Review and Outlook of Mongolia's Investment Environment Bilguun Ankhbayar

Review and outlook of Mongolias investment environment

Bilguun Ankhbayar MIBG SC

Current state

6.4%

17.3%

12.3% 11.6%

7.8%

4.0% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0% 20.0%

0 2,000,000 4,000,000 6,000,000 8,000,000

10,000,000 12,000,000 14,000,000 16,000,000 18,000,000

2010 2011 2012 2013 2014 2015

Real GDP (million MNT) Real growth (%)

Real GDP and growth Million MNT Growth (%)

0.00

500.00

1,000.00

1,500.00

2,000.00

2,500.00

Jan-

10

May

-10

Sep

-10

Jan-

11

May

-11

Sep

-11

Jan-

12

May

-12

Sep

-12

Jan-

13

May

-13

Sep

-13

Jan-

14

May

-14

Sep

-14

Jan-

15

May

-15

MNT/USD

MNT depreciates over 25% in 5 years

1.69

4.71 4.45

2.49

0.38 -0.10

1.71

2.78 2.78 3.43

3.70 3.99

-$1.00

$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

2010 2011 2012 2013 2014 2015 FDI Government budget

FDI vs Gov't Spending What has kept the economy going?

0.00

500.00

1000.00

1500.00

2000.00

2500.00

Jan-

10

Apr

-10

Jul-1

0 O

ct-1

0 Ja

n-11

A

pr-1

1 Ju

l-11

Oct

-11

Jan-

12

Apr

-12

Jul-1

2 O

ct-1

2 Ja

n-13

A

pr-1

3 Ju

l-13

Oct

-13

Jan-

14

Apr

-14

Jul-1

4 O

ct-1

4 Ja

n-15

A

pr-1

5

Monthly unemployment insurance cost to The Social Insurance

Million MNT

The cause for drop in FDI

0.00

100.00

200.00

300.00

400.00

500.00

$0.00

$5.00

$10.00

$15.00

$20.00

$25.00

$30.00

$35.00

$40.00

Turquoise Hill Resources share price performance (2009-2014)

2009 Explore-124

Drill-67

2010 Explore-173

Drill-108

2011 Explore-302

Drill-190

2012 Explore-324

Drill-206

2013 Explore-142

Drill-79

Parliament reviews OT IA draft

OT IA signed

68% windfall profit tax canceled

2010 budget announced

at $758 million

$1.5 billion was secured from EBRD

and IFC

2011 budget approved at $2.1 billion

20 parliament members petition to change the OT

IA 34%-50%

Rio increases stake to 48.5%

MRAM revokes SouthGobi licenses in

relation to Chalco bid

SEFIL passed

Parliament election

Chalco bid terminated

GOM wants to renegotiate OT IA

OT begins production

GOM says Phase-2

funding will need

approval

Cancellation of SEFIL

Amended Mineral Law

Performance in the previous year

0

20

40

60

80

100

120

140

160

18-Jun-14 18-Jul-14 18-Aug-14 18-Sep-14 18-Oct-14 18-Nov-14 18-Dec-14 18-Jan-15 18-Feb-15 18-Mar-15 18-Apr-15 18-May-15

TRQ ERD SGQ

Past years performance (Jun, 2014 Jun 2015)

OT dispute resolved

TRQ valuation increases by 20%

Gatsuurt proposal

voted down

Domestic factors for the drop in FDI

1. Moratorium banning the issuance of new exploration licenses -2010

2. 20 parliamentarians petition on OT IA -2011

3. Revocation of SouthGobi Resources license -2012

4. Passing of SEFIL -2012

5. Draft Minerals Law -2012

6. Governments request to renegotiate OT IA -2012

7. Delay in OT phase-2 funding-2013-2014

Actions Cause

1. Democratic nature: Arthur Schlesingers cyclical theory

2. Traditional and nomadic lifestyle

3. Past experience under communist regime

Is Mongolia the only country slowing down?

Source: World Bank

-1.0%

5.8% 5.8% 5.4% 4.1% 1.9%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

2009 2010 2011 2012 2013 2014

Mongolia Chile

1.2%

7.3% 7.5%

5.0% 6.0% 4.3%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

2009 2010 2011 2012 2013 2014

Mongolia Kazakhstan

4.6% 6.2% 6.5% 6.3% 5.8% 5.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

2009 2010 2011 2012 2013 2014

Mongolia Indonesia

1.7% 2.0% 2.2% 3.6% 2.7%

2.5%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

2009 2010 2011 2012 2013 2014

Mongolia Australia

External factors- Weak commodities price (2010-2015)

Source: Index Mundi

0 20 40 60 80

100 120 140 160 180 200

May

-10

Aug

-10

Nov

-10

Feb-

11

May

-11

Aug

-11

Nov

-11

Feb-

12

May

-12

Aug

-12

Nov

-12

Feb-

13

May

-13

Aug

-13

Nov

-13

Feb-

14

May

-14

Aug

-14

Nov

-14

Feb-

15

May

-15

Iron Ore, China Import 62% Fe (USD, dry metric ton)

0.00

2,000.00

4,000.00

6,000.00

8,000.00

10,000.00

12,000.00

May

-10

Sep

-10

Jan-

11

May

-11

Sep

-11

Jan-

12

May

-12

Sep

-12

Jan-

13

May

-13

Sep

-13

Jan-

14

May

-14

Sep

-14

Jan-

15

May

-15

Copper, Grade-A Cathode, LME Spot (USD per metric ton)

0.00 200.00 400.00 600.00 800.00

1,000.00 1,200.00 1,400.00 1,600.00 1,800.00 2,000.00

May

-10

Sep

-10

Jan-

11

May

-11

Sep

-11

Jan-

12

May

-12

Sep

-12

Jan-

13

May

-13

Sep

-13

Jan-

14

May

-14

Sep

-14

Jan-

15

May

-15

Gold (UK), 99.5% fine, London Average Daily (USD per roy ounce)

0 20 40 60 80

100 120 140 160

May

-10

Aug

-10

Nov

-10

Feb-

11

May

-11

Aug

-11

Nov

-11

Feb-

12

May

-12

Aug

-12

Nov

-12

Feb-

13

May

-13

Aug

-13

Nov

-13

Feb-

14

May

-14

Aug

-14

Nov

-14

Feb-

15

May

-15

Australian Thermal Coal, 12,000-btu/pb, FOB (USD per metric ton)

External factors- Investors sentiment

TSX Venture Index as well as key commodities are at 5 year lows

Domestic outlook- Political barometer

What shareholding structure should be used to develop Strategic Mineral Deposits?

Source: Sant Maral Foundation

45.50% 47.50%

50.30%

38.60% 37.80% 35.80%

23.30%

15.80% 13.50% 13.70% 15.30% 17.70%

6.10% 5.50% 5.10% 5.90% 7.10% 9.80%

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

2010 2011 2012 2013 2014 2015

Improve slightly Remain same Worsen slightly

What is the outlook on the economy in the next 5 years?

Remain same

Improve

Worsen

19.6%

29.6% 31.8%

23.3% 22.6%

4.90%

46.8% 43.3% 43.3% 43.2%

36.8%

42.80%

25.7%

15.4% 14.7% 20.4%

28.0%

45.70%

0.0% 5.0%

10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0% 45.0% 50.0%

2010 2011 2012 2013 2014 2015

Improving Stagnating Worsening

How would you rate the current state of the economy?

Improving

Worsening

59.60%

55.80%

61.80%

52.00%

54.00%

56.00%

58.00%

60.00%

62.00%

64.00%

2013 2014 2015

Mongolian ownership above 51%

6.90%

8.70% 10.40%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

2013 2014 2015

Equal

0.50%

0.80%

0.50%

0.00%

0.20%

0.40%

0.60%

0.80%

1.00%

2013 2014 2015

Over 51% foreign

Domestic outlook- Political barometer

Where should mineral wealth be invested by the Government?

Source: Sant Maral Foundation

17%

27%

17%

34%

9%

34%

15%

40%

12%

36%

11%

38%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Government should help the poor directly

Invest in long term social development programs

Cash handout for each citizens

Invest in economic development

2010 2011 2012 2013 2014 2015

External outlook

$0 $20 $40 $60 $80

$100 $120 $140 $160 $180 $200

2009

20

10

2011

20

12

2013

20

14

2015

20

16

2017

20

18

2019

20

20

2021

20

22

2023

20

24

2025

Iron Ore Price (USD$) Forecast to 2025

$0 $20 $40 $60 $80

$100 $120 $140

2009

20

10

2011

20

12

2013

20

14

2015

20

16

2017

20

18

2019

20

20

2021

20

22

2023

20

24

2025

Coal Price (USD$) Forecast to 2025

$0

$500

$1,000

$1,500

$2,000

Gold Price (USD$) Forecast to 2025

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

Copper Price (USD$) Forecast to 2025

Source: World Bank

Domestic outlook and expectations

New Investment Law Investment Fund Law Securities Market Law Mineral Law Petroleum Law

Smart Government initiative Mineral policy Accessible Mineral Licenses Reduction in corruption Improvement in infrastructure

POSITIVE LEGAL ENVIRONMENT

STABILITY

Current investment environment Uncertainties Election in 2016 Gatsuurt uncertainties Khan resource court ruling Tavan Tolgoi issue

OT resolved!!! MIBGs expectations 2015

Economic slowdown to continue Public showing more nationalistic

sentiment as election nears

Government policy to support private sector

Real estate sector will be hit the hardest

Thank you for your attention Any questions or comments regarding this document and the specifics of the transaction should be directed to

Bilguun Ankhbayar using the provided contact information below.

Please visit us at: www.mibg.mn

Please forward any questions or comments to:

Bilguun Ankhbayar Chief Executive Office Office: +976 1136 2620 Email: [email protected]

13

The opinions and/or views expressed in this information package do not necessarily represent the official position of MIBG (Mongolian Investment Banking Group) LLC. The products, projects, or private entities discussed in this document are presented for informational purposes only and do not constitute an offer, solicitation of an offer to purchase, hold, sell, invest or make any other financial decision. In making decisions, investors may rely on their own examinations of the parties and risks involved. The information contained in this report has been obtained from sources that are believed to be accurate and reliable but are not guaranteed by us and may be incomplete and subject to change without advance notice.

Important Disclosures