Building an Industrial Park in Sainshand

Building an Industrial Park in SainshandEurope-Mongolia Investors’ Forum

December 3, 2009 • London

Ministry of Road Transportation Construction and

Mongolia’s 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 Urban Development of Mongolia

Agenda

A O er ie of Mongolia

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A Overview of Mongolia

National Development Strategy of Mongolia

Strategic mining deposits

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Potential commodity markets

Industrial park

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Infrastructure need

Potential socioeconomic impact of the industrial park and new railway infrastructure

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Mongolia has a comparative advantage in natural resources and is looking to transform it to a competitive advantage

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oo g to t a s o t to a co pet t e ad a tage

Major Rating Factors (1)

Strengths Weaknesses

• Improved growth prospects on the back of a • Vulnerabilities inherent in a small

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S&P Rating Detail (December 19, 2008) (1)

Mongolia

• 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

• Vulnerabilities inherent in a 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 past-due loans, and the need for continued improvement in banking supervision

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gSovereign Credit Rating BB-/Negative/B

Sovereign Credit Ratings History 24-Dec-07 BB-/Stable/B 22-Dec-06 B+/Positive/B 28-Dec-05 B/Positive/B

improvement in banking supervision

Economic Prospects • A heavy reliance on

commodity exports, inadequate infrastructure

Real GDP per capita growth comparisonIn %

12%

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Mongolia Select Statistics (1)inadequate infrastructure, and vulnerability to high energy prices, preclude stable, broad-based growth

• Continued delays in negotiating new mineral investments point to

6%

8%

10%‘BB’

Median2007f 2007f

Per capita income (US$) Real GDP (% chg.) Real GDP per capita (% chg )

2,931.0 1,588.06.2 9.05 1 8 2

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• High minerals prices, vast copper and coal potential, and increased tourism make medium-term growth prospects robust

Five-year average 2002-2006 2007 forecast

0%

2%

4%

Mongolia "BB" Median

Ukraine Philippines Indonesia Nigeria Venezuela

Real GDP per capita (% chg.) General government balance (% of GDP) General government gross debt (% of GDP) General government net debt (% of GDP) Gen. gov. interest expenditure/gen. gov. revenue (%) Dom. credit to private sector and NFPEs* (% of GDP) CPI inflation (average % chg)

5.1 8.2(1.2) (0.7)38.4 36.331.8 22.3

8.6 1.4na 35.3

6.2 7.5

f - Forecast

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(1) Standard & Poor’s Research: Mongolia, December 19, 2008 revision

Millennium Development Goals based Comprehensive National Development Strategy of Mongolia

A

e e op e t St ategy o o go a

National Development Strategy of Mongolia

National Development Strategy (NDS) of Mongolia*

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Visi

on

p gy g

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

We, Mongols, shall respect our history and culture, have our national

dignity, be highly educated and confident in ourselves so as to

Mongolia’s development is a guarantee of its security and

independence. The root source of its

p gy ( ) g

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O V resources, admirable history, and glorious future. realize our desires and aspirations,

live comfortable, prosperous and contented lives in our homeland.

development lies in the national unity.

2007 - 2015 2016 – 2021 period2007 - 2015 period

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Stra

tegy • Synchronize EGSPR with NDS

• Increase jobs (unemployment rate at max 3%)• Create a nation-wide database• Provide economic incentives for new jobs

• Enhance coordination for poverty reduction• Create a sovereign wealth fund• Reduce poverty

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M li f ll d l d it i th i i d

Goa

ls GDP growth: 14%GDP per capita: $5,000

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

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Mongolia successfully developed its economic growth vision and 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

Mongolia’s National Development Strategy objectives in perspective with other Asian advanced and developing countries

A

t ot e s a ad a ced a d de e op g cou t es

35,000

$40,000

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25,000

30,000

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15,000

20,000

2021 Objectives: GDP per capita $12,000

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0

5,000

10,000

2015 Objectives: GDP per capita $5,000

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A hi t f th N ti l D l t St t ld l M li i t

Afg

hani

stan

Nep

al

Mya

nmar

Tim

or-L

este

Ban

glad

esh

Cam

bodi

a

Laos

Indi

a

Pak

ista

n

Vie

tnam

Sol

omon

Isd

Pap

ua N

G

Kiri

bati

Phi

lippi

nes

Sri

Lank

a

Mon

golia

Bhu

tan

Indo

nesi

a

Van

uatu

Tong

a

Sam

oa

Chi

na

Mal

dive

s

Fiji

Thai

land

Mal

aysi

a

Taiw

an

Kor

ea

Hon

g K

ong

Bru

nei

Japa

n

Sin

gapo

re

0

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Achievement of the National Development Strategy would place Mongolia into one of the key economic powers in the regions

* International Monetary Fund, World Economic Outlook Database, October 2009

Mongolia has some of the largest undeveloped reserves in the world – a comparative advantage for long term growth

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co pa at e ad a tage o o g te g o t

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Mining sites MineralResources (‘000 tons)

Tavan Tolgoi Coaking coal 6,420,000.0Nariin Sukhait Coal 125,500.0Baganuur Brown coal 600,000.0Shivee Ovoo Brown coal 646 2

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O Shivee Ovoo Brown coal 646.2Mardai Uranium 924.6Dornod Uranium 16,467.0Gurvan Bulag Uranium 10,560.0Tomortei Iron ore 229,300.0Oyu Tolgoi Copper 2,300,000.0Tsagaan Suvraga Copper 10,640.0T T l i i th l t lT T l i i th l t l O T l i i th l t b i f dO T l i i th l t b i f d

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O Tsagaan Suvraga Copper 10,640.0Molybdenum 240,100.0

Erdenet Copper, molibdenum

1,200,000.0

Burenhaan Phosphorite 192,240.0Boroo Gold 24.5Tomortein Ovoo Lead 7,689.4

Tavan Tolgoi is the largest coal reserve in the world by proven reserves


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

100

80



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

100

80

Oyu Tolgoi is the largets by inferred copper and gold resources


World's largest copper mines

60

80 79

68Inferred copper resourcesM d d i di t d

Bln lbs of copper reserve



World's largest copper mines

60

80 79

68Inferred copper resourcesM d d i di t d

Bln lbs of copper reserve

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Asgat Silver 6,402.6

5749

28 2212

40

20

0

60

Comparativeshare in country'sreserves

5749

28 2212

40

20

0

60

Comparativeshare in country'sreserves 258

0

20

40

60

32

12 11

Measured and indicated copper resources

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0

20

40

60

32

12 11

Measured and indicated copper resources

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Australia0

PolandCanada GermanyUSA Australia0

PolandCanada GermanyUSA0

OyuTolgoi

Pebble Petaquilla

Galore Greek

Mirador

HerugaProsperity

Brisas

Mongolia

USA

Panama

Canada

Canada

Mongolia

Canada

Venezuela

0Oyu

TolgoiPebble Petaqu

illaGalore Greek

Mirador

HerugaProsperity

Brisas

Mongolia

USA

Panama

Canada

Canada

Mongolia

Canada

Venezuela

Source: The Boston Consulting Group, Erdenes MGL LLC

Although China is the main market for Mongolian commodities, other alternative markets, such as Japan, Korea, India, exist

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a te at e a ets, suc as Japa , o ea, d a, e st

Coal imports into Asian countries will grow ~9% a year between 2009-2015




China is the biggest Asian market for copper, concentrate makes the bulk of imports

China is the biggest Asian market for copper, concentrate makes the bulk of imports

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55 68

Coking coal consumption (M t)

~2500

55 68

Coking coal consumption (M t)

~2500

Copper consumption (M t)

1,3371,317

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*China

30

2009 2015

112009 2015

6 9

Japan*

~435**

China

30

2009 2015

112009 2015

6 9

Japan**

~435** 2009 2015

1,558

1,504

3,812

2,178

585 766

Japan

~1,151

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14 23

Taiwan

Republic of Korea

China

2009 2015

6

2009

9

201535

56

2009 2015

Taiwan

Republic of Korea

China

2009 2015

6

2009

9

201535

56

2009 2015I di

446406

2009

618

492

2015

2009 2015585

2009

766

2015

593

2009

669

2015 Republic

TaiwanChina

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Domestic consumption supplied by domestic production

India

Domestic consumption supplied by domestic productionCopper concentrate imports

India of Korea

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Coking coal imports


Coking coal importsCopper cathode importsDomestic consumption supplied by domestic production

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 between an extractive versus industrial economy

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bet ee a e t act e e sus dust a eco o y

Objectives How to achieve NDS goals? Outcome

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Becoming one of the keyeconomies in the region

National Development Strategy 2007-2021

Extractive economy Industrial economy

vs.

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Cabinet resolutions:

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R#68 – Natural resources supply forward contract arrangement for building industrial facilities.

M#52 – Establishment of industrial park in

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M li h l l h i d t i l th hi h i i ifi t it l i t t

M#52 Establishment of industrial park in Sainshand or Choir.

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Mongolia has clearly chosen an industrial path, which requires significant capital investments. However, due to complexity of the task, Mongolia needs help with an investment Master Plan.

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

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Sainshand for establishment of the industrial park

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TRY

9Source: The Boston Consulting Group, Railway infrastructure development strategy for Mongolia, October 16, 2009

The industrial park in Sainshand would provide basis for further economic diversification of Mongolia

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eco o c d e s cat o o o go a

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Mongolia would need two or three power plants to accommodate power demand, as recommended by BCG

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de a d, as eco e ded by CG

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Existing and planned regional rail routes would enable Mongolia access to the main and alternative markets for commodities

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to t e a a d a te at e a ets o co od t es

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5,300 km

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5,500 km

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2,000 km

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Source: Ministry of Road, Transportation, Construction and Urban Development of Mongolia12

Building of a new and modernization of an existing railway network would play a vital role in the achievement of the NDS objectives

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ou d p ay a ta o e t e ac e e e t o t e S object es

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Existing railway line

Planned railway line in the short term

Legend:

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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

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

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N, C

ON

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14Source: Ministry of Road, Transportation, Construction and Urban Development of Mongolia

Mongolia would need totally about $14 bln in investments, of which $8.3 bln are in Sainshand industrial park, excluding highways

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b a e Sa s a d dust a pa , e c ud g g ays

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According to BCG’s socioeconomic impact for building railways and Sainshand industrial park…

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Sa s a d dust a pa

1 3

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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

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Contact address, telephone:

Ministry of Road, Transportation, Construction and Urban Development of MongoliaInvestment Task Force TeamGovernment Building XII

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O Barilgachdyn TalbaiUlaanbaatar, MongoliaTelephone: 976-51-263319Fax: 976-11-329190

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Ministry of Road Transportation Construction

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

Building an Industrial Park in Sainshand

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