BUSINESS COUNCIL of MONGOLIA NewsWire

www.bcmongolia.org info@bcmongolia.org

Issue 242 – October 5, 2012

NEWS HIGHLIGHTS:

Business

Erdenes-TT begins exploration at West Tsankhi;

Oyu Tolgoi nears completion of air strip;

Chalco abandons Winsway 30 percent stake purchase;

Newera uncovers 26-meter-long coal seams;

FeOre receives mining license for second iron-ore project;

Gobi Energy halts drilling without discovery;

Petro Matad looks to progress promising targets, as studies continue;

Kincora Copper making progress in hunt for Oyu Tolgoi lookalike;

Aero Mongolia drops its “foreigner tax”;

Newcom Mining Services becomes authorized dealer for Terex equipment;

Samsung and MCS to lead second phase construction at Shangri-La Hotel;

Sansar Cable renews contract with French broadcaster;

SITECH dealer opens in Mongolia for heavy construction;

American University of Mongolia and Indiana University sign partnership;

Erdene awaits approval to split North American and Mongolian assets.

Economy

Mongol Bank aims for single-digit inflation in 2013;

Mongol Bank opts for inaction amid tugrug's decline;

Government to ban land development in Ulaanbaatar until 2020;

ADB to loan USD 217.4 million to upgrade UB transport network;

Mining association lobbies for fair investment climate in minerals sector;

Ministry aims for 49 percent privatization of MIAT;

Fair Competition agency fines universities for hikes in tuitions;

Narnii Bridge to open this month;

Potential game changer for Mongolia's capital markets;

Retail therapy;

Booming quaint town of Erenhot;

Asia welcomes Mongolia to futsal;

Forget Qatar; is Mongolia the next Chile or Argentina?;

Chile: a lot like Russia, says asset manager;

Bringing the Mongol investment model to Myanmar;

What mining slump? At Vegas show, industry's glass is half full.

Politics

Justice Coalition splits for local elections;

Bill submitted to restrict budget deficits to 2 percent of GDP;

Budget proposes creation of road controls and research agency;

Inspection agency closes 7 mines;

Speaker refutes rumors plaguing mining sector;

Government provides greater transparency in scholarship selection;

Mongolia places proscriptions on Iranian vessels;

Australia opens consulate-general in UB;

Selenge 2012 military exercise ends;

Japan, Mongolia agree to push forward EPA negotiations;

The conversation between Chile and Mongolia;

Oligarchs' hunger for power;

The rise of Mongolia;

The endangered Mongolian mining boom;

Outreach program paves way for mission in UB.

ECONOMIC INDICATORS

MSE Top 20 Index by market Capitalization;

Foreign-listed Companies with Mongolian Assets;

Inflation;

Central bank policy rate;

Currency rates.

*Click on titles above to link to articles.

SPONSORS

Khan Bank Eznis Airways

Kempinski Hotel Khan Palace Mongolian National Broadcasting

Breakthrough PR Oxford Business Group

BUSINESS

ERDENES-TT BEGINS EXPLORATION AT WEST TSANKHI

Erdenes Tavan Tolgoi JSC has begun exploration at West Tsankhi in the Tavan Tolgoi coal mining

site.

This area has until now been reserved for the development of foreign investors, but the process has

been delayed by the inability to select who would participate in such a consortium. A second mine

would mean new opportunities for government revenue and job creation. The mine reportedly holds

1.2 billion tons of coal, with 65 percent comprising high-quality coking coal.

―To start mining at West Tsankhi does not mean to cancel a tender for the selection of strategic

investors,‖ said the company in a statement.

The company noted that negotiations would continue with foreign investors. However, to increase

the value of the company, it is vital that it meet the requirements of the planned initial public

offering (IPO) for Erdenes-TT to run operations at the West Tsankhi.

The company plans to export between three million and four million tons of coking coal from East

Tsankhi this year, and expects exports to steadily rise to up to 50 million tons by 2017.

Source: Undesnii Shuudan, News.mn

OYU TOLGOI NEARS COMPLETION OF AIR STRIP

Oyu Tolgoi LLC is nearly finished building an international-standard airport complex in Umnugobi

Aimag.

The airport is part of Oyu Tolgoi‘s infrastructure investment and regional development in

Umnugobi, which also includes a modern paved road from the mine to the border, a mining school

and technical vocation education centers, high-power transmission lines, an 80-kilometer-long

water pipe, and an ore concentrator plant.

The construction of the 3.2-kilometer-long airstrip, unique in Mongolian aviation history in terms of

quality and engineering design, was completed by a team of Mongolian engineers and contractors

well on schedule and on budget. The land strip is only the second in Mongolia able to handle Boeing

737, and C130 size aircrafts.

―I‘m thrilled to see that our plan to develop major infrastructure in Umnugobi is starting to become

reality,‖ said Cameron McRae, Oyu Tolgoi‘s President and Chief Executive Officer. ―We have

completed this project with our Mongolian construction contractors safely, in the shortest period,

at international standard. This is proof of how Oyu Tolgoi is successfully partnering with its

stakeholders from the government and private sector.‖

The airstrip was finished in record time, completed in 90 days with the help of the U.S. firm

Gomaco Corp., compared with average construction time of three years.

Source: Oyu Tolgoi LLC

CHALCO ABANDONS WINSWAY 30 PERCENT STAKE PURCHASE

Aluminum Corp. of China Ltd. (Chalco) dropped plans to buy a 30 percent stake in Mongolian coal

exporter Winsway Coking Coal Holding Ltd. for HKD 2.39 billion (USD 308 million), its second failed

acquisition this month.

The agreement was terminated because it won't be able to get approval from governments and

regulators by a 30 September deadline, Chalco said, due to the foreign investment law Mongolia

passed last May. The company said on 3 September it terminated a CAD 925 million (USD 941

million) offer for a stake in SouthGobi Resources Ltd.

Chalco, China's largest aluminum producer, proposed in April to become Winsway's biggest

shareholder by buying about USD 1.1 billion shares at HKD 2.12 apiece from the company's

chairman. Winsway said in a separate statement that the share sale was abandoned on 28

September because the deal would not get government approval on time.

Chalco was seeking coal and iron-ore assets after profit from its mining unit fell 67 percent last year

on higher raw material and power costs. Metallurgical-coal prices have tumbled this year as

manufacturing in China contracted at the fastest pace since March 2009 and mines in Australia

resumed output after flooding halted operations last year.

BHP Billiton Ltd., the world's biggest coking coal exporter, settled the fourth-quarter benchmark

contract for the fuel at USD 170 a metric ton, 40 percent less than a year earlier.

Source: BusinessWeek

NEWERA UNCOVERS 26-METER-LONG COAL SEAMS

Newera Resources Ltd. has intersected two main shallow coal seams totaling 26 meters in length at

its Shanagan East project.

Testing of the hole has shown that it contains a total of 19.45 meters of net coal. Of the 11 holes

completed to date, nine holes have intersected late Permian coal seams and in a majority of holes,

multiple coal seams. Only one sample result from this program has been returned from the

laboratory to date, from an earlier drill hole.

Following the drilling of this hole, which suffered loss of core, Newera decided to extend the

drilling program by a further 250 meters.

Source: Proactive Investors

FEORE RECEIVES MINING LICENSE FOR SECOND IRON-ORE PROJECT

FeOre has been awarded a mining license for its Dartsagt iron-ore project in Dornogobi Aimag.

The award comes after 11 months of exploration and studies. Dartsagt is located about 50

kilometers east of the company's flagship Ereeny project and about 12 kilometers from the main rail

link between Ulaanbaatar and the Mongolian Chinese border station and Erenhot. The early stage

project covers 907.5 hectares and contains 32 drill holes and multiple trenches.

Source: Proactive Investors

GOBI ENERGY HALTS DRILLING WITHOUT DISCOVERY

Gobi Energy Partners LLC has completed drilling at the Ger Chuluu D1 well.

Drilling was stopped after reaching 600 meters without hydrocarbons shows. After logging, the well

was plugged and abandoned. Ger Chuluu D1 was the second well drilled in the Ger Chuluu sub-

basin, which was done in an effort to achieve a final conclusive answer about its potential. Costs of

both wells amount to USD 1.9 million and were well below budget.

―While the results in Ger Chuluu were disappointing to all of us, we have now to focus in our

Mongolia strategy on the evaluation of the potential of the prospects in the remaining four sub-

basins.‖

Gobi Energy plans to drill its next well at the East Sainshand A prospect but, because the seasonal

window closes at the end of October, the well will be postponed to the next seasonal drilling

window.

Gobi Energy had originally focused on six sub-basins in Mongolia. After Ger Chuluu, four of these

have yet to be evaluated. The southeastern part of the acreage, which is currently under

evaluation, has not yet been considered. A detailed evaluation review of all prospects based on the

lessons learned in the Ger Chuluu sub-basin is ongoing and might influence the drilling strategy.

Source: Manas Petroleum Corp.

PETRO MATAD LOOKS TO PROGRESS PROMISING TARGETS, AS STUDIES CONTINUE

Oil explorer Petro Matad is assessing promising target areas as overall studies of its blocks continue,

it said, releasing half year results.

Acquiring limited three-dimensional seismic over nine separate early leads at the complex Toson

South area in Block XX is being considered, the company said. Meanwhile, it is evaluating eight

other frontier basins in the central and southern portions of Block XX, with further scout two-

dimensional seismic on the more promising areas planned for 2013.

At Block IV, a two-dimensional seismic survey of 215 line kilometers for a lead in the Batsagaan

trough basin to generate drill targets is being considered. This lead is next to a deep, potentially

hydrocarbon-generating basin. Similarly, in the Taatsiin basin in Block V, 205 kilometers of two-

dimensional seismic are planned.

The firm recently studied funding options to progress its programs and recommended preliminary

studies on the possibility of attracting farm-in partners to accelerate the exploration of the

company's vast production sharing contract holdings, it added.

The firm posted a net loss in the six months to 30 June of USD 6.5 million (2011: USD 15.2 million

loss). As at the end of the period, it had cash of USD 9.5 million.

Source: Proactive Investors

KINCORA COPPER MAKING PROGRESS IN HUNT FOR OYU TOLGOI LOOKALIKE

Copper miner Kincora Copper Ltd. has made huge strides in the past 12 months, though you'd never

know this looking at its share price.

The current valuation reflects the generally difficult market for small-cap miners in the ―risk-off‖

environment and uncertainty following Mongolia's national election, rather than company-specific

problems. Looked at objectively, Kincora Copper has done all you could ask of a company at this

stage, with 10,000 meters of drilling this year (on top of last year's 12,000 meters) and hopes for a

further 3,000 by the year-end.

It hopes to locate a porphyry-style deposit similar to the giant Oyu Tolgoi mine 140 kilometers

away. Kincora Copper has also been active on the corporate front with the acquisition of two

important licenses adjacent to its Bronze Fox project. Its Bronze Fox asset was reluctantly

surrendered by Ivanhoe Mines Ltd. (now Turquoise Hill Resources Ltd.) as part of the stability

agreement brokered to build the Oyu Tolgoi mine.

In all, around 30,000 meters of drilling has taken place in and around Bronze Fox with the aim of

discovering an Oyu Tolgoi lookalike. Grades of 0.4 to 0.5 percent copper near surface could be high

enough to justify an open-cast mine, said Chief Executive John Rickus. However the grades could be

triple the lower figure to justify going underground in the way Oyu Tolgoi has, he added.

―But it might be the case we could look at something that is lower grade. This would depend on the

outlook for gold and copper prices,‖ said Rickus. ―If we find 0.4 to 0.5 percent [copper equivalent]

near surface then we would be quite happy too, because it is a much cheaper and easier proposition

to start off with.‖

Rickus and Sam Spring, the head of corporate development, reckon the group currently has funds

enough to bankroll a further 1,000 meters of drilling this year. However, they would like to

complete 3,000 meters before the winter shutdown, and perhaps 10,000 to 12,000 meters when

exploration restarts next march. The estimate cost for next year's program is around USD 10 million.

Source: Proactive Investors

AERO MONGOLIA DROPS ITS ―FOREIGNER TAX‖

Aero Mongolia LLC eliminated the price difference between foreign and Mongolian national

passengers.

The equal pricing scheme took effect on 1 October. The decision came after receiving customer

feedback that prices should be the same for all passengers. In further news for the company, the

airline has received its fourth Fokker-50 to add to its fleet.

Source: Aero Mongolia LLC

NEWCOM MINING SERVICES BECOMES AUTHORIZED DEALER FOR TEREX EQUIPMENT

Terex has appointed Newcom Mining Services (NMS) as its authorized distributor for cranes, aerial

work platforms, construction and materials processing equipment in Mongolia.

―Our first year in business has been very rewarding. We have nearly completed construction on

what will be the largest rental facility in the Gobi Desert,‖ said John Karlsen, Chief Executive

Officer of Newcom Mining Services.

NMS is the mining services arm of Newcom Group.

Source: News.mn

SAMSUNG AND MCS TO LEAD SECOND PHASE CONSTRUCTION AT SHANGRI-LA HOTEL

Samsung CTC signed a deed to SCTM for the construction of the main contract works for the second

phase of the Shangri-La Hotel under construction in Ulaanbaatar and real estate in Ulaanbaatar.

The deal is part of a Samsung CTC and MCS joint venture, divided with interest of 70 and 30 percent

respectively. Samsung was awarded the tender for MNT 375.9 billion (USD268.5 million) on 18 May

this year by SA Sub, which is 51 percent owned by Shangri-La Asia Ltd. and 49 percent by MCS

Holding LLC, the parent company of MCS Property.

Formal contracts will be entered into between SA Sub and SCTM in due course.

Source: Business Times

SANSAR CABLE RENEWS CONTRACT WITH FRENCH BROADCASTER

French language network TV5MONDE has renewed its carriage agreement with Mongolia's Sansar

Cable LLC.

Back in 1996 Sansar Cable was the first company to provide multi-channel cable television services

in Mongolia. Today it carries more than 90 digital cable television channels and offers a basic

package and a premium package to more than 62,000 subscribers in the greater Ulaanbaatar area.

TV5MONDE is widely available on Mongolian pay-television platforms, including major offerings such

as Khiimore Cable, Unitel, SkyC&C, and SBN, for an estimated total of 200,000 subscribing homes

and a 69 percent penetration of the Mongolian pay-television market.

Sansar Cable was one of the first platforms in Asia to carry our channel, soon after its launch in

1996. We are very pleased and grateful for Sansar Cable's continued support of our channel,‖ said

Managing Director Alexandre Muller.

Source: Onscreen Asia

SITECH DEALER OPENS IN MONGOLIA FOR HEAVY CONSTRUCTION

A SITECH technology dealer has been established in Mongolia.

SITECH Mongolia joins the premier network of SITECH dealerships—the first fully dedicated global

distribution network offering a comprehensive portfolio of construction technology systems.

Representatives at each SITECH technology dealership can advise contractors on construction

technology solutions and provide high-quality local customer service, personalized training and

technical support.

Source: Trimble Navigation Ltd.

AMERICAN UNIVERSITY OF MONGOLIA AND INDIANA UNIVERSITY SIGN PARTNERSHIP

The trustees of Indiana University, on behalf of its Kelley School of Business (KSB), signed an

agreement with the American University of Mongolia (AUM) to enter into a long-term relationship

for the purpose of ―providing mutual support for excellence in global education.‖

The agreement was signed on 24 September in Bloomington, Indiana by AUM Board Chairman Peter

Morrow, Indiana University President Michael McRobbie, Dean Daniel Smithon from KSB, and Vice

President David Zaret on behalf of Indiana University's office of international relations.

The main purpose of the agreement was to jointly deliver the Kelley School's Global MBA degree

through the American University of Mongolia in Ulaanbaatar starting in 2013. The program is

designed for executives who want an advanced business degree from a U.S. higher education

institution without disrupting their careers.

Two additional elements of the agreement include strengthening of the academic mission by

offering a series of workshops for faculty and furthering the intellectual life and culture at both

institutions by focusing on critical issues in business education and society.

Source: American University of Mongolia

ERDENE AWAITS APPROVAL TO SPLIT NORTH AMERICAN AND MONGOLIAN ASSETS

Erdene Resource Development Corp. (ERD) will hold a special meeting for shareholders for the

approval of a plan to separate its Mongolian metals exploration projects from those in North

America.

The move would have the Mongolian projects remain with ERD, while the North American work,

which consists primarily with the Donkin Coal project, will become the major asset of Morien

Resources Corp. Morien Resources is set to list on the TSX Venture Exchange.

―We believe the proposed division of our diverse key assets within the two public vehicles will

greatly enhance the potential to create value in both the Mongolian metals projects and in the

Donkin Coal Project and we are excited to launch these two focused entities,‖ said Peter Akerley,

President and Chief Executive of ERD.

Upon completion of the arrangement, ERD shareholders will control 100 percent of the Mongolia

assets of Erdene and 97.25 percent of Morien.

Source: Erdene Resource Development Corp.

ECONOMY

MONGOL BANK AIMS FOR SINGLE-DIGIT INFLATION IN 2013

The Bank of Mongolia's newly appointed president, N. Zoljargal, has proposed a new scheme to put

a lid on rising inflation. Mongolia experienced 14.9 percent inflation in the first eight months of

2012.

The Central Bank policy aims to maintain low and stable inflation by cooperating with the

government to limit the supply-side causes of inflation. As a result, inflation should not exceed

more than 8 percent by the end of 2013, said Zoljargal. He added that would be the first step to

maintaining 5 to 7 percent inflation in the two following years.

Zoljargal said the Central Bank would continue its policy of maintaining a flexible exchange rate

that follows fundamental macro-economic conditions. It will also try to make the monetary policy

making process more transparent to provide greater accountability. The Central Bank will aim to

allow commercial banks to bear greater risk by providing added capital and improve its risk audits

by introducing national standards for inspection methods.

The Central Bank plans to introduce regulation reforms regarding collateral to ease interest rates

and establish government-backed insurance for deposits.

Zoljargal said the Bank and Parliament have agreed to rectify ineffective social welfare policies and

create a new monetary policy.

Source: Udriin Sonin

MONGOL BANK OPTS FOR INACTION AMID TUGRUG'S DECLINE

The Bank of Mongolia has refused to issue a currency auction to help curb the weakened exchange

rate for the tugrug.

Commercial banks have requested the sale of USD 2.3 million and purchase of USD 200,000 in

addition to a purchase of CNY 10 million (USD 12.9 million). According to some economists, the

move is in light of a steady stream of currency into China. Some suspect that the United States has

already begun to combat its own currency rises by printing U.S. dollars.

Source: Undesnii Shuudan

GOVERNMENT TO BAN LAND DEVELOPMENT IN ULAANBAATAR UNTIL 2020

The head of the Citizen Representatives of Ulaanbaatar announced to media that the government

has prohibited the issuance of land use rights for the next eight years.

Citizen Representative D. Battulga made the announcement to media following an irregular session

meeting where several issues regarding land matters in Ulaanbaatar were discussed. The

proscription on the development of land will take effect until 2020 when the government plans to

have its urban development plans finalized. Exception will be given only to government projects,

tenders issued and landscaping work.

A working group was established that is responsible for developing regulations for building permits.

All construction projects will undergo thorough investigation to find if they have the necessary

permits, said Battulga. Projects found to be operating illegally will be destroyed.

Source: Udriin Sonin

ADB TO LOAN USD 217.4 MILLION TO UPGRADE UB TRANSPORT NETWORK

The Asia Development Bank (ADB) has greenlighted an urban transport system.

Using a multi-tranche loan of up to USD 217.4 million, the first phase of the program will upgrade

7.7 kilometers of road and expand a bridge for a bus rapid transit corridor installation, and also

upgrade 14 kilometers of electric trolleybus infrastructure, including electric wires, feeder cables,

and substations. The second phase will build three additional bus depots and upgrade 11.1

kilometers of trolleybus infrastructure. The final phase, which is planned for completion by 2020,

includes the further expansion of the bus system.

―Ulaanbaatar is a boom town bursting with people and vehicles. For the long-term livability of the

city, its growth needs to be managed to ensure its sustainability and to allow greater access to the

wide array of economic opportunities and social services available to its residents,‖ said Raushan

Mamatkulov, senior urban development specialist at ADB.

The project will also help Ulaanbaatar implement its city master plan, which includes investments

in new infrastructure, combined with modern traffic management technologies, policy reforms, and

institutional development. By 2020, public transport use is expected to increase substantially, with

a significant reduction in bus travel time and traffic delay during peak hours compared with 2011.

To accommodate increased population and the number of vehicles, the city‘s transport

infrastructure needs to be expanded. The majority of buses are outdated and in poor condition. The

increasing number of vehicles, unplanned urbanization, overburdened transport system, and poor

traffic management are contributing to congestion, reduced traffic safety, and deteriorating air

quality.

Source: Asian Development Bank

MINING ASSOCIATION LOBBIES FOR FAIR INVESTMENT CLIMATE IN MINERALS SECTOR

The director of the Mongolian National Mining Association (MNMA) criticized politicians for betting

too heavily on the hope commodity prices would continue to climb.

―There were too great expectations from Mongolia for the mining sector,‖ said N. Algaa.

―Politicians who do not possess the knowledge of mining are responsible for this.‖

Algaa recommended that the state have less involvement in the mining sector, which would provide

less risk for investors. He also stressed the need for a long-term, stabilizing policy in addition to

decentralization and cuts in red tape. The director added that he has requested face time with the

minister of minerals to discuss these points.

―The mining industry is the only sector that will bring a great deal of development to Mongolia in

the next 10 to 20 years. We should all admit that.‖ He later added, ―But the balance between the

population and natural environment should be maintained and we should learn to do it correctly.‖

Source: Udriin Sonin

MINISTRY AIMS FOR 49 PERCENT PRIVATIZATION OF MIAT

Several proposals for the privatization of MIAT Mongolian Airlines will be submitted during the fall

session of Parliament, said Minister of Road and Transportation A. Gansukh.

Privatization of 49 percent of the company would result in reduced fares through cheaper fuel

prices, said Gansukh. He projected cheaper fuels to cost USD 1,000 compared with the USD 1,600

currently paid.

Source: Undesnii Shuudan

FAIR COMPETITION AGENCY FINES UNIVERSITIES FOR HIKES IN TUITIONS

The Fair Competition Consumers Office (FCCO) has issued fines to six higher education institutions

amounting to MNT 100 million, accusing them of conspiring to increase tuition costs.

The FCCO's deputy head explained that universities have followed the example of Mongolian

petroleum companies by increasing tuition by up to 60 percent, in violation of Mongolia's fair

competition laws. The official said nearly half of the 160,000 students studying at state universities

are attending those six institutions it has accused of conspiracy.

The official conceded that tuition raises would be valid if they were used to offer higher salaries to

follow inflation, but as this increase was a plot conspired by the institutions it was in violation of

Mongolian law.

This year the Ministry of Education and Science said it would allow no more than 10 percent hikes in

tuition. However, this too, said the official, would be against the country's fair-competition laws

because they state that the government may not directly influence tuition prices.

Source: Undesnii Shuudan

NARNII BRIDGE TO OPEN THIS MONTH

With construction at the Narnii bridge at 96 percent, it is due for commissioning in mid-October.

Located between the Gurvalgingiin and Peace Bridges, the bridge is set to reduce city traffic by

reportedly allowing more than 30,000 cars daily to pass. The bridge has been built using the latest

technology and metal parts using high-quality steel. Covering the bridge is 24 centimeter-thick

asphalt and 10 centimeters of asphalt that runs 262 meters and total length of 895 meters,

including roads on each side.

Developers project that the bridge may stand for 20 years without need for repair, and it is

guaranteed for 100 years.

Funding for the bridge breaks down to MNT 66.5 billion from Japan and MNT 35 billion from

Mongolia.

Source: Undesnii Shuudan

POTENTIAL GAME CHANGER FOR MONGOLIA'S CAPITAL MARKETS

Next month Parliament will begin discussions regarding the passage of a new Securities Law, which

will be critical for the future of Mongolian capital markets.

The draft has passed through several levels of government. Although it is remarkably comprehensive

and progressive, its implementation will ultimately be of the greatest significance to the

development of Mongolia's financial sector.

As to the creation of regulation to support the issuance of asset-backed securities, Mongolian

corporations need access to cheaper capital, as borrowing rates from local banks can (and do)

exceed 20 percent. Further, assets in Mongolia are largely unencumbered, making borrowing via

collateral a much cheaper and more competitive source of capital for local corporations. Assuming

the regulatory bottleneck at the Financial Regulatory Committee (FRC) opens, local companies will

be coming to the capital markets in droves to secure capital for growth and to refinance high

interest-rate bank debt.

Should pension funds be allowed to invest in Mongolia's booming economy, via the capital markets,

they will experience returns far in excess of what they are receiving currently. Greater returns

result in lower future funding costs for these organizations and more generous benefits for their

workers.

The development of non-bank financial institutions and the insurance industry will insure more

capital stays in Mongolia. On a basic level, the use of warrants as part of local equity and debt

offerings would be extremely valuable. Credit default swaps will almost certainly be needed going

forward as the Development Bank of Mongolia has announced it will come to market for USD 5

billion over the next two years. Foreign institutions will also need derivatives to hedge currency

risk, though it is unclear what role the local capital markets will play.

Depository receipts should help increase liquidity and the number of listed companies in Mongolia.

Offshore listing of onshore listed companies and vice-versa is another important step to increase

the number of listings in Mongolia and allow local companies to access large amounts of capital on

foreign exchanges. The new law would also allow international banks to partner with local banks to

offer institutional quality custodial services.

Source: BDSec JSC

RETAIL THERAPY

Expectations that Mongolia's retail industry will be transformed by the nation's rapidly growing

mining sector appear on track, although rising inflation and a lack of human resources could

threaten the sector's potential.

In mid-June Mongolia made its first appearance in the A.T. Kearney Global Retail Development

Index, earning a creditable ninth place in a survey of the world's top-30 emerging retail markets.

The strong showing reflects growth of the wholesale and retail trade sector, estimated at 51

percent by the World Bank during the first quarter of 2012, following expansion of 70.5 percent in

the fourth quarter of 2011. In recent years the country has seen luxury retail giants such as Louis

Vuitton, Hugo Boss, Cartier, L'Occitane and Dunhill open shops in Ulaanbaatar.

State Department Store (Ikh Delguur), Central Tower, and Ulaanbaatar State Department Store are

some of the best known spots for retail. Set to open in 2013 is an office, retail, entertainment and

hotel complex located in the center of the capital, the five-star Shangri-La Hotel. Village @ Nukht is

expected to be completed by June 2013 and will feature retail, dining, entertainment, and office

space. Meanwhile Mongolian Growth Group (MGG) Ltd., a real estate and financial services

conglomerate, noted in July that per-meter rents were rising as much as 50 percent in grade-A

locations of the capital, as multi-branch businesses seek increased retail presence on streets with

the highest footfall traffic.

Potential limiting factors are rising prices and consumer confidence, with international finance

institutions warning over the perils of inflation caused by an overheating of the economy, particular

a repeat of the 34 percent inflation spike seen in 2008. With agriculture still providing a livelihood

to approximately 40 percent of the population, and quality education often not reaching sparsely

populated areas, human resources has been identified as another area that could limit retail

growth.

Source: Oxford Business Group

BOOMING QUAINT TOWN OF ERENHOT

Inner Mongolia's Erenhot (called Erlian Soum in Mongolia) is China's only railway port that is seeing

good times with trade jumping from CNY 141 million in 1991 to CNY 19.6 billion last year.

A decade ago, entrepreneurs from other cities and provinces moved to the town of Erenhot in Inner

Mongolia autonomous region seeking greener pastures. They had a vision to ride on the booming

trade between China and Mongolia and earn their first pot of gold in this quaint town. Trade

jumped from USD 46 million in 1991 to 6.4 billion last year. Tourist arrivals from Mongolia to China

increased 2.5 times to 994,200 compared with only 399,000 in 2000.

―Almost all our customers are from Mongolia. They come to Erenhot by train or car and then spend

a day shopping for clothes,‖ said Bian Ming, who sells jackets at the Wenzhou International

Shopping Center.

More than 70 percent of the construction materials, electronics, food and produce in Mongolia are

imported from China. The trade boom has opened up opportunities for other businesses such as

logistics, hotels, restaurants, supermarkets and travel. After enjoying a good run for years,

businessmen in the township with a population of 100,000 are feeling the pinch of the economic

slowdown caused by the U.S. and Euro crises. Despite the setback, Erenhot Mayor Bao Chongming

believes that it would be short-lived and the special historical and geographical connection

between China, Mongolia, and Siberia would continue to drive Erenhot's economy.

Bao said he hopes Erenhot can benefit from the minerals boom in Mongolia, which largely drove

Mongolia's 17 percent economic growth last year. He said the railway port in Erenhot could handle a

throughput capacity of 10 million tons and more than two million visitors cross the Erenhot border

into China, making it a strategic trading and logistics hub in the development of Sino-Mongolian

ties.

Source: The Star

ASIA WELCOMES MONGOLIA TO FUTSAL

The inaugural participation of Mongolia in a major continental futsal competition shows that the

game has come of age in the world's 19th largest nation which has football-unfriendly weather as

one of its many challenges to develop the game.

Despite crashing out of the East Asian region's qualifying round held in Malaysia for the already-

concluded AFC Futsal Championship 2012, the Mongolian Football Federation (MFF) is proud of its

achievement, and is even looking forward to improving thanks to assistance from FIFA and AFC, and

the new interest garnered among all sections of Mongolian society.

With new facilities and, more importantly, an unbridled spirit to improve Mongolian Futsal, more

people are taking up the game, an indoor variant of football played indoors, and professional

interest and development are perking up in the effort to keep the game alive and thriving in spite

of the extreme seven-month harsh winter conditions in the mountainous nation.

―During the past period, futsal competitions have been always put on the MFF's annual calendar

plan, said I. Maya, MMF head of international relations. ―Now, every year the MFF organizes futsal

competitions among schoolchildren at all-age categories, including girls.‖

Read more…

Maya spoke of Mongolia's achievements of extending the football season and proving home for

thousands of football players during winter. He added that Mongolia is ―participating in

international tournaments for the first time, with its team playing in the preliminary round of the

AFC Futsal Championship.

In Mongolia the main challenges are finding appropriate indoor venues to play, and offering a clear

understanding about the rules. Regulations have never before been introduced, with officials simply

following the same rule structure as traditional football.

For the near term, Maya hopes Mongolia can establish an indoor futsal leagues with teams. There

would be various leagues for different age groups.

Source: Box Score News

FORGET QATAR—IS MONGOLIA THE NEXT CHILE OR ARGENTINA?

What do you do if you are a small country, rich in minerals that went from boom to bust when the

bottom fell out of the commodities market? Copy Chile is the answer.

Chile's experience as a small, copper-dependent economy that prudently stashed cash during the

boom years, allowing it to ride out the 2008-2009 world economic crash and uncork anti-cyclical

spending, was the perfect case study for Mongolia. The central Asian country is poised for an eye-

popping boom: its economy is expected to treble in size in the coming years as giant projects come

onstream, among them Oyu Tolgoi, which is due to start up next year and to become one of the

world's five biggest copper-gold mines. Non-mining investment is also growing fast.

But only three years ago, Mongolia's economy was in flames. After growth of above 9 percent on

average from 2004 to 2008, it contracted 1.3 percent in 2009, triggering a banking crisis and

exposing flaws in economic management that had relied too heavily on minerals revenue. While it

did save some of that, it frittered away money on unsustainable social projects, salaries and

inappropriate investment projects.

Six Mongolian parliamentarians went first to Chile in 2009, then to the United States for workshops

organized by the World Bank and International Monetary Fund (IMF), then shared their experiences

in a workshop in Ulaanbaatar attended by nearly half of Mongolia's members of Parliament. A

repeat U.S. study tour followed in 2010 (the Chilean leg had to be scrapped because of a

devastating earthquake).

Mongolia is now in the running to be included by the FTSE Group as a ―frontier market‖ because of

the strides it is making in improving its market infrastructure to attract investment. Its inclusion

could come at the expense of another commodities-rich country, one that has also gone from

booming growth to a sharp slowdown, and where fiscal policy sets some observers' hair on end. That

country is Argentina. But that is another story.

Source: Financial Times

CHILE: A LOT LIKE RUSSIA, SAYS ASSET MANAGER

Here's something you don't hear very often: Chile and Russia are quite similar. Odd as that might

sound—Chile conjures up images of success, stability and transparency while Mongolian neighbor

Russia has ―an appalling investment image‖—that was indeed Michael O'Flynn's pitch to Chilean

investors at a recent conference in Santiago.

The managing director of Russia-focused UFG Asset Management said: ―We're meeting with pension

funds [in Chile]. There's a deep pool of capital and it's a similar economy to Russia—resource

dependent, inflation trending lower, a stable economy.‖

But what about corruption: ―It's not as bad as people think,‖ says O'Flynn, who sees his job as

putting ―unloved‖ Russia back into the BRICS. ―I feel like the PR manager for the Russian Federation

because they need one,‖ he laughed. ―Investors want to run past the noise.‖

Assets are cheap and relate to what Chilean investors know, though its stocks are dearer. It has

virtually no debt and has prudently stashed windfalls from copper in sovereign wealth funds abroad.

Meanwhile, Chilean pension funds are allowed to invest 80 percent of their assets abroad, and

already have USD 52 billion invested outside Chile.

Source: Financial Times

BRINGING THE MONGOL INVESTMENT MODEL TO MYANMAR

Alisher Ali, head of Mongolian securities firm Eurasia Capital Ltd., has opened up shop in Myanmar,

often hailed in the press as the ―new Mongolia‖ for frontier investment.

Decades of isolation have left Myanmar with a weak education system, feeble banks, questionable

courts, uneven electricity supply, entrenched corruption, and an underdeveloped mobile phone

network. In the last two years, sweeping political change has resulted in the release of hundreds of

political prisoners, the election of Nobel Peace Prize winner Aung San Suu Kyi to Parliament, and

the lifting of most U.S. and European sanctions.

―It's an economic bet,‖ said Ali. ―Over the last 20 years, you don't have any precedent where an

economy of 65 million people is joining the global economy.‖

Ali sees his investment bank, Mandalay Capital Pty. Ltd., as a bridge between foreign investors keen

to find their way into Myanmar and local companies that need capital and guidance. The business is

modeled on Eurasia Capital, a boutique investment bank in Ulaanbaatar, which has attracted loyal

clients and a raft of awards since Ali founded it in 2008. Ali, who was born in Uzbekistan and

educated at Columbia and Oxford universities, has also raised USD 25 million for Myanmar's first

dedicated investment fund, which closed its fundraising last month.

Many things are missing in Myanmar. There is no local equivalent of a Securities and Exchange

Commission that might grant Ali a license. A much debated foreign investment law was recently

sent back to Parliament for further modification.

Such deficiencies scare off some people, particularly Westerners who tend to seek safety in the

letter of the law. But to others, like Ali and his investors and clients from Kazakhstan, Mongolia,

Russia, and Uzbekistan, they look like opportunities.

Source: Washington Post

WHAT MINING SLUMP? AT VEGAS SHOW, INDUSTRY'S GLASS IS HALF FULL

Caterpillar Inc. and other mining industry suppliers put on a brave face at a major industry

conference this week, trying to stare down plunging commodity prices and shrinking mining

budgets. Although executives including about 200 Mongolian mining sector officials in attendance

tried to look beyond the short-term pain at MINExpo, a Las Vegas convention for mining suppliers, it

was a tough sell.

―I know there are lots of headlines out there that said mining is dead, not one more ounce of coal

will ever be mined, iron-ore will never come back, the world is going to stop spinning, it‘s over,‖

said Doug Oberhelman, the chief executive of Caterpillar. ―Well, it‘s not over.‖

Caterpillar, which has distribution through Wagner Asia Equipment LLC in Mongolia, kicked off the

week by slashing its 2015 earnings forecast. None of the mining equipment suppliers would quantify

delays or cancellations, but most said only small miners are canceling and bigger miners have opted

to freeze purchases for six to nine months.

Wall Street remains bullish on the mining industry for the long run, but rough terrain is unnerving

investors. In the past six months, Caterpillar‘s stock, among the 30 in the Dow Jones industrial

average, is down 19 percent. Capital expenditures in the mining sector will slip at least 10 percent

by 2014, denting key equipment suppliers. High gold and silver prices help with copper mining in

Mongolia as an example of an area with strong growth. The largest miners, though, focus mostly on

iron-ore, coal, bauxite, and other base metals for infrastructure projects.

Perhaps China‘s slowing economy was the cause for most worry. China is the destination for most of

Mongolia‘s mineral products and is the largest consumer worldwide. While China‘s economy is still

growing at steadily, that growth has slowed to less than 10 percent a year. China‘s government

approved 60 infrastructure projects worth more than USD 150 billion, part of a plan to lift its

economy out of its worst slowdown in three years. Sales of excavators—a key mining tool—have

dropped more than 40 percent across China this year. About 40 percent of China‘s own iron-ore

mines have suspended production.

Source: Mining Weekly

POLITICS

JUSTICE COALITION SPLITS FOR LOCAL ELECTIONS

The Mongolian National Democratic Party (MNDP) and Mongolian People's Revolutionary Party

(MPRP) will end their partnership for the local election this month.

It was well known that the Justice Coalition was a volatile partnership that may not last, but now

those thoughts may have been confirmed with the announcement that the two parties will go their

separate ways for local elections set to take place nationwide this month.

Although the parties will not campaign together, they said they would continue to cooperate in the

Democratic Party (DP)-led grand coalition ruling Parliament.

Source: Unuudur

BILL SUBMITTED TO RESTRICT BUDGET DEFICITS TO 2 PERCENT OF GDP

Minister of Finance Ch. Ulaan has submitted a new draft of legislation that would cap annual budget

deficits at 2 percent of gross domestic product (GDP).

Ulaan said the legislation bears in mind the need for reduced expenditures and decentralization of

budget drafting. So far, the ministry of education will be the largest recipient from the state

budget, while other ministries will have the opportunity to ask for more and defend their requests

before Parliament.

Source: Udriin Sonin

BUDGET PROPOSES CREATION OF ROAD CONTROLS AND RESEARCH AGENCY

The drafted state budget proposed the creation of a new institution that would be responsible for

the monitoring of roads in Mongolia.

The Auto Road and Control Research Center would be initially financed from the state budget and

would be responsible for regulating and repairing roads, in addition to drafting policies for the

nation's roads. It would also conduct research to establish standards and introduce the latest

technology to the national road network.

Plans for the agency include a staff of 58 employees and 138 contractors, with financing to come

from the Department of Roads.

Source: Undesnii Shuudan

INSPECTION AGENCY CLOSES SEVEN MINES

The Professional Inspection Agency (PIA) has suspended the operations of seven mining companies

following wide-scale inspection of mines.

Mines were closed in Arkhangai, Bayankhongor, Gobi-Altai, Hovd, Bayan-Ulgii, and Uvs Aimags. The

mines were closed due to breaches of regulations and standards, said the PIA. Those mining

companies also received fines totaling MNT 30 million, and had a total of 485.5 grams of gold

confiscated.

The PIA inspected the operations of 39 companies and the work of 78 engineers and found 206

violations, 72 of which were rectified immediately.

Source: Udriin Sonin

SPEAKER REFUTES RUMORS PLAGUING MINING SECTOR

Parliament speaker Z. Enkhbold spoke on some of the confusion regarding Mongolia's largest mining

projects.

Rumors by the media that Resolution 57 would be repealed are false, said Enkhbold. The resolution

is at the center of controversy over the investment agreement for the Oyu Tolgoi copper-gold mine,

as some Parliament members contend it mandates that ownership of the copper mine can be

renegotiated once investors recuperate their initial investment. The speaker confirmed all sixteen

mining contracts signed since 1990 will be revisited and analyzed so that Mongolia learns from its

mistakes for future decisions.

In comparison, since the government owns the TT deposit wholly, said the speaker, no licenses will

be given out in the Oyu Tolgoi fashion, and no investment or stability contracts will be signed.

Although operation, transportation and sales contracts will be signed, they would be easier to

revise. This shows that granting any level of ownership of major mining projects to foreign investors

has become a risky political move. The question of whether major shares of TT will be placed to

foreign investors prior to flotation has become unclear, and more questions are raised about its

impending initial public offering (IPO).

Enkhbold mentioned that reforms aimed at tightening licensing practices are underway. The new

Minerals Law is expected to be passed by the end of this year. The speaker said the exploration

licenses will no longer be treated as traded commodities because certain physical activities will

become mandatory for license holders under the penalty of revocations. He also said the ruling

Democratic Party (DP) intends to shift the power to grant mining licenses to Parliament, with the

intention of ―living off a few major projects‖ because ―it doesn't do to dig in thousands of places.‖

Source: MICC, Ardyn Erkh

GOVERNMENT PROVIDES GREATER TRANSPARENCY IN SCHOLARSHIP SELECTION

The government has introduced a new scholarship selection system that has added transparency.

Every year students travel abroad to study for their Masters and Doctorate degrees using

government scholarships. Prime Minister N. Altankhuyag and Minister of Education and Science L.

Gantumur met with 100 students applying for scholarships from the government for foreign study,

before 70 students were eventually chosen. Next, that number will dwindle to 30.

―We are programming a new rule that lets students enroll in 50 of the world's top universities,‖ said

Gantumur.

Scholarships will provide USD 16,000 for foreign education. Some 1,400 students have studied

abroad with government-issued scholarships since 1997, and 700 have returned to Mongolia. The

government has planned to allocate MNT 7.3 billion to students to study abroad in the 2012-2013

period, MNT 5.8 billion of which already spent thus far.

Source: Unuudur

MONGOLIA PLACES PROSCRIPTIONS ON IRANIAN VESSELS

Officials from landlocked Mongolia said they would cancel the flag registrations of 5 Iranian cargo

ships, proving a window into the cat-and-mouse game played by international authorities that are

trying to curb Tehran weapons programs and by Iranian companies trying to work around them.

The move came days after officials in another inland nation, Moldova, told the Wall Street Journal

it had de-registered 12 Iranian vessels in July and no longer has any Iranian vessels on its registry,

to come into compliance with international sanction restrictions. Government officials said and

international shipping databases show state-controlled Islamic Republic of Iran Shipping Lines (IRISL)

repeatedly shifted the flag registrations of a number of vessels in recent months to different small

nations.

According to shipping database Equasis, at least 10 general cargo carriers controlled by IRISL

received Moldovan flags this spring. Moldova said it had de-registered a dozen Iranian vessels in

July. The move was meant to comply with U.N. Sanctions. At least three of the ships that lost their

Moldovan flag have resurfaced in recent day.

Mongolia joined Moldova in deciding to bar the Iranian vessels. ―Today we decided to cancel the

registration‖ of the ships, said J. Jambajamts, Deputy Director-General of the Mongolia Maritime

Administration in Ulaanbaatar. He said there were 5 ships involved, registered over August and

September. Mongolia operates a registry center in the city-state of Singapore.

―We continue to inform potentially susceptible flag states of the reputation and financial hazards of

doing business with the Iranian maritime industry,‖ the spokeswoman said. U.S. Treasury officials

declined to comment on specific auctions.

Both the United States and Iran have courted mineral-rich Mongolia. Last month President Ts.

Elbegdorj traveled to Iran, where he visited a uranium-enrichment plant.

Source: Wall Street Journal

AUSTRALIA OPENS CONSULATE-GENERAL IN UB

Mongolian and Australian officials celebrated the opening of the Australian consulate-general in

Ulaanbaatar on 2 October.

Although the consulate-general has just now commemorated its opening, it began its official

activities earlier this year. The event was held in response to the consulate-general‘s move to a

new location. In attendance was Australian Minster of Foreign Affairs Bob Carr, Deputy Minister of

Foreign Affairs D. Gankhuyag and other officials.

The opening of the consulate-general in Ulaanbaatar will contribute to the development of a

partnership between the two nations, particularly in economics and culture, said the officials.

Moreover, the event coincides with the 40th anniversary of established diplomatic relations

between the Commonwealth of Australia and Mongolia. David Lawson was appointed as Australia‘s

consul-general to Mongolia, receiving his credentials on 6 April.

Source: News.mn

SELENGE 2012 MILITARY EXERCISE ENDS

Russian and Mongolian special task forces have completed the Selenga 2012 military exercises in

Russia‘s Buryatia, in the south of Siberia.

Soldiers focused on joint counter-terrorism measures, blocking and destroying imaginary illegally

armed groups trying to break through the Russian border into Mongolia.

The two countries‘ servicemen for the first time employed attack aircraft during the drills. They

also honed the tactic of evacuating civilians from a militant-infested area.

Source: Voice of Russia

JAPAN, MONGOLIA AGREE TO PUSH FORWARD EPA NEGOTIATIONS

Foreign Minister Kochiro Gemba and his Mongolian counterpart, L. Bold, have agreed to accelerate

negotiation to conclude a bilateral economic partnership agreement that began in June. Gemba

called on Mongolia to take measures to facilitate direct Japanese investments in the country.

In particular, he asked for Mongolia's support in helping Japanese companies participate in the

development of Tavan Tolgoi, one of the world's largest coal field, in the southern Gobi Desert.

Bold responded by ensuring his country's full cooperation in expanding investment from Japan.

Source: Daily Yomiuri

THE CONVERSATION BETWEEN CHILE AND MONGOLIA

The dialogue Mongolia and Chile have had regarding their respective mining sectors is an example of

how increased cross-learning and cooperation among developing countries has been a remarkable

feature of the global economy in recent decades.

Both Mongolia and Chile are rich countries and benefited from booming prices before the global

downturn in 2008 and 2009. The shock from the crisis hit hard in Mongolia due to the downfall of

external demand and copper prices that brought economic growth to the negatives. It revealed the

weaknesses of the absence of protections from commodity swings and poor investment planning.

The government requested support from some multilateral and bilateral institutions, including the

World Bank and International Monetary Fund (IMF). Mongolia used the latter institutions to embark

on a policy dialogue with other countries to learn from the best practices implemented in other

natural resource-rich countries. Chile naturally became an important country to participate in such

a dialogue. It is a small open economy that happens to be the largest producer of copper in the

world, and therefore in principle vulnerability to the same kinds of shocks as Mongolia. Yet it

weathered them quite well during the crisis.

Chile had put in place fiscal rules and institutional frameworks commensurate with its natural

wealth. Structural public-sector balances rules led to an accumulation of long-term public savings

that served well as a buffer during the bust. Not only that, but by responsibly saving windfall gains

during boom times, Chile helped to avoid overheating and the so-called ―Dutch disease‖ problems

associated with over-appreciated real exchange rates.

The Chile-Mongolia dialogue paved the way for a series of landmark reforms from Ulaanbaatar—

including law-based structural budget balance rules, a ceiling on net public debt and yearly

increases of public expenditures, the creation of a Fiscal Stability Fund to be invested overseas and

diminish Dutch disease risks, a Public Procurement Law, a revamp of the social welfare system that

laid the ground for a more efficient and cost-effective social protection, and others.

Source: Huffington Post

OLIGARCHS' HUNGER FOR POWER

Reflecting Mongolia's booming economy, Ulaanbaatar's skyline has been transformed in recent

years, with socialist-style low-rise buildings displaced by lots of steel and concrete structures. And

as the towers go up, their owners seem to go into politics.

On the southeast corner of Sukhbaatar Square stands the 17-floor Central Tower, owned by MCS, a

company with interests as diverse as energy, infrastructure, alcohol, cashmere and

telecommunications.

Well-connected businessmen say that MCS is a longtime supporter of the Mongolian People's Party

(MPP). Underscoring the concerns that politics are being taken over by wealthy entrepreneurs, an

MCS vice president, L. Enkh-Amgalan, was elected to Parliament with the MPP during the last

elections in June (Enkh-Amgalan subsequently resigned his corporate post).

On the opposite side of Sukhbaatar Square stands the 14-floor Bodi Tower, a building that

represents the MPP's biggest rival—the Democratic Party (DP). Entrepreneurs close to Bodi Group, a

holding company with a wide range of interests including banking, real estate, IT and media, say

the company is packed with DP supporters. Bodi President M. Zorigt was recently reelected as a DP

deputy (Zorigt has since given up his leadership role at Bodi).

―These groups and many others, sometimes smaller, now want to be represented in Parliament,

both to protect their business and get new ones,‖ alleges G. Uyanga, a newly elected MP from a

small party. She later added, ―Many owners of gold mines or coal [mines] or members of their

families... were elected to the last Parliament.‖

Civil society activists are suspicious that entrepreneurs are getting into politics in order to take

advantage of insider information concerning the privatization of lucrative state assets, as well as

the granting of mining licenses. How political parties are funded is at the heart of the problem, said

political scientist L. Sumati.

―It is not only the oligarchs that are taking the political parties under their control, but the parties

themselves are growing their own oligarchs. This will not give us anything good for the

strengthening of our young democracy,‖ he said.

Source: Eurasianet

THE RISE OF MONGOLIA

Mongolia now has a defense budget of USD 38 million, a military of only 10,000 troops, and no

navy—nothing to worry Russia or China. But Mongolia's geopolitical position and singular history are

combining to enhance its influence in a region of the world that gains more weight on the strategic

chessboard day after day.

Since breaking free of the Soviet Union, Mongolia has tried to make friends around the world to step

out from under the shadow of its two giant neighbors with its so-called ―third neighbor‖ policy.

There are currently 100 soldiers from the Mongolian Armed Forces serving in the international

Security Assistance Force in Afghanistan, and Mongolia signed an individual partnership and

cooperation program with NATO last March. Soldiers from Canada, the United States, Japan, and

nine other countries also participate in the annual Khaan Quest military exercises in Mongolia.

But a truly independent foreign policy necessitates relations with regimes that are not too friendly

to Western powers. Mongolia has relatively close relations with North Korea, even having agreed to

allow 5,300 North Korean workers to go to Mongolia over the following five years. Mongolian

authorities have also reportedly sheltered North Korean refugees, with the help of South Korean

groups. Mongolia maintains good relations with South Korea, but downplays them to preserve its

status with Pyonyang. More recently President Ts. Elbegdorj continued in this vein by accepting an

invitation from Iran to become the first foreign leader to that country's main uranium-enrichment

plant.

Is Mongolia signaling a want to align itself with enemies of the West? Or was this simply a diplomatic

blunder? It could be in line with seeking an independent foreign policy by diversifying its diplomatic

and economic portfolio. Elbegdorj's overtures to Iran and North Korea could also be part of an

attempt to cast Mongolia as an honest broker and interlocutor between diplomatic foes around the

world.

Source: Canadian International Council

THE ENDANGERED MONGOLIAN MINING BOOM

Eight hundred years after Chinggis Khan, Mongolia is back in the news. Nicknamed ―Mine-golia,‖ it is

enjoying the largest energy and raw-materials boom on the planet, boasting the world's third-

largest copper mine and one of the largest coal mines.

But now Mongolia is threatened by resource nationalism. Parliament, earlier this year, pushed

through a half-baked law on investment in ―strategic sectors‖ that violates every free-market rule

in the book. The law imperils Mongolia's relatively high score in the Index of Economic Freedom,

which was just below the regional average.

The new law endangers foreign investment by putting majority acquisitions of companies within

―strategically important‖ sectors under review by a yet untested process from a review board and

Parliament. The underlying reason for this retreat from market liberalism is the mistrust and dislike

of neighboring China. However, in an ironic twist, China is now the largest market for Mongolian

mineral exports.

Given Mongolia's small population, its landlocked location between two former imperial masters,

and its longstanding fear of foreigners, the rising tide of resource nationalism is understandable.

But the strategic sectors law is a case of overkill. China is and will remain the principal market for

Mongolian raw materials. In fact, Mongolia is in a privileged position, as it is near the largest

manufacturing economy in the world. Its location gives it a competitive advantage over Australia

and others.

In the longer term, Parliament may consider softening the strategic-sectors law. Today the law is

too vague, onerous and punitive. It will scare foreign investors and hurt ordinary Mongolians. The

key is a transparent, modern and investor-friendly legal and regulatory system.

Source: National Interest

OUTREACH PROGRAM PAVES WAY FOR MISSION IN UB

Seventh-day Adventist leaders in Mongolia say a week-long evangelism series held in Ulaanbaatar

earlier this month signals a new focus on urban evangelism in the region.

About 100 people chose to join the Adventist Church, which has roughly 1,700 members in Mongolia.

Some 860 people met in nine Adventist churches in and around Ulaanbaatar from 15 to 19

September.

―This Ulaanbaatar citywide evangelism was a historical event that revived our churches in Mongolia

through mission and outreach,‖ Lee said.

Adventist missionaries first came to Mongolia in 1990, shortly after the end of socialist rule opened

the country to religious expression.

Source: Adventist

NEW MONGOLIAN LAWS

The following laws, amendments and addenda were published in the latest weekly Government

bulletin. Unless otherwise decided by Parliament, they will take effect ten (10) days after

publication.

Date Laws

28.09.2012 Amendments to Law on President of Mongolia

Amendments to Law on Court Administration

Amendments to Law on Lawyer's Legal Status

Amendments to Law on Court Establishment

Amendments to Law on Excise Tax

Addendum to Law on Customs Tariff, Customs Tax

Addendum to Law on Value Added Tax

Addendum to Law on Employment Support

Law on Aimag, Sum, District Citizen Representative Khural Election

Annulment of Law on Local Khural Election

Amendments to Law on Administrative, Territorial Unit of Mongolia, Its Administration

Amendments to Law on Civil Registration

Addendum to Law on Aimag, Sum, District Civil Representative Khural Election

Amendments to Law on 2012 Budget of Mongolia

Amendments to Law on 2012 Budget of Human Development Fund

Amendments to Law on 2012 Social Insurance Fund

Amendments to Law on Social Insurance

Amendments to Law on Social Welfare

Law on Ratification of Negotiation

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

USAID/BPI QUALITY ASSURANCE LEAD AUDITOR TRAINING SERIES 8-15 OCTOBER

The USAID/BPI project, in collaboration with the Mongolian Quality Management Center of

Excellence (QMCE), plans to offer a first 5-day Lead Auditor training series in Mongolia from 8 to 15

October 2012.

The intent of the Lead Audit training series is to build awareness and capacity of professionals

seeking to become quality assurance managers, auditors or those persons responsible for quality,

environment or food safety conformity across respective businesses or associations.

Upon completion, trainees will have understanding in principles and practices of executing

management system audits. Global Certi Co., a fully accredited and licensed South Korean

training/certification provider registered with global training body RAB-QSA, will facilitate courses.

Cost per trainee delegate is MNT 800,000.

BCM is a Supporting organization. For information or to secure a reservation, contact Khaliun at BPI

offices at +976 11 32 13 75; Khaliun@bpi-chemonics.biz.

___________________________________________

REGISTRATION FOR 15TH ANNUAL NAMBC INVESTORS CONFERENCE ENDS 11 OCTOBER

The 15th Annual North America-Mongolia Business Council‘s Investors Conference will be held in

Ulaanbaatar from 16 to 18 October. The usual late registration fee has been waived for members of

BCM and NAMBC.

The conference opens with a reception at the Zanabazar Museum on Tuesday, 16 October, followed

by two full days of speakers and panels on 17 October and 18 at the Kempinski Khan Palace Hotel.

Full simultaneous interpretation in Mongolian and English is available for all sessions.

BCM is a Supporting Organization. Registration fees are the same for BCM and NAMBC members.

Send registration forms to NAMBC directly, not BCM. Find the registration form here.

___________________________________________

MONGOLIA INVESTMENT SUMMIT 2012, HONG KONG, OCTOBER 30-31

The Mongolia Investment Summit 2012 will be held from 29 to 31 October at the Four Seasons Hotel

in Hong Kong to once again bring the best of Mongolia's investment opportunities to Asia's leading

investment hub.

Now in its third year, the summit has strongly cemented its position as the largest Mongolian

investment event outside of Ulaanbaatar, providing foreign investors with the most comprehensive

overview of Mongolia's key economic growth sectors all under one roof.

Speakers at the event include Altai Khangai, Chief Executive Officer of the Mongolian Stock

Exchange (MSE), Cameron McRae, President and Chief Executive Officer of Oyu Tolgoi LLC, and

James Passin, Co-founder and Manager of Firebird Mongolia Fund.

BCM is again a Supporting Organization of the event. BCM members are entitled to 15% discount;

please quote VIP Code "671BCM15D" during registration. For more information, find a brochure to

the event by logging on to the website: mongoliainvestmentsummit.com.

___________________________________________

METALS MONGOLIA 2012, 8-9 NOVEMBER

Metals Mongolia 2012 opens in Ulaanbaatar from 8 to 9 November.

Mongolia's second metallurgy international conference aims to attract investment that is focused on

developing eco-friendly technologies, introduce sector policies to foreign organizations, and protect

competitiveness and the capacity for competition in the changing market environment. Also to be

focused on is the government's ‗action plan‘, regarding its aims to develop the base metal industry.

Last year over 1,200 delegates from the public and private sectors from 20 different countries

attended.

BCM is again a Supporting Organization for the event. BCM members will receive a 10% discount.

For more information, visit metalsmongolia.mn.

___________________________________________

MONGOLIA INVESTMENT CONGRESS-CLEAN COAL ASIA SUMMIT 2012, SHANGHAI, 10-13 DECEMBER Mongolian Investment Congress 2012 will be held in Shanghai, China on 10 December. The event is

presented by BCM along with the Mongolian Stock Exchange, Mongolian National Mining Association,

and INBC Global.

From mining, export infrastructure, and power generation to financial services, energy projects,

property development and more, Mongolian Investment Congress 2012 offers investment and

development opportunities at every turn. Highlights for topics of discussion include international

investment opportunities in Mongolia, challenges for foreign investors in the mining industry and the

coal reserves and resources.

The Clean Coal Asia Summit on 11-12 December serves as the information and networking platform

for commercializing clean coal technologies in Asia and the world. Highlights for discussion include

China's government policies in the clear energy of China's 12th five-year plan (2011-2015) and

innovation and new projects in coal gasification and liquefaction.

BCM members will get 10% discount. To receive the discount code, please contact Saruul at 317027

or at saruul@bcmongolia.org.

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REGISTER NOW FOR MONGOLIAN MINING DIRECTORY-2013

Mongolian Mining Directory-2013 which provides information database for Mining companies,

investors, suppliers, service companies, government and non government organizations will be

published for the fourth year to commemorate the 90th anniversary of the Mongolian mining

industry. The MMD is distributed free of charge to international and domestic mining companies,

international conferences and exhibition, embassy offices in Mongolia and foreign countries to

investors.

BCM is a Supporting Organization of the MMD and welcomes Mongolian mining industry participants

who are interested in advertising their products and services in Mongolian Mining Directory-2013.

For more information please visit: www.mining.mn, www.mongolianminingdirectory.mn or call

+976-7011 5590.

____________________________________________

REGISTER AT NO COST FOR BCM‘S MINING SUPPLY CHAIN DATABASE

The new version of BCM‘s Mining Supply Chain Database is in use. Following the initiative of Oyu

Tolgoi LLC, the BCM has maintained the Mining Supply Chain Database since March 2009. It is an

honor to introduce you to the new version of the database which is totally upgraded as to its

content and use of information technology opportunities.

We are inviting all Mongolian mining suppliers and buyer companies to join the Mining Supply Chain

Database. 1,400 Mongolian mining suppliers and buyers are now registered! Please visit here for

registration.

If you have any questions regarding the database, please contact Undral at undral@bcmongolia.org

or 317027.

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―MM TODAY‖ on MNB-TV, Friday‘s at 19:00

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 19:00 tonight. Tune in to watch this program that reports stories from today‘s BCM

NewsWire.

BCM WORKING GROUPS

The BCM Capital Markets Working Group met on Tuesday, October 2, with 17 members attending.

Tim O`Neill,/CPS International/ and Howard Lambert,/ING Bank/ co-chairs, moderated the session.

Speakers were: Enkhzul D, /Mongolian Stock exchange/, Nick Cousyn, /BDSec/, Randolph Koppa,

/Trade & Development Bank/

Meeting discussions were on the following topics:

-Update on progress at Mongolian Stock Exchange;

-Summery Overview of draft Securities Law;

-TDB`s USD 300 million international debt offering.

BCM WEBSITES

MONGOLIAN WEBSITE ‗PRESENTATIONS‘ AND ‗NEWS‘ SECTIONS

The new ‗Presentations‘ section on BCM‘s Mongolian website can be reached via bcm.mn/itgeluud.

Several presentations already posted include the World Bank‘s Mongolia Quarterly Economic

Update–June 2012 and 11 speeches from the 2nd Coaltrans forum, held on 23 to 24 May in

Ulaanbaatar.

As a key component of BCM‘s Mongolian website, articles from the ‗News‘ section and the

government website Open-Government.mn are regularly updated.

___________________________________________

ENGLISH WEBSITE 'PRESENTATIONS', 'MONGOLIA REPORTS' AND ‗MONGOLIAN BUSINESS NEWS‘

On BCM‘s English website, the ―Resources‖ and ―Presentations‖ sections are available to find recent

postings from BCM‘s 24 September monthly meeting and 9 presentations from Discover Mongolia

2012. The ―Mongolia Reports‖ section includes Taxes for Expatriates in Mongolia from

PricewaterhouseCoopers and the 2012 Mongolia Investment Climate Statement by the Economic and

Commercial Section of the U.S. Embassy.

BCM's English website includes the ―Mongolia Business News‖ section where the Open Letter to

Parliament and Government is available for download.

BCM continuously posts news stories and analysis of relevance to Mongolia at ‗Mongolian Business

News‖ before they are all put together each week for Friday's weekly NewsWire.

NewsWire will continue to be issued each Friday, incorporating items already on the home page for

a consolidated account of the week‘s events.

___________________________________________

SOCIAL NETWORK WITH BCM

The Business Council of Mongolia (BCM) has expanded 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.

Connect with BCM on Linked-in to join the diverse group of professional contacts creating a better

business environment in Mongolia today.

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 carried in

the NewsWire with the community.

Hear breaking news and announcements as they happen when you follow BCM on Twitter at

http://twitter.com/#!/bcMongolia.

Of course for news information, interviews, and announcements regarding our organization, visit

the official BCM website at www.bcmongolia.org and www.bcm.mn.

ECONOMIC INDICATROS

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]

Year 2011 *10.2% [source: NSOM]

August 31, 2012 *14.9% [source: NSOM]

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

Note: 15.6% y-o-y, Ulaanbaatar city, August 31, 2012

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]

April 28, 2011 11.50% [source: IMF]

August 25, 2011 11.75% [source: IMF]

October 25, 2011 12.25% [source: IMF]

March 19, 2012 12.75% [source: Mongol Bank]

April 18, 2012 13.25% [source: Mongol bank]

CURRENCY RATES – OCTOBER 4, 2012

Currency Name Currency Rate

US dollar USD 1,389.65

Euro EUR 1,794.32

Japanese yen JPY 17.77

British pound GBP 2,238.10

Hong Kong dollar HKD 179.19

Chinese Yuan CNY 221.12

Russian Ruble RUB 44.54

South Korean won KRW 1.25

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.