Developing Infrastructure to Support the Mining Sector in Mongolia

Sustainable Development Week

January 25, 2010

Overview

Economic Potential of Mining Sector

Regional Infrastructure

Investment Needs

Infrastructure Development Models

Enabling Environment for PPI

Two-track Approach

Important Mines in Southern Mongolia

Strategic Sites to be Developed in Coming Decade

Annual Exports of US$5.2 billion Possible by 2015

Coking Coal20 million tonsValue: US$2 billion (est.)

Thermal Coal15 million tonsValue: US$1.0 billion (est.)

Copper and GoldValue: US$2.2 billion (est.)

October 2009 - signing of IA for Oyu Tolgoi copper mine may have ushured in new era for Southern Mongolia

Region Lacks Infrastructure, Services Basic

Informal Heating Systems Earthern Tracks Dominate

Region Lacks Infrastructure, Services Basic

Water Supply from Kiosks Pit Latrenes Standard

Infrastructure Options

Principal railway alignments considered

Infrastructure Investment Needs (to 2015)

Significant infrastructure will be required to enable full-scale production of mineral resources

By 2015, as much as US$5.3 billion in new infrastructure required to support mining activities in the region (more than US$1.0 billion for OT and TT mines)

Sector US$ mil.Towns 1,454Land Transport 800Electricity 2,711Water Resources 262

Total: 5,277

Models for Developing Infrastructure

Financing infrastructure through budgetary sources, bond issues alone not feasible

Only know Erdenet Copper Mine, developed by the state in 1981 in cooperation with former USSR using “company town” approach

Neighboring countries offering large sums of money to develop infrastructure in exchange for long-term access to mineral resources

Pilot project needed to demonstrate possibilities of financing through international capital markets

Enabling Private Investment in Infrastructure

No experience preparing transactions for private sector investment

Legal and Regulatory Framework:Policy governing Public-Private Partnerships approvedConcession Law pending endorsement by Parliament

Institutional Arrangements:Authority created to plan and oversee development of

critical infrastructureWorking Group established to prioritize S. Gobi

infrastructure requirementsAgency designated to drive development of PPPs

Two-Track Approach

Under MIDP, promoting two-track approach:GOM continues to develop enabling frameworkBegin preparing one or two priority projects as PPPs

Preparation of select PPPs important:Long lead times (18 to 24 months)Reinforce framework by identifying gaps/shortcomingsProvides opportunities to learn (use qualified

transaction advisors)

Priority Projects

Prepare transaction model to:• Examine viable PPP structures & financing options• Estimate investment, O&M costs• ID government commitments & fiancial obligations• Align financial incentives & allocate risks accordingly• Assess attractiveness to potential investors

Assessments to dovetail with MIDP