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Monday, February 4, 2013

[Rio/Mongolia "showdown" set for February 6, Bank of China opens UB rep office, and search continues for Mongolia's missing dinosaur in UK]

CoverMongolia NewsWire

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Blue Wolf Mongolia Countdown: 77 days left till liquidation

 

OYU TOLGOI SHAREHOLDERS' MEETING SCHEDULED ON FEBRUARY 06

February 1 (InfoMongolia.com) On January 31, 2013, authorities of the Ministry of Mining of Mongolia led by its Minister D.Gankhuyag have called a press conference regarding the upcoming meeting between the Government of Mongolia and representatives of the Rio Tinto Group.

In the statement it was mentioned that the Government of Mongolia, by forming a working group that obliged to solve urgent issues aroused during the implementation of Oyu Tolgoi project, monitor on Agreement implementation and follow regulations issued by the Parliament of Mongolia, besides to clarify some articles in the Oyu Tolgoi Investment Agreement, and as a part of continuing negotiations with investors, has decided to host a Oyu Tolgoi LLC shareholders’ panel meeting with officials of the Rio Tinto Group on February 06, 2013.

In the scope of the meeting parties will be discussing the reasons of why the primary investments have been increased by 2.3 billion USD that was first negotiated to be 4.4 billion USD, also to include Mongolian representative in executive board members, and give priorities to Mongolian companies to get involved as suppliers.

Also, during the press conference it was said that the working group is conducting to re-determine the portion of state-owned shares on strategically important mines, renew the boundaries and preparing a new list of strategically important mines, to add another potential 30 mines to current 15 strategic mines.

Link to article

 

Mogi: even the President has joined forces with the rest. Looks like Rio managed to piss off everyone around here, and I have to say, they might have a point.

Ts.Elbegdorj: Time for Mongolia to take Oyu Tolgoi matter into our own hands

February 4 (UB Post) The President of Mongolia Ts.Elbegdorj has made a statement regarding the need for greater transparency and improved management of the Oyu Tolgoi Project. His statement was made at the open parliament meeting on Friday where he listened to the issues regarding Oyu Tolgoi presented by government officials.

The president noted that there are fifteen issues in relation to the Oyu Tolgoi mine that have to be addressed. He emphasized that the transparency and financing issues of the Oyu Tolgoi Project are getting out of hand, and that the company managing the project, Turquoise Hill Resources, is not informing the government of its intentions and operations.

The Mongolian government has yet to approve the spending plan for Oyu Tolgoi for 2013. The reason for the delay is because Turquoise Hill Resources, formerly Ivanhoe Mines, which owns 66 percent of Oyu Tolgoi, exceeded the initial spending plan of 5.1 billion USD by 2 billion USD, or 47 percent, in 2012.

The Executive Director of Erdenes Oyu Tolgoi, which manages Mongolia’s 34 percent stake in the Oyu Tolgoi, Ts.Sedvaanchig, informed the meeting participants that the reasons for the increased expenses were released by Turquoise Hill Resources only in December 28, 2012, after many requests for the information.

As the Mongolian government owns 34 percent of the project, it must also contribute to the costs. The Mongolian government has acquired an 8 percent interest loan to contribute its share of the project. On December 31, 2012, Mongolia made a payment of 705 million USD on the loan.

According to the government task force devoted to auditing Oyu Tolgoi, which is led by the Mining Minister D.Gankhuyag, Anglo Australian mining giant Rio Tinto, the major stakeholder of Turquoise Hill Resources, intends to raise 6.6 billion USD this year for Oyu Tolgoi. From the raised capital, 4.4 billion USD will go back to Turquoise Hill Resources on the grounds that this was the amount invested by the company in the past, while 2 billion USD will be used for the project operations. Furthermore, the company has informed the task force that they need additional capital of 5.1 billion USD.

President Ts.Elbegdorj noted that Rio Tinto shouldn’t be making such decisions and that the investment agreement does not allow this. Furthermore, even if such actions were allowed, Mongolia would have to pay its share of the raised capital of 6.6 billion USD, even if Rio takes back 4 billion USD for itself.

The initial estimate for the underground mine’s financing was 14.6 billion USD, but the company is planning to spend 24.4 billion USD. The expenses are 9.8 billion more than the estimates, this must be addressed,” said the president. “The investment agreement is that the initial investment will be used to produce ore concentrates and the commercial profit will be used for operation expenses. There was nothing about raising around 7 billion USD more, from some other source, and the company taking back its expenses from the investment and leaving. The time has come for the Mongolian government to take Oyu Tolgoi matters into its own hands,” said President Ts.Elbegdorj.

The president said that Mongolia must take its rightful place in Oyu Tolgoi and that it is not satisfactory that Mongolia has a 34 percent stake in the project but is excluded from the project and does not know what is taking place.

Firstly, there needs to be someone on their managing board to represent Mongolia, as well as Mongolian representatives in all the critical departments. Secondly, the project operations need to be audited and reported – they must be transparent – but at the moment they are not. The government and parliament ask for information but the company delays its reports for months at a time. Mongolia has laws and they need to be abided by. The third issue is the participation of domestic businesses. The issue has been left unaddressed. Mongolian businesses need to participate. Besides investment, Mongolian businesses can be formed by the thousand to provide services and supplies. Mongolians need jobs and salaries,” the president said.

Furthermore, the manner in which Turquoise Hill Resources selects suppliers needs to be transparent and Turquoise Hill must report whether the suppliers are domestic or foreign, and must report the amount of money changing hands.

Another major issue noted in the meeting was the matter of management costs and resource fees. The president observed that 6 percent of the investment is used to pay the salaries of those in management positions in Oyu Tolgoi. This is 2.5 times higher than the international rate. President Ts.Elbegdorj said this is unacceptable, especially because Mongolia only gets 5 percent in resource fees.

The government approved 153 million USD for Oyu Tolgoi management expenses by January 31, 2013, but the company in fact spent 321.4 million USD on management expenses by that date. The president commented that, “Due to irresponsible management, the company’s expenses have increased. Our auditing evaluation has revealed that this is a billion dollar issue.”

Another issue raised was the matter of employment of Mongolian nationals. According to the agreement made with the government, the company promised to ensure that 90 percent of its employees are Mongolian, but at the moment the number of foreign employees exceeds the number of Mongolians by 368. Furthermore, the wages of foreign employees are almost double the wages paid to Mongolian workers in the same positions, which is against the law.

The president also said that all financial transactions of the project should go through Mongolian banks since every other company does this, except Rio Tinto. “Since they operate in Mongolia, they should contribute to the nation’s development,” he noted.

President Ts.Elbegdorj also noted the logistical issues related to the Oyu Tolgoi mine, such as transportation. Turquoise Hill has begun producing ore concentrates, and soon they will need to export it, but they do not have railways or roads to do this. The president said they need to be urged to quickly build the transport routes that are necessary.

Another issue noted by the president was the matter of the power supply to the project. Last year, Turquoise Hill made a deal with China to import power, but this is only a temporary solution. The president suggested that a power station be built in Tavan Tolgoi and that Turquoise Hill should receive its power from there. He added that, if it so wishes, Turquoise Hill could take part in the power-supply project, but own no more than 51 percent.

Other issues, such as Turquoise Hill’s promise to build a copper factory, as well as environmental issues relating to the water supply, and issues relating to the development of the town of Khanbogd were also noted by the president.

The president stated that he would include all the issues discussed at the meeting in the new draft Mineral Law. “We must learn from the mistakes of Oyu Tolgoi. Mongolia has laws and they must be upheld. They must realize that they cannot just take our wealth and go. They must realize that they are investing in a country with laws. … There are more valuable things in Mongolia than just minerals and Oyu Tolgoi. Oyu Tolgoi should help Mongolia prosper, not leave it with a scar . There is no need to spread bad reports of Mongolia. Currently, foreign investment companies have breached the law themselves.”

Link to article

Related:

IF THE OYU TOLGOI INVESTMENT IS IMPORTANT FOR RIO TINTO, LET’S  DISCUSS HERE IN MONGOLIA, SAID PRESIDENT TS.ELBEGDORJInfoMongolia.com, February 4

 

Independent inspection laboratory on Oyu Tolgoi copper concentrate export sets up

February 4 (Business-Mongolia.com) The Cabinet meeting of Mongolian Government was held on February 1, 2013, made a decision to set up independent inspection laboratory on Oyu Tolgoi copper concentrate. The fully dedicated and state-of-the-art laboratory will perform sampling and testing and it will be established under Central Geological Laboratory, which has proper laboratory premises and latest equipments, considered to reduce cost and avoid building new lab with overlapped services.

The comprehensive Oyu Tolgoi Investment Agreement took effect March 31, 2010, following confirmation by the Government of Mongolia that procedural and administrative conditions contained in the Investment Agreement had been satisfied within the allocated six-month period that has followed the agreement’s official signing in October 2009. On October 6, 2009, Turquoise Hill Resources and Rio Tinto signed a long-term, comprehensive Investment Agreement with the Government of Mongolia for the construction and operation of the Oyu Tolgoi copper-gold mining complex. In March, 2010 Rio Tinto has signed a binding agreement with a Chinese power company for the supply of electricity and became ready to produce and export copper concentrate.

It is crucial in this stage that an independent laboratory to verify copper and gold samples and to perform the export consignment sampling and testing to ensure complete independence from the mine operations management, to analyze contents of other elements and minors by using the existing facility. Hence, concentrate sales, sales revenue, tax revenues, cost and expenditure and dividend yield will be rational and efficient.

Link to article

 

A shareholders’ meeting is scheduled on 6 February

Rio Tinto faces tough talks in Mongolia over giant mine

* Mongolia concerned about soaring project costs at Oyu Tolgoi

* Negotiations are a test for new Rio Tinto CEO

* Mongolia looks to step up state ownership, taxes on mines

By Terrence Edwards and Sonali Paul

ULAN BATOR/MELBOURNE, Feb 1 (Reuters) - Rio Tinto faces tough negotiations next week in Mongolia, where the government is under pressure to plug a budget deficit and increase its share of the wealth from the $6.2 billion Oyu Tolgoi copper and gold mine.

Oyu Tolgoi, 34 percent owned by Mongolia and controlled by Rio Tinto, produced its first concentrate this week and is on track to start supplying metal and paying royalties by June.

The success of the mine is crucial for both sides as, at full tilt, Oyu Tolgoi will account for nearly a third of Mongolia's economy, while Rio Tinto is depending on the mine to drive growth beyond its powerhouse iron ore business.

Rio Tinto is not expected to have to give up a bigger share of the mine, but some analysts say it could end up agreeing to provide more funding in areas like infrastructure to remove uncertainty over a project that is expected to produce 425,000 tonnes of copper and 460,000 ounces of gold a year.

Rio Tinto and its subsidiary, Turquoise Hill Resources Ltd , last year fended off an attempt by Mongolia to renegotiate their 2009 investment agreement on Oyu Tolgoi.

The government is drafting a law that would require Mongolians to hold at least a 34 percent stake in mines, however talk that this would apply to Oyu Tolgoi has died down.

Instead, there is speculation the government may press Rio for more funding outside the agreement, which includes a 5 percent royalty on all sales, as Mongolia faces a revenue squeeze despite being touted as the world's fastest growing economy as recently as 2011.

"It looks as if the government of Mongolia will run a large budget deficit in 2013," said Nick Cousyn, chief operating officer at BDSec, an investment bank in Mongolia.

"How they will close this gap is anyone's guess, but we think unilaterally changing the OT agreement is off the table," he said.

UPPER HAND

In meetings scheduled for next week, the government could question why project costs have blown out, raising concern that Rio Tinto may want to slow development due to the steeper costs, as it has done with other major capital projects.

Rio Tinto executives in Ulan Bator and a spokesman declined to comment on the upcoming talks.

Turquoise Hill last year put the total project cost at $13.2 billion, including developing an underground mine and sustaining capital costs, up from a 2010 estimate of $9.55 billion.

A Bloomberg report this week said Rio was considering a temporarily halt of construction to protest against demands by the government for a bigger stake in the project and new royalty rates.

In response to the report that cited two unnamed sources, Rio Tinto said it remained on schedule to start selling ore from the mine in the first half of the year.

One analyst said the firm may be considering delaying the project's second stage to build an underground mine, but others said it was unlikely to hold up the expansion for too long.

"It's not going to kill the project off because it's a cracking asset," said Hayden Bairstow, an analyst at CLSA.

The feasibility study for the underground mine is due to be finished in the first half of 2013. Construction was estimated last year at $5.1 billion.

ANOTHER WRITEDOWN?

Rio Tinto's latest battle in Mongolia poses a challenge for its new chief executive, Sam Walsh, who replaced Tom Albanese in January after the firm reported $14 billion in writedowns in aluminium and coal.

Walsh may want to smooth relations with the government rather than play tough to ensure that the firm does not have to keep fighting off a clamour for greater Mongolian ownership, CLSA's Bairstow said.

"When it's effectively a third of GDP, getting the entire country offside isn't a go-forward position that's going to work," he said.

If the firm bowed to some of the government's demands and as a result had to take a small writedown, the market may be forgiving, as it would remove uncertainty, Bairstow said.

The talks with Rio Tinto are part of a wider effort by the government to squeeze more out of the mining industry.

At a meeting on Friday, Mongolian miners complained about the proposed new mining law that would impose taxes on exploration and step up local ownership of resources to as much as 51 percent.

Though one of the aims of the law is to make sure resources stay in Mongolian hands, some local miners are just as worried over the legislation as foreign counterparts.

The proposed law includes heavy fines and could even have a company's licensed land revoked by the government, said Enkhsaikhan Batmunkh, director general of Magma Mines.

Another concern is that if the state owns 51 percent of a firm, it will be tough to raise money via a public listing.

But while Mongolians recognised the need for foreign investment, "What's under the ground belongs to them like the sky," said Namgar Algaa, executive director of the Mining Association.

Link to article

Related:

Rio Tinto Denies Plans To Halt Development Of Oyu Tolgoi Copper And Gold Mine In MongoliaInternational Business Times, January 31

 

Oyu Tolgoi produces first concentrate

TORONTO, February 1 (miningweekly.com) – Canada-based miner Turquoise Hill Resources (TSX:TRQ, NYSE:TRQ) on Thursday announced that its 65%-owned (Mogi: 66%) Oyu Tolgoi copper/gold project, in Mongolia, has produced its first copper/gold concentrate after it processed first ore through the concentrator in early January.

The start of concentrate production signalled that production ramp-up is expected to achieve commercial production rates within the next three to five months.

"Oyu Tolgoi continues to progressively ramp up the mine and the production of first concentrate is another important milestone. We are making good progress on our timetable leading to the start of commercial operations," Turquoise Hill CEO Kay Priestly said.

Turquoise Hill Resources celebrated the commissioning of the Oyu Tolgoi mine’s concentrator on December 27, 2012. Activating the concentrator’s ore-processing circuit for the first time commemorated the occasion.

Oyu Tolgoi, which is 66% owned by Turquoise Hill and parent Rio Tinto and Erdenes Oyu Tolgoi, which owns the remaining 34%, has the mineral resources to become one of the world’s top three copper/gold producers. The project entails the construction and operation of an initial concentrator facility that will process 100 000 t/d of ore (36.5-million tons a year). By the end of the fifth year of operation, the concentrator will be expanded to a capacity of 160 000 t/d (58-million tons a year).

Under the common start-up plan, ore will initially be sourced from the openpit mine on the Southern Oyu deposits, while the adjacent higher-grade underground mine on the Hugo North deposit will be developed to full production of 85 000 t/d.

The mine is expected to produce more than 1.2-billion pounds (544 000 t) of copper, three-million ounces of silver and 650 000 oz/y of gold in the first ten years of operation and, seven years later, at its peak it is expected to produce about 1.7-billion pounds of copper and one-million ounces of gold.

Link to article

Link to TRQ release

 

SouthGobi’s Justin Kapla story

MINN. BUSINESSMAN BANNED FROM LEAVING MONGOLIA

MINNEAPOLIS, January 31 (AP) – An American businessman who says he is being prevented from leaving Mongolia, where he is considered a potential witness in a corruption case, has asked for help from the congressional delegation in his home state of Minnesota.

Justin Kapla is president and executive director of SouthGobi Sands LLC, a Mongolian mining company. He asked delegation members for assistance in lifting his travel ban, which he said was imposed because investigators consider him a witness in a corruption investigation of government officials involving the transfer of some of his company’s minerals exploration licenses.

In an email exchange with The Associated Press, Kapla declined to talk on the record. He referred questions to his father in Minnesota, William Kapla, who provided a copy of his son’s letter to Sens. Al Franken and Amy Klobuchar and Rep. Michele Bachmann.

They’re all working on it. All three of their offices are great,” William Kapla, 72, of Forest Lake, said this week. He also said the U .S. Embassy has been talking to Mongolian officials.

Justin Kapla, 39, wrote that the events in question happened well before he went to work for SouthGobi Sands. He said the Mongolian agency conducting the investigation, the Independent Authority Against Corruption, has acknowledged that but told him he still couldn’t leave because it would need to hold someone responsible if the investigation finds any wrongdoing by the company.

William Kapla told AP his son grew up in Elk River, is married to a Mongolian woman and has two children, all of whom are with him. He said his son is free to work and move around Mongolia but can’t leave.

“Would you want to sit in a country with an exit ban so you couldn’t leave? What if an emergency happened at home?” William Kapla said.

Mongolia’s economy is in the midst of a mining boom that has been criticized as benefiting foreigners and the connected few. A new government was elected last year, promising Mongolians greater benefits from the country’s mineral wealth.

Justin Kapla’s company has seen its standing with the government erode. Last spring, SouthGobi Resources Ltd., the parent company of SouthGobi Sands, tried to sell a controlling stake to China’s state-run Aluminum Corp. of China. The move would have effectively given the Chinese company control of a large coal deposit. It was dropped amid opposition from a government long fearful of economic dominance by its large southern neighbor.

Amid the ferment, the anti-corruption authority began investigating the government’s Mineral Resources Authority and its former chairman, Dorjpurev Batkhuyag, an adviser to a former prime minister whose party lost power in the June election. Batkhuyag was accused of bribery and other corruption. He was convicted this week and sentenced to 6 1/2 years in prison.

Among Batkhuyag’s misdeeds, the authority alleged, were dealings with SouthGobi Sands. Five of the company’s licenses were to have been suspended because the company failed to spend sufficient funds exploring the areas, but instead Batkhuyag’s office returned most of the licenses to SouthGobi and transferred one to a private Mongolian company controlled by friends.

Klobuchar’s office said it is working with the family and the U.S. Embassy in Mongolia but declined to provide further details. Franken’s office said it has also been in touch with the family. In Washington, a State Department official said the agency was aware of Kapla’s case and providing appropriate consular assistance to him. The official spoke on condition of anonymity because he was not authorized to discuss the matter publicly due to privacy concerns.

Mongolia’s anti-corruption authority declined public comment on Kapla or when the exit controls might be lifted.

Kapla’s case was first reported by Jon Springer, a freelance journalist and financial blogger.

---

AP reporter Ganbat Namjilsangarav contributed to this story from Ulan Bator, Mongolia; AP reporters Jeff Baenen and Amy Forliti contributed from Minneapolis.

Link to article

Related:

Mongolia Bars SouthGobi’s U.S. Chief From Leaving CountryBloomberg, February 1

 

Mogi: no update on its strategic deposit consideration matter?

MEC: BUSINESS UPDATE

The selection of a coal extraction contractor is in the final round of negotiation and the foundation work of the dry coal processing system was completed in January 2013.

January 31 -- Mongolia Energy Corporation Limited (the “Company”, HKEx:276) refers to its announcement dated 5 November 2012 (the “Announcement”) and the recent interim report released on 14 December 2012. 

As disclosed in the Announcement and the interim report, the commercial coal production of our Khushuut Coal Mine has been halted for the  time being, and the resumption will depend on, among others, the selection of a suitable coal extraction contractor to perform the coal extraction work and the improvement of our coal processing issues by the installation of a dry coal processing system. 

MoEnCo LLC (“MoEnCo”), our indirect wholly owned subsidiary, is in the final round of negotiation with two potential contractors for the provision of  coal extraction work and the process is at an advanced stage. MoEnCo is discussing the commercial terms of the services with the potential contractors and hopes to finalize the process as soon as possible.

During this period, the mining operation on the Khushuut Coal Mine is still continuing, though in a smaller scale, for the preparation works such as stripping of the top soil and extraction are underway. MoEnCo has hired the excavators, dozers, loaders and other necessary equipment from the equipment providers and operates them through MoEnCo’s own operation team on site of the Khushuut Coal Mine. 

As disclosed previously, the dry coal processing system will enhance our coal quality in the coal screening process; otherwise, our coal haulage and operation costs will remain expensive in our commercial production. The foundation work of the dry coal processing system was completed in the middle of January 2013. MoEnCo is waiting for the evaluation results on the structural integrity of the foundation work before proceeding to install the dry coal processing system on the Khushuut Coal Mine. 

The Company will further update the development of the Group by further announcement as and when the Company deems necessary.

Shareholders of the Company and potential investors are advised to exercise caution when dealing in the shares of the Company.

Link to release

 

MRC: DECEMBER 2012, QUARTERLY ACTIVITIES REPORT

January 31 --

During the quarter Mongolian Resource Corporation Limited (MUB) has spent a total of US$677,000 on operations in Mongolia and maintaining the corporate headquarters in Australia.

The  company had a total of US$328,000 cash remaining at the end of the quarter with budget costs expected to be approximately US$290,000 for the first quarter 2013. Reductions to meet this reduced quarterly budget are in progress.

MUB received an offer in the form of a subscription agreement to provide A$589,000 by way of issue of 5,890,000 new shares at 10 cents per share from AR Management Co Pty Limited. The Board is currently reviewing this subscription offer.

The company is currently seeking further finance and is discussing project financing with banks and private equity holders to continue its operations. The mining business climate for Mongolia has become more difficult and this procedure is taking longer than anticipated.

During this period, costs were incurred on completion of the 2013 Mine Plan for submission to government and for completion of the exploration works to remain compliant with the government on licensing regulations.

The company shares during the quarter ranged from A$0.07-0.085 cents ending at a high of A$0.085.

Late in this quarter, Sujigtei Gold Project was put on care and maintenance for the winter period, with staff and overhead costs reduced accordingly. During this period, and subsequently, MUB continues to review its ongoing financing options.

Continued delays in the Sujigtei EIS approval which includes the permission for cyanide operations, continues to hamper the company moving forward. Resolution no. 154 issued by the National Government in 2009 Law for the Prohibition of Mineral Exploration in Water Basin Areas and Forest Areas  (the so-called “long name law”) restricted some mining and exploration activities in 254 license areas of Mongolia.

Gunbileg Gold LLC the subsidiary of MUB and holder of the  Sujigtei Project was granted an exemption from this resolution. In recent times, a second resolution No. 194 was issued in 2012, to expand  upon  the area covered under  the  first river and tree resolution. This new resolution introduced by the former Government just prior to election,  could impact  on a much larger  number of the license holders in Mongolia including the Sujigtei license. Clarification of this latest resolution is still being sort by MUB and most other foreign companies on how, or if, this resolution will be implemented. 

The issue  of EIS grant for MUB’s Sujigtei Project is  also still currently awaiting the approval for the cyanide operations section, and is confused by the fact that MUB has been granted EIS approval for its Blue Eyes Mine. This processing plant is a common plant for both the Blue Eyes and Sujigtei mine operation and its approval at Blue Eyes but not Sujigtei is being discussed currently with the Government Authorities. A review of all the company’s licenses was conducted in this quarter and the Minerals Authority reconfirmed that all licenses of MUB are in good standing.

The company is active on finalizing the mine plan for submission to the government for 2013 and this will be lodged in the first quarter of 2013 for approval.

Mining consultants,  Mr  Wojciech Ozgaand Mr Krzysztof  Biegaj from Ausvac Miningwere engaged by AR Management Pty Ltd (a major shareholder of MRC), and visited the site this period to assess and re-define all options for the company going forward on production and provided a review of the best development plan. These consultants have more than 50 years of mining experience.

Completion this quarter occurred of the relinquishment of the Greenfield’s Australian tenements. This helped the company conserve its cash position with minimum yearly commitments of more than US$750,000 being required to maintain the licenses. The licenses had low prospectivity compared to the Mongolian properties.

Link to release

Link to cashflow report

 

Cash at hand at end of quarter A$924K

Newera: QUARTERLY ACTIVITIES REPORT

January 31 -- Newera Resources Limited (ASX: NRU) is pleased to provide the following report on its activities for the previous quarter;

HIGHLIGHTS:

§  Newera completed phase one of the drilling program at the Shanagan Coal Project in Mongolia.

§  Core samples from the Shanagan Project were sent to SGS Laboratory in Mongolia for analysis and results have been received.

§  Newera commenced and completed a short  phase  two drilling program at the Shanagan Project.

§  Newera sent core samples from drillhole SHDH25 for  initial washability testwork.

§  Ongoing evaluation of suitable exploration projects.

§  Subsequent to the end of the reporting period, the following announcements were made to the ASX:

02/01/13    Drilling success continues at Newera’s Shanagan East Coal Project in Mongolia (Drilling and sampling results).

18/01/13    Analytical results continue to indicate a high ranking black coal at the Shanagan East Coal Project in Mongolia (Drilling and sampling results).

Link to report

 

GMM: QUARTERLY ACTIVITIES REPORT DECEMBER 2012

January 31, General Mining Corporation Limited (ASX:GMM) --

Mongolia

Uvs Basin Projects  (Coal, potash & lithium - GMM 100% & potentially earning interest in additional licences) & Khangai Project (Base metals - GMM 100% or earning 60%)

The Company continued to review its options with respect to the Mongolian projects. 

An option over one licence (15206X) in the Khangai fault project area was allowed to expire.  

Link to report

Link to cashflow report

 

NAR completes $60 million convertible bonds & promissory notes placing

February 1, North Asia Resources Holdings Limited (HK:61) --

The Board is pleased to announce that, subject to the conditions of the Placing Agreement, the Placing Agent has successfully procured 17 Placees to subscribe for the Convertible Bonds and the Promissory Notes both in an aggregate principal amount of US$30 million (equivalent to approximately HK$234 million) respectively during the Placing Period. The Placing Period ended on 31 January 2013 and no further extension has been made.

Placee A, a wholly owned subsidiary of a company listed on the Stock Exchange, has conditionally agreed to subscribe for the Convertible Bonds and Promissory Notes both in an aggregate amount of US$7,000,000 (equivalent to approximately HK$55 million) respectively at their face values. Accordingly, the subscription of the Convertible Bonds and Promissory Notes by Placee A is, inter alia, subject to the approval of the shareholders of its holding company at a special general meeting. Placee A and its holding company are principally engaged in the manufacture and sales of coal, international air and sea freight forwarding and the provision of logistics services as well as trading of securities.

Link to release

 

IPO’s, Liquidity, Bonds and Banking in Mongolia

January 31 (Capitalist Exploits) Given our bullishness on Mongolia and our trusted relationship with Eric Zurrin from Rescap Securities, we wanted to reach out and get Eric’s current thoughts on the Mongolian equity market, liquidity, banking and upcoming deal flow.

Pertinent to this post was something that happened after our interview with Eric. Mongolia’s central bank cut interest rates for the first time since 2009 after determining that the outlook for inflation is benign and to support growth. The Bank of Mongolia reduced it’s policy rate to 12.5% from the previous 13.25%.

This should be bullish for Mongolian equities, and lends support to our bullish call from earlier in the month.

So, enjoy the interview; as usual Eric didn’t disappoint.

——–

Mark: Eric, liquidity is still an issue on the MSE. Given that fact, what’s the current deal flow pipeline look like for domestic equities?

Eric: Lack of liquidity in listed MSE stocks has been an ongoing issue for the exchange. This is one of the key requirements for new investors (largely foreign) to consider prior to making an investment. As a result, the investor demographic on the MSE is overwhelmingly retail. The liquidity is adequate for retail investors but institutional investors to date have not had the ability to buy into the market without significantly distorting prices.

As this is an identified issue, it is also a priority that the London Stock Exchange (MSE’s partner) has at the top of its list to address. I understand that the LSE will tier listed companies according to minimum thresholds (ie liquidity being one of those) which I hope will improve the situation, but this will take time.

The deal pipeline on the MSE as a result has been somewhat dictated by the existing constraints: large offerings are non-existent because they can’t attract institutional money which means the funds cant be raised. The deals that we are seeing (that actually get done!) are those that have a liquidity profile and corresponding dollar size that fit the constraints of the MSE. One such deal that we are in the final steps of completing is the reverse takeover by Eurofeu Asia LLC.

Mark: Yeah, you guys have been working very hard to push through Eurofeu, which is the first reverse merger listing in Mongolia. We’ve been tracking that pretty closely. (Note: In full disclosure to our readers, Chris and I will be buying a position in Eurofeu, pre-IPO from the broker, as will our CPAN members.) What have you learned from that process, and will you be looking to do more of these?

Eric: The Eurofeu RTO (reverse takeover) has been an interesting process to be part of. We had the first formal shareholder meeting (of the shell company) in April 2012 and submitted our application to the FRC at the end of May. Here we are in January 2013 consummating the transaction and effecting the listing.

I have completed RTOs on international exchanges in the past. Incredibly, the required steps in having this one done in Mongolia are not at all different than say on the TSXV. Audited financials, shareholder approvals, listing document, regulatory review and approval and finally listing; it has been the required time to navigate locally which has been surprising. Interestingly enough, the listing document that we submitted to the FRC (Financial Regulatory Commission) in Mongolia was 263 pages (all Mongolian) vs an Offering Document to the TSXV that is much shorter.

Seeking out attractive, high-quality, private companies in Mongolia that are interested in listing (and raising capital…ie the basis of being listed) is something that we will continue to do. We have been in discussions with another private company in Mongolia, non-resources, 20+ years experience in the consumer products space (ie dairy) that has been exploring the idea of listing with us through RTO; we hope to bring that to investors in 2013. In fact, you and Chris accompanied us to the dairy operation during your Meet Up in Ulaanbaatar last July.

Mark: Yes, that was a very interesting, and smelly site visit!

Eric: (Laughs)

Mark: Free float is a very misunderstood thing on the MSE. For example, APU, the largest beverage producer in the country has a free float of 7%. Frankly, if the MSE wants to evolve and see liquidity again this will have to change. When Eurofeu lists, how can investors be sure that the stock remains liquid?

Eric: The success of an issuer is related to a number of factors, not simply limited to liquidity. It’s also company marketing, trading support, research, strong company results(!), sound management, good governance, free float (linked to liquidity), etc.

Many of the currently listed companies on the MSE have some but not all of the above characteristics. As Eurofeu comes to list and begins its life as a publicly-traded company, our objective is to assist and monitor all of the above ‘requirements’ of a successfully traded public company. Many of these factors are within our control and with our experience of listing companies internationally over the last 10 years, I think Eurofeu has the chance of a much stronger start as a listed company versus others on the MSE (and may even become the “one to own” in 2013).

Mark: Eric, You have a robust team of locals who have sourced some very exciting deals, though due to bureaucracy of various kinds it takes months do to an RTO or even an IPO. When passed, how will the Securities Law fix the inefficiencies in the system? Will we see a new, streamlined process for listing?

Eric: The ResCap team comprises a great group of individuals each bringing different strengths. We have spent a good deal of time over the last 2 years looking at various private companies in Mongolia as potential candidates for public listings. We are governed by the existing Securities Law (which is expected to be upgraded in the short term based on principles adopted from the London Stock Exchange) and as a result the process for listing companies is long and not well understood in Mongolia. However, this is changing. While the listing of Eurofeu has taken the better part of the last year to complete, ResCap Securities has been through the process and understands where it can become more efficient.

I expect the new Securities Law will theoretically have all of the right components (ie addressing minimum free float, independent directors, ongoing company disclosures, etc) to make the MSE an efficient trading venue, but it will take time to incorporate and expectations need to be managed.

Mark: It is no surprise to those of us focused on Mongolia that lending is expensive, 25+% in some cases. So when companies need capital it is absurd for them to go to a bank. With the passage of the securities law I have to assume that the corporate bond market will blossom, whether anyone wants to buy the paper is a different story. How could this potentially impact the MSE? Will people prefer debt over equity?

Eric: We have to note the difference between the bank lending market and corporate bond market. The headline rates that we have come to see in the past have been upwards of 25% (or higher), and as a result have constrained some of the ability of good projects to obtain financing. However, I would caution that on a risk adjusted basis, a 25% rate for illiquid, private opportunities may not always be unreasonable compared with the implicit cost of equity capital for the same project being much higher. The banks have protected themselves against risk as well as inflation, which is in the low teens (25% is a local currency rate).

The MSE has been upgrading its identity to include corporate debt trading. This has actually been a large dollar amount of issuance (ie tens of millions of USD), but it has nearly all been absorbed by the local commercial banks, and the issuer has been the government. I understand this is the starting point of the treasury management in country.  Corporate issuers are beginning to consider the local bond market, but again the liquidity and institutional depth is still an issue for them in being able to raise large enough pools of capital.

I expect the bond market will develop but again this will take time. One of the barriers to the bond market blossoming is around risk appetite: investors that we typically know who are seeking Mongolian exposure, are attracted by the risk/reward profile and usually see the balance of probabilities in the favour of outsized returns. A capped, single digit (or low teen) yielding corporate bond on the MSE may not be enough to entice foreign investors to participate, particularly in the face of similar (if not higher inflation rates) resulting in negative real returns.

Mark: The government recently auctioned off US $1.5 billion in bonds at (comparatively for Mongolia) really low interest rates. The offering was massively over-subscribed, so I guess it was a major success no matter how you look at it. Yet we think the success is more a statement of the lengths that money managers will go to for yield these days. This all just seems a bit surreal to us. What’s your take on it?

Eric: Without a doubt, the closing of any US$1.5 billion transaction is a success. This was a very large amount of money raised in a short amount of time, and it is commendable. The drivers behind this success should be looked at in closer detail and I believe that you have identified the most important one already – capital flows.

A Mongolian financing of US$1.5 billion will need to be raised in the international capital markets. In 2012, ongoing nervousness around the state of the global economy, US election and fiscal cliff, softening by China, etc all contributed to general investor angst for risk. Capital had been flowing into bonds from equities for an extended period of time. Consequently, a need to deploy this capital by international bond managers was only exacerbated as more dollars kept flowing into bonds. The phrase “chasing yield” was commonly used, and Mongolian was fortunate enough to find itself in a great period to be raising money through fixed income.

The rates on the sovereign bond were very low (and priced for perfection!), just below 5% on the shorter dated 5-year bond. As investors refocus towards risk in the future (maybe 2013?) we will see fund flows back to equities and the situation potentially reverse itself. The market has always cycled, and will cycle again.

Mark: Rescap, like a lot of Mongolian brokers and IB’s is pretty resource-focused. Given the issues with the OT contract and the as-of-yet unsettled foreign investment law, what are you telling your institutional clients?

Eric: The recent foreign investment law (May 2012) was a function of the ill-timed South Gobi attempted sale to Chinalco (April 2012), and lead up to the national election (June 2012) where nationalistic principles became the easiest platform to campaign on. The OT contract is the single most important contract in Mongolia and is the focus of public debate. As we gear up for the Presidential election (June 2013), I expect we will continue to see political jostling and rhetoric around supporting nationalistic principles.

I continue to have my clients focus on the long term fundamentals of the country and remind them that Mongolians are largely entrenched in the success of their own businesses and foreign investment. The technical strengths of the country are phenomenal vis a vis the geology. It is not unfeasible to see another “OT” be discovered in Mongolia. These are 60+ year mines with transformational effects on the country. A few months of political instability, knowingly tied to elections, is a short term impact of a highly contested democratic environment.

Mark: Eric, you also co-manage the MSE Liquidity Fund. The Tugrik has been struggling a bit, as have equities. We imagine it is tough running a fund with a mandate to generate yield and capital gains in that environment. How are you coping with market conditions that I would equate to the doldrums? (for those sailing types among our readership). I understand that the fund has returned approximately 10% in the face of a tough market?

Eric: The MSE fund is a hybrid of equities and fixed income. We don’t purport to know more than our investors regarding internationally listed equities, so we don’t (and are not mandated to) buy them. We focus only on MSE equities where we can add value to investors who are not on the ground on a day to day basis.

We also invest in commercial bank deposits and have negotiated what we consider incredible money market rates in the top Mongolian commercial banks.

Examples of some of the MSE Liquidity Fund’s holdings are positions in Remicon (where we negotiated an entry price 10% lower than the current traded day rate by doing a block trade), APU, commercial bank deposits at above 18% (local currency) and 10.8% in USD over 12 months. While the MSE was down approximately 25% in 2012 and many of our peer funds were down by between 20-60%, we returned approximately 13% net to investors (in USD) while also facing the headwind of a slightly weaker currency.

Since inception in October 2011, the MSE Liquidity Fund has had 14 out of 15 positive monthly returns. The fund has an NAV of approximately $7 million and redeemable on a quarterly basis with no front or back ended fees with subscriptions monthly.

We positioned the MSE Liquidity Fund to take advantage of very specific situations that we have identified and harnessed in Mongolia. The fund has a very strong balance sheet and we deploy capital in situations where we can closely monitor the investment, similar to a merchant banking type of approach.

Mark: In your video recording from our Mongolia: Boots on the Ground Meet Up you commented that Mongolia’s fundamentals are compelling. Given the political challenges, the slowing of China’s economy (and everyone else’s) and the seemingly ever-present tendency toward “nationalism”, do you still feel the story is unchanged?

Eric: I look at the fundamental aspects of the opportunity: Mongolia is rich in resources and largely unexplored. I look at the past discoveries made: Mongolia has the potential to host world class assets (Oyu Tolgoi and Tavan Tolgoi). Then I look at the playing field I am participating in: Mongolia is a democracy (for better or seemingly worse in this case) where the rule of law stands. The recent issues around nationalist views are related to the democracy that governs the country:  this is Mongolia’s “coming out” period and Mongolians are trying to do whatever it takes to be sitting at the top when it happens.

Mark: Thanks as usual Eric for your timely insights!

Eric: My pleasure Mark.

——–

Chris and I realize we beat Mongolia’s drum a lot, but when something is working, or about to work, you stick with it.

The most spectacular wealth building investments are usually very narrowly-focused trades. Soros on the Pound, Paulson on China, Kyle Bass on the housing bubble, etc…

This is one of the core lessons we talk about in our Crash Course. When you’ve done your homework and you identify an opportunity, go for it. Hesitation is for losers.

That being said, don’t misunderstand us; Mongolia is not the only place we are suggesting investors should look for deploying capital. Cambodia, Myanmar, Nepal, Sri Lanka, Vietnam, Fiji, Georgia…all these places contain opportunities. It’s best to REALLY get to know a place, do your own exhaustive research and then pull the trigger.

For those that like the idea of Frontier Markets but can’t quite get their head around how to do the reasearch, check out funds from folks like our friends at Leopard Capital. We just interviewed Leopard Asia’s Thomas Hugger, in How to Invest in Frontier Markets.

Until next time…

- Mark

“I am just a nice, clean-cut Mongolian boy.” – Yul Brynner

Link to article

 

CapitalistExploits.at Announces the Release of Mongolia: Boots on the Ground

A comprehensive collection of video interviews, special reports and country research targets equity and real estate investors

Ulaanbaatar, Mongolia - January 2 - CapitalistExploits.at, an online resource dedicated to frontier markets investing has just released a comprehensive collection of video interviews, special reports, proprietary essays and country research on investing in Mongolia.

The package, aptly named: Mongolia: Boots on the Ground is available for purchase as a digital download containing over 3 hours of video with 13 CEO's, investment bankers, real estate professionals and entrepreneurs focused on Mongolia.

For more information and to purchase the package please visit here.

The package includes over $1,500 in bonus content, including the R2 Research Mongolia Real Estate Report 2012, the Oxford Business Group Mongolia country report and Resource Investment Capital’s Mongolia 101 report. 

Video interviews were conducted with the following:

Christopher DeGruben, CEO of M.A.D. Investment Services
Harris Kupperman, CEO of Mongolia Growth Group (OTC:MNGGF)
Oscar Mendoza, Country Director for Prophecy Coal (OTC:PRPCF) and Founder and Managing partner at Mongolia Asset Management
Lee Cashell, CEO of APIP Group
Bilguun Ankhbayar, CEO Discover Mongolia
Eric Zurrin, Director General Resource Investment Capital
Nick Cousyn, COO of BDSec brokerage
Jim Dwyer, Director Business Council Mongolia
Altai Khangai, CEO Mongolia Stock Exchange
Chris Melville, Partner Hogan Lovells
Ganzorig Ulziibayar, President Mandal Insurance and the MFA
Roy Dongen, Founder Ganymedes Consulting
Travis Hamilton, Managing Director Khan Asset Management

Transcripts and corporate presentations from each are also included, as is a series of essays from some of the top frontier markets investors operating in Mongolia.

The Mongolia: Boots on the Ground package is ideal for investors looking to allocate capital into Mongolia's equity or real estate markets now. 

Chris Tell, co-founder of CapitalistExploits.at commented, "We're proud to be bringing this product to investors looking to deploy their capital into one of, if not the fastest-growing economies on the planet. We spent months on the ground meeting with CEO's, bankers, attorneys and local business owners researching and putting this package together."

He added, "We held an exclusive Meet Up in Ulaanbaatar this past July that was attended by 25 investors from around the world, all focused on Mongolia. This package was inspired from that gathering and it therefore offers the best opportunity we know of to gain unique insights and understanding of Mongolia without actually putting your 'boots on the ground'."

CapitalistExploits.at is offering the product for sale on their website at the following link here and also through a network of global affiliates.

For information on offering the Mongolia: Boots on the Ground package to your clients you may contact Capex Ltd. at the link below.

About CapitalistExploits.at

Our Mission: Educate and enlighten capitalists around the world to the exciting opportunities available in Frontier Markets by bringing our collective thoughts to the table, and by collaborating with our global networks and the Capitalist Exploits community.

We’re a couple of globe-trotting capitalists looking for unique and profitable investment opportunities in exotic and Frontier Markets, typically in the private equity space. We’ll share them with you, not because we’re philanthropists (God no!), but because, well… Our objective is to create value in the world by enabling opportunity, not by charity.

Link to package page

 

Summary of the Government Bills Auction held on January 30th, 2013

January 30 (Ministry of Finance, Mongolia) Total of 25.0 billion tugrik bills was announced to be sold on this auction, 25,000 quantities with  12 week maturity. Bids received totaled  67.0 billion tugriks and  25.0 billion tugrik bills were sold successfully at weighted average interest rate of 11.23.

Specific information can be found from the table below.

Auction result

Announced total amount

25,000,000,000.00

Total amount of bids received

67,000,000,000.00

Total of accepted bids

25,000,000,000.00

Weighted average of accepted interest rate

11.23%

Highest accepted interest rate

11.59%

Lowest accepted interest rate

10.84%

Link to summary

Link to trading history

 

Mizuho: Memorandum of Understanding with the Trade and Development Bank of Mongolia

January 30 -- Mizuho Corporate Bank, Ltd. (MHCB; Yasuhiro Sato, President & CEO) signed a memorandum of understanding on January 29 with the Trade and Development Bank of Mongolia (TDB; Balbar Medree, CEO), a major bank in Mongolia. The memorandum of understanding covers a wide range of fields in commercial banking, and it is the first time that TDB has signed a memorandum of understanding with a Japanese bank.

The memorandum of understanding aims to enhance our ability to provide information to Japanese corporations that  are considering expanding their  businesses into Mongolia, and enhance our service structure for them when they do. Specifically, we will (1) offer local currency services, (2) exchange information regarding local financial markets and regulations, and (3) conduct training and seminars.

TDB was established as a state commercial bank in 1990 (privatized in 2002) and is one of Mongolia's three major banks. It has strengths in corporate transactions, taking advantage of its solid customer base. TDB also has a dominant position in foreign trade payments and takes great pride in its achievement of a 48% share of the domestic market in 2011.

Mongolia experienced exceptional economic growth of 17.5% in 2011, driven by development in the mining sector. It is increasingly attractive as an investment destination, with projected business opportunities mainly in natural resource development and infrastructure projects. MHCB and other group companies including Mizuho Bank, Ltd. will unite in using this business cooperation agreement as an opportunity to provide a wide range of support for the needs of our customers in relation to Mongolia.

Link to release

 

MONGOLIA-JAPAN CONSTRUCTION SECTOR FORUM IN TOKYO ON FEBRUARY 18-22

February 1 (InfoMongolia.com) The Ministry of Land, Infrastructure, Transport and Tourism of Japan in association with Mongolian Ministry of Construction and Urban Development, and City Governing Office is hosting a “Mongolia-Japan Business Forum” in construction sector in Tokyo on February 18-22, 2013.

The relevant Mongolia-Japan Business Forum on construction and infrastructure was organized by Mongolian Business Development Association and Japan Earth Moving Builders Association in Ulaanbaatar in October 2011, where over 60 representatives from both sides had attended.

In this year’s forum, Mongolian entrepreneurs are to introduce their business projects and programs to affiliated Japanese companies, besides being au fait with construction entities, its current activities and further tendencies during presentations and lectures to be organized. Also, will be provided with opportunities to set up a direct contact with Japan businessmen willing to invest into Mongolia.

Link to article

 

BOC becomes 3rd international bank to open rep offices in Mongolia after ING and Standard Chartered.

BANK OF CHINA OPENS REP OFFICE IN MONGOLIA

February 1 (InfoMongolia) With coinciding of the visit by China delegation to Mongolia led by the Chairman of the Standing Committee and Party Secretary of the National People's Congress Wu Bangguo, the opening ceremony of the representative office of the Bank of China in Ulaanbaatar was held on January 31, 2013.

At the opening ceremony China’s top legislator Chairman Wu Bangguo, President of the Bank of China Limited Li Lihui, Parliamentarian G.Bayarsaikhan, Governor of the Central Bank of Mongolia G.Zoljargal and other officials from both sides were present.

Bank of China Limited (BOC) is one of the big four state-owned commercial banks of the People's Republic of China, founded in 1912. The bank officials have requested the Central Bank of Mongolia to open its branch last year and finally an authorization was granted today, said BOC President Li Lihui during the event. Further noted, the bank values Mongolian market greatly, and pledged to provide quality financial service for enterprises from the both countries.

In his opening remark, Governor G.Zoljargal said, “By opening the Bank of China in Ulaanbaatar is becoming the third foreign bank outlet in Mongolia. China is Mongolia's biggest trading partner and top investment source. With the establishment of the BOC's Ulaanbaatar branch will boost investment and financial cooperation between the two countries”.

Link to article

 

Top Chinese legislator discusses ties, cooperation with Mongolian leaders

ULAN BATOR, Jan. 31 (Xinhua) -- Top Chinese legislator, Wu Bangguo, pledged Thursday to advance the China-Mongolia relations of strategic partnership and bring bilateral economic cooperation to a new level.

Wu made the remarks during meetings with President Tsakhia Elbegdorj and Prime Minister Noroviin Altanhuyag.

Wu, chairman of the Standing Committee of the National People's Congress (NPC) of China, told Elbegdorj that Beijing will consolidate its good-neighborliness policy, cement mutually beneficial cooperation and strive to make the neighboring countries better enjoy the benefits brought by China's own development.

China, Wu said, is glad to see that Mongolia enjoys a growing economy, a stable society and that its people live a happy life. He promised that China will, as always, respect Mongolia's independence, sovereignty and territorial integrity.

China will also respect Mongolia's independent choice of its development path, as well as the domestic and foreign policies chosen by its own people, Wu said.

China appreciates that the newly formed Mongolian government identifies its relations with China as one of its foreign policy priorities, Wu said, adding that Beijing is willing to work with Ulan Bator to push forward their relations of strategic partnership.

Elbegdorj expressed gratitude for China's assistance to his country's socioeconomic development.

Mongolia, he said, attaches great importance to developing friendly relations and win-win cooperation with China. He voiced hope that the two countries could maintain high-level contacts, promote pragmatic cooperation in various fields and enrich their relations of strategic partnership.

Mongolia will firmly pursue the one-China policy, he said, and understands and respects China's core interests.

During a meeting with Altanhuyag, Wu said China and Mongolia share a long border, and their economies are highly complementary. Since both countries are in vital stages of development, bilateral cooperation holds tremendous potential, he added.

The two countries, Wu proposed, should adopt a long-term perspective and pursue mutually beneficial cooperation aimed for common development.

They also should integrate exploration of mineral resources, infrastructure investment and financial cooperation, and initiate and complete large-scale projects that will set an example for future projects as quickly as possible, he added.

Wu said the two countries should work together to ensure consistency in implementing policies to safeguard their business cooperation.

Altanhuyag said Mongolia will further its cooperation with China in such fields as mining, agriculture, animal husbandry, infrastructure construction and cross-border transportation. He added that Mongolia is willing to create favorable conditions for Chinese investors.

Wu also attended a ceremony to unveil the nameplate of the representative office of the Bank of China in Ulan Bator on Thursday.

The top Chinese legislator arrived in Ulan Batar on Wednesday. He is the first top Chinese legislator to visit the country in 16 years.

Wu met with his Mongolian counterpart Zandaakhuu Enkhbold on Wednesday and pledged to further develop ties with Mongolia. He said bilateral relations have entered a new stage of development since China and Mongolia established relations of strategic partnership in 2011.

He put forward a four-point proposal to further ties:

Politically, Wu said China and Mongolia should strengthen their strategic mutual trust, continue to support each other on issues concerning their core interests, and carry out close cooperation in law enforcement and non-traditional security.

Economically, Wu said, the two countries should deepen mutually beneficial cooperation in such areas as mining, infrastructure construction and finance.

Culturally, the two countries, Wu said, should intensify people-to-people exchanges in a bid to strengthen mutual understanding and consolidate their traditional friendship.

China and Mongolia also should beef up their cooperation on multilateral issues, Wu said, and support each other in global and regional issues while safeguarding their common interests.

In addition, Wu said the NPC and the State Great Hural of Mongolia, the two countries' parliaments, have carried out close and friendly exchanges. He said that he hopes that they can further strengthen communications at all levels.

For his part, Enkhbold, chairman of the State Great Hural of Mongolia, pledged to push forward cooperation with China in the fields of politics, trade and economy, and humanity, and in global and regional issues.

Link to article

Related:

Mongolia and China sign memorandumnews.mn, January 31

Wu Bangguo: Mongolia and China should deepen their mutual economic cooperationUB Post, January 31

CHINA EXPRESSES ITS READINESS TO STRENGTHEN RELATIONSHIP WITH MONGOLIA ON MULTILATERAL SECTORS INCLUDING DEFENSEInfoMongolia.com, January 31

 

Border outpost turned into mining boomtown

February 1 (China Daily) In less than 20 years, Ganqimaodu (Mogi: Gants Mod) has become a key entry point for tons of coal destined for China, report Wang Kaihao in Urad Middle Banner, Inner Mongolia, and Zhu Zhe in Ulan Bator

Many of the buildings under construction in Ganqimaodu, a town deep in the Gobi Desert on the China-Mongolia border, have been designed in Russian and Mongolian styles.

This town was little more than barren land 20 years ago, but it has become a hub for trucks shuttling across the border, and is considered one of the largest border crossings between Mongolia and North China's Inner Mongolia autonomous region.

Though the temperatures often fall below -20 C in winter, local stores are doing brisk business.

"We want to make Chinese people feel right at home, even though they might be far from home," said Yuan Yuefeng, the chief of Ganqimaodu Port Authority.

According to Yuan, 12.09 million tons of goods passed through Ganqimaodu in 2012, a 13 percent rise on 2011, making it the country's second-biggest road port in terms of transit shipments after Shenzhen.

All except 300,000 tons of that was coal from Mongolia, making this busy town China's largest gateway for importing coal from the country.

There are 15 coalfields in Mongolia, with total reserves estimated at 162.4 billion tons. Of the country's 26 coal producers, 13 are exporters, according to JYD Online Co Ltd, a Beijing-based commodity consultancy.

The first Chinese bank office in Mongolia, the Ulan Bator branch of the Bank of China, was opened on Thursday, becoming only the third foreign bank outlet to open in that country, according to Naidansuren Zoljargal, the governor of the Central Bank of Mongolia.

During the opening ceremony, he said China is Mongolia's biggest trading partner and top investment source.

The establishment of the BOC's Ulan Bator branch will boost investment and financial cooperation between the two countries, he added.

Bank of China President Li Lihui said the bank valued the Mongolian market greatly, and pledged to provide quality financial service for enterprises from the both countries.

Since September 2010, all of Mongolia's coal exports have been going to China.

Although China itself is rich in coal reserves, they are mainly thermal coal used for coal-fired power generation, explained Dai Bing, director of the coal industry information department at JYD.

"China lacks coking coal for its steel production," he said.

"The government is encouraging importing coal from other countries including Australia and Indonesia."

China imported 290 million metric tons of coal in 2012, a 29.8 percent rise year-on-year, according to Customs figures.

The crossing at Ganqimaodu was established in 1992 but only opened fully in 2009, when it was upgraded as a national-level border point run all-year-around.

Its total transit shipments during its first 18 years were just 10.6 million tons.

Cogt is an officer from the frontier inspection station who has worked in Ganqimaodu for 10 years.

"Only between 10,000 and 20,000 tons of goods passed here per year at the very start," he said.

"People then mostly traded wool, clothes, irons and general household articles."

But the huge coal deposits near the border have changed its fortunes.

Tavan Tolgoi coal mine, one of the world's largest untapped coal deposits, lies just 190 km from Ganqimaodu.

Cogt said that a truck takes just one minute at the border control after the new system was introduced, and on average 1,000 trucks now pass through every day.

The massive Tavan Tolgoi mine has total estimated reserves of 6.4 billion tons of coal, a quarter of which is high-quality coking coal.

The mine attracted companies from the United States, Japan, South Korea and China to bid for exploration rights in 2011, which are still to be finalized.

Shenhua Group, China's largest coal producer and trader, was given a 40 percent stake in developing the mine in July 2011 by the Mongolian government.

But just two months later, Mongolian President Tsakhia Elbegdorj said the country was rethinking its development plans for the site.

Mongolia's GDP rose 17.3 percent in 2011, and within that year its coal mining industry replaced copper mining to become its major industry, and economic growth engine.

An industrial manufacturing park was built 160 km south of Ganqimaodu in 2003, and was listed as one of the region's key industrial sites in 2011.

Shenhua Group launched a coal processing plant there in 2011, and began manufacturing in September 2012, becoming China's only large-scale coal processing project, wholly dependent on imported resources, said Zhao Lisheng, the deputy manager of Shenhua Bayannur Energy Co Ltd.

Zhao said 2 million tons of coal were transported to his company from Mongolia via Ganqimaodu in 2012, and he expects that to hit 5 million tons this year.

A ton of Mongolian coal sells for 850 yuan to 880 yuan to the company, around 100 yuan lower than domestic coal prices. Most of Zhao's production is sent to Beijing and Tianjin.

According to a recent report by the International Energy Agency, China accounts for about 46.2 percent of global coal consumption, and that is expected to grow to 50 percent by 2014.

Shenhua has built a railway connecting Ganqimaodu and Baotou, the biggest industrial city in Inner Mongolia, and the link is expected to start operating by the end of 2013.

Mongolia also plans a railway from Tavan Tolgoi to the border crossing, with construction due to finish in 2015.

Port authority chief Yuan Yuefeng believes Ganqimaodu has huge potential, given it has capacity for annual transit shipments of 50 million tons, and says it will reach 100 million by the end of 2020, when both road and railway transportation systems are completed.

He expects the port to be more than just an entry for natural resources, too, as more people settle nearby in the town itself, and as it continues to attract more exports, particularly Chinese agricultural produce to Mongolia.

Link to article

 

MINISTER CH.SAIKHANBILEG: TERMINATING CHALCO AGREEMENT WOULD MATCH THE INTERESTS OF MONGOLIA

January 31 (InfoMongolia) On January 30, 2013, Minister of the Cabinet Office of the Government of Mongolia Chimed SAIKHANBILEG hosted an open conversation with journalists regarding tasks to be implemented by New Government for Changes in its legal term of governing.

Minister Ch.Saikhanbileg stated, “People are complaining that the Government structure has been enlarged ineffectively. Indeed, 11 Ministries and 43 Agencies (Regulatory and Implementing) were operational in previous Government, but now the latter organs were reduced to 27 Agencies and some Ministries were divided converting into 16 Ministries of Mongolia, besides working places were cut down to 438.

In order to obtain a permit for construction works it was used to spent 208 days and collect 121 signatures, but now anyone is able to complete in just 59 days. Also, 8 different documents were required to complete the customs clearance, now were reduced to 2-4 documents.

Moreover, the General Agency for Specialized Inspection will be closed down, instead to form a General Inspection Authority that aimed not only to inspect, but also to give advice, support and hold vocational trainings.

Public servants are obliged to respond to civilians’ requests within 7 days.

We are going to unite all emergency telephone numbers such as 101 (Fire), 102 (Police), 103 (Ambulance) and 105 (Disasters) into one number under 112. Anyone who connects it will be able get a location of a caller.

As a matter of fact, the new Government is working to “clean” all unaccomplished works by the previous Government. For instance, 6% mortgage loans, disputed matters on savings and credit cooperatives, Chalco and Tavan Tolgoi issues".

In the questions of Chalco and Tavan Tolgoi related issues, Minister Ch.Saikhanbileg replied, “I am still shocked on the Agreement established with Chalco. It is obvious that by doing this agreement, self-interest was included. In other words, the agreement was set to be 70 USD/ton when it costs 110 USD, or to be 53 USD/ton if the market price declines to 70 USD/ton.

Moreover, in the Agreement it was set to export 80% of total coal excavated from the East Block of Tavan Tolgoi site to only Chalco, which is non profitable for Mongolia. If to terminate the Agreement, it would match the interests of Mongolia. We are pledging to resolve these matters in near future”.

Link to article

Related:

AMBASSADOR OF CHINA TO MONGOLIA WANG XIAOLONG COMMENTED ON CHALCO AGREEMENTInfoMongolia.com, January 30

 

Davaatseren was previously the head of Mining Research Department at MRAM

New director appointed to Erdenet JVC

February 1 (news.mn) Ts.Davaatseren was appointed as Director of Erdenet copper production JVC on Thursday. The new director has great experience of management after working at state owned companies as a mining expert. 

The financial activity of Erdenet copper production JVC has been uncertain for decades because political and economical interest groups have ruled it in turn. 

But the new appointment will bring a different atmosphere to Erdenet JVC. 

Even though there was speculation that the ruling party would appoint its party member to the post instead of former director Ch.Ganzorig. But a qualified professional Ts.Davaatseren who is well-known in the mining sector has been appointed. 

The former Director Ch.Ganzorig resigned upon his request. The State Property Committee approved that Ch.Ganzorig could improve the main indicators of production output during his term. 

When Ch.Ganzorig was appointed to the Erdenet JVC copper output was 20 million tons a year but now the output is 26 million tons. Molybdenum metal output has risen from 23 to 46 percent and metal output from copper from 86 to 86 percent. 

Employees average salary has also been increased from 400,000 MNT to 1.8 million MNT.

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Centerra Gold financed Maternity Hospital now operational

February 1 (news.mn) The First Maternity Hospital has been expanded. The new facility, build-up with 10 billion MNT financial support from Centerra Gold Inc became operational on Thursday. Minister for Health, N.Udval, Ulaanbaatar City Governor E.Bat-Uul and chairman of the First Maternity Hospital, D.Enkhbayar received the new facility with its new equipments. 

The facility will open for patients with a maternal ward with 190 beds, intensive care ward or pediatric with 50 beds and a maternity ward with 100 beds in the center of Ulaanbaatar. 

The First Maternity Hospital requires currently more than 200 medical doctors and nurses to work at full capacity. Therefore the chairman of the new facility D.Enkhbayar invited qualified professionals to work for the hospital. 

The First Maternity Hospital will receive patients when the State Specialized Inspection Agency issues a permit after a dust and air quality test. 

D.Enkhbayar, the chairman of the First Maternity Hospital said that he is looking forward to receiving patients soon. 

There were 45,000 babies born in 2005 in Mongolia. The number of babies born increased three folds or by 75,000 in 2012. 

As a result of the new expanded facility being operational the overloading will be reduce by 50-60 times according to N.Udval, the Minister for Health. 

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Importer companies increase fuel reserves

January 31 (news.mn) Since the reformist Government formed it has carried out sub-programs aiming to stabilize the fuel retail price, grant lower interest rate loans and to protect currency rate risk. 

The sub-programs are designated to prevent import fuel shortages and fuel price rises. 

For the program the Government ordered the importer companies to increase their fuel reserves up to 60 days instead of 40 days in order to improve fuel supply and stabilize fuel prices. 

According to a report by D.Gankhuyag, Minister for Mining, Mongolia now has fuel reserves for 62 days

In accordance with the Government decree fuel importers have stored fuel for the coming 62 days. 

In order to preventing fuel shortages, importer companies are obliged to store at least two months of fuel in reserve. 

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Mongolia delegation in Russia seeking stable supply and price of fuel and possible crude import

February 1 (news.mn) The Deputy Minister for Mining and officials of related state agencies have been in Russia on a mission to question the fuel import prices that are changing every month.

These officials met officials in charge of the Ministry of Energy of Russia and Rosneft.

The Russian Government has taken measures to decrease tax exporting up to 40 percent over the past four months and kept increasing the export fuel tax to Mongolia.

An estimation based on statistics issued by the Central Bof Russia shows that Rosneft export fuel supply price to Mongolia is 300 US dollar higher than to other countries.

Therefore officials questioned the reason for the frequent fuel price increases.

First the Mongolian officials insisted on receiving an explanation on why Rosneft export fuel supply price is not associated with the Russian export tax and market price.

Second, Mongolia seeks to re-negotiate to update the agreement on fuel supply purchase and to make changes to stabilize fuel prices at least six months into the agreement.

The third thing that the officials seek is the possibility of a two million tons of crude oil purchase due to the refinery oil project in Mongolia.

Russian officials received the requests and promised to reply after revising the offers by Mongolia.

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Narantuul market owner allegedly holds illegal license

January 30 (news.mn) MP Sh.Saikhansambuu (Mogi: ex-MP) is the owner of Narantuul or the so called “black market”. 

Currently an issue relating to the ownership of the land the market is situated on has been raised. Police are now investigating the license for ownership of the market. 

According to the Ulaanbaatar City Mayor, E.Bat-Uul, a land license for public services can be granted for up to five years. But MP Sh.Saikhansambuu was somehow granted the land license for a 25 year period instead of just five years. 

Therefore law enforcement officers are investigating how and where Sh.Saikhansambuu got the special land license. Officials have discerned that having a land license for 25 years is illegal. However, the Ulaanbaatar City Administration are hesitant to cancel the land license of Narantuul because thousands of retailers make their living at the market. 

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MIAT money laundering suspect could reveal involvement of 20 politicians

February 1 (news.mn) The money laundering case related to the former directors of MIAT, Mongolian airlines has sparked debate. Suspects in the case are accused of illegally taking large amounts of money from passengers under the pretense of a War Risk Insurance fee and transferring the money to an unknown company bank account in Japan. The case was first uncovered during an investigation of the company that the illegal money was being transferred to. 

The nine suspects who were allegedly involved in the money laundering within five countries are now being detained at 461 detention center.  The Criminal Police Department is in the process of questioning the suspects. 

The State Prosecutor General D.Dorligjav gave the following statement:

“This is not a case involving only a few people. We need to investigate more and more state officials, public servants, businesses, companies and senior bank officials who are suspected to be involved in the illegal actions.”

A local newspaper, “Morning” newspaper, cited that it was obvious that the main suspect, Ts.Orkhon, was guilty for money laundering with clear evidence and that the suspect had promised to reveal 20 politicians who were involved in the case if police released his wife from the detention center. 

Police have refused to give more details about the investigation and claimed the suspect has not revealed anything of this nature. 

The main suspects who have been detained at the detention center for questioning are Ts.Orkhon, B.Bat-Erdene, former CEOs of MIAT, Ch.Suuritogtokh, former head of the Finance Department of MIAT, his brother Ch,Suuritogtokh, N.Gantumur, S.Batkhishig, Ts.Orkhon`s wife Y.Tsetsegmaa and the former director of MIAT B.Erdenebileg and N.Mandakhabayr. 

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BDO Mongolia: Our focus is our clients’ business success

January 31 (UB Post) BDO, the world’s fifth-largest consulting and auditing company opened a member firm in Mongolia on January 1, 2013. BDO Mongolia was created by the merger of audit firm “Itgelt Audit” with information technology (IT) and advisory firm “Amar-Incon”.

The co-founder of BDO Mongolia and Amar Incon, Yair Jacob Porat, agreed to an interview about the services that BDO will provide to Mongolia.

Born in Israel, Mr Porat has studied IT, Physics, ERP, E-government and business development and has more than 30 years of experience in providing IT and business development consultancy services. He has worked in Mongolia since 1996 bringing new technologies, providing consultancy and implement wide range of projects.

-What is BDO’s focus?

-BDO International is the fifth-largest audit and consultancy company in the world. The BDO network covers 139 countries and keeps growing around the world, and Mongolia is part of that growth.

BDO Mongolia’s focus is on the businesses in Mongolia both local and international businesses, and also provides services for the government sector.

We are a consultancy company that has national and international experience and knowledge. Our focus is our clients’ business success – that’s our vision.

The Mongolian mining industry is one of the main growth engines, stimulating growth in other industries, including in the service industry. Such services include banks and insurance companies, among others. Companies need to gain the know-how to build up long-term and successful businesses that provide reliable services to the Mongolian citizens. BDO  offers high level and unique assistance to businesses and other entities that cover 360 degrees of the business sector.

-How do you see Mongolia’s business sector?

The Mongolian business sector is changing and rapidly growing – becoming more and more international. The decision makers understand that they need to shift and change business behaviors if they are to succeed in the open market. Businesses and enterprises need to gain more management skills, control, and capabilities.

The know-how already exist worldwide, we in BDO, with our local team, have the experience and the knowledge on how to deliver this know-how to our customers. The services include auditing and advisory services such as change management, consultancy on IT and security services. These are essential to companies in Mongolia that need local support.

As my experience in Mongolia extends more than 10 years, I am sure that Mongolia can provide the world with much more than minerals. Other sectors that can be developed include IT services, agriculture products and much more. We need to work in accordance with international standards. This will allow small and medium-sized enterprises in Mongolia to expand and to grow bigger. The economy will grow when you have the required services and infrastructure.

-Will BDO work with the government?

-We are looking forward to working with the government sector and sharing the BDO network’s knowledge and experience with the Mongolian people.I was involved in some parts of government initiatives that were related to the E-government sector. I already shared my ideas with our Mongolian partners and as part of BDO, I will be glad to share my experience with government agencies.

My vision is that the government needs to behave like a big enterprise in which the Prime Minister is the CEO with his Ministers as managers, and the parliament members are the board of directors that represent the shareholders, who are the citizens. The government agencies are like companies that have clients/shareholders: the citizens who pay for the services that are provided by the government. Citizens usually pay tax, such as income tax, and they like to have services in return.

I am sure that it is possible to build a good approach to implement e-government solutions for Mongolia based on international know-how. And implementation can be with the support of local small and medium-sized companies. BDO management looks forward to cooperating with and supporting initiatives like that.

-BDO is the fifth largest consultancy company in the world, what made it want to go to Mongolia?

-What made such a big company to come to Mongolia is the opportunity to contribute to the Mongolian business and government sectors and the market growth in Mongolia. Mongolia of 2013 is not the Mongolia of 1996, when we needed to explain to investors where Mongolia is and had to explain that it is not part of China or Russia.

Today Mongolia is a well-known nation worldwide. Mongolia is becoming international and many other companies that work with BDO around the world would like to have representation in Mongolia. BDO sees opportunities here in Mongolia to provide the services that are already provided in more than 139 countries, and now Mongolia has become part of that network. This will help to enhance the capacity, capability and services that we and other companies provide to the Mongolian market.

-When BDO came to Mongolia, it merged with two companies?

-Yes, BDO merged with Itgelt Audit, which has more than 15 years of auditing experience in Mongolian entities, and Amar-Incon, which is a consultancy group that has offered consultancy and IT services in Mongolia since 2005. They both became part of BDO to provide services to the Mongolian market. We’re going to provide a wide range of services. This will include business advisory, outsourcing, taxing advisory, IT and technology services that will provide reliable services to the local and foreign investment companies that need support here in Mongolia.

BDO Mongolia has experienced local staff and international staff. We are going to focus on some particular international markets that we have experience with. For example, we are going to have a special desk for Israel, because I speak the language and can create the bridge between the local business community and the Israeli business community that are looking for investments and projects worldwide as well as opportunities in Israel. BDO Mongolia will also provide services like that in Russia, China and Japan, as our staffs speak these languages as well.

BDO is a very unique firm in that our services are private and customer-tailored. We listen to our customers, we support, we supply, we focus.

-What can you say about your partners in BDO?

-My BDO Mongolia partners are all Mongolians. I have partnered with some of them for the past eight years. I am happy to cooperate with them and be part of a team that’s going to provide our services to the Mongolian market. My partners have vast experience in the business we work in, both local and international experience. BDO International partners are well known and supportive of BDO Mongolia in all ways, with the goal of establishing a successful service company.

-What will be the main impact of BDO in Mongolia?

-Any international organization coming to Mongolia will have an impact. As more international knowledge transfers to Mongolia and Mongolian employees are involved in the daily management and services, it creates impact. With my long experience in Mongolia I see the impact every day.

My vision, since I began working in Mongolia was, and still is, is to build better international services in Mongolia by providing the necessary training support and opportunities for capable and talented Mongolian employees. I am happy to say that in all the businesses that I managed in Mongolia, 98% of our employees were locals. We train, we support, we create opportunities and we share!

BDO Mongolia’s vision is to provide the best services to our clients, to be close to our customers, to provide services internationally and locally and to listen to our customer and give them the best solutions that we can in the market.

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Mongolia: Sky-high ICT goals

January 31 (Oxford Business Group) Cabinet approval for Mongolia’s first satellite in late 2012 makes clear the height of the country’s ambitions for improving information and communications technology (ICT) provisions. Although a satellite launch is an ambitious objective, improving on-the-ground infrastructure will prove to be just as significant, and as challenging.

In November, the cabinet approved the “National Satellite for Communications of Mongolia” project, the centrepiece of a collection of goals identified as part of a national vision to transform the economy into a knowledge-based economy by 2021.

Although the country has long relied upon space communications to link its widely distributed population, there is no domestic satellite in service. Instead, $2m is paid each year to rent other nations’ satellites. This includes use of the “Ipstar-5” broadband satellite for delivery of TV and radio programmes to rural areas, the “Intelsat” satellite for telecommunications and mobile phone services, and low orbiting satellites for digital data on weather.

The new satellite, which is set to launch in 2015, is planned to provide domestic communications, including TV, internet, radio, e-services and government links. “Regardless of the geographic location, individuals, herdsmen, households and organisations will have access to wireless communication services at a low cost nationwide,” noted local media.

Increasing levels of technical hardware suggest a satellite link could play an important role in building ICT capacity. Imports of IT products rose 30% year-on-year (y-o-y), including a y-o-y rise of 30% in desktop computer imports and a 50% increase in laptop computer imports.

Initial estimates for the price of the satellite project predict MNT630bn ($441m), with MNT280bn ($196m) slated for research and MNT350bn ($245m) for the launch and maintenance. Funding is expected to come from the state budget, the private sector and foreign assistance.

It has been anticipated that the satellite project will earn some $50m in its lifetime and trends suggest profits in Mongolia’s ICT industry are set to rise. According to data from the Information Technology, Post and Telecommunications Authority (ITPTA), revenue generated by the sector rose from MNT140bn ($98m) in 2005 to MNT539bn ($377.3m) in 2011.

Given its expertise and bilateral relations with Mongolia, Japan will likely play an important role in the satellite project. In March, former Prime Minister S. Batbold signed a memorandum of cooperation with Tokyo that outlines measure for cooperation for technical studies on communications satellite systems and earth observatory satellites. In the same month, the government also signed an agreement with Singapore to work together on ICT activities and projects that aim to help transform Mongolia into a knowledge-based society. This agreement outlined cooperation on exploration of concepts such as enterprise architecture, cloud computing, project management and e-government.

In addition to the satellite project, the National Broadband Programme (2011-15) is a government plan to ensure that at least 50% of all households have access to inexpensive broadband connections for bandwidth-intensive services, high-speed internet and television. The government also plans for 40% of households in remote areas to have access to a wireless broadband service.

Currently, 175 soums (villages) out of 331 are connected by 18,700 km of fibre optic and 8400 km digital microwave network. The ITPTA estimates that 100% coverage would require some 40,000 km of installed capacity.

However, social media survey figures released in December by Japanese firm Cereja Technology underline the popularity of ICT in the country, with 17% of the population using Facebook.

The country has also been quickly rising through the ranks of global networking surveys. The International Telecommunication Union in October placed the country 84th in its annual “Measuring the Information Society” report, a rise of three places on 2011. Meanwhile, Mongolia performed well in the Networked Readiness Index 2011-12 released by the World Economic Forum in April, achieving 63th place out of the 143 counties surveyed, a significant rise on 85th out of 138 nations in 2010-11.

There are also government plans to improve ICT security and regulation in tandem with the development of technologies. In April, the cabinet approved an e-governance action plan for 2016. Officials have said that the action plan will benefit from the approval of a draft law on e-signatures to enable the creation of a legal environment. There are also plans to strengthen the role of the Communications Regulatory Commission of Mongolia in regulating competition issues and the provision of networks and services for fixed-line and wireless telecommunications.

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FINANCE MONGOLIA 2013 to be held on 22-24 February

January 30 (Business-Mongolia.com) Following the rapid economic growth in Mongolia, development and sophistication of financial institutions and their services in the country are becoming prevalent. More than a dozen commercial banks, eighty or so non-banking financial institutions, around 200 savings and credit cooperatives, 34 broker and security firms, four leasing companies, and sixteen insurance companies are active in the financial sector.

Finance Mongolia 2013, an exhibition and seminar, jointly organized by World Trade Center Ulaanbaatar NGO, Financial Regulatory Commission, Mongolian Stock Exchange and Misheel Group, are to be held on 22-24 February, 2013 at Misheel Expo Center in Ulaanbaatar.

The first of this kind in the country, the event will be attended by large, middle and small-sized commercial banks, insurance companies, brokers, non-bank financial institutions, auditing companies, and saving and credit cooperatives. All these participants will be able to promote and exhibit their products and services to the general public, businesses and other stakeholders.

Finance Mongolia 2013 will make it possible to collect as much information as possible from one place in all of your financial needs. Hopefully it would help you make smart and wise financial decisions and provide you with possible solutions meeting your needs. For more information, please visit the event’s website at http://www.financemongolia.com.

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Mongolia 98th out of 179 countries n 2013 World Press Freedom Index

Reporters Without Borders

Download the report 
Download the 2013 world press freedom map

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Enkhbayar will be transferred to hospital

January 31 (news.mn) The Minister for Health, N.Udval and the Minister for Justice reached a decision on January 15th to transfer criminals who are having treatment in the clinic of a detention center to the State Second Hospital.

In accordance with the decision the Court Decision Enforcement General Office and the Second State Hospital have started listing the names of criminals who should be transferred to the hospital for treatment.

According to a source from the Court Decision Enforcement General Office, the former President, head of MPRP, Enkhbayar Nambar and two others are included in the list. Former president Enkhbayar Nambar was sentenced to 2.6 years in jail for abuse of power and corruption by the Supreme Court. 

Enkhbayar`s case is believed to be a punishable offense due to repeated economical crimes. 

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Senior officials from General tax Office arrested

January 30 (news.mn) Officers of the Anti-Corruption Authority arrested and detained three senior officials from the General Tax Office for questioning.

According to an official source three senior officials, Ch.Gansukh, Head of the Tax Audit and Methodology division, D.Enkhbat, Head of the Information and Statistics division and the inspector of the State Budget Revenue and Audit department O.Byambasuren have been detained at the 461 detention center since last Friday. They are suspected for concealing billions of tax payments from dozens of companies and entities. 

D.Enkhbat, Head of the Information and Statistics division of the State Budget Revenue and Audit department of the General Tax Office had been working at the Bayangol district tax department as head of the division.

Ch.Gansukh, Head of the Tax Audit and Methodology division was in the post for 10 years. 

According to the Deputy Prosecutor, Ye.Sagsai, more senior officials might be related to the case.

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Mongolia: Advancing the Rule of Law Key to Economic Success

Mongolia continues to make strides toward economic freedom.

February 1 (Heritage Foundation) The Economist recently predicted that Mongolia would have the second-fastest-growing economy in the world in 2013Mongolia has been developing a modern and vibrant economy with a rapidly growing mining sector, which has generated double-digit growth rates for the country in recent years. In continuing dynamic economic expansion and installing broad-based development, it is essential that Mongolia continue to follow the path toward greater economic freedom.

According to The Heritage Foundation’s 2013 Index of Economic FreedomMongolia is a “moderately free” economy, with a score of 61.7. While that’s only slightly better than last year, Mongolia’s gains in economic freedom over the 19-year history of the Index have been dramatic: a 13.9 point gain since 1995. No wonder its economy is booming.

This year, Mongolia scores its lowest marks on the rule of law pillar of the Index, which looks into property rights and freedom from corruption. As highlighted by the special section of the 2013 Index, the rule of law is a fundamental aspect of economic growth and development. It influences the attraction of investment capital and provides a level playing field for businesses. As Dr. Edwin Feulner elaborated in his special Index chapter:

“The rule of law is a critically important factor in determining which countries attract dynamic flows of global investment capital. Countries with rule-of-law scores in the top quarter have recorded levels of inward foreign direct investment that exceed levels in the lower three quarters combined.… The rule of law, especially for developing countries, may be the area of economic freedom that is most important in laying the foundations for economic growth.”

If Mongolia continues to embrace policies to advance economic freedom—especially the rule of law and the fight against corruption—the country’s prospects as an emerging market are sure to be bright.

Drew Ringley is currently a member of the Young Leaders Program at The Heritage Foundation. For more information on interning at Heritage, please visit http://www.heritage.org/about/departments/ylp.cfm.

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Mongolian coal's long road to market: China, Russia and Mongolia

By Peter Lee

January 28 (The Asia-Pacific Journal: Japan Focus) In Mongolia today, hunger for coal, copper, gold and uranium wealth is at odds with democracy as the demands of international resource giants collide with a stubborn political culture of resource nationalism.

In time for the June 2012 parliamentary elections, Mongolia's grand khural passed a law subjecting the purchase by "state-owned entities" of controlling interest in strategic Mongolian mining enterprises to government approval (as well as a host of other key industries).

The immediate provocation for the legislation was the sale by a Canadian company, Ivanhoe Resources, of its controlling interest in SouthGobi, an operator of coal mines in Mongolia, to a Chinese resource giant, the Aluminum Company of China, known as Chalco.

The legislation overtly targeted China. Vice Finance Minister Ganhuyag Chuluun Hutagt told Bloomberg that the country needed new investment laws to diversity its exports to countries other than China, which consumes a lion's share of Mongolia's coal and copper:

We don't want to be faced with one sovereign ... Our struggle to gain political freedom was a long one and we cherish that. We will not let foreign government-owned entities control strategic assets in Mongolia.

This is not an unambiguous win for non-Chinese international resource companies.

After all, there are two ways to make money from ownership of a mining concession. One is to engage in the arduous, expensive, long-term and risky enterprise of operating the mine. Another is to sell it. And the people who are willing to pay top dollar for a mine are the people who are already buying the product and have a powerful economic incentive for making a go of it ... like the Chinese. So the Mongolian government's involvement in strategic industries can be looked at in two different ways. On the one hand, it might hobble a deep-pocketed, overweening competitor to the benefit of other, grateful players; on the other hand, it might be seen as increasing the risk and diminishing the liquidity of investments in the so-called strategic industries, shaving precious points off the value of the assets, be they hard rock or financial paper. Unsurprisingly, the investment community, which is politely slavering at the prospect of profitable deal flows from Mongolian mining initial public offerings (IPOs) and mergers and acquisitions, is not amused by the strategic industry law. Dale Choi, of the pre-eminent Mongolia resource investment firm Frontier Securities, told Bloomberg:

Investors don't like it when the rules of the game are changed after the game has started, and changed often at that ... It would be in the interests of Mongolian people to make a decision based on commercial factors, rather than geopolitical factors. 1

The uncertain progress of the Tavan Tolgoi project illustrates the headaches facing Mongolia as it tries to reap its resource bonanza on behalf of its citizens even as the remorseless economic logic of globalization demands marginalization of their interests. Tavan Tolgoi, in the Gobi Desert less than 300 kilometers from the Chinese border, contains over six billion tons of coal reserves, including 1.8 billion tons of coking coal, a premium and profitable item used in the iron and steel industry.

Nothing about Tavan Tolgoi is simple, except perhaps the physical process of digging the coal out of the ground (albeit with the usual environmental and cultural trauma). Chalco is already buying all the coking coal that Tavan Tolgoi produces. But it has to truck the coal to China since the Mongolian government has dragged its feet on approving the 300-kilometer railway that would connect to the Chinese rail system, thereby making China the only feasible buyer. Mongolia's current anxiety about Chinese domination of its international trade channels (China accounts for perhaps 80% of Mongolia's export and import trade) is buttressed by significant historical and political factors.

The Mongolian republic's foundation myth, predating China’s Republican revolution, dates back to the eviction of a detested Manchu viceroy in 1911 and China's political and ethnic domination of the parts of Mongolia it did retain - now the Inner Mongolia Autonomous Region - is an affront and warning to Mongolian nationalists. Standing up to Chinese economic penetration is, therefore, good politics and may prove to be smart geopolitics. Economics, however, is another matter. Instead of simply linking Tavan Tolgoi to the Chinese railway system, Mongolia is trying to cobble together a coalition of Chinese, Russian, South Korean and Japanese concerns that will develop part of the mine jointly with Mongolia and, most importantly, build an integrated transport network 5,000 kilometers from Tavan Tolgoi to the Russian export facility at the port of Vanino.

 

Railroad map (2010)

The objective of the Russian route is for Tavan Tolgoi coke to find a home in Japanese and South Korean steel mills, and to get to those mills through Russia (which has no coke import needs of its own) without being captive to the necessity of moving the product overseas through the shortest and most economical route-through Chinese railroads and ports. Total projected cost: US$5.2 billion. Additional transport cost per ton: perhaps $100. To bootstrap this diversification, the Mongolian government already requires that Chalco resell 30% of its current Tavan Tolgoi purchases to three Japanese and South Korean trading companies. Reportedly, this portion is delivered to Chinese ports for export. Somebody is enjoying a windfall, as Mongolian coking coal is apparently selling for a third of the price of the Australian product currently fueling Japanese and South Korean steel mills. Tavan Tolgoi itself is divided into east and west zones, East Tsankhi and West Tsankhi, each with its own challenges. West Tsankhi is the joint development mega project based on foreign operators investing in and operating the mine and paying royalties to the mine owner, state-run Erdennes Tavan Tolgoi. This is the piece wrapped up in the multi-national/railroad to Russia consortium idea. The Mongolian government announced a jumbled up award to an unwieldy collection of companies but has been unable to work out the deal it is trying to impose - which probably requires a hefty up-front payment that somehow has to be divvied up between the disparate partners, each of whom has different roles, profit expectations, and willingness and capacity to pay. East Tsankhi is the part of the mine that is already selling its output to China under the ownership and operation of state-owned Erdennes Tavan Tolgoi. Per government plan, Erdennes TT will go public in a multi-billion dollar global IPO that will sell a 30% share to fund the further development and exploitation of East Tsankhi by some combination of foreign and domestic construction, equipment, and service vendors.

Mongolia originally had ambitious plans to list the IPO on three stock exchanges simultaneously: Ulan Bator, Hong Kong, and London. The overseas exchanges are panting for the offering, which is expected to raise $3 billion. Underwriters are all clamoring for the business, leading to a fistfight between pinstriped antagonists in an Ulan Bator watering hole in 2010 and the generous decision of the Mongolian government to expand the number of underwriters to six in 2012. However, the IPO has been delayed several times, and the Hong Kong component has been dropped.  The most recent prediction for the share sale is now mid-2013. Obstacles include uncertainty involving the award of West Tsankhi and the royalty revenue Erdennes TT would enjoy as a result.

A further complicating factor was a highly publicized exercise in resource nationalism: the sweeping decision to allocate 10% of the total stock of Erdennes TT to every one of Mongolia's citizens and another 10% to Mongolian corporate entities. The government has also decided to give Mongolian citizens the opportunity to sell their Erdennes TT shares to the state for 1 million tugrik (approximately US $3000).2 The stock grant significantly complicated the business plans of Erdenes TT with respect to the IPO. The chief executive officer of Erdennes TT, B Enebish, explained the current state of play to the UB Post before he left his post in October 2012:

[T]he company that is going public should have a clear investors' structure. But this is not the case for us. The Government made a decision to let the Mongolian public own 20% of TT. This means that the ownership of stocks are blurry because we do not know who will decide to keep or trade their stocks, or whether the Government will offer stocks to other companies or will they keep stocks themselves. We planned to resolve this in 2011 but the problem is still persisting even now. Two years ago, a resolution was passed from the State Great Khural on trading 30% of the company's stake on stock exchanges. But another resolution [was] passed in January 2012 decreasing this percentage to 20%. On foreign exchanges, more specifically the London Stock Exchange (LSE) and the Hong Kong Stock Exchange (HKSE), when a mining company is aiming to release on many different stock listings, it is required that at least 20% of the company's stock is out. It means that we must determine exactly how many of our Mongolian citizens will return TT stocks for cash and make sure the stocks traded are more than 20% before proceeding to release TT stocks on foreign exchanges. 3

Enebish declared that Erdennes TT could boost its value in the interim by plowing more investment into production in East Tsankhi, thereby begging the question of where the money would come from - since it wouldn't be coming from the IPO. The answer, at least in the near term, was China:

Since the IPO release has been postponed we see a definite need to find funding from a different source. We are discussing this with a number of investors, seeking to solve it through the sale of coal, presale of coal, and various loans.

Chalco, the same company that was subjected to the grand khural’s rebuke over its attempted purchase of South Gobi (which it subsequently abandoned), made a pre-payment of (depending who is talking, either $250 or $350 million dollars) to state-run Erdennes Tavan Tolgoi for coking coal. At the price Chalco is paying- less than US$70/ton, a far cry from the $200+/ton for Australian coking coal - that is over three years' worth of exports.4 However, it transpired that this cash transfusion was of virtually no help to Erdenes TT in funding its current operations, let alone financing its expansion. Erdennes TT is obligated to help fund Mongolia's Human Development Fund. The Human Development Fund is funded by revenues from resource exploitation along the lines of the Alaska Permanent Fund and the Norwegian sovereign wealth fund. In other words, it is a non-renewable resource fund, albeit with Mongolian characteristics – i.e. it has become something of a piggy bank for politicians to curry favor with the electorate while slighting the restructuring of the economy against the day, admittedly far in the future, when all the ores are gone. In 2011, the payout from the fund accounted for 40% of the government's budget, raising the specter of "Dutch disease" inflation the fund is specifically designed to avoid.

The 2012 payout was funded primarily by the Oyu Tolgai copper mine and the Chalco payment to Erdennes TT. 5 The Chalco payment to Erdennes TT amounted to about half of the value of the $500 to $600 million social welfare payout (in cash and services) that Mongolian politicians have promised to make from the nation's Human Development Fund to Mongolia's 3.1 million citizens in the runup to the June 2012 parliamentary election. In effect, then, Chalco got a bargain on coking coal while effectively bankrolling the Mongolian election-year giveaway meant to demonstrate the benefits of resource nationalism. 6 After the June 2012 parliamentary election the coalition led by the victorious Democratic Party apparently decided to push resource nationalism and determine what limits if any there were to the eagerness of foreign financiers, the tolerance of foreign mine operators, and the patience of the Chinese.

Unable to tap the bonanza of the longed-for Erdenes IPO, the government instead opted to issue $1.5 billion in government bonds.  The issue—equivalent to 17% of Mongolia’s current GDP—was quickly oversubscribed by a factor of ten, which perhaps provides a misleading idea of the international appetite for Mongolian risk and respect for the wisdom of Mongolian fiscal management, especially since the government apparently had no concrete plans for how to use the funds and pay back the principal and interest.

Writing on his blog, The Mongolist, on January 16, Brian White observed:

The government has been criticized by the opposition Mongolian People's Party (MPP) for not having a clear plan on how to spend the funds now that the government has received them. Prime Minister Altankhuyag has responded on behalf of his government that there is a plan in the works and a "Policy Council," which he will chair, has been formed to ensure proper use of the funds. To me this is a far more frightening bit of news than the market scare brought on by MPRP. In the highly partisan and depressingly opaque environment of the Mongolian parliament, the current government has introduced USD 1.5 billion of revenue without a binding and clear statutory authority for how it should be spent. The government of Mongolia seems to have a tremendous amount of faith in the political system's ability to produce a good outcome here. Moreover, the list of proposed projects for the revenue, which includes development of an industrial complex in Sainshand, expansion of the railroad, development of Tavan Tolgoi, and a potential subway system in Ulaanbaatar among other things, is shockingly broad when viewed in the context of reality. Just take the fact that Oyu Tolgoi (a single project) has required about USD 6 billion in financing thus far and it still has not begun full commercial production, and it is hard to imagine USD 1.5 billion going very far on the government's wish list.

http://www.themongolist.com/blog/government/44-the-name-is-bond-chinggis-bond.html

In addition to funding some immediate investment needs, the Democratic Party coalition apparently hopes that it can gain leverage with investors by demonstrating it has the option of funding its resource development through the issuance of debt without giving away equity.

Case unproven, it seems, by the $1.5 billion issue.  Foreign bond buyers were probably willing to take a flutter on a small issue of an exotic bond whose failure could not sink a diversified portfolio, a minor risk justified by the attractive theoretical fundamentals of Mongolia, namely its low baseline GDP and the potential for enormous growth of its resource sector.

However, an economic pundit ran the numbers in the UB Post (and also looked at the possibility that the government might turn to another $3.5 billion bond issue, in part to help pay for the first $1.5 billion) and drew the conclusion that Mongolia’s total foreign indebtedness had already reached worrisome levels:

As for Mongolia, the ratio of the total amount of our debt (USD 10.9 billion) to the GNI (USD 14.1 billion as the sum of GDP USD 8.5billion +USD 277 million transferred from abroad + USD 5.3 billion FDI) is 77 percent. And, the ratio of the total amount of debt to our export income, which was USD 3.8 billion, is 300 percent. When compared to average developing country, it is three times higher than the GNI and four times higher than the export income, which shows that the external debt of Mongolia is completely enormous.

http://ubpost.mongolnews.mn/?p=1600

Can the government keep its fiscal and business house in order—and continue to attract foreign investment and grow the economy at the 17.5% rate that caused all the excitement in the first place? In the new year, signals have been decidedly mixed, for reasons that are not entirely related to the weakening of Chinese demand.

On January 9, 2013, Erdenes TT management gave the Mongolian government the bad but not unexpected news that it was facing a shortfall of $200 million thanks to the election-year giveaway:

Earlier, “Erdenes Tavan Tolgoi” JSC has been financed first with 350 million USD in the form of advanced payment under the agreement established with Aluminum Corporation of China Limited (CHALCO), later received additional 131 million USD from GOLOMT Bank (Mongolia) and another 100 million USD from Development Bank (Mongolia), comprising a total of 581 million USD investments to date…only 270 million USD were utilized for Company’s activity from the total of 581 million USD invested, whereas the rest of 311 million USD was distributed to civilians accounting into Human Development Fund.

As to how the requested $200 million bailout will be used, management had this to say:

If to receive the 200 million USD investments, the activity will be normalized and citizens are able to receive their dividends from 1,072 shares distributed by the Government of Mongolia.

http://www.infomongolia.com/ct/ci/5469

To rephrase this rather fractured passage, some of the funds will be used to pay dividends to those Mongolian citizens who decided to hold onto their ETT shares (1072 per person) instead of selling them to the state.

Dividends have become an important issue because the new government repudiated the previous regime’s promise to buy back the 1072-share Erdenes distribution, making the payment of dividends something of a political imperative.

The government placed the blame for the financial shortfall squarely on the contract price negotiated by Erdenes TT (whose previous chief, B. Enebish had been forced to retire “for personal reasons” in October 2012 while being criticized by sources inside the government for “overspending” and “slowing the project down”) and the previous government with Chalco.

According to a deal that the former Government signed with CHALCO, Erdenes TT LLC sells high quality coking coal for 70 US dollar per ton to China. But the deal causes loss to the company. 

And the inevitable corollary:

Therefore Erdenes TT LLC is trying to re-negotiate with China over the deal.

http://www.business-mongolia.com/mongolia/2013/01/10/erdenes-tt-llc-needs-additional-investment/

Whether or not Erdenes is actually selling coking coal to Chalco below its marginal cost (it recently claimed it was losing $8/ton) is an interesting question that is difficult to answer.  All that can be said with confidence is that the government wants more money from the Chalco deal.

Presumably, Chalco, in light of the fact that it 1) prepaid for the coke which is as yet largely undelivered and 2) is aware that virtually all of the prepayment was transferred out to the Human Welfare Fund, is perhaps not eager to agree to pay more for the coking coal it hoped to get.

Bloomberg’s headline on January 17, 2012 revealed:

Mongolia’s Erdenes TT Halts Coal Exports to Biggest Buyer China

Erdenes TT’s new chief explained:

Exports to customers including Aluminum Corp. of China Ltd. stopped on Jan. 11 as Erdenes TT couldn’t pay Altangovi, said Yaichil Batsuuri, who has led the company since October. Altangovi provides warehousing services at the border with China, the biggest buyer of Mongolia’s steelmaking coal.

However, even in the same article, Batsuuri makes it clear that the real reason for the stoppage is not the relatively miniscule debt to Altangovi:

The halt comes as Erdenes TT seeks a government loan for as much as $500 million to repay debts and fund infrastructure construction, Batsuuri said last week. The mining company wants to raise prices and cut shipments, changing the terms of the $250 million contract it signed in July 2011 to supply companies including Chalco. . .

“The government made a resolution to make a new agreement with Chalco,” Batsuuri said…

http://www.bloomberg.com/news/2013-01-17/mongolia-s-erdenes-tt-halts-coal-exports-to-biggest-buyer-china.html

In another phone interview with Bloomberg, Batsuuri took a further step toward burning his bridges to the Chinese by publicly revealing the price Erdenes TT was getting for delivering coke to the Chinese border--$53/ton—thereby earning a rebuke from Chalco, which would like to keep its cost figures under wraps in order to protect its resale margin (Erdenes TT’s previous statements had valued the deal at a considerably higher $70/ton).

http://www.bloomberg.com/news/2013-01-22/chalco-urges-erdenes-tt-to-honor-terms-of-coal-supply-accord.html

The key question is whether the renegotiation represents a desperately-needed reordering of Erdenes TT’s finances and operations in order to get the China export business on a solid business footing—something that foreign investors might greet with a considerable degree of enthusiasm—or reflects a resource-nationalism strategy that is pummeling the Chinese for now, but might be turned against other foreign partners in the future.

Here is a relevant data point: The Mongolian parliament finally approved the construction of the railway from Tavan Tolgoi to China, the key infrastructure project that would allow Erdenes to stop the endless and costly caravan of 40-ton trucks heading to the Chinese border, unloading, and deadheading back to the mine.

The catch, as Charles Hetzler reported for AP:

Citing national security, the government ordered the rails be laid 1,520 millimeters apart, Mongolia's standard gauge inherited from the Soviets. The width ensures that the rails cannot connect to China's, which are 85 millimeters (about 3 1/2 inches) closer together. So at the border, either the train undercarriages will need to be changed or the coal transferred to trucks, adding costs in delivering the fuel to Mongolia's biggest customer.

When it comes to China, Mongolia will only go so far and no further.

"This is a political decision," shrugs Battsengel Gotov, the tall, boyish-looking chief executive of Mongolian Mining Corporation, which is building the railway from its prized coal mine…

http://www.northjersey.com/news/Mongolia_finds_China_can_be_too_close_for_comfort.html?page=all

Another data point is the furor over the new Mongolian resource law.

At the same time that the Mongolian government is, for lack of a more polite term, sticking it to the Chinese, it chose to alarm foreign investors with a proposed bill that would allow the Mongolian government to take free stakes in a number of “strategic” mineral projects.

Bloomberg reported on the clamor this proposed ox-goring raised among Mongolia’s resource development partners:

The legislation, which will give the state the right to a free stake in many mineral projects, will take the country away from the free-market principles practiced there since the early 1990s, Mongolia’s largest business group [the Business Council of Mongolia] said in a four-page letter sent to President Tsakhia Elbegdorj’s office on Jan. 7.

In addition to the general chilling affect that the law would have on investment in the mining sector, the business council raised the specter of Tavan Tolgoi:

“The draft minerals law will hurt all investment in mining in Mongolia, local as well as foreign,” Jim Dwyer, the executive director of the business group, said in an e-mail. “This would include the government’s huge Tavan Tolgoi coal project and Mongolia’s largest publicly-owned mine, Energy Resources.”

http://www.bloomberg.com/news/2013-01-08/mongolia-group-says-draft-law-hurts-foreign-investment.html

However, it looks like the Tavan Tolgoi card, with its Chinese export focus, its muddled West Tsankhi consortium negotiations, and its faltering Erdenes TT IPO, is becoming increasingly tattered and devalued, at least in the eyes of the Mongolian government.

If Tavan Tolgoi becomes a dilapidated monument to the government’s resource-nationalist dreams, expect to hear more about another mine—Ovoot.

Ovoot reportedly contains coking coal reserves of a magnitude similar to Tavan Tolgoi.  Its primary attraction, at least to the Mongolian government, is that it is situated in northern Mongolia, near the existing east-west rail line, and therefore can be integrated into the rail network connecting to Russia for the relatively modest cost of $1 billion.

The mine’s foreign investor, Aspire, has a railway construction subsidiary purposed to build the line, and is minority-owned by Noble, the gigantic Asian commodity house, which owns the rights to construct a coal export terminal in eastern Russia.

On the occasion of Noble boosting its stake in Aspire to 15%, Aspire told Bloomberg:

“Mongolian coking coal is largely being sold to Chinese steel producers,” Aspire said. “It is a key part of Mongolian development policy to establish access to seaborne markets for Mongolian coal, to provide pricing tension with Chinese customers and establish seaborne price benchmarks for Mongolian coking coal.”

http://www.bloomberg.com/news/2013-01-10/noble-to-lift-aspire-stake-to-increase-mongolia-coal-shipments.html

The current Mongolian government, without a doubt is advancing a strategy of resource nationalism—and retreating from a “Mongolia is open for business” open investment policy-- to increase its leverage in negotiating the extraction of its mineral wealth with foreign investors.

By this strategy, the most logical buyer of Mongolian coal, China, will be squeezed by increasing the costs and decreasing the margins associated with its sources in southern Mongolia.  The government will do its best to exploit the negatives it has imposed on the China business to encourage the development of the Russian rail link from Tavan Tolgoi and /or the Ovoot mine to promote the viability of an otherwise significantly more costly route to market through Russia. 

If all goes as planned, Mongolian coke will replace Australian coke in Japanese and South Korean, as well as Chinese, steel mills and Mongolia will leverage its expanded market access to capture a bigger share of the profits instead of giving them away to middlemen. Foreign investors, however, will not be unreservedly grateful to the Mongolian government for unleveling the playing field at China’s expense, for a variety of reasons that relate to the government’s attraction to overt resource-nationalist policies.

First, if foreign investment and resource companies acquiesce to the rough handling meted out to China, there is no guarantee that the same measures will not be applied to them in the future, either by this administration or the next victors at the Mongolian polls. 

In this context, the proposed revision to the mining law—which gives the government the right to uncompensated shares in Mongolia’s biggest deposits—looks like a self-inflicted wound, administered, in the eyes of the foreign business community, by President Elbegdorj in order to endear himself to the electorate prior to the June 2013 presidential poll.

Second, the biggest operating and therefore investment payday is shoveling coal and copper into the maw of the Chinese industrial machine and/or using the Chinese railway system to transport coal to Chinese export ports for shipment to South Korea and Japan.  Developers and investors will be less eager to pursue a Mongolian resource play that compromises the current bottom line and creates a down-the-road strategic risk by effectively subsidizing a less-competitive Russian export channel.

Third, governmental resource management has the potential to turn into a counter-productive carnival of politics, extravagance, and corruption, as the precedents of the Tavan Tolgoi welfare fund giveaway and the seemingly cavalier issuance of Chingghis bonds may appear to anxious investors.

On the one hand the Mongolian government is reducing the rate of return foreign investors can expect; at the same time it is increasing the uncertainty of those returns.  From the point of view of Net Positive Value, the investor’s lodestar, the math is all heading in the wrong direction.

It remains to be seen if the promise of the Mongolian bonanza is rich enough to overcome these obstacles and attract the investment—and/or sell the debt-- needed to develop the mines. The problems shadowing Mongolia’s coal export projects are a sign of the difficulties of reconciling the tension between globalization and resource nationalism, and a warning signal for Mongolia's future.

Peter Lee writes on East and South Asian affairs and their intersection with US global policy. He is the moving force behind the Asian affairs website China Matters which provides continuing critical updates on China and Asia-Pacific policies. His work frequently appears at Asia Times. This is a revised and expanded version of an article that appeared at Asia Times.

Recommended citation: Peter Lee, "Mongolian coal's long road to market: China, Russia and Mongolia," The Asia-Pacific Journal, Vol. 11, Issue 3, January 28, 2013.

Notes

1 Chalco Targeted as Mongolia Seeks to Limit State Deals, Bloomberg, May 17, 2012.

2 The 666,000 MNT will be distributed to elders and disabled civilians from next week, Info Mongolia, May 18, 2012.

3 Click here for the UB Post story.

4 Click here for a story by Info Mongolia.

5 Mongolia's Quest to Balance Human Development in its Booming Mineral-Based Economy, Brookings, January, 2012.

6 Chinese, Mongolian companies sign $250m coal deal, China Daily, Jul 29, 2011.

Articles on related subjects

• Peter Lee, A New ARMZ Race: The Road to Russian Uranium Monopoly Leads Through Mongolia [here]

• Miles Pomper, Ferenc Dalnoki-Veress, Stephanie Lieggi, and Lawrence Scheinman, Nuclear Power and Spent Fuel in East Asia: Balancing Energy, Politics and Nonproliferation [here]

• MK Bhadrakumar, Sino-Russian Alliance Comes of Age: Geopolitics and Energy Politics [here]

• Geoffrey Gunn, Southeast Asia’s Looming Nuclear Power Industry [here]

• MK Bhadrakumar, Russia, Iran and Eurasian Energy Politics [here]

Link to article

 

Meteoric Mongolia

Why It's Ascending So Fast -- And How It Might Fall

Mongolia enjoys one of the fastest-growing economies in the world. But the dramatic increases in the country's GDP are riddled with ambiguity, as widespread corruption and an unsustainable dependence on mining raise questions for the future. Absent better planning and more government regulation, Mongolia's problems will only worsen.

MORRIS ROSSABI is Distinguished Professor of History at Queens College at the City University of New York and Adjunct Professor of Inner Asian History at Columbia University.

January 31 (Foreign Affairs) While Western economies have struggled to achieve two percent annual GDP growth of late, Mongolia has tallied rates well into two digits. After the Mongolian economy contracted 1.3 percent in 2009 -- the height of the recession -- it grew by 6.4 percent in 2010, and then by an astonishing 17.3 percent in 2011. And the stellar performance has only continued: The International Monetary Fund (IMF) estimates that Mongolia's GDP increased by 12.7 percent in 2012, making it the fifth-fastest growing economy economy that year. The IMF projects a growth rate of 15.7 percent in 2013. But these jaw-dropping figures conceal deeper economic dislocations.

At first glance, Mongolia's recent performance contrasts sharply with the country's economic malaise in the early 1990s. After the collapse of the Soviet Union, the withdrawal of aid from Moscow and the decrease in trade with the Soviet bloc led to a precipitous economic decline, prompting Ulaanbaatar to seek assistance from international financial agencies. The "shock therapy" prescribed by the IMF and the Asian Development Bank, which consisted of privatizing companies, minimizing government, eliminating subsidies, liberalizing trade, and enacting austerity measures, exacerbated Mongolia's difficulties. Unemployment, poverty, corruption, and the attendant social problems afflicted Mongolia throughout the 1990s and into the next decade.

But the Mongolian economy has not progressed as radically as that simple story suggests. In fact, much of the recent growth has derived from just one sector: mining. Recent discoveries of major copper, gold, coal, uranium, tin, and tungsten deposits have driven development. Many of these minerals and ores are located in southern Mongolia, not far from China, which is a voracious consumer of mineral resources. Scarcely any other industry, except for the production of cashmere wool, has been developed, making Mongolia highly dependent on the vagaries of global demand for minerals and ores and, perhaps even more important, increasingly reliant on China.

Invariably, the sizable Chinese market attracted the attention of mining companies. Among the first to recognize the potential of Mongolia's natural resources was the financier Robert Friedland, who has a long history in the mining industry and was nicknamed "Toxic Bob" for the environmental disasters his companies have left in their wake. In 2003, one of his operations, Ivanhoe Mines (now Turquoise Hill Resources), secured a lease to search for minerals in a vast tract of land in southern Mongolia. Friedland's repeated pronouncements about the extraordinary resources he and his team had found prompted a rush among Australian, Canadian, Chinese, French, and Russian businesses to obtain similar leases. In large part, Mongolia's economic advances are built around this mining bubble.

A number of problems have bedeviled mining ventures in Mongolia. For one, given that many Chinese and Russian companies have shown scant regard for their own air, water, and land resources, they seem unlikely to care much about Mongolia's. And mining wealth is not evenly distributed: it has accrued almost exclusively to an elite set of Mongolians and foreigners. To be sure, unemployed, poor, and desperate Mongolians, known as "ninjas" in the country, have tried to get in on the rush for gold and copper. Lacking expertise and proper equipment, they, too, pose hazards to the environment. The best estimate is that 100,000 such ninjas are currently operating as illegal prospectors. Not only do they pay no taxes; they also contribute to prostitution, gambling, and other illegal activities in Mongolia.

The policies of legitimate mining companies have been similarly controversial. In 2009, for example, Mongolian government officials negotiated a stabilization agreement with the British-Australian mining company Rio Tinto, granting it 66 percent ownership of a lucrative gold and copper mine at Oyu Tolgoi. The talks were, for the most part, conducted in secret, giving rise to considerable suspicions that Mongolia did not come out ahead. After the elections in June 2012, several members of the Mongolian parliament demanded a renegotiation. Rio Tinto and its Western government backers decried this move as "resource nationalism," admonishing their Mongolian opponents to end their efforts. But the Mongolians demurred, intimating that graft and bribery -- at their country's expense -- affected the course of the negotiations. Some critics have accused a few Mongolian officials of accepting payoffs or, at the very least, receiving gifts in exchange for consenting to the agreement.

The opposition's charges are not off base; the level of corruption in Mongolia is astounding. In 2011, for example, Transparency International ranked Mongolia 120 of 182 countries on its corruption index (the higher the number, the more corrupt). The following year, Nambaryn Enkhbayar, the country's prime minister from 2000 to 2004 and its president from 2005 to 2009, was tried, convicted, and imprisoned on charges of corruption. (His supporters claim that the case against him was politically motivated.) The mining sector appears to represent a particular hotbed of corruption.

The extraordinary level of corruption has complicated attempts to tackle Mongolia's major poverty problem. According to the National Statistical Office, 39 percent of the country's population was living in abject poverty in 2010. It then claimed that the rate was reduced to 29 percent in 2011 because of the increase in mining activity and GDP that year, but independent observers have challenged those numbers. Meanwhile, inequality is on the rise. Beggars and street children outside a recently opened Louis Vuitton store in the central square of Ulaanbaatar highlight the stark disparities between a small elite and the larger population.

Another sign of economic dislocation is the dramatic increase in Ulaanbaatar's population. In 1990, less than 25 percent of the Mongolian population lived in the capital; by 2012, that figured had ballooned to 40 percent. A number of factors have produced this wave of in-migration, but the most important is the decline of the herding economy. After the end of communism, herders experienced a considerable reduction in government support, which is essential in a demanding and fragile nomadic pastoral economy. Without sufficient government backing for the construction and maintenance of wells and facilities for transporting animals to market, the provision of veterinarians, and the dissemination of information about weather and prices, herders have found themselves in an increasingly precarious position. Many have not been able to earn a living in the countryside and have moved into tent encampments surrounding the capital. These makeshift neighborhoods often have no running water or sanitation facilities; the trash they produce remains in huge piles for days or weeks on end; and the coal they use for cooking and heating contributes to Ulaanbaatar's position as one the world's most polluted cities. The increase in GDP over the past few years has scarcely touched the tent communities.

Some of the herders, especially in the Gobi Desert, have blamed the mining companies for undermining their livelihoods and compelling them to migrate. They have accused the companies of, on the one hand, diverting precious water in the desert for their own use and, on the other hand, dumping poisonous waste in nearby water supplies. Rio Tinto and other companies have responded that they actually have discovered new sources of water and not impinged upon the herders' supply. Arbitrating these claims has proven exceedingly difficult, because the Gobi is so vast, remote, and difficult to traverse. Nevertheless, Mongolia's environmental ministry has confirmed the drying up of close to 400 rivers, streams, and lakes throughout the country due to industrial (mostly mining) operations.

On the whole, ambiguity characterizes the dramatic increases in Mongolia's GDP. Although the country's mineral and natural resources appear to ensure continued economic growth, deeper problems -- such as income inequality, poverty, the decline of the herding economy, and environmental degradation -- remain. Absent better planning, less corruption, and more government regulation, these problems will only worsen. GDP growth alone, it turns out, is not a panacea.

This article is the first installment of a five-part series examining the fastest-growing economies of 2012, according to the IMF World Economic Outlook.

Link to article

 

Genghis Khan's New World

January 28 (Harvard International Review) Construction is finishing at Oyu Tolgoi. The copper and gold mine, Mongolia’s largest financial endeavor, is surrounded by a barren landscape, but the influx of miners has been adding life to the surroundings. In less than ten years time, Oyu Tolgoi is predicted to constitute more than a third of Mongolia’s GDP. However, as mining gains momentum, sociopolitical threats loom. In a developing country of less than three million people, US$1.3 trillion in mining potential could have quite an impact.

Centuries after the fall of Genghis Khan’s extensive empire and, more recently, after the demise of the Soviet Union, the People’s Republic of Mongolia underwent major political, economical, and social changes. Two decades after holding its first democratic election, its political climate today is stable, though corruption is widespread, and since 2008, civil unrest has become a major concern. The transition to a free market economy was not smooth either: economic shocks are frequent and inflation is out of control.

To navigate its economic transition, Mongolia has had to find a viable source of economic growth. Its historically nomadic population is not agriculturally self-sufficient and as a result, the nation could not turn to the agricultural sector to fuel its nascent economy. Industrial production has always been stymied by competition with the Chinese. In search of an economic boon, the country turned to natural resources.

In 2001, Oyu Tolgoi (in Mongolian, Turquoise Hill) was discovered. The scope of underground deposits of copper and gold attracted many foreign investors, such as mining corporations Rio Tinto and Ivanhoe Mines. Oyu Tolgoi’s expected output amounts to 40 billion pounds of copper and 25 million ounces of gold. In negotiating the mining deal, the Mongolian government demanded a 51 percent stake in Oyu Tolgoi, but was later forced to accept a meager 34 percent under intense economic threats from the Bush Administration. In the coming years, similar conflicts between the Mongolian authorities and foreign entities are expected and may prove to be especially troublesome to the government given that companies such as Rio Tinto have annual revenues nearly ten times as high as Mongolia’s GDP.

Of all the Mongolian mines being developed, the most promising is Tavaan Tolgoi, the world’s largest untapped coal deposit of which the Mongolian government has managed to retain a 51 percent controlling stake. Annual production of coal in Tavaan Tolgoi is expected to increase to 15 million metric tons.

As international investors explore Mongolia’s wealth of natural resources, the nation of Genghis Khan is slowly turning into “Minegolia.” The nation of nomad herders is experiencing a rural exodus. Not only has the climate been particularly harsh these last few years, resulting in loss of crop and livestock, but there is also a shortage of water. The already scarce resources in the landlocked, desert country are being drained for use in Oyu Tolgoi and similar projects. These developments have not gone unnoticed by the government, which has attempted to preserve the national identity by marketing cultural goods and customs such as meat, cashmere, and practices such as the Nadaam festival, which has become a tourist magnet. Mongolia’s culture is being promoted and adapted for global markets. In addition to these culturally linked exports, the government has explored new ventures, such as the US$10 billion Sainshand Industrial Complex Project, which could become Mongolia’s first step toward developing a competitive technology industry.

While the government can be praised for such actions, some reproach it for its corruption. According to Transparency International, Mongolia ranks at a dismal 120th place globally on the corruption perception index (Mogi: author should check the latest report). When one combines a boost in natural resources with a corrupt political system, dire consequences can ensue. Similar cases have seen ruling classes amass incredible wealth through bribery and corruption (Nigeria in the 1970s, for example). Mongolia’s ruling class has already seen bribery scandals increase both in frequency and scope. Recently Nambaryn Enkhbayara, a former president, was jailed for corruption, having received more than US$6 million in bribes. The ruling class, alongside certain domestic and foreign opportunists, has the potential to turn into a group of oligarchs, the new Khans of Mongolia.

As one part of the population profits from the Mongolian mining boom, another part suffers. Mongolia’s GINI coefficient, the main measure for income inequality, is anticipated to rise in the next few years, despite the government’s attempts at distributing the wealth derived from the country’s natural resources. Mongolia’s government has pledged to give every Mongolian born before March 31st, 2011 around US$1000 annually, but a stable middle class is unlikely to arise. Mongolia’s government seems torn between its populist policies and its deeply-rooted corruption. The resulting confusion prevents efficient responses to urgent problems, notably on environmental and health issues. As mining is gaining momentum by the day, environmental concerns are rising. Ulan Bator, Mongolia’s capital, is the world’s second most polluted city. A combination of constant coal burning in informal settlements and peculiar natural surrounding creates serious health risks for Mongolians. Outside Ulan Bator, the burgeoning mining industry has people working in deplorable conditions.

Mongolia’s mining boom is a double-edged sword: while vast wealth is for the taking, many changes have to be made to the Mongolian political system if this wealth is to benefit the entire country. Negative social, cultural, environmental, and economic consequences will be inevitable but may be containable. The question remains whether the motherland of Genghis Khan will rise to conquer the problems that it faces.

Link to article

 

Designer S.Ariunaa to participate in Mercedes-Benz Fashion Week in Tokyo

January 31 (UB Post) Mongolian designer S.Ariunaa is going to participate in the Mercedes-Benz Fashion Week, which will take place in Tokyo, Japan from March 18-22. The designer will present her 2013-14 winter collection.

Designer S.Ariunaa is one of the most prominent designers of Mongolia, best known by her cashmere clothing designs when she was working for the Gobi Company. S.Ariunaa graduated from the Bremen’s Art School in Germany and has been working with famous fashion designers of German. She launched her brand under the name ‘Ariunaa Suri’ in Germany that was highly esteemed by the customers there.

Although it is quite rare that rather new designers in the fashion world participate in Tokyo Mercedes-Benz Fashion Week, S.Ariunaa was qualified to take part in the event by her works. Team of 20 members is currently preparing to attend this event.

The Mercedes-Benz Fashion Week takes place twice a year in Tokyo in March and in October and is organized by the Japan Fashion Week Organization. Famous fashion brands as well as new trends for the upcoming seasons are showcased at the fashion week.

The UB Post previously reported that Mongolian designer G.Zoltsetseg who is known by her fashion brand Katya Zol was set to take part in the New York Couture Fashion Week in February. G.Zoltsetseg announced earlier that she would report from the Mercedes-Benz fashion week.

Link to article

 

The Mongolian Youth Federation

Munkhbat Ayush, President and CEO of the Mongolian Youth Federation

January 31 (Sharnoff’s Global Views) The Mongolian Youth Federation is a national non-governmental organization of youth which organizes a range of activities with the ultimate aim at providing support and help in protecting common rights and interests of Mongolian youngsters.

This includes improving youth self-development, physical and ethical education and helping resolve the social-economic challenges in education, health, employment and other issues.

The main goals of the MYF are:

§  To assist young people in becoming a socially active force for local communities and society in general

§  To provide the youth with opportunities to acquire and maintain moral, mental and physical health

§  To establish and maintain relationship with similar international and national youth organization.

§  To promote international friendship and respect through youth activities

On August 25, 1921, the Mongolian National Youth Movement began with as a formal group named the “Mongolian Revolutionary Youth Union” (MRYU) which first consisted only of seventeen members. Such prominent people included H. Choibalsan, one of the political leaders of the Mongolian Revolution and Ts. Gursed, a well-known intellectual of that time. These visionaries were instrumental in setting up the structure and policy for this patriotic youth organization that would aim to mobilize the young citizens of the new independent Mongolia for modernization and social progress of the country.

In 1921-1931, MRYU started strengthening and intensifying its activities. In 1946-1952, the foreign relations of  MRYU  had developed and participated in over twenty events organized by World Democratic Youth Union and International Student Association.

In 1960-1970, the foreign relations of MRYU expanded and Mongolian youth attended many conference, meetings and seminars which were held in Warsaw, Vienna, and Moscow. In 1967, the 9th session of the International Student Association was held in Ulaanbaatar, Mongolia attended by delegates in 115 organizations and over 80 countries.

By the end of the 1980s, changes and reforms started in Mongolia and young people led the democratic movement. The Mongolian Youth Federation was founded on January 18, 1991. The 1st General Assembly of MYF had adopted the activity guidelines and organization’s by-laws. The 2nd  General Assembly held in 1993, affirmed the status of MYF as non-governmental, independent public voluntary organization that expresses common goals of Mongolian youth.

MYF had joined the World Assembly of  Youth (WAY) in April  and the Asian Youth Council in June 1993. During the World Summit for Social development in 1995, the MYF was awarded the nominee of World Youth from WAY under the patronage of the Malaysian Prime Minister. The MYF has cooperated with Parliament in fields of youth and children since 1996, and has active support with youth organization communities as well as international organizations.

(Munkhbat Ayush was appointed President and CEO of the Mongolian Youth Federation in February 2012. Active in public affairs and policy, Ayush has served as Senior Advisor to the Labor Minister of Mongolia, and on boards of several public and private corporations. He earned a MA in Business Administration in Academy of Management, Government Agency of Mongolia)

Link to article

 

Misc

Scotland Yard Hunt Missing Mongolian Dinosaur in Britain

February 3 (International Business Times UK) Scotland Yard is trying to locate the skeleton of a 70-million-year-old dinosaur, which has been stolen and is believed to be in Britain.

The Mongolian government has sought the help of UK police in finding the rare Tarbosaurus Bataar, a close relative of the Tyrannosaurus Rex. On the black market, the dinosaur fossil could fetch around £700,000.

After details came to light of its theft during a US court case, Oyungerel Tsedevdamba, Mongolia's Culture Minister said: "We hope the British police authorities will collaborate with Mongolia on this important case that will help stop the illegal smuggling of dinosaur fossils."

In December 2012, Florida-based fossil trader Eric Prokopi pleaded guilty to three counts of illegally trafficking dinosaur bones out of Mongolia and China.

He is due to be sentenced on 25 April and faces up to 17 years in jail, with a £160,000 fine.

Five dinosaur skeletons have already been recovered in the United States.

A sixth remains missing and, according to prosecution documents, the Tarbosaurus fossil could be in Britain.

UK police are seeking to interview a British trader about the missing 40ft dinosaur skeleton.

The Tarbosaurus, whose name translates as "alarming lizard", was one of most ferocious predators in the area that is now Mongolia's Gobi Desert.

The dinosaur measured up to 12m long and was equipped with 64 flesh-ripping teeth.  

Prokopi moved the dinosaur parts out of Mongolia via Britain by falsifying paperwork before exporting them to the US.

Mongolian officials believe British fossil trader Chris Moore could help with the search.

Moore, based in Devon, has business links with Prokopi which came to light in the US court case.

According to an invoice seen by the Daily Star, Moore sent three crates which were marked "fossil reptiles" to Prokopi in Florida in March 2010, valued at £9,300.

But US prosecutors claim the shipment contained the bones of a 24ft Tyrannosaurus which originated from Mongolia and was sold at a New York auction house for £655,000 last May.

The skeleton has since been seized, along with the other recovered fossils and is waiting to be sent back to Mongolia for display in a museum.

The Mongolian authorities say Moore, who has not been accused of any wrongdoing, visited the country with Prokopi in 2011 and went fossil digging in the Gobi Desert.

Preet Bharara, the US Attorney who worked on the case, said: "Fossils and ancient skeletal remains are part of the fabric of a country's natural history and cultural heritage, and black marketeers like Prokopi who illegally export and sell these wonders, steal a slice of that history.

"We are pleased that we can now begin the process of returning these prehistoric fossils."

The location of the Tarbosaurus Bataar remains a mystery.

Link to article

Related:

COPS SEARCH BRITAIN FOR 40FT TARBOSAURUSThe Daily Star, February 3

 

UNAIDS applauds Mongolia for removing restrictions on entry, stay and residence for people living with HIV

GENEVA, 31 January 2013 (UNAIDS) —The United Nations Joint Programme on HIV/AIDS (UNAIDS) welcomes the recent law reforms in Mongolia that have removed all travel restrictions and other discriminatory provisions for people living with HIV. The reforms which were passed by Mongolia’s Parliament in mid-December of last year took effect on 15 January 2013.

The Law on Prevention of Human Immunodeficiency Virus Infection and Acquired Immune Deficiency Syndrome removes all HIV-related restrictions on entry, stay and residence. Foreigners applying for visas to Mongolia are no longer required to disclose or provide documentation of HIV status.

I commend Mongolia for taking this bold step and I hope this will encourage other countries to follow their example and move the world towards zero HIV-related stigma and discrimination,” said Michel Sidibé, UNAIDS Executive Director.

UNAIDS advocates for the right to freedom of movement—regardless of HIV status. There is no evidence to suggest that restrictions on the entry, stay or residence of people living with HIV protect public health.

Mongolia’s reforms also removed employment restrictions that prevented people living with HIV from undertaking certain jobs, including in the food industry. The new law has also encouraged the creation of a multi-sectorial body comprised of government, civil society and private sector representatives to help put in place the reforms.

With the removal of Mongolia's restrictions, UNAIDS counts 44 countries, territories, and areas that continue to impose some form of restriction on the entry, stay and residence of people living with HIV based on their HIV status. There are five countries with a complete ban on the entry and stay of people living with HIV and five more countries deny visas even for short-term stays. Nineteen countries deport individuals once their HIV-positive status is discovered.

Link to release

Related:

A Cross-Sectional Evaluation of Correlates of HIV Testing Practices Among Men Who Have Sex with Men (MSM) in Mongolia - Faiza Yasin, Altanchimeg Delegchoimbol, Naranchimeg Jamiyanjamts, Tugsdelger Sovd, Krystal Mason, Stefan Baral

 

--

“Mogi” Munkhdul Badral

Cover Mongolia

Email: mogi@covermongolia.mn

Mobile: +976 9999 6779

Skype: mogibb

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