BUSINESS COUNCIL of MONGOLIA NewsWire

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Issue 171, June 10 2011

NEWS HIGHLIGHTS: Business:

Revenue from OT byproducts will largely offset cost of production, says Friedland;

Government takes over 263,730 hectares of land for infrastructure around OT;

Analysts bullish on prospects for Petro Matad;

Erdene announces updated estimate for Zuun Mod project;

SouthGobi’s Soumber coal deposit officially registered;

MEC issues profit warning;

General Mining to start drilling for potash in Uvs Basin Project;

Khan Bank gets USD20 million Korean bank loan;

Agreement signed on last installment of OT advance payment;

Rio partners with Chinalco to explore in China;

Rio Tinto seals land use deal with Aborigines.

Economy: Minister asks China for 10,000 tons of fuel every month;

Parliament extends ban of granting new licenses;

Agriculture goods exchange to start work on January 1;

Banks and tax offices disagree on status of collateral;

Stock Exchange restructuring needs better legal support;

Capital partners target Korean investment in Mongolia;

USD255 million of Chinese loan to be spent on building road bridges;

Mongolia Opportunities Fund to get USD6.5 million in German investment;

Infrastructure and mining: the chicken and egg puzzle in Mongolia;

Investors salivating over TT IPO;

Global Alliance Partners gather in Ulaanbaatar;

Tightening monetary policy yields results in Mongolia;

Mongolia offers important lessons in inclusive growth;

Mongolia’s mining developments remain on track;

South Korea third largest trading partner of Mongolia;

Mining boom fuels new Mongol hoard;

Speaker visits Central Bank;

TMX bid group in talks to rope in new members;

China foreign listings dogged by scandal;

Beijing halts sales of luxury apartment complex;

China’s workforce to start shrinking in next few years.

Politics: Elbegdorj visits USA next week;

Prime Minister to visit China;

MPs criticize failure to prevent fuel deficit;

Protesters shoot arrows at Government House;

Chinese truck driver sentenced to death over accident in Inner Mongolia;

PM fails to make statement on Altan Dornod Mongol;

Jailed anti-corruption officials given leave to appeal to Supreme Court;

Ministers see huge potential in China-Mongolian military cooperation;

Restricted zone households to burn 40 tons of coking coal;

Hearing of civil movements’ appeal postponed;

USAID completes 20 years in Mongolia;

MP says flawed policies responsible for state of Zamin Uud;

Mongolia to spend MNT120 billion on new airport construction;

Deputy PM rejects account of expenses as unrealistic;

Defending lawyer for bank official may lose license.

*Click on titles above to link to articles.

BUSINESS REVENUE FROM OT BYPRODUCTS WILL LARGELY OFFSET COST OF PRODUCTION, SAYS FRIEDLAND Construction of the Oyu Tolgoi mine is well ahead of schedule and revenue from byproducts will substantially offset the cost of production, Ivanhoe Mines Ltd. CEO Robert Friedland has said. The underground copper mine will have two primary mine shafts, a vast copper concentrator complex and an airport, and production is "ahead of schedule", Mr. Friedland told attendees of the Metal Bulletin Global Copper Markets Forum in New York. Oyu Tolgoi is forecast to have 38 years of mine life with around 81 billion pounds of copper reserves, with analysts projecting that the reserves figure will likely increase as the project develops. In addition to copper, Oyu Tolgoi will also produce around 3 million ounces of silver each year and substantial amounts molybdenum. "There is no shortage of ore at Oyu Tolgoi," Mr. Friedland said. "By year seven we will produce 1.7 million ounces of gold, and the silver and molybdenum alone will more than cover the cost of production," he said. The project will have a cash cost of around USD35 a metric ton, one of the lowest in the world for greenfield production, he said. The mine is expected to produce about 100,000 metric tons of copper a day.

Source: DowJonesNewswires

GOVERNMENT TAKES OVER 263,730 HECTARES OF LAND FOR INFRASTRUCTURE AROUND OT The Government has decided to acquire 263,730 hectares of land in areas around the Oyu Tolgoi project for infrastructure development. This will include construction of roads and communication stations, and laying of water pipes and electricity transmission lines, to serve the needs of the mine. Oyu Tolgoi LLC would pay compensation to individuals and organizations that own land in the designated area or have conducted exploration work there. Mr. Kh.Battulga, Minister for Road, Transportation and Urban Development, and Mr. B.Badraa, Governor of Umnugobi province, have been asked to submit by September an amended plan of providing infrastructure facilities to the project.

Source: Unuduur

ANALYSTS BULLISH ON PROSPECTS FOR PETRO MATAD Analysts at the integrated corporate finance, broking and investor relations group Westhouse have sounded a very upbeat note on prospects for Petro Matad, thanks to its increasingly successful exploration program, strong and capable technical team and ―exceptionally large‖ prospective exploration blocks. The analysts' highly positive stance on the company follows a visit to Mongolia to assess its operations and management at first hand. The group‘s principal asset is a production sharing contract (PSC) over Matad Block XX, a petroleum block with an area of 14,250km² in the far eastern part of Mongolia. It has also signed two other such PSCs, for Bogd Block IV and Ongi Block V, which together cover approximately 71,000km² in central Mongolia. The most likely near-term scenario for the company's drilling operation overall is the hiring of another rig to enable it to drill around 12 wells this year, comprising mainly exploration wells within Block XX. Petro Matad has already drilled four wells successfully on Block XX and the next step is to secure decent flow rates so that risks associated with the block‘s resource estimates can be reduced. For the analysts, promising as the exploration and development work is, much depends on the

quality of the technical team and management in general. They noted that the high quality of Petro's team is "striking" and "stands out immediately". Another further positive for the group is that the Blocks it operates are very large relative to, say, a typical North Sea Block. Block XX, at 14,250km2, is the smallest, while Blocks IV and V cover an impressive 71,041km2, equivalent to roughly the area of New Hampshire, Vermont and New Jersey in the USA combined. Read more… Yet Petro Matad has fully explored only a small fraction of the total area under its control. With early-stage exploration activities already producing encouraging results, Westhouse believes the group‘s huge acreage position suggests "substantial upside potential". The analysts added, ―Petro Matad has set up the first self-contained, professional petroleum exploration team in a country that was more accustomed to fly-in/fly-out consultants and extremely limited local sectorial services. However, rather than resting on its laurels, the company‘s ambitions remain undiminished, as demonstrated by its full work schedule involving all facets of exploration and appraisal, from field studies right through to drilling and testing.‖

Source: Proactive Investors UK

ERDENE ANNOUNCES UPDATED ESTIMATE FOR ZUUN MOD PROJECT Erdene Resource Development Corp. has reported an updated National Instrument 43-101 compliant resource estimate for the Company's Zuun Mod molybdenum-copper project. The new resource estimate was prepared following 4,331 meters of additional drilling completed in late 2010. "We are very pleased with the results of the new resource estimate for Zuun Mod which has exceeded our initial expectations and increased the size, grade, and our confidence in this significant resource", stated Mr. Peter Akerley, President and CEO. "In addition, the 2011 drilling has identified a new high-grade zone at depth, which is expected to enhance the value of the project." The highlights of the updated estimate include: - Measured and Indicated resources increase by 38 million tons or 21% to 218 million tons - Contained molybdenum metal in the Measured and Indicated resource increase by 27% from 215 million pounds to 274 million pounds - Contained copper metal in the Measured and Indicated resource increased by 30% from 255 million pounds to 331 million pounds - The average grade for the Measured and Indicated resources increased 5.6% for molybdenum and 7.8% for copper, to 0.057% molybdenum and 0.069% copper. Source: Erdene Resource Development Corp.

SOUTHGOBI‟S SOUMBER COAL DEPOSIT OFFICIALLY REGISTERED SouthGobi Resources Ltd. has been notified by the Mineral Resource Authority of Mongolia (MRAM) that the company's Soumber coal deposit has been officially registered. The registration process includes calculation of resources to Mongolian standards, review of the calculations by MRAM-appointed industry experts, and defense of the calculations before the Minerals Resource Committee. Mineral deposit registration is a prerequisite for applying for a Mining License. Under the Minerals Law of Mongolia, mining licenses are issued by MRAM. The initial term for a mining license is 30 years with an option for two 20-year extensions. Having completed the resource registration step, SouthGobi intends to formally apply for the Soumber mining license in coming weeks. The Soumber deposit is approximately 20 km east of SouthGobi's flagship Ovoot Tolgoi operation.

Source: SouthGobi Resources

MEC ISSUES PROFIT WARNING Mongolia Energy Corporation has issued a statement to shareholders and potential investors that based on the unaudited management accounts of the Group for the year ended March 31, it is expected that the Group may record further loss for the year as compared with the audited loss for the corresponding period in 2010. Based on information currently available, the expected further loss of the Group was mainly accounting loss attributable to certain non-cash expense items: (i) the increase in staff costs due to the recognition of share-based payments arising from share options granted to certain employees and directors of the Group; (ii) the increase in finance costs in association with convertible notes issued by the Company calculated at effective interest rate; and (iii) the recognition of fair value loss from held-for-trading investments. The Group‘s principal project, the Khushuut Coking Coal Mine, is still under trial production stage and did not contribute to the revenue of the Group for the year ended March 31. This profit warning

announcement is only based on the preliminary review on the management accounts of the Group, which has not been confirmed nor audited by the Company‘s independent auditor.

Source: Mongolia Energy Corporation

GENERAL MINING TO START DRILLING FOR POTASH IN UVS BASIN PROJECT General Mining Corporation has signed a drilling contract to target potash at its wholly-owned Uvs Basin Project near the Russian border in northwest Mongolia. The drilling contractor, ERCOSPLAN Ingenieurgesellschaft Geotechnik und Bergbau mbH, is a German-based group of international experts in potash geology and mining. Three to five holes will be drilled to a depth of 1,000 meters at identified targets with 2D seismic to possibly follow up on drilling. The project comprises five granted exploration permits covering more than 2,000 sq. km. General Mining has obtained all necessary approvals to commence the drill campaign sometime between July and August when a suitable drill rig becomes available to the contractor.

Source: General Mining Corporation

KHAN BANK GETS USD20 MILLION KOREAN BANK LOAN The State-run Export-Import Bank of Korea (Korea Eximbank) and Khan Bank have signed a USD20-million inter-bank export loan agreement that will provide more opportunities for Korean exporters, by granting loans to Mongolian importers who want to buy products from Korea. ―We expect Korean exports, such as automobiles, daily necessities and construction machinery to increase with this agreement,‖ said an official of Korea Eximbank. Korea Eximbank Chairman Kim Yong-hwan was in Mongolia for the signing, and met Mongolian Finance Minister S. Bayartsogt to discuss issues of economic cooperation. The Minister thanked Mr. Kim for financial support from the Economic Development Cooperation Fund (EDCF), and asked for further help. The EDCF is a policy fund, designed to support industrialization of developing nations. Currently, Korea Eximbank is providing USD60 million for six projects in Mongolia led by the EDCF, which include thermal power station construction, modernization of government telecommunication cables and establishing emergency rescue information centers. According to Korea International Trade Association, the amount of trade between the two nations reached USD231 million last year. Korea exported USD192 million of automobiles and telecommunication devices, among other things, to Mongolia and imported USD39 million of commodities and grains.

Source: Korea Times

AGREEMENT SIGNED ON LAST INSTALLMENT OF OT ADVANCE PAYMENT An agreement between the Government and Oyu Tolgoi LLC was signed on Tuesday on the company paying USD100 million as the third and final installment of the advance payment provided for in the investment agreement. The present payment follows that of USD100 million in October, 2009, and of USD50 million in April, 2010. This installment carries an interest rate of 1.59 percent.

Source: Montsame

RIO PARTNERS WITH CHINALCO TO EXPLORE IN CHINA Rio Tinto has formed a joint venture (JV) partnership with Chinese major Chinalco to explore mineral deposits in mainland China. The JV, to be called Chinalco Rio Tinto Exploration (CRTX), would initially focus on copper exploration, with coal and potash among the other commodities to be considered in future. ―Access to natural resources is a critical component to many of the world‘s leading economies. Drawing on the respective strengths of both companies, this exploration JV could potentially create commodity supplies to benefit the global economy,‖ said Chinalco president Xiong Weiping. Rio boss Tom Albanese added that the formalization of the exploration JV was an important milestone in the expanding relationship between Rio Tinto and China. Chinalco will hold a 51% interest in the JV, while Rio would hold 49%. The Chinese major would nominate three directors including the chairperson, and the CFO, deputy general manager and compliance supervisor. Rio Tinto in turn would appoint two directors and the general manager, who will be responsible for day-to-day operations. Rio and Chinalco also have JV exploration ventures in Chile and Guinea, including the multi-billion-dollar Simandou iron-ore project. Source: Mining Weekly

RIO TINTO SEALS LAND USE DEAL WITH ABORIGINES Rio Tinto, the world's second biggest iron ore miner, has agreed to pay what could be more than USD2 billion over 40 years to traditional landowners in Western Australia in return for access to their lands for its growth plans. The agreement, which covers 71,000 sq km, or an area the size of Ireland, smoothes the way for Rio's plans to expand iron ore production by 50 percent to 333 million tons a year by 2015 at a cost of USD11 billion. Rio has said it signed land use partnerships with five Aboriginal Councils and expected to seal deals with four remaining communities where its mining or infrastructure operations are. It will pay an undisclosed fraction of a percentage of iron ore sales from new mines to the landowners in return for consent for all mine, rail and port developments on their land, Rio said. "We've ensured this is linked to our future prosperity. As new mines come on, traditional owners are beneficiaries," Ms. Janina Gawler, Rio Tinto's chief negotiator with the Aboriginal Councils, said. Newspapers estimated the communities could earn several billion dollars over 40 years. Rio's side of the agreement includes ensuring that 14 percent of its workers are Aboriginal, up from 8 percent today, 14 percent of its contracts are with local Aboriginal businesses, and it meets training and scholarship targets.

Source: Reuters

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ECONOMY MINISTER ASKS CHINA FOR 10,000 TONS OF FUEL EVERY MONTH Minister for Mineral Resources and Energy D.Zorigt has returned from China where he sought diesel for Mongolia and also took part in the second meeting of the commission for cooperation in mineral resources and energy sectors. He called on the Chief of the Development and Reform Committee of China, Jan Pin, and exchanged opinions on bilateral cooperation. The Minister requested the Vice President of the National Oil Corporation of China to arrange for a regular monthly supply of 10,000 tons of fuel to Mongolia, including 3,000 tons immediately, and also discussed with him construction of an oil refinery here. On his way home, Mr. Zorigt visited an oil refinery in Inner Mongolia and held talks with representatives of state organizations and the private sector.

Source: Udriin Sonin

PARLIAMENT EXTENDS BAN ON GRANTING NEW LICENSES Parliament last week agreed to extend to December 31, 2011 the ban on granting new mineral resources exploration licenses as proposed by President Ts.Elbegdorj. The Government plans to

prepare a new law on mineral resources and wants the ban to continue until this new law is passed. Source: Unuudur

AGRICULTURE GOODS EXCHANGE TO START WORK ON JANUARY 1 Parliament last week passed the long-pending draft law on setting up an agriculture goods and raw material exchange, with approval from 37 of the 41 members present. The law comes into effect on January 1, 2012. Before that, the Government would prepare rules and regulations and make other arrangements for the exchange to start work. The exchange will work as a company, as recommended by the Standing Committee on Nature, Food and Agriculture. A Regulating Council with 13 members chosen from state organizations and NGOs will be set up, and its head would be elected every three years. The Council will report to the Government. Source: English.News.mn

BANKS AND TAX OFFICES DISAGREE ON STATUS OF COLLATERAL Tuesday‘s meeting of the Consultative Council on Investment Climate and Private Sector Development was mainly devoted to exploring ways to improve legislation relating to insurance organizations, and to the problems of implementing tax laws in the financial sector, including banks. First Deputy Prime Minister N.Altankhuyag, who chaired the meeting, later told media that the principal area of disagreement between banks and the tax organizations was on the status of collateral held by the former when issuing loans to buy real estate. The provisions of the law are unclear on this, and the meeting decided to establish a working group to suggest necessary amendments. Source: English.News.mn

STOCK EXCHANGE RESTRUCTURING NEEDS BETTER LEGAL SUPPORT The President of the Mongolian Stock Exchange (MSE), Mr. Bill Gorman, told participants at the Trade Mongolia 2011 forum last week that after its restructuring by the London Stock Exchange team, the MSE would be electronically connected to the LSE and the Toronto exchanges. The priority areas in the restructuring were trading methods, accounting, and deal making. The program, which included training MSE staff, is expected to be finished in December. The team is facing some problems such as inadequate laws. Mr. Gorman hoped the Government of Mongolia would take note of these and take quick corrective measures.

Source: News.mn

CAPITAL PARTNERS TARGET KOREAN INVESTMENT IN MONGOLIA Eurasia Capital has formed a partnership with Doran Capital Partners, a Seoul-headquartered diversified private equity and real estate investment management firm. The two intend to join their efforts in attracting Korean institutional investors to Mongolia. Their integrated team will offer advisory services to leading Korean corporations and institutional investors looking at the diverse range of investment and project opportunities in Mongolia. The partners are launching Korea Mongolia Resources Fund, a new private equity fund, targeting to raise USD100 million in Korea. An Ulaanbaatar- and Seoul-based investment management team will manage the fund, and Eurasia Capital will be acting as placement agent for it. ―We are delighted to partner with Doran Capital Partners to attract leading Korean corporates and investors into Mongolia" said Mr. Alisher Ali, Chairman of Eurasia Capital and Managing Partner of Silk Road Management. "Eurasia Capital has been a pioneer in the development of the Mongolian private equity investment market. Eurasia's success in bringing foreign investors to Mongolia and its achievements in acting as a bridge between Mongolian companies and international capital markets have been impressive" stated Mr. Pietro A. Doran, Chairman and Principal Partner of Doran Capital Partners.

Source: Eurasia Capital

USD255 MILLION OF CHINESE LOAN TO BE SPENT ON BUILDING ROAD BRIDGES The Standing Committee on Security and Foreign Policy discussed on Wednesday the ways in which a Chinese loan of USD500 million, to be received under an agreement between the Ministry of Finance of Mongolia and the Export and Import Bank of China, is to be used. The present proposal is to spend USD200 million of the money on agriculture and the remaining USD300 million on health, education and infrastructure. In infrastructure, USD255 million is planned to be used to build bridges over railroads at some places in Ulaanbaatar.

Noting that the National Security Ideology stresses the need to ensure that loans from any country should not make Mongolia dependent on it, Ms. S.Oyun asked what percentage of the country‘s total foreign debt would now be held by China. Former Premier S.Bayar had asked China for USD300 million at the start of the economic crisis, but there was no progress on his request. The present loan is for an even larger amount. Total foreign debt now stands at 20% of the GDP of Mongolia.

Source: Ardiin Erkh

MONGOLIA OPPORTUNITIES FUND TO GET USD6.5 MILLION IN GERMAN INVESTMENT A contract was signed between the Mongolia Opportunities Fund (MOF) and the German Investment Corporation (GIC) on June 9 at the German Embassy. The GIC will invest USD6.5 million in the MOF for use in programs for environment protection and community welfare, to be executed through small- and middle-size enterprises.

Source: Montsame

INFRASTRUCTURE AND MINING: THE CHICKEN AND EGG PUZZLE IN MONGOLIA Mongolia is a star of the past and a potential mega star of the future. The basic story of Mongolia is of a former Soviet satellite that is slowing gaining its confidence and exploiting its undeniable strength of a massive underdeveloped mining industry. Just one example will give you some sense of the potential perspective of the economy and Market. In 2012 the world‘s largest copper mine called Oyu Tolgoi is due to go into production. The output of the mine alone will add a forecast 30% to the GDP of Mongolia. The development of the country continues unabated. The Louis Vuitton store has already opened as a sign of the increasing wealth of at least part of the population. Basic infrastructure is still poor, requiring massive investment; however the potential from the development of the natural resources of base and precious metals, and coal should provide the government with increasing income allowing them to invest in the future. It is however chicken and egg. Without the investment in infrastructure the mines can't easily get their product to market. Without the mines selling product, taxes can't be raised to fund the investment in infrastructure. Irrespective we expect Mongolia to maintain its position as one of the strongest growing economies in the world for some time to come.

Source: Business Intelligence Middle East

INVESTORS SALIVATING OVER TT IPO Due some time in the next 12 months, an energy IPO offering in Mongolia already has foreign investors salivating. The darling of the international energy community is coal company Erdenes-Tavan Tolgoi ("Five Hills") Ltd., popularly known as TT, which has yet to begin operations. What is TT bringing to the market that has caused such interest? It is a massive deposit located in the east Tsankhi area of the Gobi desert and estimated to hold over 6.4 billion metric tons of coking coal, the world's biggest untapped deposit of its kind. Mongolia‘s government is currently selecting an operator for the massive deposit and the choice is expected to be a large, experienced foreign mining company. Heightening investor interest was a successful public offering last fall in the autumn of 2010 by Mongolian Mining Corp., Mongolia's largest privately held domestic producer and exporter of coking coal, whose Ukhaa Khudag mine is within the Tavan Tolgoi coal formation in the southern Gobi. Mongolian Mining Corp.‘s IPO was floated on the Hong Kong Stock Exchange and raised USD651 million. In contrast, analysts are predicting that the TT IPO could raise as much as USD10 billion. What makes the TT IPO unique is that the Mongolian Government has just given each citizen 538 shares in the Erdenes-Tavan Tolgoi IPO. If the IPO hits its anticipated USD10 billion, each Mongolian‘s shares would be worth about USD360. The government stock giveaway totaled 1.5 billion shares, equal to 10% of TT and reserved another 1.5 billion TT shares for thousands of Mongolian business enterprises. Besides the 20 percent handed out to local enterprises and citizens, the government aims to retain 50 percent of TT, with the remaining 30 percent to be listed on an overseas stock exchange. Read more… The TT stock giveaway is an integral part of a governmental effort to convince its citizens that its decision to pursue large-scale mining in Mongolia will have a direct bearing on their well-being, following several earlier contentious mining deals. Even Russia has gotten into the act. Earlier this month, Russian President Dmitrii Medvedev, commenting on rising bilateral trade possibilities, said, ―We need new powerful projects such as nuclear projects or Tavan Tolgoi, which will promote bilateral cooperation.‖

Source: OilPrice.com

GLOBAL ALLIANCE PARTNERS GATHER IN ULAANBAATAR The International Members of Global Alliance Partners (GAP) met in Ulaanbaatar last week for their bi-annual meeting of members. GAP is an international network of stock brokers and investment banks that aim to leverage existing execution platforms to expand cross-border capabilities, covering private equity, pre-IPO placements, share trading, research, funds management and equity placement opportunities. It is composed of seven alliance partners whose scope and reach, including their respective affiliate companies, span strategic markets in Asia, the Middle East, Europe, Sub-Saharan Africa and North America, providing a truly global reach. GAP has offices in 24 countries and over 3,000 staff. Hosted by Mongolia-based Eurasia Capital, GAP's newest member, the event welcomed members from many countries, including Hong Kong, China, the USA, the UAE, the United Kingdom, Japan and Thailand. It was followed by an International Investor Forum also hosted by Eurasia Capital. The Forum showcased many of Mongolia's leading companies and international companies with a strong Mongolian investment focus, including Rio Tinto, Erdenes Tavan Tolgoi, Newcom Group, Just Group, Oyunu Undra Group, Prophecy Resources, Mongolia Development Resources, Mongolian Star Melchers and W.M. Mining. Mr. Alisher Ali, Chairman of Eurasia Capital, was delighted with the high level of interest in the Conference and Forum and the strong support shown by GAP Principals and Members, stating, "GAP provides us with tremendous international reach and enables us to present Mongolia and its unique investment opportunities to the international investment community." Mr. Robert W. McMillen, Chairman of GAP and of MAC Capital Limited, added, "This trip has been extremely educational for us all. The potential of Mongolia is impressive indeed and the quality and diversity of the companies presenting to us were of an extremely high caliber. I was also very impressed with the understanding of the need for strong corporate governance and reporting. With the support of the London Stock Exchange, I believe that the Mongolian Stock Exchange will see dramatic improvements over the next three years. Some GAP Members have already identified a number of areas of potential investment and I am sure many will return in the near future," he added.

Source: Eurasia Capital

TIGHTENING MONETARY POLICY YIELDS RESULTS IN MONGOLIA In two consecutive months the Central Bank took serious measures to tighten the monetary policy and tame inflation in Mongolia. On February 23, it announced a stark increase of the reserves requirement ratio to 9%, almost doubling the previous value of 5%. About a month later, the policy rate was increased to 11.5%, the second increase in the last 12 months. Inflation is the main concern in the Mongolian economy. Double-digit annual CPI growth has been the rule in the past year, despite government efforts to contain supply-side inflation by improving the conditions of food supply in the country in light of the international inflationary pressures on the world market. Most recent surges in inflation seem to be caused by increased domestic demand, resulting from budget expansion, distribution of allowances for citizens, and development of the mining industry. Simultaneously money supply and outstanding loans have been growing at increasing annual rates, reaching 67% and 35%, respectively, in March 2011. The Central Bank estimated that inflation would have reached 15-20% in December 2011 if strict monetary policy measures had not been implemented right away. Indeed, the inflation outlook has noticeably improved in the past couple of months. Although outstanding loans and money supply growth rates (M2) have remained high, annual CPI decreased to 8% in March and even fell to 5.5% in April 2011.

Source: CEIC

MONGOLIA OFFERS IMPORTANT LESSONS IN INCLUSIVE GROWTH India's economic gurus should wake up and look at the world's latest poster-child of reform -- Mongolia. Growth there is 10% and is expected to cross 20% by 2013. Mining is big business, but citizens of this democratic country have not started to fret about any adverse impact on the environment. Markets are up more than 25% this year, even after cooling off substantially. Overseas capital is rushing in. But the most remarkable thing that the Mongolian Government is doing, is pursuing its own version of inclusive growth. In order to let citizens share in the boom, it has given away -- yes, for free -- 538 shares in State-owned mining giant Erdenes-Tavan Tolgoi to each Mongolian. Currently at price zero, there's surely a significant upside for people when the stock lists, in an IPO scheduled for later this year.

Under Chinggis Khan, the Mongols fanned out to occupy much of Central Asia, Europe and China. China is back again in the crosshairs of the Mongols, but this time as the main buyer of much of its mineral wealth, and the source of manufactured imports. At around USD2,000, Mongolia's per capita income is relatively low. The government wants people to spend without worrying too much, so it recently gave USD55 to each person to do what they want. It also sweetened the handout with a monthly stipend of USD15 for everyone. India, which lacks for many things but not trained economists, has worked itself into a lather debating how to reform our creaking subsidy and food delivery system, and how to make cash transfers work. It's time to export some economists to Ulaanbaatar, and import some Mongol commonsense.

Source: The Economic Times

MONGOLIA‟S MINING DEVELOPMENTS REMAIN ON TRACK If you're a true believe in the Chinese growth story, and the voracious demand for commodities that it will represent in the coming years, you can't do any better than Mongolia. A few meetings in Ulaanbaatar made it clear that the fundamental issue for this landlocked country is whether it will be able to develop the infrastructure, notably transport linkages, to take full advantage of its massive resource wealth. If it does, Mongolia will be to industrial commodities what Saudi Arabia has been for oil – assuming, of course, that the Chinese macro story remains on track. For now the ramping up of mining developments remains on track. The IMF now expects nominal GDP to reach MNT16.6 trillion in 2013, twice the 2010 level of MNT8.3 trillion. Coal exports are expected to reach 27.6 million tons in 2011, up from 16.6 million tons in 2010 with production of 41.6 million tons expected in 2013. If coal is for now making the running, copper will take over in 2013 with the then anticipated commencement of production in 2013 of the Oyu Tolgoi (OT) field. Mongolia also is rich in gold, oil and assorted ―rare earth‖ plays. But before all that kicks in, the Mongolian story will have to navigate the inevitable noise of a general election due to be held in June 2012. The present government is an uneasy coalition of the two main parties.

Source: www.businessinsider.com

SOUTH KOREA THIRD LARGEST TRADING PARTNER OF MONGOLIA The partnership between Mongolia and South Korea has developed significantly since the two countries launched diplomatic relationships in 1990. Bilateral trade has almost quadrupled over the last decade making Asia's fourth biggest economy the third largest trading partner of resource rich Mongolia, after China and Russia. In addition, South Korea is the largest labor market for Mongolians. Estimates suggest that 38,000 to 40,000 Mongolian's live in South Korea. South Korea is the 4th largest investor in Mongolia with total foreign direct investment (FDI) of over USD255 million since 1990. South Korea is also a key donor to Mongolia, having provided USD137 million since 1990 in committed loans and grants. South Korean companies' major investments and engagements include: - Skytel: a JV with South Korean SK Telecom and Mongolians as shareholders - Unitel Corp.: a 50/50 South Korean-Mongolian JV that started providing GSM services from 2006 - Mongolian Telecom: Korea Telecom bought 40% of the company for USD4.5 million at privatization - Seoul Group: a property company with the first public luxury residential project in Ulaanbaatar - Mongolian Development Bank: Korean Development Bank is expected to be hired as part of the management team to run this newly established Mongolian development vehicle. Major South Korean companies including state-owned Korea Resources Corp, steelmaker Posco and Korea Electric Power Corp have bid for the Western Tsankhi coalfield, the largest area of the Tavan Tolgoi mine. The South Korean consortium is jointly bidding with Japanese and Russian companies. In March 2011, Lotte E&C-led South Korean consortium signed a preliminary deal with Mongolian Railways to build a 1,040-km railway in Mongolia. Source: Eurasia Capital

MINING BOOM FUELS NEW MONGOL HOARD Better known as nomadic tent-dwelling herders, Mongolians now are stockholders in a coal company that is one of the coming year's hotly anticipated initial public offerings. The government has just given every Mongolian 538 shares in it. The giveaway of stock in Erdenes-Tavan Tolgoi Ltd., popularly known as TT, is part of the government's effort to prove to its people that they will be well-served by its decision to pursue large-scale mining in Mongolia. That is a worrying strategy for some here because, beyond concerns such as environmental effects

and the distribution of the wealth, it fundamentally ties the proudly independent country to the commodity appetite of its giant, often-resented southern neighbor, China. Under Genghis Khan, the Mongols 800 years ago overran China and much of Central Asia, plundering as they went. Now, the globalization strategy of Mongolia includes digging up coal and copper to satisfy the region's superpower. Across the border in China, the region called Inner Mongolia has been the scene of strife that is traceable partly to a similar surge in mining. There have been protests by ethnic Mongolians who see their traditional herding way of life threatened by mining to serve the Chinese industrial machine. Mongolia, which is democratic, hasn't seen any equivalent protests. In Ulaanbaatar, Mongolians say they are sympathetic to their ethnic kin across the border but confident they will be able to influence the mining sector at the ballot box during next June's parliamentary election. So far, what Mongolia is feeling from the minerals boom is mostly a Chinese-style economic sizzle, including bubbling inflation. Mining money is pouring in. And so much more is expected, according to the International Monetary Fund, that the country's economy, growing at a torrid pace of about 10% this year, could expand at almost a 23% rate in 2013. The stock market has soared over much of the past year, property investors are in a frenzy and the central bank is battling upward pressure on the currency, as foreign investors rush in. "In the past we had no money," says Mr. Ch. Gankhuyag, Vice Minister of Finance. Now, "we are seeing capital come into the country, and the challenge is to manage that capital." Read more… An index of urban consumer prices was up 4.2% in April from a year earlier. The IMF has projected that inflation could hit 20% by year-end. The country's President, Mr. Ts. Elbegdorj, spoke for many Mongolians when at a recent conference he posed the question: "Is it a blessing or is it a curse that we are endowed with minerals in Mongolia?" The coal-company shares being distributed to the citizenry will eventually trade on the Mongolian Stock Exchange, whose Top-20 Index leapt 138% last year and doubled again through late February, before a big pullback that still leaves it up 27% for 2011. The government's efforts to make sure the boom is felt widely include a suite of gifts in addition to the coal-company shares. Another recently enacted scheme gave each Mongolian citizen a one-time USD55 cash payment, followed by a USD15 monthly stipend—payments that have helped spur consumer spending in a nation where per capita annual income is about USD2,000. Standing in an outdoor market in Ulaanbaatar, Nasauboyar said she was benefiting from the government largess. Sales were brisk on a bright winter day in March as the shopkeeper shuffled her feet on the market's floor of solid ice. Yet Ms. Nasauboyar's mainstay product, a USD19 water basin, offered a reminder of the level of development in Mongolia. The sink is designed to be used in tents that lack running water. Although Mongolia has a land mass equaling nearly half a square kilometer per person, there is a real-estate scramble in the capital, home to half the Mongolian population of 2.8 million. The city's outskirts are increasingly dotted with upscale housing, including a tract of U.S.-style wood-frame houses. Still, two-thirds of the people in the grimy capital still live like Mongolians in the countryside—without amenities, often in tents. A testament to the soaring property prices stands a short drive from central Sukhbaatar Square. It is a circular tent, known as a "ger," standing behind a rusty corrugated-steel wall, where on a recent day two dogs were gnawing on sheep feet. The ger is the new home of Munkhzul Davaa, a 30-year-old who says that despite her job as a mining-equipment saleswoman, a ger is what she can afford. A mortgage would have set her back USD1,200 a month. But the ger—set up in a relative's yard, heated with a wood stove and crammed with Ms. Munkhzul's Adidas sneakers, refrigerator and double bed—cost only USD1,450. The 81 orange slats holding up the ger look brilliant, but her toilet is a frozen outhouse. "I'm not poor. I'm not rich. I'm in the middle," she says. Bankers predict that the public offering of TT—a coal company that isn't yet producing coal—will give the miner a total value of USD10 billion. That would make the shares that each Mongolian holds worth about USD360. One worry concerns what some are referring to as Mongolian privatization, version 2.0. Two decades ago, after the country turned its back on Soviet-style communism, it won plaudits in the West for launching its stock exchange and privatizing hundreds of government companies. Their shares, too, were distributed free to the public. Speculators quickly fanned out across the hinterland dangling cash in front of herders, many of whom happily handed over their blue and pink privatization vouchers. The asset rush created some of Mongolia's largest personal fortunes, along with widespread public resentment. Some fear that history will repeat itself with the TT share giveaway. During a recent conference featuring

government and stock-exchange officials, a businessman named Bazarsad Jargalsaikhan won applause when he wagged his forefinger and scoffed, "We've been given many things in the past—worthless!" TT's executive director, Mr. B. Enebish, responded, "We have to be prudent with the IPO." In Ulaanbaatar, some analysts worryingly compare the stock market to that of Kazakhstan, where hopes about oil reserves drove the benchmark index up by a factor of 14 between 2004 and 2008, after which it plunged 80%. Four banks in the Central Asian country had to be rescued. The Mongolian Stock Exchange is housed in a peach-colored building on the capital's Sukhbaatar Square, which exchange officials nostalgically remember as a theater where, as children, they watched Russian cartoons. On a recent day, trading began with the tap of a small hammer on a CD-size gong. With orders being phoned in to 50 or so floor brokers, several seconds passed before the first trade registered. It was for two shares of listing No. 460, Shivee Ovoo, a coal company. The exchange has about 330 stocks, a majority of which have been listed for years but never trade. "The local exchange doesn't properly represent where the Mongolian economy is now, not mentioning where it's going in the future," says Mr. Alisher Ali Djumanov, chairman of Eurasia Capital LLC. Things are changing at the exchange, though. Authorities have awarded a two-year management contract to the London Stock Exchange to introduce new stock-market regulation, training and technology. Cross listings between the two markets may follow. Another change is the volatility of many of the stocks that do trade actively. The total value of the exchange's shares crossed USD1 billion for the first time amid last year's surge. Exchange officials predict the figure will jump to USD10 billion by 2015, and USD40 billion by 2020. The coal-company offering will be a huge one for this exchange. Hopes are high even though TT is not yet producing coal. What it has is a massive deposit in the Gobi desert estimated to hold over six billion metric tons of coal. The government is in the process of selecting an operator, expected to be a large, experienced mining company. Investor appetite has been whetted by the successful public offering last fall of a company that owns a smaller piece of the same coal deposit. The stock giveaway credited 1.5 billion shares, equal to 10% of TT, to government welfare accounts of each Mongolian citizen. Another 1.5 billion TT shares are set aside for thousands of Mongolian business enterprises. The government will sell about 30% more of the company in a global IPO sometime in the next 12 months, expected to be led by Goldman Sachs Group Inc. and Deutsche Bank AG. The rest of the company will remain government-owned. A lock-up provision will bar individuals from selling their free shares for an unspecified time, President Elbegdorj says, "in order not to repeat mistakes of previous privatization, when a few got major assets and most were left with nothing". Even so, would-be investors many mornings these days crowd the Mongolian Stock Exchange's front entrance. Many say they have simply forgotten whether they still have accounts from the early-1990s giveaway.

Source: The Wall Street Journal

SPEAKER VISITS CENTRAL BANK Speaker D.Demberel paid a visit to the Central Bank on Wednesday to see how it was implementing the state monetary policy and its other activities. He was accompanied by the chiefs of the Standing Committees on the Budget and on the Economy, Mr. D.Khayankhyarvaa and Mr. D.Zorigt respectively, his Advisor, Mr. D.Davaasambuu, and other officials. The Director of the Monetary Policy and Research Section, Mr. D.Boldbaatar, gave the visitors all information, with assistance from other senior officials and specialists. Foreign currency inflow into Mongolia increased by 5.3 times in 2010 year on year and by 2.7 times in the first four months of 2011 over the corresponding period last year. Mr. Demberel also saw the treasury of the bank.

Source: Udriin Sonin

TMX BID GROUP IN TALKS TO ROPE IN NEW MEMBERS A group of big Canadian banks and pension funds bidding for TMX Group Inc. are in talks to lure at least three, and possibly four, other financial-services firms to join their consortium. The consortium, Maple Group Acquisition Corp., last month unveiled a counterbid for TMX in an effort to upset a merger deal struck between TMX and London Stock Exchange Group PLC, announced in February. TMX shareholders are due to vote on that proposed tie-up later this month. The added heft to Maple could bolster its bid in the eyes of shareholders, who are now being wooed by both sides ahead of the June 30 meeting. Maple has proposed creating an integrated equities-and-derivatives exchange, and a clearinghouse for equities and fixed-income investments, in Canada as a way to generate growth from existing

operations and through acquisitions. It has proposed merging TMX, the operator of Canada's flagship Toronto Stock Exchange, with Canada's equities clearinghouse and Alpha Group, an alternative-trading platform owned by Canada's big banks. TMX's board has said it opposes Maple's bid on the grounds it doesn't offer enough of a takeover premium. It also believes the deal will saddle TMX with too much debt. TMX and LSE say their stock-swap merger, billed as a tie-up of equals, is superior since it gives the two exchanges global stature amid a wave of consolidation among exchanges. Both bids face regulatory hurdles. A TMX-LSE deal needs approval from Canada's industries ministry, as well as from the securities regulators of Ontario, Quebec, British Columbia and Alberta. A Maple transaction would need regulatory approval from the country's Competition Bureau.

Source: The Wall Street Journal

CHINA FOREIGN LISTINGS DOGGED BY SCANDALS Like any emerging market, China has its fair share of fraud, scams and corporate governance fiascos. But a spate of scandals at Chinese companies listed in New York, Hong Kong and Toronto is increasingly unsettling investors. In recent months, short-sellers have attacked an unprecedented number of Chinese companies listed on international stock exchanges, accusing them of fraud or other wrongdoing. This has caused their shares to tumble and inflicted losses on some very prominent investors. ―It seems to have bubbled into hysteria and creates an unfortunate overhang over all Chinese companies seeking to raise capital in the US markets,‖ says a Hong Kong-based broker whom is a former enforcer at the US Securities and Exchange Commission. ―It has become hard for investors to separate fact from fiction.‖ Sino Forest, a Chinese forestry group listed in Toronto, lost more than two-thirds of its market value after Muddy Waters, a research firm founded by short-seller Carson Block, accused the company of overstating its sales and the value of its forest land. Sino Forest hit back with a strong denial, dismissing Muddy Waters‘ ―self-interested‖ approach, but the shares continued to slide. The move has inflicted a paper loss of almost USD500 million on Sino Forest‘s largest shareholder, the USD37-billion hedge fund run by billionaire John Paulson. Since 2007, more than 150 Chinese companies have listed in the US through reverse mergers, or backdoor listings. With the help of US advisers, a private Chinese company merges with a US publicly traded shell company, many of which are found on less regulated exchanges such as the Pink Sheets, the OTC Bulletin Board or NYSE Amex. This allows the Chinese group to become public without the rigors of an initial public offering. The company then gains credibility by taking private investments from early-stage investors. Often, it is then able to move on to bigger US exchanges. Once there, it sells more shares allowing the founders and initial private equity investors to cash out. Read more… Paulson is not the only big name caught up in the storm. US private equity group Carlyle is the biggest foreign investor in China Forestry, a Hong Kong-listed operator of mainland plantations whose shares have been suspended since January after its chief executive was arrested for alleged embezzlement. But while these two large companies have attracted the most publicity, scores of smaller Chinese companies listed on overseas bourses have also been running into trouble. The US is at the centre of the storm. In the past six months alone, more than 25 New York-listed Chinese companies have disclosed accounting discrepancies or seen their auditors resign. ―While a vast majority of these Chinese companies may be legitimate businesses, a growing number of them are proving to have significant accounting deficiencies or being vessels of outright fraud,‖ an SEC enforcer told an investor forum in Washington in April. Nasdaq and NYSE Euronext have halted trading in the shares of at least 21 small and micro-cap Chinese companies in the past year, and kicked five of them off the exchanges. Facing an outcry from investors, the SEC has begun investigating these companies as well as the network of US auditors and middlemen who marketed them to the public. But the SEC has been hamstrung by a lack of co-operation from regulators in China. Investors have become increasingly worried about whether they can take the financial accounts of many Chinese companies at face value. Longtop, a Chinese software company that raised USD210 million in 2007 via a New York IPO organized by Deutsche Bank and Goldman Sachs, was last month accused by its auditor Deloitte of ―very serious defects‖, including faking its bank statements. The company says it has begun an internal investigation. The head of a private intelligence agency says the majority of Chinese companies listed overseas are fundamentally sound, even if they sometimes fall short of US disclosure and corporate

governance standards. But she warns that there are also cases of deliberate deception, where entire businesses are elaborate fictions. Just as with Enron and Bernard Madoff, fraudulent Chinese companies can be market darlings for years before being rumbled.

Source: The Financial Times

BEIJING HALTS SALES OF LUXURY APARTMENT COMPLEX The Beijing government has halted sales of the most expensive luxury apartment complex in the Chinese capital and launched an investigation into the developer for possible ―profiteering‖. Even

last week, the luxury 1,000- sq m penthouse apartments in the west of the city were selling for more than Rmb300 million (USD46.2 million) but now the government has decided the company may have misled potential buyers and is also investigating its tax records. The price of the most expensive apartments in the development reportedly jumped from about Rmb100,000 per sq m in the middle of last year to Rmb300,000 this year. The situation is more complicated than it seems at first. The land where the luxury apartments are being built formally belongs to the Chinese military, according to Chinese reports, and the site has been designated for a ―national key comprehensive scientific and research project‖, according to the Beijing government. The apartment complex appears to be slightly stretching the definition of a scientific research project. But perhaps the project is actually meant to be a giant political science experiment intended to test the efficiency of the Chinese state at enforcing its own laws.

Source: The Financial Times

CHINA‟S WORKFORCE TO START SHRINKING IN NEXT FEW YEARS China‘s large labor force has been central to its rise as an economic power, allowing companies to tap a seemingly endless pool of workers willing to move from their home towns, often live at the factory site and accept comparatively low wages. That era is ending. In a shift that is intensifying the economic competition between China and the United States, China‘s working-age population has plateaued in size and will begin getting smaller sometime in the next five years, according to demographers and recently released census data. The number of 20-to-24-year-olds, a main source of entry-level and factory labor, is already shrinking, the leading edge of an eventual decline in the overall population. The demographic change is ushering in higher wages and inflation and remaking the country‘s social fabric — particularly in rural areas where working adults have all but disappeared to major cities. If there are children, they are living with or visiting grandparents. The shift has also prompted a national push to develop technology- and innovation-driven industries that need fewer workers — industries in which the United States has traditionally held an advantage. Instead of the ―cheap‖ China of the past 30 years, U.S. business and government officials face a country that is demographically stagnant, increasingly expensive and pressing hard to compete. ―China is a country in a race against time,‖ the U.S. Chamber of Commerce wrote in a study of China‘s emerging economic policies. As it rushes to develop an economy in which a smaller force of more productive workers can support an explosion of retirees, ―the country can‘t get rich before it gets old‖, the report said. Read more… China‘s use of state power and support to boost industries such as biotechnology, telecommunications and alternative energy has become a main concern among U.S. business and government officials — and is arguably a more direct threat to American economic interests than, say, China‘s low exchange rate. In hearings and diplomatic meetings, U.S. officials and lawmakers have focused on Chinese policies that have barred top U.S. technology companies from some types of business, undercut others with state subsidies and aimed to develop Chinese competitors in industries such as commercial aircraft manufacturing that currently support tens of thousands of U.S. jobs. It is a natural step for an economy that has rapidly industrialized over the past quarter-century, largely by producing what others ordered it to produce at a world-beating cost — the ―China price‖. Demographics, however, are making the change more urgent as the country confronts the long-term consequences of its strict population-control rules. China‘s 30-year-old family-planning policy limits most couples to one child, a restriction the government imposed to curb a large and then-rapidly growing population that officials feared the country could not support. The first generation born under the one-child policy is now approaching middle age, providing a clearer sense of the rule‘s impact. The results are ―alarming‖, said Mr. Wang Feng, a demographer and director of the Brookings-Tsinghua Center for Public Policy in Beijing, after the release of the

country‘s latest census. The new data showed that overall population growth slowed more than expected during the past decade, to 0.57 percent annually. Mr. Wang said the fertility rate is now fewer than 1.5 births per woman, among the lowest in the world and well below the replacement rate of 2.1 births per woman. This will push forward the point when China‘s population peaks at around 1.45 billion, he said, currently forecast for 2029. After that, the population will decline. China currently has around 1.3 billion people. The number under age 14 fell by more than a third in the past decade, while the number over 60 grew by more than 20 percent. That sort of demographic momentum — with far more people preparing to leave the workforce than are entering it — is extremely difficult for a nation to reverse. The number of people of working age is still expected to grow, slowly, for perhaps five more years before reaching its peak, and a recent study by the U.S. Chamber of Commerce in China noted that there are still around 25 million ―surplus‖ workers in rural areas available to move into factory jobs. But that rural labor pool is expected to disappear in perhaps four years as manufacturers continue to expand and hire. Over the past two years in particular, wages have been rising rapidly, while businesses small and large complain about increasing worker demands and employees who are quick to quit because they can easily find other jobs at better pay. Industrial development has been shifting toward more rural parts of the country, to avoid labor shortages and higher wages in China‘s more heavily developed coastal areas. The family dynamics in small villages show the constraints the country is facing. Within a generation, families went from producing a sizable ―demographic dividend‖ — creating the workers who manned China‘s rapid growth — to setting the stage for an era of decline. Removed to the countryside in 1962 to become a farmer when China was coping with the aftermath of famine, one man had four children in the years before the one-child policy. Now ages 38 to 48, those children and their spouses — eight adults — have produced just five children.

Source: The Washington Post

POLITICS ELBEGDORJ VISITS USA NEXT WEEK President Ts.Elbegdorj will be on an official visit to the USA between June 13 and 18. His visit begins at Seattle, where he will hold discussions with Microsoft officials on use of their software in Mongolia. His next stop will be San Francisco where he is to officially inaugurate a Consulate. He will spend June 15 and 16 in Washington DC, where a meeting with President Obama is scheduled for June 16. He will also hold talks with congressmen and administration officials.

Source: Ardiin Erkh

PRIME MINISTER TO VISIT CHINA Prime Minister S.Batbold will be visiting China for two days in the middle of this month, the exact dates to be announced later. Before arriving on the mainland, Mr. Batbold will be in Hong Kong, a special administrative region of China. His talks with Chinese leaders will be on elevating the present relationship to one of strategic partnership, and on agreeing on the specific programs on which a USD500 million soft loan from China are to be spent.

Source: Montsame

MPs CRITICIZE FAILURE TO PREVENT FUEL DEFICIT A meeting of the Standing Committee on Security and Foreign Policy last week saw some members launch a scathing criticism of the way mineral resources organizations and agencies functioned and demand the resignation of their chiefs, including Mineral Resources and Energy Minister D.Zorigt, and the Chief of the Mineral Resources and Petroleum Authority (MRPA), Mr. J.Amarsaikhan, who was present and heard the charges. Mr. Z.Enkhbold said the MRPA should be disbanded for all its failures in recent years, including its failure to prevent the present fuel deficit, even though the signs were clear as early as last December. No one has so far been held responsible for the fuel shortage in the summer of 2008. He said the organization has been talking for 20 years about importing fuel from the Gulf countries through Tianjin in China, but not a drop has arrived so far. Mr. Amarsaikhan replied that they were evaluating other sources of supply and were also considering building an oil refinery in the country. This did not satisfy members who wondered why such issues cannot be resolved in 20 years.

Source: News.mn

PROTESTERS SHOOT ARROWS AT GOVERNMENT HOUSE About 50 protesters on horseback encircled Government House on Friday last week and shot arrows at it to protest the lack of a referendum on their demands. Mr. Togtokhnyam, legal advisor of Mongolia‘s special security agency, said Government House is a special facility protected by law. The protestors were led by Mr. Ts. Munkhbayar, an environmental activist and head of a coalition of environmental groups. ―We have waited for more than 60 days for an answer to our demand, which is to hold a nationwide referendum on conducting parliamentary elections without participation of political parties. Now we will take our next action,‖ he said. About 200 impoverished herdsmen protested in April in Sukhbaatar Square in Ulaanbaatar, demanding the Government‘s resignation and Parliament‘s dissolution over mining deals with foreign countries. The protesters demanded snap elections but said they did not want political parties that have become pawns of foreigners to take part, according to Mr. Munkhbayar, who won the international environmental Goldman Prize in 2007.

Source: IANS

CHINESE TRUCK DRIVER SENTENCED TO DEATH OVER ACCIDENT IN INNER MONGOLIA An ethnic Han truck driver who killed an ethnic Mongolian herder in a hit-and-run accident last month, sparking Inner Mongolia‘s largest protests in 20 years, was sentenced to death on Wednesday by a court in Xilinhot, the area of Inner Mongolia where the accident occurred. The swift resolution of the case reflected Chinese leaders‘ deep concern about ethnic tensions in China, where Muslim Uighurs and Buddhist Tibetans also have mounted violent protests against perceived injustices under rule by the Han, by far China‘s largest ethnic group. Inner Mongolia, in north central China, is a region separate from Mongolia, which is an independent nation that borders both Russia and China. The driver, Liu Lindong, was sentenced by the Intermediate People‘s Court in Xilinhot after a six-hour trial attended by 160 people, the state-run Xinhua news agency reported. A second driver who was in the truck‘s cab at the time, Lu Xiangdong, was found guilty of homicide and sentenced to life in prison, Xinhua reported. Two others, both Han, received three-year sentences after being convicted of obstructing justice for helping the two drivers escape the accident scene. The charges stem from an incident on May 10 in which Mr. Liu ran over a herder named Mergen who, like most Mongols, used a single name. Mergen was among other Mongols who were blocking a road to protest environmental damage by trucks hauling coal from Mongolian mines that have only lately become a major source of coal for Chinese power plants. Environmentalists say the trucks and attendant pollution are ravaging the delicate grasslands that sustain Inner Mongolia‘s nomadic herders. More broadly, the trucks symbolize the low-boil discontent that some Inner Mongolians are said to feel about their marginal power in a Han-ruled nation. Police officers said that Mr. Liu dragged Mergen‘s body nearly 500 feet before stopping. Outrage over the accident, as well as the death of a second Inner Mongolian in a battle with Han Chinese coal miners, led to six days of street protests last month by thousands in the Inner Mongolian capital, Hohhot, and elsewhere.

Source: The New York Times

PM FAILS TO MAKE STATEMENT ON ALTAN DORNOD MONGOL Prime Minister S.Batbold did not make his scheduled statement on the Altandornod Mongol case to Parliament last week. He was to give details of the expenses incurred on the case in the international arbitration council and also explain why Prosecutor General D.Dorligjav has decided against pursuing charges of fraud and tax evasion against the company‘s Executive Director, S.V.Paushok.

Source: News.mn

JAILED ANTI-CORRUPTION OFFICIALS GIVEN LEAVE TO APPEAL TO SUPREME COURT The way has now been cleared for the Chief of the Anti-Corruption Authority, Ch.Sangaragchaa, its Deputy, D.Sunduisuren, and the head of its administration, U.Altangadas, to appeal to the Supreme Court against the ruling by Ulaanbaatar Court upholding the lower court decision sentencing them to 2.4 years in jail. The Ulaanbaatar Court has given them leave to appeal to the Supreme Court after some anxious wait for them, and their advocates have said they will begin the process soon.

Source: Undesnii Shuudan

MINISTERS SEE HUGE POTENTIAL IN CHINA-MONGOLIA MILITARY COOPERATION Chinese Defense Minister Liang Guanglie feels military cooperation between China and Mongolia has

broad prospects and huge potential. At a meeting with Mongolian Defense Minister L. Bold on the sidelines of the Shangri-La dialogue, Mr. Liang hoped the two sides will treat each other sincerely and constantly explore new fields and forms of cooperation in the way of mutual trust so as to push the friendly cooperation between the two armies to a higher level. Mr. Liang said that in recent years, the good neighborly partnership of the two countries has increasingly strengthened and deepened, military relations have developed steadily, and the contents of cooperation have been enriched with positive fruits achieved, which, he noted, greatly promoted the development of China- Mongolia good neighborly partnership of mutual trust. Mr. Bold said Mongolia attaches great importance to the development of relations with China in military and defense fields, adding that the two armies have expanded practical cooperation in the fields of peacekeeping, joint exercises and training. He hoped both sides will intensify exchanges and cooperation in various fields so as to promote development of defense and military relations.

Source: Xinhua

RESTRICTED ZONE HOUSEHOLDS TO BURN 40 TONS OF COKING COAL Mayor G.Munkhbayar has told the national committee to reduce air pollution in the capital that 11,000 households in the demarcated restricted zones will not be allowed to burn raw coal in the next two winters. Forty tons of coking coal will be in stock by October for their use. The committee decided that 60% of the coking contract should be given to private mining companies. Chief of the Energy Authority Ts.Bayarbaatar reported that MNT34 billion would be needed to electrically heat 6,000 households, but the committee wanted a fresh estimate as it felt the present one had been poorly conceived.

Source: Udriin Sonin

HEARING OF CIVIL MOVEMENTS‟ APPEAL POSTPONED Ulaanbaatar Court last week postponed to June 10 its hearing of the appeal in the case against the Government by The United Movements for Rivers and Lakes because of the absence of Deputy Minister for Mineral Resources and Energy B.Ariunsan, who was accompanying the President in Russia. The appeal is against the decision of a lower court to dismiss the claims of the movements on grounds of insufficient data. The appeal cites new facts to support their claim that the Government is conniving in mining companies‘ activities that damage the environment. Source: Ardiin Erkh

USAID COMPLETES 20 YEARS IN MONGOLIA Ambassador Jonathan C. Addleton said at a ceremony on June 2 to mark the 20th anniversary of USAID in Mongolia that he viewed his time as USAID Director in Mongolia ―as THE highlight of my Foreign Service career‖. Noting how Mongolia is ―increasingly transitioning from development relationships to commercial ones...reflecting a better place for Mongolia to be, as an economy, as a society and as a country‖, the Ambassador said the United States is ―a sincere partner‖ in all phases of Mongolia‘s ―long, arduous and continuing journey‖. USAID launched its first program in Mongolia in November 1991 with a grant of USD10 million to provide emergency supplies and spare parts to the country‘s power plants. Other early programs focused on health and emergency food supplies. In addition, USAID funded a variety of trainings and other activities aimed at promoting economic reform and advancing civil society. Total USAID assistance provided from 1991 through 2010 has exceeded USD200 million, all of it in grant form. The current USAID strategy in Mongolia links the two main themes of good governance and private sector-led economic growth. With over 150 of USAID‘s key partners from government, private sector, and civil society organizations in attendance, the celebration highlighted key achievements of USAID in its first 20 years, through reminiscences and narratives of Mongolian partners, supplemented with voices of Mongolians sharing their dreams for the next 20. Two students from the 3rd and the 4th grade read their award-winning essays on the country's future. All videos from the event, along with videos from projects throughout USAID‘s 20 years in the country are posted on www.youtube.com/usaidmongolia20.

Source: US Embassy, USAID

MP SAYS FLAWED POLICIES RESPONSIBLE FOR STATE OF ZAMIIN UUD Mr. Z.Enkhbold, a Democratic Party MP, says a recent visit to the Zamiin Uud border post and a similar post on the Chinese side has convinced a parliamentary group that lack of finance was not the only reason why the Mongolian center languishes while its counterpart thrives. ―We pursued

flawed policies all along, focusing too much on opening a casino in Zamiin Uud. Making a profit from gamblers was the extent of our ambitions,‖ he said. Ironically, the Chinese town is financed by Mongolians who go there and spend money on shopping, restaurant and hotels. Mr. Enkhbold has also expressed surprise why ―the Government should be so strongly behind‖ Mineral Resources Minister D.Zorigt when it is clear that ―he and the two other MPs who finalized the Oyu Tolgoi contract allowed a legal loophole to be used to Mongolia‘s disadvantage‖. The Ministry has also done nothing to set up an oil refinery in Dornod, ―though its need and viability have been understood for long‖. Mr. Enkhbold feels the coalition government ―gives a great opportunity to delay decisions and to point fingers at each other‖.

Source: Udriin Sonin

MONGOLIA TO SPEND MNT120 BILLION ON NEW AIRPORT CONSTRUCTION After a review of the funds needed for Mongolia‘s share in the construction of the new airport with a Japanese soft loan, the Government has decided to build some roads and the square outside the airport. The original cost estimate of the project was USD320 million. Delay in starting the work has added MNT120 billion to this and Mongolia will spend this amount. Prime Minister S.Batbold has stressed the need for responsibility and transparency at every step. The airport will have 20 runways. The tender for construction has been announced and work is expected to begin in December.

Source: Zuunii Medee

DEPUTY PM REJECTS ACCOUNT OF EXPENSES AS UNREALISTIC Deputy Prime Minister M.Enkhbold, who heads the National Emergency Commission, has rejected officials‘ figures that MNT600 million was spent on repairing high voltage transmission lines in some areas of Selenge province damaged by strong winds. He wanted the accounts to be reviewed and a more realistic statement submitted.

Source: Zuunii Medee

DEFENDING LAWYER FOR BANK OFFICIAL MAY LOSE LICENSE Advocate G.Dashdemberel, who defended Mr. N.Davaa, a member of the Representatives Managing Council in the erstwhile Anod Bank, is likely to lose his license to practice law. The Investigation Department of Chingeltei district has said it has recommended a suspension of his license for falsely claiming through the media that an inspector of the State Investigation Board ripped his certificate. The Minister for Justice and Internal Affairs, Ts.Nyamdorj, will make the final decision on the matter.

Source: News.mn

NEW MONGOLIAN LAWS AND REGULATIONS The following new law, annulment and addendum were published in the latest two weekly Government bulletins. Unless otherwise decided by Parliament, they will take effect ten (10) days after publication. Date Laws 03.06.2011 Law on Health Annulment of Law on Health Addendum to Law on Special Permits for Business Please visit BCM's website, Legislative Working Group, for a summary of new Mongolian laws. BCM members who wish to access complete versions of the laws and regulations in Mongolian language are welcome to email the BCM office: info@bcmongolia.org.

ANNOUNCEMENTS CORPORATE GOVERNANCE FORUM, ULAANBAATAR, JUNE 13 The Fourth Annual Corporate Governance Forum, organized by the Corporate Governance Development Center will bring together Mongolian business leaders and policy makers to identify and stress the linkages between corporate governance and capital market development. It will also present an open platform to discuss a number of topical issues relevant to the current state of

corporate governance reform, and to help reach al consensus on the necessary policy and corporate level reform agenda. The forum will end with a resolution and an action statement by the participating business leaders on policies and legal and regulatory frameworks to remedy the current corporate governance challenges in Mongolia. The key discussion points would be: - Country experiences on the role of stock exchanges in corporate governance - Corporate governance reform process: progress and challenges for State-owned enterprises - Corporate governance in the banking sector: Impact of the new Banking Act, issues in CG assessment. Business Council of Mongolia is an Organizing partner of this forum. Requests for registration should be made to Ms. Tsend-Ayush Tel: 99105111, Email: tsendee51@yahoo.com or tsend-ayush.t@cgdc.org.mn. ___________________________________________ CHURCHILL‟S TRAINING WORKSHOP, ULAANBAATAR, JUNE 14, 15, 28 Churchill's is organizing, with BCM support, a training workshop on how to develop and implement the Environmental Management System and the Occupational Health & Safety Administration System. Designed for company directors and senior managers, the seminar will provide an overview of the two international standards, and include templates and procedures from both standards for use in the development of working company systems. Delegate registration fee for three days is MNT120,000 (including refreshments). The Seminar dates will be June 14,15 and 28, 2011. It will be conducted in English & Mongolian at the Ministry of Agriculture Training Center. Registration: by email, churchills@magicnet.mn, Online http://www.isochurchills.com, Tel: 976-70111956 – 99731454 (E-M), 99151124 (E). _________________________________________________

INTRODUCTORY COURSE ON ARTIFICIAL NEURAL NETWORKS, ULAANBAATAR, JUNE 16-17 The Mongolian University of Science and Technology and the American Center for Mongolian Studies are co-sponsoring a short course on June 16-17 by Dr. Rajive Ganguli, Professor and Chairman of Mining Engineering at University of Alaska-Fairbanks, USA. This introductory course is on artificial neural networks with special focus on mining engineering. It will present best practices of neural network modeling, and will use an Excel based neural network software developed specifically for this course by the instructor. The areas to be covered include introduction to neural networks, architecture selection, activation functions, topology, and neural network architecture including training algorithms. Registration requests, along with a fee of USD100, will be received in Room 23 at the Second building in MUST from June 1 to June 12. For more information, call 99082864 or 99015671, and Еmail: altantuya@must.edu.mn, ariunbolorp@must.edu.mn ________________________________________________

COALTRANS MONGOLIA, ULAANBAATAR, JUNE 21-22 Coaltrans Mongolia will be a unique opportunity to see and understand at first hand the development of one of the last remaining coal frontiers. It will address: - Spectacular growth prospects for the Mongolian economy, coming on the back of the development of the country‘s wealth of mineral assets with reserves estimated in value of USD1.3 trillion. - Opportunities that many large scale coal investments offer – in particular the Tavan Tolgoi coal deposit containing 6.4bt of coking and thermal coal which will be privatized. - The prospects for exports of 25-40mt per annum of coal into China and in the longer term through Russia to Pacific markets. - The considerable challenges facing Mongolian transport infrastructure in delivering coal exports across the border into China‘s burgeoning steel industry and power sector. - The challenge of operating coal mines in extreme weather conditions as well as the scarcity of water supply. Among the speakers will be: - D. Zorigt, Minister of Mineral Resources and Energy - B.Enebish, Executive Director, Erdenes MGL - D.Batkhuyag, Chairman, The Minerals Authority of Mongolia - G.Battsengel, Chief Executive Officer, Mongolian Mining Corporation. Business Council of Mongolia is a Supporting Organization of the event. Enquiries about speaking opportunities are to be addressed to Gerard Strahan at

gstrahan@euromoneyplc.com, and about benefits available in relation to sponsorship opportunities to David-Griffiths, at cdavid-griffiths@euromoneyplc.com. _________________________________________________

2011 CHINA CLEAN COAL TECHNOLOGY CONFERENCE, BEIJING, JULY 12-13

Organized by CBI Energy and supported by the coal sector of Mongolia, the Mongolian National Mining Association and the Indonesian Coal Mining Association, the 2011 China Clean Coal Technology Conference will be held in Beijing on July 12-13. China‘s clean coal technology innovations will continue during the 12th Five-year Plan period (2011-2015). In 2010, China‘s demand for ethylene equivalent was 24.84 million tons, larger than its domestic production; the demand for propylene equivalent was 19.05 million tons, 5.90 million tons more than the national output. This indicates a significant demand-supply gap in China‘s ethylene and propylene markets. While the edge of petroleum to low-carbon olefin was blunted by the rising oil prices, the MTO technology using coal as the raw material will give the Chinese producers more advantages. The conference will discuss all aspects of the issue. _________________________________________________

“MM TODAY” on MNB-TV, Fridays at 21:15 BCM is pleased to announce that Mongolian National Broadcasting continues its cooperation with BCM on ―MM Today‖. This English news program is aired every Friday for 10 minutes and is scheduled for 21:15 tonight. Tune in to watch this program that reports stories from today‘s BCM NewsWire. ___________________________________________ “BSPOT” on B-TV, Monday to Friday at 21:30 B-TV (Business TV) now telecasts a 10-minute English-language news program called BSPOT every evening from Monday to Friday at 21:30, taking most of the stories from the BCM NewsWire. ___________________________________________ NEW POSTINGS ON BCM WEBSITE--„LEGISLATIVE WG‟, 'PRESENTATIONS' AND 'MONGOLIA REPORTS' Several draft laws, still to be discussed in Parliament, are posted on our website, in the ‗Legislative Working Group‘ section. ‗Presentations‘ from BCM‘s 5 monthly meetings in 2011, summaries of the key addresses at Eurasia Capital‘s Mongolian Investment Conference on May 25, Jim Dwyer of BCM‘s interview on Mongolia National Broadcasting‘s ―Face to Face‖ on May 16, and the very successful Mines and Money Hong Kong‘s ‗Mongolia Investment Summit‘ morning on March 25 as well as ‗Mongolia Reports‘ including the Polit Barometer-May 2011 from Sant Maral Foundation and the U.S. Embassy Mongolia‘s Commercial Section‘s ―2011 Mongolia Investment Climate Statement‖ are among the presentations posted on BCM's website (www.bcmongolia.org) in the "Resource, Presentations" and ―Resource, Mongolia Reports‖ sections 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.

ECONOMIC INDICATORS

INFLATION Year 2006 6.0% [source: National Statistical Office of Mongolia (NSOM)]

Year 2007 *15.1% [source: NSOM]

Year 2008 *22.1% [source: NSOM]

Year 2009 *4.2% [source: NSOM]

Year 2010 *13.0% [source: NSOM]

April 30, 2011 *5.5% [source: NSOM]

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

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

March 11, 2009 14.00% [source: IMF]

May 12, 2009 12.75% [source: IMF]

June 12, 2009 11.50% [source: IMF]

September 30, 2009 10.00% [source: IMF]

May 12, 2010 11.00% [source: IMF]

April 28, 2011 11.50% [source: IMF]

CURRENCY RATES – June 9, 2011 Currency Name Currency Rate US dollar USD 1,248.36

Euro EUR 1,826.29

Japanese yen JPY 15.58

British pound GBP 2,053.74

Hong Kong dollar HKD 160.46

Chinese Yuan CNY 192.75

Russian Ruble RUB 45.12

South Korean won KRW 1.15

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.