14.10.2010 Mongolia invest in opportunity, B. Zagal

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MONGOLIA – INVEST IN OPPORUNITY

Speaker:

Mr. Zagal

Vice President &

Director of Investment Banking

Co-speaker:

Mr. Amgalan

Project Finance Manager

Corporate Banking Division

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Presentation outline

1. Mongolian economy Growth

2. Banking system Stability

3. Tax & legal background Attractive

4. Resources World class

5. Investment opportunity High return

6. Economic growth Exponential

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Mongolian economy

• GDP 2010 H1 Growth = 5%

• GDP 2009 – MNT 6 trln = $4.2 bln

• 2010 H1 exports – $1.3 bln

• 2010 H1 imports – $1.4 bln

• Inflation since Jan 2009 – 11.7%

• GDP 2009 – MNT 6 trln = $4.2 bln

• Total 2009 exports to China =

$1.41 bln = 74% of MGL exports =

0.14% of China’s imports

• Total 2009 imports from China =

$0.532 bln = 39% of non-oil

imports

4

Banking system

• 14 banks

• BoM revised and clarified deposit guarantee law

• 1$ = 1,315 MNT (Oct 8th)

• Growth correlation of 2 times of nominal GDP

• BoM accounts 2 banks into Banking system numbers

5

Tax & legal background

• Taxes and royalties

– Corporate tax law 10%, 25%

– VAT of 10%

– Royalty of 2.5%, 5%

– Loss-carry forward period 4 to 8 years

NoName of Strategically

Important Deposit

Location (Province,

County)Reserve Amount

1 Tavan Tolgoi Umnugobi, Tsogtsetsii 4.3 bln tons, coal

2 Nariin Suhait Umnugobi, Gurvantes 90.79 mln tons, coal

3 Baganuur , Baganuur 512.8 mln tons, coal

4 Shivee Ovoo Gobisumber, Shiveegobi 564 mln tons, coal

5 Mardai Dornod, Bayandun 1104 tons, uranium

6 Dornod Dornod, Dashbalbar 58933 tons, uranium

7 Gurvanbileg Dornod, Bayandun 16073 tons, uranium

8 Tumurtei Selenge, Huder 229.3 mln tons, iron ore

9 Oyu Tolgoi Umnugobi, Khanbogd 16.39 mln tons, copper; 623.3 tons, gold

10 Tsagaan Suvarga Dornogobi, Mandakh

1.28 mln tons, copper; 43.6 thousand tons

molybdenum

11 Erdenet Orkhon, Erdenet 3.2 mln tons, copper; 90 thousand tons, molybdenum

12 Burenkhaan Khuvsgul, Alag-Erdene 40.5 mln tons of phosphorit

13 Boroo Selenge, Bayangol 22 tons of gold

14 Tumurtein Ovoo Sukhbaatar, Sukhbaatar 820 thousand tons of zinc

15 Asgat Bayan-Ulgii, Nogoonnuur 2247 tons of silver

• Minerals legislation

– Three main bodies of law 2006 minerals

law of Mongolia

• Mongolia ranked at 60 out of 181 economies

of the world in terms of ease of doing

business

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2009 events

• Oyu Tolgoi agreement

– Valuation of deposits: $362.4 bln

– 66% Ivanhoe Mines, 34% Mongolia Government

– 30-40 year mine life

– 450,000 tons of copper per year

– 330,000 ounces of gold per year

• China Investment Corporation (CIC) and Temasek Holdings Pte. Ltd

• Mitsubishi Corporation and AREVA to cooperate on uranium projects

• Government’s 26 projects

– State policy on high technology industrial sector approved

– Smelter complex

– Direction to develop industrialization in rural areas

• Nuclear Energy Law

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Bodi International LLC

• Cooperation agreement with Oyu Tolgoi

• Parent company of Golomt Bank of Mongolia

– Conglomerate with 26 subsidiary companies

– Finance, construction, property development

• Corporate governance

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Rare earth elements

• Investment opportunity

• China produces 97% of the world’s REE production and has 48% of the

world’s discovered reserves

• China announced on July that REE elements will be cut 40% by 2012

• Demand has risen rapidly averaging 8% pa from 2003 to 2008

• Chinese plan to extend installation of wind electrical generating capacity

from 13GW last year to 300GW by 2020

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Exponential Growth

• V-shaped recovery

• OT capital expenditures will raise

GDP growth to average of around

7 percent between 2010 and

2012

– GDP growth is forecasted to

average around 6 percent in

the long-term (2015-2029)

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Local Currency rate

• Investment opportunity

• Appreciated 17.3% in the past 18 months

• Stabilization or further appreciation expected due to inflow of

USD

C entral B ank's US D-MNT rate

1,260

1,310

1,360

1,410

1,460

1,510

1,560

9-J an-09 10-Mar-09 9-May-09 8-J ul-09 6-S ep-09 5-Nov-09 4-J an-10 5-Mar-10 4-May-10 3-J ul-10 1-S ep-10

Source: Central Bank

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MNT deposit rate

• Annual deposit rates :USD MNT ( Retail)

• 1 month 5.4 9.6

• 3 month 7.2 12

• 1 year 8.4 15.6 ( going to decrease)

• Wholesale - Negotiable rates offered by Golomt bank:

• 1 M 5.4

• 2 M 6.0

• 3 M 7.2

• 6 M 7.8

• 1 Y 8.4

• 2 Y 9.6

Source: Central Bank

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Investment opportunities - infrastructure

• Railroad

– Underdevelopment of

road network

– 1,815 km � 4,000 km

– 950 bln needed

• Electricity

– Power plants are from

the Soviet era

– Electricity demand will

exceed supply from

2012

• Water demand

estimates southern

Mongolia

– 50,000 m3/day �

350,000 m3/day

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2010 current events

• Tighter/stronger banking regulations

• Fiscal stability law

• Development Bank to be established and resolution on Sept 2nd to announce tender on management

• Government bond in discussion

• South Korea’s Mine Reclamation Corporation (MIRECO)

• Japanese talks on REE projects

• MPRP to MPP (81% of members support)

• Outotec cooperates with National

Development Corporation of Mongolia to

develop Mongolian mineral deposits

• Gobi Coal Energy and Iron Mining International IPO, Others are coming

• Parliamentary elections 2012

• Presidential elections 2013

• Start of Oyu Tolgoi 2013

• Mongolian Mining Cooperation at fully capacity

• Mongolian Stock Exchange to be privatized

• Tavan Tolgoi

2011 – 2013 events

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Human resource and training

• Lack of technical expertise

• 60 percent during the construction period and any

expansion periods

– 5,000 required

• 10 years of the commencement of production no fewer

than 70% of its employed engineers shall be Mongolian

– 2,000 required

• SCARCITY � TRAINING � OPPORTUNITY

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Conclusion/Investment opportunity

• Address to HK Investors:• Involvement in Big state projects like infrastructure (concession Law, PPP)

• Involvement Direct Mining related ( Financial + Technical expertise)

• ( pre-exploration, exploration, Junior, Operating, Medium, Bigger)

• All supply chain business result from Mining :

• Catering, water supply, plants (processing, power, electric)

• HR

• Study all disadvantages in Mongolia, participate to change, benefit from the early

participation

• Capital market to expand (big deposits are to issue local shares by Law)

• CO-operate with prudent Local Banks ( Local client database, Local connection, Local

experience) to develop new business opportunities

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Contact details

Mr. Zagal Jack B Mr. Amgalan B

Vice President & Director Corporate Manager

Investment Banking Division Project Finance Department

[email protected] Corporate Banking Division

[email protected]

http://www.golomtbank.com/ HKpresentation.html

WWW.BODI.mn