BUSINESS COUNCIL of MONGOLIA NewsWire

www.bcmmongolia.org

Email: Jim@bcmmongolia.org Issue 23, May 9, 2008

NEWS HIGHLIGHTS:

Business: Anod Bank Going Public; Large Coal Deposit Found by Tethys Mining; FIFTA Cooperates

with Trade and Development Bank; QGX Signs Pre-Mining Agreements; Entree Gold

Budgets Exploration

Economy: Producers to Enjoy Soft Loans; Mongolia’s Asia-Europe Rail Link Adds Sea Lane Access;

Third US-Mongolia Business Forum Held; MongolBank Monetary Policy; Flour and Rice

Reserve for Mongolia

Politics: New Law to Limit Foreign Oil Suppliers as Rosneft Proposal is Considered; Union of the

Third Force Formed; Minister Rash Issued Warning by IAC; 5-Year Extension for Land

Privatization

BUSINESS

ANOD BANK GOING PUBLIC

Anod Bank’s Board of Directors held a press conference at the Mongolian Stock Exchange this week and announced that Anod Bank is now a public company. Anod Bank will offer 19.3 million shares of 20 million which will be traded May 19-23. The minimum share price is 1,000 togrogs. The trading process will follow the method of Nobel Laureate, William Vickrey, by means of a competitive sealed tender, called the “Open IPO”. This limits a major shareholder’s advantage and protects small shareholder’s rights. The Bank plans to use the proceeds of its public offering for mortgage lending.

Sources: Daily Business News Mongolia

www.business-mongolia.com

LARGE COAL DEPOSIT FOUND BY TETHYS MINING

Tethys Mining LLC announced that it has discovered a large coal deposit, Tugalgatai in Murun, Khentii aimag. The deposit is estimated to be 3 billion tons. The Baganuur mine deposit is estimated to be 1.3 billion and Tavan Tolgoi is at 6.2 billion tons. This discovery would be Mongolia’s second largest coal deposit.

Tethys Mining is a daughter company of the Brazilian company, Vale Inco. The company has plans to operate in Mongolia for the long term and has invested US $16 million. Tethys Mining owns more than 80 special exploration and development licenses and has already discovered coal, copper, uranium and nickel deposits. Vale Inco is the second largest mining company and one of the biggest steel exporters and producers in the world with branches on five continents.

Source: Unuudur

FIFTA COOPERATES WITH TRADE AND DEVELOPMENT BANK

The Foreign Investment and Foreign Trade Agency (FIFTA) has maintained its cooperation with the Trade and Development Bank (TDB), the oldest commercial bank in Mongolia, founded in 1990. Since the establishment of the cooperation agreement with TDB on March 17, 2008, FIFTA is enhancing its collaboration in attracting foreign investments into the country. These two organizations' cooperation offers reciprocal advantages for organizations to increase TDB’s contribution to the country's economy and renders a comprehensive and real support to Mongolia's economic development. TDB will assist FIFTA with IT programs and provide IT services with its own programs, and will also sponsor business forums organized by FIFTA.

This collaboration is a step forward in the services provided to foreign investors and will foster

concrete support to their activities in Mongolia. Bank and finance services can be combined with online consulting services of social and economic information.

Source: MONTSAME

QGX SIGNS PRE-MINING AGREEMENTS

Canadian-based QGX Ltd. announced last week that it signed a pre-mining agreement for the Golden Hills and Undur Tsagaan projects with Mongolia's government. The agreement specifies that QGX will conduct a final feasibility study, complete an environmental impact study, and gain approval for final plant design for both sites. The pre-mining operations for Golden Hills and Undur Tsagaan are to be completed by April 2011. Exploration at Undur Tsagaan has shown promising deposits of various metals. "These agreements pave the way for the projects to obtain all necessary permits and approvals for mining. Once completed, operations are expected to reach full production within one year," said Paul Zweng, president and chief executive officer of QGX Ltd.

Sources: MONTSAME

www.tradingmarkets.com

ENTREE GOLD BUDGETS EXPLORATION

Entree Gold Inc. has announced it will spend $7 million on exploration activities in Mongolia and elsewhere. Company officials have set aside $2.5 million for work at Entree's Lookout Hill property. Pending favorable results, an additional $1.3 million may be made available for drilling. "Many public junior resource companies have faced considerable market pressure in the last several months. In contrast, prices of commodities such as gold and copper have been sustained at near market highs. Entree is committed to advancing our exploration projects as we believe that the long term fundamentals supporting these commodity prices remain intact," said Greg Crowe, Entree's President and CEO.

It was noted that drilling is currently underway at Entree’s Heruga deposit, located within its Javhlant concession that forms part of the Entree-Ivanhoe Mines agreement area. Ivanhoe Mines is Entree's partner and project operator for this work. Entree Gold said in a statement that it is waiting for the Mongolian Parliament to debate potential changes to the Minerals Law which could effect further investment in Mongolia.

Sources: www.mongolia-web.com

www.foxbusiness.com

ECONOMY

PRODUCERS TO ENJOY SOFT LOANS

The Ministry of Industry and Trade, and commercial banks reached an agreement on granting soft loans to small and medium-sized enterprises. This week, a memorandum was signed by the Secretary of the Ministry of Industry and Trade, D. Khurelbaatar, and heads of Khan Bank, Golomt, Ulaanbaatar, Capitron, Capital, and Erel banks. The commercial banks will provide credit sources, whereas the state will cover half of the interest to be paid on the loans.

Source: MONTSAME

MONGOLIA’S ASIA-EUROPE RAIL LINK ADDS SEA LANE ACCESS

A meeting was held between Mongolia and China to discuss construction issues in the Railway sector. Delegates noted that connecting the Western Region of Mongolia into this railway network would link Asia with Europe and also bring an economic turn-about by opening access to sea lanes. The objective of the meeting was to obtain State support from both countries for the construction of this railway. The Chinese side would accelerate establishing the railway work and planned to build the rail-link from the Shiliin gol aimag of Inner Mongolia to Bichigt and Zuun khatavch, the border checkpoint at Sukhbaatar aimag in Mongolia by 2010, if the issue was agreed upon.

The Mongolian Railway Affairs Authority plans to implement construction of the railway network and

widen its infrastructure in three stages. It also plans to build a 480 km road in the direction of Bichigt-Baruun Urt-Choibalsan by 2015. By constructing a rail-link between Bichigt-Baruun Urt and Tomortein ovoo-Choibalsan to reach the border point at Zuunkhatavch, Shiliin gol Aimag, Inner Mongolia, China would link the cities of the two countries’ neighboring aimags, as well as Asia and Europe and provide opportunity to access sea lanes.

The Western Region has many scenic and heritage sites. There is the potential to attract tourists by establishing tourist camps and resorts near these places. Establishing this Western Region railway will therefore be essential to increase transit freight transportation, develop tourism, increase transportation of raw materials for State export, and provide equal development of the region.

Source: Mongol Messenger

MONTSAME

THIRD US-MONGOLIA BUSINESS FORUM HELD

The U.S. Department of Commerce hosted the 3rd U.S.-Mongolia Business Forum in Washington DC on April 23-24, 2008. Some 150 participants attended the forum, including representatives of both countries' health/pharmaceutical, trade, agricultural, construction and mining companies. Secretary of Commerce, Carlos Gutierrez stated that Mongolia was "an increasing focus of the world's attention" and that this forum had become "an important venue for helping the United States and Mongolia to expand the economic dialogue".

Topics of discussion included Mongolia's current trade policies, the state of the pharmaceutical and light industry, export-import of agricultural and construction equipment, challenges and opportunities of doing business in Mongolia, and the latest developments of Mongolia's mining sector.

Deputy under Secretary for the International Trade Agency of the Department of Commerce, Ms. Michelle O'Neill, hosted a luncheon for the forum participants. During the luncheon, there was a "business match-making session" whereby participants had informal discussions of potential projects with mutual interest.

The Mongolian group attended a workshop at the U.S. Dept. of Commerce about investing in the U.S. economy, and services available for small and medium enterprises. Mongolian businesses also had an opportunity to visit a construction site in DC arranged by the General Contractors Association of America, the Rio Tinto office in DC, and Larriland farm in Maryland.

Source: MONTSAME

MONGOLBANK MONETARY POLICY

Last week, the Parliamentary Economic Commitee heard the MongolBank report on curbing price increases and the implementation of the Monetary Policy by the State during 2008. The Central Bank of Mongolia has taken steps to reduce inflation since July 2007, and has achieved an almost 20 percent stabilization in price increases. A. Batsukh, President of the MongolBank said that positive results had been achieved in implementing a flexible monetary policy. The interest of the monetary policy, with the rate of the inflation growth, was brought to 5.5 percent, the reserves necessary to maintain increased to 5.5 percent and extra reserves between banks had decreased.

Seventy percent of commodities adversely impacted by inflation were staple products. “World market prices for wheat, flour and oil added to this,” said A. Batsukh. He also mentioned factors that influenced the domestic economic supply. The MongolBank President recommended that more money should be invested in national production and in developing technology and suggested supporting the national wheat and flour producing factories.

Parliament members, Z. Enkhbold, L. Gantumur and Ts. Bayarsaikhan criticized MongolBank for failing to slow down the national currency crisis and price increases. “Prices in shops have increased 20 percent. G. Batkhuu expressed interest in the exploitation and sale of metal and gold. Judging by

statistics, by imposing the 68 percent windfall tax, private miners had reduced the sale of gold to the bank by 5.2 percent as compared to 2007.

Sources: Mongol Messenger

MONTSAME

FLOUR AND RICE RESERVES FOR MONGOLIA

In a recent press conference addressing the issue of food reserves, Prime Minister Bayar stated that food prices are rising not only in Mongolia, but all over the world. According to UNFAO, the increase is a reflection of increased oil prices. After the Prime Minister’s visit to the Russian Federation last month, an agreement was made to purchase 100 tons of wheat at a discounted price. This is sufficient to cover five months of Mongolia’s wheat demand. The latest update by the Ministry of Agriculture states that nearly half of the discounted flour is on the way from Russia to Mongolia. 100 tons will be distributed to business units under stringent conditions and contracts. There will be a policy of keeping the price under scrutiny by agreeing with large, medium and small businesses.

Last year, Mongolia imported 28,000 tons of rice. The annual consumption is 28,000-30,000 tons. Therefore, the same amount of rice will be needed this year.

Sources: Zuunii Shuudan

Mineral News Daily, www.miningmongolia.mn

POLITICS

NEW LAW TO LIMIT FOREIGN OIL SUPPLIERS AS ROSNEFT PROPOSAL IS CONSIDERED

In last week’s Parliament session, Prime Minister Bayar submitted the Government policy in regards to the Russian Rosneft Company’s proposal on its price for petroleum products to be delivered during May. The company supplies 90 percent of Mongolia’s oil. Rosneft is expected to increase its petroleum price in May by US $62-89. Under this condition, the average price of gasoline would go up Tg 105-235 per liter. Rosneft says that the price can be reconsidered if Mongolia accepts the company’s proposal to build 100 petroleum stations in Ulaanbaatar, Darkhan and along the Millennium Road line. World market prices continues to escalate, reaching $113 per barrel and may reach $170-200. For this reason we have to accept Rosneft’s proposal and amend the Law on Petroleum Products approved in 2005,” the Prime Minister said.

Meanwhile, a bill has been drawn up for Parliament to regulate foreigners wishing to sell oil in Mongolia. Under the new law, it would be necessary for foreign oil companies to negotiate terms for a sale through a judicial representative of the government. Additionally, no single oil producer will be allowed to sell more than 30 percent of the oil consumed by the Mongolian domestic market. Some MPs suggested stabilizing the petroleum price by subsidizing domestic entities and not necessarily by accepting the Russians company’s proposal.

Source: MONTSAME

UNION OF THE THIRD FORCE FORMED

The National New Party (NNP), the Republican Party (RP) and the Motherland Party (MP) have formed the Union of the Third Force and have created a document on its united efforts and activities signed by party chairpersons, Ts. Tsolmon (NNP), B. Jargalsaikhan (RP) and B. Erdenebat (MP). Mr. Enkhsaikhan declared that these three parties would participate in the elections as a coalition with common objectives and united in their efforts. The NNP, the RP and the Motherland Party agreed to initiate united actions to implement their goals, coordinate efforts and consult with each other to make these goals a Government policy.

Source: Mongol Messenger

MINISTER RASH ISSUED WARNING BY IAC The Independent Authority against Corruption (IAC) issued a serious warning last week to R. Rash, Minister of Road, Transport and Tourism regarding his credibility in the fight against corruption. The

IAC also called the ministry to remove M. Mendbayar, Deputy Director of the Civil Aviation Authority who released false information on property and earnings statements to the anti-corruption agency. Rash has refused to remove Mendbayar from the position, which the IAC said severely compromises his ability in the fight against corruption. The agency accused Mendbayar of intentionally submitting the misleading statement which did not acknowledge his spouse's three additional vehicles registered at the Traffic Police Department. The anomaly was discovered after comparing the report with last year's version. He also failed to report his family business entity, ACH Service Company, a private company registered in 2004 at the National Taxation Office with operations in international trade, aviation and aircraft service.

Source: UB Post

5-YEAR EXTENSION FOR LAND PRIVATIZATION

At last week’s meeting of the Economic Standing Committee, D. Ganhuyag and other members discussed additional amendments to the draft law on Land Privatization presented by the cabinet. According to the present law, the term for land privatization ended May 1, 2008. Two versions of the draft laws have now been submitted to Parliament which envisaged the extension of the term for land privatization and solutions to shortcomings found during the process of implementing privatization.

As privatization at a national level only reached 28 percent, the Government decided to extend the term, but a group of DP members were against this decision. Z. Enkhbold said that the draft restricts the rights of citizens to land privatization by strictly fixing the term to 5 years.

The members proposed to extend the term for land privatization for a further 5 years, that is until May 1, 2013, and also change the provision which says that “land is designed for household needs” to “land to be privatized for every citizen”.

Source: Mongol Messenger

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ECONOMIC INDICATORS

MSE WEEKLY REVIEW

For the week ending May 2, 2008, trading activity on the Mongolian Stock Exchange (MSE) totaled

623,900 shares with 46 companies traded. Total market value of transactions was MNT 550.7 million.

The Top-20 Index decreased by 90.4 points or 0.8 % compared to the previous week closing at

11,783.53 points. The MSE Composite Index decreased by 177.4 points or 3.3% compared to the

previous week closing at 5,185.82 points.

Most active stocks traded were: Jenco Tour Bureau (239,200 shares),Olloo (116.500 shares),

Moninjbar (103.100 shares), Mon Tsakh Kholboo (41.700 shares), and Arvijikh (35.200 shares).

Major share price percentage gainers were: Aduun chuluun (44.3%), Arivijikh(32.7%), Khereglee

impex (15.4%), Baiguulamg (15.0%), and Tulga (14.9%). Major share price percentage losers were:

Ulaanbaatar(9.2%), Bayangol (6.5%), Mon Tsakh Kholboo (6.3%), Baganuur (5.7%), and Makh impex

(4.8%).

Total market capitalization of the 358 stock companies listed on the MSE was MNT 827.9 billion, and

decreased by MNT 9.157 billion (1.1%) from the previous week.

INFLATION

Year 2006 6.0% [source: IMF]

Year 2007 Avg. 9.0% [source: ADB]

Year 2007 *15.1% [source: World Bank]

March 2008 *20.6% [source: MongolBank] * year over year (yoy)

CURRENCY RATES - May 8, 2008

Currency name Currency Rate

US dollars US 1164.10

Euro EUR 1804.06

Japanese yen JPY 11.07

British pound GBP 2285.88

Hong Kong dollar HKD 149.34

Chinese yuan CNY 166.62

Russian ruble RUB 49.04

South Korean won KRW 1.13

North Korean won KPW 8.14

Canadian dollar CAD 1160.68

Australian dollar AUD 1103.16

Taiwan dollar TWD 38.14

Indonesian rupiahs IDR 0.13

Malaysian ringgit MYR 368.79

Singapore dollar SGD 855.74