BUSINESS COUNCIL of MONGOLIA NewsWire

www.bcmongolia.org info@bcmongolia.org

Issue 194, November 18 2011

NEWS HIGHLIGHTS: Business

GE inks a deal with Newcom to develop Salkhit wind farm;

Mongolian wind farm to use GE turbines;

Ivanhoe scrambles to find OT power source;

Ivanhoe moves forward with arbitration against Rio;

Guildford uncovers 63 million tons of coal;

Kincora encounters higher grades of copper;

Lucky Strike confirms coal deposit at CN project;

Erdene to complete drilling by end of December;

New road project open for bids;

Allens opens Mongolian office;

Haranga appoints new board member;

Risk Management Forum to educate business sector;

Mongolia Growth Group to host corporate updates in New York and Toronto;

Wedge Energy completes reverse takeover of Undur Tolgoi;

Dumas and Monnis ally for underground mining sector;

Mitsubishi buys stake in Chilean copper mine for USD 5.4 billion;

Caterpillar penetrates Chinese market with ERA purchase;

GE buys rail transportation-management software company;

Investors sell after departure of Noble executive;

Ivanhoe sees a quarterly profit.

Economy

Social economic data released;

Mongolian economy is reaching its limits, says World Bank;

IMF head warns against excessive spending by Parliament;

Waiting for the bubble to burst;

Mongolian economy may fall along with copper prices;

Construction sector’s foundation fortified;

Mongolia positioned for coal to gas production;

Dealmakers in Mongolia see strong pipeline, but hurdles include valuations;

Chinese imports rise while exports remain weak;

Gold imports surge in China;

Assault on Chinese speculators brings down copper prices;

Rare earth prices continue their decline;

Russia due change in economic practices with WTO admittance;

European firms lean on emerging economies when Western economies look shaky;

Mongolia experiments for new applications with ice formations.

Politics

Standing Committee rejects resignation request for Prime Minister;

Pols pick apart at 2012 budget;

MPP to cut over MNT 300 billion from 2012 Budget;

Parliament approves transfer of additional TT stock to citizens;

MPRP and Green Party form minority coalition;

President speaks on election practices;

U.S. donations to help educate next generation's workforce;

Government to discuss oil sector activities at open forum;

Industry leaders visit UB;

Mongolian lawyer joins prestigious ranks of Clinton and Thatcher;

Former president resists police investigation;

Ministry of Defense opens resort for military personnel completing missions.

*Click on titles above to link to articles

SPONSORS

Khan Bank Eznis Airways

Kempinski Hotel Khan Palace Mongolian National Broadcasting

Mongolian Star Melchers Breakthrough PR

Mongolian Properties Oxford Business Group

BUSINESS GE INKS A DEAL WITH NEWCOM TO DEVELOP SALKHIT WIND FARM General Electric is set to help build Mongolia's first wind energy park in a USD 100 million deal with the private investment firm, Newcom Group. The agreement, GE's first project in Mongolia and the country's first wind park, highlights the market

potential for renewable energy. The two companies said Salkhit wind farm, which they plan to open next year 70 kilometers southeast of Ulaanbaatar, would supply almost 5 percent of the country's electricity. This project will help to meet Mongolia's growing energy demand, which is increasing between 8 to 10 percent annually, said B. Byambasaikhan, Newcom chief executive. Salkhit is one of the largest contracts inked by GE since John Rice, Vice Chairman of GE and CEO of GE's Global Growth & Operations, moved to Hong Kong earlier this year in an assignment seen as a signal of the growing economic weight of Asia. Newcom, which will run the Salkhit wind farm, is a diversified conglomerate with interests in telecom, transportation, and finance. The group owns Mongolia's largest private airline and introduced mobile phones to the country by founding Mobicom in 1996.

Source: Financial Times

MONGOLIAN WIND FARM TO USE GE TURBINES General Electric Co. is sticking to expectations that its revenue from the world's fastest-expanding economies, including many in Asia, will grow at low-double-digit rates on average next year despite economic clouds over western Europe and the U.S. "We see growth in the low teens and we feel comfortable about that," said John Rice, GE vice chairman, speaking about the emerging markets under his watch as chief executive of GE's global growth and operations business. "We've seen no significant change in order flow. We've seen no big cancellations." Mr. Rice said China remains on track to beat GE's global revenue growth averages. He cited energy, health and aviation as "three businesses

that do extremely well in China." He also spoke confidently about resource-rich Mongolia, a fast-growing north Asian economy that he said could soon generate as much as $100 million in revenue for the Fairfield, Conn., conglomerate. GE's Mr. Rice spoke at a teleconference with reporters from the Mongolian capital of Ulaanbaatar where he announced "a strategic move" into the country with a deal to supply 31 huge turbines to a wind-farm project. The $100 million Salkhit Wind Farm, 70 kilometers southeast of the capital and due to open in mid-2012, is owned by Newcom LLC, a Mongolian investment company that also runs a cellular telephone network and an airline. GE didn't disclose financial terms for the wind-turbine deal. The deal is the first tangible outcome of a September 2010 memorandum of understanding between GE and Newcom to explore alliances in energy, water, mining, aviation, railway, lighting and health care. GE opened a Mongolia office in May, and Mr. Rice said he can foresee the country generating $100 million in revenue for GE in the "near term," about half from the wind sector and the rest from areas like locomotives, lighting, leasing and aviation. Read more… Mongolia is rich in coal and highly dependent on the sector for foreign direct investment and exports. Coal represents around 37% of the country's economic growth, driven by China's demand. To sustain its economic growth—a blistering 16.7% in the third quarter, with 25% growth expected by the government next year—Mongolia also has major plans to boost its power-generating capacity largely via coal-fired plants to accommodate needs of copper miners and other big users. The new 50-megawatt wind farm, the partners said, would generate power equal to about 5% of the nation's already-installed power production. Despite Mongolia's population of only about three million, most of the nation's citizens live in Ulaanbaatar, where power plants already make the air gritty even though a significant number of households still haven't been provided electricity. The wind farm reflects a government strategy to boost the portion of renewable-power sources to 20%. The World Bank's International Finance Corp. agreed to provide $40 million in funding through Newcom for the wind project. While Mr. Rice acknowledged GE's wind-turbine business has pinched corporate profit margins, he said the Mongolia deal will be profitable though he didn't disclose specifics. "It's not a loss leader," he said. Still, the wind sector is bracing for pricing pressure. "The competition is so much more fierce now," following the end of wind-power purchase subsidies in some nations and the ill-effect of economic downturn on demand, said Per Krogsgaard, a wind specialist at Denmark-based consulting firm BTM

Consult ApS. Each of the giant units being installed in rugged Mongolia will carry 1.6 megawatts of generating capacity, 82.5 meter rotors and 80 meter hubs. BTM's Mr. Krogsgaard estimates turbine costs at roughly $1.4 million per installed megawatt.

Source: Wall Street Journal Asia IVANHOE SCRAMBLES TO FIND OT POWER SOURCE Ivanhoe Mines warned this week that if a deal to import power from China for its Oyu Tolgoi copper and gold mine in Mongolia falls through, the company may have to construct a coal-fired power plant ahead of schedule. Building the power plant would delay commercial production and add to the initial costs of building the mine. “Although construction of a power plant is expected as part of the Oyu Tolgoi project's future development, there is no provision for a plant in the current capital cost estimates for 2011 and 2012 and the financing that would be required is not contemplated as part of the company's current financing plan,” Ivanhoe said in a statement. Ivanhoe has held talks with the Mongolian and Chinese governments to secure power from China by the third quarter of next year. However if that is not possible a study of alternate arrangements has found that advocating the construction of the coal-fired power plant in Mongolia would be the best option. The project is expected to begin production in 2013.

Source: The Globe and Mail

IVANHOE MOVES FORWARD WITH ARBITRATION AGAINST RIO Ivanhoe Mines said a ruling in the arbitration proceedings with Rio Tinto Group over a shareholder-rights plan is expected in December. Hearings before the arbitrator began 4 October and ended 4 November. Ivanhoe and London-based Rio have been in arbitration over Ivanhoe's adoption last year of a „rights plan‟ and Ivanhoe's claim that Rio broke an agreement not to discuss selling a stake in Ivanhoe or the Oyu Tolgoi mine with potential buyers without Ivanhoe's permission. Rio, which owns 49 percent of Ivanhoe, is barred from making a hostile bid for Ivanhoe under an agreement that expires 18 January. Overall construction of Oyu Tolgoi was 54 percent complete as of the end of the third quarter and should be more than 70 percent complete by the end of this year Ivanhoe said today. Commercial production is expected to begin within the first half of 2013.

Source: Bloomberg, Businessweek

GUILDFORD UNCOVERS 63 MILLION TONS OF COAL Guildford Coal has confirmed a deposit of 63.1 million tons of coal at its South Gobi project. The deposit potentially holds coking coal grade supplies, a key ingredient for steel production. The estimates includes 38.2 million tons of indicated materials, while 24.9 million tones of inferred. The project also benefits from its close proximity (60 kilometers) to the Chinese border town of Ceke. This year Mongolia surpassed Australia in its coal exports to China, and Mongolia will continue to benefit from its cheaply priced product. Drilling will continue on other key areas of interest at the South Gobi project for its central, west, and east pits.

Source: Guildford Coal

KINCORA ENCOUNTERS HIGHER GRADES OF COPPER Kincora Copper received positive results from 3 of its 5 drilled holes at its Bronze Fox project last month. Kincora has completed 1,240 meters of diamond drilling last month, in addition to 10,035 meters from September. Of the 5 holes drilled, 3 holes intersected both copper and gold. Results included high grades of both minerals. “We are excited with the recent results,” said Igor Kovarsky, president and chief executive officer. “Kincora will complete the 2011 drilling program in November and will concentrate on geophysics and geochemistry studies, as well as adding core cutting facilities to expedite sample delivery to the labs for assaying.” The executive went on to say that the firm will spend the winter preparing for its 2012 exploration program.

The Bronze Fox copper and gold deposit is located in southeast Mongolia, 200 kilometers from the Chinese border, near Oyu Tolgoi copper belt and approximately 140 kilometers northeast of the Oyu Tolgoi copper and gold project.

Source: Kincora Copper Limited LUCKY STRIKE CONFIRMS COAL DEPOSIT AT CN PROJECT Lucky Strike Resources encountered significant coal mineralization at 7 of its 8 drill holes on its CN coal project. The 7 drill holes are located beyond the previously drilled area, expanding the area containing coal intercepts from 8 square kilometers to 24 square kilometers. The exploration team has drilled a total of 1,417 meters in 8 diamond drill holes. Lucky Strike aims to further explore the CN coal project to test the potential to further increase the size of the coal deposit. The coal property covers a contiguous area of 13,096 hectares located approximately 175 kilometers southwest of Ulaanbaatar and 45 kilometers southeast of Buren Soum, Tuv Aimag.

Source: Lucky Strike Resources Ltd. ERDENE TO COMPLETE DRILLING BY END OF DECEMBER Erdene Resource Development has begun a new 3,000-meter drill program to test multiple targets over a one-kilometer strike length extending north and south from the original discovery of gold and silver at its Altan Nar Property. The program will concentrate on the central portion of a target area measuring a six-square-kilometer area that contains multiple prospects defined by geochemistry and geophysics. The firm employed a 3,000-meter diamond drill program, consisting of about 18 holes, and is to finish before the end of December. The firm will drill between depths of 100 and 200 meters. Following initial drilling success, the company completed additional in-fill soil sampling, regional and detailed magnetic survey, an extension of the existing IP gradient array, and additional dipole-dipole IP lines.

Source: Erdene Resource Development Corp.

NEW ROAD PROJECT OPEN FOR BIDS The Millennium Challenge Corporation (MCC) and the Mongolian government have opened the door to bids for the construction of a 176.4 kilometer road between Choir and Sainshand at the border of China. Bidders will have the option of bidding on one of two lots for development or both. The first lot is for the construction of a 90-kilometer-long road, while the second is 86.4 kilometers. The bidding process will be governed by the MCC Program Procurement Guidelines, which restrict state-owned enterprises. All bids must be accompanied by a bid security of USD 1 million. Documents required for the bid will be accepted until 12 December. A site visit will be held on 23 November, followed by a pre-bid conference 25 November.

Source: Millennium Challenge Account-Mongolia

ALLENS OPENS MONGOLIAN OFFICE Allens Arthur Robinson (Allens) has opened an office in Mongolia to broaden its existing Asian legal network. Located in Ulaanbaatar, the office will support international clients operating in and around the resources industry. “During the past 12 months, those work levels have intensified significantly,” an Allens spokesperson said. The partnership decision to establish a formal presence in Mongolia is therefore very much client driven. Having had a number of partners and lawyers working on the ground for some time, we've been approached by a range of other international clients, with existing or planned operations in Mongolia, who have asked us to assist them.” Allens, a member of the Business Council of Mongolia (BCM), has undertaken work in Mongolia for close to a decade, said Allens board member and energy and resources partner Erin Feros. The firm is currently advising a range of international companies in the region, including long-standing client Rio Tinto, which heads operations at the Oyu Tolgoi gold and copper project. While a primary focus will be energy and resources, Allens will continue to be well-equipped to advise on corporate, capital markets, construction, infrastructure and project finance matters.

Source: Allens Arthur Robinson

HARANGA APPOINTS NEW BOARD MEMBER Bat-Ochir has been appointed to Haranga Resources board. He has over 20 years experience in business and working as an entrepreneur in international commerce, public relations, trade policy, and infrastructure building in Mongolia. “Haranga Resources is fortunate to have been able to work with Bat-Ochir on a number of previous occasions and believes that having someone with his extensive in-country expertise, experience and instinct will greatly strengthen the board and enhance the company's ability to successfully operate and execute its business,” said the company. He began his career with the Ulaanbaatar City Authority, ultimately employed as senior engineering economist. In 1992 he co-founded the petroleum firm Global Line Company LLC, one of Mongolia's first private companies. In 2009 he and his partners established Geotrass LLC, a firm for the construction of roads, bridges and dams, and the installation of fiber optic communication and mining logistics. He graduated from the Moscow State Automobile and Road Technical University in Russia and obtained an MBA from the City University of Seattle in the United States.

Source: Haranga Resources Limited

RISK MANAGEMENT FORUM TO EDUCATE BUSINESS SECTOR Mandal General Insurance and the Business Council of Mongolia will host the second annual Risk Management Forum on 30 November in the UB Hotel. The Risk Management Forum will allow business representatives and industry leaders to discuss politics, strategies, and tactics to manage risk exposure. The forum will provide setting for business leaders to network and exchange ideas, learn about risk management, and understand the necessities of having risk management strategies. The “General Risk Management” panel will offer a background for risk management education by identifying preventive practices within an organization to control potential risks, and determining the steps and processes to create a risk management framework in a modern organization. The “Financial Markets Risk Management” panel will focus on financial risk management in the context of a wider risk management strategy and speakers will explore the elements of reporting risk, cash flow and liquidity risk, fraud risk and operational risk, tax risk and touch on risk oversight and the role of internal audit. Information security risk will be given special emphasis. The “Risk and the Society” panel will introduce the latest developments in the public sector in risk management. It will discuss the benefits and advantages for the business sector of risk management practices in the public sector, the expectations businesses should have and how business and the public sector can work together in mitigating against risks. Finally, the “Mining Risk Management” panel will discuss ways that risks, both short and long term, influence mining industry decision making.

Source: Business Council of Mongolia

MONGOLIA GROWTH GROUP TO HOST CORPORATE UPDATES IN NEW YORK AND TORONTO Mongolia Growth Group announced that Harris Kupperman, chairman and chief executive officer of MGG, will host a corporate update presentation and reception for shareholders and investors on 17 November at New York's Hotel Pennsylvania. Kupperman will also host a presentation and reception in Toronto at the Le Meridien King Edwards on 24 November.

Source: Mongolia Growth Group Ltd.

WEDGE ENERGY COMPLETES REVERSE TAKEOVER OF UNDUR TOLGOI Wedge Energy International completed its purchase of all outstanding shares of Undur Tolgoi Minerals, which the shareholders of Undur Tolgoi, including the Firebird Mongolia Fund (FMF), tendered in exchange for common shares of Wedge. Prior to the completion of the deal, Firebird Global Master Fund (FGMF) received nearly 5 million common shares of Wedge for its outstanding interest of USD 49.7 million. FMF disposed of 500,000 common shares of Undur in the deal. The 27.7 million common shares held by FGMF and its joint partners represent approximately 51.4 percent of the currently outstanding shares of Wedge.

Source: Firebird Global Master Fund, Ltd.

DUMAS AND MONNIS ALLY FOR UNDERGROUND MINING PROJECTS Dumas Contracting and Monnis International have entered into a strategic alliance to jointly undertake underground mining projects in Mongolia. “Our alliance with Dumas enables Monnis to further expand its presence in the Mongolian mining industry,” said B. Chuluunbaatar, chairman and CEO of Monnis Group. “We are very excited at the prospect of being able to offer our existing valued clients access to industry-leading technical capabilities and the very best expertise in underground mining contracting.” Dumas is a full-service underground mining contractor that provides services for clients. It specializes in mine construction, production mining, mine services, and engineering. Monnis is one of Mongolia's largest industrial holding companies that provides mining support services, logistics, technology, real-estate, energy, construction, automobile distribution, international freight forwarding, air services, geological services, insurance, and corporate finance advisory services.

Source: Dumas MITSUBISHI BUYS STAKE IN CHILEAN COPPER MINE FOR 5.4 BILLION Diversified mining company Anglo American sold a 24.5 percent stake in it Sur copper mining complex in Chile for USD 5.4 billion to Japan's Mitsubishi. With the sale, Anglo undermines Chilean state copper company Corporacion Nacional del Cobre's (Codelco) plans to exercise an option to buy a 49 percent stake in the Sur complex in January. Mongolia will emerge as a major competitor to Chile's copper products once Oyu Tolgoi begins production in 2013. Mitsubishi, which is looking to expand its investment in overseas natural resources, said in a statement it expects the purchase of the stake to nearly double its yearly copper output, from 140,000 tons currently to 250,000 tons in 2012. Mitsubishi, through a consortium it leads, holds a 12.5 percent state in the Escondida copper mine in Chile, the world's largest mine of the industrial metal, controlled by BHP Billiton. Anglo, in a statement, said it will use the proceeds from the transaction for a “general corporate purposes.” Anglo American Chile‟s general manager Miguel Angel Duran said the proceeds wouldn't necessarily be reinvested in Chile, but noted the Chilean government would receive around USD 1 billion in capital gains taxes from the sale to Mitsubishi. With the Mitsubishi deal, the Sur complex was valued at USD 22 billion. Codelco, in a brief statement, said the sale didn't affect its rights over its option and that it would “exercise all the necessary actions to wholly reaffirm its rights.” Source: Wall Street Journal

CATERPILLAR PENETRATES CHINESE MARKET WITH ERA PURCHASE Heavy-machinery producer Caterpillar has announced its intention to buy ERA Mining Machinery for as much as USD 887 million. The purchase will fortify Caterpillar's recent acquisition of mining-equipment manufacturer Bucyrus International. Although Bucyrus and ERA both make roof supports, Bucyrus and other Western mining equipment companies have had difficulty penetrating China's coal-mining industry with their own brands and product lines. “You have to be a local player,” said Lawrence De Maria, an analyst for brokerage firm William Blair & Co. “It makes sense for Caterpillar to do.” Demand for coal in China has surged has rapid development drives expansion of coal fired power-generating plants. For the first five months of 2011, electricity production in China rose 12 percent from 2010. For the six months ended June 30, ERA recorded sales of HKD 787.2 million (USD 101.3 million), up 86 percent from the year-earlier period. Net profits for the six-month period totaled HKD 20.9 million. Caterpillar is the world's largest manufacturer of earth-moving and mining equipment. Caterpillar products receive distribution in Mongolia via Wagner Asia. ERA primarily produces hydraulic roof supports for underground mines and is the third-largest maker of roof supports in China based on sales. Citigroup advised Caterpillar and The Blackstone Group advised ERA.

Source: Wall Street Journal

GE BUYS RAIL TRANSPORTATION-MANAGEMENT SOFTWARE COMPANY General Electric (GE) concluded a deal this week for RMI, a company that provides transportation-

management software for railroads and related companies. GE opened its representative office in Mongolia in May 2011 and has a business relationship with Mongolian Railway. GE didn't disclose the price of the deal. A news release said RMI has revenue of about USD 45 million. RMI has been owned by private equity firm Carlyle Group. Evercore advised Carlyle Group on the deal.

Source: Wall Street Journal

INVESTORS SELL AFTER DEPARTURE OF NOBLE EXECUTIVE The departure of Chief Executive Ricardo Leiman from Noble Group sent its stock for a nose dive. Noble shares plunged 26 percent last week with analysts citing the weak quarterly earnings and management shenanigans in just about equal measure. Noble has mining investments in Mongolia with a focus on coking coal exploration. Leiman left Noble, citing personal reasons, after admitting his disappointment with a USD 17 million loss in the third quarter on a call with analysts and media. The firm's 71-year-old chairman and founded, Richard Elman, is temporarily in charge while a replacement is sought. The company, which has a market capitalization of about USD 8 billion, said swings in cotton prices and other market volatility, was to blame for the loss. However, revenue was up 40 percent in the third quarter and it increased its volume of trade in all business segments. The global economy could create added pressures in the immediate future, but Asia's rising demand for commodities could alleviate some of that stress over the longer term.

Source: Wall Street Journal

IVANHOE SEES A QUARTERLY PROFIT Ivanhoe reported a quarterly profit, as gains from its coal subsidiary and a settlement of notes receivable outweighed exploration costs sending shares up more than 4 percent on the Toronto Stock Exchange (TSX). The company said it spent USD 2.2 billion on Oyu Tolgoi in the first nine months of 2011 slightly over the budget of USD 2.1 million and that development was 54.4 percent complete at the end of September. Vancouver-based Ivanhoe which is led by Robert Friedland and is 49 percent owned by global mining giant Rio Tinto, is focused on developing the Oyu Tolgoi project, which is located in Mongolia's South Gobi region and is one of the largest discussions over possible changes. Shares of Ivanhoe rose to CAD 21.67 (USD 21.08). Ivanhoe reported net income of USD 7.3 million, or 1 cent a share in the third quarter, ended 30 September. A year earlier it experienced a USD 24.9 million loss, or 5 cents a share. Revenue rose to USD 60.5 million from 6.6 million. Ivanhoe has spent about USD 3.2 billion on construction at Oyu Tolgoi so far. The company said costs in 2012 are expected to be in line with earlier estimates. The project's average annual output during its first 10 years of commercial production is expected to exceed 650,000 ounces of gold, 3 million ounces of silver, and 1.2 billion pounds (544,000 tons) of copper. Ivanhoe Mines said this week that the Oyu Tolgoi copper and gold project will be 70 percent complete by the end of 2011 with commercial production expected in the first half of 2013. Ivanhoe expects most of the copper to be delivered to China.

Source: Reuters

ECONOMY SOCIAL ECONOMIC DATA RELEASED Consumer Price Index The national consumer price index in October, 2011 increased by 0.8 percent compared to the previous months, and increased by 10.9 percent nationwide compared to the same period of the previous year. Unemployment The number of unemployed who had registered at Labor and the Welfare Service Divisions in provinces and Ulaanbaatar, and were actively looking for job reached 39.4 thousand at the end of October, 2011, reflecting a decrease of 950 persons or 2.4 percent compared to the same period of the previous year. External External trade balance showed a deficit of USD 1563.7 million in the first 10 months of 2011, and

increased 6.1 times compared to the same period of the previous year. Industrial In the first 10 months of 2011, the total industrial output increased by 10.1 percent to MNT 1669.9 billion (at 2005 constant prices) compared to the same period of the previous year. State In the first 10 months of 2011, total revenue and grants of the General Government Budget amounted to MNT 3474.3 billion and total expenditure and net lending amounted to MNT 3284.6 billion representing surplus of MNT 189.7 billion in the General Government Budget overall balance. Social In the first 10 months of 2011, social welfare pensions increased 2 percent. The total amount of allocated funds increased 31.6 percent compared to the same period of the previous year. Freight In the first 10 months of 2011, the number of carried freight rose by 10.8 percent and the number of carried passengers rose by 9.5 percent.

Source: National Statistical Office of Mongolia

MONGOLIAN ECONOMY IS REACHING ITS LIMITS, SAYS WORLD BANK The economic rebound is stronger than expected and the economy shows signs of overheating, reported the World Bank. Rising inflation, especially in goods and services in strong demand, which cannot easily be imported or local supply cannot be easily manipulated, is a sign of this. Mongolia's gross domestic product (GDP) growth reached 20.8 percent year-on-year in the third quarter. Growth this year could hit 15 percent, if not more, up from 6.4 percent in 2010. Growth is primarily driven by spending in the mineral sector. Mining and manufacturing output are both rising at a healthy rate, but fears are growing about another construction bubble similar to the previous boom in 2004 to 2008. Unemployment is trending down, but overall levels remain high at around 9 percent. Survey results from October indicate that real wages have fallen and almost half of those surveyed indicate their earnings don't meet their basic needs. The difficulty to afford basic needs is a symptom of inflation, which has continued and upward trend to 11.9 percent year-on-year in September in the capital city from 9.9 percent. Food and energy prices continuously rose throughout the year, reflecting wage and price pressures from a booming economy and government cash handouts, and will likely lead to continued inflation growth. The trade deficit is close to record levels at USD 1.4 billion in September, driven by a surge in mining related equipment and fuel imports. Exports are growing strongly too, driven by large coal shipments to China. Copper exports have, however, barely grew in volume, and cashmere exports are doing even worse. The tugrug has depreciated against the U.S. dollar since August by 4.8 percent as other currencies in the region have done due to rising global risk aversion. Read more… Bank capital buffers are apparently doing much better than 2009, when two banks failed. High lending growth is focusing attention on asset quality, and credit growth reached 52 percent year-on-year in real terms in September, which is higher than underlying real growth in the economy and is highly concentrated. The volume of non-performing loans remains high. Although deposits are hitting new peaks, the loan to deposit ratio has risen to about 100 percent. The Bank of Mongolia raised its policy rate in late October by 0.5 percent to 12.25 percent. Meanwhile, the 2012 Budget continues its fiscal expansion and targets a 75 percent increase in expenditures, mostly on wages and social transfers. The 2012 budget deficit is estimated at 4.1 percent of GDP.

Source: Montsame

IMF HEAD WARNS AGAINST EXCESSIVE SPENDING BY PARLIAMENT The head of the IMF overseeing Mongolia warned that the extraordinary 2012 budget passed by Parliament may lead to economic disaster down the road. Parliament Speaker D. Demberel received Steven Barnett, head of the International Monetary Fund's (IMF) working group. “The future of Mongolia may be bright and people's lives might be improved through economic

circulation of mineral wealth, but this year's budget retreated from achievement of the previous year and has huge expense and is profligate,” said Barnett. Macro economic growth may be overly optimistic and does not match fiscal policy aimed at capping inflation below 10 percent, he added. The Law on Budget Stability takes effect In 2013, so it would be wise to hold state budget expenditures within that level in a mid-term budget. The speaker has said that the 2012 budget will not undergo revision, and that the government's current expenses will not exceed that of 2011. Although investments proposed by the cabinet will be discussed, some will be postponed. “We will analyze how income resources are calculated and whether prices of products are taken higher than those of the world market,” said Demberel. “Additional income will go to the Stability Fund. He added that Parliament will not reject the government's proposal on salaries and pension increases.

Source: CPSI Newswire

WAITING FOR THE BUBBLE TO BURST Although Mongolians may be ready to celebrate the nations impending economic boom, most Mongolians are still unable to benefit from its financial success. Rising inflation and falling wages continue to plague the average Mongolian citizen, while the possibility of economic disaster could put a damper on the party. The government currently estimates real economic growth will reach 20 percent this year and 25.6 percent in the following year. Gross domestic product (GDP) per capita should reach USD 5,000 by 2013, according to Prime Minister S. Batbold. “We have never seen this much foreign investment flowing into Mongolia before,” said N. Altankhuyag, Deputy Minister and leader of the Democratic Party (DP). “Economic growth is now the highest our country has ever achieved. However, let us forget about statistics and pay more attention to how it actually benefits the people.” Despite fast economic growth, improvements to the standard of living are marginal. A survey from the World Bank shows that on average real wages have fallen since July. Statistics from the National Statistical Office shows that inflation hit 10.9 percent nationwide and 12.6 percent in the capital city in October. “Proactive, prudent and risk-aversion economic management is now needed as the economy of Mongolia shows signs of overheating against a backdrop of rising global risks and falling mineral prices, said the World Bank. “These increased global risks could make Mongolia enter a phase reminiscent of 2008.” Read more… In 2008 inflation jumped to 34 percent after the government began dispensing allowances to citizens. Later, when the price of copper fell tremendously, the country economy was hit hard: GDP growth fell from 89 percent to minus 1.3 percent in 2009. Minister of Finance S. Bayartsogt countered fears of a return to a situation similar to 2008 with, “Crises do not happen each year.” Former Prime Minister D. Byambasuren has warned in the media that the 20 to 30 percent annual growth in the economy is impossible, and must be the sign of a bubble. The World Bank also warns if the prices of coal and copper fall, the economy will be consumed by inflation.

Source: UB Post

MONGOLIAN ECONOMY MAY FALL ALONG WITH COPPER PRICES Forecasts for copper demand are not looking bright. Copper is a major export of Mongolia and its value has a strong correlation to the health of its economy. “2011 has been a year of great copper surplus and as such the copper price has dropped in the last few months.” said Oliver Belfitt-Nash, Monet Capital's head of research. Mine disruptions have apparently had little effect on the price of copper, and the debt crisis in Euro zone has only worsened demand. Currently, China is moving away from construction projects as it moves forward toward the next stage of development.

Source: The Monet Newswire

CONSTRUCTION SECTOR‟S FOUNDATION FORTIFIED Intensive demand for private and public construction is creating jobs and furthering the need in the residential segment, while domestic involvement in foreign-led mining projects is adding to the overall

demand in the sector. The government has announced ambitious plans thanks to rising foreign investment in the country's resource wealth. Big-ticket projects such as the plan to build 100,000 homes and give citizens MNT 1 million (USD 772) towards the purchase of their home are under way and are expected to boost Prime Minister S. Batbold and his administration‟s chances in the upcoming 2012 elections. Capitalizing on the momentum, Mongolian investment, trade and industry group Barilga held its fourth international construction expo in the capital in September, welcoming 120 organizations as well as representatives from the United States, China, Japan, and Russia. Supported by the Ministry of Roads, Transportation, Construction and Urban Development as well as the Mongolian Builder's Association, the event was aimed at establishing trade links and introducing new building technologies. The government plans to implement a mid-term program to execute 41 projects with capital of MNT 13.3 billion. The project will be undertaken with loans from the Development Bank of China and cooperation with the Investment Department of Kuwait. Work on a new international airport for Ulaanbaatar is scheduled to begin in early 2012 and take three years to complete. Built with a USD 270 million loan from Japan, the new facility will be able to service all larger modern aircraft and provide better protection from high winds. The transport link comes amid plans to develop an eastern link from the Trans-Mongolian rail line heading east from Ulaanbaatar to the eastern Trans-Siberia route which will link Mongolia directly to a sea port for the first time, ending the current reliance on China for export of raw materials, goods, and products. Read more… With the Oyu Tolgoi mine when operational expected to employ some 3,500 workers—90 percent of which will be Mongolian—and the demand for other mining-related construction workers potential exceeding the capacity of the country's widely spread population of 3 million, an important issue arising in construction is labor. Chief of the Building and Apartment Policy Board of the Ministry of Road, Transportation and Urban Development B. Baasan said that the ministry's policy would be to train Mongolian workers to build the 100,000 apartments. 70 percent of the building material would come from domestic factories by 2016.

Source: Oxford Business Group

MONGOLIA POSITIONED FOR COAL TO GAS PRODUCTION A coal-based chemical industry could be a new direction for Mongolian industry. Underground coal gasification, a process to convert coal into gas, could provide a new market for Mongolian firms to enter. The technique is applied to resources that are otherwise unprofitable or technically complicated to extract through traditional mining practices. Frontier Securities estimates Mongolia holds 162 billion tons of coal and 100 billion tons of lignite, a key ingredient for the process. To direct greater diversification of its economy, the Mongolian government is currently encouraging a coal-based chemical development sector. Rising oil prices also present a greater opportunity for demand as well, said Dale Choi, chief investment strategist of Frontier Securities.

Source: Frontier Securities

DEALMAKERS IN MONGOLIA SEE STRONG PIPELINE, BUT HURDLES INCLUDE VALUATIONS Dealmakers in Mongolia will find many companies looking for funding but they will face hurdles such inadequate understanding of valuation metrics and overly optimistic growth projections, industry practitioners said. As acquisition activity heats up, structuring deals using earn outs and other performance payments can help bridge the wide gaps between how buyers and seller value a business, panelists said at Mongolia: New Frontiers in M&A and Private Equity,” a Mergermarket Forum held in Ulaanbaatar on November 8. “One of the biggest challenges we're facing is the seller mentality and educating the seller on the very basics of corporate finance and M&A transactions,” said B. Bold a former JPMorgan banker who chairs the country's stock exchange. “There is no lack of deals in Mongolia, as many businesses are looking for cash,” said Mongolia Opportunities Partners Managing Director Mandar Jayawant. However, there is “very little precedent” in Mongolia on how to structure deals, what role a private equity investor plays in a business and how businesses are valued, he said. In addition some business owners have “quite unrealistic expectation of valuation,” Jayawant said. When Malaysian tycoon Robert Kuok of Kerry Mining sold QGX Coal to Mongolian Mining Corp. (MMC),

the transaction involved an initial up-front payment of USD 464 million. However, the total deal size can be adjusted up or down, possibly rising as high as USD 950 million, depending on changes to the coal reserves and mine life. “Earn out structures... allowed both the buyer and seller to get comfortable and proceed with the transaction,” said Douglas Farrell, Citigroup's director of mergers and acquisitions for Asia Pacific. Citigroup advised MMC on the deal. “It may not necessarily be unexpected or a bad thing if initially there isn't a meeting of minds between the buyer and seller.” Read more… Private-equity investments in Mongolia are mostly growth equity, where investors want the company owner to remain with the business, rather than the later-stage private equity in the West that is heavily debt-financed, Bold said. “You don't have financial engineering to get your IRRs, which means you don't have a lot of room for mistakes,” Bold said, referring to how investors measure internal rates of return. “If you do 10 deals and one goes sour, that could wipe out all your IRRs.” Jayawant said his fund often uses rachets, which allow a private-equity investor to lower their investment cost if the target company later raises more funds at a lower cost. “There's likely to be a large divergence between what management thinks they're able to achieve and what we think is realistic,” Jayawant said. “If certain numbers are met, we have no problem giving up value to the owners, but we also have to protect our downside.” Most investment interest in Mongolia comes from strategic investors like Japanese and Korean companies, rather than investment funds out of New York or London, Jayawant added. Sovereign-wealth funds China Investment Corp. and Temasek have invested hundreds of millions of dollars in coking coal producer SouthGobi Resources and iron ore entity Lung Ming. The Mongolia Opportunities Fund, which bills itself as the country's first private equity fund, targets an “underfunded niche” of deals between USD 5 million and USD 10 million. It focuses on mining services and infrastructure, and will look at investments in financial services and export industries. It aims to help companies grow to a size where they could be sold later to large investors like Banpu of Thailand which is finalizing the USD 493 million acquisition of Hunnu Coal. George Tumur, Hunnu‟s Managing Director, mentioned that the sale price being obtained by Hunnu‟s shareholders is 9 times the IPO price of February 2010. The panel moderator, Jim Dwyer, formerly a life-long M&A professional based in New York who is now executive director of the Business Council of Mongolia commented “it‟s a “9-bagger!” “Having an active M&A market means that investors who want to come in here know there's an exit,” Mark Lehmkuhler, a Hong Kong-based partner at Davis Polk & Wardwell, said. “There are all sorts of possible sources of capital that can come into a country that aren't going to come in on a greenfield basis... but they will come in and buy a company that has reached a certain stage.”

Source: The Mergermarket Group

CHINESE IMPORTS RISE WHILE EXPORTS REMAIN WEAK Imports rose sharply in October while export growth continued to slow, according to data released Thursday that suggested robust domestic demand could offset the effects of weakening demand for Chinese goods abroad. The stronger-than-expected import data may also reflect inventory buildups as Chinese importers took advantage of price swings to stock up on crude oil, copper, and other commodities. Over all, imports rose 28.7 percent compared with levels a year ago. Economists said the data—the weakest in eight months—reflected continued economic turmoil in Europe. “The external weakness will influence growth in China but it is not a great slowdown,” said Yang Lingxiu, a Barclays Capital economist. “It is a moderation in momentum.” Chinese officials presented a more dire view, saying that they are now facing a “grave situation” for trade and growth. Zhan Yansheng, China's top economic planner, attributed moderation in economic growth to shrinking external demand, rising costs, liquidity problems, and the gradual appreciation of the renminbi. Trade-protection measures against the weakness of Chinese currency could also pose a problem. Although Chinese exports this year are expected grow 20 percent, its trade surplus is likely to narrow about 2.4 percent of gross domestic product, down from 3.1 percent in 2010. Chinese officials cite the slimmer surplus as evidence of a balanced economic more dependent on domestic demand.

Source: New York Times

GOLD IMPORTS SURGE IN CHINA Chinese gold imports from Hong Kong, a proxy for the country's overall overseas buying, leaped to a record high in September, when monthly purchases matched almost half that for the whole of 2010. Gold is a major commodity of Mongolia that took new focus from miners after its recent surge in value this past summer. The buying spree follows a sharp drop in the price of the precious metal. After hitting a nominal all-time high of USD 1,920.30 a troy ounce in September, gold fell to a three-month low of USD 1,534 an ounce later in the month. Chinese investors snapped up the metal as prices fell. “In September we saw some bargain hunters come back into the market on the price dip,” said Janet Kong, managing director of research for CICC, the Chinese investment bank. China is the world's second largest gold consumer and demand has grown rapidly over the past year as Chinese investors buy gold to hedge against inflation and consumers buy more gold jewelry. Data from the Hong Kong government showed that China imported a record 56.9 tons in September, a six fold increase from 2010. Monthly gold imports for more of 2010 and this year run at about 10 tons, but buying jumped in July, August, and September. In the three-month period, China imported from Hong Kong about 140 tons, more than roughly 120 tons for the whole 2010. The last two months of this year are likely to see China's gold imports surge further ahead of Chinese New Year, supporting gold prices,” said Kong. Investment demand for gold in China has been particularly strong this year as a hedge against inflation. Chinese bank deposits offer negative real interest rates, and other outlets for investment have been limited as Beijing has curbed property sales and the stock market has performed poorly. Rising incomes and a tradition of giving gold has also buoyed China's gold demand. Source: Financial Times

ASSAULT ON CHINESE SPECULATORS BRINGS DOWN COPPER PRICES A recent government crackdown on predatory lending at Wenzhou has broken up the speculative trade of copper in China. Flipping copper in China has grown in recent years amid easy credit and soaring copper prices. The market helped to create a virtuous circle for copper, as rising prices enticed more people to borrow and make bullish bets. However, the move in Wenzhou has led other copper traders to believe more actions from the government are on the way. Although it's difficult to identify the prevalence of speculative trading, experts believe it has a heavy effect. Copper futures plunged by a third from the end of July to 20 October, in part because of China's attempts to rein in lending. Since then, they have recovered but are down 21 percent this year. The copper decline is a reminder of how sensitive the commodities worlds are to the whims of Chinese buyers, and to the health of the Chinese economy. China is the world's biggest consumer of copper for its growth and production. Some have argued, however, that speculative bets in China have distorted copper‟s relationship with the health of an economy. People were looking at copper imports and making assumptions that China was growing faster than it actually was,” said Simon Van Den Born, who heads London Metal Exchange-traded metals at Marex Spectron. “Now the risk is that falling copper imports will signal a weakness that is not really there and potentially set the market up for a big fall.” A big focus remains on copper inventories in China. Although there is no hard data on how much cooper is stored in warehouses, analysts forecast that stockpiles will decline this year due to a fall in speculative activity. A revival in copper prices is possible if China moves to loosen lending again, but there is little sign of that happening.

Source: Wall Street Journal

RARE EARTH PRICES CONTINUE THEIR DECLINE After nearly three years of soaring prices for rare earth metals, with the cost per ton of some elements rising nearly thirty-fold, the market is falling rapidly. In response to a short supply of rare earths, Mongolia has been identified as a possible new source with companies such as Siemens AG leading the fray. International prices for some light rare earths, like cerium and lanthanum, used in industries like the polishing of flat-screen televisions and oil refining, respectively, have fallen by two-thirds since August and are still dropping. Prices have declined almost as quickly for highly magnetic rare earths, like

neodymium, needed for products like smart phones and wind turbines. Big companies in the United States, Europe, and Japan have moved operations to China, drawing down inventories, switching to alternative materials, or even curtailing production to avoid paying extremely high prices outside of China. As demand has wilted, speculators have been dumping rare earth inventories, feeding the downward plunge. Cerium peaked at USD 170 per kilogram in August but now sells for USD 45 to USD 60 per kilogram. However, three years ago it sold for approximately USD 13 dollars a kilogram before China cut its exports. The sharp decline in demand and prices outside China could create yet another shortage next year because Chinese exporters are unlikely meet their quotas this year, and the Chinese Commerce Ministry has historically penalized exporters those unable to meet quotas with smaller quotas the next year. Read more… China mines 94 percent of the world's rare earths. Its decision to cut export quotas to about 30,000 tons last year and again this year, and impose steep export taxes has produced a shortage outside of China. Many Chinese companies have halted production this fall to stem the decline in prices, and the Chinese Commerce Ministry has set minimum prices for exports. Chinese exporters will likely export only 20,000 to 25,000 tons of their quotas (which will lead to lower quotas next year) compared to demand for a little under 40,000 tons outside China. Meanwhile, industry is searching for ways to continue production without rare earths.

Source: New York Times

RUSSIA DUE CHANGE IN ECONOMIC PRACTICES WITH WTO ADMITTANCE The World Trade Organization (WTO) cleared the way last week to bring Russia into the fold following an agreement between Georgia and Russia. The deal ends nine months of often rocky negotiations between the two countries on monitoring trade flows over the Georgian-Russian border. It will also tie Russia into a global system of open markets and binding trade rules The latest step follows an 18-year effort to bring Russian trade practices in line with international policies governing 153 other nations. It is designed to open Russian markets to foreign competitors by cutting tariffs and breaking down trade barriers. “It clearly marks a turning point,” said Pascal Lamy, director-general of Group of 20 (G20). “One way to reinforce the rules is to extend the perimeter of rules on this planet.” Russia, which has been trying to join the group since 1993, agreed to concessions on tariffs and other trade policies to win the approval. The move comes as U.S. lawmakers and Republican presidential candidates, worried about economic threats amid slowing growth, are calling for the Obama administration to use the WTO to challenge China and other countries that they say aren't following international rules. With an economy still heavily dependent on energy exports, Russia is expected to face a much slower path than China in boosting its trade flows as a result of its WTO entry. However, its entrance into the WTO will force Russia to participate in an international trading system that could alter its business practices over time. It will also help advance Russia's diversification in the medium and long run, said Lamy.

Source: Wall Street Journal

EUROPEAN FIRMS LEAN ON EMERGING COUNTRIES WHEN WESTERN ECONOMIES LOOK SHAKY Like many global economies, Siemens AG, Europe's largest engineering company and a bellwether for its broader economy, is counting on higher growth from emerging markets to compensate for more lackluster growth in Europe. Siemens is also in line for exploring and developing a rare earth mine in Mongolia. While Siemens posted more robust quarterly results than other European Industrial heavyweights in recent weeks, the German company sounded another note of caution about the cloudy outlook for the growth prospects of the euro zone and beyond. The conglomerate manufactures products from high-speed trains to medical-imaging equipment to steam turbines, making it a barometer for wide swaths of the global economy. “It's clear that the global economy is moving at two speeds,” said Chief Executive Peter Löscher, pointing to growth forecasts for industrial countries of just 1.4 percent in 2012. One major factor for Siemens is Germany, where economists expect growth to significantly decrease slow next year,

depriving Europe of its primary growth engine. Other European industrial companies have been bleaker in their outlook. French power-management and engineering company Schneider Electric SA recently cut its profit margin target, citing a slump in Western Europe and inflationary pressures in emerging markets. Late last month, Swiss engineering giant ABB warned amid weaker-than-expected quarterly results that Europe's debt crisis and its potential impact on the global economy made it tough to forecast near-term growth.

Source: Wall Street Journal

MONGOLIA EXPERIMENTS FOR NEW APPLICATIONS WITH ICE FORMATIONS Mongolia is to launch one the world's biggest ice making experiments later this month in an attempt to combat the adverse affects of global warming and the urban heat inland effect. The project aims to artificially create “naleds”—ultra-thick slabs of ice that occur naturally in far northern climates when rivers or springs push through cracks in the surface to seep outwards during the day and then add an extra layer of ice during the night. The scientists behind the MNT 1 billion project hope the process will reduce energy demand from air conditioners and regulate drinking water and irrigation supplies. “Everyone is panicking about melting glaciers and icecaps, but nobody has yet found a cheap, environmentally friendly alternative,” said Robin Grayson, a Mongolian based geologist. “If you know how to manipulate them, naled ice shields can repair permafrost and building cool parks in cities.” He said the process will work in cities with extreme temperatures in both summer and winter. Unlike regular ice formations on lakes (which only get to a meter in thickness before insulating the water below) naleds continue expanding for as long as there is enough water pressure to penetrate the surface. Many are more than 7 meters thick, which means they melt much later than regular ice. A Mongolian engineering firm ECOS & EMI will try to recreate this process by drilling bore holes in the ice that has started to form on the Tuul River. The water will be discharged across the surface, where it will freeze. This process will be repeated at regular intervals throughout winter. If successful, the model could be applied to other cities in the far north.

Source: The Guardian

POLITICS STANDING COMMITTEE REJECTS RESIGNATION REQUEST FOR PRIME MINISTER The Standing Committee on State Structure has officially rejected the request by 9 MPs for the resignation of Prime Minister S. Batbold. The faction is made up of some of the 20 officials who demanded the renegotiation of the 2009 Oyu Tolgoi investment agreement and called for Batbold's resignation after the coalition government opted to stand by its original agreement. Members decided that if one-fourth of all MPs formally requested the prime minister's resignation, then the matter could be discussed further, but as it stands the Standing Committee has thrown out the motion. Members also noted that the Constitution says a government's authority begins with a prime minister's appointment by Parliament and ends with the appointment of the next prime minister. The 9 MPs who submitted the note demanding the Prime Minister‟s resignation opposed the committee's decision and insisted the issue should be taken up by Parliament. One of the 9, N. Batbayar, argued that dissolving a government is a separate issue from the resignation of a prime minister. He vowed to continue to press the issue.

Source: News.mn

POLS PICK APART 2012 BUDGET Members of the Standing Committee on Security and Foreign Policy have criticized items detailed in the 2012 budget. Analysts have warned that the 2012 budget may be too expensive and could exacerbate issues such as rising inflation and currency valuation. MP Z. Enkhbold noted that the proposed budget includes many large expenses, such as MNT 150 billion toward the construction of a new office building for provincial officials in Uvurkhangai Aimag and other provinces. He suggested allocations to be directed toward economic development and not the construction of new office buildings. Some MPs have also complained that the expenditures directed toward Umnugobi Aimag are excessive. Others criticized the amount spent on housing for diplomats abroad, and suggested finding more economical alternatives.

Members approved of a suggestion that money be allocated to build schools, kindergartens, and hospitals, in addition to further spending towards the nuclear energy sector, and defense, peacekeeping and foreign affairs. Parliament also established a working group to explore the costs to buy new embassy buildings for Japan and Belgium.

Source: News.mn

MPP TO CUT OVER MNT 300 BILLION FROM 2012 BUDGET The Mongolian People's Party has vowed to cut MNT 319 billion worth of funding from the 2012 Budget. Party members decided that spending outline in the 2012 Budget must not exceed that of 2011. The party plans to cancel spending in all investments, except for the building of schools, hospitals, and kindergartens. This includes MNT 161 billion for the construction of office buildings, MNT 97 for the construction of Governor offices, MNT 14 billion to buy cars, MNT 47 billion to introduce new positions. Members also noted that investment in 6 provinces is too low and the budget should be reviewed in light of this. The party created a working group to study ways for investment in Ulaanbaatar.

Source: Udriin Sonin

PARLIAMENT APPROVES TRANSFER OF ADDITIONAL TT STOCK TO CITIZENS Parliament approved the proposal to distribute an additional 10 percent of the Tavan Tolgoi shares to Mongolian citizens, bringing a total 20 percent interest to the public. This will occur instead of 10 percent of shares being dedicated to businesses. In July 2010 Parliament passed its 39th resolution to distribute 10 percent of Tavan Tolgoi stock shares free to citizens, while another 10 percent would be sold to domestic firms at a nominal price. However, some MPs proposed that 20 percent of shares should go directly to citizens, cutting out the shares that would have gone to businesses. Businesses strongly opposed the decision and demanded that citizens should be given 24 percent while domestic companies could buy up to 10 percent interest in the project. Mongolia has 40,000 companies currently operating and producing 73 percent of Mongolia's gross domestic product (GDP), said protesters. These businesses also contribute to 30 percent of the government‟s revenue through taxes and provide 800,000 places of work for citizens. Read more… The decision to transfer companies' shares to citizens is a political decision for the 2012 election, said U. Munkhbat, executive director of Mongol 999, a consortium of hundreds of Mongolian firms. After distributing the shares to citizens, wealthy individuals with connections to foreign stock brokers will likely buy most of those shares. He said the only way to keep the benefits of the Tavan Tolgoi within Mongolia is to sell its shares to Mongolian firms.

Source: Udriin Sonin

MPRP AND GREEN PARTY FORM MINORITY COALITION The Mongolian People's Revolutionary Party (MPRP) and the Green Party (GP) have agreed to an alliance for the 2012 Parliamentary elections. MPRP Chairman N. Enkhbayar and GP Chairman D. Maam, in addition to other party officials, took part in a memorandum of cooperation signing ceremony at the Continental Hotel last week for the event. The two parties will band forces to take on the current majority coalition consisting of the Mongolian People's Party and Democratic Party. Elections will talk place next June.

Source: News.mn

PRESIDENT SPEAKS ON ELECTION PRACTICES President Ts. Elbegdorj submitted his own suggestions for the bill on parliamentary elections in a letter to Parliament. Elbegdorj recommended that Parliament legalize methods for the Election General Committee to monitor the election. He stressed a need to clearly state the rights and duties of personnel related to the election. Election candidates should also be released from their government offices three months prior to the election instead of six and be responsible for paying for election advertisements themselves, he said.

For the media, he said the legal responsibility of journalists and the media should also be defined in the Law on Press Freedom, but should not exceed the responsibilities of officials.

Source: Zuunii Medee

U.S. DONATIONS TO HELP EDUCATE NEXT GENERATION'S WORKFORCE A total of 18 pieces of 13 different types of equipment with a total value of MNT 2.3 billion has been donated to the vocational schools. The contributions will go towards the development improvement of education at vocational training instructions. The vocational education and training project is one of six projects implemented by Millennium Challenge Corporation and has continued successfully since its introduction in 2008. The project aims to innovate the private sector from the ground up through the education of young people ready to join the workforce. The need for high-quality vocational training has increased because of greater foreign investment to the mining sector. In addition to donations of equipment, the program has increased participation from employers for a joint effort in educating the workforce. Participation by the private sector in training has been guaranteed by law.

Source: Udriin Sonin

GOVERNMENT TO DISCUSS OIL SECTOR ACTIVITIES AT OPEN FORUM The government will host a public forum to discuss its activities in the oil sector on 20 November. Representatives from the Government Implementation Agency, Petroleum Authority of Mongolia, other oil related exploration, mining and oil importing companies will share information with the public, and receive complaints and requests. Organizers plan to introduce rules on getting special licenses for oil wholesale and production as well. Speakers will also give presentations on production technologies and related standards.

Source: Zuunii Medee

INDUSTRY LEADERS VISIT UB Two of the world‟s leaders in business and investment have paid a visit to the land of the blue skies. Leading Canadian mining sector investor Stan Bharti and Google Executive Chairman Eric Schmidt arrived in Mongolia this week and met with officials. Bharti met with Prime Minister, S. Batbold, expressing his interest in taking on the role to act as a bridge between Mongolian mining companies and the world's stock markets. Bharti is the founding member of Forbes and Manhattan, a leading private merchant bank with a global focus on resource sectors, and 40 offices and operations in 29 countries. Schmidt also met with the Prime Minister, as well as Defense Minister L. Bold and Information, Communications Technology and Post Authority head J. Baterdene to discuss the addition of the Mongolian language to his firm's “Google Translation” application and adding Ulaanbaatar to the “Google Earth” applications' street view, which allows individuals to see continually updated images of locations from the Internet. The officials and the Google executive also discussed a system to sell applications developed by Mongolian programmers to the world market.

Source: Udriin Sonin, Undesnii Shuudan

MONGOLIAN LAWYER JOINS PRESTIGIOUS RANKS OF CLINTON AND THATCHER A list ranking the world's 20 most influential females lawyers included Mongolian lawyer I. Manjaa. The list was compiled by the Online Union and Net of American Colleges to introduce 20 influential female lawyers every law student should know about. Included on the list were political celebrities such as U.S. Secretary of State Hillary Clinton, U.S. Supreme Court Justice Sandra O' Connor, and Former U.K. Prime Minister Margaret Thatcher. “Ichinnorov Manjaa applies her enviable legal prowess in the interest of human rights issues, particularly those impacting Mongolians,” wrote the website. “Her most notable achievements completely changed the nation's legal system, particularly in areas of criminal justice, prison reform, and women's rights.” Manjaa has been the recipient of honors such as the “Mahatma Gandhi Award,” “Eisenhower Fellowship Leader Awards,” and “Mongolian Professional Fellowship Award.”

Source: Unuudur

FORMER PRESIDENT RESISTS POLICE INVESTIGATION The Economic Crime Investigation Department of the State Investigation Board‟s case of former president N. Enkhbayar will soon be transferred to the Anti-Corruption Authority. Meanwhile, Enkhbayar continues to refuse to submit to an investigation by police. N. Enkhbayar has been suspected of misusing his authority in the privatization of the newspaper Ulaanbaatar Times and a printing house, in addition to embezzlement involving the supply of steel bowls to the Erdenet Factory with the assistance of his close relative D. Myagmarjargal, nicknamed “Millionaire.” N. Enkhbayar has refused to submit to a police investigation while Ts. Nyamdorj is with the Ministry of Justice and Internal Affairs or make a statement to legislators. He has said Nyamdorj should resign his official post and then they could both be investigated.

Source: News.mn

MINISTRY OF DEFENSE OPENS RESORT FOR MILITARY PERSONNEL COMPLETING MISSIONS The Ministry of Defense has opened a Complex for Peace at the Bagabayan military personnel resort. The MNT 8.4 billion complex was built by the ministry with aid from the Chinese government. It is located 30 kilometers from Ulaanbaatar and has 51 rooms. A 2.8-kilometer road between Sanzai and Bagabayan was recently built as part of the project. The complex gives military officials and peacekeeping operation participants a place to relax after completing missions abroad in difficult conditions, said Defense Minister L. Bold in the opening ceremony. He added Soldiers and military personnel should be given support from their motherland after defense and peacekeeping activities. The complex has a meeting hall with a capacity of 200, a restaurant, sauna, sports training facilities, and a swimming pool. It also has a garden, tennis court, basketball and volleyball courts, and a skating rink. A football field is planned for construction for next spring.

Source: News.mn

NEW MONGOLIAN LAWS AND REGULATIONS The following laws, addendum, amendments and annulment were published in the latest weekly Government bulletin. Unless otherwise decided by Parliament, it will take effect ten (10) days after publication. Date Laws, Addendum, Amendments and Annulment 10 Nov. 2011 Company Law Law on Regulation to Abide Company Law Amendments to Audit Law Amendments to Management, Financing of State Organization Law Addendum to State and Local Property Law Amendments to Civil Service Law Amendments to Civil Code Amendments to Non-bank Financial Activities Law Amendments to Securities Market Law Amendments to Foreign Investment Law Amendments to Insurance Law Amendments to Bank Law Annulment of Company Law 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 GLOBAL ENTREPRENEURSHIP WEEK 14-20 NOVEMBER Global Entrepreneurship Week (GEW) is being held 14 to 20 November and is Mongolia's first

participation in the event. GEW Mongolia 2011 will include competitions, special lectures, and network gatherings among other events. GEW is the world's largest celebration of entrepreneurship. Promotion is through a network of individuals and organizations that aim to inspire, connect, and equip entrepreneurs with the tools to bring life and drive economic growth. GEW Mongolia 2011 is being hosted by SWMONGOLIA, a Mongolian NGO also responsible for holding the successful Startup Weekends in Mongolia. SWMONGOLIA is a local non-profit that strives to inspire and support entrepreneurs. Its mission is to educate and inspire entrepreneurs, and give them the motivation and networking they need to take the next step in creating a successful startup company. For more information visit gewmongolia.com or visit the Facebook page at facebook.com/gewmongolia. ___________________________________________ RUNGE'S TRAINING COURSE--”MINING FOR NON-MINERS,” 5-6 DECEMBER 2011 Runge, a world class mining consulting, software, and training company, is offering its third “Mining for Non-Miners” course to be held 5 to 6 December in Ulaanbaatar. The aim of the course is to provide those from a non-mining background with a comprehensive introductory understanding of the mining industry. The course duration is two days, with the first day focused on coal mining, and the second day on metal mining. The two day course will cost USD 700 per student and will be delivered in Mongolian. For more information, email saruul@bcmongolia.org or call 317027. ___________________________________________ POSITIONS OPEN AT DELOITTE Audit Senior Managers/Managers: Position will include responsibility for client liaison, portfolio management, and audit planning. The chosen candidate will participate in major client pursuits, including supervision of engagements of IPOs in the United Kingdom, Hong Kong, and Singapore stock markets, among others. Using Deloitte's value-added audit approach, the chosen candidate will help clients achieve business objectives, strengthen management capabilities and minimize enterprise risks. Those who apply will have a degree in accounting or an accounting related major, and is AICPA or ACCA certified. Senior managers will have over five years experience, in-depth understanding of IFRS and U.S. GAAP, and have strong stock market and IPO-related knowledge. Excellent written and spoken English are essential. Staff Accountants/Auditors: Under the direction and coaching of our experienced audit professionals, the chosen candidate will perform audit field work with local and international interpretation of reports, proposals, and presentations. Deloitte will help the candidate develop his or her understanding of its clients' business, controls, and accounting systems. Applicants will hold a degree in accounting, financing, economics, or business administration, and hold AICPA or ACCA certification. Excellent written and spoken English are essential. Deloitte operates in 153 countries with over 180,000 employees. To join this global team, one must have what it takes to thrive in a growing market. Applicants will send their CV with a cover letter to mongoliarecruiting@deloitte.com. All applications must be supported with copies of academic certificates and transcripts. Only shortlisted candidates will be notified. Deloitte is an equal opportunity employer. For more information, visit deloitte.com. ___________________________________________ 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 are 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 - „Resource, Presentations‟ section for your review are several speeches at Discover Mongolia 2011, speeches from BCM‟s 9 monthly meetings in 2011, and the address by Peter Nicholls, OT‟s VP-Operations, at Global MInES in Sydney on July 4. Also on BCM‟s English website, „Resource, Mongolia Reports‟ section please note "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” - www.bcmongolia.org. 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. ___________________________________________ NETWORK WITH BCM The Business Council of Mongolia (BCM) is expanding its reach to your favorite social networks. Keep up to date on the latest business deals in Mongolia and how the climate for investment is improving each day with BCM. Add BCM on Facebook at http://www.facebook.com/pages/THE-BUSINESS-COUNCIL-OF-MONGOLIA/129826330435540 to read the latest announcements and comment on events with the community. Hear breaking news and announcements as they happen when you follow BCM on Twitter at http://twitter.com/#!/bcmongolia. Connect with BCM on Linked-in to join the diverse group of professional contacts creating a better business environment in Mongolia today. Of course for news information, interviews, and announcements regarding our organization, visit the official BCM website at bcmongolia.org and bcm.mn.

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]

October 31, 2011 *10.9% [source: NSOM]

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

CENTRAL BANK POLICY 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]

October 25, 2011 12.25% [source: IMF]

CURRENCY RATES – November 17, 2011 Currency Name Currency Rate U.S. dollar USD 1,324.86

Euro EUR 1,785.25

Japanese yen JPY 17.28

British pound GBP 2,085.13

Hong Kong dollar HKD 170.84

Chinese yuan CNY 208.64

Russian ruble RUB 43.08

South Korean won KRW 1.17

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.