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MINING DRIVEN ECONOMIC UPSURGE

“SHIVEE OVOO INTERMODAL TERMINAL”

PROJECT

Mongolia 2012 INVESTMENT SUMMIT

HONG KONG

31 October, 2012

Content

�Mining –driven economic growth of Mongolia

�Shivee Ovoo intermodal terminal and its function

�Target market and demand

�Conceptual design

�Economic and financial analysis

�Investment and financing

Mining - Driven Economic Growth

• The average GDP growth 2008-2010 - 9.5 % per annum.

• Mongolia is rich in mineral resources and mining is the driving force behind the Mongolian economic expansion.

• Mining comprises 20% of the GDP

• GDP growth is expected to remain very high in coming few years supported by high mineral prices, new mining projects, structural reforms and fiscal spending.

• The projections on GDP growth suggest that Mongolia will be the fastest growing economy worldwide over the coming 5 years, for the average annual real GDP growth over the coming 5 years will be at least 13%.

(According to the Frontier securities LLC http://www.frontier.mn)

Global Overview of Coal Trade

Current Situation

• RESOURCES: AVAILABLE • INVESTMENT: INCREASING• DEMAND: EXISTING

CAN MONGOLIA BE LEADING COAL SUPPLIER

�China �Japan, South Korea �India, Taiwan�Germany, Turkey

What are the target market?

Mongolian coal production plan& potential

Mongolia has a policy to increase coal export

The Southern Mongolia rich with coal

2010 2011 2012 2013 2014 2015 2020 2025

Export 16635 25000 30000 33000 40000 50000 65000 75000

Domestic consumption 7344 7634 8340 9635 13355 14580 16857 19010

Total production 23979 32634 38340 42635 53355 64580 81857 94010

2010 2011 2012 2013 2014 2015 2020 2025

Export 16635 25000 30000 33000 40000 50000 65000 75000

Domestic consumption 7344 7634 8340 9635 13355 14580 16857 19010

Total production 23979 32634 38340 42635 53355 64580 81857 94010

Facing Problem

o UNDERDEVELOPED INFRASTRUCTURE Mongolia has a potential to be one of the leading coal exporters in the world. But the transport and logistics link between coal and mineral suppliers and buyers is still weak, particularly for buyers from Japan, Korea, India and also China.

o TRANSPORTATION ARRANGEMENTSMining development creates demand for logistics facility and supply chain management in the region. But there is no well established supply chain of certain goods for mines.

Expectation• China will be the major importer of Mongolian coal and its share will be 90 percent, at

maximum

• Mongolia will continue its policy to diversify its export market and will export at least 10 percentof the coal export to other countries: Japan, Korea, India, Germany and etc.,

• Mining companies will prefer to have established supply chain as well as externalizethe costs/ outsource logistics and transshipment facilities

• External/outsourced terminal will open an equal access to all mining companies and will give an opportunity to share some risks between mining companies and terminal operators

• New industrial, urban and infrastructure development will create new demandfor cement, road asphalt, equipment and machineries and their spare part. But this demand is not sustainable but be consistent with investment plan set by GoM and private companies

Solution

CONSTRUCT INTERMODAL TERMINAL

SHIVEE OVOO INTERMODAL TERMINAL

Project addresses the problems of underdeveloped infrastructure and absence of supply chain of specific goods for mines and targets to meet a part of the demand

It is a demand driven project aiming at constructing needed to facilitate the coal and mineral trade and transportation and offer supply chain solution for the mining companies as well as new industries with needed inputs.

The facility will serve as

• Multimodal terminal of coal and other mineral transshipment

• Logistics center of chemicals, dangerous goods and heavy equipment and & parts for mining sites South Gobi and factories to be built in Sain ShandIndustrial Park.

Supply chain analysis

Coal (example)The industry analysis is briefly presented in the Part one. It is the major potential for the terminal. The terminal will be targeting onto the supply chains:

Origin : TT, Shivee Ovoo,

Destination: Japan, Korea, India, Taiwan and Germany

China is not excluded, but geographical proxy suggests that the terminal will focus on importers in North-Eastern part of Inner Mongolia.

Domestic distribution

Supply chain analysis: • Potential supply chain

• Cost is disadvantage but barrier set by China will be the push factor

• The coal price fluctuation unlikely encourage mining companies to invest into rail to export to the above market but they most probably will prefer to use external intermodal terminal.

• Flexibility and service level of road and rail

Target Market & Demand

Coal and mineral transshipment Chemicals, lubricants & dangerous goods

Warehousing and distribution

Demand Estimation

2014 2015 2016 2017 2020 2025

FREIGHT

truck-rail

Coal 500 1200 1500 2000 2500 3000

Other mineral 5 10 18 20 25 30

Cement 20 160 250 400 400 400

rail-truck

Dangerous goods * 2 4 4 4 10 15

Chemicals and lubricant * 20 40 40 40 50 75

Road asphalt * 50 300 500 800 1000 1000

Cement / import 70 270 400 800 300 300

Heavy equipment & parts* TBD

2014 2015 2016 2017 2020 2025

FREIGHT

truck-rail

Coal 500 1200 1500 2000 2500 3000

Other mineral 5 10 18 20 25 30

Cement 20 160 250 400 400 400

rail-truck

Dangerous goods * 2 4 4 4 10 15

Chemicals and lubricant * 20 40 40 40 50 75

Road asphalt * 50 300 500 800 1000 1000

Cement / import 70 270 400 800 300 300

Heavy equipment & parts* TBD

Source: PSI, MonEx, 2012* Dangerous good include the standby reserve + supply from warehouse** Assumed that infrastructure development will began as included in the Government Action Plan

Coal: 90 percent of the export will go to China, 10 percent of the export will go other countries and 1/3 of which will beprocessed at the Shivee Ovoo intermodal terminal

Traffic Distribution& Capacity Required

Coal /to terminal by truck/ Coal /From terminal by rail/Total tonns # Truck Per month Per day

2014 550000 9167 764 35

2015 1265000 21083 1757 80

2016 1523500 25392 2116 96

2017 2035000 33917 2826 128

2020 2546500 42442 3537 161

2025 3045350 50756 4230 192

Total tonns # Truck Per month Per day

2014 550000 9167 764 35

2015 1265000 21083 1757 80

2016 1523500 25392 2116 96

2017 2035000 33917 2826 128

2020 2546500 42442 3537 161

2025 3045350 50756 4230 192

Tonns Train unit per train # Wagons per train

2014 550000 1 30

2015 1000000 1 45

2016 1500000 2 40

2017 2000000 2 50

2020 2500000 3 50

2025 3000000 3 50

Tonns Train unit per train # Wagons per train

2014 550000 1 30

2015 1000000 1 45

2016 1500000 2 40

2017 2000000 2 50

2020 2500000 3 50

2025 3000000 3 50

Source PSI and MonEx, 2012

Source PSI and MonEx, 2012

Dimension M2

Coal yard 400X30 Concrete Open 12000

Mineral yard 50X30 Concrete Open 3000

Special warehouse/Dangerouse goods 50X24 1200

Special warehouse/Chemicals 100X24 2400

Standard warehouses 150X24 12000

Garage & truck maintanence 100X12 Brick Warm 2400

Admistrative & laboratory building 30x45 Brick 2-3 store 6750

Local heating 12x12 Brick 1 store 144

As required

As required

As required

Types Dimension M2

Coal yard 400X30 Concrete Open 12000

Mineral yard 50X30 Concrete Open 3000

Special warehouse/Dangerouse goods 50X24 1200

Special warehouse/Chemicals 100X24 2400

Standard warehouses 150X24 12000

Garage & truck maintanence 100X12 Brick Warm 2400

Admistrative & laboratory building 30x45 Brick 2-3 store 6750

Local heating 12x12 Brick 1 store 144

As required

As required

As required

Types

Capacity requiredSource PSI and MonEx, 2012

Location & Connectivity

Location

Cadastrial map

ConnectivityFrom To Direction Distance

Choir railway Ulaanbaatar city Rail 240

Station Tavan Tolgoi Gravel road 471

Ouy Tolgoi Gravel road 495

Tsaidam lake, coal mine Gravel road 120

Shivee ovoo, coal mine Rail 25

Zamiin Uud Rail …

From To Direction Distance

Choir railway Ulaanbaatar city Rail 240

Station Tavan Tolgoi Gravel road 471

Ouy Tolgoi Gravel road 495

Tsaidam lake, coal mine Gravel road 120

Shivee ovoo, coal mine Rail 25

Zamiin Uud Rail …

1.2 km railway- an access rail to the new terminal is needed and included in the investment needs estimation

Conceptual Design

Economic & Financial Analysis

Total Investment: USD 5,776,845.04

IRR: Before local tax paid-16%

For details: see the Pre-feasibility study report

Source PSI and MonEx, 2012

Types of investment

Investment & Financing /USD/

Source PSI and MonEx, 2012

Items First year Second year Total Percentage

Current asset 0.00 120,000.00 120,000.00 2.08%

Fixed asset

Land value 30,000.00 0.00 30,000.00 0.52%

Building 1,980,200.00 0.00 1,980,200.00 34.28%

Interest rate (14.4) 228,119.04 0.00 228,119.04 3.95%

Infrastructure 1,677,526.00 0.00 1,677,526.00 29.04%

Equipment 0.00 1,796,000.00 1,796,000.00 31.09%

Total fixed asset 3,915,845.04 1,796,000.00 5,711,845.04 98.87%

Total intangible asset 25,000.00 40,000.00 65,000.00 1.13%

Total fixed investment 3,940,845.04 1,836,000.00 5,776,845.04 100.00%

Financing

Equity 788,169.01 367,200.00 1,155,369.01 20%

Long term loan 3,152,676.03 1,468,800.00 4,621,476.03 80%

Total financing 3,940,845.04 1,836,000.00 5,776,845.04 100%

Financing & Return

• Debt/Equity: 80 %/20 %• Interest rate used: 14.4% per annum, 1.2 % per months • Loan: 6 years, loan payment starts after

capitalization• Tax rate: CIT and PIT

• Infrastructure investment: USD 1,677,526.00• Equipment investment: USD 1,796,000.00• Building and other investment: USD 1,980,200.00• Land value: USD 30.000.00 (to be paid to the

province development fund)

• Intangible assets: USD 65,000.00 (Project team expenses during the planning and construction period)

• Current assets: USD 120,000.00 reserved for financing local plan, and etc.,

Profit &Loss Estimation

Source PSI and MonEx, 2012

2013 2014 2015 2016 2017 2020 2025

Revenue

Freight processing 351,985.0 2,436,500.0 3,425,320.0 4,088,860.0 6,125,700.0 5,794,180.0

Storing 250,646.7 514,500.0 655,106.7 740,953.3 963,566.7 551,726.7

Rent 139,555.0 270,110.0 335,515.0 372,270.0 467,275.0 285,285.0

Total revenue 742,186.7 3,221,110.0 4,415,941.7 5,202,083.3 7,556,541.7 6,631,191.7

Expenses

Salary 20,418.8 92,565.0 119,790.0 131,769.0 175,384.5 282,458.6

Operational cost 37,440.0 149,760.0 172,224.0 206,668.8 314,317.4 632,204.6

Utility cost 8,120.0 32,480.0 34,916.0 37,534.7 46,629.2 66,942.3

Interest and loan payment 228,119.4 1,435,738.5 1,324,823.1 1,213,907.7 1,102,992.3

Maintanence cost 4,492.8 17,971.2 20,666.9 24,800.3 37,718.1 75,864.6

Depreciation 0.0 58,800.0 58,800.0 58,800.0 58,800.0 58,800.0

Unallocated 4,083.8 18,513.0 23,958.0 26,353.8 35,076.9 56,491.7

Total expenses 1,510,293.8 1,694,912.3 1,644,262.6 1,588,918.8 667,926.2 1,172,761.7

Profit before tax -3,940,845.4 -6,544,952.6 -5,018,754.9 -2,247,075.8 1,366,088.7 6,888,615.5 5,458,430.0

Risk Analysis Tested 6 cases & outcomes suggested the investment to be financially feasible side notes:

• Impact of new (private) railway: marginal

– New railway to be built is under concession agreement, thus it will be a private railway. It will be cost cutting factor, there are potential factors for delay:

• According to the 49 agreement between Russia and Mongolia, two countries have to make a joint decision on construction and use of new railways. It is a potential reason for delay and still uncertain

• When mining company has its own railway: the investment cost (railway, rolling stock and etc.,) as well as other costs (maintenance, technical services ). It is potential reason of terminal competitiveness in terms of cost/ tariff

• Impact of coal price and demand fluctuation:

– Price fluctuation is subject to economic crisis/ demand.

– Demand fluctuation is caused by the economic crisis. But crisis does not stay forever

• Impacts of political and administrative decision

– China likely to ban the transportation of Mongolian coal through its territory, due to it’s internal demand

– Negotiation between Russia and Mongolia likely to delay due administrative and other reasons.

– Tested

Next Step

�Confirm the contractual agreements with importers &mining companies/demand

�Finalize bankable FS

�Formproject team

�Have construction and local plan ready

�Fund-raising and so for the related actvities

�Start construction

�Serve the market

Thanks for your attentionD.ENKHBAT , CEO of MonEx LLC

T: 976-11 319304,319305, 330190

Fax: 976-11-318125

Mobile:9911 5550

E-mail : enkhbat@monex.mn

Web: webmail.monex.mn