The Mongolian Minerals Sector, Future Plan Regionial Cooperation BAYARBAT Sangajav, Deputy Director, Finance and Investment Department Head of International

The Mongolian Minerals Sector, Future PlanThe Mongolian Minerals Sector, Future PlanRegionial CooperationRegionial Cooperation

BAYARBAT Sangajav, BAYARBAT Sangajav,

Deputy Director, Finance and Investment DepartmentDeputy Director, Finance and Investment DepartmentHead of International Cooperation DivisionHead of International Cooperation Division

Ministry for Mineral Resources and Energy Ministry for Mineral Resources and Energy

2222ndnd September 2010 September 2010 The Nautilus Institute The Nautilus Institute

ContentContent

Ministry of Mineral Resources and Energy, Mongolia


OVERVIEW OF THE ECONOMYOVERVIEW OF THE ECONOMY

KEY NOTES-Nominal GDP down in 2008 due to fall in commodities price-Copper and gold price near record high in 2010, GPD expected to go up-Estimated GDP growth in 2010 is 7.5%according to Med-term socio-economic guideline

ECONOMIC PROJECTIONECONOMIC PROJECTION

2010 2011 2012 2013

GDP growth7.5% 8.2% 7.8% 20.8%

GDP per capita (in USD) 1772.3 1987.5 2216.3 2782.2

Inflation (CPI)7.8% 7.1% 8.6% 8.1%

Trade balance (in million USD) -356.3 -686.0 -473.0 1877.3

International reserves (in million USD)

1936.3 3090.7 4710.9 8267.9

Unemployment3.1% 2.9% 2.8% 2.7%

KEY NOTESIN MEDIUM TERM, 2010-03:-Utilization of so-called “Strategic mining deposits” will fuel Mongolia economic growth-Inflation will be stable around 8.0% per year-Increased output of mining products will boost export and international reserves-Jobs created in the mining sector will reduce overall unemployment level


Source: Bank of Mongolia, National Statistical Office, Ministry of Finance, IMF and World Bank staff estimates

SOVEREIGN RATINGSOVEREIGN RATING

STANDARD AND POORS

BB- BB- NEGATIVE STABLE(released on 2009/11/20)

MOODY’S

B1 B1 NEGATIVE STABLE(released on 2009/11/25)

FITCH

B B NEGATIVE STABLE(released on 2009/10/12)

RATING RATIONALE:-Successful implementation of IMF Standby program to stabilize fiscal and external liquidity position-Central bank agreed to more flexible exchange-rate regime-Parliament ratification of Investment agreement on Oyu Tolgoi mining deposit-Policy coordination between government authorities improved

DRIVERS FOR UPGRADE:-Alleviate overdependence on commodity price fluctuation-Investment in mineral projects that boost economic growth and employment-Prudent allocation of expected large fiscal revenues from expanding mining sector-Continuation of ongoing and planned fiscal, monetary and banking sector policy adjustments beyond IMF program


Source: Bank of Mongolia, National Statistical Office, Ministry of Finance, IMF and World Bank staff estimates


DOING BUSINESS 2010DOING BUSINESS 2010

Ease of... Doing Business 2010 rank Doing Business 2009 rank

Doing Business 60 56

Starting a Business 78 61

Dealing with Construction Permits 103 104

Employing Workers 44 49

Registering Property 25 20

Getting Credit 71 68

Protecting Investors 27 25

Paying Taxes 69 87

Trading Across Borders 155 156

Enforcing Contracts 36 35

Closing a Business 110 110Note: Doing Business 2009 rankings have been recalculated to reflect changes to the methodology and the addition of two new countries.Source: International Finance Corporation and World Bank,

http://www.doingbusiness.org/ExploreEconomies/?economyid=131





¹ Production 2005 2006 2007 2008 2009

1 Fluorspar ore, thou.tn 233.4 239.4 245.0 219.1 344.2

2 Flotation concentrate, thou.tn 93.7 108.3 109.9 115.7 115.3

3 Copper concentrate, thou.tn 126.3 129.7 130.2 126.8 129.8

4 Molybdenum concentrate, tn 1153 1403.9 1978.3 1783.6 2408.7

5 Tin /50%/, tn 47.0 - 27.5 87.5 15

6 Tungsten /68%/, tn 78.2 182.2 244.5 141.9 38.6

7 Coal, thou.tn 7517.1 8074.1 9237.6 9691.6 13163.9

8 Gold, kg 21900 21267 18087 15184 9803

9 Cathode copper, tn 2474.5 2618.4 3006.5 2586.6 2470.1

10 Iron ore, thou.tn 167.7 180.0 265.1 1387.4 1379.0

11 Zinc, thou.tn /wet/ 22.8 109.9 154.7 143.6 156.5

12 Copper wire, tn 195.5 221.2 - - -

13 Molybdenum oxide, tn - 157.8 2664.0 2112.2 156.5


MINING PRODUCTIONMINING PRODUCTION

Area of Exploration License (3659), Mining License (1085) 38,5 mln. he 24,6%State Special Protected and Special Purpose area 69,6 mln. he 44,5%Area for tender bid on license granting 35,9 mln. he 23,0%Area of open for license grant 12,4 mln. he 7,9%


GEOLOGICAL OVERVIEWGEOLOGICAL OVERVIEW

FDI IN THE MINING SECTORFDI IN THE MINING SECTOR


Investment Amount of Industrial Production

Inve

stm

ent m

ln. U

SD

Min

eral

Sec

tor P

rodu

cts

bln.

tugr

igs

Source: Mineral Resources Authority of Mongolia and National Statistical Office


MINERALS SECTOR IN THE MINERALS SECTOR IN THE ECONOMYECONOMY


ExportTotal Industrial ProductionGross Domestic Product

MINERALS TAXATION REGIMEMINERALS TAXATION REGIME



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THE MONGOLIAN GOVERNMENT THE MONGOLIAN GOVERNMENT POLICY ON MINING SECTORPOLICY ON MINING SECTOR

(Action Plan of the Mongolian Government for 2008-2012)(Action Plan of the Mongolian Government for 2008-2012)

1. Speed up the development of the mining sector, renew its legal environment, turn strategic and large mining deposits into economic circulation and develop and implement Mongolia’s industrial program.

2. Research into geological formations, spread up and location of mineral resources, prepare general assessment, develop geological mapping and intensify other research and survey works.

3. Increase the proven reserve of uranium and select the strategically important investors who are interested in investing into uranium mining.

4. Develop the legislations of geology and mining sector and adhere to the policy where the state ownership percent would be more than 51% in the strategic deposits where the geological prospecting was conducted at the expenses of state budget fund and the reserve was proven.


FUTURE TRENDS AND PROSPECTSFUTURE TRENDS AND PROSPECTS

• To adapt the advanced technology to build a mineral processing, refinery, melting, and value-added factories through conducting studies.

• To provide assistance in commercializing strategic and large deposits into economic circulation.

• To develop a policy of infrastructures depends on the regions in order to involve strategic deposits into economic circulation.

• To conduct research and make recommendations to improve and update the legal environment.


INVESTMENT AGREEMENTINVESTMENT AGREEMENT

• Investment agreement can be concluded if an investment of more than 50.0 mln. USD is made within the first 5 years.

• 50,0 - 100,0 million USD 10 years• 100,0 - 300,0 million USD 15 years• 300,0 million or more USD 30 years

• The agreement with an investor will be made jointly by cabinet members responsible for financial, geological, mining and environmental issues.


PUBLIC – PRIVATE PUBLIC – PRIVATE PARTNERSHIPPARTNERSHIP

The Parliament of Mongolia passed law on Public-private partnership to define principles and scope of cooperation of the Government and private sector partnership.

The law concept defines:• The main sectors of PPP (big infrastructure and

mining projects)• The main form of PPP (show service by contract,

management contract, renting contract, consensus, establishing joint legal entity)

• The action proposal for creating favorable environment of PPP

• The issue of risk sharing etc.



EVERY DOLLAR SPENT IN MINING CREATES ADDITIONAL DEMAND OF 1.84 DOLLARS IN OTHER SECTORS


ContentContent


Major DepositsMajor Deposits


Background informationBackground informationStrategically important mineral depositsStrategically important mineral deposits


Deposit name Type of minerals Reserves and Resources

1 Nariin Sukhait fossil coal 125.5 million tones

2 Baganuur brown coal 600.0 million tones

3 Erdenet copper, molybdenum 1.2 billion tones at 0.51% Cu and 0.012% Mo

4 Gurvan Bulag uranium 16.1 tones

5 Oyu Tolgoi copper, gold 26.3 million tonnes copper, 819 tones gold

6 Tavan Tolgoi fossil coal 6.4 billion tones

7 Shivee Ovoo brown coal 646.2 million tones

8 Mardai uranium 1.1 tones

9 Dornod uranium 28.9 tones

10 Tomortei iron 229.3 million tones at 51.15% Fe

11 Tsagaan Suvarga copper, molybdenum 10.6 million tones oxides at 0.42% Cu and 0.011% Mo,

240.1 million tones sulphides at 0.53% Cu and 0.018% Mo

12 Burenkhaan phosphor 192.2 million tones at 21.1% Phosphor

13 Tomortein Ovoo zinc 7.7 million tones at 11.5% Zn

14 Asgat silver 6.4 million tones at 351.08g/tone Ag

15 Boroo gold 24.5 thousand tones at 1.6g/tone Au

Strategic deposit: Major final productsStrategic deposit: Major final products

ExportExport

Domestic consumptionPower Plant

Coal gasification

ExportExport

Nuclear Power Plant

Uranium

Energy coal

Coking coal

CopperCopper product

Coal

Oyu Tolgoi ErdenetTsagaan suvarga

TumurteiTumur TolgoiBargilt

Steel casting production

Copper

Iron

MardaiDornodGurvan bulagUlaanKharaat

Yellow Cake

150 bln ton

40 bln ton

1.0 bln ton

1.4 mln ton


INFRASTRUCTURE PROJECTSINFRASTRUCTURE PROJECTS

Project nameEst. budget (in million USD)

Duration

Oyutolgoi 4000.0 2010-2015

Tavantolgoi 800.0 2010-2015

Copper refinery 1000.0 2010-2015

Metallurgy complex 1000.0 2011-2016

Coking chemical plant 700.0 2010-2015

Oil refinery 900.0 2011-2015

Coal chemical plant 1000.0 2010-2015

“Tavantolgoi” Power plant 400.0 2010-2015

Power plant No.5 300.0 2010-2016

New railroad 800.0 2010-2015

Highway: Altanbulag – Ulaanbaatar – Zamiin-Uud

1200.0 2010-2015

Upgrade metropolitan roads 900.0 2010-2015

Roadway development 1200.0 2010-2015

-In order to deploy strategic mining deposits at the highest efficiency, the infrastructure must be developed

-The Government of Mongolia declared 26 infrastructure and development projects to implement with the highest priority

-Refer to the Government decree #320 issued on October 14, 2009

THE MINISTRY OF FINANCE, MONGOLIA

COPPER REFINERY

-Enormous copper deposits in Erdenet and Oyu Tolgoi

-Refine to add value

-Some “Feasibility study” is done

-Capable of refining 860 thousand tones copper

-Estimated budget 1.0-1.8 billion USD

OIL REFINERY

-Oil products are 100% imported

-Must process and supply internally to support development of mining sector

-Capable of producing 2.0 million tones oil products

-Estimated budget 1.0 billion USD

NEW RAILROAD

-Railroad grid includes southern area where mining deposits are

-Present capacity is transferring 15 million tones of goods

-TT & OT products alone expected to reach 40 million tones per year-Estimated budget 800 million USD

INFRASTRUCTURE PROJECTSINFRASTRUCTURE PROJECTS

EXPECTED EXPECTED RESULTSRESULTS


Source: National Development and Innovation Commission







Documents

The Mongolian Minerals Sector, Future Plan Regionial Cooperation BAYARBAT Sangajav, Deputy Director, Finance and Investment Department Head of International