Gold extraction banned in river basins

Mining for gold near river flows creates an environmental nightmare
On November 17, Government issued a resolution to cease mining activities except for mining blockage, rehabilitation and environment monitoring at a gold deposit field permitted by a special license, where a protected zone of river sources and reservoir and forestry exists. In July, 2009, Parliament adopted a law on prohibiting minerals exploration and exploitation on protected zones with a river source, reservoir and forestry. By law, the government has been responsible for determining the frontiers of legally prohibited regions in detail and approving a regulation for compensation. 
Accordingly, the government approved a regulation to compensate those who hold special licenses for minerals exploration and mining. Therefore gold extraction activity has ceased in the first stage. Pursuant to the Law adopted by the initiatives of some MPs for reducing serious impacts on ecology due to issuance of minerals exploration and mining license without orders and policy, it was banned to explore and exploit minerals and extract gravel 200 meters from a river flow. Facts shows that in recent years, 1,181 out of 3,347 lakes, 852 of 5,100 rivers and 2,270 of 9,600 streams and springs dried up due to people’s improper activity.
“Coordinates of areas belonging to the above-mentioned law were received from the Environment and Tourism Ministry by the middle of this year. An issue on surveys about companies that hold licenses on the region and how to compensate was consulted with the Finance Ministry.
‘- There are over 4,000 licenses throughout the nation, of which 1,782 licenses will be annulled. The government’s resolution cancelled 254 licenses relating to gold deposits in the first stage. By doing so, activities of companies operating on gold deposits will be halted. A list of the companies will be publicly announced.”said D. Zorigt, Minerals and Energy Minister.
As he reported, licenses obtained by companies in Selenge, Bulgan, Tov, Ovorkhangai, Darkhan, Arkhangai, Bayankhongor and Khentii aimags will be cancelled. The largest deposits are Bayangol and Tomort River deposits in Selenge Aimag and Narantolgoi deposits in Gachuurt. Deposits to be cancelled contain 74 percent of the tin reserve, over 20 percent of the iron reserve and 24 percent of the gold reserve of Mongolia.
Compensation for the companies whose licenses are annulled will be issued after considering the company’s tax payment, expenses, benefits natural rehabilitation, and entering into negotiations with each company.
Money required for compensation will be included in the State Budget of the fiscal year and special license holders will receive a one-time compensation.
Accordingly, legal actions will be taken for artisanal miners within the framework of this law. Minister D. Zorigt said, “Presently, artisanal miners conduct illegal mining.
Relevant amendments have been made to the Minerals Law. According to the amendments, artisanal miners can conduct mining by building up a community and negotiating with local administrations. In this case, artisanal miners can conduct mining activity. Under the law, it is possible to manage micro mines. Applicable regulations were submitted to government and approval is expected soon. Every soum can determine itself where it is possible to manage micro mines in its territory and which community will conduct the operation.
source: The Mongol Messenger newspaper


The prime minister, the private investigator, the murder of a Mongolian model, and 114 million euros

The remaining loose ends are being tied off in the seemingly determined efforts to ensure Malaysia’s prime minister, Najib Tun Razak, is not embroiled in the still unresolved murder by two of his bodyguards of a Mongolian model and translator.
Distancing the prime minister from the murder also creates some space between Najib and 114 million euros ($160 million) in “consulting fees” paid by the French warship manufacturer DCN for Malaysia’s order of two Scorpene submarines when Najib was defence minister. Malaysia’s law minister, Nazri Aziz, has told parliament that authorities have closed the case against private investigator P. Balasubramaniam, the man who tied Najib to the 2006 murder of 27-year old model Altantuya Shaariibuu.
Altantuya worked as translator for Najib and his close friend and adviser on defence matters, Abdul Razak Baginda, in the negotiations with the French.
Balasubramaniam has said she told him she was to be paid $500,000 for her part in the submarine deal. Balasubramaniam was facing charges of making false statements after he made a statutory declaration in July, 2007, that Najib, then the deputy prime minister, was Altantuya’s lover and involved in her murder. The private detective said Najib had handed Altantuya on to become his friend Baginda’s lover when the opportunity for Najib to become prime minister presented itself. Two of Najib’s bodyguards, Chief Insp. Azilah Hadri and Cpl. Sirul Azhar Umar, were convicted of Altantuya’s murder in April last year. But the day after Balasubramaniam filed the declaration, he made another one saying the first was written under duress. He then left the country, but popped up in Britain last year to say the first statement implicating Najib was the correct one. When last heard of, Balasubramaniam was in India. Law Minister Nazri said the case against the private eye was being dropped because “although there are contradictions between the two statutory declarations, the contradictions do not affect the outcome of the trial” of the bodyguards. This leap of logic has left many Malaysians gasping. Although they are well used to seeing their legal system tailored to political requirements, the events around the Altantuya case have stretched credibility beyond the bounds of reality. Balasubramaniam entered the case in 2006 when he was hired by Baginda. Baginda had recently jilted Altantuya, but she refused to accept the end of the affair and wanted her share of the 114 million euros the French state-owned shipbuilder DCN had paid to a consulting company set up by Baginda. Altantuya took to demonstrating loudly outside Baginda’s house in Kuala Lumpur and he hired Balasubramaniam to keep her away from him.
But on the evening of Oct. 19, 2006, the two bodyguards bundled Altantuya into a car and drove her to the jungle outside Kuala Lumpur, where they shot her in the head and blew up her body with C-4 military explosives.
In one statement, one of the bodyguards said they were paid 100,000 Malaysian ringgits ($36,000) to commit the murder. In another statement, one said they blew up the body because Altantuya begged them not to kill her because she was pregnant. The idea was to make it impossible to identify the father. With oversight that defies imagination, no one asked either of the bodyguards during the 159-day trial who had given them the money to kill her. But very early in the proceedings, before any significant evidence had been heard, the judge saw fit to dismiss charges against Baginda, saying there was no case for him to answer. Baginda promptly hightailed it to Britain, where he has remained since. But there are still a couple of dangerous loose ends in the story over which the government of Prime Minister Najib does not have full control.
One is that the government of Mongolia has said it will fund a civil suit by Altantuya’s family against the Malaysian government and Baginda.
The other is that French prosecutors continue to investigate the 114-million euros kickback given by DCN to secure the submarine sale to Malaysia.
Source: Vancouver Sun 
November 15, 2010 
by Jonathan Manthorpe


Malaysian Civil Court to try Sh. Altantuya’s case

On November 10, Undesnii Shuudan Daily wrote that a case related to a Mongolian woman who was assaulted to death in Malaysia will be tried. The terrifying case is about Mongolia’s fashion model, Sh. Altantuya who was shot and then exploded with a bomb in Malaysia in October of 2006. This cruel murder was not just an ordinary crime, but had business and political characteristics. The press wrote that the Malaysian Prime Minister, Najib and his advisor Baginda were related to this case. Baginda was suspected and investigated in this case. Mr. Shaariibuu, the father of late Sh. Altantuya, frequently demands the Malaysian government and police office to resolve this case justly and resolve the issue of pension for Altantuya’s two orphaned children. Undesnii Shuudan Daily interviewed D. Gankhuyag, head of Consular Office at the Foreign Affairs Ministry about the process for resolving the case. A consul of Mongolia at the Embassy in Thailand went to Malaysia and met with
officials of the Malaysian Foreign Ministry an attorney, and Mongolians staying in Malaysia with the purpose of clarifying how Malaysian courts resolve cases. “According to the Malaysian court system, a criminal court tried the case and imposed the death sentence on two police officers. Now, the case will be discussed in civil court. Therefore, we need to clarify some issues regarding the court proceedings such as when the trial will be held and how to pay the stamp fee,” said D. Gankhuyag. 
Both Mongolian and Malaysian ambassadors have not submitted Letters of Credence mutually causing bilateral diplomatic relations to stagnate. He said, “Mongolia’s Ambassador in Thailand is liable for Malaysia. For Malaysia, its ambassador in Beijing is in charge of Mongolia. It has been two years that the Malaysian ambassador has not presented its Letter of Credence. The Mongolian side is ready to present a Letter of Credence if Malaysian side presents. In general, we are waiting for the Malaysian side.”
B. Ooluun

source: The Mongol Messenger newspaper

Mongolia Record their Best Ever Performance in Asian Games

Written by Kh.Ganchimeg

Mongolia grabbed two gold, five silver and nine bronze medals in the 16th Asian Games, held in Guangzhou, China from November 12 until 27, 2010.

The 16th Asian Games officially closed on Saturday in the southern Chinese metropolis of Guangzhou with a rousing and colorful outdoor spectacular.

“The 16th Asian Games, which has been a huge success, comes to an end,” said Olympic Council of Asia president Sheikh Ahmed Al Fahad Al Sabah.

Altogether 227 athletes from Mongolia competed in 28 different sport’s event at the Asian Games.

Freestyle wrestlers G.Mandakhnaran and G.Naranchimeg took the gold medals in the games.

In particular, Mandakhnaran won the men’s 60kg freestyle wrestling gold medal by defeating Japanese Hiroyuki Oda 5-0 in the final.

Chinese Gao Feng and Kazakhstan’s Dauren Zhumagazyyev shared the bronze medal in that event.

Naranchimeg won the women’s 72kg freestyle wrestling gold medal when she overpowered host country’s Li Dan 4-0 and 6-3 in the final.

Kyoko Hamaguchi from Japan shared the bronze medal with Guzel Manyurova from Kazakhstan in the women’s event.

In the last days of the event, Mongolian O.Nasanburmaa and J.Chuluunbat earned silver medals in freestyle competition.

Nasanburmaa received the women’s 63kg’s silver medal by defeating Suman Kundu from India in semifinal. She lost the gold medal to Kazakhstan’s Yelena Shalygina. Park Sangeun Yun (South Korea) and Chen Meng claimed the bronze medal in the event.

In the men’s 120kg weight category, Chuluunbat placed the second when he won Chinese Liang Lei in the silver medal’s match.

Artur Taymazov from Uzbekistan garnered the gold medal; bronze medals went to Liang Lei and Fardin Masoumi from Iran in the men’s event.

China leads the medal table with 199 gold, 119 silver and 98 bronze medals, followed by South Korea with 76 gold, 65 silver and 91 bronze medals and Japan with 48 gold, 74 silver and 94 silver medals at second and third respectively in the Asian Games 2010.

Mongolia finished 21st place with 16 medals. In 1998 and 2006, Mongolian team bagged 15 medals in the Asian Games.

A total of 45 countries competed for 477 package medals in the Guangzhou-2010 Asian Games.

Guangzhou was handing over the Asian Games torch to the South Korean city of Incheon, which will host the four-yearly multi sports event in 2014
source: The UB Post


Who has the real power in Mongolia?

Written by G.Chingis

This is probably the most difficult question for foreign investors. There are several ways to start to think about investing in Mongolia.

Sometimes, you will meet Mongolians in your country; or you might be invited to Mongolia for some reason. Of course, foreigners will think the way he/she thinks due to their national background. Russians, Central Asians will think that the most powerful man in this country is the President of Mongolia. Europeans will think about the parliament. Koreans and other Asians will think about the Mongolian military. In the end, this is also quite a difficult question for Mongolians too.

Let us start with the President of Mongolia. The first President of Mongolia was Mr. P. Ochirbat. He managed to stay in office for two terms: For the first term, Mr. P. Ochirbat was nominated by the Mongolian People’s Revolutionary Party (MPRP), and for the second term he managed to be nominated by their rival, the Mongolian Democratic Party (MDP). Therefore, Mr. P. Ochirbat was the first “democratic” President of Mongolia. The concept of presidency was very new for him and for Mongolians as well. Mongolia was suffering from a devastating crisis; Mongolians were receiving food through ration cards. Anyway, Mr. P. Ochirbat was a more entertaining President than a powerful one. People remember him more for the first Mongolian oilfield, and he was famous with his participation of various New Years Parties.

The second President of Mongolia, Mr. N. Bagabandi was very powerful. He killed many people’s dreams in his bid to become Prime Minister of Mongolia. Probably, some of them will never realize that dream. Therefore, foreign investors thought that the President of Mongolia was the most powerful man in this country. But it is unclear who was the most powerful at that time? Mr. N. Bagabandi or his subordinates, such as the Head of his administration, current Members of Parliament, former Prime Minister, Mr. S. Bayar and/or other people, such as his various advisers.

The third President of Mongolia, Mr. N. Enkhbayar was powerful too. But, he was not as powerful as Mr. N. Bagabandi. In the end, he lost his second term bid, and Mr. N. Enkhbayar almost finished his political career at that time.

Now, Mongolia has its fourth President of Mongolian, Mr. Ts. Elbegdorj. Is he powerful or not? Usually, every Mongolian will say to foreigners that he is very powerful. Probably, Mr. Ts. Elbegdorj would say the same stuff. And he actually did this during his last visit to Japan. His visit there overlapped with another state visit to Japan. Mr. Ts. Elbegdorj was competing with the President of the USA Mr. Barak Obama. There was a huge crowd in Kyoto, where the American President wanted to see some sights, and visit some places where he was with his grandmother; Mr. Ts. Elbegdorj also wanted to see places in Kyoto too. Nevertheless, his visit to Russia was postponed and his relationship with the President of Russia is a big headache for him.

So, what about the Prime Minister of Mongolia? Usually, PT’s are very important for investors, but they are unreliable due to their typically short terms. Russians were so excited with Mr. S. Bayar; in the end he left them with nothing, even Mr. S. Bayar was visiting Russia every three months. Russians even received in their dreams Oyu Tolgoi, Tavan Tolgoi and Mongolian uranium. Psychologists know this important phenomenon: when you will lose, you will say that the external environment was negative, and when you will win, you will say that it was due to his/her genius skills. Therefore, foreign investors should prepare for the success of Prime Minister of Mongolia. Then you might see in his interview that thanks to his extraordinary skills, he succeeded with the project. Of course, the Prime Minister will never say that thanks to the astonishing efforts of foreign investors we succeeded.

The parliament of Mongolia is the most powerful structure in Mongolia. But it is unrealistic to make a simultaneous deal with 76 Members of Parliament. Of course, some foreign investors tried to take such steps. It is unrealistic unless you will approach them all simultaneously. Otherwise, some of these 76 Members of Parliament will say, “Why I am the last person in this line.”

The military in Mongolia is not powerful at all. They are underfinanced; they do not any connections with Mongolian politics and business. We are different from South Korea, Thailand, Taiwan and other Asian countries in terms of power distribution.

In the end, every foreign investor should find his own unique solution. They need to forget their backgrounds, and their experiences in other countries. It is time consuming, but challenging to succeed in Mongolia. By the way, Mongolian investors do the same thing. It is difficult for them as well.
source: The UB Post


Mongolia Renews Commitment to Afghanistan at Lisbon Summit

By Linda Haywood

At the NATO summit in Lisbon, President Elbegdorj of Mongolia renewed his country’s commitment to the ongoing operations in Afghanistan with a pledge to send more army engineers, border patrol experts and rescue specialists.

“Mongolia will contribute further to stabilize Afghan situation which has become one of the core of Eurasian regional security and organized crimes such as drug trafficking. Mongolia can be a development example for Afghanistan.”

The NATO summit in Portugal mandated several provinces to be handed over to Afghan control in early 2011. The withdrawal of ISAF troops will begin at that time. By the end of 2014 Afghan forces will assume full responsibility for the security of Afghanistan.

700 Mongolian soldiers have been on duty in Afghanistan since 2003. At present, two battalions are patrolling near Kabul and in the Northern Afghan city of Faisalabad where they are working in cooperation with German forces. In addition, artillery and helicopter trainers are working with the Afghan military to build capacity ahead of the ISAF withdrawal. (The Global Herald is an entirely online newspaper set up to present news in a new format, completely independent of news agencies, news wires and international news networks.)

R.S.Koppa, President of TDB: Trade and Development Bank of Mongolia successfully returns to the international debt capital markets

In October 18, 2010 TDB confirmed the successful issue of its second bond in the international debt capital markets, raising USD 150 million of 3 year Senior nsecured Notes under its Euro Medium Term Note (EMTN) USD 300 million bond programme to increase the bank’s funding base. base. In the very next day, the oldest bank of Mongolia, TDB celebrated its 20th anniversary. A few weeks later, on November 10th 2010, TDB confirmed the issuance of USD 25 million in five year Subordinated Notes under the same EMTN programme to increase the bank’s capital base. On this double occasion, we invited Mr.R.Koppa, President of TDB, to have his views on the bond issues, the current situation of the Mongolian economy and its further trend, and to share his impressions of working in Mongolia, especially at Trade and Development Bank.

-What makes these bonds special?
-In 2007, TDB successfully issued USD 75 million Senior Unsecured Notes, under its inaugural USD 150 million EMTN programme. This debut issuance was Mongolia’s first ever public placement of debt in the international debt capital markets. Later the Programme was upgraded to USD 300 million EMTN programme and a second bond issuance was contemplated in 2008 earlier but the global credit crunch compelled TDB to defer this action. The repayment of the first issue in 2010 and the improvement of global economy enabled TDB to reaffirm its attractiveness to international investors. Thus, on October 18th 2010, TDB was able to successfully launch its second issue on the market by completing the placement of USD150 million three year Senior Unsecured Notes under its USD 300 million EMTN programme followed a few days later with the issue of USD 25 million five year Subordinated Notes. This latter is the first ever issuance of subordinated bonds from a Mongolian corporation into the international public market. These issues have been part of an EMTN (Euro Medium Term Note) programme, listed on the Singapore stock change. TDB’s overall sound fundamentals enabled it to solicit strong market response, resulting in the senior note offering being 2.8 times oversubscribed. At our first such issue in 2007 mostly larger private investors bought majority of bonds, but this time the issue met TDB’s objective of broad institutional placement with asset managers taking up 42%, private banking accounts 25%, hedge funds 18% and financial institutions 11%. Geographically, Asia took up 50% and Europe and offshore US together took up the other 50%. Such broader distribution of the senior notes and the unprecendented issuance of the subordinated notes not only affirms TDB’s standing in the international markets, but also enhances our reputation. These bond issues are special, because the country’s first and still only issuer of debt on the international capital markets successfully tapped the market a second time.
-Our readers are not familiar with the word bond. Why is this bond transaction beneficial for your bank and for Mongolia?
-Bond is a term for debt obligations or notes which generally have maturities longer than two years. The word bond in English essentially means a promise to pay, and in the past were rather ornately decorated pieces of paper and thus appeared to look different from shorter maturity notes. Attached to the bond were small pieces of paper, called coupon, which represented the interest to be paid on each six month period. The investor, called the bond holder would physically clip off the coupon and present it to the paying agent to collect the interest due.
-These bond issues are likely to open a new historic page in the Mongolian financial market and there are sufficient benefits in the economy, as well as banking sector.
For TDB the senior bond with a three year term and an interest coupon of 8.5% provides the bank with longer term funding to help the bank make loans with longer terms, yet with a funding cost which compares favorably with rates for fixed term deposits, which rarely are longer than one year. The subordinated bond is treated by the market and the Bank of Mongolia as capital funds, which provides a stronger equity capital cushion for the bank as well as increasing its legal lending limit which increases our capability to serve major clients with loans and similar products. As the Mongolian economy enters a period of more rapid growth in the next few years, the banks will have to be prepared to expand their lending significantly to perform their important roles and there will be a need and opportunity to have the banks grow dramatically, which means they must maintain strong management, good lending policies, and strong capital positions to sustain high growth. Attracting low interest funds from international debt capital markets serves this purpose but can also help eventually to reduce the loan interest rates in the market, which are still higher than the rates in developed countries. Educated customers who are doing business in the Mongolian market economy understand that loan interest is dependent on deposit interest.
-TDB became the first Mongolian company ever issued bonds second time in the international capital markets. Do you have any intention to share your experiences with other Mongolian companies? What difficulties they may confront in order to tap into international capital markets?
-I couldn’t say tapping into international market is an easy action. TDB has long ago taken many measures to put itself into position to approach the international markets. The bank has employed the largest international accountancy and professional services firms since 1997, has maintained a debt rating from Moody’s, has implemented best practice operating procedures and internal controls, cooperated actively with the international financial community and has had a very strong earnings history. All these actions, generally required before an approach to the international debt and equity markets, have enabled TDB to reaffirm its attractiveness to international investors.
As for other Mongolian companies, there are several steps, as mentioned above, which need to be taken before many of them will be able to list on the international stock exchanges. It will not be enough to simply have a good asset, such as a mineral deposit and a mining license, for example. Good business plans, a clear corporate and organizational structure and a transparent financial condition with a good earnings track record are some of the usual preconditions to list abroad. As we know, recently, Mongolian Mining Corp. raised US$670 million in its Initial Public Offering (IPO) in Hong Kong. We hope many more Mongolian based entities will be in position to access international capital markets and became well known internationally. Of course, we would be pleased to help and advise Mongolian companies which are preparing to enter the international markets.
-TDB’s second bond issue coincides with the 20th anniversary of the bank. Is it pure hazard or purposely done? By the way, happy anniversary to your bank.
-Thank you. While it is noteworthy that the bond issues occurred around our anniversary celebrations, the need and timing were also driven by the recent economic developments in Mongolia. The concluding of the Oyu Tolgoi agreement about a year ago, and the growing demand from China for coking coal, iron, petro;eum, and other minerals Mongolia has in abundance have spurred a massive increase in investment into the country while at the same time exports have grown dramatically. The pace of GDP growth is accelerating after a quiet 2009, and there is an increase in overall business activity. With these events, and TDB’s proud history and role in supporting the country’s growth and development,it is appropriate that the fund raisings occur now as we celebrate our 20 years of service. Mongolia has had a small and somewhat fragile economy for these past years of market economy, depending largely on import–export rather than manufacturing its own domestic production. As a bank, one of the keys to survival and success has been highly skilled and well trained professional staff, good human resource management and guaranteed banking service with strong capability to handle international transactions and foreign trade. TDB has continued to contribute towards foreign relations and trade through offering international standard services and maintaining a good reputation among the international financial community. Issuing bonds in the international market is not an easy thing to do, especially from newly emerging market economies, so being the first ever Mongolian corporation to do so is a real source of pride. Accordingly, our second bond issue is a very appropriate way to celebrate our 20th anniversary of achievement. We can proudly say that TDB today represents the Mongolian financial face in the world financial market.
-You are the banker who has tremendous experiences in many countries. How many years have you been working in Mongolia and what were your good memories?
-I’ve been working in Mongolia since 2004. During the almost six years I have been affiliated with TDB, I have many memories of firsts; that is types of banking products and transactions which were done for the first time in Mongolia by TDB. For example, TDB is the first bank that participated in and arranged syndicated loans with other foreign banks. Of course, a major event was becoming the first Mongolian entity to raise funds on the international public debt markets. I have fond memories of these and many other firsts because I was able to play a part with my colleagues in the bank in these milestone events, but more important, I was able to see how the bank staff grew in their knowledge, experience and professionalism.
Other good memories have been to see how many of the bank’s clients have had their businesses grow and prosper through their cooperation with TDB during the past years. As a banker, there is always a feeling of pride to be able to play a positive role in the growing prosperity of the clients the bank serves.
Of course, I also have fond memories of my time so far in Mongolia, and the relationships developed with colleagues, clients and others in the community. I am proud and honored to have been part of the wonderful history of TDB.
-What could be the TDB’s short term outlook and its further strategic plan? Please could you share with us your opinion on the Mongolian banking sector?
-Certainly the bond issues improve the recognition of TDB in the international markets and help open the possibilities for other Mongolian companies to enter into the international capital market. We are working toward continually offering international standard services to our corporate and individual customers and our future continued development will depend on this successful execution.
Currently, and in the next few years, as a result of economic growth, there has been and will be an influx of multinational corporations into Mongolia and local corporations will expand dramatically while the smaller firms, called SMEs will grow into corporations. According to the IMF and other organizations estimates, Mongolian GDP will double in next five years. Therefore banking sector will have to grow accordingly. TDB, one of the leading banks in Mongolia, is committed to grow and expands its activities as well. Of course, there will be threats and constraints, including inflation pressures rate and commodity price fluctuations. Nevertheless we view positively the future out and will remain attentive to developments. The main objective of TDB is to continue to be the leader in corporate banking and international banking services.
We will treasure customer satisfaction and work towards the introduction of many new products and high standard services to our customers. Since new amendments added in the Mongolian banking law there is opportunity for banks to offer new services such as brokerage and financial leasing service. In the future we will also offer more developed investment banking services to our customers.
-Let me leave the last question to you?
Rather than just celebration, the 20 year anniversary of TDB is an opportunity to thank our customers and staff. During the last 20 years, we have overcome many social hardships and confirmed our status as the leading bank in Mongolia. In this regard, I would like to thank our thousands of staff, founders and current management team. Moreover I would like to show my gratitude and wish the best for our customers, deposit  holders and loan recipients who showed the confidence in us with their trust and coorperation during the past 20 years of contributing to the Mongolian economy

source: 'The Mongol Messenger' newspaper

Mongol Bank’s policy rate remains unchanged

On November 18, the Board of Directors of Mongol Bank met and issued a resolution to maintain its Policy Rate. At the press conference held on November 19, the Mongol Bank reported that as of the National Statistical Committee, inflation stands at 11.3 percent in October and the inflation growth had an intensive increase in first half of this year and started showing a decline from the third quarter and relatively stabilized in the past two months.
According to amendments in the Bill on State Budget for 2011, total expenditures are likely to increase by Tgs703 billion and the loss by Tgs476 billion. It leads to higher inflation and limits the stimulation of economic growth by monetary policy. During the press conference, first deputy governor of Mongol Bank B. Javkhlan, Monetary Policy and Research Department head D. Boldbaatar and Supervision Department head B.Lkhagvasuren spoke about how much foreign debt Mongolia has and how it will influence foreign currency. By third quarter of this year, Mongolia’s foreign debt showed an increase of 22.7 percent against the beginning of this year. 55.6 percent of it is government debt, 8.1 percent is central bank’s debt, 27.8 percent is debts of non-banking private sector and 8.5 percent is debts of banking sector. An impact of a large amount of foreign currency inflow on economy and banking sector depends on capacity and immunity of the internal banking system and optimal solution of macro economy policy. In Mongolia, commercial banks lack money and tend to increase or decrease their loans by much volume along with economic cycle. Therefore,it necessitates renewing requirement in the banking sector and improving risk-bearing capacity; otherwise, a huge foreign currency flow may lose the adequate management of assets of Mongolian banks. For prevention,the Mongol Bank initiates a program of structural changes of banks in collaboration with international organizations. If governmental foreign bond’s resource is used for infrastructure investment or projects which require much capital, its impact on the banking system will be relatively low and can be effective through economic growth in the mid and long term. In case of using it for operational expenditure, such as salaries and social welfare, it will cause instability in macro economy and is likely to bring banking system into risk. The Mongol Bank adheres to the principle that Government necessitates recovering the budgetary loss with an extra reserve accumulating in the internal banking system, but not with foreign resources. By doing so, it will contribute to establish a permanent model market of government securities to finance the budget loss without inflation pressure and develop internal capital market.
To the question why prices of imported goods do not decrease while the inflow of currency increases and exchange rate of US dollar declines, they answered, “Prices of imported goods in domestic market are not only caused by the currency exchange rate but also many factors. According to price index at the borders, by October it increased by 25.8 percent against the previous year and by 20.8 percent from early of 2010. It indicates that prices of imported goods are caused by exporters. There are also many reasons, such as few providers at market, weak competition, unequal information access and too many stages to deliver products to customers

source: The Mongol Messenger newspaper

Americans celebrate Thanksgiving in Mongolia

The USA has a number of national holidays, Christmas, New Years, Memorial Day, Independence Day, etc., but I feel there is no better holiday than Thanksgiving. Thanksgiving is all about family, football and feasting. I have countless memories of Thanksgiving days at different homes of my family. Each was a memorable occasion. No other national holiday compares to Thanksgiving. 
Thanksgiving, sometimes called Turkey Day or just T-Day is a day of thanks following the harvest. Families, friends, communities, and visitors celebrate by having a feast that traditionally involves a roasted turkey dinner. By the way, a turkey is a large, ugly bird, about 5 to 8 times bigger than a chicken. The Thanksgiving tradition originated in Colonial America in 1621 and was informally observed for about three centuries before becoming a national holiday in 1941. It fell on various dates during those years, but since 1941, it is always observed on the last Thursday of November. 
Generally, one American family member will volunteer to have the Thanksgiving celebration at their home
for their immediate family – parents, grandparents, brothers and sisters, kids, and in-laws but it also extends to uncles, aunts, cousins, girlfriends and/ or boyfriends. There’s no rule, but it’s mostly just close family. The host family will prepare a large turkey, often around 20 pounds (10 kg), dressing, cranberry sauce, mashed potatoes and gravy, vegetables, and pumpkin pie for desert. Guests often bring some of those dishes along with wine or beer. The day usually starts early in the afternoon with the guys watching football, drinking beer and eating snacks like potato chips, nuts and cookies. Meanwhile the women work together in the kitchen preparing the meal. It generally takes several hours to cook the large turkey and prepare the side dishes. It’s a lot of work, but well appreciated.
Sometime in the late afternoon, dinner will be served. Everyone sits at a large table to eat. Due to space limitations, children often sit at a separate table – hence the term ‘children’s table’. Before eating, most families will say a prayer together or individually express what they are thankful for over the past year. Then, the eating, talking, laughing, and story-telling begins. When everyone has had their fill, the table is cleared and coffee and desert are served. This might take place up to an hour after eating dinner. At that time, one of the family members may volunteer to host the next year’s celebration. It’s nothing but a great time.
For Ex-pats in Mongolia, Thanksgiving celebrations are pretty remote. Turkeys aren’t plentiful and the one’s I’ve seen are fairly small. I don’t know where or how I’d get or make a pumpkin pie. But a number of Americans do get together to celebrate. I am very fortunate to be friends with folks from US Embassy and was graciously invited to the home of Steve and Kay Burnett for Thanksgiving dinner at Star Apartments. It will by my first one in three years and I am very excited. I know it will bring back fond memories and create very special new ones.
source: The Mongol Messenger newspaper


World Bank warns that the 2011 budget is risky

Parliament reviews 2011 budget in light of World Bank’s assessment
The World Bank’s economist’s team made an analysis on the 2011 budget Bill of Mongolia and concluded the budget is risky, recommending adjusting to better reflect the lessons from the previous boom and bust. The analysis focused on budget influence into inflation and currency rate. The revised 2011 budget proposal envisages a steep increase in government spending, together with a sharp rise in the fiscal deficit to 8.6 percent of GDP. This budget, if approved, will compound already existing inflationary pressures caused by the sharp economic rebound and the lack of spare capacity in the economy, says the World Bank.
The budget proposal contravenes the Fiscal Management Principles contained in the recently passed Fiscal Stability Law, in particular, the principle to aim to create macroeconomic stability and restrain inflation. The World Bank economic analysis strongly suggest that the current budget proposal makes Mongolia set to witness a replay of the 2006-8 boom years, leaving it vulnerable to a bust similar to the one that occurred in 2008-2009. Under the proposal for 2011, general government spending will reach a whopping 50.5 percent of GDP. This is the second consecutive budget in which current spending is some 30 percent higher than the previous year. The increase is primarily driven by a 22 percent rise in spending on wages and salaries compared to the 2010 budget (reflecting the 30 percent increase in public sector wages and salaries that took place in October 2010) and a nearly 50 percent increase in spending on transfers. This will bring total spending on transfers to account for roughly 40 percent of total government spending in 2011, or 21.4 percent of GDP. The increase is due to a more than doubling in allocations to the Human Development Fund, which is financed by mineral revenues, to Tgs 805 billion (around 10 percent of GDP). “This is a risky budget proposal Inflation will increase significantly if the budget is implemented. The economic rebound in recent quarters has been stronger than expected and the economy is currently operating at close to capacity. We estimate that this budget will add about 15 percent inflation on top of the already existing inflation of around 10 percent. Such a high inflation rate will quickly erode the real value of the cash transfers, making these politically less attractive than they seem today.” noted Rogier van den Brink, World Bank Lead Economist for Mongolia. “Moreover, there is a substantial risk of secondround effects in the form of a wageprice spiral as a direct consequence of the expansionary fiscal policy and if higher inflation expectations become entrenched.”
High domestic inflation also causes the currency to appreciate in real terms, hurting the export sectors. For instance, this would hurt both agricultural exports, on which the rural population depends, and an already small manufacturing sector.
The World Bank economists mentioned that financing of the projected 8.6 percent deficit will be difficult. It depends on the Tavan Tolgoi agreement under negotiation, withdrawals from the newly established stabilization fund and privatization proceeds. The financing of the fiscal deficit comes from the following
sources. First, government estimates that it will receive advance payments equalling to 5.6 percent of GDP (Tgs 442.5 billion) from the Tavan Tolgoi mining deal which is currently under negotiation. “However, entering project negotiations such as TT with demands for large upfront payments reduces government’s negotiation powers considerably, and risk leading to delays in reaching the agreement and/ or unfavorable terms” said Mr Rogier van den Brink. Moreover, if these prepayments do not materialize the government could pursue borrowing on the international markets. However, such markets are increasingly jittery due to the euro zone woes, and could be difficult to access if and when Mongolia needs the financing.
Second, the government will disburse 2.1 percent of GDP (Tgs 164.6 billion) of resources out of the Fiscal Stability Fund which is to be established this year and will start functioning from 2011. However, money saved in the stabilization fund should first be saved for the inevitable downturn, not immediately spent.
“With the 2011 budget proposals, Mongolia would be following a welltrodden path adopted by many other resource rich economies, such as the Netherlands, my home country in the 1960s, after which the infamous “Dutch Disease” is named.” emphasized Rogier van den Brink. These countries provided huge subsidies and transfers to citizens that resulted in upward wage-price spirals that eventually proved difficult to control, fed domestic asset price bubbles (e.g in housing) and severely undermined profitability in the traded sectors. The eventual bust e.g in the case of the Netherlands was severe, requiring comprehensive and painful structural reforms, and the decline in the non-mineral traded sectors proved difficult to reverse.
Again, another bout of extremely high inflation could also undermine confidence in the currency and the financial system. Mongolia’s banking system remains fragile and a number of problems including undercapitalization, high levels of non-performing loans, and systemic problems of poor governance and risk management systems combined with poor oversight remain to be fully addressed.
The World Bank experts also warn that there are significant risks in the global environment. The external risk factors which could set this downturn in motion again include continuing uncertainty in international financial and debt markets, a severe slowdown in growth in developed countries, an external terms of trade shock (commodity prices once again seem to be entering a super cycle and it is hard to ascertain the degree to which commodity price increases over the past year are warranted by fundamentals or not) and a domestic confidence shock to the banking sector that is currently weighed down by high levels of non-performing loans on its books. The World Bank says it sent a letter attached with this analysis on the budget bill to the Finance Minister, the Bank of Mongolia and MPs.
source: The Mongol Messenger newspaper


Mongolia celebrates Proclamation Day

Speaker D.Demberel, President Ts.Elbegdorj, and Prime Minister S.Batbold paying tribute to Chinggis Khaan statue on Mongolia’s 86th Proclamation Day
This year is the 86th anniversary of Mongolia’s proclamation Day. On November 26, 1924, the first State Ikh Khural adopted the first Constitution and declared the People’s Republic of Mongolia, dismissing monarchism. This historical day is an official public holiday and State top officials paid tribute to Chinggis Khaan statue the previous day. Early in the 20th century, Mongolia was exacerbated with foreign powers and tyrannies. The domestic political situation failed and the economic crisis worsened. Some leading patriotic people who have progressive ideas protested this situation and made revolutionary struggle in 1921, bringing victory and taking the nation’s destiny under their power.
As a result of the revolution,Mongolia reinstated its independence. According to Mongolia’s first Constitution adopted on November 26, 1924, the State Baga Khural was established with a compositionof 30 members, which was the basis for parliament. Although the State Baga Khural did not have a permanent function, like the modern parliament of the 1990s, it was a kind of representative organization responsible for holding State power, legislating and resolving important issues of national development.
On the occasion of National Proclamation Day, Parliamentary Speaker D. Demberel extended his greetings and made a speech  addressing the people. In his speech, he underlined that Mongolians regained national independence after a tireless struggle for liberation, confirmed it with the Constitution, and moved to republic governance. It was valuable progress for politics and democracy. When Mongolians chose republic governance, which is founded on public, human rights and freedom, the political rights of Mongolians was declared. We Mongolians completely dismissed the dishonest rulings of the middle ages that did not ensure the least of human rights in the early 20th century, and stepped into a cultured universe of modern time.
Mongolians dismissed serfdom that discriminated people with race and capability. Amongst Asian countries,
Mongolians first legislated against discrimination of gender equity. In reality, it is a fact that Mongolians
legislated and implemented equal rights of citizens earlier than the UK and the USA that are known with their
true democracy. 
On November 25, general educational schools of all types of ownership had a lesson on the topic ‘Proclaiming People’s Republic of Mongolia’ by the initiative of Mongolia’s Parliament. The Ministry of Education, Culture and Sciences sent an official letter to heads of education and cultural offices of Ulaanbaatar and all aimags to teach a lesson on the topic ‘Proclaiming People’s Republic of Mongolia’. Such a special lesson, in connection with the historical day, was not taught before.
Pursuant to the Law of Mongolia on public holidays and celebrations, November 26th of every year is marked nationwide as National Proclamation Day. In this regard, Parliament made this initiative with a purpose to introduce the value of this historical day to children. 
source: The Mongol Messenger newspaper



Ulaanbaatar, Mongolia /MONTSAME/ At its Thursday plenary session, parliament discussed a draft amendment to the law on mineral resources and draft law on the united state budget of Mongolia for 2011.
At the beginning of the session, MPs got acquainted with proposals and conclusions, drawn up by parliamentary Standing Committee on economy for the final reading of a draft law on amending the Law on mineral resource. Since there were no questions or clarification, the draft was passed by 79.1 percent of the total number of MPs.
The same day, parliament held a second reading of the draft of the united budget for the year 2011. According to the expected execution of this budget, a growth of 7.5 percent is expected, but because of possible complications of the meteorological conditions a sharp decline is likely to take place in the agricultural sector. In manufacturing and service industries, a growth will go beyond 10 percent. According to preliminary estimates of international organizations, a rate of copper on the world market is to be relatively stable that will positively affect the economic sector of our country and lead to economic growth.
Thus, according to preliminary estimates outlined in the draft budget, the GDP in 2011 will be 7 836.4 milliard tugrug, real GDP 4 128 milliard tugrug or real economic growth - 8.5 per cent in 2012, it will be 7.8 percent and 20.8 percent in 2013. Here, the inflation rates from 2011 to 2013 are going to hold back within 8-9 percent.
Price forecast production of mineral resources has been compiled based on monitoring of financial and banking institutions in accordance with provisions reflected in the law on budgetary stability. Next year, the price of gold on the world market will be
1 350 US dollar.
After consideration, the draft law of the united state budget was sent to the Standing Committee on economy for the preparation for the third reading. It was done and submitted to the session at 21 o'clock in the evening the same day. After the second reading, parliament made some changes to the draft of the state budget for 2011, also to the draft Budget, the budget of the Fund for Human Development for the next year. So, according to the changes, the total amount of income of the budget for 2011 will be 3 milliard 304.6, or 42.2 percent of WFP, the total cost--4 084.1 mln tugrug, or 52.1% of GDP, the total deficit - 779.5 mln tugrug or 9.9 percent of GDP. Changes in indicators of increased deficit by 1.3 percent.
In connection with the discussion of State budget for next year, parliament held a first reading of the Great State Hural Resolution on the discussion of certain measures on the issue. Extending the third and fourth reading of the above drafts parliament voted on each provision of these drafts. Thus, MPs voted 87.5-97.5 percent for their adoption at a plenary session on Thursday.


Mongolia plans for renewable energy

Mongolia’s recent decision to set up its first commercial wind farm is fueling a public debate that aims to strike the right balance between Mongolia’s near-term and long-term economic development interests, says a report by Pearly Jacob for Sparsely inhabited, with vast steppes and ample wind, Mongolia’s potential for harnessing renewable energy is huge. In 2005, the government passed the Renewable Energy Program, mandating that green energy sources account for 20-25 percent of Mongolia’s needs by 2020.

“This is a very ambitious target, but achievable with large scale wind farms and solar power plants,” says N. Enebish, Executive Director of the National Renewable Energy Center. Approximately 2 percent of the country’s power needs are currently met with household solar systems and small hydro-electricity projects. The wind farm could significantly boost this figure, he said.

Newcom Group, the country’s largest Mongolian-owned private mobile telecom provider, is helping finance the USD80-million joint venture with the European Bank for Reconstruction and Development (EBRD). The project is to be situated on Salkhit Mountain, 78 km south of Ulaanbaatar. Newcom has already signed a power-purchase agreement with the government for the proposed 50-megawatt project. Construction is slated to start in early 2011. “Extensive wind mapping data have shown Mongolia has the wind capacity to generate enough electricity to supply all of China’s electric needs,” says B. Byambasaikhan, head of the Clean Energy Division of Newcom Group, stressing wind’s vast potential.

Mining experts believe the need to exploit Mongolia’s coal resources to generate near-term revenue outweighs the need to focus on expensive renewable energy solutions. “It will be extremely difficult for Mongolia to find alternative energy sources which can come even remotely close to competing with coal as a primary energy source for many years to come,” contends Graeme Hancock, senior mining specialist at the World Bank.

Stakeholders in the Salkhit Wind Farm are under no illusion that renewable resources will replace coal any time soon. “Of course if you’re sitting on the largest untapped coal deposit in the world, it puts the whole renewable energy issue a little in the background,” admits EBRD resident head Philip ter Woort.

Most of Mongolia’s energy needs “will be supplied by coal, there’s no doubt about that. But there is incremental capacity that can be supplied by clean energy sources and that has to be developed for a more sustainable growth,” says Byambasaikhan at Newcom.
Green activists are concentrating on the big picture. “We’re not looking at short-term goals. We’re very patient,” says Byambasaikhan, who believes that regardless of present day economics, renewable energy is a key part of Mongolia’s future


Mongolia to provide rare-earth alternative to China

Toshiba and Mongolia have inked an agreement to cooperate on developing the latter's mineral resources. The discussion will include developing sources of uranium, rare earth and rare metals products.

Many of the obscure minerals, metals and their oxides are used in electronics manufacture and have been rising in price in recent years as China has developed a monopoly position in their supply.

In July China reduced rare earth export quotas for the rest of the year by 72 percent, inflating prices more than six-fold for some rare earth materials vital to the energy, military, electronics and manufacturing sectors. China just has begun exporting rare earths to Japan after a two-month suspension due to a territorial row.

Naoto Kan, the Prime Minister of Japan, met the Mongolian President, Tsakhiagiin Elbegdorj, on Nov. 19, 2010, and the two agreed to build a strategic partnership and to secure mutually beneficial cooperation in developing mineral resources in Mongolia. Further moves to promote an economic relationship between Japan and Mongolia are expected.

Under the terms of the MOU Toshiba will conduct feasibility studies on key social infrastructure essential for securing Mongolia's continued economic growth, including thermal, nuclear and solar photovoltaic power systems and transmission and distribution networks and will seek to promote mutual development of mineral resources in an effort to secure a stable supply.


Mongolia's motherlode

Peter Koven in Oyu Tolgoi, Mongolia, Financial Post · Friday, Nov. 26, 2010
Oyu Tolgoi or “Turquoise Hill,” named for the colour of the copper in the rock.                 Peter Koven / National Post
This is the big one.
Deep in the Gobi Desert, in one of the most remote and bleak parts of the world, the most talked-about copper-gold mine in history is going up with remarkable speed.

Outside the Oyu Tolgoi mine site, the Gobi is as it always is: Empty landscapes carry on as far as the eye can see, interrupted by the occasional camel herd dotting the countryside. Inside, more than 5,000 people from 24 countries are hard at work, building a mine over a deposit holding an estimated 81 billion pounds of copper and 46 million ounces of gold, and just 80 kilometres from commodity-hungry China.

In any country, this would be a monumental project. In Mongolia, with only three million people, this is the most important and controversial capital project in its history, and nothing really comes close. When Oyu Tolgoi reaches full production by 2018, it is expected to make up a staggering 30% of the country’s gross domestic product. While there has been a lot of talk in Canada lately about “strategic” potash deposits, they can’t hold a candle to this.

The US$4.6-billion project is also Canada’s most significant investment in Asia. While Oyu Tolgoi employs workers from all over the world, it is a Canada-led venture: Vancouver’s Ivanhoe Mines Ltd. is the majority owner, and Canadian contractors like Moncton, N.B.’s Major Drilling and North Bay, Ont.’s Redpath Mining are doing much of the dirty work on the ground. Ivanhoe, which is made up of stakes in a loosely connected group of resource assets in the Asia-Pacific, has a market value of more than $13-billion due mainly to the promise of riches at Oyu Tolgoi.

Construction of the mine is still in its early stages. But it is going up on schedule, with initial production expected in late 2012. While construction costs look to be ticking higher, they have been kept in check so far.

As investors know, getting to this point has not been easy.

Oyu Tolgoi seemed like a pipe dream for much of the past decade. While Ivanhoe’s legendary leader Robert Friedland travelled the world talking about its amazing potential, many doubted that a remote deposit in a land-locked country they knew nothing about would become a reality. It took years of on-again, off-again negotiations with the government for it to happen, and the mine dominated political discourse in Mongolia over that period.

The project is now so big that it has become a litmus test for Western investment in Mongolia, which the government badly wants to attract.

“If we do succeed with this project, it will encourage many other Canadian and international companies to work in Mongolia,” says Sukhbaatar Batbold, the country’s Prime Minister.

Yet the future of Oyu Tolgoi is still cloudy. A dispute between Ivanhoe and joint-venture partner Rio Tinto Ltd. has overshadowed all the progress at the site and made investors nervous. Rio Tinto, a London-based mining powerhouse, has made it clear it wants the biggest piece of Oyu Tolgoi it can get. And Mr. Friedland is not eager to cede control as he tries to raise billions of dollars of financing.

It all happened because Ivanhoe decided to drill deeper.

The discovery of the Oyu Tolgoi site actually dates back decades. In 1983, local herders told Mongolian government geologist Dondog Garamjav about green-stained rocks they noticed in the South Gobi. He mapped out the area as part of a country-wide exploration program. It became known as Oyu Tolgoi, or “Turquoise Hill,” because of the colour of the copper ore in the rocks.

By the mid-1990s, Mr. Garamjav was working for Australia’s Broken Hill Proprietary Co. (later BHP Billiton), which got an exploration licence for the area.

BHP drilled 23 holes on the property over the next couple of years, and while it found some interesting mineralization, it never hit anything significant. Its mistake was not looking deep enough, as it was just trying to find shallow copper systems. One hole that was halted for technical reasons came just 30 metres short of hitting the motherlode.

Before long, BHP gave up and put the project up for sale. Copper prices were down around US65¢ a pound and the company was cutting back exploration around the world.

In March 1999, at a mining conference in Toronto, Ivanhoe executive Douglas Kirwin took a look at BHP’s drill core and saw potential to expand the copper resources. Ivanhoe bought the property in 2000 and started drilling shallow holes.

The results were nothing special, and by the end of 2000, the company had not found anything close to a mineable resource. It was also burning through cash, and the company considered giving up on Mongolia. Project head Charles Foster decided to drill some deeper holes and see what happened.

“The result was incredible,” recalls Sanjdorj Samand, vice-president of the project.

The drills passed through high-grade copper-gold mineralization that was hundreds of metres thick.

It was clear right away that Ivanhoe had made one of the most significant mineral discoveries in decades. And from there, it just kept growing. A scoping study in early 2004 confirmed that Oyu Tolgoi was a world-class deposit, and Ivanhoe began negotiations with the government on a stability agreement covering the project.

It turned out to be one of the longest and most protracted negotiations the mining industry has ever seen, and neither side made things easy.

Mongolia has a long history of mining, but it was not equipped to deal with a project of this scale. It is, after all, a brand new country that only emerged as a fledgling democracy in 1990 after the collapse of the Soviet Union. It has remained fiercely independent despite being sandwiched between China and Russia, two less-than-democratic neighbours. Mongolians are not fond of either one, especially China.

In its first 15 years of democracy, Mongolia enacted liberal mining policies to attract foreign investment, including extended tax holidays. It didn’t help. Commodity prices were dreadful throughout the 1990s and early 2000s, and little money was coming in.

That started to change by 2004, when prices moved up and investors took a keener interest in the country’s resources. Like many developing countries at the time, Mongolia reacted with a wave of resource nationalism.

“It was a very natural reaction after we had these liberal policies for the first 10, 15 years,” says S. Oyun, a member of parliament and democracy activist.

Ivanhoe saw this first-hand. By mid-2004, the company was already saying negotiations with the government were in the “late stages.” But at the same time, there were nationalistic forces in government and parliament that were against any type of deal with foreign stakeholders. Other officials were openly speculating about state ownership in the project.

Mongolians were also not amused by comments Mr. Friedland made at a conference in 2005, when he joked that the Gobi Desert has plenty of room for “waste dumps.” He became a lightning rod for enraged local protestors.

No agreement was signed into law, and in May 2006 the process took a huge turn for the worse when the government passed its infamous 68% “windfall tax,” imposing a punitive levy even at very low copper prices.

The tax, which was an effort by some politicians to meet election spending promises, was a fiasco. It was rapidly voted on and approved on a Friday night when most politicians were not even in parliament, and gave credence to the doubters who wondered if Mongolia would ever forge good mining policy. Ivanhoe shares plummeted.

“It certainly didn’t help the negotiations,” says Keith Marshall, the outgoing president and chief executive of Oyu Tolgoi LLC, the joint venture tasked with building the mine.

“Also, we were heading into parliamentary elections and change of government. You’ve got to do these negotiations at the right time, which is really after government is elected and you know who you’re dealing with.”

By 2007, Ivanhoe had what it called a “draft investment agreement” with the government, but there was still no sign of parliamentary approval.

It ultimately took the most severe downturn in a generation to get things moving.

When the economic meltdown struck in late 2008, Ivanhoe went into survival mode and laid off more than half its on-site personnel, going down to about 600 people. It was a wake-up call to the Mongolians that development of the project was not inevitable.

In the summer of 2009, the two sides returned to the bargaining table with a renewed conviction to get a deal done. The talks were tortuous, with negotiations lasting until 2 or 3 a.m. every night in the last few weeks.

Whether it was taxation, labour quotas or environmental impact, every topic took an enormous amount of time to negotiate. And given the size and scope of the project, most government ministries were involved at some point. The World Bank, a former Chilean minister and countless other experts took part at various stages.

A deal was finally signed into law on Oct. 6, 2009. It scrapped the windfall tax and gave the government a 34% stake in the project with Ivanhoe holding the rest.

“It’s a pioneering project,” says Batsukh Galsan, chairman of Oyu Tolgoi LLC. “Since Mongolia had no experience with anything like this, the government took its time to make sure this could be a template for other strategic mining projects in the country.”

Ivanhoe had all the development plans in place before the deal was signed, and with the green light given, contractors were able to mobilize fast to get things moving. Within months, the site exploded from about 500 people to more than 4,000.

Today, it has moved above 5,600, with Mongolians making up more than 60% of the total.

On site, everything is happening on a huge scale. About 3,000 tonnes of material are being trucked in every day.

Foundations are being laid for a massive copper concentrator, and a 14-storey pebble crusher already dominates the skyline. One underground shaft is already in operation, and a second 31-storey shaft along with an open pit are in development.

Exploration is also ongoing, with management all but certain it can add more resources and extend the mine life beyond the estimated six decades.

The construction site turns into a raucous party at night, as the Mongolians head to an on-site pub to knock back drinks. Others play basketball or take in an English class, at which they practise their speech and sing a stirring rendition of Love Me Tender, in perhaps the last place in the world one would expect to hear that song.

The Chinese workers are not part of the festivities — in a telling commentary on Mongolia-China relations, the Chinese keep to themselves in a separate compound. It is an arrangement that seems preferable for both sides.

The festive atmosphere at the site has probably not carried over to Ivanhoe’s head office in Vancouver, where a dispute with joint-venture partner Rio Tinto has overshadowed progress in Mongolia. When Mr. Friedland signed up Rio as a strategic investor in 2006, it was a perfect match. Ivanhoe needed both capital and a skilled mining partner to develop Oyu Tolgoi; Rio provided both. Rio also gave a stamp of approval to a project that seemed far-fetched to some investors at the time.

But tensions have grown during the past several months. Rio chief executive Tom Albanese has made it clear that he is unhappy with the status quo, in which Rio holds a 35% stake in Ivanhoe and Ivanhoe holds a 66% stake in the project. In a perfect world, he wants direct ownership of the mine without having to take over Ivanhoe and acquire its many subsidiary assets.

Ivanhoe, meanwhile, needs to raise billions of dollars to build Oyu Tolgoi, but wants to do so on its own terms.

The first signs of trouble emerged last summer, shortly after Ivanhoe enacted a shareholder rights plan (or “poison pill”) to help prevent a creeping takeover. Rio disputed it and began arbitration.

Around the same time, Rio publicly mused about converting its Ivanhoe stake into a direct stake in Oyu Tolgoi, and said it held talks with an outside company (Chinalco of China) about participating in the project as well.

It was a strange disclosure from Rio, given that Ivanhoe is the company that controls the deposit. Mr. Friedland responded by terminating a clause that prevented Ivanhoe from bringing in new strategic investors. And most recently, Ivanhoe began a “rights offering” that allows it to raise money without increasing Rio’s influence in the company.

The dispute also extends to the mine, where the two sides have disagreed over how quickly the project should be developed, and how much it will cost.

Mr. Marshall, the joint-venture chief, maintains that it is not disrupting work in Mongolia, but he acknowledges that it is a concern.

“When we see they are going to arbitration and we see that they’re publicly discussing each other’s tactics, sure it affects everybody on the ground,” he says.

Mr. Galsan, who works closely with both companies, calls the dispute a “disagreement between mother and father.” “I don’t think they want to kill this beautiful daughter they’re raising together,” he says.

They don’t. But it is also clear that the status quo cannot last forever. Both companies want to develop the project as quickly and affordably as possible. The dispute is purely about money, and the rapid progress of Oyu Tolgoi has raised the stakes for both sides. Investors are hoping for a quick resolution that would remove the uncertainty and firm up the project’s ownership.

In Ulaanbaatar, Mongolia’s capital city, there is no talk about strategic investors or shareholder rights plans. People merely want to know when they will finally see some benefits from a mine that they have heard about for almost a decade.

Some hold the view that it is going to fix the country’s economic problems, particularly its 32% unemployment rate.

“There are unrealistic expectations,” Mr. Galsan says. “Oyu Tolgoi is a mine; it can’t solve all the problems the country faces.”

Of course, there will be benefits: The Mongolian government will receive about 54% of the revenue from Oyu Tolgoi once it begins production. And there will be significant job creation, particularly in the communities near the mine.

Ms. Oyun, a former Rio Tinto geologist-turned-politician, says the biggest risk is bad political decision-making. She wants to see the mining revenues invested in education and health, but worries that a bad call by government, like a repeat of the windfall tax, could undo many of the benefits from Oyu Tolgoi and other projects.

“I’m very optimistic for the next five or 10 years, but I always put in brackets, ‘Subject to politics,’ ” she says.

Mr. Batbold, the Prime Minister, would probably agree. He and his Cabinet recently toured the project with Mr. Friedland, and came away impressed with what they saw.

Once the Canadians and the British and everyone else are finished building, it will be up to Mr. Batbold to harness Mongolia’s massive economic opportunity

UN experts working in Mongolia

The head of the Anti- Corruption Agency (ACA) Ch.Sangaragchaa met on Monday experts from UN Convention against Corruption who arrived in Ulaanbaatar.

The purpose of the visit of the expert group is to check the implementation of the UN Convention against Corruption and the evaluation of its performance. During the visit, the experts are planned to visit the Ministry of Justice and Internal Affairs, Supreme Court, Ministry of Finance, The State General Prosecutor's Office, General Police Department, Bank of Mongolia, Civil Service of Council, Ministry of Foreign Relations and National Audit Office as well as "Transparency International Mongolia" NGO. Above the agencies that took on an obligation to implement the convention on corruption and hold meetings with their supervision. The meeting is also scheduled with a group of experts of Mongolia, which is responsible for evaluation of the implementation of the convention. UN experts in Mongolia run until November 27.


Mining licenses can be canceled only after compensation, say experts

Almost a year and a half after the law banning all mineral prospecting, exploration and mining in water basins and forest areas was passed, implementation began last week. The Government initiated a process of revocation of licenses in stages, beginning with 254 alluvial gold mining licenses. The law covering environmentally vulnerable areas is like those in developed mining countries including Canada and Australia.

For investors in Mongolia, the risk to the estimated 1,782 licenses has been known for some time. But the largely unknown factor for those impacted is the compensation claims which need to be assessed and most find it difficult to see the source for the payment. Indeed, there is speculation among professional organizations that the announced revocations are legally unenforceable as the law on mineral resources is clear that licenses can be canceled only after compensation is agreed upon and paid. There can be no cancellation before compensation.

The draft budget does not provide allocations for such compensation, so the mining entities can continue with work under their licenses. The State Organization of Geology and Mining has thus urged the Professional Monitoring Agency to suspend the licenses, so that no further work is done until the issue is resolved.


Toshiba seeks mineral resource development in Mongolia with local firm

TOKYO, Nov. 26, 2010 (Kyodo News International) -- Toshiba Corp. (OOTC:TOSYY) said Friday it has inked a memorandum of understanding with a Mongolian consultancy for possible cooperation in developing mineral resources including uranium and rare earths, and enhancing social infrastructure in the resource-rich nation.

Through the tie-up with MNFCC LLC, Toshiba aims to explore future business in Mongolia,following an agreement earlier this month between Japanese Prime Minister Naoto Kan and Mongolian President Tsakhia Elbegdorj to accelerate efforts to boost bilateral economic ties and cooperate in developing mineral resources, it said.

Under Mongolia's public-private partnership program, MNFCC is charged with providing strategic advice and policy implementation in the areas of mineral resources, energy and social infrastructure, it said.

The Japanese machinery manufacturer will conduct feasibility studies on such infrastructure as thermal, nuclear and solar power systems, and transmission and distribution networks, while seeking to secure a stable supply of mineral resources, it said.
(Source:Kyodo News International )

Mongolian mining bans could deter speculators -investor

BEIJING Nov 25 (Reuters) - Mongolia's decision to revoke hundreds of gold mining licenses last week has alarmed investors but the government's efforts to clean up its mining sector could have long term benefits, the head of a foreign fund said.

Mongolia's energy and mining minister Dashdorj Zorigt announced late last week that 254 gold mining licenses would be suspended for violating the country's environmental laws, while another 1,700 licenses would be put under review.

The move came after a series of policy changes over the last year aimed at bringing the booming but still nascent industry under greater supervision and control.

In April, Mongolian president Tsakhia Elbegdorj ordered a halt to the issuance and transfer of mining licenses until parliament passed a new and stricter law.

Small and unqualified miners were the main target of the new rules, Eric Zurrin, chief executive of ResCap, an investment fund active in Mongolia, told Reuters.

"Too many outsiders were trying to pick up licenses in a bit of a lottery and trade, and you know what that can lead to. These licenses need to be properly explored and well thought

through," he said.

The gold projects suspended last week were said to contravene the country's new water and forest law, which bans mining activities in water basins and forests.

Mongolia, under pressure to develop its economy, has sought to open up its mining sector to foreign investors, but it has already led to a backlash.

In September, Mongolian environmental activists armed with hunting rifles opened fire at the site of a gold mine owned by China's Puraam and Canada's Centerra Gold about 100 kilometres north of Ulan Bator, which they accused of running roughshod over local environmental laws.

But the ambiguities in the legislation are causing uncertainty, experts have said.

Graeme Hancock, senior mining specialist with the World Bank in Ulan Bator, told Reuters that the law passed last year did not offer any definition of water basins or forest areas, leaving it unclear what projects would be under threat.

"It was a knee-jerk reaction that isn't justified," he said. "The answer lies in creating a sound management framework, not in just trying to ban it. The problem now is that by banning these projects, they will be replaced by ninja miners -- and that is a worse outcome than what they had."

So-called ninja miners are local herdsmen who dig in resource-rich areas in hope of finding valuable minerals.

Mongolia, described by some investors as "Minegolia", is home to vast, untapped deposits of coal, copper, gold, uranium and other minerals, including the Oyu Tolgoi copper-gold mine and the Tavan Tolgoi coking coal deposit, both of which are among the biggest of their kind in the world.

The government has been struggling to find the right mix of policies that will enable it to avoid the mistakes made by other poor but mineral-rich countries, and some of its decisions have caused alarm.

Khan Resources , a Canadian miner, saw its uranium mining permits cancelled earlier this year and it continues to fight the decision in the courts. [ID:nN12167314]

A Mongolian-based mining executive told Reuters that a policy allowing the government to turn any deposit into a "strategic national resource" was especially worrying

"If the Mongolian government can revoke our licenses with immediate effect and declare the mines to be a strategic national resource, where does that leave us?" he said.

The government spent five years negotiating terms with Canadian miner Ivanhoe Mines on the development of Oyu Tolgoi, finally making a breakthrough late last year after agreeing to abolish a windfall tax on mining profits.

Investors said the windfall tax has slowed progress in Mongolia's mining sector.

"Potential investors have been focusing on coal," said Zurrin, referring to a mineral not covered by the tax.

"But the interesting one is the copper-gold belt, where very few are looking right now. Because of the 68 percent windfall tax investors just said, 'Forget it, I'll look for coal'."

(Reporting by David Stanway, Editing by Clarence Fernandez)

sowurce: Reuters

Ivanhoe Mines says has strategic options

By Eric Onstad

LONDON, Nov 24 (Reuters) - Ivanhoe Mines (IVN.TO: Quote) has plenty of options as it fights a possible "creeping" takeover by Rio Tinto (RIO.L: Quote), its founder said, noting sovereign wealth funds were keen on Mongolia, where Ivanhoe is developing a huge mine.

Robert Friedland -- who is also executive chairman, CEO and a major shareholder -- told a conference in London there were no shortage of possible investors.

"There's a lot of alternatives ... many countries are interested in Mongolia. For example, the Middle Eastern sovereign wealth funds," he said.

Abu Dhabi's investment council has invested in a Mongolian bank while both Kuwait and Libya were interested in the country, Friedland added.

He was restricted on how much he could say because Ivanhoe was in the midst of a rights issue to raise up to $1 billion, but he told journalists on the sidelines of the conference some news would emerge fairly soon.

Ivanhoe is evaluating a range of options as it grapples with its biggest shareholder Rio Tinto (RIO.AX: Quote) about terms under which Rio can increase its stake in Ivanhoe.

Ivanhoe owns 66 percent of the massive Oyu Tolgoi copper-gold project, which it is developing in partnership with Rio and the Mongolian government.

Ivanhoe and Rio are involved in arbitration to resolve a dispute over a shareholder rights plan adopted by Ivanhoe in May, which Rio says violates its contractual rights.

Under a previous agreement, Rio can increase its 35 percent stake in Ivanhoe to 46.6 percent. Ivanhoe argues that its rights plan protects it from a creeping takeover.

"Shareholder rights plans merely mean no-one can do a coercive change of control of the company without paying an appropriate premium," Friedland said. "The shareholder rights plan just determines whether they (Rio) have to make an offer to everybody or whether they can keep creeping."

Ivanhoe also cancelled a "strategic purchaser" deal with Rio, allowing other investors to buy a stake of more than 5 percent in Ivanhoe.

The arbitration proceedings are due to start in January.

In the meantime, Ivanhoe is evaluating options with the help of their new head of strategic planning, Sam Riggall, a former Rio executive who helped negotiate the Oyu Tolgoi agreement with Mongolia.

Ivanhoe, which needs to come up with its share of $4.6 billion needed to build Oyu Tolgoi, is considering possible sales of subsidiaries, equity investments, project financing and various corporate transactions, it has said.

The group is seeking to arrange more than $2 billion of financing with 13 institutions, including the World Bank's International Finance Corporation, BNP Paribas and Standard Chartered.

Oyu Tolgoi, is due to become the world's third biggest copper-gold mine after it launches output in late 2012.

The mine complex is due to produce 544,000 tonnes of copper and 650,000 ounces of gold a year for the first 10 years. (Editing by David Holmes)

Source:Reuters news service

Centerra Gold Clarifies Status of Mongolian Licenses

Centerra Gold Inc. (TSX:CG) today wishes to clarify the status of its Mongolian Licenses, in particular, the Company's principal Gatsuurt hardrock mining license which is not on a list of alluvial licenses to be revoked.

In July 2009, the Mongolian Parliament enacted legislation that would prohibit mineral prospecting, exploration and mining in water basins and forest areas in Mongolia and provides for the revocation of licenses affecting such areas (the "Water and Forest Law"). This legislation provides a specific exemption for "mineral deposits of strategic importance", and accordingly, the Company's main Boroo mining licenses are not subject to the law. The Company's Gatsuurt licenses and its other exploration license holdings in Mongolia, however, are currently not exempt.

This week, Mongolia's cabinet announced its intention to initiate the revocation of licenses under the Water and Forest Law on a staged basis, beginning with the revocation of 254 alluvial gold mining licenses. The Company has four licenses on the list of alluvial gold mining licenses that may be revoked. None of these licenses are material to the Company. In particular, the Company's principal Gatsuurt hardrock mining license is not on the list of alluvial licenses to be revoked.

The Company continues its constructive discussions with the Government of Mongolia to resolve uncertainty resulting from the Water and Forests Law and to obtain necessary approvals for the commissioning of the Gatsuurt project.

About Centerra

Centerra is a gold mining company focused on operating, developing, exploring and acquiring gold properties primarily in Asia, the former Soviet Union and other emerging markets worldwide. Centerra is a leading North American-based gold producer and is the largest Western-based gold producer in Central Asia. Centerra's shares trade on the Toronto Stock Exchange (TSX) under the symbol CG. The Company is headquartered in Toronto, Canada.

Additional information

Additional information on Centerra is available on SEDAR at and the Company's website at

Source:Centerra Gold (

Mongolia 2010 GDP growth seen at 7.5 pct-govt official

LONDON, Nov 24 (Reuters) - Mongolia's gross domestic product (GDP) should grow by 7.5 percent in 2010, a senior government official said on Wednesday.

Ganzorig Baasankhuu, chairman of Mongolia's foreign investment and foreign trade agency, told a conference: "We project GDP growth of 7.5 percent in 2010, one of the highest in the world."

Growth was 5 percent in the first half of the year, Ganzorig said, speaking through an interpreter. He did not give a figure for 2009 growth. Data from multilateral organisations show the economy contracted 1.6 percent last year after growing 8 percent in 2008.

Kevin Bortz, director of natural resources at the European Bank of Reconstruction and Development told the conference Mongolia's growth was forecast at 9 percent in 2011.

Landlocked Mongolia sits on vast quantities of untapped mineral wealth. Analysts say it could be one of the fastest growing economies of the next decade, as well as a key investment target for global mining giants.

Mining had accounted for over 60 percent of total foreign direct investment received so far, Ganzorig added.

(Reporting by Carolyn Cohn, editing by Sujata Rao)

Source:Reuters news service

Mongolia’s Rating Raised to B+ by Fitch on Economic Recovery

By Anil Varma

Nov. 24 (Bloomberg) -- Mongolia’s long-term debt ratings were raised by Fitch Ratings after the nation’s economy returned to growth and its foreign-exchange reserves climbed to a record.

Fitch increased the country’s long-term foreign- and local- currency rankings to B+ from B, reversing a January 2009 cut, and affirmed short-term ratings at B, it said in an e-mailed statement yesterday. The ratings have a stable outlook, it said.

Growth in Mongolia’s gross domestic product will be spurred by demand for its exports from China, according to the credit assessor. China, the world’s second-biggest economy, grew 9.6 percent last quarter, the fastest pace of any major country.

“A solid growth outlook in Mongolia’s key export market, China, supports its economic prospects in 2011 and 2012,” the ratings company said in the statement. “A generous and diversified endowment of natural resources supports long-term economic prospects.”

Fitch predicted Mongolia’s economy will expand 7.5 percent in 2011 and 8 percent in 2012. China bought 73 percent of the goods Mongolia exported in 2009, according to the statement.

Annual output from the Oyu Tolgoi copper and gold mine may rise to $3.5 billion by 2013, equal to more than 90 percent of Mongolia’s gross domestic product this year, based on current prices of the metals, according to Fitch.

Rare Earths

Mongolian President Tsakhia Elbegdorj on Nov. 16 called on Japanese companies to invest in development of rare earth metals, as well as coal, uranium and other resources.

Mongolia has emerged as a potential source of rare earths after China, which ships about 97 percent of the world’s supply, reduced its second-half export quota by 72 percent. Japan, the world’s biggest user of the metals, is looking for alternative suppliers after prices rose as much as sevenfold.

Rare earths are used in hybrid vehicles produced by companies including Toyota Motor Corp. and wind turbines made by Vestas Wind Systems A/S. They are also used in Lockheed Martin Corp. radar and General Dynamics Corp. tanks. The term rare earth applies to a group of 17 chemically similar metal elements including cerium, lanthanum and neodymium.

Mongolia’s decision in September not to draw the final installment of a $229 million loan from the International Monetary Fund underscores the nation’s economic recovery, Fitch said. Its foreign reserves increased to $1.7 billion on Sept. 30, from a of $500 million at the end of March 2009, according to the statement. The currency gained 16 percent by the end of October from its March 2009 low.

“The upgrades follow Mongolia’s successful completion of its IMF program, under which official foreign reserves have risen to a record high, and the economy has returned to growth,” said Andrew Colquhoun, head of Asia-Pacific sovereign ratings at Fitch, as cited in the statement. “The key risk remains a return to unsustainable government spending growth, which could squander this progress.”

--Editors: Josh Fellman

To contact the reporter responsible for this story: Anil Varma at

To contact the editor responsible for this story: Sandy Hendry at

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