Friday, August 16, 2013

[OT underground stop causes mass layoffs, Sumitomo Mitsui gets nod to open rep office, and NSC holds closed meeting on economic situation]

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Overseas Market

Mongolia considers parliament recall as $5 bln mine plan stalls

* Emergency parliamentary session could approve financing for Rio expansion

* Rio axed 1,700 jobs after putting $5 billion mine expansion on ice

* Oyu Tolgoi mine set to boost the economy by a third by 2020

By Terrence Edwards

ULAN BATOR, Aug 15 (Reuters) - Mongolia is considering an emergency session of parliament, looking to stave off an economic crisis sparked by uncertainty over the country's biggest mining project, weak coal prices and sliding foreign investment.

Mongolia's National Security Council, which is headed by the country's president, met on Thursday, and a government official said it could decide to recall parliament, now in summer recess, for what he called an "extraordinary" session.

That, among other measures, could accelerate the approval of financing for a $5 billion expansion to global miner Rio Tinto's giant Oyu Tolgoi gold and copper mine.

"The OT mine will be a main issue if there's (an emergency) session," the official briefed on the discussion said.

He said no date was fixed: "There's nothing clear today."

Rio said on Wednesday it would axe up to 1,700 jobs at the Oyu Tolgoi copper and gold mine, where it has put an underground expansion on ice due to disputes with the government.

The mass lay-offs at Oyu Tolgoi were seen by some in Mongolia as a move by Rio Tinto to pressure the government into easing its demands on the miner over project financing, and the extra session of parliament could spur progress.

"The job cuts at OT will have an immediate effect in Mongolia's economic and political environment," said Ankhbayar Bilguun, Chief Executive of Mongolian Investment Banking Group.

"Economically, we view that 1,700 families are being affected by this cut... Politically, this delay in underground operations will create doubt in populist politicians."

Delays at the giant copper-gold mine, as well as proposed changes in foreign investment rules, have led to a sharp drop in foreign direct investment in Mongolia and a sell-off in shares of smaller companies with projects in the country.

A drop in prices for coal, which feeds the state budget, has also hurt.

According to figures released by the Ministry of Economic Development on Thursday, foreign direct investment fell 43 percent in the first six months of 2013, with geology, mining and petroleum down by a third. The finance and construction sectors saw a drop of more than 90 percent.


The mine expansion is vital to Mongolia as Oyu Tolgoi, 66 percent owned by Rio's Turquoise Hill Resources unit, is expected to boost the economy by a third by 2020. It is also crucial to Rio as it trims its dependence on iron ore.

Rio said in late July it was stopping all work on the underground mine until it resolved disputes over funding of the project and secured financing approval from parliament.

A provisional financing deal has been extended until the end of 2013, but the expansion could be on hold for longer.

Despite calls from key ministers for underground work to resume and Rio Tinto Chief Executive Sam Walsh saying that everyone wants the project to go ahead, disputes over rising costs, financing of Mongolia's share, and local representation in management have yet to be resolved.

The latest troubles follow the start of exports in July from the $6.5 billion open-pit mine at Oyu Tolgoi, where production is continuing to ramp up.

The launch of exports after last-minute delays came as a big relief for Rio Tinto and other foreign investors after the government had tried to renegotiate parts of the 2009 Oyu Tolgoi investment agreement over the past year.

But that relief was short-lived with the eruption of the latest dispute, which has only reinforced worries about political risk in Mongolia.

Ratings agencies have warned the economy was vulnerable as a result of its heavy dependence on commodity markets.

"Key pressure points are brisk loan growth on the back of the government's subsidised loan scheme; currency depreciation; and weaknesses in the construction and mining sectors," Fitch said last month after Mongolia's fifth-largest lender, Savings Bank, collapsed.

The Mongolian currency has fallen 13 percent to 1,559 tugriks to the U.S. dollar this year, and Mongolian Investment Banking Group predicts the tugrik will depreciate further to the 1,680-1,730 range by October due to a seasonal spike in imports. 

Link to article


Rio Tinto lays off 1,700 Oyu Tolgoi mine workers as dispute drags on

August 14 (Bloomberg) As many as 1,700 workers at Rio Tinto Group's US$6.6-billion Oyu Tolgoi copper and gold mine in Mongolia, where shipments began last month, have been laid off amid a financing dispute.

"This is a difficult time for everyone at Oyu Tolgoi but it is especially difficult for those who work on the underground mine," Rio's Oyu Tolgoi LLC said in an e-mailed statement. The layoffs are a mix of contractors and employees.

The layoffs at Oyu Tolgoi, owned by Rio and the Mongolian government, follow months of disagreement between the two sides over how to share revenue from the mine. The lack of a decision has already hurt the Mongolian economy, with foreign direct investment down 43% this year. A planned US$5.1-billion mine expansion has been delayed, Rio said in July.

"These layoffs bring a human element to it," Dale Choi, the founder of Independent Mongolian Metals & Mining Research, said Wedensday. "These people are going to be unhappy. They might start talking about their plight to the government or the media. So it escalates the tensions."

Rio, the world's second-biggest mining company, controls Oyu Tolgoi through its Turquoise Hill Resources unit, which owns 66% of the mine. The government of Mongolia holds the rest. The operation employed about 13,500 people at the end of June, London-based Rio said Wednesday in an e-mailed statement.

On Aug. 12, Turquoise Hill said funding and development of the mine's underground expansion would be delayed until "matters can be resolved with the Mongolian government and a new timetable has been agreed."

The Oyu Tolgoi partners said Wednesday that "the shareholders are fully committed to resolving the issues so the underground development can resume."

Link to article


Rio Oyu Tolgoi Said to Lay Off About 2000 Amid Dispute, BTV Says     

August 14 (Bloomberg) About 2,000 workers at Rio Tinto Group's $6.6 billion Oyu Tolgoi mine in Mongolia have been laid off, Bloomberg TV Mongolia reported today.

BTV Mongolia cited one of the laid off workers and a letter from Redpath Mongolia LLC, a contractor that employs workers at the copper and gold mine owned jointly by Rio Tinto and the Mongolian government. The letter confirmed the layoffs without specifying the number, BTV Mongolia reported.

The employees of Redpath Mongolia, which is building the underground portion of the mine, were handed termination notices that cited a decision by Oyu Tolgoi LLC's board of directors. BTV Mongolia obtained a copy of the letter.

The decision to lay off the workers comes after months of disagreement between the government and Rio over how to share revenue from the mine. Concerns over the project's fate have already hurt the Mongolian economy, with foreign direct investment plunging 43 percent this year.

The Redpath employee said the number of workers laid off was announced at a company briefing on Aug. 12, BTV Mongolia reported. The letter gave workers 45 days notice.

Rio controls Oyu Tolgoi through its Turquoise Hill Resources Ltd. (TRQ) unit, which owns 66 percent of the mine. The government of Mongolia holds 34 percent. On Aug. 12, Turquoise Hill said funding and development of the mine's underground expansion would be delayed until "matters can be resolved with the Mongolian government and a new timetable has been agreed."

Bloomberg TV Mongolia is a joint venture between Bloomberg Television and Trade and Development Bank of Mongolia.

Link to article


UPDATE 1-Job cuts ahead as Rio puts Mongolian expansion on hold

* Company announces 1,700 redundancies

* Delay is latest hiccup for Rio, government

* Project vital for co-owners

LONDON, Aug 14 (Reuters) - Rio Tinto said on Wednesday it would have to cut up to 1,700 jobs in its Mongolian operation, after a more than $5 billion underground expansion of the giant Oyu Tolgoi copper mine was suspended.

The expansion was put on ice last month as the global miner said the Mongolian government wanted parliament, currently in recess, to approve financing for the project.

Mongolian Prime Minister Norov Altankhuyag said last week that Rio did not need to seek parliamentary approval for the development's package.

The delay marked the latest bump in the road for Rio at one of its biggest projects - and one of the world's largest untapped copper deposits - which started exporting from an open pit mine in July after two last-minute hiccups in securing government approval.

Mongolia has raised concerns about the costs of the Oyu Tolgoi expansion and the potential that rising expenditure will delay when it starts receiving its share of profits. .

The government has also complained that locals are not well represented in the management of the project.

A Rio spokesman said that the delay was now being implemented.

"There will be up to 1,700 redundancies for our employees and contractors," a Rio spokesman said.

"(Oyu Tolgoi is) still an operating business, exporting concentrate to our international customers, and infrastructure projects outside of the underground mine such as the road construction to Tsagaankhad will continue."

At the end of April 2013, Oyu Tolgoi employed 11,750 people, almost 90 percent of them Mongolian nationals.

Rio said Oyu Tolgoi shareholders - itself and the government - were still "fully committed" to resolving the issues holding back the underground development.

Oyu Tolgoi, two-thirds owned by Rio's Turquoise Hill Resources unit, is a vital new source of growth for the miner, currently dependent on iron ore mining in Australia.

It is also critical for Mongolia, as the International Monetary Fund estimates it will generate up to a third of Mongolia's GDP by the time the mine reaches full production in 2021.

Link to article


Rio Tinto to Cut 1,700 Jobs After Delaying Mongolia Expansion

MELBOURNE, August 14 (WSJ)--Rio Tinto PLC (RIO.AU) plans to lay off as many as 1,700 employees and contractors at its newly built Oyu Tolgoi copper-and-gold mine after halting a more than US$5 billion underground expansion of the Mongolian operation amid a dispute with the government.

"Oyu Tolgoi is currently implementing the delay to the underground mine development announced earlier this month," a spokesman for the Anglo-Australian mining company said in an emailed statement, adding the company remained committed to resolving issues with Mongolia's government so development of the mine can resume.

The delay is the latest hiccup at the mine as the government exerts pressure on Rio in its efforts to maximize returns from the project, which is set to be one of the biggest drivers of the country's economy for many years. For Rio Tinto, the mine is critical to its efforts to diversify earnings currently dominated by iron-ore mining in Australia's Pilbara region, but comes at a time when the company has committed to cutting costs and reducing debt that has swollen to more than US$22 billion.

"While this is an upsetting time for everybody working at Oyu Tolgoi, we would like to emphasize that we are still an operating business, exporting concentrate to our international customers and infrastructure projects outside of the underground mine such as the road construction to Tsagaankhad will continue," Rio Tinto's spokesman said.

The company has estimated that up to 80% of the value of the project lies underground. The mine, which lies in the southern Gobi desert about 80 kilometers north of the border with China, began trucking copper to customers in China in July.

Sam Walsh, chief executive of Rio Tinto, last week said the dispute centered among other things on the scale of investment needed, the number of Mongolians working on the project and the government's involvement in the decision-making process. "We would rather pause and get these things right" than rush into the next phase of development, he said at the time.

Mr. Walsh said the company was in talks with a syndicate of banks to extend a US$4 billion provisional financing package. Rio Tinto in April signed agreements with 15 banks on pricing and terms, commitments which are set to expire in mid-December. In late August it agreed to provide a US$600 million bridging loan to majority-owned Turquoise Hill Resources Ltd. (TRQ.T), which controls Oyu Tolgoi.

Almost 90% of the workforce at Oyu Tolgoi are Mongolian nationals and Mongolians hold more than one-third of management roles at the operation. Rio Tinto has said the mine had by the end of June paid about US$1.1 billion in taxes and fees to the government.

Construction of a US$6.2 billion open-pit mining operation was completed early this year, but the inaugural shipment of copper was delayed several weeks as Rio Tinto lined up necessary approvals from the country's government.

Turquoise Hill, which owns 66% of Oyu Tolgoi while Mongolia's government owns the remainder, earlier this week said the mine will continue to ramp up output and is expected to produce between 75,000 and 85,000 metric tons of copper concentrate in 2013. As many as 36 convoys of trucks are expected to leave the mine site each week by the end of the year, carrying metal to China.

At full output, Oyu Tolgoi is set to produce an average of 450,000 tons of copper and 330,000 ounces of gold a year, as well as silver and molybdenum. The International Monetary Fund has estimated the mine will generate up to one-third of Mongolia's gross domestic product when it reaches full production, which had been expected in 2021.

Link to article


Oyu Tolgoi renegotiating a long-term sales contract, Turquoise Hill says

August 14 (MetalBulletin) Mongolia's Oyu Tolgoi copper-gold project is in talks with a customer to renegotiate a long-term sales contract, comprising 5% of production, Metal Bulletin understands.

"OT is in discussions with a customer related to the production conditions of the customer's contract not meeting the contracted deadline," Tony Shaffer, Turquoise Hill Resources head of corporate communications & media relations, said in an email to Metal Bulletin on Wednesday August 14. Contracts for 70% production are enforceable and sales under those contracts have started, Shaffer said. Oyu Tolgoi had signed long-term sales contracts for 75% of copper concentrate production over the first three...

Link to article


"Rio Tinto Is Screwing Turquoise Hill Shareholders!"

By Chris Tell

August 14 (Capitalist Exploits) So says a contact of ours in Mongolia.

(This post is the result of various conversations which have transpired over the last few weeks. As such consider this a timely "bonus" issue.)

Journalists are often constricted in many ways. Firstly by their publishing houses, whose prerogative is to sell copy. They are businesses after all, and businesses profit from selling stuff. This reality is one of the reasons why we're inherently skeptical of the mainstream media.

We touched on this topic recently with respect to the New Zealand milk scare which is presently playing out. I honed in on the same topic in my post entitled Why Blogs.

Blogs, or should we say "alternative" media, increasingly fill a much needed gap in the truth and what actually makes it to newspaper headlines.

It's why Wikileaks is necessary for truth seekers, and is despised, ridiculed and hounded by those who profit from the ignorance of the sheeple.

It has been our experience that issues discussed by the business community in bars, cocktail functions, restaurants, and private meetings most often reveal information closer to the truth than what makes its way to the news stand. By the time it's been "sanitized and "modified" to be palatable to The Powers That Be, and "dumbed" down for Joe Sixpack, the information is close to worthless.

Since we're not journalists and could care less what the populace think about us, or our views, we are not hindered by such constraints. We are but humble investors, putting our own balls on the line every day, attempting to sort the good from the bad and profit from it. We don't care what is politically or even necessarily socially acceptable, our focus is on what is real and bankable. It is the only way for us to profit.

When it comes to Mongolia we have made it clear that we're bullish, but not in the Maria Bartiromo, sort of way.

As much as we like Mongolia, we believe we offer a balanced view on the place. Case in point, our post Mongolia, it's a Wrap, which drew a bit of flack from those who only hoped we'd share the rainbows and unicorns version. Sorry folks, no place is 100% perfect nor 100% bad.

What follows below is a free-form debate between multiple parties in our network. They have kindly provided us with their views on the ongoing saga that is Oyu Tolgoi.

Openly discussing issues in small towns such as Ulaanbaatar, Phnom Penh, Yangon and Maputo can often lead to, umm, "difficulties". One needs to be diplomatic, and as such the lead instigator in this post, whom I'll refer to as "Zoro", will remain a masked man. None of us want to find him in the Gobi eating sand sandwiches!

For those unfamiliar with the Mongolian story I refer you to a complimentary report we produced which is available here.

Onto the fun!

Firstly, "Zoro" provided some hard-hitting points to which Mogi Munkhdul, founder of Cover Mongolia replied…

Zoro: I believe Rio is spreading negative rumors about Mongolia within the international media to knock the price of Turquoise Hill stock down from $20 to $4 in the last 2 years.

Mogi: It's interesting how the international media never once questions the colossal conflict of interest Rio has in OT. On one side Rio needs to increase its TRQ stake in order to reap bigger benefits from OT, and on the other side actually bring OT into full production.

I'm sure ideally Rio would love to have equity control of the entire 66% TRQ holds in OT before the Phase II, or the underground portion of OT commences. All of the management of TRQ & OT is from Rio. They even still use email addresses to run the company! Shouldn't there be a rule against this? Investors seriously need to start questioning the independence of TRQ & OT management from Rio Tinto.

TRQ is still a separate public company after all and Rio is not the only shareholder. I've been saying lately that the day Robert Friedland lost the poison pill battle with Rio should be remembered as a dark day for Mongolia's investment climate. Things might've been totally different if Rio had to launch a takeover bid for TRQ, then Ivanhoe Mines. On top of that, looks like we should've all taken a moment and pondered what Robert Friedland selling most of his TRQ stake actually meant. Did he foresee all this fiasco?

Zoro: In my opinion most of Rio's problems in Mongolia are self-inflicted, minor issues generated to create news flow for overseas media consumption and TRQ price manipulation

Mogi: It looks as if it is more in the interest of Mongolia to bring OT into full production as soon as possible than in Rio Tinto's. All the foreign investors I've talked to recently are cursing Rio, and I totally agree with BDSec's advice that TRQ is no longer an investment play on Mongolia's economy. You have to remember that GoM (the government of Mongolia), like Rio, is a shareholder and therefore has the full right to do everything in its power to look after its own interest. It's just unfortunate, and understandably perhaps, that everything GoM does in that respect is taken as a political maneuver and perceived as an added political risk, while anything Rio does in that respect is taken as just a business maneuver. It's just a case in point why governments should never be in the business of business.

Your readers may have seen last Friday's TRQ press release. They are slashing their selling price for their Altynalmas gold mine in Kazakhstan in return for an expedited pay day, in order to pay back the $225 million bridge loan they got in late June from Rio Tinto. The original agreement was for $300 million. Looks like minority shareholder and the investment community pressure finally got to them. It should never have been done in the first place, and getting less money for an already agreed deal is better than issuing shares to Rio at a 15% discount, but still bad news for TRQ minority shareholders.

Zoro: The timing of Cameron McRae's (CEO of OT) resignation coming right in the middle of the death spiral financing is highly suspicious.

Mogi: It is definitely suspicious! While there is still great uncertainty, his resignation seems to be already decided upon. There's no doubt that Rio should change its Mongolia tactics, and I'm sure they've learned enough in the last couple of years to formulate a new strategy on how to deal with Mongolia, its government and its people. Perhaps this is an opportunity to appoint a management team that's more experienced in matters of Mongolia. Rumors of appointing Bold Baatar, the newly appointed President of Rio Tinto copper operations, as OT CEO, although perhaps a little too premature, was an interesting idea all around.

Zoro: Rio is rumored to be leaving copper on the Mongolia side of the border so they can claim that the Mongolians will not let it leave.

Mogi: Concentrate shipments are being conducted without major problems to China. Rumors of this nature just shows you how much gap in trust has been built up over OT.

Remember the thrice delayed OT shipment commencement ceremony? If I was a conspiracy theorist, I'd say that OT sent those invitations to journalists without having the full confidence the ceremony would go ahead. And if I was double the conspiracy theorist, I'd say that GoM was in on it too. Remember the Mining Minister promising to resign if he couldn't renegotiate the OT agreement..?

Now, if I was triple the conspiracy theorist, I'd say that GoM has made a "secret deal" with Rio where it helps it gain greater equity control of TRQ, and Rio in return reopens OTIA, perhaps changing the timeline whereby Mongolia can increase its stake to 50%. But like I said, this is just a conspiracy theory, albeit something that everybody should pause and give thought to.

Zoro: They are making up a bunch of nonsense on the issue of Mongolia's parliament needing to approve the phase 2 budget, as the PM just said it was bogus.

Mogi: It seems Rio misinterpreted a letter sent by Mr. Sedvanchig, the CEO of the wholly state-owned Erdenes Oyu Tolgoi LLC, which controls the 34% Mongolia holds in OT. The content of that letter has not been revealed, leaving us to guess who's the liar here, or at the least, who is being dishonest, Rio or the GoM? Rio seems to have, perhaps conveniently so, interpreted that letter as a legitimate reason to postpone Phase II development, effectively leaving a question mark on the already negotiated $4B project financing from the likes of EBRD, IFC, export-import banks of America, Australia, etc. I think this just shows Rio is not particularly rushing to develop the underground mine.

Zoro: They are accelerating phase 2 so that they have a capital need when none should exist under the current mine-plan.

Mogi: As I mentioned before, I actually think Rio is not particularly rushing to pile up more debt at a time when all the major mining companies are shifting to a more fiscally conservative policy. Instead I think they are more focused on increasing their TRQ stake.

Chris: Which begs the question. What does this mean for TRQ shareholders, short, medium and long term? What is known is that the damage done to Mongolian FDI is acute and not likely easily restored. Destroying confidence is far easier than building it.

Mogi: My take on what it means for TRQ shareholders is that in the short-term they should expect continued turmoil and therefore treat it as a trading stock rather than an investment stock. On August 9, we shall find out if that Kazakhstan deal goes through and pays off Rio. Then there will be the question of how Rio reacts to the PMs dismissal of TRQ's statement regarding project financing needing parliamentary approval. Does OT have working capital after August 12 when TRQ's bridge loan matures? Does TRQ need to issue new shares? What's the status of the $4B project financing? There are a lot of questions still in play for the next few months to bring back optimism for TRQ shareholders.

Rio/Mongolia battle, or actually collaboration as one friend put it, over OT is one thing, but the more disturbing reality from all of this is that Mongolia's reputation is now in ruins because of it. When Mongolia says it wants more say in the matter the whole world seems to panic, interprets it as a government overreach, overlooks the fact that Mongolia is actually a shareholder on top of being a stakeholder and therefore has the full right, within the law of course, to assert its ownership over a project. One should not underestimate the political savvy of Mongolia's government but definitely should question its PR savvy. At the least PMs regular monthly press conferences should be dubbed in English too.

John Polomny, a fellow investor and author of many articles on Mongolia provides his thoughts below.

"In my view Mogi has hit the nail on the head, so I do not have much more to add. What is especially noteworthy is the amount of Rio people at TRQ and OT. Where is the board on this along with exercising their fiduciary responsibility regarding the recent bridge loan? The penalty for default means big dilution for current shareholders and cheap shares for Rio. Looks pretty greasy to me, but I was looking at this TRQ purchase as a speculation. You might note that South Gobi recently appointed a Mongolian as President. With McRae leaving it will be interesting to see if a Mongolian is appointed to replace him.

"As you know I work in upper management of a large corporation. One thing I would consider is that my experience leads me to never view a person's motives as nefarious when in many cases they are just incompetent. I wonder if RIO is just AFU on this one."

I then asked our friend, financial writer and investor Jon Springer to share his thoughts on the topic. In his tried and true fashion Jon pulled no punches in providing his opinions!

"There's an old Mongolian (and Chinese) saying, "Sometimes you have to kill the monkey to scare the chickens." Since about February of this year, if you asked me what should be the headline for a story about the situation in Mongolia today I'd say: "Mongolia Kills Too Many Monkeys." 

"Mongolia was warned repeatedly about their schoolboy tactics of always demanding more from Ivanhoe/Rio/Turquoise Hill. The schoolboys in government and major corporations – the rich families of Mongolia who will be on top whether the economy booms or collapses – were told repeatedly by the foreign corporate management of the country's greatest asset – and particularly often by Cameron McRae – that they were going too far and that there would be consequences to pay.

"However, the whiny schoolboys persisted and engaged in shenanigans. For Mongolia's schoolboys to now accuse Rio of itself engaging in shenanigans is laughable. It is the government line, and what the government allowed to leak into the international media for weeks and months at a time, over the past few years, that originally weakened Ivanhoe/Turquoise Hill's share strength. It was the government's desire to toy with this asset, and these corporations, that weakened the company, and its share price sufficiently to ouster Robert Friedland and put Rio in full control.

"And let us review who Robert Friedland was to Mongolia. He was the "white guy" that put Mongolia on the global investment map. He was the guy that promoted investing in the rocks beneath the frozen steppe. He was the one who dug deep enough to find Mongolia's riches where others had tried and failed. However, at the end of the day the childish school boys didn't like the stories on the street of what happened behind closed doors in hotels and offices, and decided they had some sort of ill-advised vendetta against Mongolia's greatest promoter in 500 years.

"Rather than being strategic like Chinggis Khan would have been, and realizing Friedland was their greatest international marketing asset, they more or less worked to throw him out of the country and celebrated Rio's takeover of the Turquoise Hill asset like hostages rescued from an armed bank robber.

"And yes, the school boys did this all while the price of copper and gold went up, and the share price of Ivanhoe/Turquoise Hill should have been going up as well. They thought these prices would go up forever, and they had all the time in the world to claim their prize, develop their greatest asset and develop their economy. They dallied on every infrastructure development. They played games with smaller mining outfits. They changed rules after agreements to make life more difficult for foreign investors. They played the games of the nouveau riche against each other, focusing more on turf wars than the development of the nation. Well played it was not.

"For now, the whiny well-off school boys, and the foolish citizenry who votes for them and chooses to defend one group in power over another (as if there's a difference) all reap what they have sowed. A major global corporation now owns your country's most important asset. They control its development. Moreover, they are limited in how many shares of the company they can accumulate each year by Canadian laws halfway around the world. The price of copper and gold is down. The stock would be down just for that. Rumors spread driving the price down further only to make the major corporation's slow accumulation of shares cheaper. You have played them and now you accuse them of playing you?

"I don't know if that is true, but turnabout is fair play.

"Thus, in a country that for 700 years has had their men wrestle topless because they are afraid of unknowingly being beaten by a woman, all I can say is: Ladies of Mongolia, remember your great queens and princesses and take control from these whiny boys. These school boys convinced you to give up your heritage and move to the city with the promise of a booming economy and then whined their way into destroying the economy before it ever started. Go beat them.

"P.S. Trade TRQ. Don't hold it. Play the panics down long. Play the "everything seems to be on the mend to well" to sell. Just my opinions… as is the rest of it."


So there you have it! Differing opinions on what has and is transpiring. What is clear is that the stakes are high, not only for Rio, Turquoise Hill, Mongolia's credibility on the international stage, but most importantly for Mongolians themselves. It may sound sensationalistic but Mongolia's future is intricately tied to OT.

I'm not sure what to think with respect to either Rio or Turquoise Hill. Rio seemingly extended an olive branch to Turquoise Hill with the recent announcement that two companies have signed a binding term sheet for a new funding package. The company has received a US$235 million advance payment for the Altynalmas Gold transaction, and Rio has agreed to provide a $600 million bridge-funding facility.

The loan is designed to help Turquoise Hill refinance an existing US$225 million loan from Rio Tinto made in June, and assists in meeting its expenses through the end of the year. Thankfully for Turquoise Hill shareholders, this prevented the need for a dilutive placement of common shares…for now.

What is also interesting is the recent announcement that the Mongolian Government is considering converting its 34% interest in the Oyu Tolgoi mine into a public company, with 10% of the Company being made available to the Mongolian public and another 10-20% sold on the domestic market.

Why would the Mongolian Government do this?

I can think of two reasons off the top of my head. The first is that from a political standpoint the move assuages public perception that OT only benefits foreign investors and big wigs in Government. The second reason is that the Mongolian government have to make good on bond payments coming due. This will put some cash in the coffers and bolster investor confidence in those government bonds.

My gut tells me that instead of repaying the bonds the government hopes to bring sufficient credibility to be able to roll those bonds as well as issue more. I'm still skeptical that this will come to fruition. Time will tell.

Lastly I'd like to point out that the best way to participate in a gold rush is to sell the picks and shovels. With that in mind we invested into a company called Eurofeu Asia, which trades on the uber-depressed Mongolian Stock Exchange. They supply fire safety equipment and security for domestic and foreign companies in Mongolia. Rescap Securities in Ulaanbaatar trades the shares, as does BDSec.

Then there is Mongolia Growth Group, our favoured Mongolian real estate play. The Company has just announced a private placement, details of which can be found here. For those of you who, like us, believe that Mongolia has a bright, if volatile future ahead of it, AND also believe that buying when markets are depressed is a good idea, I'd suggest getting in touch with the Company directly.

Link to article


Erdenes OT to go public?

August 12 ( Bloomberg reported that Mongolia is considering to IPO its 34% stake in OT LLC offering 10% to the public. Currently, the shareholder of 34% of of OT LLC is state-owned Erdenes OT LLC. Does that mean the government is considering to make Erdenes OT a public company? Well, according to the Strategic policy and planning head of Mining Ministry Ch.Otgochuluu, it is a valid consideration. Furthermore, he stated that government is also considering to IPO 51% of Erdenet JV, biggest copper mine in the country.

Business Mongolia proposes two assumption on the announcement. First, Mongolia is considering selling off its' 34% stake, as it is a source of debt and will likely to be considered realistically so for the next 20-30 years. For the holding company, Erdenes OT, it does not have a single operating income, however it has to pay salary of its dozen staff on top of the need of consultancy services it requires to understand the complicated documents such as project financing term-sheet or economic models provided by Rio Tinto to be competent enough to have a conversation on the same level. The second assumption is that by offering Erdenes OT's 10% to the public it will generate more hope as it did with Erdenes TT.

The single source of income Erdenes TT from the group of Erdenes companies is nearly bankrupt after failing to generate revenue because it has to pay off the USD350 million that it owes to Chalco. PM N.Altankhuyag stated that the loan will be paid off in the end of the year, meantime considering to put other part of the deposit in operation. The USD350 million was blown in the wind by the previous coalition government as a cash-handover to the general public. It meant a year and half of USD15 per month to 2.7 million people. The public was eagerly waiting for the Erdenes TT's IPO that would create value to the common shares that has been distributed to the public, also, for free.

After the new government formed, we started to witness all the lies that the previous government was holding undisclosed. The head of Minerals Authority, the authority which issues mining licenses faced jailtime for hundreds of unlawful licenses. The Investment Agreement of OT turned out to be a "loan agreement". Erdenes TT was running out of cash to export its product. Erdenet is also has been pledge for USD200-300 million loan. Prepayment and Bond agreement with OT LLC has been also spent for distribution of USD15 to the public. In result of fighting these problems and trying to amend the agreements Mongolia almost destroyed its reputation as the next boom-town. The economic development rate of 17%+ wasn't affecting the public anyways, some say.

Comparing to Erdenes OT, Erdenes TT has its high quality coal deposit, the revenue generation scheme is simple enough to be understood by the current management. In Erdenes OT's case, the company doesn't have any cash generating operations besides its hope for 34% that will give dividend probably in 20-30 years. Who will buy those shares? Sh.Otgochuluu argues that public companies will have better corporate governance compared to state-owned ones. In principal, it's true, but in practice, in Mongolia, it will be very hard to be true. The government will collect its tax and royalty. Erdenes OT, will still be waiting for a dividend that is far to the future.

If the government is giving up on fighting Rio Tinto and prolonging this exhausting saga, there is a solution.

The solution is simple, sell the 34% of the stake in exchange of triple royalty. From the current 5% to 15%. With this draconian royalty, the government will have no right to complain, and Rio Tinto will be the side that will demand accelerating whatever permissions and affirmations it needs from the government. The government will have no headache of dealing with the mine-building mess, and it is risk-free.

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Moody's downgrades Mongolian Mining's ratings to Caa1; under review for further downgrade

Singapore, August 15, 2013 -- Moody's Investors Service has downgraded the corporate family and senior unsecured bond ratings of Mongolian Mining Corporation (MMC) to Caa1 from B2.

Moody's considers that declining coking coal prices are expected to reduce FY2013 EBITDA to near-breakeven levels and significantly increase liquidity pressure for the next 12-18 months.

Moody's is also reviewing the rating for further downgrade.


"The latest downgrade was premised on MMC's tightening liquidity profile and weakened credit metrics, resulting from weaker-than-expected coking coal prices, which are unlikely to recover in the next 12-18 months, due to oversupply in the market. Despite our expectation of cost cuts to preserve EBITDA at breakeven levels, the company's existing debt and interest-servicing requirements will significantly reduce its remaining cash on hand," says Simon Wong, a Moody's Vice President and Senior Credit Officer.

Against this backdrop and based on an assumed benchmark Queensland coking price of $145 per tonne for 2H 2013, Moody's expects MMC to operate with a consolidated net loss, including near-breakeven EBITDA and negative cash flow from operations for FY2013. Cash on hand is expected to deteriorate below $90 million at the end of FY2013 from $284 million at the end of FY2012.

"The review also reflects Moody's concern that MMC's cash on hand could be depleted by FY2014 if coking coal prices remain at their current level of $135-145 per tonne. The company is striving to maintain operations at least at breakeven levels through further cost reduction strategy, but debt servicing costs, such as interest expense and amortization on its loans from Standard Bank and EBRD, will erode its liquidity position," says Wong, also the Lead Analyst for MMC.

MMC has scheduled debt maturities of $207 million and interest expenses of approximately $70 million in FY2014, including its $105 million promissory note.

Moody's review will focus on developments in the coking coal market as well as MMC's plans to conserve its capital -- including the potential divestment of assets, negotiations to defer debt maturities, and further cost reductions -- and which may in turn bolster its liquidity requirements for the 12-18 months. If these measures fail to materialize during the review period, the ratings will face further downward pressure.

During the review, Moody's will also monitor MMC's banking relationships, production targets, customer contracts, capex plans, possible breach of covenants, and any ongoing need for covenant waivers.

The principal methodology used in this rating was the Global Mining Industry Methodology published in May 2009. Please see the Credit Policy page on for a copy of this methodology.

MMC is the largest privately owned coal mining company in Mongolia. Established in 2005, it was listed on the Hong Kong Stock Exchange in October 2010. It has two producing mines located in the Gobi Desert. The Ukhaa Khudag mine, which produced 8.6 million tonnes of coking coal in 2012 and the Baruu Naran mine, which was acquired in 2011 and commenced production in February 2012.

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Local Market

NatSec MSE Trading News, August 14: Top 20 -0.56%, Turnover 10.3 Million

August 14 (National Securities) The MSE TOP-20 Index dropped -0.56% to 13,844.2. 7,608 shares in 13 JSC's traded with a combined value of 10.3m MNT. Out of 13 companies, 4 companies shares were up, 7 companies shares were down and one share was stable.

The top gainer was Zoos Goyol (ZOO), which rose +10% to 1,430 MNT. The major losers were Gobi (GOV) and Aduunchuluun (ADL) which plunged -14.98% to 3,830 MNT and -10% to 2,250 MNT, respectively. The most actively traded share was Jenco Tour Bureau (JTB), in which 3,510 shares were traded at a value of 291,000 MNT. It's price decreased -1.19% to 83 MNT.

Please click here to see the detailed news

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NatSec MSE Trading News, August 15: Top 20 -1.18%, Turnover 13.2 Million

August 15 (National Securities) August The MSE TOP-20 Index dropped again -1.18% to 13,680.64 points. Today's volume was a paltry 3,922 shares and trading amount of 13.2m MNT. Out of 13 companies that traded shares in just 2 firms went up.

Auto Road (AAR) was the top gainer and it's price closed up at 3,068 MNT, up +14.99%. Another gainer was Zoos Goyol (ZOO) which rose +4.9% to 1,500 MNT. ZOO happened to also be the most active share of today. The volume was 972 shares traded with a value of 1.4m MNT.  The major losers were coal miners Sharyn Gol (SHG), Baganuur (BAN), and Tavan Tolgoi (TTL); down -4.94% to 7,510 MNT, -3.63% to 3,855 MNT and -3.23% to 3,000 MNT respectively. Another actively share was APU (APU), which produces beverage drinks, 930 shares were traded with a value of 3.4m MNT. 

Please click here to see the detailed news

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MSE Annual Report 2012

August 15 (MSE) --

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BoM: Individuals and SME loan report - Quarter 2, 2013

August 13 (Bank of Mongolia) --

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August 14 (Bank of Mongolia) Regular auction for 12 weeks maturity Government Treasury bill was announced at face value of 30 billion MNT and each unit was worth 1 million MNT. Face value of 30 billion /out of 58.0 billion bid/ Government Treasury bill was sold to the banks at discounted price and with weighted average yield of 8.81%.

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Another big day for 1 week bills. Total outstanding 1 weeks dropped to 885.7 billion from 924.7 billion

BoM issues 1-week bills

August 14 (Bank of Mongolia) BoM issues 1 week bills worth MNT 262.8 billion at a weighted interest rate of 10.5 percent per annum /For previous auctions click here/

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Bank of Mongolia Monthly Statistical Bulletin, July 2013

August 15 (Bank of Mongolia) --

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BoM holds FX auction

August 15 (Bank of Mongolia) On the Foreign Exchange Auction held on August 15th, 2013 the BOM has received bid offer of USD and CNY from local commercial banks. BOM has sold 16 million USD as closing rate of MNT 1569.20 and 29.5 million CNY as closing rate of MNT 256.0. 

On August 15th, 2013, The BOM has received bid offer of 120 million USD for Swap agreement from local commercial banks and accepted all the offer.

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BoM issues 1-week bills

August 16 (Bank of Mongolia) BoM issues 1 week bills worth MNT 336.3 billion at a weighted interest rate of 10.5 percent per annum /For previous auctions click here/

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BoM: Consolidated Balance Sheet of Banks, July 2013

August 16 (Bank of Mongolia) --

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BoM: Changes in Monetary Statistics for June 2010 After Audit

August 15 (Bank of Mongolia) Considering the order by the governor of the Bank of Mongolia, and the instructions given from PricewaterhouseCoopers, after auditing FY 2012 financial statement, adjusted transactions have been made in June 2010.

Several indicators on previous date, notably from December 2012 to May 2013, have been revised basing on the International Standard of Monetary and Financial Statistics.

As for the monthly statistical bulletin, Net foreign assets and the Other items (net) in Monetary survey, decreased by 1.4-31.8 million MNT. In Central bank survey, Capital accounts decreased by 15.3-47.9 million MNT, Foreign Liabilities increased by 1.4-31.8 million MNT, Other items (net) increased by 14-16.1 million MNT, respectively.

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B.Tuvshintugs: Our legislators are not in charge of stabilizing the currency exchange rate

August 15 (UB Post) The following interview is with the Director of the Economic Research Institute and a professor of the School of Economic Studies at the National University of Mongolia, B.Tuvshintugs, about the recent issue of the US dollar appreciating against the Mongolian tugrug.  

-       The US dollar is getting everyone's attention because of the Mongolian tugrug's depreciation. Everyone is interested in why the US dollar is appreciating.  

The depreciation of the Mongolian tugrug is proceeding very rapidly. The US dollar exchange rate vis-a-vis the tugrug has risen by 11 percent within the last 12 months. It means that value of the Mongolian people's money decreased by 11 percent. There are two reasons why the dollar has strengthened against the tugrug. Firstly, monetary policy has been slacking since 2012. A weak monetary policy means an increase in the circulation of the tugrug in the market. This has caused the tugrug to fall against the dollar. On the other hand, if dollars had come into the Mongolian market in large quantity, the tugrug's rate wouldn't have fallen rapidly. Therefore, we need to question why there are not enough dollars circulating in the Mongolian economy.

The US dollar can enter the Mongolian market in only two ways. The first is through exports and the second is by foreign investment. If exports exceed imports, the dollar's flow into Mongolia will increase. On the contrary, if imports exceed exports, there will be no dollars in the economy. Currently, our foreign trade deficit is one billion USD. In other words, commodities and services which are equivalent to one billion USD have been exported since the beginning of the year. Foreign investment which is the second type of dollar inflow to Mongolia dropped by one billion USD compared to what it was in the same period last year. The tugrug's value fell and the dollar strengthened because of too many tugrugs in the economy and the insufficient supply of US currency.

-       How many times has the US dollar strengthened rapidly in Mongolia before?

Mongolia has tried to establish a structure in which the currency rate is fixed and our economy did not participate in the currency market for 10 years. We had then what we call a "freely convertible currency." Within the last 10 years, there has only been one case when the tugrug fell rapidly. It happened during the economic crisis of 2008 to 2009. The rate of the US dollar rose to 1,700 against the tugrug in April 2009. This time, the tugrug's depreciation reminds us of that situation.  Do you remember what happened in 2009? Mongolia's foreign trade was in a difficult situation. The export price of staple products including copper and gold dropped at the international market. So our foreign trade deficit increased which is what is happening right now. Our economy was relatively small in 2009. Therefore, a billion-dollar deficit was a huge deficit. In other words, foreign currency stopped flowing into Mongolia's market. There wasn't as much foreign investment before compared to today. For that reason, the tugrug depreciated rapidly.

-       I remember that the Bank of Mongolia put large amounts of dollars in the currency market at that time.  Didn't they?

When the rate of the tugrug relative to the dollar weakened rapidly, the Bank of Mongolia had to conduct a currency intervention. They started to sell US dollars in the currency market. Our official reserves were one billion USD. They couldn't stabilize the tugrug even after injecting 500 million USD into the market from these reserves. In other words, the rate of the dollar relative to the tugrug rose to 1,700. Since our foreign currency reserves became very little, the Bank of Mongolia couldn't do anything and they had no way to relax the exchange rate. They increased the interest rate as a matter of policy instead. This meant that they had to give up participating in the currency market and to start controlling the supply of tugrugs. Fortunately, the price of copper rose again in the international market and Mongolia's foreign trade condition improved slowly over a period of time. For that reason, the tugrug weakened from 1,400 to 1,700 against the US dollar.

-       People are criticizing the fact that the Bank of Mongolia didn't do anything to intervene in the currency market. But this is difficult when the dollar rate won't fall even if they participate in the market like during the previous economic crisis, don't you think?

The crisis of 2008 to 2009 was a huge lesson for us. People say that the Bank of Mongolia should stabilize the rate of the tugrug relative to other currencies. Before thinking about that, we should reevaluate the role of the Bank of Mongolia. We all need to say that the Bank of Mongolia should be the one responsible for this situation. Is there a need to participate in a war in which we're almost losing? We learned a great deal from the previous crisis. We won't achieve any results even if we put in 500 million USD. There are worries that we will repeat the previous crisis' situation.

-       If so, what should we do now?

We have to make policies on currency exchange rates more definite. It is not a new issue. We have been discussing this for about the last 10 years. But developing countries will have difficulties relaxing their exchange rates. For instance, one of them, Chile still loosened its currency controls despite the Central Bank stating that it wasn't necessary. We saw this situation from the crisis of 2008 to 2009. Chile sold over 20 percent of its foreign currency reserves. For Chile, this percentage is already a large amount of money.  Like Chile, it is possible for Mongolia to participate in the same or similar way in the currency market. Even when it was stable, the Bank of Mongolia was still participating and imposing too many regulations on the exchange rate.

-       For you, was there a need for the Bank of Mongolia to participate in the currency market when the economy was stable?

In my opinion, there's no need to "over" participate during a stable period. The Bank of Mongolia should focus on monetary policy and stabilize inflation through interest rates and the supply of money. In other words, participating in difficult situations leads to obvious adverse results. The Bank of Mongolia can still have foreign currency reserves and participate only during unstable situations. Participating in the currency market for one whole year is not the proper standard. Even though recent presidents of the Bank of Mongolia have been discussing this issue for many years, they have not stopped implementing this old practice up to now.

-       Some researchers suggest intervention in order to stabilize the exchange rate. It is definite that we won't get a lot of foreign currency from mining especially since the growth in mineral prices has been minimal, like in the previous crisis. Therefore, isn't intervention the best recourse in this present situation?

This issue has two different sides. First of all, I should answer from a structural point of view. From this viewpoint, the Bank of Mongolia doesn't need to participate in this situation. Changes in the exchange rate already show instability in the real sector. I previously said that we should be cautious because we can't stabilize the exchange rate even if we sell a large amount of official reserves.

-       What is an advantage of not conducting an intervention?

It has a very big advantage. One of the biggest mistakes is the participation of the Bank of Mongolia in every exchange rate instability situation. The Bank of Mongolia is forced to participate in the currency market. When the Bank of Mongolia can't stabilize exchange rates by force, they will have to loosen exchange rate controls. This is called "function with profit." In other words, people with US dollar savings change their money to tugrugs. Then they withdraw all of their savings and change tugrugs to dollars. For this reason, the Bank of Mongolia will run out of reserves. Then this issue will explode loudly. If this happens, the value of the US dollar relative to the Mongolian tugrug will rise to 1,800. Therefore, the advantage of not participating in this market is maintaining our foreign currency reserves.

The present situation is a manifestation of instability in the real sector. We have to establish stability, cut down our foreign trade deficit, and boost foreign investments in Mongolia in order to stabilize the tugrug-to-dollar exchange rate.

-       Do you think that relaxing the exchange rate is better?

Yes. Because we chose this structure. We can impose restrictions on price growth through monetary policy. There's no need to participate in the exchange rate market. If the Bank of Mongolia wants to conduct an intervention, are there any reserves for that?

-       What do you think about the Bank of Mongolia's reserves for intervention?

For me, there are not enough reserves for conducting an intervention. We should be cautious if history repeats itself and the Bank of Mongolia sells 500 million USD without expecting any adverse effects which was not the case during the previous crisis.

-       The reason for the growth in the rate of the US dollar relative to the Mongolian tugrug is foreign investment. Do you agree that if foreign investment hadn't decreased, the dollar wouldn't have strengthened?

If foreign investment hadn't decreased, there would've been over one billion USD in the Mongolian economy. It is time to revise our policy on foreign investment. Now we are not receiving any new investment. The legal environment is also insufficient. Typically in the past, were we friendly with investors? Unfortunately, the business environment hasn't improved yet in recent years. In some cases, it is getting worse. We can approach investments differently. But don't forget that investors observe our approach.

Regarding America's expansionary monetary policy, there is a large amount of financial resources in the world. Hence, investors always decide where to invest money. If Mongolia's legal and business environment as well as government regulations are better than before, investors will invest in Mongolia. But investors tend to shy away from Mongolia because of our recent political and economic measures that they always find to be negative. Therefore, we should make them understand that Mongolia actually promotes investment.

-       What is your opinion on the legislative government affecting the currency exchange rate by issuing bonds?

Our legislators are not in charge of stabilizing the currency exchange rate. It is not their task. The Bank of Mongolia should reduce rate fluctuations. There's a big difference.

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Cursed mine claims another deadbeat bank in Mongolia

Terrence Edwards in Ulaanbaatar, August 14, 2013 (bne) –

A gold mine in Mongolia that locals are calling jinxed has laid claim to another banking victim, and highlighted a potential problem in the banking sector of mineral rights being used as collateral for loans. 

Most baffling about the collapse of Khadgalamj Bank – or Savings Bank as it is called in English – and it's subsequent takeover on July 19 by the government-owned State Bank (Toriin Bank) is this was the third time that the same gold mine, Olon Ovoot, was at the centre of a Mongolian bank's downfall. When Anod Bank filed for bankruptcy in 2008 and then Zoos Bank folded in 2009, both times it was because the Mongolian firm Mongol Gazar had defaulted on a loan that used Olon Ovoot as collateral. 

In this latest instance, the majority shareholder of Savings Bank's parent company Just Group, Sh. Batkhuu, took out a $109m loan using Olon Ovoot. Just Group had purchased the mining rights to what Batkhuu thought was 13.5 tonnes of gold at Olon Ovoot in 2009. But the mine didn't have as much reserves as registered, says Batkhuu, and he found himself in position where he could no longer service his debts. 

Batkhuu claims the loan was to be used for the expansion of Saving Bank's business, though even before the loan was made the country's fifth largest bank was in problems, say industry players. "It was clear from the outset after its merger with Mongol Post Bank in 2009 that Savings Bank had high levels of non-performing loans," says Randolph Koppa, president of competing bank Trade and Development Bank of Mongolia (TDB). "Earning levels had been low and as the central bank stepped up capital requirements, the bank didn't seem to either generate enough earnings or to attract additional capital investment." 

A government source familiar with the matter tells bne that Mongolia's central bank was aware that Savings Bank's financial situation had been deteriorating since 2011, and had discovered that the bank had been lending to its subsidiaries in excess of the 5% limit legally allowed for loans outstanding. Savings Bank was declared insolvent on July 22 after affiliated companies defaulted on loans, leaving an approximately $122m hole in its balance sheet. 


The takeover by State Bank means the state's once small banking operation in the capital now stretches to all corners of the country, lifting it into fourth spot in one fell swoop. There is talk of an IPO of State Bank, which would mean Savings Bank's problems proved a happy coincidence for the state. 

But some consolidation in Mongolia's banking sector is probably overdue. Before Savings Bank collapsed, there were 14 banks serving a relatively poor population of just 2.9m, which some analysts see as overkill. "In a country with 13 banks but only 3m people, some moves towards banking sector consolidation aren't such a bad thing," says Nick Plummer, an analyst at the Economic Policy and Competitive Research. 

Mongolia's banking sector has been an area of concern for investors throughout the mining boom, as bank loans have been the most readily available source for capital in the country. Moody's Investors Service gave Mongolia's banking sector a negative outlook amid the rapid growth in lending, describing the situation on the ground as "an economy that is increasingly exposed to commodity-driven boom-bust cycles." 

That portrayal seems to be no exaggeration, as backing loans with mineral deposits is not uncommon among Mongolia's commercial banks. According to 2013 data from the Mineral Resource Authority of Mongolia, the largest lender TDB has 40 loans backed by mineral deposits, while number-two bank Golomt has 26, followed by the third largest Khan with 27. Savings Bank had just seven loans with mines used as collateral, but it only took one mine that Batkhuu says has less reserves than was registered with the Mineral Resources Authority to send the whole institution crumbling. 

TDB's Koppa defends the practice, though: "When lending to operating mining companies, it is common practice to take the mining licenses as part of the collateral package. The security interest in such licenses can be perfected by registration of the lien, and the value of the mine can be determined based on the volume of reserves recognised by the mining authority." 

On a brighter note, the same Moody's report noted that the negative outlook for the sector as whole contrasts with the stable outlook on Mongolia's top-four banks. Koppa, too, says the failure at Savings Bank should not be taken as representative of the sector as a whole, given that TDB's business model differs greatly, and that although Savings Bank represented 8% of the market, it was not a significant lender. "In terms of TDB, Savings Bank really didn't compete against us in corporate banking," says Koppa, "Our credit quality ratios are continuing to improve, and at present we have a fair amount of liquidity." 

Plummer echoes that sentiment, noting that the central bank has provided support to banks and the economy through looser monetary policy, as well as through its price stabilisation programme and mortgage loan subsidies. "At the same time, the Bank of Mongolia has been enhancing banking sector supervision. These measures should improve the performance and stability of the financial system," he says. 

As for Batkhuu and Just Group, the Savings Bank debacle seems to have taken the rest of his assets with it, including a profitable food processing firm and oil firm. And he's promised to pay back the government the $122m debt it has shouldered from Just Group. And for all that's happened, Batkhuu has not yet been charged with a crime. Rather than a remorseful appearance at his press conference, Batkhuu has been eager to pat himself on the back for transferring all his assets (including his debts) to the state, thereby maintaining depositors' savings. 

When asked what he planned to do next, he replies: "I got up at 9:00am, I used to work for long hours every day. I will relax. Then I will pay back the loan. It is unsuitable to be in business as the director of a bank. Business is too risky." 

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Mongolia in the making: Chinese investment there

August 16 (China Daily) You don't have to travel far in Mongolia to see Chinese investment. The new sports stadium by the airport? It's here, thanks to China. The Mongolian Chamber of Commerce building? A gift. And downtown's Central Place tower -- with its luxury shops below and upscale offices above -- built using Chinese construction. That's not all.

"The Chinese have invested heavily in infrastructure, especially the energy sector. For example, hydropower and thermal-power projects." Bolormma Luntan, Editor of Mongolian Mining Journal said.

Roughly half of all foreign direct investment in Mongolia now comes from China. As its large, consuming neighbour, China now accounts for three quarters of all of Mongolia's economic activity. 90 percent of all out-bound Mongolian goods go directly to China. It wasn't always like that. Historically, Russia was Mongolia's main backer.

"If you look closely at tracks here, you might notice that the gauges - the space between the rails - are quite wide, like in all of Mongolia, and like in most former Soviet satellite states. They're built to Russian-standards. Chinese gauges are more narrow, in line with international standards. That means that trains travelling the Mongolia-China route have to make a long stop at the border and have their wheels adjusted. That's both logistically difficult, and expensive."

And thus a hot debate here. Land-locked Mongolia wants sea-access for its resource extracts but how should it build new rails? Economist Mogi Badral believes all new China-bound tracks should match China's rail to boost rail export.

"If you force mining companies to use wider-gauges to export to China, it'll be more expensive than building, of course, a narrow gauge." Munkhdul "Mogi" Badral, Economist said (Mogi: meant of course the transportation costs).

He says, that's not sustainable in the long-run. And warns, as Chinese invest more here, a better cheaper solution to getting its return out will have to be found. Roee Ruttenberg, CCTV, in Mongolia.

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President meets former members of the National Security Council

August 15 ( President Ts.Elbegdorj posted about a plan to meet the former members of the National Security Council of Mongolia on Twitter two days ago. Now the President is hosting the meeting at Government House behind closed door with no media access.

President Elbegdorj is conducting talks with former presidents and prime ministers on the current situation of the economy, foreign investment and financial issues to exchanging views on these important issues. 

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Ulaanbaatar, August 15 /MONTSAME/ This traditional meeting between the media and the Prime Minister was canceled Thursday due to a meeting of the National Security Council (NSC).

This meeting usually runs every Thursday morning at the State House to have the PM highlight the most important matters of the country's political and economical life. 

According to the PM 's "excuse", the State Head received members of the NSC of all generations in order to exchange views on the country's economy, financial and investments issues.

It has brought together P.Ochirbat and N.Bagabandi, former Presidents of Mongolia; R.Gonchigdorj, Ts.Nyamdorj, D.Lundeejantsan; former Speakers of parliament; also D.Sodnom, Sh.Gungaadorj, D.Byambasuren, R.Amarjargal, S.Bayar, former PMs; Z.Enkhbold, current Speaker; and the Premier N.Altankhuyag.

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Female parliamentarians meet with WHO Director-General

August 15 (UB Post) World Health Organization (WHO) Director-General Dr Margaret Chan is visiting Mongolia for the first time at the invitation of the Mongolian government from August 11 to 14.

Within the framework of the WHO Director-General's visit, the female members of the Parliament held a meeting with Dr Chan on Monday.

The meeting ran under the theme of "Public Involvement in the Health Care and Services Sectors in Mongolia." At the start of the gathering, member of the Parliament (MP) and head of the unofficial group of female members of the Parliament L.Erdenechimeg delivered a brief introduction on the projects and programs that have been initiated and implemented by the group. For example, the group of female parliamentarians successfully approved the budget through the Parliament to introduce a one-time package to improve the condition of maternal hospitals. They were also responsible for the successful initiation of the law on tobacco control. In addition, the female parliamentarians mentioned that they are cooperating with the President to take measures to control alcohol consumption and they have submitted some proposals to the government with regard to setting up hygiene standards in the country.

MP L.Erdenechimeg also emphasized that the female parliamentarians are paying special attention to improving the health structure and investment in the health sector, as well as increasing the number of schools and kindergartens. They are also aiming to improve the legal environment to tackle the abovementioned issues.

Dr Chan congratulated them for increasing the number of women representatives in the Parliament and said, "The WHO operates with the intention to exchange experiences and cooperate with Mongolia and other countries. Mongolia is the leading country among WHO member countries with its rapid economic growth. The economy of Mongolia is still growing; however, I would like to underline the significance of using this economic growth to improve the health of its population."

Dr Chan's visit program was finalized under the leadership of Vice-Minister of Health J.Amarsanaa. In the scope of her visit, she is expected to meet with the President, Prime Minister, Minister of Foreign Affairs, and heads of UN agencies. She is also scheduled to do field visits to health facilities in the capital city and rural areas.

Her official visit started on Sunday. Dr Chan was welcomed by Vice-Minister J.Amarsanaa, WHO Permanent Representative to Mongolia Dr Soe Nyunt-U, and Head of the External Cooperation Section of the Ministry of Health B.Yanjmaa.

Dr Chan has expressed satisfaction with visiting Mongolia and thanked Mongolians for their warm reception.

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Former president has gone abroad for treatment

August 14 ( Former president, Nambar Enkhbayar, the head of the Mongolian People`s Revolutionary Party (MPRP) left for South Korea for treatment on Tuesday August 13th. The former president, who has been in custody on charges of corruption, asked permission to go abroad for treatment. It is reported that he is not able to be treated in Mongolia after doctors diagnosed his health problem as cytolysis. His chronic weight loss has been used as proof in confirming his illness. 

The imprisoned former president N. Enkhbayar received a Presidential pardon from the re-elected Ts. Elbegdorj on August 1st. 

Originally jailed on corruption charges, Enkhbayar was convicted in August 2012 for a prison sentence of seven years, later reduced to two and a half years. With the exception of one month in jail, Enkhbayar spent most of his time in the second general hospital thanks to changes in the law regarding the medical treatment of prisoners.

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Sumitomo Mitsui to Open Office in Mongolia

Tokyo, Aug. 15 (Jiji Press)--Sumitomo Mitsui Banking Corp. said Thursday it has received permission to open a representative office in Mongolia from the country's financial authorities, becoming the first Japanese bank to do so.

The unit of Sumitomo Mitsui Financial Group Inc. <8316> said it plans to set up the office in the capital Ulan Bator by the end of the year after gaining approval from Japanese financial regulators.

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UB Mayor discusses German partnerships for urban development

August 15 (UB Post) The Mayor of Ulaanbaatar, E.Bat-Uul, met with Burkhard Dukofr, the deputy chief mission of Germany's Embassy in Mongolia. During the meeting, E.Bat-Uul said, "Ulaanbaatar wants to keep implementing projects and programs with Germany. For instance, we want to collaborate with Germany on projects for apartment heating. A study showed that there are over 400 apartments with heating loss in Ulaanbaatar City. It is estimated that foam construction blocks save 30 percent of electricity. Therefore, this work will not only save electricity, but also become an important step to studying urban culture. Also, we will utilize saved electricity for ger district re-planning".

Burkhard Dukofr expressed an interest in organizing an exhibition featuring United Buddy Bear in Chinggis Square. The exhibition would consist of over 100 two-meter tall fiberglass bears customized by artists from Germany and Mongolia. The exhibition has been held in over 20 countries around the world and represents a message of peace, international understanding and tolerance among nations.

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Train accident caused 4 million US dollar loss

August 14 ( Yesterday's accident where a freight train collided with a kamaz vehicle belonging to Esto LLC on the railroad crossing near Sky Resort ski centre caused damage to 200 meters of the rail road. Four people were injured and taken to hospital. Two locomotives were derailed and forced to the sides of the rails and the kamaz vehicle that crossed the train`s path rolled onto it's roof.  

The 416th crossing was in closed mode meaning the barrier was down. Vehicles should not have been allowed across the tracks. 

Esto LLC, contract operator with Ulaanbaatar Railway, was responsible for locking and unlocking the gates but the company failed to lock the gate at around 7:20 am on Tuesday. 

Because of the derailing of the damaged train and the accident involving the heavy vehicle the train traffic was held up and passengers were taken by bus to the city. 

Ulaanbaatar Railway staff evacuated the crashed train and the kamaz vehicle from the site and finished repairing the damaged 200 meter long railroad at around 10:00 pm on Tuesday August 13th. The train traffic that was held up at Khonkhor and Amgalan stations can now flow again.

According to a statement by the State Secretary of the Ministry of Road and Transportation the accident caused a delay of trains on six different routes and a 4 million US dollar loss.

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Militaries from 9 nations exercise peacekeeping scenario during Khaan Quest 2013

FIVE HILLS TRAINING AREA, Mongolia, August 15 (DVIDS) – The Peace Support Center here is just a few kilometers from the field training taking place during exercise Khaan Quest 2013

While troops sharpen tactical procedures in the rolling hills of Mongolia, military decision-makers from multiple nations are honing operational skills behind closed doors.

Hosted annually by the Mongolian Armed Forces and co-sponsored this year by U.S. Marine Corps Forces Pacific, military personnel from nine countries took part in a scenario-driven command post exercise, Aug. 10-13. 

The scenario placed a multinational brigade of troops in a fictional country facing significant civil unrest. In the midst of the chaos, a notional earthquake strikes and the team is forced into action. 

"Each battalion has its own individual challenges," said Colleen Ruru, with the Center for Civil-Military Relations – Monterey, Calif. "We have (ground) maneuver battalions, and this year we've added an aviation battalion for the first time.

"We've thrown a lot of challenges at them, and they've risen to every single one of them, if not exceeding our expectations," Ruru added.

The CPX was executed with a "crawl, walk, run" approach. Classroom learning and scenario familiarization started Aug. 4, which ramped up to staff exercise designed to put everyone on the same page with regard to the military planning process. 

The notional battalions were tasked with managing various aspects of peacekeeping operations such as coordinating multi-agency disaster response, providing security support to humanitarian organizations, combating criminal elements and human trafficking, as well as managing media issues and developing a solid plan to communicate with the public.

By the time participants started "running" on Aug. 10, they were working seamlessly with one another. 

To add to the realism of the training, U.S. Army Reserve Officer Training Corps cadets and other active-duty service members acted as role players, playing local disaster response managers one day and tenacious media representatives the next.

"This is the best thing that a cadet could ask for," said Rebekah Williams, from Eagle River, Alaska, and an ROTC cadet with University of Alaska, Anchorage. "We're jumping in on a higher level than we normally would be, and we're working multilaterally, which is something that many of our officers don't get to do, at least not on a regular basis."

While the scenario was new to some, many participants had compiled a significant background in civil-military operations, and they strived to leave a lasting impression on those with less experience in civil-military operations.

"We hope to help the other units and bring them up to speed on counter-insurgency work, humanitarian work, as well as bilateral and joint operations," said U.S. Marine Capt. Albert Bellamy, a native of Wadsworth, Ohio and acting as the operations officer of 2nd Battalion, 11th Marine Regiment during the CPX. 

"We've been out ahead of every task, and been able to anticipate the needs of every problem that the instructors have given us," Bellamy said.

Ruru, who led the planning for this year's CPX, praised the multinational team for its stellar performance. 

"This is my fifth or sixth Khaan Quest, and every year we've seen continual improvement in relationships and sharing of information, which ultimately builds on interoperability," Ruru said.

Exercise Khaan Quest, in its eleventh iteration, officially ended Aug. 14.

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Khaan Quest: Engineering and medical projects in Nalaikh come to a close

ULAANBAATAR, Mongolia, August 15 (DVIDS) – The engineering site in Nalaikh district was once cluttered with lumber, bricks and mounds of loose gravel as heavy equipment operators negotiated around the mess to demolish portions of a rundown building.

Less than a month later, the same site is full of government leaders and high-ranking military officials, and the local community has a newly renovated school.

Canadian and Mongolian Armed Forces personnel joined U.S. Marines and Washington Army National Guard soldiers at Erdmiin Orgil School for the ribbon-cutting and closing ceremony during exercise Khaan Quest's Engineering Civic Action Program (ENCAP) project and Cooperative Health Engagement (CHE), Aug. 13. 

"In addition to conducting humanitarian outreach, one of the goals of construction projects such as these are to improve the engineer readiness of our personnel," said Maj. Gen. Gary Hara, deputy commanding general of Army National Guard for U.S. Army Pacific. 

Construction specialists from the MAF's 017 Engineer Battalion, the Marine Corps' 9th Engineer Support Battalion, Canada's 1 Engineer Support Unit and 96th Troop Command, WAARNG, worked side-by-side to complete the project. 

Medical personnel from the U.S., Mongolia, Canada, India and Republic of Korea also stood in a platoon formation during the ceremony. They had recently concluded a CHE in Nalaikh district, as well as a Subject Matter Expert Exchange at the MAF's Central Clinical Hospital in Ulaanbaatar.

"I trust that the Mongolian Armed Forces personnel … are able to apply these lessons when participating in humanitarian assistance/disaster relief or peace support projects in the future," Hara said. "I am certain that American soldiers and Marines also benefitted from this unique opportunity." 

His MAF counterpart echoed those sentiments.

"This exercise has been organized to increase the strength of (our nation's) civil-military relationship," said Maj. Gen. B. Bayarmagnai, deputy chief of general staff, Mongolian Armed Forces. "All participants in this exercise have learned from the experience."

Military engineers from Mongolia and the U.S. started the construction project July 20, while Canadian Forces personnel arrived in early August. 

The trilateral team replaced the roof, windows, front stairs and interior doors, "re-stuccoed" the exterior, applied emulsion and repainted the building. They also tore down a structurally unsound concrete awning at the main entrance and build a handicap-accessible ramp at the front of the school.

"We worked very well together," said 1st Lt. Matthew Elliott, officer-in-charge of U.S. forces participating the ENCAP project and a platoon commander with 9th ESB out of Okinawa, Japan. 

"We made sure we met with one another every night to work out the plan for the following day," Elliot said, adding that once the MAF and U.S. engineers adapted to the language barrier and learned how to effectively communicate with one another the project began moving forward smoothly. 

U.S. Ambassador to Mongolia Piper Campbell said she was impressed with the level of interoperability demonstrated between the engineers and medical professionals.

"The skills that you use in these exercises are skills that you all will likely use again, probably in some far-flung places," Campbell said. "Also, you've provided some very substantial and concrete benefits for the community."

The training value and community outreach is sure to continue, as planning for next year's exercise starts shortly after the official end of Khaan Quest 2013, Aug. 14.

"I would like to express my sincere wish that the projects we're opening today will be only part of an ever-growing number of future Mongolian-American cooperation," Hara said. "Our countries continue to build a great friendship, one that I sincerely hope will continue to endure for generations to come."

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Mongolia khan-khan with Scotland

August 15 (The Southern Reporter) A Mongolian hoard descended on Hawick last week, to sing and dance their Edinburgh Tattoo routine, and treck on a cashmere trade mission.

The 70-strong Central Orchestra of the Mongolian Armed Forces from Ulaanbaatar, appearing at the Royal Edinburgh Military Tattoo until August 24, told the story of Gengis Khan through the medium of dance and traditional throat singing at the Heart of Hawick last Wednesday, watched by bemused Teries.

Mongolian Ambassador Tulga, Tattoo chief executive David Allfrey and Scottish Secretary Michael Moore accompanied the troupe to Hawick Cashmere, where they watched how the cashmere goat's fine, supersoft undercoat is turned into luxury knitwear in Scotland, and also discussed how the fabric's supply chain can be improved between the two countries.

"It was an initial meeting to exchange contacts, and see how Scotland and Mongolia can work better in the future," a spokesperson for Michael Moore MP explained.

Hawick Cashmere's managing director David Sanderson added: "Clearly, we are hugely interested in all the components that go into high quality cashmere goods. Indirectly we have strong links with Asia and its cashmere supply routes and this visit offers us the opportunity to explore direct contacts with the cashmere supply from Mongolia."

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Social, Environmental and Other

Keeping up with the nomads

Warm hospitality awaits the visitor to the Mongolian hinterland

August 14 (The Nation) A vast expanse of blue sky spread like a blanket over immense grasslands dotted with white tent-like structures and a smattering of goats, sheep, cows and horses is the image that flashes into my mind when I think of Mongolia in the summer. With the sun shining so brightly and temperatures touching on 30 degrees Celsius, it's sometimes hard to fathom the freezing conditions so typical of a Mongolian winter.

I'm part of a group travelling in this massive landlocked country that shares its borders with Russia to the north and China to the south at the invitation of the World Society for the Protection of Animals (WSPA). Our destination is Dundgovi province, where we will observe how the local population is managing to cope following the abnormally bitter cold in the winter of 2009-10 that cost their livestock some 16 million animals. Here, the differences between day and night are more pronounced that in the capital Ulaanbator 250 kilometres to the north, dropping to a chilly 12C after dark. The locals, however, probably find it warm: in winter, the temperature can easily fall to minus 50C.

It takes us almost seven hours to travel to Dundgovi and it's only as our four-wheel drive vehicle crosses the line from town to countryside that we realise that the snake-like earth brown line we'd seen from the air is in fact the road.

Unlike the highways that link the provinces to the capital in most other countries, the road to Dundgovi is unpaved and unlit. No markers point the way so drivers must either be very familiar with the route or have GPS in their vehicles. Pot-holed tracks criss-cross the land, most of them used by rural Mongolians as they search for new locations to set up camp.

In a country where the government owns most of the land and the grasslands provide the vital food for their livestock, these nomadic families are often forced to relocate five to six times a year.

Staring out of the windows, we spot goats, sheep, horses, cows and even some camels munching on the ankle-level grass that carpets the tree-less landscape. Gas stations are non-existent and when nature calls, we scurry off into higher terrain for a little privacy.

Soon we arrive at our destination, a tented camp in the middle of nowehere. Drinking water is scarce so the locals slake their thirst with goat milk, vodka or "airag", the local spirit made of fermented horse milk that's traditionally served to visitors.

Families in rural Mongolia remain as large and extended as they were when Genghis Khan founded the Mongol empire back in 1206 so we are not surprised to be greeted at the first ger by a family whose members range in age from three to 80 plus.

After serving us a welcome snack of wafers and vodka, our host Ts Erdene-Ochir proudly shows us his snuff box. These beautifully carved containers, usually made of jade or ivory, are passed on from fathers to sons, he explains. "I wouldn't sell this even if you offered me US$300,000," says the 61-year-old with a smile.

Lunch is served in another ger, the home of D Hayanhyrvaa, and features typical Mongolian fare - boiled mutton and big bowl of goat's cheese. In the countryside a sheep is killed only for special occasions, like the New Year, and one pot is enough to feed a family for the whole month. The parts, offal included, are put in a big pot then cooked with little salt on a stove fired by animal dung inside the ger. It's surprisingly tasty and smells great. The trick, we're told, lies with black river stones. Pre-heated stones, put into the bowl during the cooking process, help absorb any bad odours.

Our visit apparently also counts as a special occasion and the family is delighted with the opportunity to eat mutton. We look on with pleasure as one small girl happily devours goat cheese and mutton along with guests for a full hour then, her appetite sated, curls up and falls asleep in front of the food table.

The next ger is shared by two young families with a total of eight members. "How on earth do they manage to find a romantic moment?" murmurs one of our team. 

Despite the tough conditions, many Mongolian people enjoy the freedom of the fields. Saiutuya, who works most of the year teaching biology and chemistry, spends the summer on the steppes. As she busies herself milking the goats, she tells us she hopes to retire from academic life in two years and become a full-time animal breeder.

"But for the disaster (which killed most of his animals), I could have owned a helicopter now," laments her husband, L Sujirjin, 52.

Trucks, four-wheel jeeps and motorcycles surround most of the gers and all are equipped with a satellite dish, solar panels and a satellite phone. A humidity gauge inside the ger tells the nomads when it is time to move.

The toilets are outside and just like the ones in the city are dark and dank, fabricated of two pieces of wood placed on top of deep holes. The strong smell makes us long for the road where nature's call can be answered in the fresh air. 

But for all the inconveniences, we are charmed by the country and its people and as we wave farewell to our kind hosts, our thoughts are with them for a fast recovery and more clement winters.

If you go

_ Most travellers arrive in Mongolia through Chinggis Khaan International Airport, 18 kilometres from Ulaanbaatar. Mongolia Airlines and Air China operate direct flights from/to Ulanbaatar and Beijing. 

_ Korean Air also flies daily from Seoul to Ulaanbaatar. Trans-Mongolian train runs once a week from China's capital to Mongolia. 

_ The summer is the best time to visit, with the day time temperature averaging 21 degrees Celsius. 

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