Building an Industrial Park in Sainshand

Europe-Mongolia Investors Forum

December 3, 2009 London

Mongolias Ministry of Road, Transportation, Construction and Urban Development prepared this presentation according to resolution decree # 68 issued by the Prime Minister of Mongolia on July 8, 2009, as well as National Development Strategy, endorsed on January 31, 2008 by resolution 12 of Parliament of Mongolia.

Ministry of Road, Transportation, Construction and Road Transportation Urban Development of Mongolia

Agenda

MINISTRY OF ROAD, TRANSPORT TATION, CONSTRUCTIO AND URBAN DEVELO ON OPMENT OF MONGOLIA A

Overview O er ie of Mongolia National Development Strategy of Mongolia Strategic mining deposits Potential commodity markets Industrial park p Infrastructure need Potential socioeconomic impact of the industrial park and new railway infrastructure

Mongolia has a comparative advantage in natural resources and is looking to transform it to a competitive advantage oo g t a s o t co pet t e ad a tage
Major Rating Factors (1)
Strengths
MINISTRY OF ROAD, TRANSPORT TATION, CONSTRUCTIO AND URBAN DEVELO ON OPMENT OF MONGOLIA A

Weaknesses
Vulnerabilities inherent in a small small, undeveloped, primarily commodity-based, low-income economy High degree of financial sector vulnerabilities as a result of ongoing robust credit growth, relatively high level of pastdue loans, and the need for continued improvement in banking supervision

S&P Rating Detail (December 19, 2008) Mongolia g Sovereign Credit Rating Sovereign Credit Ratings History
24-Dec-07 22-Dec-06 28-Dec-05

(1)

Improved growth prospects on the back of a burgeoning mining sector Strong donor country and multilateral support A comparatively stable political environment for this rating category

BB-/Negative/B Real GDP per capita growth comparison In %

12%

BB-/Stable/B B+/Positive/B B/Positive/B

(1)

Economic Prospects
A heavy reliance on commodity exports, inadequate infrastructure, infrastructure and vulnerability to high energy prices, preclude stable, broad-based growth Continued delays in negotiating new mineral investments point to challenges ahead High minerals prices, vast copper and coal potential, and increased tourism make medium-term growth prospects robust

Mongolia Select Statistics

10%

BB Median 2007f Per capita income (US$) 2,931.0 Real GDP (% chg.) 6.2 Real GDP per capita (% chg ) chg.) 5.1 51 General government balance (% of GDP) (1.2) General government gross debt (% of GDP) 38.4 General government net debt (% of GDP) 31.8 Gen. gov. interest expenditure/gen. gov. revenue (%) 8.6 Dom. credit to private sector and NFPEs* (% of GDP) na CPI inflation (average % chg) 6.2
f - Forecast

8%

2007f 1,588.0 9.0 8.2 82 (0.7) 36.3 22.3 1.4 35.3 7.5

6%

4%

2%

0% Mongolia "BB" Median Ukraine Philippines Indonesia Nigeria Venezuela

Five-year average 2002-2006

2007 forecast

(1) Standard & Poors Research: Mongolia, December 19, 2008 revision

Millennium Development Goals based Comprehensive National Development Strategy o Mongolia e e op e t St ategy of o go a
National Development Strategy (NDS) Mongolia Development Strategy of of Mongolia* p p gy (gy ) g g
We, Mongols, shall respect our history and culture, have our national dignity, be highly educated and confident in ourselves so as to realize our desires and aspirations, live comfortable, prosperous and contented lives in our homeland. Mongolias development is a guarantee of its security and independence. The root source of its development lies in the national unity.

MINISTRY OF ROAD, TRANSPORT TATION, CONSTRUCTIO AND URBAN DEVELO ON OPMENT OF MONGOLIA A

Mongolia is a country of contentment with vast lands, abundant natural resources, resources admirable history and history, glorious future.

V Vision

2007 - 2015 period 2007 - 2015 Synchronize EGSPR with NDS Increase jobs (unemployment rate at max 3%) Create a nation-wide database Provide economic incentives for new jobs GDP growth: 14% GDP per capita: $5,000 Strategy

2016 2021 period Enhance coordination for poverty reduction Create a sovereign wealth fund Reduce poverty

Goals

GDP growth: 12% GDP per capita: $12,000

Mongolia successfully developed its economic growth vision and M li f ll d l d it i th i i d now it is working on the process on how to achieve these targets
* Parliament of Mongolia resolution 12 dated Jan. 31, 2008 endorsing National Development Strategy of Mongolia 4

Mongolias National Development Strategy objectives in perspective with ot e Asian ad a ced a d de e op g cou t es t other s a advanced and developing countries
$40,000

35,000
MINISTRY OF ROAD, TRANSPORT TATION, CONSTRUCTIO AND URBAN DEVELO ON OPMENT OF MONGOLIA A

30,000

25,000

20,000

15,000

2021 Objectives: GDP per capita $12,000

10,000

2015 Objectives: GDP per capita $5,000

5,000

0 Solomon Isd Myanmar Sri Lanka Mongolia Timor-Leste Malaysia Tonga India Afghanistan Cambodia Vanuatu Thailand Taiwan Bhutan Japan Bangladesh Papua NG Hong Kong Philippines Singapore Pakistan Vietnam Fiji Indonesia Maldives Samoa Kiribati Brunei Laos Korea China Nepal

Achievement of the National Development Strategy would place Mongolia into A hi t f th N ti lD l t St t ld l M li i t one of the key economic powers in the regions
* International Monetary Fund, World Economic Outlook Database, October 2009 5

Mongolia has some of the largest undeveloped reserves in the world a co pa at e ad a tage o o g term g o t comparative advantage for long te growth

MINISTRY OF ROAD, TRANSPORT TATION, CONSTRUCTIO AND URBAN DEVELO ON OPMENT OF MONGOLIA A

T T l i is th l t l Tavan Tolgoi i the largest coal reserve in the world by proven reserves
%
100

Oyu Tolgoi is th largets b inferred copper O T l i i the l t by i f d and gold resources

Bln lbs of copper reserve

Mining sites Tavan Tolgoi Nariin Sukhait Baganuur Shivee Ovoo Mardai Dornod Gurvan Bulag Tomortei Oyu Tolgoi Tsagaan Suvraga Erdenet Burenhaan Boroo Tomortein Ovoo Asgat

Tavan Tolgoy coking coal reserves in comparison with total coking coal reserves of selected countries

World's largest copper mines

80
79 68 Inferred copper resources

80

60
60

Measured and i di t d copper resources M d d indicated

Mineral Coaking coal Coal Brown coal Brown coal Uranium Uranium Uranium Iron ore Copper Copper Molybdenum Copper, molibdenum Phosphorite Gold Lead Silver

Resources (000 tons) 6,420,000.0 125,500.0 600,000.0 646.2 646 2 924.6 16,467.0 10,560.0 229,300.0 2,300,000.0 10,640.0 240,100.0 1,200,000.0 192,240.0 24.5 7,689.4 6,402.6

40
40 32

57
20

49 28 22
Comparative share in country's reserves

20
12 11

12
Australia

0 Canada Poland USA Germany

0
Oyu Pebble Petaqu Galore Mirado HerugaProspe Brisas Tolgoi illa Greek r rity USA Mongolia Canada Panama Mongolia Venezuela

Canada

Canada

Source: The Boston Consulting Group, Erdenes MGL LLC

Although China is the main market for Mongolian commodities, other a te at e a ets, such alternative markets, suc as Japa , Korea, India, exist Japan, o ea, d a, e st
Coal imports into Asian countries will grow ~9% a year between 2009-2015
MINISTRY OF ROAD, TRANSPORT TATION, CONSTRUCTIO AND URBAN DEVELO ON OPMENT OF MONGOLIA A

China is the biggest Asian market for copper, concentrate makes the bulk of imports
Copper consumption (M t)

Coking coal consumption (M t)

~2500

55

68
1,317 1,337
~1,151

3,812 2009 2015

Japan

~435

* 11
56

30

2009 2015 Japan 6 9

*
23
593 669 2009 2015 India I di

1,558 1,504 2,178 585 766

2009 2015 China

35

2009 2015 Taiwan

14

2009 2015
China

2009 2015
Taiwan

2009 2015 Republic of Korea

446 406

618 492

2009 2015
Republic of Korea

2009 2015 India

Copper concentrate imports Domestic consumption supplied by domestic production Coking coal imports Copper cathode imports Domestic consumption supplied by domestic production
7

Source: The Boston Consulting Group, Railway infrastructure development strategy for Mongolia, October 16, 2009

In order to achieve its NDS objectives, Mongolia is facing a choice bet ee an extractive e sus dust a economy between a e t act e versus industrial eco o y
Objectives
MINISTRY OF ROAD, TRANSPORT TATION, CONSTRUCTIO AND URBAN DEVELO ON OPMENT OF MONGOLIA A

How to achieve NDS goals?

Outcome

National Development Strategy 2007-2021

Extractive economy

Industrial economy

Becoming one of the key economies in the region

vs.

Cabinet resolutions: R#68 Natural resources supply forward contract arrangement for building industrial facilities. M#52 Establishment of industrial park in Sainshand or Choir.

Mongolia has clearly chosen an industrial path, which requires significant capital investments. M li h l l h i d t i l th hi h i i ifi t it l i t t However, due to complexity of the task, Mongolia needs help with an investment Master Plan.
8

In consideration of 4 key principles of industrialization proposed by BCG and all potential locations for an industrial park, Mongolia is tending to choose Sainshand for establishment of the industrial park

MINISTRY OF ROAD, TRANSPORT TATION, CONSTRUCTIO AND URBAN DEVELO ON OPMENT OF MONGOLIA A

Source: The Boston Consulting Group, Railway infrastructure development strategy for Mongolia, October 16, 2009

The industrial park in Sainshand would provide basis for further eco o c diversification of o go a economic d e s cat o o Mongolia

MINISTRY OF ROAD, TRANSPORT TATION, CONSTRUCTIO AND URBAN DEVELO ON OPMENT OF MONGOLIA A

Source: The Boston Consulting Group, Railway infrastructure development strategy for Mongolia, October 16, 2009

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Mongolia would need two or three power plants to accommodate power de a d, demand, as recommended by BCG eco e ded CG

MINISTRY OF ROAD, TRANSPORT TATION, CONSTRUCTIO AND URBAN DEVELO ON OPMENT OF MONGOLIA A

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Existing and planned regional rail routes would enable Mongolia access to t e main a d a te at e markets for co the a and alternative a ets o commodities od t es

MINISTRY OF ROAD, TRANSPORT TATION, CONSTRUCTIO AND URBAN DEVELO ON OPMENT OF MONGOLIA A

5,300 km 5,500 km

2,000 km

Source: Ministry of Road, Transportation, Construction and Urban Development of Mongolia

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Building of a new and modernization of an existing railway network would play a vital role in the achievement o t e NDS object es ou d p ay ta o e t e ac e e e t of the S objectives

MINISTRY OF ROAD, TRANSPORT TATION, CONSTRUCTIO AND URBAN DEVELO ON OPMENT OF MONGOLIA A

Legend:

Existing railway line Planned railway line in the short term Planned railway line in the medium term Planned railway line in the long term

Source: Ministry of Road, Transportation, Construction and Urban Development of Mongolia

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Mongolia is planning to build 6,611 km of new highway network by 2016

MINISTRY OF ROAD, TRANSPORT TATION, CONSTRUCTIO AND URBAN DEVELO ON OPMENT OF MONGOLIA A

Source: Ministry of Road, Transportation, Construction and Urban Development of Mongolia

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Mongolia would need totally about $14 bln in investments, of which $8.3 b a e Sainshand dust a park, e c ud g g ays bln are in Sa s a d industrial pa , excluding highways

MINISTRY OF ROAD, TRANSPORT TATION, CONSTRUCTIO AND URBAN DEVELO ON OPMENT OF MONGOLIA A

Source: The Boston Consulting Group, Railway infrastructure development strategy for Mongolia, October 16, 2009

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According to BCGs socioeconomic impact for building railways and Sa s a d dust a park Sainshand industrial pa
1
MINISTRY OF ROAD, TRANSPORT TATION, CONSTRUCTIO AND URBAN DEVELO ON OPMENT OF MONGOLIA A

16
Source: The Boston Consulting Group, Railway infrastructure development strategy for Mongolia, October 16, 2009

BCG estimates that industrialization would bring $41 bln to Mongolian GDP over 11 years compared to $28 bln on extraction and exports option

MINISTRY OF ROAD, TRANSPORT TATION, CONSTRUCTIO AND URBAN DEVELO ON OPMENT OF MONGOLIA A

Source: The Boston Consulting Group, Railway infrastructure development strategy for Mongolia, October 16, 2009

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MINISTRY OF ROAD, TRANSPORT TATION, CONSTRUCTIO AND URBAN DEVELO ON OPMENT OF MONGOLIA A

Contact address, telephone: Ministry of Road, Transportation, Construction and Urban Development of Mongolia Investment Task Force Team Government Building XII Barilgachdyn Talbai Ulaanbaatar, Mongolia Telephone: 976-51-263319 Fax: 976-11-329190

Ministry of Road Transportation Construction Road, Transportation, and Urban Development of Mongolia
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