Asia Development Bank's initiative to improve Mongolia's

roads, spoke on the progress he has seen. Benson is an employee of VicRoads, an Australian

government organization that has experience building 24,500 kilometers of roads and 54,000

kilometers of lanes in both rural and metropolitan areas.

Benson and his team aim to develop a road map, provide on-the-job training for construction and

supervision, introduce international practices and standards, and establish a capacity for technical

development and transfer. The main goal, however, is to build 180 kilometers of road for 2013 with

a needed budget of between MNT 20 billion and MNT 30 billion from the government.

Additionally, Benson said he hopes to break up the government monopoly and replace it with

competitive bidding with government participation in work practices. The roads expert said

periodic maintenance is a much better strategy for road maintenance rather than waiting for

potholes to form.

―It's better to look out for it before it falls apart as opposed to fixing up a broken road,‖ said

Benson. ―That's not what happens in Mongolia. There is no such budget; no such skill.‖

Other objectives are to create a Road Fund, restructure the Department of Roads and create a Road

Research Institute.

Carolyn Clarke, Managing Partner, PricewaterhouseCoopers Audit LLC, spoke next to discuss the

recently conducted International Women's Forum. The event featured a visit from U.S. Secretary of

State Hillary Clinton, as the event is a passion project for the former U.S. first lady. Clarke said the

event provided the opportunity to raise many issues that are relevant to both men and women.

Although the event had good attendance from the public sector, participation from the private

sector was lacking. Clarke requested that the business owners in the audience ―volunteer and put

forth your female workers for a working group and help implement the ideas that came out of the

forum.‖

She asked the audience to consider the existing labor laws and if they favor either gender. It is up

to the private sector, she said, to address the fact that 70 to 80 percent of graduates are female,

while far less hold management positions.

Finally John Bachrach, director of IEEC, a member of the IMC Montan group, spoke on his company

and how it helps to add values to the minerals sector. Established in 1992, IEEC has provided

specialist mining consultancy for over 300 assignments.

―We don't drill holes, but we do advise on where those holes should be drilled,‖ said Bachrach.

IEEC and companies like his provide help in developing feasibility studies and mineral expert reports

for public offerings. With a strong knowledge in exploration and practices, a strategic vision and

technical knowledge, and extensive experience, IEEC can provide added value to mining operations.

BUSINESS

DISCOVER MONGOLIA: DAY ONE

This year's mantra of the 10th annual Discover Mongolia international mining investors' forum was

―From Discovery to Developing,‖ which is fitting given that Mongolia is on the brink of even greater

economic growth certain to propel it to a new stage of development.

The morning opened with remarks from Mongolia's recently installed Minister of Mining, D.

Gankhuyag and Mongolia's first president and chairman of the organizing committee, Mr. Ochirbat

Punsalmaa. While many were hoping the new minister would give some hint as to what investors

could expect during his reign over Mongolia's mining industry, his speech was tightly scripted and

revealed little other than his intention to put Mongolians first and maintain the protection of the

environment as a priority.

Karr McCurdy, President and Chief Executive Officer of Behre Dolbear which has a JV in Mongolia

with MIH Group, opened with the first speech of the day to describe the advantages Mongolia has in

its mining sector.

―Mining is a very capital intensive industry.... it tends to be very labor intensive,‖ said McCurdy.

The minerals sector, he said, has propelled Mongolia's growth while employing 32 percent of the

country‘s workforce.

Cameron McRae, President and CEO, Oyu Tolgoi (OT), gave a very informative speech noting the OT

investment agreement executed in March 2010 which kick-started the flood of foreign investment

into Mongolia. He pointed out that phase one is about complete at OT with some USD 6 billion

invested, all from foreign investors, and commercial production to begin in the first half of 2013.

Phase two will begin next year and run to 2017 utilizing Rio Tinto‘s unique cave mining techniques

which will create some 250 kilometers of underground pathways and cost another USD 6-8 billion.

He emphasized to date OT has sent about USD 750 million to the government which has not had to

pay anything for its 34 percent ownership interest. McRae pointed out that the government will get

between 51 and 71 percent of all future cash payments from the project.

L. Zoljargal, Deputy Governor of the Bank of Mongolia, reminded the audience that although the

mining sector can provide tremendous financial gains, it cannot match them with employment.

―The mining sector doesn't employ so much because it's so productive, three times as productive as

the banking sector. It will not employ many more people for us,‖ said Zoljargal.

He warned that boom-bust cycles and too-concentrated economy focused on mining would

eventually lead to economic turmoil. Instead he recommended a diversified economy using the

funds gained from mining to benefit the middle-class.

Rounding out the day‘s events were presentations from mining firms, including Erdenes Tavan

Tolgoi JSC, Mongolia Mining Corp., Aspire Mining Ltd., Erdene Resource Development Corp., and

Xanadu Mines.

Source: BCM

MINING MINISTER SEEKS LARGER STAKE IN OT

Mongolia should seek to raise its stake in the giant Oyu Tolgoi copper and gold project, the new

mining minister said, adding weight to concerns among foreign investors about rising resource

nationalism following a June election.

D. Gankhuyag, speaking to the Udriin Sonin, said he hoped his government would implement

Resolution 57, which states that Mongolia should acquire 50 percent of Oyu Tolgoi once the

principal investors—Rio Tinto PLC and Turquoise Hill Resources Ltd.—have recouped their start-up

investment.

―We believe there is a likelihood that a number of MPs from all parties could view favorably,‖ said

Origo Partners in a note to investors. ―As a result there is risk of a further attempt by these MPs and

possibly the government to renegotiate the Oyu Tolgoi investment agreement.‖

In 2011 Gankhuyag was one of several lawmakers to sign a letter urging Rio Tinto and Turquoise

Hill—then known as Ivanhoe Mines Ltd.—to renegotiate the 2009 agreement. Ivanhoe Mines refused

that request and said it expected all parties to honor the existing deal.

Source: Reuters

RIO “CONFIDENT” OF SECURING POWER SUPPLY FOR OT FROM CHINA

Rio Tinto PLC is certain it will reach a power-supply agreement with China for the Oyu Tolgoi

copper and gold project, scheduled to start production next year.

―The negotiation is going well,‖ Andrew Harding, chief executive officer of the London-based

company's copper unit, said in Parkes, Australia. ―I'm very coincident the negotiations will deliver

the outcomes that I need. The power supply line is ready to go.‖

Turquoise Hill Resources Ltd., a unit of Rio Tinto, said 15 August it expects talks with the Mongolian

and Chinese governments for a power agreement to be expedited and supply to be available during

the third quarter. Should talks fail, the developers of Oyu Tolgoi would need to build its own power

plant, delaying the start, it said. Rio Tinto this month reported a 22 percent drop in first-half

profits and is assessing spending plans on new operations, joining rivals BHP Billiton Ltd. and Xstrata

PLC.

―We've taken and are taking a full look at the portfolio and being very sensible about the rate of

spending at some of the projects,‖ Harding said, specifying there are not changes planned for Oyu

Tolgoi.

Rio Tinto expects global copper demand to grow 25 percent to 25.2 million tons by 2020, it said on

its website. The global copper outlook remained positive, driven by industrialization and producers

struggling to bring on new supply, Harding said. Increased copper production from Oyu Tolgoi will

help diversify Rio Tinto's income stream. Iron ore provided 79 percent of profits last year, followed

by copper with 12 percent.

―By 2014, we estimate copper will make up a quarter of Rio Tinto's earnings and iron ore 60

percent, so Oyu Tolgoi certainly helps,‖ Lyndon Fagon, a Sydney-based resources analyst with

JPMorgan Chase & Co., said by phone.

During a two-day working visit in Mongolia, at the invitation of Deputy Minister of Foreign Affairs G.

Tenger, the vice chairman of China's autonomous Inner Mongolia region made official negotiations

for the importation of power to Oyu Tolgoi.

Source: Bloomberg, Info Mongolia

ASPIRE MINING RECEIVES APPROVAL FOR OVOOT MINING LICENSE

Aspire Mining Ltd. has been granted a mining license covering the 5,758 hectares of the Ovoot

coking coal project.

The mining license covers both the planned open-pit and the potential underground mining

operations. Under existing minerals law, the mining license has tenure of 30 years from the date of

grant with an option to extend for two additional 20-year periods.

―The Ovoot coking coal project is one of the most important new coking coal projects in Mongolia

and has the potential to significantly enhance the economic development in northern Mongolia,‖

said David Paull, managing director. ―Achieving a mining license is an important step along the path

of financing more development and associated road and rail infrastructure.‖

Aspire Mining currently holds some AUD 20 million in cash to fund operations.

Meanwhile the firm continues to intersect coal outside of the existing resource at Ovoot, which has

the potential to increase the already large reserve base. Recent drilling testing for extensions to

mineralization demonstrate enough potential for Aspire Mining to extend the open pit further north.

With only 20 percent of the Ovoot Basin explored, the site has room to grow to a Tier 1 resource.

Additionally, Aspire Mining has completed a pre-feasibility study that has delivered positive

parameters, including an internal rate of return of 43 percent. The study confirms that Ovoot is

financially robust and technically and commercially feasible based on an open-pit probable coal

reserve of 178 million tons.

The first stage of operations would involve production of 6 million tons a year of saleable coal

delivered on 191 kilometers over sealed road to the new railhead at Murun before transport to end

markets beginning in 2016. A planned rail spur line from Ovoot to Murun would facilitate the

targeted full-scale operations to 12 million tons a year.

Source: Proactive Investors

IFC PROPOSES USD 900 MILLION FINANCING FOR OT

IFC, a member of the World Bank Group, has proposed to finance almost one-quarter of the USD 4

billion project debt for the Oyu Tolgoi copper goal mine.

IFC's proposed financing of Oyu Tolgoi LLC is a USD 300 million senior A Loan as well as a USD 600

million B Loan to be syndicated to international commercial banks, as part of a proposed USD 4

billion project debt financing scheme. Co-arrangers of the proposed debt financing are European

Bank for Reconstruction and Development (EBRD), Export Development Canada (EDC), Standard

Chartered Bank, BNP Paribas, US Export Import Bank, and Multilateral Investment Guarantee Agency

(MIGA).

The balance of the funding for the project is expected to come from sponsor equity, shareholder

loans, and project generated cash flow.

Source: Cbonds

HARANGA IN AGREEMENT WITH GOVERNMENT ON ALLOCATION OF RAIL CAPACITY

Haranga Resources Ltd. has entered into a memorandum of understanding (MOU) with the

Mongolian government for the allocation of up to 5 million tons per year of rail capacity for iron ore

from its Selenge project.

The MOU was an agreement between Haranga Resources and both the Mongolian Railway Authority

and Ministry of Roads, Transportation, Construction and Urban Development (MRTCUD). It asks for

support for up to one million tons per year of export rail capacity for its iron ore from both agencies

once operations begin and five million tons per year beginning in 2015. In return, Haranga

Resources would share its plans to transport its iron ore and other commodities from Selenge as

well as its feasibility study results on any proposed new rail infrastructure project from there. The

government agencies have also promised to attain all the required licensing and permits for

construction and operation of any proposed rail infrastructure.

The company's main priority for now is to continue drilling and build up its inventory of resources.

Haranga currently has nine drill rigs in operation at the Selenge project and expects to complete its

mining license application by October 2012.

Source: Haranga Resources Ltd.

MANAS BEGINS DRILLING FOR OIL

Switzerland-based Manas Petroleum said it has started drilling in Mongolia.

The company's subsidiary, Gobi Energy Partners, spud its first well in the region and plans to drill

the first well, known as Ger Chuluu A1, to a depth of 1,200 meters and into Jurassic-Paleozoic

formations. Target horizons in Ger Chuluu A1 are the Lower Zuunbayan and Tsagaantsav formations.

Manas expects the well to cost USD 1.8 million, with the well reaching target depth and being

logged in mid-September. If there is a discovery, Gobi Energy plans to test the well with a workover

rig and move the rig to the site of the second exploration well—around 170 kilometers northeast of

the first well.

―Ger Chuluu A1 represents the next step in the evaluation of our Mongolian assets and a major step

in the company's development,‖ said Manas President Werner Ladwein.

The 2012 seismic survey, for a total of 335 kilometers, will be finished in the next few days, the oil

and gas explorer said. The detailed prospect seismic will form the basis for the 2012 and 2013

drilling locations.

Source: Proactive Investors

ROSNEFTI PROVIDES EXTRA FUEL SUPPLIES

Russian fuel producer Rosnefti LLC plans to increase its supply to Mongolia by 28 percent.

Originally the company had agreed to export 1.1 million tons of fuel to Mongolia by December 2012,

but did not specify the terms. The firm's board of directors has now decided to sell 1.4 million tons

of fuel for USD 1 billion.

A gap in supply last January resulted in spikes in fuel prices that angered many citizens. Mongolia

consumes, on average, 0.8 to 1 million tons of fuel a year.

Source: Unuudur

SUU EXPANDS PRODUCT LINE, PRODUCTION CAPACITY

National dairy company Suu JSC has doubled its capacity, and it looks to expand into greater ice

cream production and enter the pre-made beverage market.

The technological upgrade now allows Suu to process 250 tons of milk daily. The Italian and

Mongolian engineers are working on assembling a new equipment and production line from Matrix

Engineering Technofreese for ice cream production. The system would increase production by 1.5

times to 10,000 ice cream bars daily. The firm would also expand its product line to 20 different

varieties.

Not satisfied with just ice cream, Suu is also looking to venture into pre-made milk tetra packs as

well.

Source: Unuudur

GOLOMT PRICES TUGRUG ABOVE COMPETITORS

This week the tugrug hit its weakest exchange rate in Golomt Bank compared to all others, showing

the return of a weak tugrug.

Golomt Bank sold tugrugs at an exchange of MNT 1,390 compared to the average of MNT 1,380. At

that time the Bank of Mongolia had an exchange rate of MNT 1,370.35. Last month, commercial

banks exchanged tugrugs for dollars at a rate between MNT 1,352 and MNT 1,355.

Economists have pointed to the recent spike in market demand and expanded in-flow of U.S. dollars

as the reason for the tugrugs recent fall.

Source: Zuunii Medee

FITCH WITHDRAWS EXPECTED RATING FOR XACBANK‟S NOTES

Fitch Ratings has withdrawn the expected rating on Mongolia-based XacBank LLC's foreign currency

senior unsecured notes and recovery rating.

The decision comes from the indefinite hold put on the placement. The senior notes, a draw-down

from XacBank's USD 300 million medium-term notes program, had an expected rating of B and a

recovery rating of ―RR4‖. XacBank is the fourth-largest bank in Mongolia with a 9 percent market

share in lending and a 7 percent share in deposits. The bank experienced 66 percent annual loan

growth in 2011, but Fitch expects this to slow down due to an absence of planned refinancing for

the bank's market funding.

Source: Fitch Ratings

BDSEC SEES 31 PERCENT GROWTH IN EARNINGS FOR H1 2012

BDSec JSC reported a 31 percent increase in revenues in its interim results for the first half of 2012.

Revenues for the six months ended 30 June 2012 were MNT 3.03 billion compared with 2.31 billion

for the same period last year. During this period, net profits nearly doubled, coming in at MNT

827.1 million, an increase of MNT 336 million year-on-year. The basic earnings attributed to equity

shareholders of BDSec amounted to some MNT 75.2 million compared with MNT 55.64 in the year-

ago period.

In the first half of 2012, BDSec managed the first and only initial public offering (IPO) seen on the

Mongolian Stock Exchange (MSE) this year for E-Trans Logistics. The firm is the first transport

company to list on the MSE, raising its target capital of MNT 924 million. BDSec reported a full

investment banking pipeline, including a major mining project and several other issues concerning a

construction materials producer, a real estate developer, and a consumer goods company. Beren

JSC, an iron ore miner and explorer, is set to raise USD 100 million in the largest IPO in the history

of the MSE.

In light of its earnings growth, the company has opened a new office in Darkhan.

Source: BDSec

NOBLE GROUP TO RETURN TO FORM WITH BASE METALS PUSH

Commodity merchant Noble Group, a stake holder in both Mongolia explorers Aspire Mining Ltd. and

Xanadu Mines Ltd., is gearing up for its biggest push in decades into the base metals markets, hiring

two senior traders to expand out of Asia.

The Hong Kong-based company, run by its third chief executive in two years after posting its first

quarterly loss in a decade last year, is putting renewed focus on markets such as copper and zinc

after breakneck growth in energy, which now delivers two-thirds of its revenues.

Noble has hired Mark Hansen from hedge fund Brevan Howard to run the global metals business

from London. He has been tasked by new head Yusuf Alireza with building up the company‘s

smallest division by revenue. Paul Wilkes, a London Metal Exchange (LME) trader formerly at

Macquarie Bank, will join next month to run the hedging and proprietary trading desk.

While historically a trader known for aluminum, iron ore and ferroalloys, Noble has failed to

challenge rivals such as Glencore International and Trafigura for a large piece of the base metals

markets. Beyond aluminum, it has few physical metals assets or off-take deals.

Noble is looking to broaden its metals off-take portfolio by product and location after rapidly

building up its energy agricultural divisions.

Read more…

The move would be a return to the company‘s roots. Minerals and metals made up 90 percent of

turnover compared with 13 percent last year. In recent years Noble has focused on expanding its

energy trading team.

Noble hopes to find opportunities by funding new projects similar to its niche in the Indian iron-ore

market. With weak LME prices potentially preventing projects from getting off the ground, junior

miners may seek help from traders. Merchants often provide funding for start-ups in return for a

minority stake and output once the mine is operating.

―Trafigura [and Glencore] were early movers with a good franchise. But there‘s still plenty of room

at the table. Juniors are hurting at these levels and [Noble] will be happy to help out,‖ said a

source familiar with the matter.

Source: Reuters

CENTERRA EXPERIENCES QUARTERLY LOSS

Shares of Centerra Gold Inc. fell more than 2 percent on Thursday, a day after the Canadian gold

miner and operator of the Boroo gold mine reported a quarterly loss on lower output at its Kumtor

gold mine in Kyrgyzstan and higher operating costs.

Centerra reported a net loss of USD 54.6 million for the second quarter ended 30 June. That

compared with profits of USD 71.1 million in the year-earlier period. Revenue in the quarter fell 63

percent to USD 89.7 million as gold production dropped 66 percent. At the same time, cash costs

rose 72 percent to USD 885 an ounce, compared with USD 513 an ounce in the second quarter of

2011. Toronto-based Centerra maintained its adjusted full-year production outlook of 450,000 to

470,000 ounces of gold.

Earlier this year, Centerra was forced to cut its planned output at Kumtor by about a third due to

ice movement in the pit at the high-altitude project. Kumtor is Centerra's largest gold mine. The

company is currently studying the possibilities for expanding the pit, which would boost reserves

and extend the mine's life. That study is expected to be completed in the third quarter.

Centerra has faced mounting opposition to its Kumtor operation since a scathing Kyrgyz

parliamentary report in June that criticized the environmental impact of the mine. The company

maintains that the report is without merit and said it is working with the Kyrgyz government to

address the issue raised.

Source: Reuters

ECONOMY

NORTH KOREA PROPOSES TO OPEN PORT TO TT COAL

A meeting between Parliament Speaker Z. Enkhbold and the North Korean ambassador has bought

about the possibility of opening a new port to transport coal from Tavan Tolgoi.

Speaker of Parliament Z. Enkhbold received at his office North Korean Ambassador to Mongolia Lee

Chul-gwan where Lee announced that Chairman Choe Thae-Bok would make an official visit

sometime this year. The ambassador also reported on North Korea's hopes of establishing a North

Korea-Mongolia Business Council.

―For a landlocked country such as Mongolia, there is an opportunity to open its sea-outlet through

the Rason Special Economic Zone of North Korea and our country plan to accommodate a port for

Mongolia, where the port is connected with railroads from Russia and China, from where it

continues onto the Trans-Siberian Railway,‖ said Lee.

The Rason zone, formerly known as the Rajin-Sonbong Economic Special Zone, was established

during the early 1990s by the North Korean government near Rason to promote economic growth

through foreign investment. Both Russia and China have invested in the economic zone, where the

use of foreign currency is permitted.

Enkhbold responded with gratitude on behalf of Mongolia's Parliament and said he believed

organizations such as the business association Lee proposed could do much to expand relations

between nations.

Source: Info Mongolia

MAYOR STAGGERS SCHOOL HOURS OF OPERATION

As part of the government's ongoing efforts to reduce traffic in Ulaanbaatar, the mayor has

submitted a new schedule for school hours.

Ulaanbaatar Mayor E. Bat-Uul has developed a timetable that staggers the school hours open in the

hopes of reducing city traffic in Ulaanbaatar. Beginning 3 September, schools will open from 8:00 to

17:00. Kindergartens and secondary schools will open at 8:00 while colleges and universities open at

9:00.

Last year's decision by the city government to open government offices at 8:00 has reportedly

reduced city traffic by 20 percent.

Source: Zuunii Medee

NEW TIMETABLE TARGETS REDUCED CITY TRAFFIC

Ulaanbaatar's mayor has introduced a new timetable for businesses to operate, in the hopes of

reducing traffic in the capital.

The timetable presented by Mayor E. Bat-Uul targets specific markets, such as the so-called ―black

market‖ Narantuul, Sunday Plaza and food markets Bayanzurkh and Mercury. The hope from the

city government is that by staggering the times the markets open and establishing different days for

them to close it can help reduce traffic. The scheme will run until 25 October when the city

municipality will decide if it should be renewed. Its decision for renewal will depend on the

perceived effectiveness of the scheme.

Source: Info Mongolia

SAINSHAND-CHOIR ROAD TO OPEN SEPTEMBER 2013

A new road connecting Choir with the Sainshand industrial complex is planned to begin service in

September next year.

Construction of the road is being led by the Millennium Challenge Account-Mongolia, providing USD

88.4 million for the 176.4-kilometer road. The level-three capacity road will be able to service

between 15 and 20 ton vehicles and is planned for a lifetime of 20 years. Additionally, the road will

be connected by eight bridges.

The project comes from a consortium of Holland's Grontmay Karlbro, India's SIE Engineering and

Mongolia's Monconsulting. The first stretch of 90 kilometers is to be built by Korea's Halla

Engineering and Construction Corp., while the second will be left to China's Gianshi Water and

Hydropower Construction. The road is already 70 percent complete, with all preparatory work to

conclude this year.

The road's construction has been under tight control regarding the materials and quality of cement.

For example, water from the Gobi Desert is salty, requiring the necessary materials and

construction techniques to ensure longevity.

The Sainshand-Choir road is the first conducted by MCA. It places significant importance on

environmental conservation, health and safety. Originally MCA hoped to help build rail lines, but

when that proved impossible it instead turned its focus to constructing a road network connecting

the north and southern borders.

Source: Zuunii Medee

MONGOLIA TO JOIN EXPANDED TRANS-SIBERIAN RAIL LINE

Once considered slow and a relic of the past, Russia's mighty Trans-Siberian Railway has come to

life in the 21st century to play a pivotal role in cargo transport, connecting economies such as

Mongolia's, from Europe to the Asia-Pacific region.

There are efforts in nations to create a multilayer railway networking linking Europe with Asia. For

landlocked nations such as Mongolia, getting a foothold into such a network provides an opportunity

for economic development. Plans call for connecting the Trans-Siberian Railway with the huge

Tavan Tolgoi coal mine in a few years.

Although coal is actually closer to the Chinese border, the strategy among Mongolian officials is to

utilize the Trans-Siberian Railway to export coal to Russia, Japan and South Korea. While

maintaining a delicate balance between China and Russia, Mongolia is also seeking an exit to the

Sea of Japan for its enormous reserves of natural resources. Railway engineers in Mongolia also

pointed to the fact that officials are wary about Beijing's motives because China in 2002 cut off rail

lines from Mongolia for more than a day because of a visit from the Dalai Lama.

The construction of the new railway line means that in the future the Sainshand industrial complex

will serve as an intersection for transport.

―We will create jobs for 300,000 people by construction of a heavy industry complex,‖ said P.

Gankhuyag.

Source: Asahi Shimbun

GOVERNMENT DEBT CLIMBS TO MNT 750 BILLION

Ch. Ulaan is stepping into a difficult situation as he becomes minister of finance for a third time.

Inflation is in force worldwide, especially in neighboring China and Russia, leaving its mark in

Mongolia as well. The decline in commodity prices has not gone unnoticed either, particularly for

coal and copper.

The barrage of economic downturns has left Mongolia's budget in a deficit of MNT 1.2 trillion, with

debt totaling MNT 750 billion. The government has many outstanding debts, with that to the Human

Development Fund (HDF) looming particularly heavily. The first priority should be concluding the

distribution of cash handouts owed to Mongolia's population from the HDF, said the minister. As for

inflation, Mongolian exports have reduced in value while export prices are on the rise, so efficient

budgeting is all the more important. The Stabilization Fund will likely be necessary to keep the

situation in check, Ulaan said.

One issue Ulaan pointed out as in need of attention is the USD 90,000 lost daily by the Development

Bank because it failed to invest the money collected from its USD 575 million debt offering. The

bank must now direct that money to short-term investment such as government bonds and work by

the Bank of Mongolia, the minister said.

―We will look for possible investment to cut those losses by half, at least.‖

The Ministry of Finance will also look to reduce spending by other ministries, many of which

exceeded their budget, said Ulaan. Many projects have been put on hold due to a lack of financing,

which is directly related to the falling prices of commodities. Because Mongolia is already incurring

many debts, the ministry is looking to introduce the Mongolia Without Debts policy. It also hopes to

increase the productivity of government agencies to match the salaries raises given this year.

―Increases in salaries to government workers without any increase in productivity only brings

negative consequences. This needs regulation too.‖

Source: Zuunii Medee

SAINSHAND TO INTRODUCE MATERIALS HANDLING

The Sainshand industrial park is expected to be where major primary transformation industries will

be located to supply the country's basic needs, as well as earn export revenues. A central materials

handling and storage facility is being planned to serve all the plants.

Coal will be brought in from the Tavan Tolgoi coal fields to feed the coal gasification plant, the

cement plant and a metallurgical coke pellet plant. The coal gasification plant will generate

synthetic fuel gas that will supply the energy needs of the power plant, the iron ore pellet-

manufacturing plant, and the iron reducing plant.

Iron ore will be brought from the Tumurtei mines for iron pellet manufacturing and hot briquetted

pellets. Copper concentrates from the Oyu Tolgoi copper and gold mine will supply a copper

smelter, which will produce copper anodes and also substantial quantities of gold and silver. The

copper operation will also generate industrial quantities of sulfuric acid. A cement plant will

receive train loads of limestone and various other minerals to produce bulk cement on a national

scale. The power plant will also provide high, medium and low pressure to the coke oven, the

copper smelter and the iron reducing plant.

A central material handling and storage facility is being planned to serve all the plants. It will have

multiple rail loops for both unloading and loading unit trains. The storage facilities will have

stockpiles for several grades of coal, iron ore, and copper as well as for the coke and iron pellets

being produced.

Source: Asahi

MONGOLIA ATTEMPTS TO BREAK FREE OF FOREIGN FUEL DEPENDENCE

Dependence on Russia for fuel has put the nation at its mercy, forcing Mongolians to pay much more

for gasoline than international prices. Recent hikes in fuel taxes have raised the price of petroleum

by MNT 905.

Fuel shortages have not left Mongolia's booming minerals industry unscathed. As this is the chief

driver of the country's rapid economic growth, attention must be paid to this problem. The prospect

of building a petroleum processing factory is considered essential but nothing has materialized yet.

After years of negotiation, the government has finally opted to build an oil refinery in Darkhan Uul

as well as Dornod and Dornogobi Aimags. However, the source of crude oil to feed these refineries

has not yet been determined.

Mongolia will need some 1 million tons of gasoline annually for its domestic supply, with plans by

the government to purchase petroleum from Russia and Kazakhstan. PetroChina Daqing Tamsag is

one option for a domestic supply. However, the factories the government has planned for are

located between 200 and 1,000 kilometers away from PetroChina. This shows little thought went

into the logistics of this issue.

This would not be the first time Mongolia tried its hand in oil refinery. A plant opened in 1959 in

Dornogobi, providing 20 percent of Mongolia's petroleum needs. However, it's clear that small

factories will not be enough for Mongolia.

Source: Zuunii Medee

CONSTRUCTION AND INDUSTRY TOP STUDENTS‟ INTEREST

With the new school year to begin next Monday, universities are seeing great interest from students

in studying professions such as construction.

This year will see 8,049 students studying for construction and 6,493 for industry production. The

government has pushed for students to study for professions most in demand in Mongolia. Other

popular studies include 1,580 students for interior decorating, 1,521 for culinary arts, 1,440 for

welding, 1,165 for plumbing, and 1,085 for auto mechanics.

Source: Zuunii Medee

A WINDOW OF OPPORTUNITY

Life expectancy in Mongolia is heading towards an upward trend, which is reason for the populace

to rejoice but for policymakers to worry about.

A country with more than 12 percent of its population above the age of sixty is considered an

―ageing population.‖ That means fewer able-bodied workers and a greater number of retirees to

support.

―According to observations made, since 2000 birth rates have declined and lifespans have

prolonged,‖ said project coordinator of the government sponsored Healthy Seniors program.

―Mongolia is now among the countries with an average life expectancy. However, this can be seen

as a sign that Mongolia is on its way of becoming an 'old' country.‖

Issues on ageing trace back to the 20th century, beginning with a United Nations conference on the

issues in 1982. Mongolia ratified its own strategy to combat the issue in 2009, but was already

among average ageing countries at that time. Currently 64.7 percent of the population is working-

aged, between 25 and 50 years old. If utilized correctly, this window period can be used to enhance

the speed of development in Mongolia, focusing on something for the next generation that is worth

inheriting.

The sudden emergence of income from the mining sector might close this window shut, however.

Large numbers of Chinese operate mines in Mongolia instead of Mongolia-born citizens. If this issue

continues to be ignored, the next generation of Mongolians will carry a heavy burden supporting

those who stand in line for their monthly cash handouts today.

Looking at the experiences of old nations, supporting expedient births, regulating the ageing

structure linked with economic and social development, and improving the standards of living of the

elderly are the best objective to focus on. Mongolia's median ages have grown from between 16 and

18 to 22.5 in just 10 years. There's no time left to lose.

Source: Mongolian Economy

FORMER AMBASSADOR HELPS SEND MONGOLIAN STUDENTS TO U.S. COLLEGE

With help from former U.S. Ambassador to Mongolia Jonathan Addleton, Wesleyan College receives

its first two Mongolian students this fall.

The women‘s school has historically had strong links to Asia. It has also hosted students from Russia.

Addleton mentioned to his sister, Macon City, Georgia Councilwoman Nancy White, that he would

eventually like to see some Mongolians study in his hometown. White relayed the message to Steve

Farr, vice president for enrollment services at Wesleyan. Already planning a trip to China and

Singapore, Farr tacked on a three-day visit to Ulaanbaatar.

―Nowadays when you‘re talking about what does it mean with the changes in Russia or China or

South America, and when you have students that can present that firsthand perspective, it‘s that

much more of an enriching educational perspective,‖ he said.

Source: Global Atlanta

CHINESE DISCRIMINATION IN MONGOLIA

Over recent years Chinese migrant workers have poured into Mongolia and clashed with locals. They

face discrimination and often aggravate the situation through their own behavior, leading to some

violent conflicts and legislation aimed at keeping the number of foreign workers limited.

Zhao Jurong, chairman of a real estate company in Mongolia, said that in recent years the booming

Mongolian real estate industry has created demand for a large number of skilled workers, which has

attracted many Chinese. Conflicts can arise from language barriers and misunderstandings.

Southern Chinese tend to speak very fast with high voices. Conversely, Mongolians speak softly and

only raise their voices when arguing. When in close contact, Mongolians might misinterpret Chinese

people and think they're being scolded.

Chinese workers can also aggravate problems by discriminating against Mongolians, calling them

sluggish or alcoholic and unwilling to adhere to normal working hours. Sometimes they mock

Mongolia's lack of development compared to China's, or claim Mongolia as a lost territory of theirs.

In situations where things get out of hand, Mongolians sometimes call radical right-wing

organizations such as Dayan Mongol where the conflict basically descends into a gang war.

Anti-China sentiment also comes from a Mongolian version of the ―China threat theory.‖ The

thinking is that China has already taken Hong Kong and Macao back, soon it will get Taiwan, then

next it will set its sights on Mongolia. Historical disputes make China a natural enemy that politician

can use in riling up nationalistic support. Leaders have had to cater to anti-foreign sentiment in the

form of legislation such as laws to control migrant workers. One such law sets a quota that prohibits

the numbers of any one nationality to exceed 1 percent of the population. Based on Mongolia's

population of 2.8 million, the number of foreign workers for one nation can't exceed 28,000.

Source: The Economic Observer

VOLATILITY IN CASHMERE

Unexpected fluctuations in cashmere prices in 2012 have dampened optimism in Mongolia's textiles

sector, despite the introduction of incentives from the government aimed at streamlining the

industry. However, industry players say a planned commodities exchange will resolve the issue.

After opening at MNT 70,000 per kilogram in the March-April buying season for the country's pivotal

cashmere industry, prices quickly fell to as low as MNT 40,000 a kilogram. Local media reported

that herders had expected to see prices climb as high as MNT 100,000 a kilogram. Producers and

herders blame the dip on traders from China, accusing them of straying from National Cashmere

and Wool Association (NCWA) price estimates, which were between MNT 56,000 and MNT 58,000.

However, officials say the instability was a result of government loans being misused by domestic

producers who ―conspired‖ to drive prices up.

Reports by international groups suggest local traders indeed attempted to influence the market.

The World Bank wrote in its quarterly economic update, saying, ―herders and traders attempted to

push up prices of greasy (raw) cashmere by limiting the volume of greasy being sold on the market

and available for export. As a result, export earnings from greasy cashmere were down by 57

percent year-on-year (y-o-y) in the first quarter of 2012, while export volumes were 36 percent

lower.‖

Despite the controversy over the funds, the introduction of a unique trademark for Mongolian

cashmere products by the Ministry of Food, Agriculture, and Light Industry (MFALI) in April is a sign

of progress. Industry players have said the Agricultural Market Law, which established the Mongolian

Agricultural Commodity Exchange (MACE) for trading agricultural goods and raw materials, could

resolve price issues within the industry. The MACE, established in July, has been designed to cover

all products of animal origin and raw materials, as well as act as a mechanism to ensure fair prices.

Source: Oxford Business Group

GOVERNMENT LOOKS TO STIMULATE WOOL INDUSTRY

The Ministry of Agriculture and Light Industry is poised to purchase 12,000 tons of wool to stimulate

the industry.

Last year the government passed the resolution to enact this purchase, which will take effect in

November. However, herders must have their documents filled out and sent to local officials by 1

September.

Last year the government allocated MNT 8.8 billion to 32,000 herders.

Source: Zuunii Medee

BIG COAL FACES STEEL SLOWDOWNS

A bet by four of the United States' top coal producers on coking coal, a commodity of rapidly

growing importance to Mongolia, has not worked out as planned. Mongolia Mining Corp. (MMC) has

made a similar bet with a decision to scale down thermal coal production in favor of the

metallurgical variety.

Alpha Natural Resources (ANR) Inc., presumed Tavan Tolgoi operator Peabody Energy Corp., Arch

Coal Inc. (ACI) and Walter Energy Inc. (WLT) completed takeovers that boosted sales of

metallurgical coal used in steelmaking. The companies bet that coal, which sells for a higher price

than the thermal variety burned to general electricity, would benefit from booming Asia demand

and counter threats from falling natural-gas prices and extra environmental regulation. That

strategy hasn't worked out as planned, with metallurgical coal prices falling 16 percent so far this

year compared with 50 percent growth projections.

―There was some belief that there was counter cyclicality between met and thermal,‖ said David

Gagliano, an analyst at Barclay's PLC in New York. ―What we've learned is that they aren't that

different.‖

Low-volatility metallurgical-coal prices are down 34 percent over the last 12 months to USD 192.50

a tons, according to Energy Publishing Inc. China, the second-largest economy and biggest

steelmaker, expanded 7.6 percent in the second quarter, the slowest pace in three years. Recession

in Europe is adding to the gloom.

Metallurgical coal will not rebound in 2013, and prices will average USD 210 next year, up 9 percent

from yesterday‘s price. Thermal coal will be USD 70, a 20 percent increase from current prices.

Peabody Energy, ANR and ACI all reported negative free cash flow in the second quarter, meaning

they did not generate enough cash to run their businesses. Peabody acquired Australia's MacArthur

Coal Ltd. in December for AUD 3. billion (USD 3.9 billion) to expand its sales of metallurgical coal in

Asia.

Source: Bloomberg

COPPER PRICES FALL AMID ECONOMIC UNCERTAINTY

Copper prices fell on Tuesday on renewed concerns about future demand for the metal amid

weaker-than-expected growth data from Spain and a downgrade in outlook for Japan's economy.

Copper has historically been the linchpin to Mongolia's economy with production coming from the

Erdenet copper mine and soon from Oyu Tolgoi.

The most actively traded contract, for September delivery, was recently down USD 0.0185, or 5

percent, at USD 3.46 a pound on the New York Mercantile Exchange. Spain's economy contracted

0.4 percent in the second quarter from the first quarter, and by 1.3 percent compared with the

2011 second quarter.

The data highlighted that the euro zone's fourth-largest economy is facing a deepening recession.

Elsewhere, the Japanese government cut its view of the economy in August for the first time in 10

months, citing slower exports and sluggish consumer spending.

Copper is widely used in general manufacturing, automotive production, electronics and

construction, and investors worry that slowing business activity will pressure demand for the metal.

Source: Wall Street Journal

POLITICS

CABINET RESTRUCTURES GOVERNMENT

The Cabinet of Ministries dissolved several agencies during an irregular session, leaving a total of 11

regulatory and 17 implementation agencies.

The Cabinet discussed the new structure of ministries, with Prime Minister N. Altankhuyag warning

against adding a number of staffers. The cabinet agreed that all 16 ministries may have their own

departments for policy planning, and implementation as well as administration, and control and

monitoring.

The Cabinet decided that public offices will open at 8:00 and finish at 17:00. Secondary schools and

kindergartens will open at 8:00 while higher education institutions will open at 9:00, beginning 3

September. It also tasked Ulaanbaatar Mayor E. Bat-Uul with creating a timetable for different

industries to operation in the hopes of reducing traffic by regulation the hours these offices open

and close.

The abolished agencies are the National Development and Innovation Committee, Department of

Information, Post, Department of Communication and Technology, Department for Children,

Department of State Service and Maintenance, Management Academy, Department of Diplomatic

Missions, Service and Maintenance, Department of Foreign Investment, Forestry Authority, Water

Authority, Committee of Culture and Arts, Department of Professional Education and Training,

Railway Authority, Transport Authority, Department of Roads, Department of Land Relations,

Construction, Geodesy, and Cartography, Department of Welfare Services, Department of Small and

Medium Business, Energy Authority, Department of Physical Education and Sports, and Department

of Health.

Source: Montsame

LOCAL ELECTIONS SCHEDULED FOR NOVEMBER

Local elections have been scheduled for November, according to a draft of the Law on Local

Elections.

The decision was announced by A. Bakei, chairman of the standing committee on state structure as

well as N. Luvsanjav, chairman of the General Election Committee (GEC). Bakei noted that GEC

should present a budget for local elections as soon as possible. The draft legislation allots some

MNT 9.2 billion for election expenditures.

―An irregular session of Parliament scheduled for 29 August will discuss amendments of the 2012

budget,‖ said Bakei. ―The discussion of the budget will include expenditures for local elections.‖

Luvsanjav said more time was needed to prepare the ballots for the election. She said 10 days was

necessary to print the 50 different ballot lists for the 28 June election compared with 1,000

different ballot varieties needed for local elections. GEC has asked that representatives of local

governor administrations come to Ulaanbaatar to confirm ballot lists.

Source: Info Mongolia

GOVERNMENT PREPARES FOR ELECTION OF CITIZENS' ASSEMBLY

The government is planning to hold an irregular session of government to decide on the details of

the citizens' assembly election.

The session, which will likely be held within the next two weeks, will be used to discuss the

budgeting and the recently passed Law on Provincial Assemblies. The election is tentatively

scheduled for October.

In the last government, before the June elections, members had submitted three project proposals

for the assembly. Since only a few of the project authors have remained in power since the

election, new proposals will likely be drafted.

The elections will use a mixed system of direct (70 percent) and proportional election by party list

(30 percent). Each provincial capital as well as village will receive representation, totaling in 41

representatives for 31 districts.

Source: Undesnii Shuudan

8,000 BAND TOGETHER TO DEMAND LAND PROMISED TO THEM

Ulaanbaatar's property-less citizens have banded together to establish a civil organization to

demand land for themselves.

The Union of Citizens without Land or Home has attracted more than 8,000 members since it

opened just a few days before the time of this report. The initiative to launch the organization

came first from the residents of Bayanzurkh District. The organization claims that people there

don't have homes or property. The last government promised land to Ulaanbaatar's citizens, but the

newly established city government has since decided to put that program on hold until proper urban

planning can be established.

―People with money and power are taking the land that is available, while others ignorant of the

law simply wait and have their right to 0.7 hectares of land denied to them,‖ said organization

leader B. Nyamkhainyambuu.

Nyamkhainyambuu said he has seen ordinary citizens denied land. Meanwhile the property market is

booming, leaving corrupt politicians to reap the benefits, he said. He added that the only response

comes from the ban on the distribution of exploration licenses to mining firms and the sale of land

to foreigners.

Although there is land available at Gatchuurt, officials have said that land would not be allocated

to ordinary citizens but instead to companies to develop the tourism and recreation industries.

―Money wins while the people without money lose,‖ said Nyamkhainyambuu. ―The property industry

is a business for the mafia of officials.‖

He promised to expand his organization‘s reach from outside Bayanzurkh to the entire city and

eventually grow countrywide. He added, there would be no need to focus on the city if land would

be provided outside Ulaanbaatar and sufficient infrastructure was granted. Nyamkhainyambuu said

the development of another city is possible and should be a focus of government.

Source: Udriin Sonin

GOVERNMENT TO DISTRIBUTE STUDENT STIPENDS OF UP TO MNT 140,400 A MONTH

The government of Mongolia plans to distribute four types of stipends to students studying at

Mongolia's accredited higher education institutions.

The type of stipend students receive will depend on performance criteria, resulting in bonuses of

between 50 to 100 percent of their stipend. Students have been receiving stipends of MNT 70,000 a

month since 1 January this year. To be eligible, a student must also be studying in one of the top 20

professions most in demand, as listed by the government.

The first type of stipend allocates MNT 70,200 to each student. Students can earn a bonus of 50

percent bonus totaling in MNT 105,300 for a grade point average (GPA) of at least 3.2, a 75 percent

bonus for a GPA of at least 3.6 and a 100 percent bonus if one receives one of the three places from

the Olympics competition, organized by the Ministry of Education and Science.

The top 20 professions, according to the regulations for the stipends, are road construction, primary

education, preschool education, natural science education, geology, hydrogeology, hydro-

mechanical engineering, water reserve ecology, mining technology, mining machinery and

equipment, veterinary science, information systems, oil reserves and transportation, plumbing,

renewable energy, nanotechnology engineering, biotechnology, nuclear energy, medical diagnosis,

and therapy.

Source: Info Mongolia

FOREIGN MINISTER ARRIVES IN IRAN FOR NAM SUMMIT

The minister of foreign relations arrived in Tehran, Iran for the 16th Non-Aligned Movement (NAM)

summit, held from 30 to 31 August.

Upon his arrival, Minister of Foreign Affairs G. Zandanshatar announced that his purpose was to

promote global peace, one of the main objectives of the summit. He said all countries participating

in the NAM summit champion the cause of global peace and stability.

At the time of this report, President Ts. Elbegdorj also had plans to attend the summit.

Source: ABNA

CHINA VOWS TO SUPPORT UPGRADE OF MONGOLIA'S INDUSTRIES

China promises to support Mongolia as it upgrades its massive minerals industry, said China's

councilor during an official visit.

Foreign Councilor Dai Bingguo made his remarks follow the transition to a new government many

hope will promote a friendlier investment climate. The new government has vowed to boost the

country's economy, setting the goal for annual economic growth of 14 to 15 percent over the next

eight years.

―We will actively support and take part in Mongolia's strategy to rejuvenate the nation by

developing the mineral industry,‖ said Dai. ―We support Mongolia to develop further processing of

mineral products and extend the industry chain. We would like to deepen cooperation with

Mongolia in that regard to help Mongolia accelerate its industry upgrading.‖

Dai said China is interested in cooperating with Mongolia on processing mineral and energy

products, infrastructure and construction, clean energy and efforts against desertification. A deputy

minister of Mongolia's Ministry of Mineral Resource and Energy said earlier this month that 60

percent of investment in Mongolia's mineral resources came from China. He said Ulaanbaatar is in

strong need of Chinese investment for further processing of its mineral and energy resources.

―We still hope more Chinese companies come, not only to draw away the coal but to build more

factories,‖

Chinese Ambassador to Mongolia Wang Xiaolong said on the eve of Dai's visit that this year is a

―special and important‖ one for China and Mongolia, as both are set to see new leadership. At such

a critical moment, the two neighbors ―need to beef up high-level communication‖, ―properly

handle problems in bilateral ties‖ and make plans to ensure stable growth of their ties, Wang said.

Source: China Daily

CHINA COMMITS TO USD 7.9 MILLION GRANT

Dai Bingguo committed to a grant of CNY 50 million (USD 7.87 million) to Mongolia during his recent

visit.

The grant was bartered by Deputy Prime Minister of the Government Palace D. Terbishdagva. Prime

Minister N. Altankhuyag sent his gratitude for the assistance, in addition to remarks in support of

closer relations between their respective nations.

Source: Undesnii Shuudan

MONGOLIA CONFIRMS NEW U.S. AMBASSADOR

The new U.S. ambassador to Mongolia has arrived and has had her position confirmed by

government.

Ambassador Piper Campbell presented her credentials to President Ts. Elbegdorj at the Government

Palace on 24 August. The ceremony began with a presentation of the nation's honored guards at

Sukhbaatar Square before Campbell met with the president followed by Minister of Foreign Affairs

L. Bold.

Elbegdorj congratulated the new ambassador on obtaining the post, noting that this year marks the

25th anniversary of diplomatic relations between the United States and Mongolia. During this

quarter of a decade, both nations have collaborated on numerous projects. The president gave his

gratitude for the United States' support for Mongolia's fledgling democracy and the development of

its market economy. Elbegdorj also spoke of the expanding economic ties between the two nations,

including a growing volume of investment coming from the United States.

In 2011, the United States had 289 U.S. businesses operating in Mongolia, including 117 in trade and

service, 19 in geology exploration, 13 in tourism, 11 in light industry, six in banking, and four in

animal husbandry. Total trade turnover from the United States is estimated at USD 541.9 million, as

of December 2011. That constitutes an increase of 3.3 times compared with the same period in

2010.

Campbell promised to give her strongest efforts to establish broader relations between the two

countries and contribute to the democracy and freedom of Mongolia's people.

Source: Info Mongolia

POLITICIANS JUGGLE NATIONALISM WITH DEPENDENCE ON CHINA

It is no surprise that one of the first foreign officials on the plane to Ulaanbaatar last week after a

new Mongolian government was finally put together after June's election was China's state councilor

and national security advisor, Dai Bingguo.

In a three-day visit, Dai did the rounds of the new government, including Prime Minister N.

Altankhuyag of the Democratic Party, with the message that China is a friendly and dependable

partner for its northern neighbor.

Much of the Mongolian population is not so sure and politicians frequently echo the fears that

China's passion for Mongolia's extraordinary reserves of mineral resources is only the tip of the

iceberg of imperial ambitions in Beijing. Previous governments have taken several steps to try to

curb Chinese investment in mineral deposits, which have had a chilling effect on all foreign

investment. But the reality is that China is now Mongolia's top trade partner, taking over 90 percent

of its exports.

Although the markets welcomed the coming of a government led by the Democratic Party, which is

judged to be less extreme in its suspicion of foreign investment than other parties, it has joined

forces with the Mongolia's People's Revolutionary Party (MPRP), which is in favor or nationalizing

resources. The new prime minister's has attempted to placate the economic nationalists in his camp

by appointing D. Gankhuyag, a critic of the Oyu Tolgoi investment agreement. Gankhuyag did not

disappoint the resources nationalists, calling for the state to enforce a resolution that would

require 50 percent ownership, compared with the 34 percent it now holds, of the massive Oyu

Tolgoi copper and gold project once project developer Turquoise Hill Resources recoups its money

spent.

Of immediate concern for Beijing is the USD 926 million bid by China's state-controlled Aluminum

Corp. of China Ltd. (Chalco) for the purchase of the 58 percent interest in SouthGobi Resources Ltd.

held by Turquoise Hill. The deal, which Turquoise Hill says it needs to finance the Oyu Tolgoi

copper and gold project, was blocked by new foreign investment legislation. SouthGobi Resources

Chief Executive Alex Molyneux has said the government has done everything in its power to block

the Chalco purchase.

Source: Vancouver Sun

MONGOLIA AND NORTH KOREA‟S LINGERING TIES WITH RUSSIA

Russia is favored by Mongolia and North Korea, who provide opportunities for Russia to raise its

stakes in Northeast Asian matters.

Despite the collapse of the Soviet Union and relative inattention by the Kremlin in the 1990s,

Ulaanbaatar and Pyongyang never abandoned their attempts to renew ties with Russia. Positive

responses came after a decade when President Vladimir Putin‘s visits to North Korea and Mongolia

in 2000 demonstrated the Kremlin‘s new emphasis on its former allies. Their treaties of mutual

assistance with Russia were replaced by treaties of good neighborliness. The debts incurred during

the Soviet era were resolved favorably for each.

As a result, Russia seems to have secured its stake in key infrastructure development projects: the

trans-Korean railway, a gas pipeline, special economic zones and education in North Korea; and the

trans-Mongolian railway, its extension and the mining of uranium and aluminum in Mongolia.

Mongolia and North Korea collaborate with Russia for fear of Chinese expansion, their small

populations and their reputation as underdeveloped parts of Northeast Asia compared with China,

Japan and South Korea. Russia is the only way Mongolia and North Korea can reach Eurasian markets

and to import fuel and technology. Both North Korea and Mongolia actively avoid increasing

dependence on Chinese investment, technology, and markets.

All three have distinct geopolitical needs. For Russia, North Korea provides a strategic buffer from

the United States and Japan, while Mongolia seeks the same insulation from China. Russia‘s

partnership with North Korea makes it more able to handle economic issues with South Korea and

Japan as well as the United States on security issues. Mongolia similarly increases Russia‘s stake in

Sino-Russian relations and offers leverage for Moscow when dealing with Beijing.

However, Russia is caught in a situation where it cannot engage in intensive security ties with both

nations. Any military move would undermine relations with key investors China, Japan, and South

Korea. Assertive moves might also push Mongolia and North Korea closer to China. Both nations will

serve as Russia‘s economic gateways to Northeast Asia and a strategic buffer from its competitors.

Source: Bangkok Post

CHINESE CULTURAL HERITAGE MONTH LAUNCHES IN UB

Chinese cultural month began on 29 August in Mongolia, with an opening ceremony held on 30

August at the Central Cultural Palace.

During the month of celebration of Chinese culture will be live concerts featuring both Mongolian

and Chinese musicians. It will also feature a photo exhibition to display the cultural heritage of

Ulaan Khan and a week of Chinese film.

A Mongolian cultural heritage month was held last April in Beijing, China.

Source: News.mn

MONGOLIA, AUSTRALIA CELEBRATE 40 YEARS OF DIPLOMATIC RELATIONS

September marks the 40th anniversary of the diplomatic relations between Australia and Mongolia.

Back in 15 September 1972, the two countries established diplomatic relations. Since then many

intergovernmental actions have broadened the friendly relationships between the two countries.

This includes the opening of a Australian General Consulate in Ulaanbaatar this year in May. A

Mongolian Embassy to Australia opened in Canberra in 2008, led by Mongolia's first ambassador, Ts.

Jambaldorj.

For this event, Australia's ambassador to Mongolia, a resident of Seoul, Korea, Sam Gerovich will

deliver a speech entitled ―The Australia-Mongolia Relationship‖ on 14 September at the Round Hall

of the National University of Mongolia (NUM).

Source: Info Mongolia

KHAAN QUEST 2012 CONCLUDES

Khaan Quest 2012, an annual multinational peacekeeping exercise, concluded on 23 August. The

event is a joint activity by the Mongolian Armed Forces and United States Pacific Command.

The closing ceremony was attend by many officials, including Parliament Speaker Z. Enkhbold, who

noted, ―Peacekeeping is an honored duty of any military servant, showing his bravery, tolerance,

hardiness and high professional skills.‖

This year's Khaan Quest military exercise coincided with the 20th anniversary of established

diplomatic relations between the United States and Mongolia, he said.

Source: Info Mongolia

THE JUST

The source of Mongolia's vast wealth has less to do with the hard work ethic, courageous struggle

and resilience of its people than its good fortune to hold its vast mineral resources. The old cliché

that the fortune that came from unexpected growth in commodity prices is a heritage passed down

from Chinggis Khaan line is a lie. Chinggis did not entrust this mineral wealth, which dates back 60

to 70 million years, to Altankhuyag nor Batbold.

The current budget is estimated at between USD 30 million and USD 50 million. The state budget

stands at 56 percent of gross national product (GDP) today compared with 28 percent in 1998. The

figure is likely to grow to 70 percent as a result of the proposed government policies. Participation

from the private sector has fallen from a high of 80 percent of GDP to 30 percent in four years.

Clearly the capitalist era has come to an end.

The minerals sector is currently carrying the weight of Mongolia's economy, society and politics. An

injection of USD 2 billion into the economy via the Oyu Tolgoi investment agreement makes it

responsible for one out of every MNT 3 in 2011. Spent wisely, that money could have contributed to

investment in education, infrastructure, health care, and the service sector, much as Canada,

Australia, Norway and Chile did. Instead that money was mismanaged and given away.

Not much can be expected from the new government. The Justice Coalition that makes up a portion

of the government has been best known to the public as the loudest opponent against foreign

investment and the mining industry. The major faction leading the government, the Democratic

Party (DP), has announced its Cabinet of Ministries. It includes as minister of minerals D.

Gankhuyag, who rose to the public spotlight criticizing the Oyu Tolgoi investment agreement and

trumpeting the need to nationalize other deposits. However, while Gankhuyag focuses chiefly on

the magic number 51 (the percentage he demands for Mongolia's stake in the Oyu Tolgoi copper-

gold project), it would be more beneficial to the country to claim half the profits through a better

arrangement of royalties and tax under a production sharing agreement.

A new ministry, one for economic development, has been established, and is meant to be a revival

of the former National Development and Innovation Committee. Unfortunately, it is under the guide

of N. Batbayar. He is nicknamed the ―disaster‖ by investors and has a reputation for anti-foreign

views on investment. History will remember Batbayar for two accomplishments: The 68 percent

windfall tax that was eventually repealed and the recently passed foreign investment law. The

former led to a 90 percent fall in gold production and eventual tax revenue in Mongolia as well as

the imprisonment of many. The second has already driven many companies out of Mongolia.

If foreign investors leave, the government will not have the USD 30 billion it wants to splurge on. If

exports in Mongolia disappear, imports will soon follow. The sectors that thrive—construction and

mining—would collapse. On the bright side, prices would fall and agricultural products, especially

cashmere, would take center stage in the economy. There would even be money left for cigarettes!

Author B. “Baabar” Batbayar is a former minister of finance and member of Parliament. Since

2006, he has run Nepko Publishing Company, and in 2009 he was awarded the honor of “History of

Mongolia” from the State Awards of Mongolia.

Source: Baabar

NEW MONGOLIAN LAWS

The following law was published in the latest weekly Government bulletin. Unless otherwise

decided by Parliament, it will take effect ten (10) days after publication.

Date Laws

21.08.2012 Amendments to Law on Parliament of Mongolia

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

DISCOVER MONGOLIA-2012, AUGUST 30-31

The Discover Mongolia conference is being held on August 30-31 in Ulaanbaatar. The conference

venue is again the Children's Palace. BCM is a supporting organization of Discover Mongolia 2012,

and its members have had the opportunity for an early-bird rate for attendance.

Oyu Tolgoi LLC, Mongolia's largest copper and gold mining firm, is the event's premier sponsor, in

addition to the forum's ―gold sponsors‖: Monnis International Inc., Xanadu Mines Ltd., Aspire Mining

Ltd., Micromine Mongolia LLC, and Mongolian Mining Corp. The conference agenda concentrates on

recent developments that have taken place in Mongolia's mining and foreign investment landscape.

For more information, call +976 7014 9762 or email info@discovermongoliaforum.com.

___________________________________________

MINING MONGOLIA 2012 AND BUILDING & CONSTRUCTION MONGOLIA 2012 190 companies from 22 countries including pavilions from Australia, Canada and Germany will display a wide range of technology, supplies and services for the mining and the construction sector, on a scale never seen before in Mongolia. Inside and outside displays, providing a first

opportunity for buyers to see technology and learn about new mining & construction service from industry experts at the Buyant-Ukhaa Sports Palace from 5-7 September 2012. For more show information, please visit http://www.miningandconstructionmongolia.com. The online registration is closed, please bring your name card to the show venue – Buyant UkhaaSports Palace, go to the visitor registration counter to receive your visitor badge. The visitor entry is FREE OF CHARGE. BCM is supporting this event. BCM members will have 5% discount to book the exhibition space.

___________________________________________

MONGOLIA INVESTMENT SUMMIT 2012, HONG KONG, OCTOBER 30-31

The Mongolia Investment Summit 2012 will be held from 29 to 30 October at the Four Seasons Hotel

in Hong Kong to once again bring the best of Mongolia's investment opportunities to Asia's leading

investment hub.

Now in its third year, the summit has strongly cemented its position as the largest Mongolian

investment event outside of Ulaanbaatar, providing foreign investors with the most comprehensive

overview of Mongolia's key economic growth sectors all under one roof.

Speakers to the event include Altai Khangai, Chief Executive Officer of the Mongolian Stock

Exchange (MSE), Cameron McRae, President and Chief Executive Officer of Oyu Tolgoi LLC, and

James Passin, Co-founder and Manager of Firebird Mongolia Fund.

BCM is again a Supporting Organization for the event. Jim Dwyer, Executive Director of BCM, will

chair both morning sessions. For more information, find a brochure to the event by logging on to

the website: mongoliainvestmentsummit.com.

___________________________________________

REGISTER NOW FOR MONGOLIAN MINING DIRECTORY-2013

Mongolian Mining Directory-2013 which provides information database for Mining companies,

investors, suppliers, service companies, government and non government organizations will be

published for the fourth year to commemorate the 90th anniversary of the Mongolian mining

industry. The MMD is distributed free of charge to international and domestic mining companies,

international conferences and exhibition, embassy offices in Mongolia and foreign countries to

investors.

BCM is a Supporting Organization of the MMD and welcomes Mongolian mining industry participants

who are interested in advertising their products and services in Mongolian Mining Directory-2013.

For more information please visit: www.mining.mn, www.mongolianminingdirectory.mn or call

+976-7011 5590.

___________________________________________

REGISTER FOR BCM‟S MINING SUPPLY CHAIN DATABASE AT NO COST

The new version of BCM‘s Mining Supply Chain Database is ready for use. Following the initiative of

Oyu Tolgoi LLC, the BCM has maintained the Mining supply chain database since March 2009. It is

honor to introduce you to the new version of the database which is totally upgraded as to its

content and use of information technology opportunities.

We are inviting all Mongolian mining suppliers and buyer companies to join the Mining Supply Chain

Database. Please visit here for registration.

If you have any questions regarding the database, please contact Undral at undral@bcmongolia.org

or 317027.

BCM WEBSITES

MONGOLIAN WEBSITE „PRESENTATIONS‟ AND „NEWS‟ SECTIONS

The new ‗Presentations‘ section on BCM‘s Mongolian website can be reached via link to

bcm.mn/itgeluud. Several presentations already posted include World Bank‘s Mongolia Quarterly

Economic Update–June 2012; 11 speeches from the 2nd Coaltrans on May 23-24 in UB.

As a key component of BCM‘s Mongolian website ‗News‘ section, articles from the Government‘s

―Open-Government.mn‖ site are regularly posted.

___________________________________________

ENGLISH WEBSITE 'PRESENTATIONS', 'MONGOLIA REPORTS' AND „MONGOLIAN BUSINESS NEWS‟

On BCM‘s English website, ‗Resource, Presentations‘ section, for your review are the following

recent postings:

•Lowering the High Cost of Paying Taxes by Olin McGill, Business Environment Reform Advisor, BPI-

"Quantifying the Costs of Regulatory Inefficiency" workshop, July 23, 2012

•Quantifying the Costs of Regulatory Inefficiency by Olin McGill, Business Environment Reform

Advisor, BPI-"Quantifying the Costs of Regulatory Inefficiency" workshop, July 23, 2012

•Why Businesses Cheat: Mongolia Reforms Confiscatory Costs of Paying Taxes by Olin McGill Business

Environment Reform Advisor, BPI-"Quantifying the Costs of Regulatory Inefficiency" workshop, July

23, 2012

• 4 presentations from BCM‘s June 25 monthly meeting;

•12 presentations from the 2nd Coaltrans on May 23-24 in UB.

Also on BCM‘s English website, ‗Resource, Mongolia Reports‘ section, please note the following

recent postings:

•Taxes of expatriates in Mongolia from PricewaterhouseCoopers on August 18, 2012;

•2012 Mongolia Investment Climate Statement by Economic and Commercial Section of the US

Embassy, Ulaanbaatar, Mongolia;

•World Bank: Mongolia Quarterly Economic Update- June, 2012;

•Risk report for Mongolia 2012 by Mongolia Economic Forum;

•Polit Barometer, June 2012, and the Polit Barometer, April 2012 by Sant Maral Foundation

(Mongolian and English versions);

•ADB‘s Asian Development Outlook, April 2012;

•Detailed results of BCM‘s NewsWire survey of March 2012.

We are now posting some news stories and analyses relevant to Mongolia to BCM website's

‗Mongolian Business News‘ as they come, instead of waiting until each 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.

___________________________________________

MONGOLIAN WEBSITE „PRESENTATIONS‟ AND „NEWS‟ SECTIONS

The new ‗Presentations‘ section on BCM‘s Mongolian website can be reached via link to

bcm.mn/itgeluud. Several presentations already posted include World Bank‘s Mongolia Quarterly

Economic Update–June 2012; 11 speeches from the 2nd Coaltrans on May 23-24 in UB.

As a key component of BCM‘s Mongolian website ‗News‘ section, articles from the Government‘s

―Open-Government.mn‖ site are regularly posted.

___________________________________________

SOCIAL NETWORK WITH BCM

The Business Council of Mongolia (BCM) has expanded 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.

Connect with BCM on Linked-in to join the diverse group of professional contacts creating a better

business environment in Mongolia today.

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 carried in

the NewsWire with the community.

Hear breaking news and announcements as they happen when you follow BCM on Twitter at

http://twitter.com/#!/bcMongolia.

Of course for news information, interviews, and announcements regarding our organization, visit

the official BCM website at www.bcmongolia.org and www.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]

Year 2011 *10.2% [source: NSOM]

July 31, 2012 *14.5% [source: NSOM]

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

Note: 14.9% y-o-y, Ulaanbaatar city, July 31, 2012

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]

March 19, 2012 12.75% [source: Mongol Bank]

April 18, 2012 13.25% [source: Mongol Bank]

CURRENCY RATES – August 30, 2012

Currency Name Currency Rate

U.S. dollar USD 1,381.09

Euro EUR 1,733.34

Japanese yen JPY 17.57

British pound GBP 2,187.30

Hong Kong dollar HKD 177.78

Chinese yuan CNY 217.51

South Korean won KRW 1.22

Russian ruble RUB 42.78

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.