Mr O. Orkhon First Deputy CEO

August, 2011

Hong Kong

Mongolian Financial Services Industry Mongolian Investment Summit

MONGOLIA’S potentially sustainable competitive advantage: Can it be realised? What does it mean for you?

Randolph S. Koppa

President, Trade and Development Bank of Mongolia

April 17, 2013

OUTLINE

• What is the advantage?

• Key factors

• How is it going so far?

• Current challenges

• Growth regeneration

• Opportunities

THE POTENTIAL ADVANTAGE

Mongolia is located next to the second largest economy in the world which will continue to grow at a high rate and which will require increasing amounts of key minerals Mongolia is blessed with. There are two key minerals, copper and coking coal, on which Mongolia can establish a preferred position in serving China and the rest of East Asia

BASIS OF THE ADVANTAGE

• Abundance

• Quality

• Scale

• Yields

• Production costs

• Proximity

LINKING TO THE MARKET

Size 1,040 km

Investment US$ 5.0 bn

Time frame 2013-2017

REQUIREMENTS

• Foreign investment

• Financing

• Infrastructure

The above three require:

• Political solidarity

• Legislative stability

• Fiscal and monetary discipline

GROWING GDP, DRIVEN BY INVESTMENT IN MINING

5.17

4.57

6.69

7.94

10.02

0

2

4

6

8

10

12

2008 2009 2010 2011 2012

GDP Growth (US$ bn)

Source: National Statistical Office of Mongolia

CONSIDERABLE FOREIGN INVESTMENT

0.8 1.0

1.6

5.3

3.8

0.0

1.0

2.0

3.0

4.0

5.0

6.0

2008 2009 2010 2011 2012

Foreign Direct Investment

Source: Bank of Mongolia, National Statistical Office of Mongolia; exchange rate of USD : MNT = 1392.1

RISING EXPORTS Export Sector

Source: Bank of Mongolia, National Statistical Office of Mongolia; exchange rate of USD : MNT = 1392.1

2.5

1.9

2.9

4.8

4.4

0.0

1.0

2.0

3.0

4.0

5.0

6.0

2008 2009 2010 2011 2012

LED BY FOUR COMMODITIES

Mln Mt/brl 2010 2011 2012

Coal 16.7 21.1 20.9

Copper 0.56 0.57 0.58

Iron Ore 3.6 5.8 6.4

Crude Oil 2.1 2.5 3.6

Source: National Statistical Office of Mongolia

Export Volume

2013 PERFORMANCE HAS BEEN MIXED

• Coal exports down

• Q1 exports down 7.8% YoY

• FDI down dramatically

On the other hand

• Inflation down; now below 10% YoY

• Q1 imports down 17.3% YoY

• Budget being managed

• Funds raised for infrastructure

SOME INSIGHT

• 2012 Parliament and 2013 President elections

• Rise in populist and nationalist rhetoric

• Softening coking coal prices and demand from China

• Reactive strategic enterprises foreign investment law

• Unclear draft of new minerals law

• Chinggis bond raised international observation of Mongolia’s affairs

RESULT: UNCERTAINTY

• Continuing as new “reform” government administration moves to implement change

• Creating a lot of foreign investors “watching from the sidelines”

In recent months economic and business concerns have revolved around five issues:

FIVE MAIN TOPICS

• Fiscal and monetary policy

• Chinggis Bond and infrastructure

• SEFIL and minerals law

• Oyu Tolgoi

• Tavan Tolgoi (Erdenes Tavan Tolgoi)

REPRESENTING A PENTAGRAM

CLASSIC SYMBOL OF WHOLENESS

• Fire

• Water

• Air

• Earth

• Psyche

FIVE INTERDEPENDENT ISSUES

A FORM COPIED IN NATURE

WITH REGENERATIVE CAPABILITY

TO RESTORE OPTIMUM CAPABILITY

DAMAGED ARMS REGENERATING

PROGRESS IS NOTED

• Inflation 9.8% in March; down 4% this year

• Fiscal surplus in February; lower spending

• New foreign investment law being readied

• Chinggis bond projects identified; railway tendering commenced

• OT production continuing towards exports this midyear; project financing being finalized

• TT (Erdenes Tavan Tolgoi) reengaging with Chalco

GETTING BACK ON TRACK

Towards achieving the sustainable competitive advantage which can help Mongolia ride through the commodity price cycles by achieving a preferred supplier status.

In addition, progress can be made in the strategy of value added processing such as in the Sainshand Industrial Park

TOTAL FINANCING INVESTMENT NEEDS AND OPPORTUNITIES 2010 TO 2015

• Mine Development $ 12 bn. to $ 20 bn.

• Infrastructure $ 8 bn. to $ 12 bn.

• Urban development $ 6 bn. to $ 8 bn.

• Agriculture $ 1 bn. to $ 2 bn.

• Industry and Commerce $ 15 bn. to $ 20 bn.

• Environment $ 1 bn. to $ 2 bn.

• Social $ 1 bn. to $ 2 bn.

• Financial Sector $ 1 bn. to $ 2 bn.

Totals: $ 45 bn. to $ 68 bn.

POTENTIAL SOURCES OF FUNDS 2010-2015

• FDI $ 11 bn. to $ 14 bn.

• Domestic sources $ 12 bn. to $ 18 bn.

• Sovereign Borrowing $ 3 bn. to $ 6 bn.

• Foreign Capital Markets $ 11 bn. to $ 16 bn.

• IFI & Foreign bank Loans $ 7 bn. to $ 12 bn.

• Donors and NGOs $ 1 bn. to $ 2 bn.

Total $ 45 bn. to $ 68 bn.

USD bln

* Chinggis bond USD 1.5 and DBM USD.6 bln

** Pending USD 4 bln OT project finance incl.

PROGRESS TO DATE

PLANELOADS OF OPPORTUNITIES

Please engage to generate, or regenerate, your interest

Thank you for your attention!

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