BUSINESS COUNCIL of MONGOLIA NewsWire

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Issue 119, May 21 2010

SPECIAL ISSUE – “MONGOLIA CORPORATE GOVERNANCE FORUM”

CHINGGIS KHAAN HOTEL - May 27, 2010

NEWS HIGHLIGHTS:

Business:

SouthGobi suspends plans to build railway;

Ivanhoe says OT may get new partner;

SouthGobi Resources announces first quarter 2010 results;

Ivanhoe Mines' loss triples despite higher revenue;

Voyager Resources kicks off drilling at Daltiin Ovor gold project;

Erdene focusing on chosen areas;

Just Group takes 100% ownership in Olon Ovoot gold mine;

OT directors urged to be “alert and watchful”;

PM wants outsiders on boards of State companies; Big Japanese firm invests in carrying Mongolian coal as prices surge;

Former employees of Altan Dornod demand jobs;

MoU signed to implement integrated card clearing system;

Listing rules dampen Hong Kong's mining IPO hopes;

“Discover Mongolia” promises more this year;

Shanghai court rejects former Rio Tinto employees’ appeal;

Australia’s ruling party not to scrap mine tax, even if that costs seats;

BHP may revisit joint venture with Rio Tinto;

Rio Tinto’s Albanese slams super profits tax.

Economy:

Fresh thoughts likely on revised budget;

Social, economic data released;

Cash distribution has “little relation” to 9.7% inflation;

Non-performing loans lower, but higher by 50% than last year;

PM to head committee to oversee development of industrial complex;

Standing Committee refuses funds from HDF for Smokeless Ulaanbaatar;

Draft on Development Bank submitted to Government;

BCM’s recommendations to be forwarded for implementation;

International experience can help Mongolia make its choice: U.S. Ambassador;

UN says Mongolia still needs USD16.7 million for dzud relief;

MNT300,000 for every herder family with total loss of livestock;

Mongolia's poor wait for mining wealth to improve their lot;

Mongolia “cannot develop without Chinese capital”;

Joint Parliament-IMF workshop discusses economy;

Mongolian mining companies to attend event at London Stock Exchange;

Investors should resist the gold frenzy;

Commodity bull cycle 'here to stay' for 10, 15 years;

China again a net buyer of Treasurys;

Miners seek spin-offs to boost value, cut debt.

Politics:

Civil movements to renew agitation;

New Prosecutor General offers “no mercy to corrupt prosecutors”;

District Governor held for smuggling out gold;

Chinese PM to come this month; All schools to have same textbooks, published by Government;

129,495 trees planted on first Tree Planting Day;

4 MPs choose disputed park to plant trees;

Snow Leopard Trust explains position on mining;

Inner Mongolian agricultural experts here to give assistance;

U.S. Embassy announces three fellowship programs;

China pulls ahead in race for high-speed rail transportation;

Australia to spend AUD300 million on boosting resources job skills;

Siberian mine deaths blamed on Soviet-era motivation.

*Click on titles above to link to articles.

MEETING NOTICE TO BCM MEMBERS

The next BCM monthly meeting for Members will be Monday, May 24, 2010 at 5 PM at the Khan Bank Theater in the Khan Bank Headquarters Building on Seoul Street. We have outgrown the nice space at the Open Society Forum as some 90 of us experienced at our April meeting and post-meeting networking reception. Our bilingual meeting will feature the following:

- Mr. D. Mandakh, Chairman, Authority for Fair Competition and Consumer Protection of Mongolia, will enumerate ―Some issues of competition and consumer rights‖.

- Mr. Marat Utegenov, CEO, Tuul Songino, will review ―TSU‘s plans to become the first MSE-listed investment holding company‖.

- Mr. Unenbat Jigjid, Executive Director, Corporate Governance Development Center, will discuss the significant merits ―About CGDC‖.

We will again conclude the business portion of the meeting by asking BCM members in the audience to briefly comment on specific problems, solutions, risks, opportunities and/or strategies affecting their businesses. BCM members can learn from one another from sharing good news and bad. Teleconferencing will not be available at this point in our new surroundings.

BUSINESS SOUTHGOBI SUSPENDS PLANS TO BUILD RAILWAY SouthGobi Resources Ltd., the coal miner backed by China‘s sovereign wealth fund, halted plans to build a rail link between its pit in southern Mongolia and the Chinese border because of uncertainty over government policy. The Canada-listed company will concentrate on upgrading a road link in the deserts to the border, Chief Executive Officer Alexander Molyneux has said. Coal from the mine is now trucked to the border. The Mongolian government is reviewing the nation‘s entire railways policy, he said, as it seeks greater control over its assets. The development of its resources has been hampered by poor transport infrastructure. ―Given the question marks over rail policy, we decided to suspend work on

the rail link,‖ Mr. Molyneux said. SouthGobi had earmarked USD150 million to develop rail and road links near its Ovoot Tolgoi mine. A railway was not ―essential‖ as the mine is only 42 kilometers from the Chinese border and a road link would be cheaper, he said. The investment may also be premature because Mongolia is debating rail routes, the gauge of lines, and the ownership of future links.

Source: Bloomberg Businessweek

IVANHOE SAYS OT MAY GET NEW PARTNER Ivanhoe Mines Ltd., building the Oyu Tolgoi project with Rio Tinto Group, said it may bring in another partner. ―This is likely to have another participant before it‘s all over,‖ Deputy Chairman Peter Meredith said Wednesday at a conference in London. ―We‘ve had a lot interest from other majors but our partner is Rio Tinto, so we have to be respectful of what their dreams and desires are.‖ Most huge copper mines have multiple owners, such as the world's biggest - Escondida in Chile - so it would be natural for Oyu Tolgoi to have another partner. Ivanhoe said in January it hired Citigroup Inc. to study options, including debt and equity offerings and asset sales. The company wants to maintain control of the project, Mr. Meredith said. It may make sense for Chinese interests to study investment in the mine, he said. SouthGobi Resources Ltd., a coal producer in Mongolia 57 percent-held by Ivanhoe, last year sold USD500 million of convertible bonds to China Investment Corp., the sovereign wealth fund of the world‘s most populous nation. ―Mongolia‘s a fledgling place where the multiples haven‘t reached the limits that you get elsewhere,‖ Mr. Meredith told reporters. ―If CIC or other folk were thinking of investment, that‘s probably a pretty good place to look providing the values are there and the numbers are there.‖ Read more… It made sense to consider a divestment since Ivanhoe was primarily an exploration company, Mr. Meredith said. "People don't judge us by earnings per share ... As it gets closer to production, it makes sense that somebody who wants copper revenues will come along and say maybe I need a piece of that." Ivanhoe holds 66 percent of Oyu Tolgoi and Mongolia the rest. Rio, the world‘s third largest mining company, owns 22.4 percent of Ivanhoe and has an option to increase its stake to about 44 percent. Oyu Tolgoi has a projected mine life of 27 years, but this would more than double to 59 years if inferred resources are included. Source: Bloomberg.com, Reuters.com

SOUTHGOBI RESOURCES ANNOUNCES FIRST QUARTER 2010 RESULTS SouthGobi Resources Ltd. has identified the following as highlights of its operational and financial results for the quarter ended March 31, 2010. -- Total shipments were 426,000 tons. -- Average realized selling price was USD36 per ton, approximately 24% higher than in Q1 2009. -- Significant focus was put on realignment of Ovoot Tolgoi open-pit. -- In January, SouthGobi completed a global equity offering of 27 million common shares at a price of CAD17.00 per share for gross proceeds of CAD459 million. The shares commenced trading on the Main Board of the Hong Kong Stock Exchange on January 29. -- On March 29 the company completed the conversion of USD250 million of the USD500 million convertible debentures issued to China Investment Corporation (CIC) into 21,471,045 common shares of the company. Following the conversion, CIC, through its indirect wholly owned subsidiary, owns approximately 13% of the company. -- The company continues to ramp up production at the Ovoot Tolgoi mine, where additional equipment for the second mining fleet is being progressively commissioned. The company expects that the third mining fleet, already ordered, will be commissioned in late 2010. The initial design of a basic coal handling facility has been completed and engineering details for the major components are well advanced. -- Drilling at the Soumber deposit re-commenced in March to expand and better define the resource. Preparatory work for a formal mining license application continues. Read more… The company incurred a net loss for the three months ended March 31 of USD168.3 million compared to a net loss of USD10.0 million for the three months ended March 31, 2009. The increase in the loss is due primarily to the loss on partial conversion of the CIC convertible debenture, the

interest expense on the CIC convertible debenture and the fair value change of the embedded derivatives in the CIC convertible debenture, which together contributed USD162.3 million. Revenues increased to USD13.9 million in the first quarter of 2010 from USD3.5 million in the first quarter in 2009. The company incurred an operating loss from continuing operations for the three months ended March 31, 2010 of USD6.5 million compared to a USD6.6 million loss in the same period in 2009. The company's total assets at March 31, 2010 were USD974.4 million, including USD723.4 million in cash, and long term liabilities were USD348.4 million.

Source: SouthGobi Resources Ltd.

IVANHOE MINES‟ LOSS TRIPLES DESPITE HIGHER REVENUE Ivanhoe Mines said last week its first-quarter net loss more than tripled, due largely to a USD154 million loss on the conversion of a convertible credit facility. The Canadian company, which is developing Oyu Tolgoi but does not yet mine from it, lost USD193.9 million, or 45 cents a share, compared with a year-before loss of USD56 million, or 15 cents a share. Revenue rose to USD13.9 million from USD3.5 million, thanks to coal sales at the company's SouthGobi Energy Resources subsidiary. Earlier last week, Ivanhoe unveiled an updated plan for Oyu Tolgoi.

Source: Reuters.com

VOYAGER RESOURCES KICKS OFF DRILLING AT DALTIIN OVOR GOLD PROJECT Voyager Resources reports that reverse circulation (RC) drilling has commenced at its high grade Daltiin Ovor Gold Project in Mongolia. The initial program is designed to delineate the geometry and nature of high grade gold mineralization previously intersected in trench sampling. The company has the right to earn 80% interest in the project located 600 km south west of Ulaanbaatar and is situated within the Bayankhongor Gold Belt in south central Mongolia. Voyager Resources is focused on growing its gold business in Mongolia through the acquisition, funding and focused development of high quality gold projects. The start of drilling at Daltiin Ovor is the first in a number of drill programs to be completed over the next six months in the Argalant, Tsagaan Chuluut and Tsagaan Gold Projects.

Source: Voyager Resources

ERDENE FOCUSING ON CHOSEN AREAS Erdene Resource Development Corp. has provided an update on its principal projects in conjunction with the release of its first quarter 2010 financial results. The highlights include the following: -- Zuun Mod Molybdenum Project optimization and modeling studies under way; -- Preparations under way for regional coal and metal exploration programs in Mongolia; -- Current cash position of USD12.2 million. With pit optimization and scheduling studies on the Zuun Mod deposit completed, it is anticipated that the information will be used to create a financial model on which to base decisions regarding the advancement of the project to the pre-feasibility stage. Erdene has evaluated every known coal occurrence in Mongolia and completed over 250 site evaluations, and has now focused on certain prospective areas and potential acquisitions. A budget of USD1.9 million is in place for 2010 coal exploration programs in Mongolia, which is fully funded by Xstrata Coal Canada Ltd. through the Erdene-Xstrata Coal Alliance. The company has also carried out a comprehensive regional exploration program for porphyry related copper-gold-molybdenum mineralization in south-western Mongolia. Read more… Preparations for the upcoming field season in Mongolia continued throughout the first quarter principally related to coal and metals exploration on the more than 400,000 hectares of new exploration licenses acquired in recent months. In addition, the company continues to carry out due diligence work related to additional project evaluations. The company recorded a net loss of USD857,978 in the first quarter of 2010 compared to a net income of USD681,223 in the first quarter of 2009. Source: Erdene Resource Development Corporation

JUST GROUP TAKES 100% OWNERSHIP IN OLON OVOOT GOLD MINE A joint statement from the two companies has revealed that Mongol Gazar LLC has sold its share in the Olon Ovoot gold mine, the refining plant there, and its gold reserves to Just Group for USD130

million. All unpaid debts, including loans from Zoos Bank and Anod Bank, are the liability of Just Group now, following an agreement made on December 3, 2009. Olon Ovoot Gold was equally owned by Mongol Gazar and Just Group since June 2009, and the present transaction makes Just Group 100% owner.

Source: Undesnii Shuudan

OT DIRECTORS URGED TO BE “ALERT AND WATCHFUL” The head of the State Property Committee, Mr. D. Sugar, has told the newly appointed three Oyu Tolgoi LLC Board members from the Mongolian side that their main responsibility was to ensure maximum profit for the state, so that it could spend money on national development. This was his first meeting with Mr. N. Bagabandi, Mr. P. Tsagaan, and Mr. Ch. Ganbold since their selection by the Committee for the positions. He urged them to keep an ―alert and watchful‖ eye on how money was spent in the project, and to get a grip on the internal mechanism of running such a big company. Mr. Bagabandi, a former Mongolian President, said they recognized their responsibility and would try their best to meet people‘s expectations. However, they were a minority on the board and would expect support from the President, the government, and Ministries.

Source: Onoodor PM WANTS OUTSIDERS ON BOARDS OF STATE COMPANIES Prime Minister S.Batbold has instructed State Property Committee chief D.Sugar to include representatives of civil organizations, professional associations, academics and researchers on the board of directors of state organizations and companies. The Prime Minister was reacting to widespread criticism that state organizations are not sufficiently open and to rumors that many officials have commercial links with these organizations. Inducting neutral outsiders would improve the current governance practice.

Source: Ardiin Erkh

BIG JAPANESE FIRM INVESTS IN CARRYING MONGOLIAN COAL AS PRICES SURGE Japan‘s fourth-largest trading company, Itochu Corp., says it invested in Winsway Coking Coal Holdings Ltd. to secure coal from Mongolia, stepping up competition with China and Russia for the steelmaking ingredient as prices jump. Itochu joined a group led by Hopu Investment Management Co., the USD2.5-billion fund run by Goldman Sachs Group Inc. partner Fang Fenglei, in investing in Winsway with the purchase of USD10 million of convertible debt last month. Winsway, based in the British Virgin Islands, transports coal from Mongolia to China. Itochu wants to add Mongolian assets to its operations in Australia, Indonesia and North America as prices climb to a near record this year. ―The current levels enable Mongolian coal to sufficiently compete against coal produced in other regions,‖ the company chairman has said. ―Mongolian coal wasn‘t viable to export when prices were around USD30 and USD40‖ a metric ton. Coking coal for immediate delivery traded at USD236 a ton as of April 30. Winsway has expanded sales recently by investing in trucks to carry coal from mines in Mongolia, including one close to the Tavan Tolgoi coal deposit. Mongolia‘s coal exports to China may climb to about 12 million tons this year from 8.5 million tons in 2009, and about 4 million tons in 2008.

Source: Bloomberg

FORMER EMPLOYEES OF ALTAN DORNOD DEMAND JOBS A team of former employees of Altan Dornod Mongol was recently in Ulaanbaatar to seek the help of the Confederation of Trade Union to protect their interests. The company stopped all its operation in December 2008, rendering 780 workers unemployed. Some time later a company called Bumbat leased equipment from Altan Dornod and provided jobs for some 400 of its former employees, but the State Investigation Agency started investigations against it on the charge that it had commercial links with Altan Dornod. Finally police seized all equipment and sealed the offices of Bumbat on April 19 last, again depriving the workers of their means of livelihood.

Source: Undesnii Shuudan MoU SIGNED TO IMPLEMENT INTEGRATED CARD CLEARING SYSTEM The Central Bank has signed a Memorandum of Understanding with Khan Bank and Trade and Development Bank on an integrated payment card clearing system to come into effect on June 16. Golomt Bank is expected to join the system by the end of the year. At the end of 2009, the number of card holders in Mongolia was over 2 million, of which 476,000 were termed active,

indicating that they used their card at least 5 times a month. Some 27% of the total card holders and 32% of active users reside in rural areas. Khan Bank and TDB together cover 70% of the market share in terms of number of transactions.

Source: Montsame LISTING RULES DAMPEN HONG KONG‟S MINING IPO HOPES Hong Kong's ambition to turn its stock exchange into a major destination for mining IPOs may be a slow burn given its existing ban on pure exploration companies and the bourse's fuzzy record on disclosure. The Hong Kong Stock Exchange -- heavy with property and financial companies -- is courting miners from Russia and across Central Asia in a bid to capitalize on the commodity price boom and China's insatiable appetite for natural resources. Yet unlike major mining-focused indexes in Sydney and Toronto, HKEx does not permit exploration companies to list unless they prove the existence of exploitable natural resource reserves, and lay out a clear production plan. For HKEx, that measure protects investors who lack experience investing in mining companies. But such experience is a long way off given that few small miners are listing here, analysts say. Hong Kong's pitch to IPO-hungry mining firms is simple: China is the world's dominant source of commodity demand, and Hong Kong is China's international gateway. It is the only Chinese market that operates under international trading standards, and has ample liquidity for both institutional and retail investors. HKEx's ability to realize its mining IPO ambitions depends on how it deals with the controversial regulation Chapter 18 -- the Exchange's ban on pure exploration companies. Read more… In September, HKEx launched a formal consultation with industry experts about Chapter 18 in a bid to make the city's bourse more miner friendly. The results are pending, but some executives oppose the rule, claiming it would bar a number of exploration firms already listed in Sydney, Toronto and London from listing in Hong Kong. This would disallow a significant portion of the ASX/TSX/AIM listed juniors and will be seen as a strong disincentive to exploration. HKEX is scheduled to release consultation results soon, but a change in the ban on pure exploration companies looks unlikely in the near future. "Under our proposals ... pure exploration companies are not eligible for listing, as we believe our market may not be ready for the geological risk and speculative nature of early stage exploration ventures at this juncture," HKEx spokeswoman Lorraine Chan has said. Also at issue is the exchange's record of allowing exceptions to the rules, or overlooking loopholes, which sends mixed messages to the market, analysts say. Some miners have been able to skirt the rules through backdoor listings. In 2007, coal miner Mongolia Energy Corporation listed when its assets were bought by New World Cyberbase, a tech company, which renamed itself Mongolia Energy. The miner has yet to turn a profit from its coal operations. "The only way for MEC to list was by selling all its projects to a company that was already listed," Mongolia-based Frontier Securities said in a report. Hong Kong needs to stick to a disclosure based approach to avoid loopholes and other rule-bending exceptions, such as the ban on retail investor participation in UC RUSAL's IPO in January, due to the aluminum giant's debt burden. Still, even without major reform, some mining executives continue to pump up HKEx's potential. In March, Ivanhoe Mines' colorful chairman Robert Friedland told a conference, "Hong Kong will become the largest mining finance market in the world."

Source: Reuters.com

“DISCOVER MONGOLIA” PROMISES MORE THIS YEAR Mr. Ankhbayar Gurdorj, Chairman of the Organizing Committee, has said Discover Mongolia 2010 will offer international mining investors a resourceful base to launch and expand businesses, establish new contacts, and learn of the latest developments and make deals. After a year‘s absence, the founding members of the Forum have come together again and this year‘s meeting, scheduled to be held in Ulaanbaatar from September 8-10, will have more value. The goal is to reinvigorate the business and entrepreneurial spirit of the participating investors by boosting the quality, content and scope of the Forum events. These will include a mining conference; the Government Hour, where Government officials directly discuss Government policies in the mineral industry with participants; an investors‘ exhibition; a mine tour and a fishing tour. The Forum was started in 2003 at the initiative of a group of proactive mineral consultancies which included Mine Info LLC and Monrud LLC, and also the Mongolian National Mining Association

(MNMA), the largest professional NGO in mining in the country. The 7th forum last year was organized by MNMA on its own.

Source: www.earthtimes.org

SHANGHAI COURT REJECTS FORMER RIO TINTO EMPLOYEES‟ APPEAL A Shanghai court rejected on Monday appeals by three former Rio Tinto employees against convictions for commercial crimes, ending the legal process in a high-profile case that raised concerns among foreign businesses in China. The Shanghai Municipal High People's Court upheld a lower court's decision in March to convict Mr. Liu Caikui, Mr. Ge Minqiang and Mr. Wang Yong of accepting bribes and taking commercial secrets. The Chinese nationals were sentenced to prison terms of seven, eight and 14 years, respectively, plus fines. The higher court's decision was expected. Appeals rarely succeed in China. The high court ruled that the facts of the case "were clear, the convictions and the sentences were appropriate and trial procedures were legal". Australian national Stern Hu, who was handed a 10-year prison sentence on the same charges, had earlier decided not to appeal. Immediately after their March convictions, the men were fired by Rio Tinto.

Source: The Wall Street Journal Asia

AUSTRALIA‟S RULING PARTY NOT TO SCRAP MINING TAX, EVEN IF THAT COSTS SEATS Australia's ruling Labor Party has said it will not back down on a controversial new mining "super profits" tax even if it meant losing up to six crucial seats at national elections due within months. Global miners like Rio Tinto and BHP Billiton warn the tax will hinder mineral and gas development in Australia's resource-dependent economy, but some miners have pressed ahead with new projects. Prime Minister Kevin Rudd's Labor only has a seven-seat majority in the lower house and is expected to win a second term. The mining tax has become a cornerstone of Mr. Rudd's reelection strategy. Treasurer Wayne Swan said disgruntled miners, who have funded an advertising campaign against the tax could ensure Labor losing seats. "What you're also seeing, and it's not unexpected, is a massive fear campaign from some parts of the industry," he told Australian radio. Mr. Swan has promised to use the proceeds of the new tax to fund a cut in company tax and help deepen the country's pool of retirement savings by a massive USD3.5 trillion by 2030. The Minerals Council of Australia, representing miners, will meet with the government on Thursday to negotiate on the tax and has promised an AUD4 million pre-election ad campaign, arguing the industry has paid AUD80 billion in the past decade. Read more… The tax is not due to be legislated until 2011, well after the next election, leaving little reason for the government to agree to any miner demands to scrap or soften it before going to the ballot box. At this stage, the best chance miners have of the tax being scrapped is for Mr. Rudd to lose the election. However widespread anger among global miners over the tax appeared to be doing little to blunt investment plans in the short term. In China, major steel makers Sinosteel and Anshan Iron and Steel Corp. have been quoted as saying they would go ahead with planned Australian investments despite the tax, which they said would "affect costs and profits in our local projects".

Source: www.miningweekly.com

BHP MAY REVISIT JOINT VENTURE WITH RIO TINTO BHP Billiton said uncertainty over a new mineral tax and marketplace changes could lead it to re-evaluate a proposed iron-ore joint venture with Rio Tinto PLC in Australia if a deal isn't worked out by year's end. The deal, which was expected to save the companies a combined USD10 billion in shared production costs, is vehemently opposed by global steelmakers, which say the combination could constrict supply, leading to higher prices. Both BHP and Rio have denied that charge and said marketing and sales would remain independent. BHP Chief Executive Marius Kloppers last week said completion of the deal, which involved sharing production expenses at their adjacent mines in Western Australia, is hampered by Australia's newest proposal to apply a 40% resource super-profits tax to mining companies operating in the country. He said that he and Rio Tinto CEO Tom Albanese met recently over the issue. Miners have developed long-term mineral deposits in countries that have stable governments, such as Australia, Canada and South American nations. But during the commodity boom, they turned to more remote and unstable countries and ran into problems. After investing billions in exploring and

developing iron-ore mines in Guinea, Rio Tinto lost half of its investment when the country's political structure changed in late 2008 and became hostile to Rio's presence. Mr. Kloppers said that there are still countries, which he declined to identify, that he would avoid because of political and safety concerns for his employees. But he said technology has made those remote and hard-to-develop reserves viable. "New technology will drive down prices," he said. "You will always have bigger shovels and bigger trucks" to retrieve more of the minerals faster and more cheaply.

Source: The Wall Street Journal Asia

RIO TINTO‟S ALBANESE SLAMS SUPER PROFITS TAX Rio Tinto CEO Tom Albanese entered the fray in the mining industry‘s fight against the Australian government‘s proposed 40% resources tax on super profits, by saying he was ―shocked‖ by the proposal which was ―akin to nationalization‖ of Australian resources companies. ―We are not opposed to a tax reform, but [the reform] should protect against sovereign risk and improve industry competitiveness.‖ Other major diversified miners, including BHP Billiton and Xstrata, have also slammed the new tax. ―What the government is saying, is that they would like to be a partner, taking 40% of our pretax profits on our past, present and future investment. For good reason, people are beginning to use terms like nationalization and expropriation for this new partnership, and it will not help Australia‘s future investment climate,‖ Mr. Albanese warned. He has advised Rio Tinto‘s portfolio managers to re-evaluate all new capital projects under a worst-case tax scenario. ―Anything that reduces competitiveness and increases country risk will undoubtedly affect that country‘s investment,‖ he added. ―If the government had chosen to engage with us at first, before announcing what they did, they could have avoided the damage that has been done.‖

Source: www.miningweekly.com

ECONOMY FRESH THOUGHTS LIKELY ON REVISED BUDGET Everything is hush-hush, but indications are that there are second thoughts in the Government and among MPs about proceeding with proposals in the revised budget. The IMF has given a gentle but firm reminder that Mongolia‘s failure to follow the terms of the standby agreement would ―make it difficult‖ to provide further assistance and the World Bank is reported to have pitched in. There has been no formal announcement, but it is believed that sensitive financial issues were discussed at a ―secret‖ meeting on Monday attended by members of the Standing Committee on the Economy, and representatives of the IMF, the Central Bank, and the National Statistics Office. They talked mainly about the budget deficit and the threat of inflation. The Finance Ministry has proposed revisions to the 2010 budget following the increase in the price of copper and gold. If this has meant MNT 364.2 billion in extra revenue, the decision to increase the salary of civil servants by 30 percent, and reinstatement of the child allowance will lead to more expenses. Some new public projects have also been proposed. Taken together, these will take the budget deficit beyond the proposed 5% of GDP as stipulated by the IMF. The Government‘s hopes of keeping inflation under six percent have been belied. It has already reached 10 percent and many analysts predict an even darker future with inflation hovering around 27 percent by the end of the year. The IMF, which has lent money to keep the budget deficit within manageable limits, and the World Bank are strongly recommending continuing with austerity measures. There seems to be rethinking in the Finance Ministry and Parliament has suspended further discussion on the revised budget.

Source: English.News.mn

SOCIAL, ECONOMIC DATA RELEASED The National Statistical Office has issued the following social and economic data. All figures are for the four months ended April 2010, unless otherwise specified, and all comparisons are with the same period in 2009, unless, again, mentioned otherwise. Consumer price index The national consumer price index in April 2010 increased by 2.1 per cent, 9.7 per cent and 8.3 per cent respectively over March, the end of last year, and April, 2009. The m-o-m rise was mainly due to the 4.3 per cent increase in food prices.

Gross Domestic Product Gross Domestic Product (GDP) in the first quarter of 2010 stood at MNT 663.4 billion at 2005 constant prices, increasing 7.6 per cent over the same period in 2009. This was mainly because of increased industrial and construction output and more taxes. Unemployment The number of registered unemployed people rose 3.8 percent. Budget, taxes The General Government Budget showed a deficit of MNT 190.1 billion in the first four months of 2010. The current balance deficit was MNT 9.3 billion. Tax revenue rose 73.2 percent over the same period last year. Revenue from the windfall profits tax was 9.0 times more, from corporate income tax 2.3 percent more, and from VAT 67.9 percent more. Non-tax revenue increased by 3.1 percent. Foreign trade Total turnover from trade with 112 countries reached USD1,552.2 million, a rise of 58.1 percent. Exports accounted for USD729.4 million, a rise of 64.2 percent, and imports stood at USD822.8 million, 53.1 percent more than in the first four months last year. This year‘s deficit of USD93.4 million was 0.2 percent more. Construction Construction and installation work worth altogether MNT13.4 billion was carried out, of which 49.6 percent was executed by domestic entities. Freight and passengers The railway carried 1,054,900 passengers and 4,856,100 tons of freight. The number of passengers rose 5.9 percent and the volume of freight 14.8 percent. Airlines carried 90,200 passengers, 31.7 percent more, and 436,300 tons of freight, 33.7 percent more. Pensions Of the 434,200 people paying for social insurance in April, 39.7 percent worked at government institutions and 60.3 percent at private establishments. The total amount of pensions allocated from the social insurance fund reached MNT 110.4 billion. Retirement pensions accounted for 72.7 per cent of this, disability benefits for 13.0 per cent, loss of breadwinner payments for 7.5 per cent, and military pensions for 6.8 per cent. Social welfare allowances Social welfare allowances and benefits worth MNT 15.4 billion were paid to 170,900 people, falling from MNT 42.6 billion for 1.3 million people in the first four months of 2009. The number of beneficiaries has fallen 86.6 per cent and the amount allocated 63.8 per cent. MNT 115.9 billion has so far reached 1.7 million people from the Human Development Fund. Share trading In 22 trading days in April of this year, 5.8 million shares valued at MNT 6.2 billion were traded at the stock exchange. The number of shares was half of the March figure, and 2.7 times less than in April 2009.

Source: Montsame

CASH DISTRIBUTION HAS “LITTLE RELATION” TO 9.7% INFLATION Director of Macroeconomics at the National Statistical Committee B.Badamtsetseg traces the 9.7 percent inflation to the dzud that killed 8.1 million livestock and thus led meat price to rise 15 percent over the same period last year. The official saw ―little relation‖ between the distribution of money from the Human Development Fund and the inflation as the money is being distributed over a period of time.

Source: Business-mongolia.com

NON-PERFORMING LOANS LOWER, BUT HIGHER BY 50% THAN LAST YEAR The Central Bank reports that money supply (broad money or M2) at the end of April rose to MNT 3163.0 billion, an increase of MNT 188.5 billion or 6.3 percent over March, and of MNT 821.1 billion or 35.1 percent over April last year. At the end of April, 2010, currency issued in circulation reached MNT 445.0 billion, MNT 60.5 billion or 15.7 percent more than in March, and MNT 89.4 billion or 25.1 percent more than in April last year. Loans outstanding at the end of April amounted to MNT 2764.9 billion, a fall of MNT 3.7 billion or 0.1 percent from March, but MNT 184.6 billion or 7.2 percent more than in April, 2009. Principals in arrears were MNT 139.0 billion at the end of April, MNT 14.3 billion or 9.3 percent less than in March, and MNT15.2 billion or 9.8 per cent less than in April last year. The amount of non-performing loans stood at MNT416.0 billion at the end of April, a drop of MNT15.8 billion or 3.7 per cent from March, but MNT142.1 billion or 1.5 times more than in April last year.

Source: www.mongolbank.mn

PM TO HEAD COMMITTEE TO OVERSEE DEVELOPMENT OF INDUSTRIAL COMPLEX The Government has set up a committee to oversee the development of the Sainshand industrial complex under the leadership of Prime Minister S.Batbold and First Deputy Prime Minister N.Altankhuyag. Its other members will be members of the cabinet, some MPs and representatives of NGOs. The complex is planned to have copper smelters, coking coal plants, a small airport, and several small and medium factories, all of which will form a new city. The Government plans to build a Tavantolgoi-Sainshand-Choibalsan railroad with domestic and foreign funding. A working committee headed by Mr. Ch.Khurelbaatar, chairman of the Government Secretariat, was also set up to manage the construction activities in the complex. It will include officials of several Ministries and Government agencies, the governor of Dornogobi province, and academic experts.

Source: Ardiin Erkh STANDING COMMITTEE REFUSES FUNDS FROM HDF FOR SMOKELESS ULAANBAATAR The Standing Committee on the Budget has refused to approve a Government proposal to change the law on the Human Development Fund to provide money for the Smokeless Ulaanbaatar program, recently approved by Parliament and to cost MNT18.2 trillion until 2016. Work on constructing apartments, using gas as car fuel and on roads will be part of the program. The Government is relying on mining revenue to fund the program but currently there is no legal sanction for the revenue to be so used. That is why it was decided to amend the law on the Human Development Fund to meet the financial needs of Smokeless Ulaanbaatar. All additionally generated mining revenue goes into this fund. The current law allows the Fund to finance only four types of activities: health, education, social insurance, and apartment and housing. Finance Minister S.Bayartsogt said the Government had to provide the money as the Ulaanbaatar City administration is barred by law to raise funds by issuing bonds. Mr. N.Batbayar (DP) warned him not to try to use Parliament to change laws, so that foreign companies could be allowed to make money. Read more… The Government thinks that with copper price on the increase, it will have enough in the Fund for use in Smokeless Ulaanbaatar even after distribution of MNT1.5 million to every citizen. Members of the committee, however, did not go along with the government. Mr. O.Chuluunbat (MPRP) felt the program looked too commercial and urged the Government not to get involved. Mrs. D.Arvin (MPRP) said enough money has been allocated to infrastructure projects and the priority now should be to distribute the money among people. Mr. Ts.Davaasuren (MPRP) asked Minister of Environment and Tourism L.Gansukh to scale down Smokeless Ulaanbaatar as the project aims to tackle too many social issues at the same time. It is not realistic, he said, to ask for an amount equal to almost eight years‘ state budget, for the project. The committee rejected the draft 13-3. It will now go to the Standing Committee on the Economy.

Source: English.News.mn, Zuunii Medee, Undesnii Shuudan

DRAFT ON DEVELOPMENT BANK SUBMITTED TO GOVERNMENT The working group established by the Government to prepare a draft plan to set up a Development Bank has finished its work. The draft was presented to the Government earlier this week. The draft proposes to keep the management of the bank independent of the Government. It will work to help develop heavy industry, infrastructure and a knowledge-based economy and will act in

cooperation with commercial banks. There is no reason to fear that the Development Bank will eventually push commercial banks out of the market, Mr. E.Tsogbayar, a member of the working group, has said. He has explained that the new bank will actually help commercial banks in financing big projects and in guaranteeing large loans.

Source: Onoodor

BCM‟s RECOMMENDATIONS TO BE FORWARDED FOR IMPLEMENTATION The quarterly meeting of the Consultative Council on Investment Climate and Private Sector Development (CCICPSD) on May 11 was chaired by Deputy Finance Minister T. Ochirkhuu. Mr. B.Enkhbat, BCM Board member and Business Development Director of Just Group, and Mr. B.Bayar, head of the BCM Legislative Working Group and Managing Director of the law firm ELC, submitted certain recommendations on the law on ―Conducting Settlement in National Currency‖ aimed at protecting and promoting the interest of local suppliers. Mr. Jim Dwyer, Executive Director of BCM, stated ―there is no problem settling transactions in tugrug, but Mongolan vendors need to be able to link the tugrug to other currencies when quoting sales prices in tugrug for imported products.‖ The meeting decided to forward the recommendations to Mr. S.Bayartsogt, Minister of Finance, Mr.L.Purevdorj, Governor of the Central Bank, and to Mr. D.Bayarsaikhan, Chairman of the Financial Regulatory Committee, so that they can be considered for implementation.

Source: Business Council of Mongolia

INTERNATIONAL EXPERIENCE CAN HELP MONGOLIA MAKE ITS CHOICE: U.S. AMBASSADOR "Mongolia will determine the choices it makes about its own future, but international experience, both good and bad, can also be helpful and offer useful and important insights as Mongolia learns from both the successes and failures of others." This was said by U.S. Ambassador to Mongolia Jonathan Addleton at a public forum organized earlier this month by the Educational Advising and Resource Center in Dalanzagad, capital of Mongolia's South Gobi province. Ambassador Addleton noted much change since his last visit to the province in 2001. "At that time," he said, "I was country director for USAID [United States Agency for International Development] and we were involved in a number of programs including the Gobi Initiative, the establishment of the XacBank, and the revitalization of the Khan Bank." Today "the mining sector in particular looms large and presents tremendous opportunities as well as enormous challenges". One of those challenges is environmental protection. "That includes the preservation of not only the rangeland, but also the water beneath it and the blue sky above it," he said. "It is also important to maintain not only the natural environment but also the cultural integrity of the Gobi, maintaining and even strengthening the traditions that help define communities and bring them together." Another challenge is to ensure that the South Gobi economy is not one dimensional, relying only on mining to the exclusion of everything else. Rather, other elements of the economy – including trade, tourism, cashmere and the production of goods and services – also remain essential. Good governance is also important to the region's development. This refers, among other things, to the quality of the various institutions that help manage and shape change. "As international experience suggests," said Ambassador Addleton, "these key institutions need to be fair, open, transparent, and display integrity." Read more… Investing in people, meaning that all elements of society place a high premium on obtaining knowledge and promoting education, is also important to South Gobi development. For its part, "the United States will do its best to be helpful in these and other areas". Historically, USAID programs have aimed to promote a diversified economy for the South Gobi, through such efforts as the Gobi Initiative. More recently, Millennium Challenge Corporation programs have focused on health and technical training. The U.S. also continues to support the development of civil society in the region, through non-governmental organizations such as Mercy Corps and local Mongolian NGOs. The United States is committed to the development of the South Gobi, and its partner and friend Mongolia.

Source: www1.voanews.com

UN SAYS MONGOLIA STILL NEEDS USD16.7 MILLION FOR DZUD RELIEF United Nations agencies and partner humanitarian organizations last week requested more than USD18 million to assist nearly 800,000 people in Mongolia who are suffering from the combined effects of a long, severe winter and a preceding harsh summer drought. The complex, natural

disaster has destroyed the livelihoods of nearly 9,000 Mongolian families, who rely on their livestock for income, food and fuel. More than 7.5 million animals, over 17 per cent of the country‘s total livestock head, have died, according to humanitarian agencies. Fifteen of Mongolia‘s 21 provinces, home to an estimated 769,000 people, or 28 per cent of the population, have been declared disaster zones. Another four provinces are seriously affected, prompting the Mongolian Government to seek international assistance, hence the launch of the Consolidated Appeal. "While important short-term support has already been delivered, the situation is evolving and the needs of the population will grow over the coming months," Ms. Rana Flowers, acting UN Resident Coordinator for Mongolia, has said. Donors have to date contributed more than USD1.3 million, leaving a deficit of USD16.7 million of the funds required for effective response. Ms. Flowers was in Geneva to launch the appeal at a meeting of donor countries.

Source: Reuters.com

MNT300,00 FOR EVERY HERDER FAMILY WITH TOTAL LOSS OF LIVESTOCK Deputy Prime Minister and Chairman of the National Emergency Commission M.Enkhbold has said the MNT3.4 billion (approximately USD2.5 million) given by the Asian Development Bank (ADB) for dzud relief will be spent on cash allowance to families that have lost all their livestock, and on providing automobiles and equipment in the provinces most affected, to improve health and social welfare services there and to strengthen local capacity in emergencies. Altogether 8,576 households in 12 provinces will get MNT300,000 each.

Source: English News.mn

MONGOLIA‟S POOR WAIT FOR MINING WEALTH TO IMPROVE THEOR LOT "Mongolia is a young nation!" "Mongolia has just discovered that it is actually rich!" "Mongolia is in line to become another Kuwait or Saudi Arabia!" These sentences resurface in conversations with residents of Ulaanbaatar about Mongolia's mining wealth, and the booming interest from international governments and multinational corporations. The common theory, or hope, expressed by those working in the mining industry and in government-related jobs was that through the tax income and the infrastructure investments made by these mining companies, the quality of life in Mongolia would improve for everyone. In Ulaanbaatar where upwards of 700,000 people have no running water, and use pit toilets outside their homes, it is an appealing promise – but will that revenue ever reach them? As you wander around this capital city, you see the tinted windows and super-deluxe model vehicles of government representatives. Little flags flap in the wind between traffic jams: Korean, Chinese, Japanese, and so on. Often, it's a fully equipped, brand new, shiny SUV with the big UN decal painted on the doors parked around the city centre. Pop into any of the beloved expat cafes and restaurants and you can't ignore the loud conversations in American, British and Australian accents about who's been working in what region and what deal is being finalized today. In many parts of the world these conversations might be considered private or too sensitive to be conducted in a public place, but for some reason in Ulaanbaatar there's no shame in talking loud about how well your mining project is going. Even now, as huge corporate entities such as Rio Tinto, Ivanhoe, and AngloGold run large-scale mining operations in the country, it still struggles to meet the most basic needs of its citizens. Read more… This boom in mineral wealth and exploration has not gone unnoticed by their energy-hungry neighbors to the south. China is investing more than USD700 million in Mongolia's energy, mineral and metal reserves to serve Chinese steel companies just over the border. Part of their investment involves building new roads and new rail links between the two nations. In the north, the Russian government talks about its own plans for cross-border mineral and energy sector co-operation with Mongolia. As backdrop to these unprecedented deals and investments, hundreds of thousands of Mongolians are experiencing one of the worst crises the nation has ever seen. Following a summer of drought and an extremely cold winter, livestock are dying out by the millions. In a nation where one-third of the population live off their animals, survival has meant moving to the capital in search of work. Settling in the Ger district, a place with little to no infrastructure, they face the long list of obstacles that comes with being poor and unemployed in a city that is unable to meet even the most basic needs of its current residents. Where do many unemployed struggling city dwellers invest their money? Vodka. The city has a staggering level of alcoholism.

Even as a mere visiting journalist, it is not hard to see the two very different realities that exist here. And in between are those trying to improve the quality of life; to find money, from within and outside the country, to fund community centers in the poorest districts. Every day these organizations provide food, clothing, shelter, daycare, education and counselling for hundreds of thousands of people who would otherwise have little to no other help. Even in the poorest neighborhoods, residents know all about the promises of the mining industry; they've heard all about how Mongolia could be the Kuwait or Saudi Arabia of central Asia. So far, however, no sign of it. Source: guardian.co.uk

MONGOLIA “CANNOT DEVELOP WITHOUT CHINESE CAPITAL” Mr. Michael Aldrich, a partner at the Hogan Lovells law firm in Beijing, divides his time between there and Ulaanbaatar, where he works with a local law firm, GTs Advocates, to develop Lovells' practice in Mongolia. Mr. Aldrich, who has observed the development of Mongolia's mining-dependent economy, feels that the Mongolian Government has realized that the country cannot properly develop without the flow of considerable capital northwards from China. It also wants to diversify the sources of foreign capital so no one country becomes the "key" investor. He thinks ―a considerable amount‖ of the present Chinese investment comes from privately-owned companies that side-step Chinese overseas investment regulations through nominee shareholder arrangements. These companies ―often step on the toes of Mongolian sensitivities by seeking to circumvent local laws and customs‖. Chinese state-owned firms are more slow-paced since they cannot avoid the red tape. Asked how legal work in Ulaanbaatar compares to that in Beijing, Mr. Aldrich said there are some similarities. The legal systems of all former-socialist states tend to have much in common, but Mongolia has a greater respect for the freedom of individuals who enter into contracts without obtaining governmental agency approval, or those who don't necessary comply with regulatory restrictions that may or may not be enforced. Establishing a wholly owned subsidiary with foreign investment in Mongolia can be completed in several days, as opposed to the weeks of processing required in China. Read more… Mr. Aldrich‘s impression was that ―most big-ticket foreign investors are seeking mining sector projects, making their operations more Mongolia-specific‖ and that many foreign mining companies have actually quit China in favor of Mongolia. However, it's a different story for foreign investors in consumer goods, luxury products and high-end services. These operations tend to be an extension of their China-based presences, and their brands rely upon China as a stepping-stone toward a Mongolian market enamored with their goods. He said when Mongolia rejected a one-party government, long dormant roots for participatory politics suddenly burst forth and this is what makes it different from other resource-rich countries in the neighborhood.

Source: Global Times

JOINT PARLIAMENT-IMF WORKSHOP DISCUSSES ECONOMY MPs, bankers and other financial professionals, and academics were among those who attended Monday‘s workshop on policy issues facing Mongolia, organized jointly by the Standing Committee on the Economy and the IMF Mongolia office. Chairing the workshop, Speaker D.Demberel said the Mongolian economy was showing an upturn, and the recent increase in the price of cashmere and other raw materials made them optimistic about a brighter future. At the same time, he said, ―many problems remain‖, such as the cost of heating and electricity, the seasonal shortage of meat and dairy products, and inflation. There will be more unemployment in areas where livestock died in great numbers, the construction sector continues to be in crisis, and bank restructuring is still to be taken up. The entire welfare system has to be reprogrammed, and the budget deficit has to be kept within agreed limits. IMF Resident Representative P.Ramlogan gave a presentation on ―Inflation: reasons, factors and outcomes‖. Two other IMF economists spoke on ―Monetary policy and inflation‖, and on how changes in the budget affect macroeconomics.

Source: Ardiin Erkh

MONGOLIAN MINING COMPANIES TO ATTEND EVENT AT LONDON STOCK EXCHANGE Around 20 Mongolian companies have already confirmed participation at the Mongolian Mining Companies‘ Day at The London Stock Exchange on June 8. Mr. B.Ulziibayar, Director of

NorthernSec, a brokerage and underwriter firm and a member of the Mongolian Stock Exchange, says the idea of organizing the event came to him after they had successfully held a workshop in Ulaanbaatar last October on new ways of raising capital, in cooperation with the London Stock Exchange and the New York Mellon Bank. The London Exchange thus already knew of the problems and the possibilities and favorably considered the proposal to organize a special day. Several international financial organizations, including J.P. Morgan, ING Bank, Citibank, Credit Suisse, Deutsche Bank, Bank of New York, Morgan Stanley and Nomura, will attend the event. In Ulaanbaatar, the Ministry of Minerals and Energy, the Mineral Resources Authority, and FIFTA have offered help and cooperation in making the event a success as that would help domestic mining companies access investment and financing from foreign sources.

Source: News.mn

INVESTORS SHOULD RESIST THE GOLD FRENZY With the price rising 84 percent in the past three years, gold has never been more popular as an investment. And, for individual investors, that's part of the problem. Financial experts warn that all this enthusiasm for gold could be a warning sign that prices may well be near their peak. Gold's advocates may be right that the metal could head higher still, driven by the fiscal crisis in Europe, high deficits in the U.S., and fears of inflation. But even if gold keeps rising—a prospect very difficult to predict, given the metal's volatile track record—there are several features of gold that make it treacherous for individual investors. Gold might have a reputation as a "safe haven", but nothing could be further from the truth. Unlike other commodities, gold has few industrial uses. Unlike businesses owned through the stock market, gold earns no profits and doesn't pay out dividends. Unlike bonds, no one pays interest to holders of gold. And, unlike insured bank deposits, there is no guarantee of your principal investment. There is no downside protection on investing in gold. Gold used to be the backing for currencies, but no longer. Much of gold's appeal is built on its use as protection against inflation, which some—but not all—investors see as a potential threat. However, gold's record as an inflation hedge is more mixed over the long term. Because gold fell from 1980 to 2001, the metal's total appreciation from 1972 to 2001 was just 336.5 percent. That barely beats inflation over those 29 years of 323.7 percent, and is way behind the 2,466 percent return of the broad Standard & Poor's 500-stock index if dividends are included.

Source: Bloomberg Businessweek

COMMODITY BULL CYCLE „HERE TO STAY‟ FOR 10, 15 YEARS Commodity prices and demand should stay broadly strong, feels an analyst. Speaking at the Canadian Institute of Mining, Metallurgy and Petroleum conference last week, Paradigm Capital‘s David Davidson said, ―The supercycle, if you want to call it, or the bull commodity cycle, is here to stay for at least another 10, 15 years.‖ Discussing the outlook for bulk commodities, including steelmaking ingredients iron-ore and coal, he said that there will be periods of weakness within the cycle, but the general trend remains strong going forward, citing demand from developing countries, and especially China. Source: www.miningweekly.com

CHINA AGAIN A NET BUYER OF TREASURYS China was a net buyer of U.S. Treasurys for the first time in six months in March, boosting its position as the top foreign holder. The U.S. Treasury Department has said foreigners were overall heavy net buyers of long-term U.S. financial assets in March, a time when investor concerns about Greece's ability to finance its debts pushed investors into Treasury. China became a net buyer of Treasurys for the first time since last September, with its holdings increasing USD17.7 billion to USD895.2 billion, following net sales of USD11.5 billion in February, according to the monthly Treasury International Capital report. A Treasury selloff by China at the end of last year caused concern at first that the largest creditor nation to the U.S. was shifting out of U.S. assets. But major upward revisions to the December data in late February showed that China hadn't actually lost its position as top Treasury holder to Japan, as initially thought. Japan, the second-largest holder of Treasurys, also was a net buyer in March, lifting its portfolio holdings to USD784.9 billion, from USD768.5 billion in February. Analysts warn against reading too much about individual countries' behavior into the volatile monthly flow data. The figures only measure Treasurys traded or held directly by entities from a

given nation, and China increasingly has been using banks and other third parties in places like Hong Kong and London to trade Treasurys on its behalf. Source: The Wall Street Journal Asia

MINERS SEEK SPIN-OFFS TO BOOST VALUE, CUT DEBT Diversified mining companies are increasingly likely to favor spinning off undervalued non-core operations via individual listings to achieve better overall ratings amid concerns about high debt levels. Analysts say that companies are anxious to get their finances in better shape due to uncertainty about an economic recovery underscored by sovereign debt problems in Europe. Last year, accountancy firm Ernst and Young said heavy borrowing by the mining industry in 2007 and 2008 had left many miners with concerns about repayment levels and the impact on capital investments. It estimated total net debt for 60 of the world's biggest miners grew to USD182 billion at the end of 2008. Separating non-core assets and selling off a minority stake on the market is often a good route to unlocking value. Unlike an outright disposal, spinning off an operation via an initial public offering (IPO) can give the parent company a share in the potential upside or revaluation of the non-core asset. This is a very powerful argument to persuade mining companies to sell undervalued and unrecognized assets in the market place in order to achieve better overall ratings. Gold miners are likely to carry out spin-offs by country and diversified companies by commodity. Some miners have been forced to postpone separate listings or scrap them altogether if they get insufficient support. Rio Tinto delayed an IPO for its U.S. coal operation Cloud Peak in 2008 amid difficult market conditions before listing it last November. Source: www.miningweekly.com

POLITICS CIVIL MOVEMENTS TO RENEW AGITATION The civil movements that organized last month‘s prolonged anti-Government and anti-Parliament protests told a news conference on Friday that they would soon launch another joint program of agitation, more intense than the last. This has become necessary as the Government has taken no steps to implement the terms of the agreement with an MPs‘ working group that persuaded them to call off their hunger strike on April 22. They also said they were pained by talk that they had ended their movement after receiving ―huge sums of money‖.

Source: English.News.mn

NEW PROSECUTOR GENERAL OFFERS “NO MERCY TO CORRUPT PROSECUTORS” Parliament last Friday approved the appointment of Mr. D.Dorligjav as the country‘s Prosecutor General, with 92 percent of MPs accepting his nomination by the President. Talking to reporters after the Parliament vote, Mr. Dorligjav said his priority will be to ensure that prosecutors at all times abided by the law. ―Their main responsibility is to ensure that people‘s legitimate expectations are met, and they must never lose sight of the fact that their power stems from the legal principles that they are expected to uphold,‖ he said. People who have been sincere and conscientious will certainly not be disturbed. ―Indeed, I shall offer them all assistance to be more effective. But I have already told Parliament I shall not retain those with problems of ethics and shall show no mercy to those who abuse their power and bring disrepute to the judiciary,‖ he told media. He clarified it would be wrong to blame prosecutors alone for all the problems in the judicial sector. The proposed reforms program envisions a comprehensive and systemic overhaul of the sector, and piecemeal or ad hoc amendments to individual laws are not being favored. Instead, the emphasis will be on changing the big overall picture. He admitted it will not be easy to change entrenched mindsets but people‘s faith in the judiciary must be restored by enforcing that cases are decided strictly on a legal basis, and on no other consideration. Mr. Dorligjav asserted that he had no political bias. He also dismissed suggestions that transparency would mean that all details of investigations and interrogations will be made public, saying the very nature of their work meant much of what the police, the courts and the prosecutors do will have to be in secret. ―But this cannot be an excuse to shut the people out of everything. They have a right to know much more than they are commonly allowed. I‘ll stand by this principle,‖ he said. Read more… The new Prosecutior General trained as a veterinarian and a lawyer in Mongolia and also attended the Military Politics Institute in Moscow. Among the important positions he has held are Minister of

Defense, Chairman of Erdenet Mining Concern, head of the Democratic Party, Advisor to Prime Minister, and head of the President‘s Office. Source: Undesnii Shuudan, Ardiin Erkh

DISTRICT GOVERNOR HELD FOR SMUGGLING OUT GOLD A district governor in Umnugovi province has been arrested on a charge of attempting to illegally export around 20 kilograms of gold. His wife and 10 others including a Chinese citizen have been named as accomplice.

Source: Udriin Sonin

CHINESE PM TO COME THIS MONTH China‘s Premier Wen Jiabao will be visiting Mongolia this month. His planned trip during last year‘s celebration of the 60th anniversary of Mongolia-Chinese diplomatic relation in October fell through as the then Prime Minister, S.Bayar, was not well.

Source: English News.mn

ALL SCHOOLS TO HAVE SAME TEXTBOOKS, PUBLISHED BY GOVERNMENT The coming school year will see the same textbooks being used by secondary school students all over the country. The practice of schools choosing their own books has been scrapped following continued criticism of the quality of many of these books currently used. When schools were closed because of the swine flu scare and lessons conducted through television it was revealed that the contents of several text books varied too much to be acceptable. The Ministry of Education has now issued an order that from this autumn all secondary schools will have the same books. This will also help those who have to move to another school in the middle of the year, as they will not have to buy new books. The books will be written by experts and the copyright will be held by the Government. Textbooks for grades 1-3 will be provided free to students, those for the 4th grade will be subsidized 40 percent and those for upper grades 60 percent.

Source: Ardiin Erkh

129,495 TREES PLANTED ON FIRST TREE PLANTING DAY President Ts. Elbegdorj planted trees in the yard of a kindergarten in Ulaanbaatar to mark Mongolia's first Planting Day on May 15. Altogether 129,495 trees were planted throughout the country on the day. "The most important work after planting trees is that we must take care of the trees as we take care of our infants," the President said. Parliament Speaker D.Demberel planted trees in the Botanic Garden of the Academy of Science, while Prime Minister S.Batbold was in action in the National Park. Mongolia is a country with a fragile ecological environment and a low forest coverage rate. Almost 72 percent of its total land has turned into desert, and about 90 percent of its grassland, which once fed its cattle, has badly deteriorated.

Source: Onoodor

4 MPs CHOOSE DISPUTED PARK TO PLANT TREES Four MPs -- Mr. D. Enkhbat, Mr. Ts. Munkh-Orgil, Mr. G. Bayarsaikhan, and Ms. S. Oyun –- chose the park at the back of Government House to plant 30 trees on Tree Planting Day. Their choice of location was meant to signify their opposition to the proposal of erecting a new parliament building there. They want the park saved in a city that has so little green. The four had contributed MNT100,000 each to buy the plants.

Source: Udriin Sonin

SNOW LEOPARD TRUST EXPLAINS POSITION ON MINING Mr. Brad Rutherford, Executive Director of the Snow Leopard Trust, has explained the position of the Trust vis-à-vis mining in Mongolia. He says like most other countries, Mongolia, too, has well run mining operations and bad ones, as well as appropriate and bad government policies on mining. Mentioning the Trust‘s ―alarm at the blanketing of our research site with exploration permits‖, Mr. Rutherford says, ―Our issue is really with the Ministry and not the mining companies at this point.‖ The Trust has met with officials from the Rio Tinto mine and has started a good dialogue on possible ways to protect snow leopard habitat and has had ―less productive meetings with other miners‖. So far local communities have not favored the mines and have requested the government to establish a community managed protected area. Several mines established in the area have

employed workers from outside Mongolia which possibly accounts for the lack of support. According to Mr. Rutherford, ―it appears the Chinese-owned mines have, to date, not won the support of Mongolian‘s living around them‖. Asserting that the Snow Leopard Trust takes a ―practical view‖ towards conservation, Mr. Rutherford has said they would ―try and partner with communities or companies that will help us protect the environment, especially snow leopards and their habitat‖.

Source: Snow Leopard Trust

INNER MONGOLIAN AGRICULTURAL EXPERTS HERE TO GIVE ASSISTANCE Fourteen agricultural experts from Inner Mongolia are in Mongolia to participate in the two-year China-Mongolia "South-South Cooperation" Project, providing technological aid. They will work in eight regions in Mongolia, and provide expert technical aid focusing on animal feed production, livestock farming, plant protection, agricultural irrigation, facility agriculture, agricultural machinery, and food inspection. The project is expected to help make important breakthroughs in the agricultural and pastoral sectors in Mongolia.

Source: The People's Daily

U.S. EMBASSY ANNOUNCES THREE FELLOWSHIP PROGRAMS The U.S. Embassy to Mongolia is now accepting applications for the 2011-2012 Fulbright Student Fellowship Program that funds graduate-level studies at U.S. universities. Applicants will be assessed on the contribution that their study would make to greater understanding between the US and Mongolia, and the likelihood of the applicant performing successfully in a U.S. academic setting. To qualify, applicants must, among other things, hold a university degree and be fluent in English (IBT score of 80, Institutional TOEFL 550). The program supports study in most fields of social sciences and humanities, and some in science and technology. The U.S. Embassy has also announced the start of the application period for the 2011-2012 Hubert H. Humphrey Fellowship Program. This non-degree professional exchange program provides approximately a year of study and related professional experience in the U.S. to mid-career professionals working in public service fields, in either the public or private sector. To be eligible for a Humphrey Fellowship, applicants must be Mongolian citizens currently living in Mongolia, and fluent in English (PBT score of 530, IBT score of 72, Institutional TOEFL 530 will be acceptable). They must have, among other things, a university degree, five years of continuous and substantial professional experience in Mongolia immediately preceding the application, and demonstrated leadership qualities and a record of public service. Up to three Mongolian candidates will be selected from among candidates from all of Asia. Read more… The Embassy is also accepting applications for Foreign Language Teaching Assistantships under a program for young English language teachers. It provides foreign teachers of English with the opportunity to refine their skills, increase their English language proficiency and extend their knowledge of the culture and customs of the USA. The grant is for one academic year and is non-renewable. Applicants must be between 22 and 29, a university or high school teacher of English with 2-3 years of teaching experience, with a minimum TOEFL score of 79-80 (IBT) or comparable institutional TOEFL score to qualify. Further details on all three grants can be found at http://mongolia.usembassy.gov. Source: U.S. Embassy in Mongolia

CHINA PULLS AHEAD IN RACE FOR HIGH-SPEED RAIL TRANSPORTATION Last year, China surpassed the USA as the world's largest automaker. The country is aggressively making jets to compete with Boeing and Airbus. And in recent years, with little outside notice, China made another great leap forward in transportation: It now leads the world in high-speed rail. High-speed trains were once the preserve of Japan and France, but now China's trains are the world's fastest, its network of tracks the longest and its expansion plans the most ambitious. By 2012, just four years after it began its first high-speed passenger service, China will have more high-speed train tracks than the rest of the world combined. After years of major investment in highways, China is now investing billions in a cutting-edge network of trains and subways designed to boost exports and revolutionize the flow of people and goods in the world's fastest-rising economic powerhouses.

"This will pay huge dividends for China to years to come," said Mr. Tim Schweikert, chief executive of GE Transportation China, which signed a deal last year to invest in China's rail expansion in exchange for using Chinese trains and technology to bid on high-speed rail projects in the US. Chinese officials said exporting to the US is part of a broader goal of becoming the chief high-speed train supplier to the world, as well as serving China's vast domestic market. China is trying to sweeten its bid by offering low-interest financing. And to counter resistance to Chinese incursion into the railway business, the GE deal stipulates that the locomotive components would be 80 percent American and 20 percent Chinese, and all of the final assembly would be done in the U.S.

Source: washingtonpost.com

AUSTRALIA TO SPEND AUD300 MILLION ON BOOSTING RESOURCES JOB SKILLS The Australian Government has assigned AUD300 million to boost skills, particularly in the country‘s resources, construction, infrastructure sectors. This is part of an AUD660 million package investment in training, apprenticeships and adult literacy and numeracy, which would aim to ensure that Australia had the skills required for a growing economy. Treasurer Wayne Swan said that demand in these areas has threatened to outstrip supply. ―At the same time, youth unemployment remains high in many parts of Australia. This package will provide Australians with the skills needed to support a sustainable economy, and to share in the benefits of growth.‖ The Mineral Council of Australia said that the training and education package would help underpin business in its effort to create a more skilled work force to help improve productivity.

Source: www.miningweekly.com

SIBERIAN MINE DEATHS BLAMED ON SOVIET-ERA MOTIVATION The recent accident at the Raspadskaya mine in the heart of Russia‘s western Siberia region, that may have killed as many as 120 people, was a grim reminder that while coal production has fallen since the end of communism in Russia, output at the most profitable mines has risen drastically. The head of the union at the nearby Lenin mine has worked in mining for 30 years and says, ―The thing that is different about today versus the Soviet system is that the intensity of production has gone way up.‖ During Soviet times, ―if Raspadskaya hit 500,000 tons a month they were heroes of Soviet labor. They were written about in Pravda. Now they are expected to hit nearly a million tons a month, just like that‖. For Mr. Eldar Gabdarakhmanovich, head of the Independent Union of Miners at Raspadskaya mine, the explosions were yet another signal that the management at Russian mines is all wrong, and has been for some time. ―Formally, everything is great here. They have new equipment, German ventilators, English safety systems, high safety standards.‖ New methane detectors, known as datchki are installed to protect miners, automatically switching off the electricity if methane levels rise above 1 per cent. ―The problem,‖ he said ―is with the management system, not the equipment.‖ Miners are paid by the ton of coal they bring out, and will do a lot to get that coal, including ignoring safety regulations. ―If you are the head of a brigade and the choice is observing the standard or digging an extra 1,000 ton of coal, unfortunately they usually go for the latter,‖ he said. Read more… None of the miners interviewed would talk about an open secret in the town, in the heart of the coal mining region of Kuzbass, which is that in order to fulfil monthly production plans, miners routinely disable the methane detectors. One of them, when asked about violation of safety regulations, paused for a thoughtful moment, and said, ―If we make the monthly plan, we get 45,000 roubles that month. If we don‘t, it‘s 20,000. That‘s all I‘m going to say. You know, anything can happen.‖ The chairman of the Independent Union of Miners in Moscow said, ―We have to fix the system that leads to this.‖ He has appealed to the International Labor Organization, based in Geneva, to put pressure on Russia‘s government to get miners paid by the hour instead of by the ton. This is standard practice in most countries so as not to incentivize miners to take risks. Russia had not yet ratified the ILO convention on safety and health in mines, which meant the organization had no leverage in the matter. Siberia‘s coal country is one of the darker corners of the industrial empires built by the oligarchs, whose gleaming yachts and football clubs are built on the backs of labor in often dangerous conditions. The Russian government does fear labor unrest in the region: a strike by miners in the Kuzbass region over a soap shortage in 1989 is credited with hastening the demise of communism.

Many older miners who took part are now ambivalent about the new system they helped bring about. ―The problem is that we have a market economy,‖ said Mr. Sergeev, ―but the Soviet methods of management and motivation remain. So we have to produce even more and they will get it any way they can.‖ Source: The Financial Times

ANNOUNCEMENTS

CORPORATE GOVERNANCE FORUM ON MAY 27 AT CHINGGIS KHAAN HOTEL

The third annual Mongolia Corporate Governance Forum, to be held on May 27 at Chinggis Khaan Hotel, will bring together, as in earlier years, Mongolian business leaders and policy makers. The key discussion points will be: * World Bank Report on Standards and Codes on Corporate Governance 2010; * Corporate Governance reform process: Progress and challenges top investment environment; * Corporate Governance in banking sector in light of recent crises; * Investors‘ perspectives on Mongolia: Expectations and requirements; * Future corporate governance policy frameworks and regulation. Corporate Governance Development Center is the organizer of the event, with BCM, the International Finance Corporation (IFC), the Institute of Finance and Economics (IFE), Eurasia Capital, USAID and EPRC-Chemonics acting as partners in arranging it. Golomt Bank, Newcom Group, Petro Matad, Mongolia Development Resources, XacBank, and Skytel are sponsors and the Press Institute of Mongolia and Montsame are the media partners. For information and invitations, please contact Tsend-Ayush at tsendee51@yahoo.com, 9910-5111, or Mr. Unenbat at unenbat.jigjid@yahoo.com, 9911-8745.

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MAY ISSUE OF THE MONGOLIAN MINING JOURNAL

The May issue of the Mongolian Mining Journal is mainly about developing the domestic capital market and the ambition of national companies to secure listing on foreign stock exchanges. Presidential Advisor Ch.Otgochuluu shares his impressions of a recent visit to the Frankfurt bourse, D.Achit-Erdene of Mongolian International Capital Corporation urges private companies to improve their accounting system and corporate governance before they apply at any international stock exchange, and T.Amarzul of Petro Matad LLC details the steps they took before their successful enlistment at the London Stock Exchange. B.Enebish, Executive Director of Erdenes MGL, says certain decisions on Tavan Tolgoi have been taken in principle but specific details are still to be worked out. The Mongolian section has several other articles of interest, including an interview with T.Munkhbat of Oyu Tolgoi LLC who regrets the delay in the Government taking a decision on where the company should set up a power plant to meet the needs of the project.

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“BSPOT" on B-TV

BTV (Business TV) now telecasts a 10-minute English-language news program called BSPOT every evening from Monday to Friday at 21:30, taking most of the stories from the BCM NewsWire.

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“MM TODAY” on MNB-TV BCM is pleased to announce that Mongolian National Broadcasting continues its cooperation with BCM on ―MM Today‖. This English news program is aired every Friday for 10 minutes and is scheduled for 21:15 tonight. Tune in to watch this program that reports stories from today‘s BCM NewsWire.

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NEW POSTINGS ON BCM WEBSITE‟S „MONGOLIAN BUSINESS NEWS‟

As some of you might have noticed, we are now posting some news stories and analyses relevant to Mongolia on the BCM website's ‗Mongolian Business News‘ as they come, instead of waiting until Friday to put them all together in the weekly NewsWire. The NewsWire will, however, continue to

be issued on Friday, and will incorporate items that are already on the home page, so that it presents a consolidated account of the week‘s events.

SPONSORS

ECONOMIC INDICATORS

INFLATION

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

Year 2007 *15.1% [source: NSOM]

Year 2008 *22.1% [source: NSOM]

Year 2009 *4.2% [source: NSOM]

April 30, 2010 *8.3% [source:NSOM]

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

CENTRAL BANK POLICY LOAN RATE

December 31, 2008 9.75% [source: IMF]

March 11, 2009 14.00% [source: IMF]

May 12, 2009 12.75% [source: IMF]

June 12, 2009 11.50% [source: IMF]

September 30, 2009 10.00% [source: IMF]

May 12, 2010 11.00% [source: IMF]

CURRENCY RATES – May 20, 2010

Currency name Currency Rate

US dollars USD 1,392.36

Euro EUR 1,696.17

Japanese yen JPY 15.19

British pound GBP 1,993.30

Hong Kong dollar HKD 178.51

Chinese yuan CNY 203.93

Russian ruble RUB 45.32

South Korean won KRW 1.20

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.