Tuesday, February 5, 2013

[Eurofeu completes Mongolia's 1st RTO, Orix invests in Mongolia Opportunities Fund, and Indiana University partners with American University of Mongolia]

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Blue Wolf Mongolia Countdown: 76 days left till liquidation


TRQ closed down 1.17% to US$7.57 in NY

Mongolia Should Get More Control of Rio Mine, President Says

February 4 (Bloomberg) Mongolia's President Tsakhia Elbegdorj said the nation should have more control of Rio Tinto Group's Oyu Tolgoi copper and gold project after the government claimed costs had increased.

The total cost of the Rio Tinto-operated development in southern Mongolia has jumped to $24.4 billion, according to an e-mailed statement from the government, which gave a summary of a parliamentary discussion on Feb. 1 attended by the president. London-based Rio's earlier estimate for total cost was $14.6 billion, according to the statement.

"It's time for Mongolia to have Mongolian representation on the management team," Elbegdorj said at the session on Feb. 1, according to his website. "It's important that the government takes the Oyu Tolgoi matter into its own hands."

The president's comments heighten tension with the second- biggest mining company over the ownership and future development of a project, which is currently the world's biggest copper mine under construction. Rio is considering a temporary halt to work to protest government demands for a greater share of profit, two people familiar with the plans said last week.

"We continue to work together with all stakeholders, including the government of Mongolia, to bring the benefits of Oyu Tolgoi to all parties," Rio Tinto said today in an e-mailed response to questions. "We are now focused on first commercial production. We are on schedule to deliver that in the first half of this year."

Respect Agreement

David Luff, a Melbourne-based spokesman for Rio Tinto, wasn't immediately able to comment on the cost overrun and safety concerns raised by the Mongolian government.

Mongolia also needs representation "in all the most important decision making departments: financial department, procurement department, legal department, sales and project services department," said Elbegdorj. The country had to wait for "months" for Rio to respond to questions on the project, he said.

In December, the president urged Mongolia's government to respect the Oyu Tolgoi agreement, according to a Jan. 25 report by Ulan Bator-based broker BDSec, which cited a Dec. 26 interview with Elbegdorj on state television.

"The current rhetoric is accentuated by the upcoming presidential election," slated for the end of June, said Eric Zurrin, director general at Resource Investment Capital Ltd., a corporate finance adviser in Ulan Bator, by e-mail today. "I doubt Rio would endanger the start-up of OT following first production last week, nor its future economic interests, by entering into games of brinkmanship with the Mongolian government. I think cooler heads will work out a solution for both ends, Mongolian and foreigner."

Cost Increases

The costs for the first two stages of the mine would be $11.3 billion, according a report on the website of Turquoise Hill Resources Ltd. (TRQ), the Rio unit which owns 66 percent of Oyu Tolgoi.

"We need to address these cost increases with Rio Tinto and better understand why costs went up," the government statement cited Prime Minister Norovyn Altankhuyag as saying. "We also need to discuss salaries for Mongolian workers, safety matters and benefits to workers."

The mounting tensions between Mongolia's politicians and Rio could prompt a reshuffle of the Oyu Tolgoi board, which includes both company and government officials, Dambadarjaa Jargalsaikhan, an independent economist based in Ulan Bator, said by phone today.

Business Matter

"Mongolian politicians are acting a little bit too strongly," Jargalsaikhan said. "There should be a certain acceptance of cost changes from planned ones. It happens with a big project like this. It's a business matter and as soon as it is explained, things will go forward."

The mine, which is controlled by Rio and 34-percent owned by Mongolia, may account for 2.2 percent of the company's earnings before interest, tax depreciation and amortization this year, according to Richard Knights, a mining analyst at Liberum Capital Ltd. Rio's 2013 Ebitda will be $22.2 billion, according to the average of 25 analysts' estimates compiled by Bloomberg.

In October, Rio rejected a second move by Mongolia to renegotiate a 2009 investment agreement for the development of Oyu Tolgoi, which is currently the world's biggest copper project under construction.

Link to article


President: "Time has come for Mongolia to take Oyu Tolgoi matters into its own hands", February 4


Mogi: anyone can send me this article in full?

Costs draw criticism of Oyu Tolgoi

February 4 (Financial Review) The Mongolian President has called for improved transparency on Rio Tinto's budgeting process for the $US6.2 billion Oyu Tolgoi copper-goldmine, amid complaints about rising costs.

Link to article


Rio Tinto Grinds Gears In Mongolia; Turquoise Hill Stumbles

February 4 (Emmet Kodesh, Seeking Alpha) The roller coaster ride continues for shareholders of Turquoise Hill Resources (TRQ). Investors were underwhelmed by production of the first ore concentrate January 30, though it presages steady operation by summer and profit thereafter. This complex situation is described below and investment guidance provided. Read on.

The ore concentrator was inaugurated late in December with fanfare including statements by Mongolia's president and mining director who invoked the legacy of their ancestors and good of the people. Reports on those events sent TRQ's share price up 35% in two weeks before news of Mongolia yet again seeking more royalties (i.e. welfare) gave it nearly all back. On January 30, as prices plunged the exchanges halted trading even as the world's second largest miner, Anglo-Australian Rio Tinto (RIO), denied a Bloomberg report of contract disputes and affirmed that the agreement was solid. Still, shares subsequently sank to $7.66 at the close of trading February 01 while major indices extended the secular triple top and resumed their push toward all-time highs. On Monday Feb. 04 as the markets gave up recent gains, TRQ shares touched $7.40. But Mongolia's a world away from that euphoria and offers buying opportunities for the careful and attentive investor looking to diversity his holdings.

It is possible that some of the parties involved with TRQ wish to depress prices and increase their holdings or leverage by picking low-hanging fruit. To appreciate this high stakes game it is important to consider the cast of characters and murky events surrounding the emergence of nomadic Mongolia into a hi-tech, high-stakes world.

RIO owns a 51% stake in TRQ. TRQ, originally Ivanhoe Mines the creation of mining legend Robert Friedland owns 66% of the world's greatest copper, gold, silver and coal mine at Oyu Tolgoi ("Turquoise Hill") in southern Mongolia. The government of Mongolia (GOM) owns 34% and many of its politicians would like to increase this share. The vast project, the largest construction site in the world, is run by Oyu Tolgoi LLC which says "71% of cash flow generated [by the mine] will be received by the Government of Mongolia in taxes, fees, royalties and dividends." It also states that "Oyu Tolgoi carries out its activities in an open and transparent manner" and extols its elaborate programs for environmental stewardship, employment and education. RIO and TRQ indeed have donated large sums to Mongolian charities and consumer services while the fledgling State's government spends its way ever-deeper into debt. This and intra-Mongolian political and personal rivalries is the context for continuing rumbles about the contract.

Mongolia needs RIO and Turquoise Hill to be profitable, both for their own value and to attract increased foreign investment. The nation has only 2.8 million people and its immense mineral resources require immense investment by RIO to unearth. This will increase if politicians and governments including those of neighboring China and Russia do not mess things up. RIO-TRQ have invested $6.5 billion aside from charitable giving: that's a lot of money. A less enlightened age might expect the major players to brush the Mongolians aside and make the area into a bounteous Eden feeding a world resource boom. But in our "sensitive" era the paths of empire proceed in more complicated ways.

The entire experience may have RIO executives wondering why they didn't choose a relaxing profession like de-activating bombs or working the floor on Wall Street. Friedland, co-chair of Ivanhoe Energy (IVAN), retains 10% ownership of TRQ after having been nudged aside by RIO in April 2012. RIO also has installed its own management at South Gobi Resources (Mogi: SouthGobi) (SGQRF.PK) 58% of which is owned by TRQ. This has led to more direct tangles between RIO, Mongolia and China. For example, Chalco, China Aluminum International Trading Co. wanted to buy South Gobi but Mongolia rebuffed them for reasons of economic nationalism. Mongolia also rebuffed offers by American and Chinese companies to develop its 7.5 billion ton coal mine at Tavaan Tolgoi (Mogi: Tavan Tolgoi). Now Mongolia wants out of its agreement to sell China coal from the mine. Mongolia's Batsuuri Yaichil says his state is losing money on the deal and GOM wants to sell to other international customers at higher prices. China says it will "seek compensation for breach of contract." And so the game goes on.

Takeaway # 1: It is impossible to do business with or in Mongolia without snafus arising from internal disputes within GOM (current and past participants) and deep ambivalence about foreigners. Mongolia has an "Independent Authority Against Corruption" which helps apply pressure. This includes detaining foreigners working on its own board. This has happened to Justin Kapla, President and CEO of South Gobi Sands a subsidiary of South Gobi Resources and thus part of RIO's extended family of companies in Mongolia. The lesson is that investing in the company must pursue the following path.

Takeaway # 2: Shares of any company in Mongolia are subject to many risks difficult to foresee. So wait for one of the frequent steep corrections arising from takeaway #1 and put a portion of your invest-able cash to work. After substantial gains, cash out and, if you are so inclined, re-enter at the next major problem and ensuing dip which is almost certain to occur.

While the chaotic situation and contradictory reports on Oyu Tolgoi accumulate, Morgan Stanley estimates that this will be the fourth consecutive year in which world copper demand exceeds supply. As water flows downhill, wealth will flow to the deepest pockets and strongest willed of those focused on Oyu Tolgoi. Bet on Britain and the game of endless conflicts. It's all about playing the game. Play with caution as noted above.

"We are on schedule" says RIO's Mongolian spokesman Illtud Harri. Yet per the game, upheaval around the edges continues. Just a couple of weeks previously RIO replaced CEO Tom Albanese for what turned out to be his unfortunate acquisitions of Alcan and Mozambican Coal. RIO recently took a $14 Billion write - down on the deals. This may be positive for long term profitability but it adds to the rough weather around RIO's development of its holdings in Mongolia.

As noted above, Justin Kapla, a young American from Minnesota, a member of the Business Council of Mongolia and an executive for South Gobi Sands has been detained in the country since October. South Gobi Sands LLC is a division of SGQRF and its major coal mine at Ovoot Tolgoi. The travel ban on Kapla is related to the IAAC's ongoing investigation of Mongolia's former Mineral Resources Authority chair who now is in jail. It seems that mining licenses were transferred to friends and large sums moved in improper ways. South Gobi's Attorney Sarah Walsh (Mogi: Sarah Armstrong, switcheroo with Sam Walsh?) however was released late in December. The seemingly selective justice is part of larger power plays. The storyline and logic are unclear but the pressure and pain are real. See the splendid articles of Seeking Alpha's Jon Springer for ongoing coverage of this conundrum and many matters pertaining to the turbulent saga of 21st century Mongolia.

Regarding that saga, those thinking of investing in Mongolia should research the history of Bat Khurts, head of Mongolia's National Security Council and Enkbhat Damiran of the General Intelligence Agency of Mongolia (GIAM) and its relations with Europe. There likely is material there for a book on Interpol. It also is worth studying English geopolitics and the role it plays with China and Russia in assembling and managing a collectivized world system. Other essential reading is the report of the US Embassy in Ulaan Bataar (Mogi: Ulaanbaatar) on the Business - Investment climate in Mongolia. The Report quotes various laws that permit foreigners to be detained and foreign-owned properties to be seized for loosely defined reasons. Then there is former President Enkhbayar vowing to return from jail and re-negotiate the deals with RIO and other companies. The columnist writes of "collusion at the highest levels of government and the judiciary" and "the corruption of President Elbegdorj's regime." The situation around RIO, TRQ and foreign investment is a volatile mix of cultures, personalities and trans-national agendas surrounding a fabulous property.

Humpty Dumpty famously noted that power defines the meaning of words and laws: "the question is which is to be master, that's all!" The oligarchies that run England, Russia and China are ironing out various disagreements about allocations of resources through the companies named above and some people unfortunate enough to be in the way.

Takeaway # 3: In my first piece on TRQ I wrote that its story is like a postmodern novel being written by several characters with limited interest in closure. The logic in the case, the richness of Oyyu Tolgoi is the center of attraction but peripheral matters determine the status of the core. As a reader wrote, Mongolia needs Oyu Tolgoi, TRQ exists for it, RIO and China need it and Mr. Friedland has much invested in it. But as I also noted, there is a giant gap between reason and reality for evidence of which compare U.S. and European stock markets to their respective nations' economies. For now, if you want to share in Oyu Tolgoi you buy TRQ and keep alert for stormy weather. The mine itself should produce long term and sustainable gains. Just be ready to exit most of your position and re-enter when calm returns. Vigilance is urged. Buy below $7.50 and monitor the situation carefully.

Takeaway # 4, PS: Mongolia is not for all investors. And while that nation continues its highly ambivalent dance with the modern world, we need equal caution about events at home.

My most recent article noted the secular triple top the indices had made by January 25. It was pushed still higher Feb. 01 and media euphoria is growing. Beware: sentiment grows bullish but workforce participation levels are still near depression levels and worsening. Real GDP growth minus devaluation is disturbing; measured against gold, as would have been done until the abrogation of Bretton Woods in 1971, it shows a 70% decline. And GDP is a political metric that includes lots of waste. This market is as over-stimulated, distracting and unhealthy as a Super Bowl halftime show. When the lights go out, there will be more than a half hour game delay. Until next time, look into silver the miracle commodity, play it with Silver Wheaton (SLW) or a bullion ETF (SLV, [PSLV]) and remember: caveat emptor.

Link to article


Manas: Investor Relations Update, February 2013

February 4, Manas Petroleum Corp. (TSX:MNP, OTC:MNAP) --


ü  Drilled Ger Chuluu Sub basin; P & A'd

ü  Received Award for Best Operator 2012 in Mongolia from the Petroleum Authority of Mongolia

Link to Manas site


Winsway (01733) ratings affirmed with negative outlook - S&P

[ET Net News Agency, 5 February 2013] Standard & Poor's Ratings Services said it had affirmed its 'B' long-term corporate credit rating on China-based Winsway Coking Coal Holdings Ltd (01733). The outlook is negative.

It also affirmed its 'cnB+' long-term Greater China regional scale rating on the coking coal supply and logistics provider. At the same time, S&P lowered its issue rating on Winsway's senior unsecured debt to 'B-' from 'B', and its Greater China regional scale rating to 'cnB' from 'cnB+'. All the ratings were removed from CreditWatch, where they were placed with negative implications on Jan. 21, 2013.

"We affirmed the corporate credit rating on Winsway because we expect the company's operating performance to improve in the next 12 months after a loss in 2012," said S&P's credit analyst Huma Shi. "We also anticipate that Winsway can continue to access bank facilities for its short-term financing needs."

Link to article



February 4 (MSE) Based on Financial Regulatory Committee resolution No.:284 of 12 September 2012, Mongolian Stock Exchange's 'Securities listing rules' clauses 50.1, 50.3, 57 and according to Mongolian Stock Exchange CEO decree of 31 January 2013, the following amendments have been made to 'Solongo express' JSC's listing:

- 'Solongo Express' JSC's total issued shares has been increased by 451,286 shares, resulting in total of 607,809 shares, and

- the company name has been changed to 'Eurofeu Asia' JSC, and securities symbol to 'FEU'.

About 'Eurofeu Asia' /MSE : FEU/

Address: 4th khoroo, Bayangol district, UB

Phone: 976-11-342426

Fax: 976-11-342426, 342283

Name of Director/CEO: A.Badangorj

Listed date: 1992-04-09

Stock type: common

Total share: 607,809

State owned: 0

Closing price: 4200₮

Link to release


ResCap initiates Eurofeu Asia JSC (MSE:FEU) coverage: BUY, Target Price ₮9,200 (119% upside)ResCap, February



February 4 (BDSec) --


      Ahead of the Lunar New Year, which is the most widely celebrated traditional holiday in Mongolia, indexes of the Mongolian Stock Exchange closed at lower value on its 5th week as MSE Top 20 index dropped 2.3% to 17,692.7 points whilst BDS index lost 2.7% to 3,844.2 points.

      According to the preliminary statistics compiled by the National Statistics Office, in 2012 real GDP grew by 12.3% of which 5.2% accounts for service sector, 3.1% accounts for industry and construction sector and remaining 3.9% goes to both agricultural sector and net taxes on products.

      We believe the market inefficiencies create the most compelling buying opportunity and expect the market to have an big upside correction starting from March of this year as companies start to hold their annual general shareholders' meeting and announce their financial performance of 2012.

Link to report


Mogi: amount not disclosed it seems

ORIX Announces Capital Participation in Mongolia's First PE Fund

TOKYO, Japan - February 4, 2013 - ORIX Corporation (TSE: 8591; NYSE: IX), a leading integrated financial services group, today announced its capital participation in the private equity fund "The Mongolia Opportunities Fund I," established by the Mongolian investment firm Mongolia Opportunities Partners as the first private equity fund in Mongolia. ORIX aims to use this fund as a vehicle to make its first investment in Mongolia.

The Mongolia Opportunities Fund I is a private equity fund established in June 2011 with the aim of investing in high-growth sectors of the Mongolian economy such as mining, infrastructure and export-related areas. Mongolia Opportunities Partners, the fund operator, is comprised of staff with a wealth of experience in M&A, investment and asset management at international financial institutions and major foreign capital consulting firms. This staff will fulfill the role of bringing foreign investors to the Mongolian economy. ORIX is participating as an investor in the expansion of the fund.

Mongolian industry primarily consists of mining, herding and agriculture. Mongolia leads the globe in growth, with a 17.51% actual growth rate in 2011 and 12.67% forecasted for 2012*. Many regions in Mongolia have mineral deposits such as copper and coal, and the mining industry is predicted to become a future industrial pillar along with large scale expansion expected in infrastructure investment and related service industries.

ORIX is aggressively pursuing investment in growth areas in the high-growth Asian market. Through this investment, ORIX aims to create a local network and contribute to the development of the Mongolian economy by capitalizing on its financial services know-how and client base accumulated in Japan.

* Source: IMF - World Economic Outlook Database (October 2012).

The Mongolia Opportunities Fund I Overview

Name                                       : The Mongolia Opportunities Fund I
Fund Amount                           : Approx. USD50 million
Management Company            : Mongolia Opportunities Partners
Term                                        : 8 years
Investment Target                   : Mining, infrastructure, high value-added export products related industries in Mongolia
Main Investors                         : 12 companies consisting of financial institutions and investment firms
Website                                   :

About ORIX

ORIX Corporation (TSE: 8591; NYSE: IX) is an integrated financial services group based in Tokyo, Japan, providing innovative value-added products and services to both corporate and retail customers. With operations in 28 countries and regions worldwide, ORIX's activities include corporate financial services, such as leases and loans, as well as automobile operations, rental operations, real estate, life insurance, banking and loan servicing. For more details, please visit our website at:

Link to release


BoM issues 12-week bills

February 4 (Bank of Mongolia) BoM issues 12 week bills worth MNT 10.0 billion at a weighted interest rate of 12.94 percent per annum. /For previous auctions click here/

Link to release


BoM holds FX auction

February 5 (Bank of Mongolia) On the Foreign Exchange Auction held on February 5th, 2013 the BOM received from local commercial banks total bid offers of 21.2 million USD and 26 million CNY and ask offers of 12.5 million USD. BOM has refused for the bid and ask оffers as considering the demand and supply of USD and CNY is balanced.

Link to release



February 1 (Bank of Mongolia) --

Link to report



February 5 ( Head of the Press and Public Relations Department under the Secretariat of the State Great Khural (Parliament) Dorjzovd ENKHTUYA made a statement to journalists regarding last week's summary in the Government House on February 04, 2013.

She underlined several issues approved at the Parliament of Mongolia, including formation of "Mining Development Acting Committee" in the Parliament, new Ambassadors to foreign states and approval of new members of the National Human Rights Commission of Mongolia; moreover she highlighted the visit by Chairman of the Standing Committee and Party Secretary Wu Bangguo conducted last week.

Also, D.Enkhtuya announced that the Autumn Plenary Session of the State Great Khural (Parliament) will be closed for a break on Friday, February 08, 2013. At the closing ceremony Speaker Z.Enkhbold will deliver a speech summarizing the first session's works since the Parliamentary Elections and to introduce the issues to be discussed within the upcoming Spring Plenary Session.

Link to article


The Bumpy Path to Sino-Mongolian Cooperation in the Mining Sector

February 1 (Alicia J. Campi, The Jamestown Foundation) The kabuki-style dance of trade partners Mongolia and China began again in earnest when on January 15 the third meeting of the Mongolia-China Cooperation Commission on Mineral Resources and Energy met in Ulaanbaatar. Mongolia's Minister of Mining Davaajav Gankhuyag led the Mongolian side and Deputy Director of China's National Development and Reform Commission Zhang Xiaoqiang headed the Chinese delegation. According to Zhang, "boosting co-operation in mineral resources and energy, which account for the bulk of China-Mongolia economic and trade relations, is in the interests of both countries and can help Mongolia turn its advantages in resources into economic development" (, January 16). Although China and Mongolia see great benefits in continuing their vibrant trade in minerals, each side has a different vision on how to proceed. This has led to a tense relationship that often, mistakenly, is described by global financial commentators as resource nationalist sentiment in the Mongolian parliament and populace.

Mongolia exported a total of $4.38 billion worth of products in 2012, 89 percent of these being minerals that represented 20 percent of the country's GDP (Mongolian National Statistics Office, All of Mongolia's coal, iron ore, copper, zinc and tin concentrate as well as much of its gold are exported to China. Chinese state-owned enterprises (SOEs) and private corporations in 2011 were the largest investors in Mongolia's mineral sector with $2.3 billion FDI—five times the amount China invested in 2006 (The Mongol Messenger, January 18). This close reliance is hardly the definition of resource nationalism.

Two of the prime goals of the Mongolian side during the consultations were to renegotiate upwards the prices the Chinese pay for Mongolian raw minerals and lessen transit tariffs for Mongolian shipments destined for third nations, such as South Korea and Japan. The Mongols also raised the issue of the failure of Chinese mining operations to obey all Mongolian environmental and safety laws, demanded the employment of more Mongolian mine workers and discussed plans for construction of mineral processing plants inside Mongolia. China pressed for more stability in the legal environment regulating bilateral trade and foreign investment. Deputy Director Zhang also suggested that the two countries focus on developing large mining projects and constructing a highly connected railway transportation and coal transport border infrastructure. 

One area both sides agreed has potential for expansion is in oil products. PetroChina's investment of $1.4 billion in the oil sector made it the biggest investor in Mongolia last year. This oil production is exported to China for refining. Minister Gankhuyag told the Chinese side that Mongolia considered it necessary to make the border checkpoint where the crude oil crosses into China (Bayankhooshuu-Uvdug) a permanent one, to process the raw Mongolian crude in China and return the product, and to make an agreement on implementation of a 2008 memorandum between PetroChina and the Oil Authority of Mongolia to supply 10,000 tons of oil products monthly as well as purchase additional volume (The Mongol Messenger, January 18). Mongolia imports all its refined oil and diesel with more than 90 percent coming from Russia. To overcome this lopsided dependence the government has set a goal of building a state oil refinery with Japanese technology that would be functional in 2015. In the interim, it wants to cooperate with China to diversify its oil imports. 

The Mongols expected the consultations would be open to the public; however, at the request of the Chinese, it was held behind closed doors. Midway through the discussions, Zhang and Gankhuyag issued a joint statement, but refused to take questions from journalists. In their statement they noted that bilateral trade volume in 2012 reached $6.6 billion and announced that negotiations would continue over infrastructure and railroad projects as well as oil cooperation (, January 16).

Changes to Mongolia's Foreign Investment Law Complicate Picture

These bilaterals were influenced by the fact that 2013 began with the foreign investment picture in Mongolia again in turmoil, because of President Tsakhia Elbegdorj's proposals for revising Mongolia's Strategic Entities Foreign Investment Law (SEFIL) of May 2012 (Mogi: wrong law, the President seeks to revise the Minerals Law of 2006) that imposes tight regulations on investments in mining, banking, finance and media communications. Passed in a rush by Mongolia's Parliament after the Chinese state-owned Aluminum Corporation of Corporation (Chalco) attempted to acquire majority stake in a privately-held coal mine controlled by South Gobi Resources (Mogi: SouthGobi Resources) (owned by Canadian company Ivanhoe, now renamed Turquoise Hill), the law requires Mongolian governmental review of all assets in the affected sectors with foreign state-owned FDI or cross the value threshold of MNT 100 billion (about $70 million). While Chinese mineral assets are hit the hardest by these new regulations, China and western investors are on the same side—although apparently not working together—to counter the SEFIL and moderate its provisions. (Mogi: the foreign investment law actually works perfect for our neighbors, as they'll be the only ones with the nerve to stick around)

Investor complaints about the law in recent months were not unnoticed by President Elbegdorj. On the day after Christmas, he went on Mongolian television to give support to respecting the controversial 2009 Oyu Tolgoi (OT) agreement wherein Rio Tinto and its partner Turquoise Hill hold 66 percent to Mongolia's 34 percent of a huge deposit in the Gobi projected to contain 31 million tons of copper, 1,328 tons of gold and about 7,000 tons of silver. He cautioned that Mongolia must respect legal documents and warned that the nation's "reputation for having a favorable investment environment is being tarnished as domestic demand is growing for the government to hold more shares in the project" (Xinhua, December 26, 2012). One day later, the president's 91-page draft proposals (published on December 5, 2012) to Parliament for amending the 2012 Mineral Law were discussed in a news conference by Minister Gankhuyag, who while serving as a Parliamentarian was known for his demand that Mongolia renegotiate the OT agreement and hold a larger stake in all major strategic mineral resources. The minister announced the government is seeking to revise upward the threshold of FDI that triggers automatic government review to as high as MNT 300-400 billion (approximately $210-280 million) (Xinhua, December 28, 2012). Gankhuyag speculated such changes could be introduced for parliamentary debate in mid-February around the recess for the traditional lunar New Year holiday.

The Business Council of Mongolia (BCM) with some 250 members (although apparently no Chinese ones) (Mogi: huh, would've imagined there would be, or at least lots of Chinese invested ones. Hope Jim will read this and send back a comment) sent a letter on January 7 to the Office of the President commenting on the president's draft law proposals. The BCM's strongly-worded document, based on an analysis by firm member Hogan Lovells , had five macro-conclusions:  

1)    "The significant increase in regulation and intruding State control" would deter greater growth and prosperity;

2)    "The impact of the Draft Law on the minerals industry will be to halt current minerals exploration and development in Mongolia and greatly discourage any future investment"—citing in particular, the development of Tavan Tolgoi coal deposit;

3)    the draft law would be "over politicized" in the upcoming June presidential election;

4)    Mongolia's "brand as an investment destination" would be damaged, resulting in repelling not attracting FDI; and

5)    the draft needed at least six months of debate before a vote (, January 7, 2013;, December 31, 2012).

Slow Down in Mongolian Coal Exports to China

Mongolia's overall exports in 2012 fell 8.99 percent—a decrease of $430 million from 2011. The main reason was the drop in mineral exports to China. In 2012, Mongolia exported 20.9 million tons of coal, 574,000 tons of copper concentrate, 6.4 million tons of iron ores, 3,570 barrels of crude oil, 2.8 tons of semi-processed and unprocessed gold and 140,000 tons of zinc concentrate. Coal represented 43.2 percent of the country's exports, copper concentrate 19.1 percent, and iron ore 12.1 per center. Iron ore exports increased by 10 percent and crude oil exports grew by 40 percent (, January 17). Despite the downward trend and the slowing of China's economy, it was predicted by Mongolia's Mineral Resource Authority that Mongolian coal exports would grow 32 percent this year (, January 16).

During the consultations, it is likely that the Mongols informed the Chinese that development of Mongolia's 7.5 billion ton coal project of Tavan Tolgoi—300 km from the Chinese border and operated by the state company of Erdenes Tavan Tolgoi (E-TT)—would be further delayed until after 2013. CEO Yaichil Batsuuri, appointed to E-TT last October, had announced in mid-January that E-TT was suspending all coal deliveries to its client, Chalco, because it had run out of funds for overland trucking service fees (it owes $3.6 million) and wanted to renegotiate its supply contract with Chalco (, January 14). E-TT's finances were drained in 2012 when it was forced to pay $310 million into the Mongolian government's Human Development Fund, so it could disburse promised monies to each citizen just prior to the June 2012 parliamentary elections.

Chalco had paid Mongolia $250 million in July 2011 for an unannounced amount of coal (Mogi: an addition $100m was paid, making it $350m in total), but at a price Batsuuri claimed was close to $53 per metric ton—a price analysts agree is considerably lower than international standards. When the bankrupt E-TT recently sought government assistance, it was promised in January $355 million from Mongolia's Development Bank to resume work, repay its debts and possibly refund in cash to Chalco the contract's coal obligations. Batsuuri explained that Mongolia wishes to maintain a relationship with Chalco, but change the nature of their cooperation and price formula. Claiming that E-TT loses over $5 on every ton under the present arrangement, he indicated that the government wanted to sell its coal at world prices to other nations if it can dissolve the Chalco agreement: "Paying by coal is not profitable for the company. We are losing on coal trade. That's why the government made the decision to pay out the remainder. We will pay the remaining $180 million in cash" (, January 24). Chalco in a written response to Bloomberg's Mongolian office regarding the news that E-TT was stopping delivery of its coal maintained the "fundamental terms of the agreement should not be changed," separately and reportedly including "secret terms" (, January 28; January 24;, January 24).

The January consultations with the Chinese covered the topic of expanded Sino-Mongolian rail construction for Tavan Tolgoi to replace the present truck transport of coal. Zhang said "the Chinese side will give support to construct a railway to be built in southern Mongolia and pay attention to transporting products at cheaper prices after the railway is constructed. The Chinese side is willing to render support to construct a railway from Tavan Tolgoi to Sainshand [the linkage point to Mongolia's rail south] based on an economically profitable basis" (The Mongol Messenger, January 18).

A finalist bid list, consisting of China's Shenhua Group Corp. Ltd, Peabody Energy Corporation of the United States, and a Russian Railway-Mongolian consortium, for foreign investment rights to Tavan Tolgoi's western section has been held up for two years by protests over the selection process, particularly from Japanese and South Korean companies. Shenhua had put up $200 million as a good faith gesture to secure its finalist position. Shenhua Energy has not made a statement on the situation but the Mongolian Ambassador to China, Tsedenjav Sukhbaatar, revealed discussions are ongoing (, January 28). How to proceed with this western field bid list has delayed Mongolia's plan this year to raise up to $3 billion in funds in an initial public offering (IPO) for development of Tavan Tolgoi's eastern field, to be handled by BNP Paribas, Deutsche Bank, Goldman Sachs and Macquarie. Batsuuri explained the IPO cancellation by saying: "We decided to wait until the market recovers, the price of coal increases, and until E-TT starts regular construction of its wash plant. Plus we need to increase our exports" (, January 24).

Strategies Going Forward

The Chinese government has been very circumspect in commenting on recent trade disputes with the Mongols. This posture is far different from the 1990s when rail freight traffic often was severed to punish Mongolian actions or influence Mongolian decision-making. This change in strategy may reflect the realization that a hard-line approach with Mongolia politically was counterproductive and that Inner Mongolian factories have become more dependent on Mongolian minerals with each year. The Chinese have used Mongolian news outlets to voice disappointment during this third round of Sino-Mongolian consultations about what they see as Mongolia's uncertain legal regime and changeable mineral sector regulations. These same media sources claim that the Mongols had "high expectations" for negotiations on the big issues, such as the unprocessed coal price that were not met and concluded that "many questions are still left without answers" (, January 17).

Meanwhile, the Chinese could not fail to note that on the same day as the Sino-Mongolian consultations, Mongolian Minister of Foreign Affairs Lu Bold started his official visit to India with meetings in Mumbai with Indian Chamber of Commerce businessmen to encourage more investment in the already burgeoning Indo-Mongolian mineral relationship (, January 16). On January 24, it was announced in Beijing that after attending the 21st Annual Meeting of Asia-Pacific Parliamentary Forum in Vladivostok, Wu Bangguo, chairman of the Standing Committee of the National People's Congress, will pay an official goodwill visit to Mongolia from January 27 to February 1 at the invitation of Mongolian Parliamentary Chairman Zandaakhuu Enkhbold (, January 24). These visits are signs that Sino-Mongolia relations will continue to be played out in Asia at the very highest levels as 2013 progresses. The lack of clarity on how bilateral mineral trade will proceed, however, reflects both Mongolian domestic political sensitivity over Chinese predominance among foreign investors and a growing Mongolian desire to develop mineral deposits more slowly under their own auspices. China has been mostly reactive, trying to parry Mongolian moves. It seems to understand that with Mongolia's new assertiveness, political and strategic factors are as important as economic ones, so for now Beijing remains calm and relatively tolerant.

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IU's Kelley School of Business Partnering with the American University of Mongolia to Offer MBA

February 4 (Newswise) — Indiana University's Kelley School of Business has entered into a partnership with the newly formed American University of Mongolia to offer an MBA for global executives beginning in September.

A recently signed memorandum of understanding between the two institutions builds on long-running ties between IU and Mongolia.

IU is considered one of the world's leading centers of academic expertise in Mongolian Studies, and IU's Department of Central Eurasian Studies in the College of Arts and Sciences is the sole independent, degree-granting academic unit in the U.S. staffed with its own faculty of specialists in the region.

"This new program signifies our commitment to partnering with American University of Mongolia to offer new and innovative business education programs to meet the needs of this dynamic country," said Idalene Kesner, interim dean of the Kelley School and the Frank P. Popoff Chair of Strategic Management. "The growth that is occurring in Mongolia is exciting, and we are proud to be working to support the economic potential of the country through education."

The degree program will be a blend of classes taught on the American University of Mongolia campus in Ulaanbaatar and online instruction.

With a focus on growing international opportunities in Mongolia, the curriculum will focus on four themes that emphasize a global managerial perspective: leadership, managing global resources, innovation and entrepreneurship, and applied projects. It will include a one-week residency at IU Bloomington and a one-week program at the Washington Campus in Washington, D.C.

"We are delighted to be partnering with Indiana University's Kelley School of Business in offering this program, building on the already strong relationship that exists between the school and this country," said J. Peter Morrow, chairman of American University of Mongolia. "The Kelley School of Business was recently ranked as the number one business school in the U.S. in terms of teaching quality, career services and student satisfaction, so this also fits with our emphasis on choosing quality partners while we are developing our own programs."

The Kelley School of Business also offers an MBA for executives with Sungkyunkwan University in South Korea. Kelley and the Indian Institute of Management-Lucknow soon will offer graduate-level certificate programs and eventually a graduate degree program on business analytics to business professionals in India.

The American University of Mongolia is a new independent nonprofit liberal arts university. In addition to the MBA, in September 2014 it will begin accepting students into its four-year undergraduate programs.

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Mogi: not sure if I should be laughing, or be sad that I wouldn't be really surprised if it was true.

Rumor that Mongolia's Embassy building in Moscow was sold to Chechens

February 4 ( A rumor that the Mongolian Embassy in Moscow might have been sold has started just days after names of the new ambassadors from Mongolia to other countries have been approved by parliament according to local newspaper "Mongolian News". The newspaper sited that the 10 story building II of the Mongolian Embassy in Moscow might have been sold to the Chechens

Previously Mongolian students who study in Russia came to the Embassy building to see each other and have Mongolian food. But an unconfirmed source said that the former Ambassador L.Khangai sold the Embassy building during his term from 2005 to 2009. 

Former ambassador, diplomats and their families used to stay at the Embassy building II. But now diplomat officials and their families should have to make a long drive to their work place in Moscow from their residence outside of the city. Mongolian Embassy building II is located in the center of Moscow near to the US Embassy. Mongolia used to own the whole building but now the Mongolian Consulate occupies only a few offices in the building.

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Bank robbery at border town

February 4 ( Zamiin-Uud local Savings Bank has closed after a bank robbery. 

A report from the Police Department in Zamiin-Uud sum in Dorno-govi aimag said that the robbery occurred at the local bank around 7:00 pm on Sunday night. The criminals escaped with a large amount of money. 

Local Police refuse to give any details on the case including how much money was stolen. Currently the Police are investigating suspects over the case. But there have been no arrests so far.

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Job seekers no longer need criminal background checks

February 5 ( In accordance with a decree by Kh.Temuujin, the Minister for Justice a criminal record check is no longer automatically required. The Minister believes that the requirement to have a criminal record check is a kind of violation of human rights. 

A criminal record check is usually required whenever a citizen applies for a job or a visa or a loan from a bank. 

If a citizen has a criminal background, even petty crimes such as having a car accident, or has been arrested it is impossible to get a job. 

According to a study the Police Department issues a criminal record check to 800 people a day. Almost 70.0 percent of these are for job applications, 25 percent for visa and other personnel reason. 

Therefore the Minister for Justice sent the order to stop the requirement to have a  criminal record check in order to avoid discrimination in society for the people who have completed the punishment for their wrongdoing already. 

According to the new change a citizen themselves will no longer ask for a criminal record check from the Police Department. A company or entity can require a criminal record check if it is necessary.

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Declaration of income only 65 percent complete

February 5 ( The Anti-corruption Authority reported that the process of the declaration of income and conflict of interest is going poorly with civil servants of the Minister for Health and Minister for Foreign Affairs, in Khuvsgul aimag, Bayan-Ulgii and Gobi-Altai aimag. The Anti-Corruption Agency requires a declaration of income and conflict of interest from  civil servants according to the clause of an anti-corruption law and a law to coordinate private interests in the public service and to prevent conflict of interests in the public sector. For this year, the Anti-Corruption Authority will receive the declaration of income from civil servants via email or letter. But the process of receiving the declaration of income is now only at 65 percent nationwide. 

This year Dundgovi, Bayankhongor, Zavkhan aimags, the City Governor`s Office and Administrative Office in Khan-Uul district adequately carried out their declaration of income.

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Mongolia $1.25/Day Labor Amid $4K Purses Stirs Discontent

February 5 (Bloomberg) Sapaar is 23 and he's a "ninja" miner, hauling low-quality coal from a pit in the Mongolian steppes for 12 hours a day.

Sapaar's coal is not the steel-making variety the bigger mines export to China, a trade that helped the economy expand a world-beating 17.3 percent in 2011. The boom brought luxury retailers such as LVMH Moet Hennessy Louis Vuitton SA (MC) to Ulan Bator, Mongolia's capital, to sell $4,500 handbags. Sapaar doesn't shop there.

As companies such as Rio Tinto Group (RIO), Mongolia's biggest investor; Peabody Energy Corp. (BTU); and Mitsui & Co. (8031) plan to keep the momentum going by exporting more of the country's $1.3 trillion trove of resources, about a fifth of the population of 3 million are getting by on $1.25 a day.

The explosive growth of Mongolia in just 10 years makes for a sharp disconnect between French handbag boutiques and hand- digging coal out of frozen rock. That's raising warnings of public unrest and driving controversial renegotiation of mining deals by the government to keep a larger share of profit at home.

Rio Tinto is the biggest test case and tensions are rising.

Most of Mongolia's population are unhappy with the big mining projects, said Dale Choi, an Ulan Bator-based associate with Origo Partners (OPP) MGL, a private equity investment firm.

"Locals don't benefit from them directly," Choi said. "The country as a whole benefits, the tax revenue benefits, but the people don't feel it" and are getting more irate, he said.

'Minegolia' Nickname

The gold, copper and coal rush earned the nickname "Minegolia," made the landlocked nation China's top supplier of coking coal, and spawned sushi bars, $3,500-a-night hotel suites and Bayerische Motoren Werke AG car dealerships.

Meantime, Mongolians have flocked to Ulan Bator in search of work. About half the residents in the capital, which is home to almost 50 percent of the population, live in traditional huts known as gers without running water, and some without power. They burn coal in stoves for heat and cooking.

Mongolia's President Tsakhia Elbegdorj said his country should have more control of Rio's Oyu Tolgoi copper and gold mine in southern Mongolia, according to an e-mailed statement from the government yesterday, summarizing a discussion in parliament on Feb. 1.

"It's important that the government takes the Oyu Tolgoi matter into its own hands," according to the statement that cites Elbegdorj.

Rio Considers Halt

Rio -- which owns 66 percent of Oyu Tolgoi, the world's biggest copper mine under construction, and Mongolia the rest -- is considering a temporary halt to work on the mine to protest government demands, two people familiar with the plans said last week.

On at least two previous occasions in the last 18 months, the government has requested Rio renegotiate the terms of Oyu Tolgoi. The miner refused.

"We continue to work together with all stakeholders, including the government of Mongolia, to bring the benefits of Oyu Tolgoi to all parties," Rio Tinto said yesterday in an e- mailed response to questions. "We are now focused on first commercial production. We are on schedule to deliver that in the first half of this year."

Although it's not an industrial hub, Ulan Bator "is among the cities with the worst air quality in the world," according to a 2011 report by the World Bank that cites pollution from the ger stoves.

The circumstances have the elements for a public revolt along the lines of the "Arab Spring" in the Middle East, said Jack Weatherford, an author and anthropologist who has split his life between the U.S. and Mongolia for the last 17 years.

Property Ownership Alien

Mongolia's broader public isn't feeling the benefits of mining investment, said Weatherford, a professor at Macalester College, Minnesota, before he retired.

"People are not convinced it's going to help the country to develop," as concepts such as property ownership and land exploitation rights are literally foreign, said Weatherford, best-selling author of "Genghis Khan and the Making of the Modern World."

"If they themselves have no tradition of owning the land, how do foreigners get to come in and own it?" Weatherford said. "Mongolians go so far and then they stand up and fight."

Protests over the results of the 2008 parliamentary elections killed at least five people and the government invoked a four-day state of emergency.

Moving Goalposts

Mindful of growing public disquiet, the government has delayed a decision on which overseas companies will develop Mongolia's biggest coal field. It has also proposed mining laws to give the public a broader say.

A draft of the laws released in December would give even villagers power to block exploration by miners in their areas, according to Choi of Origo Partners. That will make it tough for all but the largest to operate in the country, he said.

Rio Tinto's Oyu Tolgoi mine, due to start up this year, will account for 30 percent of the nation's gross domestic product once in full production. The deal took six years to complete with Mongolia's government.

The Oyu Tolgoi accord is good for Mongolia and good for Rio, Chief Executive Officer Tom Albanese said Nov. 28, almost two months before he quit following $14 billion of writedowns in failed deals in aluminum and coal.

Disputed Billionaires

Investment has been good for some Mongolians. Odjargal Jambaljamts is chairman of Mongolian Mining Corp. (975) and was the country's richest man with a net worth of $2.3 billion in 2011, according to rankings by local publication Hero magazine.

Hero is "not accurate and not based on grounded information," said Mongolia Mining spokeswoman Ariunaa Baldandorj. Rich lists compiled by U.S. media rely on facts and surveys, while local rankings are "mostly speculative," she said.

Former Prime Minister Batbold Sukhbaatar is fifth on Hero's list with $1 billion from stakes in Altai Holdings LLC, which runs hotels, supermarkets and cashmere outlets. Number eight is current Foreign Minister Bold Luvsanvandan with $800 million from Bodi Group, which spans banking, real estate, media and property development.

A Ministry of Foreign Affairs and Trade spokeswoman said she could not comment on the rich-list rankings. Two phone calls made to the mobile phone of Batbold weren't answered. Questions e-mailed to Altai Holdings, Bodi Group and Batbold's personal website didn't receive a reply.

Coal Pit

While Hero ranked politicians among the wealthiest, the fortunes of some have unraveled in the last year under the administration of Elbegdorj. Former President Nambaryn Enkhbayar was jailed for corruption along with D. Batkhuyag, the former chairman of Mongolia's mineral resources authority.

Back at Sapaar's pit, which is about 40-meters (131 feet) deep and has a one-meter-diameter entrance, his partner is at the bottom shoveling coal into 25-liter plastic containers. There's a tug on the rope and Sapaar winches in the haul.

The pit is one of dozens on the steppe outside of Nailakh, a town on the outskirts of Ulan Bator where coal mining started less than a century ago.

Sapaar and his partner pick a spot, mine it every day, not stopping for holidays or the minus 30-degree winter freeze, and when it's exhausted, move on.

Ordinary People

"Well, this is what we do," Sapaar said, his smile revealing a slash of white teeth against his coal-blackened shirt. "At least in winter being down there is warm. I know it's dangerous. There are no other jobs."

Mongolia may have between 60,000 and 100,000 subsistence miners, according to Patience Singo, manager of the Swiss state- funded SAM project that aids the workers. The figures are from the World Bank and government surveys, he said.

Sapaar's coal travels 40 kilometers to Ulan Bator, where one customer, 50-year-old librarian Ganbaatar, uses it in a stove to heat his ger. Like many Mongolians, Ganbaatar goes by one name.

"Mongolia's economy has grown a lot in the last few years, but it hasn't touched the roots of the lives of ordinary people," Ganbaatar said. "It benefits top business owners and politicians."

Mongolia's resource boom has made little difference to unemployment figures over the last decade, according to a November report by the International Monetary Fund. Unemployment was at 9 percent at the end of 2011, according to a World Bank report in June, based on informal labor surveys. Government figures put it at 4.4 percent in March 2012.

In 2011 the number of people living in poverty shrunk to 30 percent from 40 percent the prior year, but that was mainly due to state cash handouts, the IMF said.

Life & Death

After a string of mine accidents a few years ago, the pits where Sapaar digs were closed by the authorities, which drove up coal prices in the capital, said Singo at the SAM project. The authorities soon allowed mining to resume.

Sapaar's coal output doesn't register in Mongolia's gross domestic product, yet to ger dwellers like Ganbaatar in Ulan Bator, it's the difference between life and a freezing death as annual temperatures average below zero degrees Celsius, the world's coldest for a capital city.

A cluster of five-star hotels and the all-glass Blue Sky Tower on the edge of Ulan Bator's central square suggest the city is setting its sights on becoming the next Asian business hub in the mold of Hong Kong or Singapore.

An office block and mall with boutiques selling Montblanc, Ermenegildo Zegna, and Hugo Boss has opened opposite the Mongolian Stock Exchange and close to the government palace.

Ulan Island

The transformation is all in central Ulan Bator, said Weatherford.

"Today, it's the island of Ulan Bator down here and then there's Mongolia," Weatherford said. The growing wealth gap adds to potential for public unrest, he said.

"Mongolians have completely overthrown the past and wiped out the elite," Weatherford said. "These things have happened before."

In the 1930s, when under Soviet rule and acting on Kremlin instructions, Mongolia's Communists sought out descendants of Genghis Khan and executed them, with the final purges cutting the population by about 10 percent, Weatherford said.

"This country idolizes Khan," he said. "Yet they killed every one of his descendants."

Mongolia's transformation into a democracy starting in 1990 from a Soviet satellite state began a period when those who understood mining and business could build fortunes.

Pothole Point

In 1990 there were about 450 cars in Mongolia, Weatherford said. Now, Ulan Bator alone adds 35,000 vehicles each year, the local government said in a February 2012 report. The city may have more than 210,000 cars, according to official estimates.

On weekends, Ganbaatar the librarian says he watches black SUVs zoom by on the road through his district, No. 16. The road leads to an area known as the valley of the villas where the new rich go for rest and recreation.

The road's two crumbling, potholed lanes intersect newly painted facades of roadside buildings, beyond which the district is made up of gers and wooden huts.

"This is a main road and everyone uses it, but it doesn't get fixed," Ganbaatar said. "I look at them and think: 'If you can't fix the main road, you're never going to fix the side streets and beyond.'"

When it rains in Ganbaatar's district, roads between the nomad huts turn to mud. There is no garbage collection, no sewage treatment, and no hot water, he said.

The air pollution in Ulan Bator from coal-burning stoves causes respiratory and cardiovascular diseases and annual associated health costs have reached $727 million, according to the World Bank. Mongolia's economy is worth about $10 billion.

Roy Orbison

Mortality rates from pollution in ger districts are as much as 45 percent higher than if the air quality met national standards, according to the bank. Ambient annual average particulate matter in the city is six to seven times higher than World Health Organization standards and is worse than in China, the bank said.

The World Bank started the Ulan Bator Clean Air Project to distribute more efficient, clean burning stoves to ger families. Ganbaatar said he threw his new stove away because it didn't properly burn the coal he buys.

In the town of Nailakh near the ninja mines, pensioner Puruvdorj, 73, sits on a bench in a tree-lined alley opposite the statue of communist-era workers' hero D. Davaajav.

Dressed in a navy blue track suit, slippers and playing with his granddaughter, his sunglasses give him a look like Roy Orbison with a crew-cut.

Rivers of Alcohol

Puruvdorj says he's lost faith in government because he's seen no improvement in Nailakh over the last 10 years no matter who was in power. The town, where most make a living in subsistence mining, needs new equipment as the coal reserves close to the surface are being exhausted.

Instead, the government sends cash handouts, which has only encouraged more bars and karaoke parlors, he said.

"There are rivers of alcohol, but no real development."

Subsistence mining in Mongolia is a job of last resort, said Michael Priester, who's been involved in the country for seven years as head of mineral resources at Projekt-Consult GmbH, a German corporate and government advisory business.

When extreme cold in the early 2000s killed off livestock, many herders either moved to Ulan Bator to find work or took up shovels to dig for coal, gold, and other minerals, he said.

"It's for people who don't have other economic opportunities," Priester said. Subsistence mining is practiced in Africa, South America, and other places and may involve as many as 10 million to 13 million people globally, far more than the professional mining industry, he said.

Ninja Thousands

Mongolia's subsistence miners got the nickname "ninja" in the early 2000s. The gold miners carried blue-green plastic washpans slung across their backs and looked like the Teenage Mutant Ninja Turtles characters in the movie, Priester said.

Ninja miners outnumber those working in large mines two-to- one and operate in 18 of Mongolia's 21 provinces, the United Nations said in a June 2012 report. Given that they spend their earnings locally and support their families, they are estimated to support 13 percent of the national population, the UN said.

In rural Mongolia, subsistence miners account for a fifth of the economy, earning an average of $176 a month, or 57 percent more than the country's minimum wage, according to the UN.

No Ladder

Still, ninja mining is a one-way street that doesn't lead to better jobs with bigger companies that rely on machinery for mining, Singo, a mining engineer and a Zimbabwe native, said.

"Most of them don't have the necessary skills to switch over," he said.

Developing an industrial economy is problematic in other ways. The ideas of land ownership and exploitation of what lies beneath it are new concepts in Mongolian culture, according to anthropologist Weatherford. So is selling those commodities to China, a neighbor many Mongolians openly dislike, he said.

The issue came to a head in April last year when state-run Aluminum Corp. (2600) of China Ltd. offered to buy Mongolia's coal producer SouthGobi Resources Ltd. (SGQ) from Ivanhoe Mines Ltd., a Canadian entity now under Rio Tinto control.

'Just Shocked'

"They were just shocked how a foreign country can own something in Mongolia and then without asking the Mongolian people can sell it to another foreign country," Weatherford said. "In this case, because it was a Chinese corporation, it just heightened it."

What the China bid succeeded in doing was uniting rival lawmakers in Mongolia to draw up and pass in two months the Strategic Entities Foreign Investment Law, which scuttled the takeover. Aluminum Corp. gave up on the bid in September.

In June 2012 elections, the public voted in the Democratic Party on policies that included a fairer distribution of wealth, ousting former communists now known as the Mongolian People's Party.

"Our party's goal is to enable every citizen to take part in economic development," Foreign Minister Bold said in an interview in Tokyo on Oct. 2.

The Democratic Party wants shares of state companies that own Mongolia's main mineral deposits to be distributed to all citizens, Bold said.

As Mongolians become owners of their land and resources, there will be motivation in supporting the country's industrial and mining development, and with it foreign investors, Bold said. "It'll change Mongolia dramatically."

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Ninja miners: Four pitfalls for Mongolia's astonishing growth

February 4 (The Washington Post) Traditionally, Mongolian life has been based around herding, with nomadic families sleeping in yurts and tending livestock. That's why it's surprising to hear stories like that of Khorloo, a 65-year-old Mongolian who spends her days digging through the Mongolian steppe with metal detectors and shovels, plucking out the occasional gold nugget after days of scratching in the dirt.

"It took us a week to dig this out," Khorloo told Reuters, holding a nugget that could earn her family as much as $6,000. "But we dug for three years to reach the vein."

Khorloo is one of Mongolia's 60,000 or so "ninja miners" — former herders who took up amateur mining, using whatever rudimentary tools they have at their disposal, amid soaring mineral demand from China. (They're called ninjas because the large green pans they carry on their backs look like turtle shells.)

A former economic underdog, Mongolia is now the world's fifth fastest-growing economy, with an 12.3 percent GDP growth rate that would make today's anemic, Western economies salivate. (For comparison, the U.S. economy is growing at 1.7 percent.) Like many other Central Asian countries, Mongolia is growing rich from selling minerals to China. According to a report by the Associated Press, Mongolia sends 90 percent of its exports to Chinese markets, and the two-way trade with Beijing makes up 75 percent of Mongolia's economy.

But several recent reports indicate that Mongolia's economic success story may turn out not to be all that it seems. Here are four ways its meteoric growth could go awry:

1. The Ninjas: Though they sound like some sort of ore-hunting SWAT team, the herders who have recently sought their fortunes in freelance mining are actually a bit of a drag on the mining economy. Not only do they not pay taxes, notes Morris Rossabi in Foreign Affairs, they also contribute to prostitution, gambling, and other illegal activities. And the herders who have resisted mining complain that mining companies have undermined their way of life, forcing them to migrate.

2. Becoming too dependent on China: Because China has fueled so much of Mongolia's growth, there could be scary repercussions as China's economy slows. China's demand for Mongolian minerals has already slumped somewhat, and most analysts say Mongolia needs to diversify its economy away from just one main trading partner.

Granted, Mongolia has pushed back against Chinese influence, even going so far as to lay railroad tracks at a gauge that makes it impossible for them to connect to Chinese rails. China and Russia are now each limited to a third of Mongolia's total foreign investment, and Mongolia has been attempting to foster partnerships with the United States, the European Union and Japan in order to hedge against Beijing and Moscow.

"We will not be another Africa," Ganhuyag Ch. Hutagt, a Mongolian banker and former vice finance minister told the AP. "We cannot afford to have one particular nation control our businesses."

3. Its mines have been plagued by problems: Mongolia's "resource nationalists" have made it difficult for mining projects to get off the ground. Nationalist policymakers worried about foreign influence over Mongolia's resources want to amend the agreement on Oyu Tolgoi, a massive copper mine, so that Mongolia gets a bigger share. Last week, Rio Tinto Group, a British-Australian mining giant that owns the majority stake in the project, said it was considering a temporary halt to construction work at Oyu Tolgoi because of Mongolia's demands for a larger share.

Mongolia's massive coal mine in Tavan Tolgoi has also suffered a number of setbacks. In July, the Mongolian government withdrew a decision to hand mining rights in Tavan Tolgoi to a consortium consisting of China's Shenhua Group, U.S.-based Peabody, and Russian Railways, saying Mongolia might develop the mine on its own. In the past few weeks, tensions between China and Mongolia have escalated after Erdenes-Tavan Tolgoi halted coal exports to China and threatened to cancel a coal-supply deal, with Mongolia's ambassador to Beijing telling The Wall Street Journal that the pricing terms of the deal were "unacceptable in the sense of normal international trade."

4. Mongolia is still pretty corrupt: Transparency International ranks Mongolia as 80th most corrupt of 182 countries — not as bad as 62nd most corrupt in 2011, but still not great. Inequality is on the rise, and it's hard to tackle because independent groups suspect the government is falsifying the country's true poverty numbers (which are already astonishingly high, at somewhere between 29 to 39 percent), Rossabi points out.

Either way, this is hardly the sort of environment where dramatic, sudden economic growth can be expected to improve quality of life for most citizens.

Or as Sumati Luvsandendev, the director of a polling organization in Ulan Bator, told the Guardian recently: "Our society worries that things are not going that well in terms of social justice, that there is a growing gap between rich and poor, and that there is an oligarchic class."

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"Mogi" Munkhdul Badral

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