BUSINESS COUNCIL of MONGOLIA NewsWire

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Issue 186, September 23 2011

NEWS HIGHLIGHTS: Business:

Tavan Tolgoi deal to undergo revision;

Japan and Korea to receive stakes in Tavan Tolgoi;

No talks about altering OT contract, says Ivanhoe;

Gobi Coal & Energy searches for a buyout;

Indian firms in market for uranium acquisitions;

Major iron ore deposits uncovered at Haranga's Selenge project;

Khan Resources takes Mongolia to court;

Petro Matad expands production sharing contract with government;

New coal seam uncovered at Aspire's Ovoot project;

Altan Dornod reopens in Mongolia;

Progress continues on Prophecy's Chandgana power plant;

Eznis Airways adds a second AVRO RJ 85 to its fleet;

R.E.M. aiming to capitalize on Mongolia's real estate market;

Boroo Gold receives award for taxes paid to Mongolia;

Boroo leads a gold standard in land rehabilitation efforts;

Mongolia commends Peabody manager for environmental work;

Mongolia 2011 M&A Private Equity Panel Discussion on November 8;

Union threatens work stoppages at BHP's Australian operations;

Rio develops its Australian infrastructure.

Economy: Social Economic Data Released;

Quit spending, says Central Bank to Parliament;

Government spending to increase in investment projects;

Coal market remains a top earner for Mongolia;

Coal market heats up world-wide;

Market can't weaken confidence in copper;

China asks Mongolia to consider adding yuan to its reserves;

Rare earth prices strangle the green-energy market;

Sole production for rare earths weighs too heavily on China;

Copper and gold prices drive M&A in the mining sector;

Asian economies will continue growth, but west will struggle, says IMF;

Euro banks rush to gold.

Politics: Government to retool TT deal;

Government admonished by NSC’s consultants for failures on TT deal;

Confidence of my people trumps that of investors, says Elbegdorj;

Fifth power plant in Mongolia to prevent fallout in power supplies;

Mining industry still faces difficulties while delivering change to Mongolia;

Mongolian politics continue to badger foreign investors;

Labor union requests minimum wage be tripled;

Ministry’s ambassador facing nuclear waste allegations resigns;

Elbegdorj proposes to U.N. a think tank for landlocked developing countries;

India courts Mongolia for allied defense;

Italy MP visits Mongolia;

Inner Mongolia and Mongolia make media agreement;

Mongolia's military impresses nations abroad;

Mongolian boy may be next Dalai Lama;

Somali pirates release Mongolian freighter.

*Click on titles above to link to articles.

SPONSORS

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MCS Property Oxford Business Group

BCM MONTHLY MEETING NOTICE

BCM‟s next monthly meeting for members will be Monday, September 26, at 5 PM at the KEMPINSKI HOTEL KHAN PALACE, 2ndfloor, Altai Ballroom. Parking will be reserved in front of the hotel for BCM members. The bilingual meeting will feature the following presentations: - Call to Order/Business Council of Mongolia: Laurenz Melchers, Chairman, BCM - BCM Report: Jim Dwyer, Executive Director, BCM - B. Lkhamdolgor, Senior Specialist, BDSec JSC – “Mongolian Stock Market and its Future Prospects” - George Miller, President Emeritus, National Fire Protection Association and Chairman of the Board, RJA Group - "Life-saving fire prevention through proper engineering" - Naranbaatar Lundeg, General Director, Glogex (Secretary of the Conference) - “Introduction of Metals Mongolia 2011”

- D. Jargalsaikhan, Economist – “Introduction to Fair Taxes and Wise Spending NGO” A networking reception will be held for all attendees immediately following the business portion of the meeting.

BUSINESS

TAVAN TOLGOI DEAL TO UNDERGO REVISION The Mongolian National Security Council officially rejected the proposal to divide Tavan Tolgoi's western block between China, the United States, and Russia. The draft will be revised and resubmitted at a later date, reported the source. In July, Mongolia decided to divide Western Tsankhi between China's Shenhua with a 40 percent stake, the United States‟ Peabody Energy with 24 percent, and a Russian-Mongolian consortium with 36 percent. Delays have arisen because there has been no final decision where to list the IPO and who to grant development rights to. The Mongolian government would like to list the state-owned Erdenes Tavan Tolgoi on the Mongolian Stock Exchange (MSE), but the IPO is potentially worth USD 2 billion to USD 3 billion, twice as much as the MSE's total market capital (USD 1.6 billion). Although the London Stock Exchange (LSE) has agreed to update the MSE with its Millennium software to allow for electronic trading, it has not yet been installed and so could not handle the daily trading volume. The government is considering listing Erdenes Tavan Tolgoi on both the Hong Kong and London market in addition to Ulaanbaatar, which would increase the stock value. The distribution of the site is important to Mongolia's foreign policy. Mongolia must keep fair relations with its neighbors China and Russia, but it cannot sacrifice its relations with Japan, South Korea, or the USA either. Both Japan and South Korea were very unhappy to be left out. Also, the resultant 40 percent to China left a mere 18 percent to Russia, which upset Russia as well.

Source: NASDAQ

JAPAN AND KOREA TO RECEIVE STAKES IN TAVAN TOLGOI Revision is underway on the Tavan Tolgoi Western Tsankhi deal, but it seems the previously selected investors will continue take part in the mining project. However, the addition of Japanese and Korean companies may alter the stakes. Last July the government awarded 40 percent to China's Shenhua, 24 percent to the United States‟ Peabody Energy, 18 percent to Russian Railways, and 18 percent to Mongolian Railways for the Tavan Tolgoi Western Tsankhi coal project. Controversy over the selection process drove the National Security Council (NSC) to advise the government it should revise the plan. “There was not any kind of official decision to exclude Japanese and Korean companies,” said Chairman of State Property Committee D. Sugar. The president proposed to settle the dispute between stakes by awarding 40 percent of the project to China, 24 percent to the United States and 16 percent each to Russia and Mongolia. This deal would leave a remaining 4 percent to Japan and South Korea. He added Japan and South Korea were left out of the agreement because of disputes within the consortium, not for any actions by government. “Since we are in between Russia and China, we have no choice but to deal with neighbors,” said Elbegdorj. “As for the USA, we need its technology. Japan and Korea will be the buyers. I don't know how much would be the stakes after renegotiations. All stakes will diminish in proportion” The President said work on the project is proceeding and only determining the division of stakes remains unfinished. No deadline to renegotiate the deal exists.

Source: Frontier Securities

NO TALKS ABOUT ALTERING OT CONTRACT, SAYS IVANHOE Ivanhoe Mines did not discuss any changes to its Oyu Tolgoi contract, said a company representative. Reports have said a faction within Parliament is unhappy with the contract and would like to revise it. The 2009 agreement for the Oyu Tolgoi project gave Ivanhoe Mines a 66 percent stake in the project while the Mongolian government retained a 34 stake. Rio Tinto, the project operator, is an indirect shareholder with a 48.5 stake in Ivanhoe. In response to these rumors, Cameron McRae, the project's head of operations, recently warned the Mongolian government against reversing agreements if it would like to continue to attract foreign investors at the Discover Mongolia mining forum.

“We are confident that Mongolia will not let this happen. That stability and the rule of law will prevail, and that Mongolia's long-awaited economic promise will become a reality,” said McRae. Oyu Tolgoi will account for approximately a third of Mongolia's economy by 2020 and will cause Mongolia's economy to grow at an average rate of 12.7 percent a year between 2013 and 2020 compared to 7.7 percent without the Oyu Tolgoi project. The Mongolian government has the option to increase its stake in Oyu Tolgoi to 50 percent once the initial 30-year term on the investment agreement expires.

Source: Dow Jones

GOBI COAL & ENERGY SEARCHES FOR A BUYOUT Gobi Coal & Energy is currently searching for a buyer in a private sale. The world economic crisis has moved the firm's owners to opt for the takeover. The company originally planned its IPO for late 2011 or early 2012 for the Toronto Stock Exchange (TSX). Initial bidding will be left open until mid-October. Gobi Coal could be worth between USD 500 million and USD 750 million. Gobi Coal & Energy is an emerging coking coal producer for Mongolia. It three projects, Shinjinst, Zeegt, and Khurren Gol, are projected to contain a total of 95 million tons of JORC reserves and 322 million tons of JORC resources.

Source: Asia Pacific Securities

INDIAN FIRMS IN MARKET FOR URANIUM ACQUISITIONS Two Indian firms will jointly bid for uranium reserves in Mongolia, in addition to Kazakhstan, Russia, and South Africa. Uranium Corporation of India (UCIL) and Nuclear Power Corp of India (NPCIL) are exploring initial bids for mines to satiate India's hunger for energy. India needs power to light its homes and run its factories but is focusing on clear sources. Its nuclear plants currently produce about 3 percent of all power in India. The nation hopes to raise that figure to 25 percent by 2050. “UCIL and NPCIL will jointly bid for assets,” said UCIL Managing Director Diwakar Acharya. “We would like to bring back the ore to the country.” Although NPCIL aims to be a majority partner in its project, UCIL may acquire a stake as small as 26 percent. UCIL has expertise in hard-rock mining while NPCIL operates atomic power stations. “As a mining company we can contribute our expertise in hard-rock mining,” said Acharya. “We have some of the best mining experts and technologists working for us.” The Japanese nuclear disaster blew out the floor from under spot uranium prices. A good reserve could be valued between USD 300 million and USD 500 million, reported the source.

Source: India Times

MAJOR IRON ORE DEPOSITS UNCOVERED AT HARANGA'S SELENGE PROJECT Haranga Resources uncovered significant traces of iron ore at it its Bayantsogt site. All sixteen holes drilled for exploration have encountered mineralization and tests indicate at least five major iron deposits. Drilling began last July, reaching a total depth of 3,890 meters with holes varying between 12 and 54 meters. The company is currently waiting for further lab analysis on nine of its drilled holes. Drilling will continue with two rigs at Bayantsogt in addition to a third at other targets in its licensed area. Haranga is also attempting to obtain a third dedicated drill rig for Bayantsogt for the remainder of the drilling season. The firm intends to continue to focus drilling exploration at Bayantsogt to gather enough information for the JORC Code for the Australian Stock Exchange (ASX). Haranga is a domestic firm with a majority stake in five prospective Mongolian iron ore projects. As part of its Selenge project, the company holds five exploration licenses covering almost 600 square-kilometers. Geological reconnaissance confirmed the presence of iron mineralization at four primary exploration projects, one of which is the aforementioned Bayantsogt.

Source: Haranga Resources

KHAN RESOURCES TAKES MONGOLIA TO COURT A legal complaint filed by Khan Resources will take both the firm and the Mongolian Nuclear Energy Agency to an international court. The Canadian-based company filed a complaint to the International Arbitrage Court after the Atomic Energy Agency revoked its exploration license for uranium at its Dornod uranium property. The company is demanding USD 200 million from the Mongolian government in compensation. The

Mongolian government claims Khan Resources breached its Mongolian Mineral law and Nuclear Energy Law through by neglecting its rehabilitation duties during its mining operations. However, the Canadian firm contends that the government unlawfully took away its license to hand it over to a Russian firm. The trail will be held in Paris on 18 September,” said G. Bayasgalan, state secretary of the Ministry of Justice and Home Affairs. “Lawyers representing the Mongolian government will attend the trial.” Bayasgalan, Mon-Atom Director R. Badamdamdin, and officials from the Atomic Energy Agency will attend the meeting, reported unofficial sources. Khan Resources is an international mineral exploration and development company for gold and uranium properties in Mongolia.

Source: Undesnii Shuudan, Zunni Medee

PETRO MATAD EXPANDS PRODUCTION SHARING CONTRACT WITH GOVERNMENT Petro Matad agreed to extend its production sharing contract with Mongolia in Dornod aiming on Matad Block XX. The contract extension is for two years and Petro Matad has committed to spend at least USD 35.9 million on exploration activities. Petro Matad also relinquished about 30 percent of its blocks IV and V in central Mongolia, as required by law. The company has assessed the relinquished portions as non-prospective for petroleum. Petro Matad is the parent company of a group focused on oil exploration, and future development and production in Mongolia.

Source: Undesnii Shuudan

NEW COAL SEAM UNCOVERED AT ASPIRE'S OVOOT PROJECT A new coal seam was discovered by Aspire Mining 4 kilometers away from its Ovoot coking coal project. Drilling has begun to determine the resource potential. Four drilling rigs are operating near Aspires Ovoot site in Northern Mongolia to determine the resource potential of the area. The company has completed 5,000 meters of exploration drilling as part of its 2011 program in addition to geo-technical and hydrological drilling. Another 5,000 meters of exploration is expected before the end of this year. The uncovered coal was described as hard, bright or sugary. Further analysis is needed to estimate how far the seam runs. “We have pre-collared a number of the holes to start core drilling to get coal quality and determine the extent and orientation of the mineralization,” said Aspire Managing Director David Paull. “This will include whether the coal shallows and thickens as we head further south towards the resource area. Previous exploration helped determine Aspire strategy to target mapped Jurassic age sediments where the depths of potential coal is relatively shallow and to trace the base of those sediments into deeper sections of the basin where thicker coal accumulations are expected. Aspire plans to utilize a magnetic program to determine the structure and shape of the Ovoot Basin and to help identify shallow seams. A change to the fleet of drill rigs at the site will be made for greater flexibility in exploration activities. Aspire Mining is an Australian-based exploration company focused on discovering and developing coal deposits. Its primary focus is Mongolia where it is developing its Ovoot project. Other assets include Nuramt, Shanagan, Jilchiigbulag, and the Zavkhan project.

Source: Aspire Mining Limited

ALTAN DORNOD REOPENS IN MONGOLIA Altan Dornod Mongol was awarded an unspecified amount from the Mongolian government by the International Court of Arbitration over a tax dispute. The decision will be followed by the reintroduction of the Russian firm into Mongolia. Altan Dornod originally sued the government for USD 1 billion. The company will open nearly 2,000 places for work in an effort to reintroduce itself to the Mongolian market. Before the problem occurred, Altan Dornod was the second largest mining company for gold exploration in Mongolia. The company's director, S.V. Puashock, was barred from entering Mongolia since the dispute. This month, the company sold for USD 300 million to the domestic firm Goldstream Inc. Before the acquisition Goldstream was only registered abroad and had not been operating in Mongolia until now.

Source: Undesnii Shuudan

PROGRESS CONTINUES ON PROPHECY'S CHANDGANA POWER PLANT The Mongolian Ministry of Natural Resources and Energy officially endorsed Prophecy Coal Corp.'s Chandgana Power Plant Project. The request came from Prophecy's subsidiary East Energy Development LLC. Currently the company is waiting for the final response from the Mongolian Energy Regulation Authority before it can proceed any further. The official request submitted by East Energy was deemed in compliance with the Energy Law and will progress further down the approval process. Procedures included an environmental impact assessment from the Mongolian Ministry of Nature and Environment and support from the Mongolian Scientific and Technical Council. The company expects a final answer in the fourth quarter of 2011. The plant will be built next to the firm's Chandgana Tal Coal Project. The plant will be a result of a number of collaborative efforts and research. Results from a power plant feasibility study by Evonik Industries and the Chandgana Tal Mine Study by Leighton Asia are expected by the end of this year. Prophecy has also discussed the project with many candidates for engineering, procurement, and construction. The company intends to fund the project through its own project financing. Prophecy Coal is a Canadian firm developing energy projects in Mongolia. It has over 1.4 billion tons of thermal coal resources from two projects in Mongolia, Ulaan Ovoo and Chandgana.

Source: Prophecy Coal

EZNIS AIRWAYS ADDS A SECOND AVRO RJ 85 TO ITS FLEET Eznis Airway's second Avro RJ85 jet landed at Chinggis Khaan International Airport this week. The 93 seat Avro RJ aircraft built by BAE Systems features jet engines that run as fast as they do quietly. The aircraft will fly en route from Ulaanbaatar to Ulgii Soum in Bayan-Ulgii Aimag in addition to various mining sites. The first Avro RJ aircraft, which arrived in Mongolia in June of this year, flies to Ulaangom, Khovd, and Tsogtsetsii soum in Umnugobi Aimag. In an effort to further invest in Mongolia's development, Eznis Airways financed the aircraft through Khan Bank. Lufthansa Technik Switzerland provided technical training for Eznis's engineers and technicians. Eznis Airways plans to continue to expand its fleet to better serve air travel demand. Eznis Airways is a domestic Mongolian airline serving the most number of passengers for flights ithin the country. Established in 2006, the airline operates domestic scheduled and charter flights to 14 destinations in 10 provinces, in addition to international service to Hailar in China and Ulan-Ude in Russia.

Source: Eznis Airways

R.E.M. AIMING TO CAPITALIZE ON MONGOLIA'S REAL ESTATE MARKET The growth in Mongolia's economy is having a significant impact on its real estate sector. Mongolia's gross domestic product (GDP) is expected to double every two years for the next 10 years, opening up the real estate sector to investors. Real Estate Mongolia (R.E.M.) has been involved in over 2,000 diversified real estate transactions in Mongolia with a total value exceeding USD 120 million. Its financial advisor, ResCap, believes R.E.M. may even be the source for a number of foreign property investments in Mongolia. Since little market information is available to buyers and sellers, the firm relies on its own transaction database to keep up to date with the market. The firm is aiming for a pre-IPO equity placement of USD 50 million. It intends to introduce an IPO on a major stock exchange in 2012. It plans to seed itself with at least USD 3 million for operational costs. Both ResCap and R.E.M. will visit London and Hong Kong in October to discuss Mongolia as an investment opportunity.

Source: Real Estate Mongolia

BOROO GOLD RECEIVES AWARD FOR TAXES PAID TO MONGOLIA Boroo Gold Executive Director John Kazakoff received “The Blue Book” award in recognition of its dutiful efforts in paying its taxes to the Mongolian government. “Last year we paid MNT 47 billion and became the number one taxpayer of Mongolia, said Kazakoff. “We plan to continue or operations in Mongolia developing safe and responsible mining; being a leader in safety, environment, and reclamation.” Boroo has implemented over 150 projects worth MNT 5.4 billion in local communities. A heap leach facility constructed to recover gold from low-grade ore created an additional MNT 1 billion worth of

taxes to pay to the state. The company has also donated MNT 1.2 million toward social welfare causes.

Source: The Morning Post

BOROO LEADS A GOLD STANDARD IN LAND REHABILITATION EFFORTS Mongolia's State Inspection Agency (SIA) praised Boroo Gold for its commitment and performance in land rehabilitation as part of its mining operations. Boroo Gold has rehabilitated 315 hectares of land and conducted research to determine the performance of those activities. The results of that research concluded that soil would need weekly irrigation for three or four years to effect the growth of 10,860 trees. After two or three years, those rehabilitated areas will have a stable productive ecosystem with a diverse flora and wildlife. The movement of topsoil as a result of mining operations changes the landscape and disrupts habitats. Sometimes a mining company can remove an entire mountaintop in its attempts to extract minerals from the ground. The changes to vegetation, soil, and bedrock can affect drainage patterns and create a less stable ground. The mining field is located in timber and steppe transitional territory. The company planted rye for soil stabilizations and last year local residents were able to make hay from its production. The rehabilitation efforts of Boroo gold has created homes for 76 types of insects two species of reptiles, 40 species of birds, and 70 varieties of flowering plants. In addition to these, a number of mammals, including the Mongolian gerbil, have been able to settle on its rehabilitated land.

Source: UB Post

MONGOLIA COMMENDS PEABODY MANAGER FOR ENVIRONMENTAL WORK Vern Pflannenstiel, senior manager of international reclamation of Peabody Energy, accepted a “Distinguished Environmentalist” award from Mongolia's Ministry of Nature, Environment and Tourism. The ministry awarded Pflannenstiel for his leadership in establishing the best scientific practices in land restoration to protect Mongolia's environment. The award is a credit to Pfannenstiel's work directing Mongolia's first coal mine restoration project near Bulgan Soum at its Ereen project site. The project was a collaborative effort between Peabody and Winsway with consultation from the Mongolian government. “Peabody is a global leader advancing world-class mining and restoration practices founded on key principles of excellence in safety, operations, and environmental and social responsibility,” said Peabody Chairman and Chief Executive Officer Gregory Boyce. ”We are proud of Vern‟s leadership in establishing practices that will create a lasting legacy for the Mongolian people.” The Ereen project also developed a new water source for livestock and a fresh drinking water source for area residents who previously had no nearby access to potable water. A year after the project's completion, the former mine site is a productive pasture for livestock grazing and hay production. Results surpassed the criteria needed for excellent plant establishment. The forage in the seeded is more than four times that of adjacent areas. Peabody Energy is a U.S. based coal company with a focus on clean coal solutions.

Source: Peabody Energy

MONGOLIA 2011 M&A PRIVATE EQUITY PANEL DISCUSSION ON NOVEMBER 8 Mergermarket, a part of Financial Times Group, will host the Mongolia 2011 Mergers and Acquisitions (M&A) Private Equity Panel Discussion on November 8. The event will be presented in association with David Polk & Wardwell and the Business Council of Mongolia. The conference intends to initiate an in-depth discussion about M&A and private equity investment opportunities and deal execution in Mongolia. The event will bring together leader professionals in Mongolia and across the Asia-Pacific, setting the state for an international networking opportunity around Mongolian M&A activity. Panelists include Bold of Newcom Group and the Mongolian Stock Exchange (MSE), Mandar Jayawant of Mongolian Opportunities Partners, George Lkhagvadorj Tumur of Hunnu Coal, Mark Lehmkuhler and Bonnie Chan of Davis Polk, and Jim Dwyer of the Business Council of Mongolia acting as moderator. Areas for discussion will include the development of the investment climate for M&A and private equity in Mongolia over 2012; the countries to act as primary bidders for inbound opportunities; the key differences between listed and unlisted companies in regards to M&A; the role private equity will play in the development of Mongolia's investment market; the IPO prospects for Mongolia; the difficulties in sourcing and completing transactions in Mongolia; and the key risks facing bidders interested in Mongolia. For more information or to register, email eventsapac@mergermarket.com or call Amy Chau at 852

3158 9782. Source: Mergermarket, Financial Times Group

UNION THREATENS WORK STOPPAGES AT BHP'S AUSTRALIAN OPERATIONS BHP Billiton will face work stoppages at all its Queensland, Australia coal mine operations last week ahead of an employee vote on a contract, a workers union said. BHP re-established its presence in Mongolia in 2005 and currently conducts geological exploration programs. Australia is also Mongolia's top competitor in the coal trade to China. BHP said last week negotiations halted with the Construction Forestry Mining and Energy Union (CFMEU) and would put a proposed contract directly to employees at the end of the month. The CFMEU approved industrial action at mines operated by the BHP Billiton-Mitsubishi Alliance (BMA) last June and miners have protested with work stoppages in an attempt to get greater job security and more pay for union members as rising prices boosts mining sector profits. Last month BHP posted record profits of USD 10.98 billion for the second half of 2011. “We are looking at escalating the actions at all the operations next week. They will potentially be shift-long or longer stoppages,” SFMEU spokesman Stephen Smyth said. The proposed contract would include an AUD 15,000 signing bonus paid over the course of a year as well as a 5 percent annual pay rise for three years. The Union said it will reject the offer because it lacks enough conditions and entitlement to the benefit of workers.

Source: Reuters

RIO DEVELOPS ITS AUSTRALIAN INFRASTRUCTURE Rio Tinto plans to invest USD 833 million in major power and fuel supply projects as part of its drive to substantially increase iron ore production capacity in Western Australia. Rio Tinto has a 48.5 percent stake in Ivanhoe Mines, which is operating at the Oyu Tolgoi copper and gold project and is the head of operations for that project Rio Tinto's integrated Pilbara power and gas network will be upgraded with a USD 520 million investment and a further USD 313 million will be allocated to fuel infrastructure. The projects are needed to support annual production capacity of 283 million tons, the company's target for 2013. This investment marks yet another significant step towards the expansion of iron ore production by 50 percent in the five years to 2015, a time line we recently brought forwards by six months,” said Sam Walsh, chief executive of Iron Ore Australia. “These projects provide certainty in meeting our power and fuel supply requirements, both now and into the future.”

Source: Rio Tinto

ECONOMY SOCIAL, ECONOMIC DATA RELEASED Consumer price index The national consumer price index decreased in August by 0.3 percent from July, mostly due to a decrease of 3.3 percent in food and non-alcoholic beverages. The country‟s year-on-year inflation at 31 August decreased to 9.0 percent. Unemployment The number of unemployed people who had registered at the Labor and Welfare Service Divisions in provinces and the capital city and were actively looking for jobs reached 40,400; reflecting an increase of 792 people or 2 percent compared to this time last year. External trade The external trade balance increased 7.6 times increase since this time last year. External trade increased 4.9 times since this time last year. Total external trade turnover increased by 88.4 percent since this time last year. Exports are up by a USD 1,095 minimum or 61.1 percent. Industrial output In the first eight months of this year, the total industrial output increased by MNT 104.7 billion or 8.9 percent to MNT 1279.2 billion (at 2005 constant prices) compared to the same period of last year. State budget Total revenue and grants of the General Government Budget amounted to MNT 2,757 billion and

total expenditure and net lending amounted to MNT 2,530 billion, representing a surplus of MNT 227 billion. The overall deficit this time last year was MNT 32.9 billion. Social welfare Social welfare pensions and benefits were allocated to 56,200 people, and increase of 479 people or 0.9 percent. The total amount of allocated funds increased by MNT 5.5 billion or 32.4 percent compared to this time last year. Freight and passengers The number of freight and passengers rose by 12.1 percent from this time last years. The number of passengers traveling by rail rose 8.6 percent. Revenue increased by MNT 62.4 billion or 32.7 percent to MNT 253.2 billion. Source: National Statistical Office QUIT SPENDING, SAYS CENTRAL BANK TO PARLIAMENT The Central bank advised Parliament to slowly reduce inflation over the next couple years. Monetary policies need to slowly reduce inflation from 10 percent in 2012 to eight percent in 2013 and 2014, said the Central Bank. Keeping inflation at 10 percent has been difficult for the monetary agency because the government continues to spend money on top of huge foreign direct investment (FDI) and gross domestic product (GDP) growth. It would also like to stabilize the Mongolian tugrug, suggesting it may intervene if the tugrug appreciates too high against the U.S. dollar and makes Mongolian exports uncompetitive. Source: Asia Pacific Securities

GOVERNMENT SPENDING TO INCREASE IN INVESTMENT PROJECTS Extra revenue from the mining sector has allowed the government to consider revising its budget. The government plans to direct greater investment into various sectors of the market and the improvement on the quality of life in Mongolia. Budget expenditures on market investment may increase by 42 percent to MNT 892.2 billion. The surplus revenue came from an unexpected jump in coal and copper prices. A sum of MNT 264.7 billion will be spent to implement various projects. The government will spend MNT 300 billion to promote the wool and cashmere industry, MNT 34 billion to improve the air quality in Ulaanbaatar, MNT 3.3 billion to fund earthquake prevention projects, and MNT 35 billion to buy wheat from farmers.

Source: Udriin Sonin

COAL MARKET REMAINS A BIG EARNER FOR MONGOLIA Coal exports from Mongolia earn USD 3.84 million each day. Even during the current economic crisis, China's demand for fuel has driven growth in Mongolia's coal exports. With an estimated total reserve of 162 billion tons, projections indicate Mongolia will export 50 million tons of coal each year, said E. Zorigt, the Minister of Mineral Resources and Energy. The average prices of coal jumped 3.2 percent in less than a month and exports are up 63 percent from last year. The Tavan Tolgoi holds an estimated 6 billion tons of coal reserves and resources, including 1.4 billion tons of coking coal, used for steel production. Its Western Tsankhi will be mined by a consortium still being negotiated. The eastern site, where production has already begun is controlled by the state owned firm Erdenes MGL. The Australian firm Macmahon has been contracted to assist with the sites development. The sites are said to hold 1.2 billion tons and 1.07 billion tons of reserves respectively. “The Mining of TT and stable operations in a very short time, specifically within this year,” said Prime Minister S. Batbold. This must be done as a model project.” He said that Tavan Tolgoi will follow the example of Chinese state-owned firms that were able to transform themselves from unprofitable and closed projects to well-run operations that introduced IPOs to international markets. Mongolia is working with the London Stock Exchange (LSE) to update its own exchange in Ulaanbaatar to meet this aim.

Source: Frontier Securities

COAL MARKET HEATS UP WORLD-WIDE Coking coal production is expected to rise next year, as a number of coal mines are expected to return full production in Australia. Steel consumption is leading continuous growth until 2013,

predicted the Bureau of Resources and Energy Economics (BREE) in a recent report. Coking coal is a major mineral export of Mongolia's with a tremendous yield to begin once the Tavan Tolgoi project reaches full production. Coking coal trade is to increase by 1 percent to 277 million tons in 2011 and to rise by 9 percent to 301 million tons in 2012. Australia will likely remains the world's top exporter, reported the source. “Increased trade will be supported by higher imports from Asia and an expected return to full capacity at flood-affected mines in Australia,” said the report. Australia‟s metallurgical coal exports are expected to increase to 160 million tons in 2012 compared to 159 million tons in 2010 and 137 million tons this year. The 14 percent drop was due to disastrous floods in Australia that shut down operations at a number of mines. The United States and Canada are also expected to increase their coking coal exports. Estimates indicate that the United States will increase exports by 6 percent to 54 million tons and Canada by 7 percent to 30 million tons. Read more… Global consumption of iron-ore is expected to increase by 3 percent to 1.1 billion tons this year, followed by and an increase to 1.2 billion tons next year. Japan, China, and India will likely have the greatest demand. China will likely lead the world in global iron-ore import growth. Most exports are expected to originate from both Brazil and Australia. The growth in iron exports is due to an increase in steel consumption for growing construction and manufacturing projects world-wide. BREE foretasted global steel consumption to rise by 5 percent to nearly 1.46 billion tons in 20112 and by another 5 percent to 1.54 billion tons in 2012. However, consumption growth will likely ease in the second half of this year as economic growth slows in China, the United States, and Europe.

Source: Mining Weekly

MARKET CAN'T WEAKEN CONFIDENCE IN COPPER Despite concerns about the global economy, Xstrata Copper said it continues to see strong fundamentals in the copper market. Officials from the Chilean state-owned copper company Corporacion Nacional del Cobre (Codelco) said that some of the company clients requested to cancel orders due to the economy. Codelco is the world's top copper-mining company and produces about 1.7 million metric tons of copper, which accounts for about 11 percent of global copper output. However, Xstrata reported that it has not received any requests to cancel orders. The company plans to develop new copper projects and begin operations in 2012 and 2014.

Source: Dow Jones

CHINA ASKS MONGOLIA TO CONSIDER ADDING YUAN TO ITS RESERVES The Deputy Governor of China's central bank is encouraging regional participation to reduce reliance on major world currencies and prevent currency risks. The decision comes from an effort to promote China's own yuan internationally. China has encouraged Mongolia to add the yuan to its reserves. “Major economies including China and Russia have called for less dependence on the U.S. dollar in international trade and investment since the global financial crisis, and for accelerated steps to promote their own currencies on a global basis,” said Delun. “The current complicated global financial situation makes it more necessary to deepen financial cooperation between China and Eurasia.” The official spoke with Mongolian's Central Bank First Deputy Governor B. Javkhlan about the potential for countries sharing borders with China. However, he said China shouldn't rely on these countries too much for yuan internationalization given their small investment capacity. Although Mongolia is researching the possibility for including the yuan in its national reserves, a great deal of work would be needed to do so, said Javkhlan. He further commented that dollar's dominance will not be shaken in the near future. China and Mongolian signed a currency swap agreement this year worth CNY 700 million (USD 109 million), in addition to Uzbekistan and Kazakhstan. The agreement was a part of China's push to extend currencies swaps with 12 monetary authorities. Delun said he hoped the Xinjiang Uygar autonomous region could become a central hub for the network. China's cross-border trade settlement in yuan surged past CNY 957 billion in the first half of 2011, more than 13 times the same period last year, reported China's central bank.

Source: China Daily

RARE EARTH PRICES STRANGLE THE GREEN-ENERGY MARKET China's bottlenecking of its rare earth metals has been to the detriment western nations' efforts to exploit energy-efficient commodities and alternate fuel sources. Rare earth metals are used in energy-efficient bulbs and other green-energy products. Chinas decision to reduce exports and raise tarries may open a new market for Mongolia if rare earth production could begin. However, China's decision is also affecting international trade. Companies such as General Electric (GE) are receiving complaints from the United States about the rising costs of compact fluorescent bulbs because of rising rare earth prices. Fluorescent bulbs have risen 37 percent this year. The United States and many nations in Europe have already passed laws to transition from incandescent bulbs to the more efficient variety, but rising prices have thrown a wrench in the process. “The high cost of rare earths is having a significant chilling effect on wind turbines and electric motor production in spite of offsetting government subsidies for green tech products,” said Michael N. Silver, chairman and chief executive of American Elements. To address pollution, China halted its rare earth industry for three months and shut down a number of firms. It has also imposed tariffs and quotas on its rare earth exports for year. Since August, China's closed many of its rare earth factories for the installation of pollution control equipment that must be in place by 1 October. The government is ordering 31 mostly private rare earth processing companies to close this year in Northern China and is developing a single government controlled monopoly, Bao Gang Rare Earth, to mine and process ore there. It also intends to consolidate 80 percent of production from southern china into three companies by 2014. The WTO prohibits China from curtailing exports, with no exception to rare earths. However, even if the WTO forces the Chinese government to remove its quotas and tariffs, its industry consolidation now under way would allow China to retain its control over exports. If state-owned companies limit sales to foreign buyers, the WTO cannot address the issue well.

Source: New York Times SOLE PRODUCTION FOR RARE EARTHS WEIGHS TOO HEAVILY ON CHINA China plans to loosen its grip on the rare earth minerals market. China is the largest producer of rare earths in the world, but its limit on exports and tariffs has worried western firms that use rare earth materials in a variety of high-tech hardware. Some investors are currently speculating about a rare earth market in Mongolia. The short supply of rare earths is an irreversible trend, said Baotou Steel Rare-Earth Hi-Tech Holding Co. The Inner Mongolian firm is China's largest rare earth producer, holding 1,719 metric tons of rare earth export quotas for 2011. “Industry experts said that the world's heavy reliance on China for the metals since the 1990s could not be sustained, as high levels of mining activity had exacted an enormous environmental toll,” said Chen Zhanheng, director of the academic department of the Chinese Society of Rare Earths. “China should not be the world's supply center for rare earths in the future. From the strategic point of view, it is better to encourage the diversification of global supplies. China's effort to curtail exports has resulted in complaints from nations through the World Trade Organization (WTO), which ruled in July that China's export quotas and tariffs violate its commitments made when it joined the WTO. However, Chen argues that resources could be depleted quickly at this rate and production must be limited. The limit of production from China has risen prices and experts expect them to remain high for the rest of the year. Source: New York Times

COPPER AND GOLD PRICES DRIVE M&A IN THE MINING SECTOR Demand from China, the world's leading copper consumer, and anxiety towards its supply have propelled copper prices to record heights this year. However, copper is not immune to the world economic crisis and has since fallen. On the London Stock Exchange (LSE), copper hit a peak of USD 10,190 per ton in February, but hovered around USD 8,800 this month. That translates to a near 14 percent drop since its peak. Neil Gregson, co-manager of J.P. Morgan Asset Management's Natural Resources fund, believes the next decade will be further marked by industrialization and urbanization in emerging economies. Supply problems will also work to benefit natural resource companies. Gold in particular is on one precious metal he had strong faith in. “He who has gold makes the rules. If you're an iron-ore producer or copper producer and you've got a good assets, it's a very valuable asset with high barriers to entry,” he said. “We think investors should pay up more than that they are currently.”

So far this year, gold has risen by a third. The jump in gold prices is largely because investors have turned to it as a safe haven. The Global Mining Fund, which is down 11.62 percent in the six months to August, has around 23.6 percent in gold and precious metals, and 66.5 percent in base metals.

Source: Reuters

ASIAN ECONOMIES WILL CONTINUE GROWTH, BUT WEST WILL STRUGGLE, SAYS IMF Emerging economies stand above the rest in the wake of economic disaster. The International Monetary Fund cuts its prediction for global growth to 4 percent, warning of “severe repercussions” to the global economy unless Europe is able to reinvigorate its banking systems and the United States sorts out its fiscal affairs. However, growth in the emerging markets looks much stronger, though less than its 2010 predictions. The IMF predicted that Mongolia's gross domestic product (GDP) would grow at a compound annual rate of 26 percent from 2010 to 2016. Overall, the IMF reduced its estimate of global growth by 0.3 percent since its most recent estimate in June. Italy's credit rating was recently downgraded by Standard & Poor and the European Central bank had to intervene and buy Italian government bonds to keep yields low. In the United States, construction activity remains one of the weakest parts of its slow economy. However, the IMF paints a much different picture for developing nations. China is expected to grow 9.5 percent this year, compared to its 10.3 percent growth in 2010. However, the IMF warns that stronger currencies are needed to keep inflation under wraps. It now projects 8.2 percent GDP growth this year and 8 percent growth in 2012 for emerging Asian economies, as compared to its June prediction of 8.4 percent for both 2011 and 2012. These figures include South Asian subcontinent nations, but excludes Japan and the “newly industrialized economies” Hong Kong, Singapore, South Korea, and Taiwan. Read more… The IMF's predictions will be an important topic of discussion this week by central bankers and finance officials in Washington for the IMF's annual meeting. “Strong policies are urgently needed to improve the outlook and reduce the risks,” said IMF chief economist Oliver Blanchard. “Policy makers don't have the luxury of time.”

Source: Wall Street Journal

EURO BANKS RUSH TO GOLD For the first time in nearly a quarter of a century, European central banks have become net buyers of gold. Current economic perils have revolutionized the bullion market, said the source. Gold is a chief export in Mongolia and the widespread interest in gold has effected firms such as Ivanhoe Mines to put more emphasis on gold production. Although purchases are small relative to the global gold market, they are huge compared to a history of heavy selling by European central banks. Their role in the market will be a prominent topic for debate at the annual London Bullion Market Association conference, the gold industry's largest conference. European central banks have added more than 25,000 ounces to their reserves, reported the International Monetary Fund (IMF). “We're going back to a time when gold is seen very much as money,” said Jonathan Spall, director of precious metals sales at Barclays Capital. “It has been a complete reversal of the attitudes we saw during the 1990s.” The switch from buying to selling by nations such as Switzerland has driven gold prices more than 25 percent higher thus far. Spot gold hit a record of USD 1,920 per ounce this month. Central banks around the world are ready to buy more gold this year than ever since the collapse of the Breton Woods system when the U.S. dollars followed the price of gold 40 years ago. The shift from U.S. dollar reserves to gold comes as some politicians in Europe call for debt-ridden members of the European Union such as Portugal, Spain, or Italy to be forced to sell their gold reserves to reduce debt. However, despite record highs, gold prices would make only a marginal effect on debt, while possibly exacerbating investor concerns about the EU. Source: Financial Times

POLITICS TAVAN TOLGOI DEAL TO BE RETOOLED The decision by National Security Council (NSC) decision to rescind the Tavan Tolgoi Western Tsankhi deal will likely be at the expense of the previously selected investors, but could score points for MPs currently holding seats in the next election. Last July the Mongolian government awarded 24 percent of the deal to the United State firm

Peabody Energy, 40 percent to Shenhua, and 36 percent to a Mongolian-Russian consortium. However, the decision received criticism from the public and outrage from the Japan and Korea for their exclusion from the deal. Japanese and Korean officials complained the bidding process was unfair. The site has an estimated 6.4 billion tons of coal reserves, the majority of which is high grade coking coal used in the production of steel. Projections indicate the site will produce 15 million tons of coal each year. At that rate, the mine could produce for over 100 years. An analyst based at the capital commented that the decision to revise the decision could have been politically motivated. "They know that making choices to give more to the public will be viewed as patriotic decisions," said the analyst. We can expect to see many blocks along the way but I believe at some point it will be approved. It will just take some time."

Source: AFP GOVERNMENT ADMONISHED BY NSC‟S CONSULTANTS FOR FAILURES ON TT A team of national consultants advised Mongolia's leaders to keep Tavan Tolgoi's tender open and transparent. The National Security Council (NSC) assembled the team to address problems surrounding Tavan Tolgoi, a coal deposit which has been the subject of much concern and is highly prized for its tremendous reserves. “Before selecting partners to cooperate with the Mongolian government on the Tavan Tolgoi deposits development, the NSC would like to remind the government to follow several important items on the selection process,” said a letter from the team of consultants. “Tender should be open and transparent. Negotiations should be kept on a professional level, and all parities should be treated fairly. Thus far, the government has failed to meet the above mentioned requirements.” The letter was addressed to President Ts. Elbegdorj, Parliament Speaker D. Demberel, and First Deputy Prime Minister N. Altankhuyag. The NSC held a meeting imploring the government to consider its team's advice. The team was organized to address problems regarding the Tavan Tolgoi projects, said the NSC.

Source: Udriin Sonin CONFIDENCE OF MY PEOPLE TRUMPS THAT OF INVESTORS, SAYS ELBEGDORJ Mongolia's ban on mining activities within the vicinity of rivers, lakes, and forestry is necessary for the conservation of Mongolia's land and livelihood of herders, said President Ts. Elbegdorj. The Law on the Prohibition of Mineral Exploration in Water Basin Areas and Forest Areas (commonly referred to as the “long-name law”) has been controversial because it resulted in the revocation of hundreds of exploration licenses. “Half of the territory is covered by exploration licenses. I think that's enough,” he said in a New York interview during his visit for the United Nations General Assembly. “We have to save our wealth [for] our next generation. Mongolia's rich and mostly untapped coal, copper, gold, and uranium deposits have caught the attention of hundreds of foreign mining firms. However, political concerns have caused some companies to hesitate. Elbegdorj acknowledged that politics in Mongolia has broken the confidence of some investors, but said it would be worse to lose confidence from his people.

Source: Dow Jones FIFTH POWER PLANT IN MONGOLIA TO PREVENT FALLOUT IN POWER SUPPLIES Following the completion of preparation, the National Security Council ordered construction on a new power plant to begin this year. The government completed its feasibility study on Mongolia's fifth power plant to be built and will begin construction this year. The study was conducted with financing by ADB and the Ministry of Mineral Resources and Energy's Science and Technology Board. The sum of investment for the project is USD 1.4 billion; USD 600 million of which is needed for the project's first phase of construction. Project planners intend to complete the project by 2015 and reach full capacity by 2020. The plant will help alleviate an expected power shortage in Mongolia in 2015. To the benefit of foreign investors, a resolution passed by parliament dictates that by 2014 the government will loosen its tight control over electricity prices. However, the law also said this should be done without creating a greater burden to citizens. Currently the government offers discounts to citizens whose monthly electric usage falls below 150 kilowatts. Mongolian electricity consumption reached its peak in 1989 and finally returned to that level in

2008. Source: Udriin Sonin

MINING INDUSTRY STILL FACES DIFFICULTIES WHILE DELIVERING CHANGE TO MONGOLIA Rapid and extensive growth from the mining industry has allowed Mongolia to skip steps on the traditional path to development. However as life changes quickly, Mongolia is feeling pangs from growing pains. Mineral wealth is transforming Mongolia from a remote and desolate destination to a global investment magnet, principally in Ulaanbaatar where luxury brands such as Louis Vuitton have opened shops. The economy grew around 17 percent over the past year ended June. Last year the Mongolian tugrug was one of the fastest appreciating currencies against the U.S. dollar and its stock exchange in Ulaanbaatar was the world's best performer. The two mineral projects mostly responsible for growth, Oyu Tolgoi and Tavan Tolgoi, have employed 48,000 people thus far. However, royalties and taxes has been a lingering issue between the Mongolian government and foreign mining firms. Rio Tinto Country Director and Oyu Tolgoi's CEO Cameron McRae warned the government that undermining investor confidence in the country could risk Mongolia losing all it has gained. The tensions from government reflect a growing animosity towards mining firms and expatriates living in Mongolia from the public. “Bureaucracy has been the biggest hurdle; it's the biggest issue you face,” said Peter Akerley, the chief executive of Erdene Resources at the recently held Discover Mongolia mining forum. “On the positive side, I'm not sure there's anywhere else in the world where you can go out and find world-class deposits just outcropping from the terrain.” Read more… The concentration on the mining sector may hurt other industries such as tourism and cashmere production as well. The rising value of the tugrug makes exports more expensive and only the mining sector attracts Mongolia's best and brightest. Meanwhile, bureaucracy and corruption continue to weigh heavily on the mining sector. The most recent Transparency International corruption list ranked Mongolia at 116. Although infrastructure lags behind growth, progress is being made. The government plans to build or renovate about 5,000 kilometers of road and to construct USD 5 billion worth of or railway from southern Mongolia to the northeast, spanning 1,800 kilometers.

Source: The Australian

MONGOLIAN POLITICS CONTINUE TO BADGER FOREIGN INVESTORS The ban on license issuance continues to frustrate foreign investors and Mongolians who would like to press the mining boom even further. The ban imposed in 2009 is due to expire at the end of the year, but Parliament could extend the band if it so chose. The law for the protection of rivers, lakes, and forestry suspended nearly 2,000 licenses, but the government has lacks the resources to fully enforce the suspension. Dozens of projects have been shut down, while hundreds more operate but in a state of legal limbo. The suspension was ordered by President Ts. Elbegdorj until the government can better define what areas need protection from mining operations. Although foreign firms are interested in Mongolia's vast untapped resources, legal and political uncertainties leave some hesitant to invest. "Is Mongolia the place to be, or is it Colombia?" asked Bernard Guarnera, president of mining consultants Behre Dolbear, at the Discover Mongolia conference. "We vote Mongolia, but mining companies have to make a decision based on certainty and stability." Read more… The government should have worked with the Worldwide Fund for Nature (WWF) to define the boundaries for mining operations, said Chimed-ochir Bazarsad, the WWF representative to Mongolia. He said his organization attempted to map out the ecologically important areas that need protection for watershed, biodiversity, and cultural values, but the work was never finished without government support. Now, however, all the prohibited areas are determined through government negotiations with firms without that information. Communities have taken the law into their own hands, taking rifles to illegal “ninja” miners willing to mine in prohibited areas. Unfortunately, the battle between enterprising artisan miners and protectors of the environment does not give investors the image of a stable political environment. Mongolia has the unfortunate reputation for repealing laws shortly after its introduction, giving rise to the common saying, “Mongolian laws live three days.” While some would like the law suspending licenses to repeal, environmentalists say it is more of the same reckless behavior from government. Some believe foreign mining firm executives are gaining too much influence in Mongolian politics

too. Source: Reuters

LABOR UNION REQUESTS MINIMUM WAGE BE TRIPLED The Confederation of Trade Union petitioned the government to triple the minimum wage. Although workers received raises in salaries and pensions, those gains cannot compete with rising inflation. “We do not want to increase the amount of money in the market,” said S. Ganbaatar, president of the labor union. “Instead we want to increase the share of employees' salary in total profit. In western countries, corporate owners get 20 percent of total profits and employees get the remaining 80 percent. In our country, it is the opposite. We want to change this.” Inflation has risen 9.0 percent since this time last year. However, during that same period, the nominal average of salaries did not reach that level, resulting in a weaker purchasing power for consumers.

Source: Udriin Sonin

MINISTRY‟S AMBASSADOR FACING NUCLEAR WASTE ALLEGATIONS RESIGNS Ms. A. Undraa, Ambassador of the Ministry of Foreign Affairs, stepped down after being loosely connected to rumors concerning foreign nations interested in storing nuclear waste on Mongolian soil in the media. The minister who specialized in nuclear energy resigned last week after her name was mentioned among supposed organizers for a nuclear waste storage facility. “I have been offered work as an advisor to Parliament and I am considering the position,” said Undraa. Undraa was apparently a rising star in her field as many speculated she might be the next director of the Atomic Energy Agency.

Source: Udriin Sonin

ELBEGDORJ PROPOSES TO U.N. A THINK TANK FOR LANDLOCKED DEVELOPING COUNTRIES President Ts. Elbegdorj appealed to United Nations Member States to pass a multilateral agreement to develop an international think tank in Mongolia to address the concerns of landlocked developing countries. The agreement is one of several treaties open for signing the annual event that coincides with the Assembly's general debate. Landlocked developing countries are some of the poorest with the weakest growth rates, and are typically rely heavily on a few exports, reported the source. Remoteness from world markets and expensive transport costs are huge barriers to development. Elbegdorj believes a think tank will bear cooperation in the implementation of the Almaty Program of Action, which dictates specific measures needed to improve market access and trade facilitation to compensate for the barrier these countries face. A think tank could also help nations reach the Millennium Development goals to reduce poverty, hunger and defend again illness and socio-economic problems by 2015, said Elbegdorj.

Source: U.N.

INDIA COURTS MONGOLIA FOR ALLIED DEFENSE Mongolia and India are “spiritual” neighbors that can mutually benefit from an alliance to counter China's rising influence and cooperative defense strategies said Sharad K. Soni. Currently Indian and Mongolian troops are participating together in two-week-long military exercises. Although the Treaty of Friendly Relations and Cooperation signed in 1994 laid the foundation for relations between Mongolia and India, it was President Ts. Elbegdorj's 2009 visit that reignited the drive for close relations. Mongolia is critical for a rising India's Asian strategy, while India figures prominently in Mongolia's external relations, now characterized by its “third neighbor” policy,” said Soni. India would like to cooperate with Mongolia to create a balance in Asian relations when dealing with China. The two nations have cooperated on defense trainings, bilateral visits, and joint military exercises to promote cooperative defense since 2001. The bilateral exercises “Nomadic elephant” and “Khan Quest” are examples of efforts to meet this objective. In 2010 trade reach USD 16.9 million, a nearly USD 3 million increase from 2009. Mongolia's coal, gold, copper, and uranium reserves could be of great value to India, said Soni. India is interested in utilizing Mongolia's minerals for construction and energy projects. The greatest obstacle to trade, however, would be transport. This is also the primary reason relations between Mongolia and India have been slow to develop.

Source: World Politics Review

ITALIAN MINISTER VISITS MONGOLIA Prime Minister S. Batbold discussed relations with Italy during Italian Minister of Economic Develop P. Romani's recent visit to Ulaanbaatar. The two officials discussed the possibility of opening a Mongolian embassy in Rome and trade relations. Italy agreed for Mongolia to export 7,900 cashmere and wool products to Italy tariff free.

Source: Asia Pacific Securities

INNER MONGOLIA AND MONGOLIA MAKE MEDIA AGREEMENT Parliament received a delegation from China's Inner Mongolian Autonomous Region this week at the capital to promote bilateral media cooperation. The Chinese delegation was led by Liu Yongxin, head of the Radio, TV and Movie Bureau of Inner Mongolia. At the start of the meeting, MP Ts. Tsengel acknowledged growing relations between Mongolia and China and the increased frequency of visits from high-level officials. “Mongolian people like to watch Inner Mongolian TV channels,” said Tsengel. “Radio and TV programs bring people from the two countries closer and lift friendship and cooperation.” In response, Liu noted that this visit was the fourth time Inner Mongolian journalists had visited Mongolia. During the visit, the two parties revised their bilateral cooperative agreement regarding TV and radio and signed a memorandum of understanding.

Source: People's Daily

MONGOLIA'S MILITARY IMPRESSES NATIONS ABROAD The capabilities and professionalism of Mongolia's military is strengthening ties between Mongolia and nations abroad, said Defense Minister L. Bold. The ministry is cooperating with the United States, Germany, South Korea, and Turkey. A total of 5,671 military personnel have taken part in international peacekeeping operations. Mongolian troops have served in Iraq, Sierra Leone, Chad, Sudan, Kosovo, and Afghanistan. The Government recently decided to send an entire battalion, a team of 850 soldiers, to Southern Sudan to help aid on-going conflict there. Equipment and arms worth USD 100 million have been sent to Mongolia from Russian under an intergovernmental contract. Recent missions have required more responsibility and the number of personnel taking part is growing, said Bold. The military official said the greatest benefit of these missions to Mongolia's military is raising the level of preparation amongst soldiers. In addition, both the army and soldiers are receiving financial compensation.

Source: Udriin Sonin

MONGOLIAN BOY MAY BE NEXT DALAI LAMA The newspaper Undesnii Shuudan published a report claiming a nine-year old Mongolian boy was chosen to succeed the Tibetan Buddhist leader the Dalai Lama. The fate of Tibet will be determined by his successor, said the Dalai Lama. Fears have spread that the Chinese government would interfere in the selection as well. The Dalai Lama has also said he wants his successor to be determined during his lifetime. The newspaper claims his successor was chosen from 300 children from Nepal, India, Mongolia, and Khalimag. However, it did not reveal any information to the identity of the boy.

Source: Mongolia Web SOMALI PIRATES RELEASE MONGOLIAN FREIGHTER Somali pirates released a Mongolian-flag bulk carrier seized of the coast of Oman in January after receiving a ransom, said pirates and a maritime monitoring group. The 22,835 ton Vietnamese-owned freighter was commandeered about 963 kilometers southeast of the port of Muscast with a crew of 24 Vietnamese nationals. Since the ship's release, it has remained in safe waters and reported to be on its way to Salalah harbor in the south of the Sultantate of Oman Mogadishu, said Ecoterra International in a statement. "I don't know how much ransom they received, but the ship has been released unexpectedly. We were told yesterday that it's gone for hunting, but they were releasing it that time," said a pirate who gave his name as Awil to Reuters. Despite efforts to counter pirate activity by foreign navies in the Indian Ocean, pirates have accumulated tens of millions of dollars from ransom. Attacks on oil tankers and other commercial ships continue take a toll on the world economy. After the conclusion of the monsoon season,

pirate activity is expected to increase, said a senior European Union navy official. Source: News 24

ANNOUNCEMENTS NAMBC INVESTORS CONFERENCE, ULAANBAATAR, OCTOBER 4-6 The 14th Annual NAMBC Investors Conference & Ikh Tenger Roundtable begins the evening of 4 October and ends the evening of 6 October. The optional Oyu Tolgoi trip is 7 October. Centerra Gold has become a sponsor of our 14th Annual Investors Conference, joining Golomt Bank, Newcom LLC, Wagner Asia, Erdenes MGL, Erdenes Tavan Tolgoi LLC, and our brother organization, the Business Council of Mongolia (BCM). Previously announced was the "Centennial" host sponsorship at which we commemorate the 100th anniversary of Mongolia regaining independence by Rio Tinto and Oyu Tolgoi LLC. A preliminary schedule is available for the Investors Conference. For the first time, we will have full professional simultaneous interpretation in Mongolian and English for all sessions of the Investors Conference, thanks to the sponsorship of Oyu Tolgoi LLC and Rio Tinto. For a registration form and reserving group rate rooms at the Kempinski Khan Palace Hotel, please visit www.nambc.org ___________________________________________ GIANT STEPPES OF JAZZ FESTIVAL, ULAANBAATAR, OCTOBER 5-8 The Giant Steppes of Jazz Festival is back in town! The Festival produced by its namesake society for the 5th time now will be held in Ulaanbaatar on Oct 5-8, 2011. A Gala Concert will be held at the Philharmonic Hall on Oct 6 from 7 PM. Evening Club Performances at River Sounds on Oct 5, 7 and 8 from 7 PM. There will be Late Night Jam sessions at The Square (3rd floor, Central Tower) on Oct 5, 7 and 8 starting by approximately 9:30 PM. This year‟s festival line-up includes a variety of jazz styles: - The Marc Brenken-Jean-Yves Braun Quartet (bass, guitar, piano, drums, Germany-France) - “In The Country” (piano trio, Norway) - Mr. Bob Bellows (vocals/piano, USA) - Ms. Deb Rasmussen (vocals, Canada) - Arga Bileg ethno jazz band (Mongolia) - Enkhmonkh (vocals/piano, Mongolia) - Chinbat (horn, Mongolia) - Enkhchimeg (flute, Mongolia via Germany) As during past Festivals, plans are being made for a trip to Lotus Children‟s orphanage for performances with the kids. For ticket information, please call 8865-4466 (Mgl), 9999-3321 (Eng), 9911-1061 (Eng&Mgl), Tickets will be on sale at The State Philharmonic Ticket Office, The Square Restaurant (Central Tower, 3rd fl) and Hi-Fi Store (Megastore, Seoul Street). ___________________________________________ MONGOLIA TRADE & COMMODITY FINANCE CONFERENCE, ULAANBAATAR, OCTOBER 13 This landmark conference at the Chinggis Khaan Hotel will only welcome leading experts within the trade and commodity finance sector, utilizing a format that includes detailed case studies, informed debate and invaluable networking opportunities. Among topics to be discussed: • Considering the threat posed by volatile commodity prices • Utilizing Mongolia‟s competitive advantage to improve product diversification • Improving underdeveloped promotion services to demonstrate the unique appeal of Mongolia • Raising capital from foreign investors to develop projects and infrastructure • Developing an export financing structure • Expanding trading relations beyond traditional allies to become a truly global trade partner • Reducing dependence on foreign imports • Forging relationships between local and international banks to provide vital liquidity. BCM is an Institutional Partner for this event and special offers are available for BCM members. The conference brochures with agenda will be available in BCM office and will also be distributed at

BCM‟s September 26 monthly meeting. Please contact Ms. Monika Kuzniewska, Marketing Executive, at monika@exportagroup.com or by phone at +44 (0) 20 8772 3013 for further information. ___________________________________________ MONGOLIA INVESTMENT SUMMIT 2011, HONG KONG, OCTOBER 26-27 A newly updated programme and brochure for the Mongolia Investment Summit 2011 has just been released and is available for you to download from the summit website. Click on Mongolia Investment Summit 2011 Brochure to download your copy today and take a look at the latest list of speakers, sponsors and exhibitors confirmed for the event. Find the next Hunnu at the Mongolia Investment Summit 2011. Mongolia hit the headlines again last week with the news that Thai coalminer Banpu had made a takeover offer for Hunnu Coal of AUD$1.80 a share, just eighteen months after the company went public at just 20 cents a share. With Hunnu‟s sister companies Haranga Resources and Voyager Resources participating in the Mongolia Investment Summit 2011, this is an event you will not want to miss. New sponsors signing up each week. We are delighted to announce that two of Mongolia‟s largest securities brokerage houses have signed up as sponsors of the conference this week. Asia Pacific Securities, part of the Asia Pacific Investment Partners group of companies and BDSec will both join the summit as Silver Sponsors. With their many years‟ experience of helping clients invest on the Mongolian Stock Exchange, these two companies bring to the Summit unrivalled expertise on the local investment environment. We welcome their support and that of the other 23 companies sponsoring and exhibiting at the show. New investment speaker announced. This week we can also announce that Mr. Hyun-Chan Cho, Country Manager - China and Mongolia of the International Finance Corporation will give a presentation sharing the IFC‟s perspectives on nine years of investment in Mongolia. The IFC has invested in a range of sectors including agribusiness, mining services and financial services and Mr. Cho‟s presentation promised to offer invaluable lessons for any prospective investor into the country. To join IFC, Asia Pacific Securities, BDSec, Haranga, Voyager and 300+ delegates at the Conrad Hong Kong on 26-27 October, register today – it couldn‟t be easier, simply: Call us on +852 2219 0111. Email us at info@beaconevents.com. Visit Mongolia Investment Summit 2011 Registration. Register now and we look forward to welcoming you to the Conrad Hong Kong in October. ___________________________________________ METALS MONGOLIA, ULAANBAATAR, NOVEMBER 3-4, 2011 The main objective of the international investment conference, to be held in Government House, is to provide a discussion platform and assist in medium- and long-term planning and implementation associated with the government‟s intentions to achieve value-added production at industrial parks through downstream processing of ferrous and non-ferrous metal products. It is aimed to provide potential investors with an insight into the government‟s policies pertaining to the metallurgical industry, related exploration, extraction, processing, and infrastructure projects; to facilitate such investments; provide opportunity for open discussion and possible solutions through involvement of representatives of both public and private sector and professional organizations on the opportunities and challenges in project financing, tax and legal environment. The conference will have main and branch sessions involving over 800 representatives of parties engaged in ferrous and non-ferrous metal projects, manufacturers, suppliers, foreign and domestic investors, academics, professional associations, state administrative bodies, embassies. The main conference will cover the present situation and future trends in Mongolia‟s metallurgical industry. A special feature will be the “Government Hour,” which will feature an open discussion on strengthening PPP in the metal-based industrialization process. The branch conferences will be on: - Opportunity to develop rare-earth based industries - Developing base metal industries - Developing iron and steel industries

- Issues facing provision of required infrastructure to ferrous and non-ferrous metals based on industries-experiment and opportunity. Each branch conference will include thorough discussions of resources and reserves of the type of metal discussed, applicable market conditions, investment projects, technology and equipment. BCM is a Supporter of the event. For more information, Visit: http://www.metalsmongolia.mn/, or call +976-70115590, Fax:+ +976-70125590, or email: info@metalsmongolia.mn. ___________________________________________ MM TODAY” on MNB-TV, Fridays at 21:15 BCM is pleased to announce that Mongolian National Broadcasting continues its cooperation with BCM on “MM Today”. This English news program is aired every Friday for 10 minutes and is scheduled for 21:15 tonight. Tune in to watch this program that reports stories from today‟s BCM NewsWire. ___________________________________________ “BSPOT” on B-TV, Monday to Friday at 21:30 B-TV (Business TV) now telecasts a 10-minute English-language news program called BSPOT every evening from Monday to Friday at 21:30, taking most of the stories from the BCM NewsWire. ___________________________________________ POSTINGS ON BCM‟S ENGLISH WEBSITE 'PRESENTATIONS' AND 'MONGOLIA REPORTS' and BCM‟s MONGOLIAN WEBSITE „NEWS‟ SECTIONS As a key component of BCM‟s Mongolian website, “News” section, articles from the Government‟s “Open-Government.mn” site will be regularly posted. Also several draft laws, still to be discussed in Parliament, are posted on BCM‟s English website in the Legislative Working Group section. On BCM‟s English website - „Presentations‟ from BCM‟s 7 monthly meetings in 2011, Peter Nicholls, OT‟s new VP-Operations, at Global MInES in Sydney on July 4, 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 are posted in BCM website‟s "Resource, Presentations" for your review. Also on BCM‟s English website, „Mongolia Reports‟ including "Blitz and Lead" by Sant Maral Foundation, August 2011, Z. Batbayar, Deputy Director of the Water Authority, at BCM‟s Environmental Working Group‟s recent meeting, the Polit Barometer-May 2011 from Sant Maral Foundation and the U.S. Embassy Mongolia‟s Commercial Section‟s “2011 Mongolia Investment Climate Statement” are among the reports posted on BCM's website (www.bcmongolia.org) in the “Resource, Mongolia Reports” section. 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]

August 31, 2011 *9.0% [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]

August 25, 2011 11.75% [source: IMF]

CURRENCY RATES – September 22, 2011 Currency Name Currency Rate U.S. dollar USD 1,261.86

Euro EUR 1,725.66

Japanese yen JPY 16.53

British pound GBP 1,981.31

Hong Kong dollar HKD 162.00

Chinese Yuan CNY 197.84

Russian Ruble RUB 40.13

South Korean won KRW 1.09

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.