BUSINESS COUNCIL of MONGOLIA NewsWire

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info@bcmongolia.org

Issue 137, September 24 2010

SPECIAL ISSUE – 13TH ANNUAL NAMBC INVESTORS CONFERENCE

NEWS HIGHLIGHTS:

Business:

Mongolian Mining seeks to raise USD680 million in IPO;

Petro Matad to raise USD46.8 million for accelerated drilling program;

NEA lets appeal deadline pass, Khan Resources hopes for cooperation;

Hunnu Coal has 11 drill rigs at work;

Two more Rio Tinto independent directors on Ivanhoe board;

Hogan Lovells appointed legal adviser to Erdenes MGL, with wide responsibilities;

ResCap advises Origo Partners on acquisition;

Prophecy announces USD2 million private placement;

English bankers: a sure sign of Mongolia’s mineral boom;

Khan Resources “confident” of winning case against license cancellation;

Conference hears why Petro Matad is “pretty excited”;

North Asia completes initial blasting at Oyut Ovoo iron ore mine;

28 creditors owed Anod Bank MNT57 billion;

XacBank to distribute MCA money to popularize use of energy efficient products;

Benetton to open two stores in Ulaanbaatar,

State-owned mines want to charge more for coal.

Economy:

Batbold sees London Stock Exchange front-runner for MSE restructuring;

State Property Committee cancels stock exchange tender, retracts order next day;

Tavan Tolgoi IPO after MSE is restructured, says Batbold;

Peabody, Shenhua not among 9 bidders on Tavan Tolgoi;

Mongolia scores higher in Global Competitiveness Report;

IMF notes dramatic turnaround in Mongolia;

Mongolia rebuilds from the ground up;

Australian miners eye Mongolia for diversification;

Compensation for canceled licenses to cost USD5 billion;

PM authorized to annul any order impeding business reform plans;

Tax on livestock likely to be revived;

FIFTA forums next month in Finland and Denmark;

London Stock Exchange to hold 2nd conference in Ulaanbaatar next week;

Forum to discuss development of capital markets;

Gold bursts to record above USD1,290/oz;

China mulls development of big northwest coal resources;

Australia tempers view of commodities demand;

China’s uranium needs to rise 10 times in as many years;

India goes ahead with mining profit-share plans;

Hong Kong targets pre-IPO share sales;

Hong Kong close to edging out London, New York;

Malaysian bond purchase boost for renminbi;

China resumes and increases U.S. Treasury holdings;

China's real problem is yuan sterilization, not the yuan-dollar rate;

China's high-energy challenge.

Politics: PM addresses UN summit on MDGs, meets investors;

PM to visit Canada next week;

Mongolia to send Russia USD50,000 worth of canned meat;

Proper registration of property rights essential;

Rules regarding foreign citizens tightened;

DP leaders resume fatal squabbling as elections come close;

Taiwan, Mongolia in charter flight talks;

Cameras fail to deter traffic offenses, but scare street criminals away;

Pollution fines will go into Clean Air Fund;

Europe less optimistic than America about China’s global leadership.

*Click on titles above to link to articles.

BCM MONTHLY MEETING NOTICE

BCM‘s next monthly meeting for members will be Monday, September 27, 2010 at 5 PM at the

KEMPINSKI HOTEL KHAN PALACE, 2ND FLOOR, Altai Ballroom. The bilingual meeting will feature

the following presentations:

- Mr. N. Algaa, Executive Director, MNMA, will provide an update on the mining sector.

- Mr. Tomas Petrzela, Vice President-Incoming Exchange, AIESEC Mongolia, will overview the

AIESEC Internship program.

- Mr. Philippe Baudry, General Manager-China and Mongolia, Runge and Mr. Tim Baitch,

Operations Manager-UB, Runge will discuss ―Runge in Mongolia‖.

- Mr. Dan Feder, Partner, PricewaterhouseCoopers will provide an ―Introduction to PwC‖.

We shall conclude the business portion of the meeting by asking BCM members in the audience to

briefly comment on specific problems, solutions, risks, opportunities and/or strategies affecting

their businesses. BCM members can learn from one another sharing good news and bad.

A networking reception will be held for all attendees immediately following the business portion of

the meeting in rooms ―Khusvgul‖ and ―Hustai‖, also on the 2nd floor, Kempinski Hotel Khan Palace.

BUSINESS

MONGOLIAN MINING SEEKS TO RAISE USD680 MILLION IN IPO Mongolian Mining Corp. and its shareholders will raise as much as USD680 million in a Hong Kong initial public offering to fund rising production and build a railway line to transport coal. Mongolia‘s biggest private coking coal miner and investors are selling 20 percent of the company, or 719.4 million shares at between HKD6.29 and HKD7.34 apiece, according to a term sheet sent to investors. The company is seeking to boost mine production more than eight times through 2013, construct Mongolia‘s first coal-wash plant and build paved roads and a railway to the China border to lower transportation costs, according to a report by JPMorgan Chase & Co., which is managing the sale

with Citigroup Inc. The company and customer Winsway Coking Coal Holdings Ltd., which processes and transports coal from Mongolia into China, started taking orders for IPO shares on Monday. China, the world‘s biggest steelmaking nation, last year increased imports of coking coal five-fold to a record as the government closed smaller unsafe mines. Mongolian Mining will likely post a profit of USD68 million this year, and net income may jump to USD260 million in 2011, JPMorgan estimates. SouthGobi Resources Ltd., the Canada-listed company backed by China‘s sovereign wealth fund, trades at 11.2 times consensus forecasts for 2012 profit, JPMorgan said in its research report. Mongolian Mining should trade at a premium because it mainly produces hard coking coal, while SouthGobi focuses on semi-soft coking and thermal coals, according to JPMorgan. Mongolian Mining is expected to start trading in Hong Kong on October 13, the sale document said.

Source: Bloomberg.com PETRO MATAD TO RAISE USD46.8 MILLION FOR ACCELERATED DRILLING PROGRAM Petro Matad has announced it is conditionally raising up to USD46.8 million before expenses through a placing and subscriptions for up to 22,483,878 new shares, primarily to accelerate its drilling program on Block XX in Mongolia. It has already received commitments to subscribe for 13,640,203 placing shares, raising approximately USD28.4 million. The group will also issue up to 8,843,675 new shares through direct subscriptions. In addition to the fundraising, the European Bank of Reconstruction and Development (EBRD) which at the end of 2009 took 17.5 percent stake in the company for a USD6 million investment, will have the right to subscribe to as many shares as required to maintain its stake in Petro Matad. The EBRD is able to subscribe for all or part of its entitlement and its right to subscribe on these terms will expire on 11 October 2010. A further announcement of the EBRD's intention will be made by the Petro Matad in due course. Regarding the accelerated exploration of block XX, the group now intends to test all three wells in it, instead of the single test that was previously budgeted in 2010. Weather permitting, Petro Matad plans to drill a fourth well as well in Davsan Tolgoi in 2010. The group also plans to immediately commission further seismic surveys in other parts of Block XX. Petro Matad is the parent company of a group focused on oil exploration, as well as future development and production in Mongolia. The group holds the sole operatorship of three production sharing contracts with the Government of Mongolia. The principal asset is the PSC for Block XX, a petroleum block of 14,250 sq km in the far eastern part of the country. The two other blocks, IV and V are located in central Mongolia and jointly cover 71,040 sq km. Source: Petro Matad Limited

NEA LETS APPEAL DEADLINE PASS, KHAN RESOURCES HOPES FOR COOPERATION Khan Resources Inc. says that the deadline for Mongolia‘s Nuclear Energy Agency (NEA) to file an appeal against the Ulaanbaatar Administrative Court‘s ruling in favor of Khan's subsidiary, Khan Resources LLC (Khan Mongolia), has expired, without the NEA taking any action. The court ruled in early August that the decision to invalidate Khan Mongolia's exploration license covering part of the Dornod uranium property was illegal and invalid. By contrast, the NEA did appeal in another case where the court's decision in July had been in favor of Khan's 58% owned joint venture subsidiary Central Asian Uranium Company LLC (CAUC). This ruling also declared that the NEA's decision to invalidate CAUC's mining license covering the remaining part of the Dornod uranium property was illegal and invalid. This appeal is expected to be heard in late September. Mr. Grant Edey, President and CEO of Khan Resources, said "the decision by the NEA not to appeal the Khan Mongolia court ruling was unexpected, but we are encouraged that they have chosen not to challenge the decision. We hope that the NEA will now also choose not to pursue the CAUC appeal and that we can resolve our dispute on the Dornod mining and exploration licenses cooperatively".

Source: Khan Resources

HUNNU COAL HAS 11 DRILL RIGS AT WORK Hunnu Coal has upped the pace of drilling at its coal projects in Mongolia with 11 rigs operating on various projects, aimed at generating initial JORC resources. Hunnu has completed 71 drill holes for 6,022 meters at the Unst Khudag mine, where four drilling rigs are currently operating. Initial JORC resources are expected to be completed for both the Unst

Khudag Mine and the Har Toirom discovery within it in the last quarter of 2010, with Hunnu estimating an exploration target of 250Mt to 500Mt of coal for the Project. The company has completed 20 drill holes for 3,654 meters at the Tsant Uul Coking Coal Project, where five drilling rigs are currently operating. A JORC resource study for Tsant Uul is expected to be completed before the end of this year with scoping and development studies to commence early in 2011, with Hunnu estimating an exploration target of 50Mt to 100Mt of coal. Hunnu has completed 15 drill holes for 2,132 metres at Tenuun-2, with two rigs operating. In total, Hunnu has completed 106 drill holes for 11,808 meters of drilling.

Source: Hunnu Coal

TWO MORE RIO TINTO INDEPENDENT DIRECTORS ON IVANHOE BOARD Rio Tinto has named Mr. Michael Gordon and Mr. Dan Westbrook as non-executive, independent directors to the board of Ivanhoe Mines. Mr. Gordon is a former executive vice-president of Anglo American and Mr. Westbrook was president of BP's China gas, power and upstream unit. Rio Tinto owns 34.9% of Ivanhoe and has the right to nominate directors under an October 2006 agreement between the two companies. Rio appointee Tracy Stevenson became an independent Ivanhoe director on June 1 this year and Rio's current shareholding entitled it to appoint a further two directors, Ivanhoe said. "We welcome the addition of the new, independent board members," Mr. Robert Friedland, Executive Chairman of Ivanhoe Mines, said. "We have worked closely with Rio Tinto for several months to identify very talented candidates, each of whom will bring unique industry, regulatory and financing skills to our board. I look forward to their contributions as our companies continue working together to build the world-scale Oyu Tolgoi copper and gold mine."

Source: Ivanhoe Mines

HOGAN LOVELLS APPOINTED LEGAL ADVISER TO ERDENES MGL, WITH WIDE RESPONSIBILITIES Hogan Lovells has been appointed legal adviser to state-owned mining company Erdenes MGL – the sole owner of the mining operations for the Tavan Tolgoi project in Mongolia. As part of the appointment, Hogan Lovells will help Erdenes establish draft mining agreements which can be used for the development of the Tavan Tolgoi coal deposit area and other future coal mine developments in Mongolia. It is expected that Hogan Lovells will also assist in the negotiation and finalization of the mining agreements between Erdenes and the international private-sector participants in the project. The Hogan Lovells team will be led by Ulaanbaatar-based Michael Aldrich and comprise Mr. John Copper in London, Mr. Joseph Bell in Washington DC, Mr. James Harris in Singapore and Mr. Jamie Barr in Hong Kong. Mongolia‘s mining industry is taking off as projects involving state-owned enterprises and corporate investments fuel market activity, according to Mr. Harris, Hogan Lovells head of infrastructure and project finance Asia. The firm has been ―doing stuff with three types of clients: private sector developers, investors, buyers or sellers; lenders to these people; governments or governments assisted by a multilateral such as the World Bank, IFC or the Asian Development Bank (ADB),‖ he said. ―The strongest countries would be – working from south to north – Indonesia, Vietnam, Philippines, China, Mongolia, and India to the east.‖

Source: ALB ResCap

ADVISES ORIGO PARTNERS ON ACQUISITION Resources Investment Capital (ResCap) has acted as financial advisor to Origo Partners in the acquisition of a copper-gold prospect in Mongolia for USD12 million (100% basis) from Nadmin LLC. ResCap is on the ground in Ulaanbaatar and working with local management teams and looks forward to continuing its advisory role for the duration of Origo‘s option period.

Source: www.resource-cap.com

PROPHECY ANNOUNCES USD2 MILLION PRIVATE PLACEMENT Prophecy Resource Corp. has arranged a non-brokered private placement of 4,060,000 units at a price of USD0.50 per unit to raise aggregate proceeds of USD2,030,000. Each unit is comprised of one common share and one half of one share purchase warrant. Each whole share purchase warrant entitles the holder to acquire one additional common share for a period of two years at a price of USD0.60. Proceeds of the placement will be applied to general working capital. An advisory fee of 5% of the proceeds raised payable in cash will be paid to Eurasia Capital and Frontier Securities.

Source: Prophecy Resource Corp.

ENGLISH BANKERS: A SURE SIGN OF MONGOLIA‟S MINERAL BOOM If you want to go to the next boom country, go to mineral-rich Mongolia. The boom has already started. And here‘s another milestone: the first Mongolia-focused investment bank has opened - and the head of UBS‘s London mining team is on board. Resources Investment Capital has opened an office in UB - as the city‘s avant-garde expats call Ulaanbaatar. It‘s a consortium of Origo, a Beijing-based private equity house, and Monnis, a Mongolian conglomerate. The boutique investment bank‘s nickname, Rescap, evokes Rencap (Renaissance Capital), a bank known as a perennial Russian bull. It appears that Rescap‘s ambition is to be for Mongolia what Rencap was for Russia. Rescap will be the first international bank for foreign investment professionals in Mongolia seeking to fundraise for Mongolian state-owned companies and buy Mongolian mineral assets. It will assist companies coming in to Mongolia. Many are trying in the year since Rio Tinto and Ivanhoe Mines signed the Oyu Tolgoi Investment Agreement. Companies from Shenhua in China to BHP Billiton in Australia to Peabody Coal in the US are either invested there or are said to be interested. Mr. Eric Zurrin, head of UBS‘s mining team in London, will lead the bank as one of its equity partners. There are other Oxbridge types heading out to Ulaanbaatar, with wife, kids and Siberian-winter parkas in tow, according to a British mining investor who has lived there for several years. He added: ―It‘s incredible, these Old Etonians coming out to Mongolia. You can believe it‘s going to happen, sure, the Mongolian mining boom. And sit in London and believe it. But this is different. They come here and they see it. They‘re actually moving here with their kids.‖ At the moment no Mongolian companies are listed on Hong Kong‘s stock exchange. But within a month that should have changed: Mongolia Mining Corp is preparing for an IPO. Other former state-owned assets are expected to follow. By the time the next IPO comes around a few more pinstriped professionals may have touched down at Chinggis Khaan International Airport - and stayed. Source: The Financial Times

KHAN RESOURCES “CONFIDENT” OF WINNING CASE AGAINST LICENSE CANCELLATION In a recent interview with a Mongolian daily, Mr. Grant A. Edey, President and CEO of Khan Resources, has categorically asserted that the company has ever breached any laws and regulations of Mongolia. In one instance, the Nuclear Energy Agency charges that the company raised funds in 2007 violated a law passed only two years later. Another accusation is that the company stored drill cores in a specially protected area. ―Actually, these had been dumped there by the Russians and we had, in fact, offered to remove them to a safer place,‖ Mr. Edey said, adding, ―We can‘t accept these baseless charges.‖ Reiterating the company‘s intention to exploit the Dornod uranium deposit together with the Mongolian Government and its MonAtom LLC, Mr. Edey said Khan Resources had prepared the feasibility study for the Dornod uranium deposits which estimated that USD337 million in taxes will be paid to the Government of Mongolia in15 years of exploitation. This is much more advantageous to Mongolia than the Russians plan, which will create considerably fewer work places. He feared that if the Mongolia Government persisted with its possible plans to take over licenses legally owned by Khan Resources to a Russian company, this would lead to Mongolia ―losing its reputation‖ and to rethinking in the world business community about investing. ―Who wants to build a house if there is a threat that it could be demolished by the Government at will?‖ he asked and said a number of articles have already appeared in the international media critical of the way the Nuclear Energy Authority has arbitrarily canceled Khan Resources‘ licenses. The company has begun legal proceedings seeking redress for the damage to its interests and finances resulting from the illegal acts of the NEA and Mr. Edey did not rule suing the Mongolian Government at an international court of arbitration. The company has spent USD20 million in the 14 years it has operated in Mongolia and is computing the losses it will suffer if the licenses remain canceled. These could reach USD200 million. ―We are confident that we will win the case,‖ he said. Mr. Edey concluded the interview by saying it was clear that the NEA wanted to give Khan Resources‘ licenses to the Russians. ―Apart from breaching international laws and conventions, this would also mean more benefit for Russia than Mongolia,‖ he said.

Source: Business Mongolia

CONFERENCE HEARS WHY PETRO MATAD IS “PRETTY EXCITED” The first Oilbarrel.com conference following the long summer break brought together an eclectic bunch of companies. Topics under discussion ranged from elephant hunting in Namibia to

wildcatting in Mongolia. Mr. Douglas McGay, chief executive of Petro Matad, had the happy task of making a presentation on the back of a successful maiden well. The company, which listed on AIM in 2008, struck oil just about four weeks ago with the DT-1 wildcat on the large Davson Tolgoi prospect in Block XX in eastern Mongolia. The well found 70 metres of gross pay, within which there were 10 net pay zones totalling some 12 metres of net pay. Porosity and permeability were very good, said Mr. McGay, and downhole samples are now being analysed in the U.S. This is just the beginning of the exploration task in this remote frontier. DT-1 was the first of a planned three well campaign on Davson Tolgoi, with the company planning to test just one well. DT-2 is now drilling 900 metres away. ―It‘s so close because we want to make sure of our ties to the 3D data and then we can confidently step out further,‖ explained Mr. McGay, adding the company was also hoping to hit the oil-water contact in DT-2. Read more... Block XX covers 14,250 sq km - roughly the size of Kuwait, quipped Mr. McGay, wisely ending the comparison there – and abuts the PetroChina-operated Block XIX, which the Chinese bought from London-listed SOCO International in 2005. Since then, the Chinese company has spent USD1 billion on its acreage, drilling a massive 500 holes, with an astonishing 99 per cent success rate, to unearth a resource of one billion barrels of oil-in-place (PetroChina assumes a 10 per cent recovery factor to give them 100 million barrels, and is currently exporting around 3 million barrels a year from the Tolson Uul oilfields). The oil is 37-degree API with a slightly waxy content, so it trades at a USD1 a barrel discount. Production rates are rather disappointing, averaging about 100 bpd, said Mr. McGay, although he‘s hopeful the Petro Matad reservoirs may be better quality and yield higher production rates. This is still to be put to the test. A workover rig should be onsite in the next month or so, ready to flow test one of the three wells. The results of this should provide investors with a lot more comfort about the economic robustness of this remote discovery. Block XX isn‘t Petro Matad‘s only play in Mongolia. It also holds Blocks IV and V – together the size of Ireland, said Mr. McGay – which lie in the centre of the country and have got the geologists excited by their oil shale potential. The AIM company is currently one year ahead of its commitments on this acreage, having acquired 380 km of seismic, which has shown the basins here to be deeper than anticipated at about five km. ―We are pretty excited about this,‖ said Mr. McGay, a former minerals and mining expert. Given the surge in the share price since this summer‘s success at DT-1, he isn‘t the only one to see the attractions of finding oil in a country that borders energy-hungry China. Source: Oilbarrel.com

NORTH ASIA COMPLETES INITIAL BLASTING AT OYUT OVOO IRON ORE MINE North Asia Resources Holdings has successfully completed the mine design, dry processing equipment installation and the initial blasting of approximately 20,000 tons of iron ore for immediate trial production at a mine located in Oyut Ovoo, Dundgobi province. This major step forward has been made following the acquisition of the entire issued share capital of North Asia Resources Group Limited on December 16, 2009 and the further completion of the acquisition of approximately 9.999% equity interests in Golden Pogada LLC, making Golden Pogada a 99.99%-owned subsidiary of the Group, on April 26, 2010. Golden Pogada possesses the mining rights license covering a 1,201-hectare area of the Oyut Ovoo mine. Mr. Tse Michael Nam, Executive Director of NAR, said, "This is a significant milestone for the company's iron ore business. We are starting with only one of the four discovered ore bodies and have plans to expand production capacity as soon as next year." North Asia and its subsidiaries entered into the resources mining business in Mongolia in December, 2009. Subsequently, the company acquired two alluvial gold mineral licenses in Mongolia. The company now owns and operates an iron/copper and an alluvial gold mining project in Mongolia.

Source: Asia Corporate News Network

28 CREDITORS OWED ANOD BANK MNT57 BILLION Mr. N.Davaa, one of the founders of Anod Bank, rued after his release from many months of detention, that people with no political connections and support had no chance of running a bank in Mongolia. He was not making excuses for why his bank had run into trouble. The bank had 40 major defaulting creditors when the Central Bank took over the job of running it. Most of these names were, however, never made public, and only Mr. B.Narankhuu of Mon Uran and Mr. Ts.Myanganbayar of Mongol Gazar were time and again mentioned as having led Anod to bankruptcy

by their failure to repay loans. The list and details of these defaulting accounts are still kept secret by the Central Bank. A copy that we have seen, however, would lend credence to Mr. Davaa‘s claim that some creditors were, and are, being protected for political considerations. We can reveal that of the MNT61.7 billion owed by 40 borrowers, as much as MNT57 billion are owed by 28 creditors, none of whom has been named and little has been done to make them pay back.

Source: Udriin Sonin

XACBANK TO DISTRIBUTE MCA MONEY TO POPULARIZE ENERGY EFFICIENT PRODUCTS The Millennium Challenge Account-Mongolia (MCA-M) and XacBank last week signed an agreement to cooperate on joint implementation of a clean air project to reduce air pollution in Ulaanbaatar. Around USD31 million of MCA-M money will be used to produce energy efficient products and increase their use in ger district households. The plan is to provide financial assistance to households to enable them to buy such products and to set up arrangements to market such products to consumers. XacBank will be responsible for distributing the financial support to households. The program is expected to begin in Khoroo 12 of Chingeltei district in winter 2011, and then gradually spread to all khoroos of the city. The ger districts account for some 60% of the population of Ulaanbaatar, and if they use energy efficient, environment-friendly products, the air pollution caused by burning coal is expected to be significantly reduced.

Source: Udriin Sonin

BENETTON TO OPEN TWO STORES IN ULAANBAATAR Luciano Benetton will inaugurate a series of new stores in Russia, Mongolia and Azerbaijan, a number of them in partnership with eminent architecture studios: a commercial grand tour that demonstrates the Benetton Group's drive to invest in the future, underpinning its development with optimism, and moving apace with this changing, growing world. In Mongolia the double opening in the shopping area of Ulaanbaatar marks Benetton's official entry into this market. The two inaugurations involve a large United Colors of Benetton store, on one of the main shopping streets, and a Sisley store, opened in the Bishrelt shopping centre on Sambuu Street. The new UCB store, more than 800 m² over three floors, is housed in the centre of Ulaanbaatar in a Benetton building designed by architects Arassociati of Milan, with a rational, modern conception of its spaces that recalls Mongolian history and culture. Like the ―ger‖, the traditional nomadic house that adapts to the immensity of the steppe, signalling its presence in the night, the new Benetton retail space stands out for its simplicity amidst the city's chaotic urbanization, offering an image of lightness and brightness. The Benetton Woman and Man collections are to be found on the ground and lower ground floors respectively; the first floor is dedicated entirely to Kids. The sales space features a range of warm grey tones that bring out the various themes and colours of the autumn-winter 2010 collections. The new Sisley store, situated on the first floor of the Bishrelt Shopping Center on Sambuu Street, presents all the glamour of the Woman and Man collections of the most daring brand in the Benetton Group. This program of new openings reaffirms the Group's capacity to grow around the world, strengthening the constant thread running through Benetton that binds global to local, the future to the past, and innovation to tradition. In developing this retail network, special attention was paid to architecture and design, which have always been an integral part of Benetton's business culture.

Source: The FINANCIAL

STATE-OWNED MINES WANT TO CHARGE MORE FOR COAL Representatives of coal mining companies urged the Government to raise coal prices at a meeting on September 18. Officials from the Baganuur and Shivee-Ovoo mines, the two major suppliers to power and heating plants, pleaded that they were in a very difficult situation as production costs keep increasing as no significant investment is made to upgrade their technology, while prices are kept frozen. This has led to accumulated loss for them and their revenue can rise only if they are allowed to charge a competitive price for their coal without delay. Minister of Minerals and Energy D.Zorigt said the Government is examining the suggestion of the Energy Coordinating Office to raise coal prices in stages. The Government would also review next month the question of increased state subsidy for mining companies. He also said MNT12.2 billion will be spent on modernizing the Baganuur mine in stages, and a plan to upgrade Shariin Gol is also under review.

Source: English.News.mn

ECONOMY BATBOLD SEES LONDON STOCK EXCHANGE AS FRONT-RUNNER FOR MSE RESTRUCTURING Prime Minister S. Batbold told reporters on the sidelines of the United Nations General Assembly meeting on Monday that the London Stock Exchange (LSE) is the front-runner in a bid to manage the country‘s stock exchange, expected to be up and running by year-end. "London is the front-runner" to run this exchange, building it up from scratch," he said. The government's international tender offer for a management contract for a new stock exchange drew 12 bidders, with the field now narrowed to four. Mr. Batbold said the four are the London Stock Exchange, NASDAQ OMX, Deutsche Bourse, and the Korean Stock Exchange. The idea is to have established companies with listings elsewhere add a dual listing on the Mongolian exchange. "First, what we would ask from them is to have a dual listing on the Mongolian Stock Exchange (MSE) from those already listed companies," he said. "Secondly, there will be (large) state-owned enterprises through the privatization program. So we will have a quite serious change in our privatization concept so that state-owned enterprises, especially the large ones, will go through IPO on the MSE and possibly in combination with international stock exchanges," Mr. Batbold said. Read more… Even as the global financial crisis has wrought havoc on developed economies and put a crimp in generally robust emerging markets, economic growth will remain strong, Mr. Batbold said, albeit down from the almost 10 percent per year average growth of the last decade. "Despite the financial crisis and difficulties we face in different industries, especially the livestock and others because of the harsh winters, still we have 7-8 percent growth of GDP this year. That is quite promising, I think, for Mongolia," he said. Mr. Batbold said the massive Tavan Tolgoi coal mine, a deposit of approximately 7.5 billion tons, is a "unique deposit". A tender for an operating license will be granted in one month, but Mr. Batbold gave no indication of front-runners. In addition, he said the government plans to list up to 50 percent of the mine through an initial public offering process, but with the government maintaining ownership of the assets. With the increase in investment and revenues thrown off from the mining sector, Mongolia's currency has strengthened against the U.S. dollar since the acute impact of the global financial crisis softened. In order to limit the impact of money flowing in and to start saving for future needs, the government has submitted a budget stabilization fund law in Parliament. Mongolia is trying to navigate its way in developing its economy while shedding its historical vulnerability to its two neighbors, Russia and China. Mr. Batbold made a point of "encouraging other friends" to invest in Mongolia to provide more balanced economic development and greater sophistication in its industry. There is concern over China's growing influence in the economy, as it bought 70 percent of Mongolia's exports last year. While Beijing relinquished its claim to Mongolia in 1950, there remains a deep concern that Chinese workers will lead to increasing immigration into Mongolia for work, especially if Chinese firms grab a large swath of the mining sector. Mr. Batbold said the current work force at Oyu Tolgoi is 60 percent Mongolian and 40 percent international, mostly Chinese, because higher-skilled workers from outside Mongolia are needed to complete construction of the mine. "We have a certain plan to prepare Mongolian workers through vocational training. Gradually this ratio of 60/40 will be increased up to 90 (percent) and above, within two to three years," Mr. Batbold said.

Source: Reuters

STATE PROPERTY COMMITTEE CANCELS STOCK EXCHANGE TENDER, RETRACTS ORDER NEXT DAY While Prime Minister S. Batbold said in New York on Monday that the London Stock Exchange (LSE) was the front runner in the race to be selected to restructure the Mongolian Stock Exchange, developments in Ulaanbaatar cast doubts on the entire process of selection. On Tuesday the State Property Committee (SPC) ordered the total cancellation of the tender process, without assigning any reason, but the next day it told media that the bids for the tender are being processed, without clarifying the contradiction or stating just where matters stood. There is no information if the Prime Minister has been kept informed, or if his statement had led to the order, or if his intervention later led to its retraction. There is speculation that the Government and the SPC hold different positions on the issue and that

the sequence of events reflects this difference. However, there can be no argument that the MSE has to be restructured and its capacity substantially increased. At present the MSE building in the city center is worth more than the volume of its daily transactions. The benefits of the anticipated mining boom can be felt only if the domestic capital market is capable of handling much more money than at present and of trading in international shares. The choice of the company to overhaul and restructure the MSE is important for the right branding also. If a universally respected and internationally reputable entity is given the responsibility, the credibility of the new MSE will rise automatically. Can it be that the Prime Minister recognizes this and the SPC resents it? Of course, the chosen company will make a profit from its contract but how otherwise will companies desirous of working in Mongolia raise capital and how will companies registered in Mongolia find investors? Foreign management has both bad and good aspects, but with its lack of experience for reasons of history, what option does Mongolia have? The country‘s future is in mining and this cannot develop without a strong and vibrant local capital market. Maybe it can be arranged that a foreign company does not have total control of the management at the new MSE. If local skills develop fast, there is no reason why Mongolians should not manage it by themselves before long. Source: English.News.mn

TAVAN TOLGOI IPO AFTER MSE IS RESTRUCTURED, SAYS BATBOLD Mongolia will seek an initial public offering for its Tavan Tolgoi mining assets after this year‘s opening of a Mongolian Stock Exchange following restructuring, with the government retaining control, Prime Minister S. Batbold said at a media briefing in New York. The country will sell as much as a 50 percent stake in the coal deposit to the public, he said. Mongolia will pick a contractor for the project in the next month.

Source: Bloomberg

PEABODY, SHENHUA NOT AMONG 9 BIDDERS ON TAVAN TOLGOI Erdene MGL has announced that the following nine companies have applied for choice as operator of the Tavan Tolgoi deposit. After a process of preliminary elimination, a short list will be announced on September 24 for the next stage of selection. • JMSC LLC of the Jump Group (Mongolia) • Erdos Investment Holding Group (China) • Kores Consortium (South Korea) • Shaanxi Coal and Chemical Industry Group (China) • Tavan Tolgoi Trans LLC (Mongolia) • Macmahon Holding Limited (Australia) • Kanu LLC (Mongolia-Canada JV) • BBM Operta group (Germany) • Leighton Asia Limited (Australia). The most notable names missing from the list are Russian Railway, Peabody Energy and Shenhua. Mongol 999, the Mongolian consortium of over 1,000 companies, which was formed with the specific purpose of bidding for the work, has also not applied. It has said that the tender was illegal and it would demand a fresh tender. Erdenes MGL has denied the allegation. Erdenes Tavan Tolgoi, newly formed as the daughter company of Erdenes MGL, which manages all the strategic mines in Mongolia, also advertised for an Executive Director, stipulating that the applicant should be a person with at least 15 years‘ experience. It is believed there are more than 10 applications, equally divided between Mongolians and foreigners. Evaluating their claims and direct talks will take time, and the final choice will not be before October. Source: News.mn

MONGOLIA SCORES HIGHER IN GLOBAL COMPETITIVENESS REPORT Mongolia has been ranked 99th among 139 countries in the just released Global Competitiveness Report 2010-2011 published by the World Economic Forum. This is a significant improvement on its last year‘s performance when it was put 117th among 134 countries, and is an acknowledgement of the Government‘s efforts to improve several aspects of the business environment and to reduce macroeconomic imbalances. Mongolia‘s macro economic stability score has risen to 4.9 from 3.9, mainly because of a lower budget deficit, reduced inflation, and higher foreign currency reserves. However, the score on financial market has fallen from 3.4 to 3.1, mainly because of lower access to credit, instability in the banking sector, and an underdeveloped capital market.

Switzerland retains the top place it claimed last year from the USA, which now falls a further two places, overtaken by Sweden (2nd) and Singapore (3rd). Germany (5th) moves up two places, leading the Eurozone countries. Read more… China (27th) continues to lead the way among large developing economies, improving by two more places this year, and solidifying its place among the top 30. Among the three other BRIC economies, India (51st), Brazil (58th), and Russia (63rd) remain stable. Several Asian economies perform strongly, with Japan (6th) and Hong Kong SAR (11th) also in the top 20. In Latin America, Chile (30th) is the highest ranked country. The rankings are calculated from both publicly available data and the Executive Opinion Survey, a comprehensive annual survey conducted by the World Economic Forum together with its network of Partner Institutes (leading research institutes and business organizations) in the countries covered by the Report. The Global Competitiveness Report‘s competitiveness ranking is based on the Global Competitiveness Index (GCI), developed for the World Economic Forum and introduced in 2004. The GCI is based on 12 pillars of competitiveness, providing a comprehensive picture of the competitiveness landscape in countries around the world at all stages of development. The pillars are: institutions, infrastructure, macroeconomic environment, health and primary education, higher education and training, goods market efficiency, labor market efficiency, financial market development, technological readiness, market size, business sophistication, and innovation. Source: English.News.mn

IMF NOTES DRAMATIC TURNAROUND IN MONGOLIA Mongolia has witnessed a dramatic turnaround in a year and a half. After teetering on the verge of economic collapse, IMF economists now predict strong growth this year for the landlocked country. As the global economic crisis unfolded, the Mongolian economy was hit hard. The economy was on the verge of collapse. 18 months later, growth is expected to hit 8 percent this year, international reserves are at an all time high, public finances are on a sound footing, and the banking system has been strengthened. Mongolia‘s successful turnaround stems first and foremost from the authorities‘ strong policy response to the crisis, supported by significant resources from the international community, including a loan from the IMF. In addition, the beginnings of the global recovery, strong demand from China, and an upswing in copper prices contributed to the rapid reversal of fortunes. The main goal of the Fund-supported economic program—which included a stand-by loan of around USD232 million, and was put in place in early 2009—was to ensure that Mongolia quickly returned to a path of strong, sustained, and equitable growth with low inflation. Read more… There were four pillars to this strategy: • Flexible exchange rate to rebuild international reserves. In early 2009 the authorities implemented a flexible exchange rate regime that limited intervention to smoothing excess volatility and opportunistically building reserves. Intervention was exclusively and transparently carried out through twice-weekly auctions. This new regime was supported by an up-front 400-basis-point hike in the policy interest rate, which was effective in calming markets and attracting capital back into Mongolia. The foreign exchange market stabilized rapidly and international reserves have now reached an all time high of USD1.6 billion. • Restore health to public finances. Financing constraints forced a large fiscal adjustment in 2009, which was achieved mainly through a reprioritization of spending. The fiscal adjustment continued this year and, aided by the rebound in copper prices and the economic recovery, the fiscal deficit is expected to fall to 2 percent of GDP—well below the government‘s original target. This year, parliament passed a comprehensive fiscal responsibility law. This is a landmark piece of legislation which builds the foundation for lasting fiscal discipline and an end to the boom-bust fiscal policies of the past. • Protect the poor from the burden of adjustment. Social transfers were increased during the program period in order to shield the most vulnerable from the impact of last year‘s recession. In addition, a new social transfer reform law has been submitted to parliament and is expected to be passed in November. This would introduce a well targeted poverty benefit that will strengthen the social safety net and increase the resources available to protect the poorest, as well as improve fiscal flexibility. • Bolster the banking system. Confidence in the system is being restored, and risks have been contained even as two important banks were put into receivership. Parliament has approved a

revised banking law that will strengthen the regulatory framework. A second piece of legislation to recapitalize the banks has been submitted to parliament. Finally, tougher supervision regulations have been issued and are now being enforced. These steps will serve to bolster the banking system and ensure that banks can play their crucial role in fostering development by providing credit to the private sector. The Fund-supported program has provided confidence, financing, and breathing space for the authorities to more gradually adjust policies. It has also catalyzed significant financial contributions from the World Bank, Asian Development Bank, Japan International Cooperation Agency, and many other bilateral donors. The success of the Mongolia program illustrates how the IMF has refocused its lending. The program‘s conditions were restricted to those areas necessary to return the country‘s economy to strong growth. The program also adjusted flexibly as economic circumstances evolved. When growth in 2009 turned out to be weaker than expected, the fiscal deficit targets were loosened to support the economic recovery. Likewise, the program was adapted this year to provide scope for a modest increase in spending to raise pensions and civil servant salaries. Finally, the resources made available to Mongolia reflected the reforms in IMF lending instruments put in place in 2009, with a substantially increased level of financial support. Throughout, the authorities have maintained strong ownership of the program—determinedly meeting every single performance criterion of the 18-month arrangement and passing through every program review—which contributed significantly to the program‘s success. The outlook for Mongolia‘s economy is extremely favorable. The signing of a landmark investment agreement in late 2009 to develop the Oyu Tolgoi mine has been a cornerstone for the development of Mongolia‘s substantial mineral resources. The development of other major projects, like the massive Tavan Tolgoi coal deposits, is also under way. The economy is growing strongly and this ongoing development of the mineral sector points to a bright future. The authorities‘ policy reforms have laid a solid foundation for managing the pending boom in the mineral sector and ensuring that Mongolia‘s substantial mineral wealth leads to a period of sustained economic growth that spreads prosperity to all Mongolians. Source: IMF Survey Magazine: Countries & Regions

MONGOLIA REBUILDS FROM THE GROUND UP D. Zorigt's office sits in the middle of a building site close to the centre of Mongolia's dusty capital, Ulaanbaatar. Visitors have to pick their way carefully through rubble and piles of cement as they climb the two floors to meet the country's youthful and engaging Minister for Mining and Energy. The building where Zorigt (all Mongolians go by their first names) sits is being ripped apart inside and put back together. An apt metaphor for the country, in the midst of a remarkable economic overhaul due to the emerging exploitation of its vast mineral wealth, and the work it will take to lift its whole population into a better life. In the 76-person parliament dominated by a coalition of the country's two main parties, the Mongolian People's Revolutionary Party and the Mongolian Democratic Party, almost everyone seems to have some sort of title. But the former senior public servant, who is with the MPRP, with his responsibility for driving the industry that will soon make up 95 per cent of the country's exports, is one of the handful of key decision makers that could help the foundation of prosperity for generations. With proper industrialization the Mongolian government has estimated its GDP could grow elevenfold to USD41 billion by 2020. Last week, Rio Tinto, the acknowledged Western mining pioneer in China, signaled its clear intentions to be a major player in Asia's resource boom-country when it upped its stake in Canada's Ivanhoe Resources, a huge fillip for Zorigt. "CVRD (Brazil's Vale) are engaged in ever significant exploration work here, Rio Tinto has a USD5-billion project (the massive Oyu Tolgoi copper mine). So the rest of the guys, if they want to come, I think they should," Zorigt says. "The more we have large mining players in this town, the better to help us grow into a significant mining country." Read more… But the model to attract the world's largest miners, who will have the capital resources to invest in the 15 deposits designated as nationally significant, is still being developed and tested by the government. Zorigt says deposits whose exploration was done by the government will remain 50 per cent in government hands, with a 34 per cent stake in the others. It was Zorigt who set up the government's holding company Erdenes MGL (it means treasure in Mongolian), which will hold the government stakes in its major mining deposits. He was then tapped for a cabinet position (Mongolia allows a mixture of politicians and external experts in its executive) and last year

entered parliament in a by-election. The looming test will be the Tavan Tolgoi deposit, which holds 6 billion tons of coal. It has been split on to five different concessions, or blocks, and the government is working on plan for the first two. "The first one will be 50 per cent owned by the government, 10 per cent floated on the local market for retail investors, 10 per cent available for domestic companies and 30 per cent floated on international markets," Zorigt says. He now says he does not expect one large miner to snap up the 30 per cent, as was originally mooted. The second block with be 100 per cent-owned by the government, but be licensed to a single mining group that will then pay a fee to the government for mining rights. But details for this remain sketchy and, if past form is any guide, could well be changed before being finalized. "We have plenty of interest and we are talking to lots of people," he says. But Zorigt says he is keen to finish the process on the first block first. Contract tenders are due in the first week of October with Leighton a possible bidder. While Rio is putting its money where its mouth is, uncertainty and the heavy hand of an inexperienced government has seen others stay away. BHP, for instance, has shut up shop and critics point to a lack of services infrastructure starting with access. The only offshore destinations that are directly connected by air are Seoul, Beijing and Moscow. During Mongolia's dramatically inhospitable winters, Ulaanbaatar -- blanketed in snow for six months, with temperatures regularly reaching minus 40C -- is hardly the place for miners to grab a week or two of rest and recreation. Mongolian Airlines has had Hong Kong, where many of the country's nascent mining groups are stockmarket-listed, on its schedule for some months, but so far has not started flying the route. On the ground, there are no top-tier international law firms or investment banks and only PricewaterhouseCoopers of the big four accounting firms has an office, and that is less than a month old. This forces mining executives to shuttle between Mongolia and either Beijing/Hong Kong or Korea. As well, there are the more fundamental infrastructure problems with water, power and transport. "It's a growth problem," Zorigt says. "In 2000, our GDP per capita was maybe USD400-USD500. Now it is over USD2000."If you look at the government budget, I remember when it used to be a bit over USD200 million. Now are talking well over USD2 billion." Zorigt, an economist and lawyer who was educated in Moscow, Japan and at the Australian National University, says 27 per cent of people are living under the poverty line, but that the figure is decreasing. But there are plenty of local people, including those living in humble yurts on the edge of town who are concerned that the government is frittering away the economic benefits of the mining boom by handing out money instead of spending it on much-needed roads, hospitals and schools. The last election in Mongolia turned into a populist, vote-buying auction where the main political parties offered a major handout totaling MN1.5 million to each Mongolian. A series of well-attended street marches were held to protest against the delay in the payments. The first part was delivered in a single handout of MNT70,000 to each Mongolian, but the government has now opted for monthly payments. "During the downturn, the government was struggling to get people to spend," Zorigt says. "During times like this, I think it is economically justifiable. Secondly, in Mongolia given the impact that winter has on herding people (Zorigt's grandfather was a herder all his life) they want some better security during this time. These people need cash in their hands. They are actually planning their budgets on this MNT10,000 they will get in September." But the real reason appears to be rooted in politics. "If you believe in democracy, and both parties were elected on that platform (of handouts), in order to keep the faith of people you have to keep your election promises," Zorigt says. "We are only a young democracy (communism fell in 1990) and can't afford to have politicians and parties breaking promises." But Zorigt says the government has ambitious plans to solve the infrastructure problems. In February, Mongolia's parliament adopted a landmark Concession Law that will allow private companies to investment in infrastructure by way of public private partnerships. "This is going to be an extremely important law," Zorigt says. "Before this we didn't have that legal framework." And in recent weeks the government has just approved a list of more that 100 projects so private investors can pour money into railways, roads, power and housing projects. "Private companies can come in and operate them and get their money back. This law and this list are probably going to be the solution to our problem; so far we have struggled to make the public investment in infrastructure," Zorigt says. "This is very serious bet on the future."

Source: The Australian

AUSTRALIAN MINERS EYE MONGOLIA FOR DIVERSIFICATION Australian miners are set to emerge with a strong presence in Mongolia. PricewaterhouseCoopers global head of mining Tim Goldsmith, who was in Mongolia for the Discover Mongolia mining conference, said several Australian miners were reviewing options to diversify into the country. Mongolia has long been seen as having good resources that have been underexplored and it has long been identified as a nation to contend with, particularly given its proximity to China. "There were a heap of Canadian and Australian companies at the conference, looking at new opportunities or discussing taking their existing assets further," Mr. Goldsmith said. "It's clearly an underexplored location, with lots of riches to be found and with the exception of Rio Tinto, none of the big players are there in any substance at this stage and as certainty grows in the country, big diversified miners will look there." Mr. Goldsmith said plenty of juniors would also be vying for a position in Mongolia. "Australian companies are nothing if not entrepreneurial and there will always be someone taking a new frontier that others haven't. Several of those companies were in Mongolia looking at new options." Source: The Australian

COMPENSATION FOR CANCELED LICENSES TO COST USD5 BILLION A year after Parliament passed the law prohibiting minerals exploration and extraction near river sources, water basins, and forest areas, providing for compensation to be paid to those whose licenses were to be cancelled, it is now clear that implementing this long named law is not possible. The Government recently approved of guidelines to identify the exact boundaries of areas to fall under the prohibition, but could take no decision on how the compensation for expenses already incurred was to be paid. This is because an estimated 1,700 licenses, including for both exploration and mining, will have to be taken back, and a preliminary accounting reveals the amount of compensation will amount to USD5 billion. The Government just does not have that kind of money to be spent on such purpose. Source: Undesnii Shuudan

PM AUTHORIZED TO ANNUL ANY ORDER IMPEDING BUSINESS REFORM PLANS The Government has asked the Ministry of Justice and Internal Affairs to make a list of orders and decisions by Ministers, Government Agencies, and province Governors that either contradict the law or in any other way impede realization of the goals of the program to reform the business environment in 2010. This list will be submitted to the Prime Minister who has been authorized by the cabinet to annul any such decision and order after a review. This step became necessary after the Ministry received for its consideration 25 such decisions in recent weeks and had to amend 20 of them.

Source: Montsame

TAX ON LIVESTOCK LIKELY TO BE REVIVED The tax on the number of livestock, imposed in 1998, was discontinued after a year but now there is talk of reviving it. It is not the same as the pastureland tax, and is often called the ―foot tax‖ as it is computed on the basis of the number of animals a herder owns. Related Ministries and offices have been asked to see how collection of the tax can resume next year. Local administrations will be responsible for determining the amount due from a herder and to collect it. The money would be allocated for local development, said the President‘s advisor, Mr. L.Dashdorj. At last count, Mongolia had some 40 million heads of livestock. If a herder pays MNT500 for each sheep, the tax would contribute MNT54 billion to local budgets.

Source: Ardiin Erkh

FIFTA FORUMS NEXT MONTH IN FINLAND, DENMARK The Foreign Investment and Foreign Trade Agency (FIFTA) has organized business forums in Helsinki, Finland on October 6 and in Copenhagen, Denmark on October 8. While the goal of both meetings will be to attract investment, the emphasis will be different. The first will be focused on the environment, specifically forestry, forest rehabilitation, utilization, and wood processing, apart from mechanical engineering and technology for use in the mining industry. The second will focus on meat and milk production, light industry, and renewable energy.

Source: Onoodor

LONDON STOCK EXCHANGE TO HOLD 2ND CONFERENCE IN ULAANBAATAR NEXT WEEK The London Stock Exchange (LSE) will hold its 2nd conference on the Capital Market of Mongolia on September 29, aimed at developing close and wider ties between the Government of Mongolia, domestic companies, and investors in London. Last year‘s conference was a considerable success and has been followed by the Day of Mongolian Mining Financing organized at LSE in June, 2010 which was attended by Mongolian companies and Government Agencies. The 2nd conference would discuss issues including the investment environment of Mongolia, the future of the Mongolian Stock Exchange (MSE), corporate governance and capital market strategies. It will also discuss the possibility of Mongolian companies selling shares in foreign markets. Representatives of the Government of Mongolia, MSE, officials from LSE, investment institutions and individual investors, and analysts will attend. Source: News.mn

FORUM TO DISCUSS DEVELOPMENT OF CAPITAL MARKETS Mr. J. Unenbat, Executive Director of the Center for the Development of Corporate Governance, which is arranging the Mongolia: Money and Markets forum for banking and financial organizations on October 5-6, has said the banking sector is merely one of the several components of the financial markets. In today‘s Mongolia, banks account for almost 95% of the total capital market, but this will change as capital markets develop and expand, generating competition for the banking sector in matters of investment. The forum will discuss the various issues related to the growth of the capital markets, both following from and contributing to economic growth. Banks will have to take on a new role, that of intermediaries in transforming mineral revenues into extended economic growth.

Source: Udriin Sonin

GOLD BURSTS TO RECORD ABOVE USD1,290/OZ Gold rose for a third day on Wednesday to hit record highs above USD1,290/oz after the Federal Reserve's signal that it was prepared to pump fresh cash into the economy hurt the dollar and whet investor appetite for bullion. Should the Fed resort to a second round of quantitative easing, which involves large-scale purchases of Treasuries to keep interest rates low in exchange for a cash injection into the system, gold's appeal to investors grows as the opportunity cost of holding a non-yield bearing asset declines. Also, fresh cash in the economy raises the risk of a pick-up in inflation, which erodes the returns from currency, equity and bonds holdings, yet benefits owners of gold, who see the value of their holdings rise in line with consumer prices. Gold has risen by over 17% this year, as investors have sought a relatively safe asset in which to park their cash as major currencies, stocks and bonds have become increasingly volatile.

Source: www.miningweekly.com

CHINA MULLS DEVELOPMENT OF BIG NORTHWEST COAL RESOURCES China would become a coal exporter once more if the country decided to develop large coal resources in the northwest Xinjiang province, a top International Energy Agency official has said. This would depress international coal prices, and have a knock-on effect on the price of gas, chief economist Fatih Birol recently told the World Energy Congress in Montreal. ―These coal reserves are about 40% of total Chinese coal reserves but less than 5% of production,‖ he said, adding that the government was considering developing large mines and coal-fired power plants in the region. ―If that plan goes ahead, China will be a coal exporter. If China decides that, it will have a significant impact on coal prices,‖ Mr. Birol said. This was one example of how the energy policies that the Asian powerhouse decided to follow would impact every other country. China became a net importer of coal for the first time last year, importing 130 million tons of the fuel – almost double the volume for 2008, China Daily reported in February. During the same period, coal exports fell 50%, the state-owned daily reported. China uses coal to generate some 80% of its total electricity supplies.

Source: www.miningweekly.com

AUSTRALIA TEMPERS VIEW OF COMMODITIES DEMAND Australia, the world‘s largest exporter of commodities such as iron ore and coking coal, has tempered its outlook for global commodities demand in 2011, painting a more bearish picture than its previous report in June. ―Over the past few months, world steel consumption growth has moderated, and economic growth in 2011 is assumed to be weaker in China and major OECD

economies,‖ the Australian Bureau of Agricultural and Resource Economics (Abare) said in its latest quarterly report, published Tuesday. Abare‘s projections are closely watched as global mining groups including BHP Billiton, Rio Tinto and Xstrata generate significant profits from their Australian operations. ―Over the remainder of 2010, significant increases in commodity prices appear unlikely, under the assumption that economic growth, and hence commodity demand growth, will ease in China and OECD economies,‖ said Abare.

Source: The Financial Times

CHINA‟S URANIUM NEEDS TO RISE 10 TIMES IN AS MANY YEARS China will need to source over 8 500 t/y of uranium from other countries by 2020, and is looking to buy shares in uranium producers, China National Nuclear Corp vice-president Lu Huaxiang has said. China's current uranium demand was 1 700 t/y, and this would increase tenfold over the next decade, he said. "There is 9 GW of installed nuclear generating capacity. That will grow to 70 GW in the next ten years, so there will be a ten times increase in uranium to about 17 000 t/y in China," Mr. Huaxiang said. The country was able to meet the uranium requirements of its current nuclear fleet from domestic supplies, but would need to look abroad to meet future demand. "If you look to the future, we will surely need to purchase uranium from sources outside China. We will likely source over 50% of our requirements from outside China," Mr. Huaxiang said on the sidelines of the World Energy Congress in Montreal. China has increased the number of reactors it would build over the next ten years, Mr. Huaxiang said earlier in a speech. Previous estimates had pegged nuclear generation at 60 000 GW by 2020. The country was cooperating with a number of exploration companies, as well as producers, and was eyeing the acquisition of stakes in such firms. "We are considering acquiring shares of companies outside China. It is an option we are looking at," noted Huaxiang. Asked where China was most likely to pursue uranium acquisitions, he said: "The number-one choice is countries that have large uranium resources, such as Kazakhstan, Australia, Canada and African countries such as Niger.‖

Source: www.miningweekly.com

INDIA GOES AHEAD WITH MINING PROFIT-SHARE PLANS Despite opposition from companies, India's mines minister has said it will stand by plans to make mining firms share 26% of profits with local people. Violent attacks by Maoist rebels and stiff criticism from locals over forced land acquisition at government-set rates has spurred authorities to go ahead with a new bill which will make mining firms share profits or equity with locals. "People need to be compensated, that is widely accepted. Most mining areas are remote and backward. And sharing profits would empower them to integrate at their own pace," the Minister told a conference of miners last week. Mining firms have opposed the government initiative, as they say the new measures could hurt profits and deter firms from making fresh investments. Many have threatened to move to Australia or Africa. Source: Reuters

HONG KONG TARGETS PRE-IPO SHARE SALES Hong Kong‘s Stock Exchange is seeking to codify rules on sweetheart share sales to big deal makers and hedge funds ahead of initial public offerings, a move designed to curb cash-rich investors‘ ability to dictate favorable terms. It is uncertain whether the exchange, one of the world‘s busiest IPO markets, will be able to establish catch-all rules to regulate these complex pre-IPO investments. But operator Hong Kong Exchanges & Clearing is keen to try before the listings schedule gets even more packed, one of the people said. The transactions under scrutiny involve pre-IPO sales to big investors, who then quickly sell their shares at a profit. That is different from what are known as cornerstone investments, which played prominent roles in major Hong Kong offerings such as one by Agricultural Bank of China. In those deals, big investors purchase stakes at market prices and are required to hold them for a set period. Hong Kong has no fixed rules on such pre-IPO sales, just the principle that terms of a listing should be ―fair‖ to all classes of investors, such as funds and the average man-on-the-street small investor. Exchange officials believe that many pre-IPO sales are appropriate, because buyers in these deals

put money up without being sure whether the IPO will go through. This exposes them to greater risk than other investors. Read more... The exchange has come under pressure in the past two years to approve increasingly favorable deals for big investors prior to listings, as companies and their advisers scramble to presell as much stock as possible amid volatile equity markets. In some cases, pre-IPO investors aren‘t taking much of a risk at all; they were able to buy closer to the offering date in order to sell quickly, giving them an advantage over other shareholders. Hong Kong has been one of the biggest IPO markets in the world this year in terms of value. The pipeline is swollen; about 80 companies are in the exchange‘s system, waiting to list. The pressure is rising as volatile markets make finding big investors more essential. Hong Kong is unusual among international stock exchanges for vetting pre-IPO investors. The U.S. has less oversight, though the U.S. Financial Industry Regulatory Authority–the securities industry‘s self-regulatory body—checks that there are no conflicts of interest between IPO underwriters and retail investors. The potential new rules come as Hong Kong competes with Singapore, London and New York to attract listings. Generally, companies are attracted to less regulation. Because of the relatively large number of powerful family-controlled business empires that maintain listings in Hong Kong, the local exchange has felt the need to have stronger rules designed to protect retail investors than many other jurisdictions. Source: The Wall Street Journal Asia

HONG KONG CLOSE TO EDGING OUT LONDON, NEW YORK London and New York are still the world‘s leading cities for banking and other financial services but Hong Kong is breathing down their necks, according to the latest Global Financial Centres Index (GFCI). The twice-yearly ranking of 75 world cities by Z/Yen group, the think-tank, is based on surveys of industry professionals and objective factors such as office rental rates, airport satisfaction and transport. In previous versions, London has generally led the pack, followed closely by New York, with other cities lagging well behind. But the GFCI 8, released on Monday, concludes London and New York are statistically indistinguishable, with 772 and 770 points respectively out of a possible 1,000, with Hong Kong only 10 points behind, at 760. Hong Kong was 81 points behind the other two as recently as March 2009. Mr. Mark Yeandle, the Z/Yen associate director who developed and runs the survey, predicts that Singapore, currently 32 points behind Hong Kong, could soon join the top ranks. Between them, the top four centers account for 70 per cent of all equity trading. London continues to lead in asset management and professional services, while New York is top for government and regulatory and banking, while Hong Kong is number one for insurance. Mr. Yeandle said the ratings reflected growing concerns about the business and tax environment in London as well as rising enthusiasm for Asia. Source: The Financial Times

MALAYSIAN BOND PURCHASE BOOST FOR RENMINBI Malaysia‘s central bank has bought renminbi-denominated bonds for its reserves, marking a significant advance for Beijing‘s attempts to internationalize the use of its currency, pitched by Chinese policymakers as a long-term rival to the US dollar. The central bank‘s move is also expected to herald further diversification into Chinese government securities by other Asian countries. ―This brings the renminbi‘s credibility to a whole new level,‖ said Mr. Dariusz Kowalczyk, a Hong Kong-based strategist at Crédit Agricole. ―It will have a domino effect, starting among China‘s trading partners in Asia. Then it will gradually spread globally.‖ People with knowledge of the transaction said it had taken place recently and was thought to have been accompanied or followed by purchases by other Asian central banks, although none of these has yet been identified. Read more… In August, China opened its domestic interbank bond market to foreign central banks that have access to renminbi through a series of bilateral currency swaps totaling USD120 billion. The agreements, signed since 2008, are with Argentina, Belarus, Hong Kong, Iceland, Indonesia, Malaysia, Singapore and South Korea, although there are no details about how many of these swap lines have actually been activated. Commercial banks such as HSBC and Citigroup that have accumulated renminbi through cross-border trade settlement were also told last month they would be able to invest in China‘s interbank bond market, although none has yet been given formal approval.

The decision to allow some central banks to invest in the domestic bond market is part of a push by Beijing to increase the international use of the Chinese currency. An expanded role for the renminbi would be a threat to the position of the US dollar, although many economists believe it will be years before it becomes a major reserve currency, given China‘s tight financial market controls. In the short term, the news may even be welcomed in Washington. If other countries are starting to buy Chinese bonds as reserve assets, it may put upward pressure on the renminbi by increasing the two-way flows with the currency. Indeed it actually increases the possibility that, as some have suggested, the U.S. could retaliate for Beijing‘s purchases of US Treasuries by buying Chinese assets. Source: The Financial Times

CHINA RESUMES AND INCREASES U.S. TREASURY HOLDINGS China resumed net purchases of Treasurys for the first time in three months in July, amid an overall pickup of investment in long-term U.S. assets, the U.S. Treasury Department said last week. China's holdings rose USD3 billion to USD846.7 billion, remaining ahead of Japan as the largest foreign holder of Treasurys. That followed net sales of USD24 billion in June. China has been gradually reducing its holdings of U.S. Treasurys since late last year, sparking fears of a possible move out of dollar assets by the largest creditor nation to the U.S. But it was a net buyer of long-term U.S. assets in July, including USD873 million of Treasury bonds. Japan, the second-largest holder of Treasurys, was the biggest net buyer, boosting its portfolio by USD17.4 billion to USD821 billion. The gap between China and Japan has narrowed sharply this year, to USD25.7 billion from USD129.1 billion at the end of 2009. Source: The Wall Street Journal Asia

CHINA‟S REAL PROBMEM IS YUAN STERLIZATION, NOT THE YUAN-DOLLAR RATE While it's true that China's monetary policy is causing problems, the yuan is the wrong target and protectionism is the wrong tool to get Beijing to cooperate. China's real sin is sterilization, which insulates its domestic economy from the money-creating effect of a currency board. When a company like GE invests in a Chinese factory, or a retailer like Wal-Mart buys Chinese-made goods, they exchange dollars for yuan. The Chinese government then buys those dollars with yuan. But instead of adding to the money supply, it removes those yuan from circulation by selling bonds and raising reserve requirements. Without a rise in the general price level, China's trade surplus with the world persists and grows as productivity rises. Other emerging economic powers have used this approach—including the U.S. Milton Friedman's "A Monetary History of the United States" notes that from 1921-29, when the world used gold instead of dollars for monetary reserves, the nation's gold stock grew by about 50%, reflecting its trade surplus. Initially Washington was content to allow the money supply to rise. But from 1923 on, a policy of sterilization caused the level of high-powered money to remain stable, and wholesale prices fell 8% from 1925-29. This short-circuited the self-correcting mechanism inherent in the gold standard, which is akin to a universal currency board since all currencies are pegged to gold. The U.S. should have seen an increase in the money supply, causing higher prices and over the long term tending to restore trade balance. Instead, the Federal Reserve wreaked havoc on countries trying to stay on or rejoin the gold standard, especially Britain, which was hemorrhaging gold. It was forced into a period of deflation and couldn't compete with the American export juggernaut. London responded with protectionism in the form of Imperial Preference, which contributed to the Great Depression, and the gold-standard system collapsed. Read more… Likewise, Japan's use of sterilization in the late 1960s hastened the end of the Bretton Woods monetary system, while the East Asian tiger economies came a cropper in 1997 after overinvestment in their export industries annihilated profits. China's growth potential means its share of world trade could get much bigger, and the distortions that much more damaging. Like the U.S. in the 1920s, China's rapid development without a sustainable monetary policy could topple the dollar system, especially since many countries in East Asia are also sterilizing their buildup of reserves to stay competitive with China. There are interesting parallels between the 1920s and the 2000s. In 2003, China's dollar reserves began to grow like Topsy, Beijing stepped up its sterilization and the U.S. trade deficit burst its usual bounds of about 2% to 3% of GDP. As the provider of the world's reserve currency, the U.S.

should naturally run a deficit in this neighborhood, but when the gap passed 5% alarm bells began to ring. The challenges posed to central bankers have also been similar. China's purchases of U.S. Treasurys drove down bond yields in the West, lulling the Federal Reserve into a belief in the last decade that it did not need to tighten. While the prices of goods remained relatively stable, asset markets spiraled as misallocated capital cascaded through the world economy. Inflation appeared as stock market and real-estate bubbles, which created deflationary pressures after they burst. So far, commitments to the World Trade Organization have prevented a post-crisis slide into protectionism. But the readjustment to long-run equilibrium that might have occurred under a better monetary system is still being thwarted. Washington is using fiscal stimulus to promote consumption rather than investment, while China has spent 15% of GDP on new investment instead of boosting consumption. Imbalances have only worsened. The U.S. Treasury and the IMF think revaluation of the yuan is the fix. But this would carry significant costs, and without reform of monetary policy it would be ineffective. As Beijing discovered from 2005-08, a rising yuan only attracts more "hot money" to be sterilized. The better option is for the People's Bank of China to curtail sterilization and allow the price level to rise moderately. Such inflation is a natural and benign phenomenon in a developing economy as productivity rises. And because it is growing faster than its trading partners, Beijing should not fear running a trade deficit as it attracts investment and imports capital goods. It is not in China's interest to keep storing up monetary pressure that eventually creates a crisis. There are signs that Beijing understands this. Reform to rebalance the economy is rumored to be on the agenda of the Communist Party's annual plenum meeting in the next few weeks. And the 12th Five Year Plan to be unveiled next month is supposed to focus on boosting household income, which has been suppressed in favor of industry, in order to encourage consumption. This is where U.S. leadership is essential. The U.S. should assist the Chinese in facilitating monetary reforms such as increased yuan convertibility by offering technical support and forming a currency swap arrangement to stabilize the yuan in the event of exchange-rate overshooting. More urgently, President Obama and Secretary Geithner need to damp down protectionist pressures, promising vetoes and refraining from new antidumping and other tariffs while working with Beijing to phase out sterilization. The fragile world economy needs greater monetary coordination and reform, not protectionist ultimatums. The moment is ripe for leaders to cooperate to produce a more stable monetary system, if they—and Mr. Obama especially—have the wit to seize

Source: The Wall Street Journal Asia

CHINA‟S HIGH-ENERGY CHALLENGE Any nutritionist will tell you it isn't just the number of calories you consume that's important, but where they come from. The same goes for national economies. The International Energy Agency caused a stir in July when it said China used more energy than the U.S. last year. But the headline numbers obscured big differences in choice of fuels, with China relying on coal for two-thirds of its energy compared with 22% for the U.S. Fuel mix has big cost implications. Using the IEA's data for energy sources and average inflation-adjusted prices for different fuels, we can calculate how much must be spent on energy to produce each dollar of gross domestic product. The calculation is a crude one but provides a useful measure of relative performance. Energy cost intensity has increased everywhere, according to the latest figures up to 2008. Between 1994 and 2008, Europe's doubled in real terms to just over three cents per dollar of GDP. North America's rose 88% to 4.4 cents. China's increase was less dramatic at 39%, but in absolute terms its costs are in a different league at 13.5 cents in 2008. Read more… Chinese economic expansion requires more fuel, especially given its gearing toward heavy industry. Energy efficiency is critical and China has delivered on this front: Between 1994 and 2008, calories burned per dollar of GDP fell 41%. The problem is that the absolute growth in China's energy demand has helped push the cost of those calories higher, so its energy cost intensity has risen. This makes it hard for China to wean itself off coal, which has long been cheaper than natural gas or oil. All else being equal, if China's 2008 energy consumption had mirrored Europe's fuel mix, where coal accounts for just 17%, its cost per dollar of GDP would have been 20 cents instead of 13.5. China also has a strong incentive to resist carbon pricing. Assuming a global carbon cost of USD20 per metric ton, North America's 2008 energy intensity costs would have been 29% higher at 5.7

cents. China's would have soared 66% to more than 22 cents. China's arrival as the world's biggest energy consumer heralds a new era. For Europe and North America, further increases in energy efficiency remain an important way to limit the resulting economic cost. But shifting the fuel mix is also important. Using more natural gas, in oversupply and cheap relative to oil, is an obvious choice. China, meanwhile, is on a treadmill, its very success serving to raise energy prices structurally. Becoming more efficient every year is critical. Source: The Wall Street Journal

POLITICS PM ADDRESSES UN SUMMIT ON MDGs, MEETS INVESTORS Former British Prime Minister Tony Blair has told Prime Minister S.Batbold in New York that it is a good idea for Mongolia to introduce European standards but that, instead of ―imposing them just as they are‖ on business and society, Mongolia ―would be wiser to select only the best ones and adapt them to local conditions". Mr. Batbold, in New York since September 20, has been very busy. He has addressed the summit meeting of the UN General Assembly considering implementation of the Millennium Development Goals (MDGs), and will address the 65th session of the Assembly on September 27. He has also held talks with UN Secretary-General Ban Ki-moon, and international leaders. He gave the Secretary-General a report on the cabinet meeting in the Gobi desert. "We did it to attract the world community's attention to the consequences of climate change, including desertification," he said. Mr. Batbold also attended a traditional meeting of member-states of the Socialist International where he gave a speech on climate change. The Prime Minister has also been meeting important businessmen and investors, among them Mr. George Soros, whom he asked to consider investing in the Mongolian economy, in extension of all that the Soros Foundation has been doing in the social and political fields. Mr. Batbold also met Mr. Bill Clinton, former U.S. President and leader of the Clinton Global Initiative (CGI). He also attended a meeting of the CGI. They agreed to cooperate in development of education, good governance and responsible mining, and in environment protection. Mr. Clinton pointed out that the CGI has experienced professionals in mining and suggested a meeting on mining issues. Deputy Speaker G.Batkhuu, Minister of Mineral Resources and Energy D.Zorigt, and MP N.Ganbyamba are in the team accompanying Mr. Batbold.

Source: Montsame

PM TO VISIT CANADA NEXT WEEK Mr. S.Batbold will be in Canada from September 28 to October 1, his first visit to the country since becoming Prime Minister. Among those he is scheduled to meet are Prime Minister Stephen Harper and some of his Cabinet colleagues, and the governors of Ontario and British Columbia provinces. He will also attend Mongolia-Canada business meetings in Toronto and Vancouver. Several agreements on development of cooperation in road, transportation, construction, urban development, civil service and standardization services are expected to be signed.

Source: Montsame

MONGOLIA TO SEND RUSSIA USD50,000 WORTH OF CANNED MEAT The Government, meeting on Wednesday without the Prime Minister, decided to give Russia USD 50,000 worth of canned meat to help it overcome ―the catastrophic consequences‖ of the wildfires that raged there this summer. The Russian Federation has not asked the world community for help, but 14 countries have provided assistance in kind.

Source: Montsame

PROPER REGISTRATION OF PROPERTY RIGHTS ESSENTIAL Only 360,000-370,000 of at least a million pieces of property in Mongolia are officially registered, of which more that 190,000 are in Ulaanbaatar alone. This unconcern for recording titles may be related to the Mongolian nomadic life style, as also to the 70 years of socialism when the concept of private ownership was not favored. Whatever the reason, participants at a roundtable discussion on property rights and economic growth in Mongolia on September 16, hosted by The Economic Journalism Club, agreed that the lack of a unified registration procedure for property ownership severely constrains growth and individuals‘ access to finance in the country. The panelists included Dr. Jargalsaikhan, CEO of Xac Leasing and columnist; Dr. Demir Yener,

USAID/EPRC senior finance and corporate governance advisor, Ms. Marianna Posfai, Capacity Leader, and Mr. T. Enkhtamir, lawyer of the MCA property rights registration project. Journalists from 11 daily newspapers and magazines attended. Discussions covered the need for registered property in accessing finance, the challenges in registering property through two separate registries, and the need for legal reform. Mongolians have yet to realize the value of land and its potential worth as the economy booms. Also, the legal framework for proper registration continues to be rickety. Mr. Enkhtamir said only Ulaanbaatar City Bank accepts land as mortgage when giving a loan. Public realization must grow that the particular value of land lies in its permanence and that no new land will be created. Thus what appears to be worth little now could become a prime piece of real estate in the years to come.

Source: USAID/EPRC, English.News.mn

RULES REGARDING FOREIGN CITIZENS TIGHTENED The latest amendments to the law governing foreign citizens‘ entry into Mongolia and stay here came into effect on September 1. They now specify in more detail activities that are prohibited for foreign citizens, and seven more grounds have been added to the existing five to deport foreigners. Also, the minimum period for which a deported person cannot re-enter Mongolia has now been fixed according to the nature of each violation, leaving no room for any discretion on the part of a Mongolian official. Source: Udriin Sonin

DP LEADERS RESUME FATAL SQUABBLING AS ELECTIONS COME CLOSE The MPRP is a party with iron discipline and never allows its internal differences to spill over, no matter how much they boil. This was once again seen at its recent party conference. It is a lesson for others to learn. Take the Democratic Party. Stabbing one another as elections approach is a chronic illness with the DP leadership. As soon as the DP has any general meeting, gloves are off and the fight is on. It‘s a habit with them and is some kind of a Naadam spectacle. The Democratic Party was established on December 6, 2000 when the Mongolian National Democratic Party and the Mongolian Socialist Democratic Party united after realizing that divisions in the opposition had only helped the MPRP get 72 seats in Parliament with just 50.2 percent of total votes. However, the unity was more on paper than in the mind, and the DP leaders kept on squabbling as the four-year MPRP rule under Enkhbayar crushed freedom of the press, impeded economic growth, and dismissed 15,000 State employees only because they favored the DP. Regardless of controversies before, during and after the 2008 election, a coalition Government was established and this has helped keep both parties from overstepping their limit and hurting the country. Talk that the coalition has had no benefits is, to put it mildly, rubbish. But with 2012 looming near, the chronic illness in the DP has started relapsing. I am a DP member. I vote for this party and will do so in the future. Yet I try to stay away as much as possible from party work, because party committees at district, provincial, and the national level have all become the private property of some small baron or another. They have no time for DP members who work day and night for the people as true patriots. In the leadership ring, the bulls keep on fighting one another. The day the election is lost, one of them will come back with sharpened horns. Source: baabar.mn The full article by the noted commentator and former Minister who goes by the name Baabar can be read at BCM NewsWire, Mongolian Business News. TAIWAN, MONGOLIA IN CHARTER FLIGHT TALKS Taiwan and Mongolia are contemplating setting up direct charter flights to promote bilateral tourism and trade relations, a Ministry of Foreign Affairs (MOFA) official in Taipei has said. "Both sides are keen on developing closer exchanges and boosting tourism. Currently we are in talks on possible charter flights, which would benefit tourists from both sides if the deal goes through," he said. The direct charters would lower air fares between the two destinations to around USD500 from the current USD1, 000, Lin said. At present, visitors must enter Mongolia via third countries, such as South Korea or China. About 2,000 Taiwanese tourists visit Mongolia annually, Lin said. Charter flights would not only benefit tourists but also 400 Mongolian students in Taiwan. Although bilateral trade volume is small, the USD8.02 million in trade between Taiwan and Mongolia in the first half of 2010 represented a 207 percent growth compared to the first six months of 2009. The 9th Taiwan-Mongolia Joint Economic Meeting, held in Ulaanbaatar on September 9, was

attended by more than 100 participants from Taiwan's Chinese International Economic Cooperation Association and its counterpart the Mongolian Chamber of Commerce and Industry. The next meeting will be held in Taiwan. Source: CAN

CAMERAS FAIL TO DETER TRAFFIC OFFENSES, BUT SCARE STREET CRIMINALS AWAY The Traffic Emergency Information Center, opened some time ago amidst high expectation, has claimed that installation of security cameras on streets, ostensibly meant to monitor traffic, has unexpectedly led to a drop in street crimes like drunken brawls, assaults, and robbery. Daily cases of assault around the Narantuul ‗black‖ market have come down from 15-20 to 2-3. However, this is true only of areas covered by cameras. These cameras can also be of help in apprehending those who commit a crime at night and flee, but this will require more coordination between various wings of the police. So far the center has helped police with 70 recordings of criminal acts. Here, too, the problem could well be that security cameras cover only the main streets while violence and robbery are more likely to happen in the back streets. The center has been more effective in dealing with traffic problems, such as reducing jams and identifying violations. It cannot give details on how they pursued the cases until it hires more manpower. Some 10,000 such offenses were caught in camera during August, but the center is yet to decide what action to take and how. This inaction is perhaps making drivers bolder, but the center says since it has the evidence safely stored, it will come back to all offenders once the modalities are in place.

Source: English.News.mn

POLLUTION FINES WILL GO INTO CLEAN AIR FUND The Ministry of Environment and Tourism is finalizing the rules and regulations that will govern the implementation of the Air Law passed in the Spring session of Parliament and of another law setting out ―penalties‖ for contributing to air pollution. These penalties are actually charges that individuals as well as economic entities will pay for using air pollutants, not necessarily by choice. The fines will be deposited in a Clean Air Fund, to be spent on adopting and publicizing anti-pollution measures, and on supporting producers of environment-friendly fuel and stoves. Users and sellers of raw coal and other waste producers will be charged by the kilo, and automobile owners by the distance they travel. The charges for raw coal will be MNT1-2 for a kilo and for organic substances MNT10-30. Automobiles will be categorized and the charges would vary between MNT1,000 and MN9,000. Ulaanbaatar will have a clean air zone covering 12 sub-districts in three districts where 25,000 households will no longer burn coal. The substitute fuel, containing processed wood, will not be more expensive than coal or less effective in heating but it cannot be used in wider areas as production is as yet limited. Source: English.News.mn EUROPE LESS OPTIMISTIC THAN AMERICA ABOUT CHINA‟S GLOBAL LEADERSHIP Europeans take a far more pessimistic view than Americans about the prospects for China showing global leadership in the next five years, with Germans expressing particularly strong doubts about the prospects for co-operation with Beijing, according to a survey of transatlantic opinion. Transatlantic Trends 2010, published annually by the German Marshall Fund of the United States, found that some 91 per cent of Americans believed China would exert strong leadership five years from now. By contrast, the poll showed that a far smaller proportion of Europeans – 68 per cent – took the same view. Around half of Americans – 53 per cent – agreed that the U.S. had enough common values with China to be able to co-operate on international problems in the years ahead. However, almost two-thirds of European respondents – 63 per cent – said that China and Europe had such different values that co-operating on international problems would prove impossible. The German public, in particular, had a downbeat view of the prospects for co-operation with China. Only 18 per cent said that Europeans and the Chinese had enough common values to co-operate. In comparison, some 41 per cent of British respondents took this view. One of the few areas of transatlantic agreement about China was on Beijing‘s role in managing diplomatic crises. Fewer than 20 per cent of U.S. and EU respondents said China played a positive role in managing global conflicts.

Source: The Financial Times

ANNOUNCEMENTS

CLEAN COAL & CLEAN ENERGY SEMINAR ON SEPTEMBER 30 The final session of the NAMBC's 13th annual Investors Conference (September 28-30) is a seminar on Clean Coal & Clean Energy on September 30, 1:30 PM to 5:30 PM, at the Kempinski Hotel, sponsored by the Business Council of Mongolia (BCM). Conference registrants apart, the seminar is open at no charge to others also, on a first come, first served basis. The agenda of the seminar, with the names of speakers, is given below:

Part 1 – Mongolia ‟s Pollution Issues & Need for Clean Energy Sources N.Batsuuri, State Secretary of Ministry of Nature, Environment and Tourism; Da.Ganbold, Deputy Mayor of Ulaanbaatar; and Susan Russell, Economic and Environmental Officer, U.S. Embassy. Part 2 – Current State of Clean Energy Development in Mongolia N.Enebish, Director, National Renewable Energy Center; Tsendsuren, Head, Clean Development Management, National Designated Authority; N.Boldkhuu, Head, Fuel Policy Department, Ministry of Minerals Resources and Energy; and B.Byambasaikhan, Head, Clean Energy, Newcom LLC.

Because of space limitations, only the first 60 people who sign up can be accommodated. Simultaneous translation will be provided. Only one representative per company, agency or organization may register for the seminar. To sign up, send an email containing the name, title, and organization/agency of the person who wishes to attend to E.Saruul at the BCM office, saruul@bcmongolia.org ___________________________________________

MONGOLIA INVESTMENT SUMMIT 2010, HONG KONG, OCTOBER 14 The Mongolia Investment Summit 2010 in Hong Kong on October 14 will explore the many exciting investment opportunities on offer, as Mongolia takes advantage of its mineral-rich geology and location next to China - the world‘s fastest growing consumer of natural resources. Conference highlights include:

A range of 10-minute company presentations showcasing major investment opportunities in Mongolia

Insights into the investment climate in Mongolia from a range of high-level government and industry speakers including D. Zorigt, Minister of Mineral Resources and Energy

Update on the privatization of State-owned enterprises from D. Sugar, Chairman, State Property Committee

Insights from the leading companies in Mongolia‘s banking and investment community

Keynote from Rio Tinto on the Oyu Tolgoi project and the implications for future investment.

To view the full line up of speakers at the Summit, visit www.MiningInvestmentInsight.com. Mongolia Investment Summit is co-organized with Foreign Investment and Foreign Trade Agency (FIFTA) ensuring the full support of the Mongolian government and key organizations within Mongolia including the Business Council of Mongolia and the Mongolia National Mining Association. The Business Council of Mongolia is a supporting association for this event and as such there is a 15% discount for their members. Please indicate your membership when registering online. Trade and Development Bank of Mongolia is the Platinum Sponsor, and the Gold Sponsors are Khan Bank, Mongolia Development Resources, Mongolia Energy Corporation and SouthGobi Resources. To book, please visit www.mininginvestmentinsight.com or call +852 2219 011. ___________________________________________

PACK EXPO INTERNATIONAL 2010 The Business Council of Mongolia in collaboration with the U.S. Embassy‘s Commercial Section is now registering a Mongolian business delegation to participate in ―PACK EXPO International 2010‖ at the McCormick Place, Chicago, Illinois, USA from October 31 to November 3, 2010. PACK EXPO International 2010 will feature more than 1600 exhibiting companies from various industries such as bakery/snack, beverage, household products, cosmetics/toiletries, meat,

fruit/vegetables, paper/textile, pharmaceuticals, detergents/cleaners and more. Attendees will see advances in packaging and processing equipment, converting machinery, materials, packages and containers. Please contact 332345 or info@bcmongolia.org for registration and additional information about the event. Registration deadline is 12:00 noon, October 1, 2010. ___________________________________________ GIANT STEPPES OF JAZZ INTERNATIONAL FESTIVAL (SEPT 28 - OCT 2) Jazz is coming to town again. The 4th Giant Steppes of Jazz International Festival will bring together international and local jazz artists to add more charm to Ulaanbaatar sunny autumn. This year‘s festival line-up includes performers of a variety of jazz styles from Germany, Norway, Switzerland and the U.S. alongside the best of Mongolian jazz. A Gala concert will be held at the Khan Bank Theater on October 1, with nightly performances at River Sounds on September 29, 30 and October 2. There will also be free evening jam sessions all 4 Festival nights at The Square in Central Tower. For more information, please call 8803-3300, 9911-1061, 9999-3321. _________________________________________

“BSPOT" on B-TV

BTV (Business TV) now telecasts a 10-minute English-language news program called BSPOT every evening from Monday to Friday at 21:30, taking most of the stories from the BCM NewsWire. ___________________________________________ “MM TODAY” on MNB-TV BCM is pleased to announce that Mongolian National Broadcasting continues its cooperation with BCM on ―MM Today‖. This English news program is aired every Friday for 10 minutes and is scheduled for 21:15 tonight. Tune in to watch this program that reports stories from today‘s BCM NewsWire. ___________________________________________ NEW POSTINGS ON BCM WEBSITES‟ „MONGOLIAN BUSINESS NEWS‟ The draft Tavan Tolgoi Investment Agreement which was submitted by the Government to Parliament is posted in both languages to BCM‘s Mongolian websites, (www.bcmongolia.org) and (www.bcm.mn), ‗Mongolian Business News‘ for your review. We are now posting some news stories and analyses relevant to Mongolia on the BCM website's ‗Mongolian Business News‘ as they come, instead of waiting until Friday to put them all together in the weekly NewsWire. The NewsWire will, however, continue to be issued on Friday, and will incorporate items that are already on the home page, so that it presents a consolidated account of the week‘s events.

SPONSORS

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]

August 31, 2010 *11.2% [source:NSOM]

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

CENTRAL BANK POLICY LOAN RATE

December 31, 2008 9.75% [source: IMF]

March 11, 2009 14.00% [source: IMF]

May 12, 2009 12.75% [source: IMF]

June 12, 2009 11.50% [source: IMF]

September 30, 2009 10.00% [source: IMF]

May 12, 2010 11.00% [source: IMF]

CURRENCY RATES – September 23, 2010

Currency name Currency Rate

US dollars US 1,324.51

Euro EUR 1,761.60

Japanese yen JPY 15.61

British pound GBP 2,078.02

Hong Kong dollar HKD 170.68

Chinese yuan CNY 197.57

Russian ruble RUB 42.74

South Korean won KRW 1.14

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.