Review and outlook of Mongolias

investment environment
Bilguun Ankhbayar
MIBG SC

Current state

2014

Real growth (%)

Monthly unemployment insurance cost to

The Social Insurance

FDI vs Gov't Spending

What has kept the economy going?

Million MNT
2500.00

$5.00

2000.00

$4.00

1500.00

$3.00

1000.00

$2.00

500.00

$1.00

0.00

$0.00

Jan-10
Apr-10
Jul-10
Oct-10
Jan-11
Apr-11
Jul-11
Oct-11
Jan-12
Apr-12
Jul-12
Oct-12
Jan-13
Apr-13
Jul-13
Oct-13
Jan-14
Apr-14
Jul-14
Oct-14
Jan-15
Apr-15

May-15

Real GDP (million MNT)

2013

Jan-15

2012

Sep-14

2011

May-14

2010

0.00

Jan-14

Sep-13

2,000,000

500.00

May-13

7.8%

6.4%

4,000,000

Jan-13

6,000,000

MNT depreciates
over 25% in 5 years

1,000.00

Sep-12

11.6%

May-12

8,000,000

1,500.00

Jan-12

12.3%

10,000,000

Sep-11

12,000,000

2,000.00

May-11

14,000,000

Jan-11

16,000,000

2,500.00

Sep-10

17.3%

MNT/USD

May-10

18,000,000

Growth (%)
20.0%
18.0%
16.0%
14.0%
12.0%
10.0%
8.0%
6.0%
4.0%
4.0% 2.0%
0.0%
2015

Jan-10

Real GDP and growth

Million MNT

-$1.00

4.71

4.45
3.43

2.78

2.78

3.70

3.99

2.49

1.691.71
0.38

2010

2011
FDI

2012

2013

Government budget

2014

-0.10

2015

The cause for drop in FDI

Turquoise Hill Resources share price performance
(2009-2014)
$40.00
2010 budget
announced
at $758
million

$35.00
$30.00
$25.00
$20.00
$15.00

OT IA
signed
68% windfall
profit tax
canceled

$0.00

2009
Explore-124
Drill-67

2010
Explore-173
Drill-108

500.00

SEFIL passed

Rio
increases
stake to
48.5%

2011
Explore-302
Drill-190

Parliament
reviews OT
IA draft

$10.00
$5.00

$1.5 billion
was secured
from EBRD
and IFC

2011 budget
approved at
$2.1 billion

GOM says
Phase-2
funding will
need
approval

MRAM revokes
SouthGobi
licenses in
relation to Chalco
bid

2012
Explore-324
Drill-206
Chalco bid
terminated

20 parliament
members petition
to change the OT
IA 34%-50%

GOM wants to
renegotiate OT IA

400.00

300.00
Cancellation
of SEFIL

200.00

OT begins
production
Amended
Mineral Law

Parliament
election

2013
Explore-142
Drill-79

100.00

0.00

Performance in the previous year

Past years performance (Jun, 2014 Jun 2015)
160
140
120
100
80
60
OT dispute resolved

40

TRQ valuation
increases by 20%

20
0

18-Jun-14

18-Jul-14

18-Aug-14

18-Sep-14

18-Oct-14

18-Nov-14 18-Dec-14

TRQ

ERD

18-Jan-15

SGQ

18-Feb-15 18-Mar-15

18-Apr-15 18-May-15

Gatsuurt
proposal
voted down

Domestic factors for the drop in FDI

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

Cause
1. Democratic nature: Arthur Schlesingers
cyclical theory

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

2. Traditional and nomadic lifestyle

3. Past experience under communist regime

Is Mongolia the only country slowing down?

Mongolia

Mongolia

Chile

20.0%

20.0%

15.0%

15.0%

10.0%

10.0%

5.0%
0.0%

5.8%
-1.0%
2009
2010

5.8%
2011

5.0%
5.4%
2012

4.1%
2013

1.9%

2009

2010

2011

Mongolia

Kazakhstan

20.0%

20.0%

15.0%

15.0%

10.0%

10.0%
7.3%

5.0%

7.5%
5.0%

1.2%
2009

-5.0%

6.3%

5.8%

5.0%

2012

2013

2014

-5.0%

Mongolia

0.0%

6.5%

6.2%

0.0%

2014

-5.0%

4.6%

Indonesia

6.0%

4.3%

5.0%
0.0%

2010

2011

2012

2013

Australia

2014

1.7%
2009

-5.0%

2.0%
2010

2.2%
2011

3.6%
2012

2.7%
2013

2.5%
2014

Source: World Bank

External factors- Weak commodities price (2010-2015)

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

12,000.00

200
180
160
140
120
100
80
60
40
20
0

10,000.00
8,000.00
6,000.00
4,000.00

May-15
May-15

Australian Thermal Coal, 12,000-btu/pb, FOB

(USD per metric ton)

Jan-15

Sep-14

May-14

Jan-14

Sep-13

May-13

Jan-13

Sep-12

May-12

Jan-12

Sep-11

May-11

Jan-11

Sep-10

2,000.00
1,800.00
1,600.00
1,400.00
1,200.00
1,000.00
800.00
600.00
400.00
200.00
0.00

May-10

Gold (UK), 99.5% fine, London Average Daily

(USD per roy ounce)
160
140
120
100
80
60
40
20
0

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

Jan-15

Sep-14

May-14

Jan-14

Sep-13

May-13

Jan-13

Sep-12

May-12

Jan-12

Sep-11

May-11

Jan-11

Sep-10

0.00

May-10

2,000.00

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

Copper, Grade-A Cathode, LME Spot

(USD per metric ton)

Source: Index Mundi

External factors- Investors sentiment

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

Domestic outlook- Political barometer

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

Remain same

How would you rate the current state of the economy?

Worsen slightly

Improving

60.00%
50.00%

50.30%

47.50%

45.50%

40.00%

50.0%
45.0%
40.0%
35.0%
30.0%
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%

37.80% Improve
35.80%

38.60%

30.00%
Remain same

23.30%

20.00%

15.80%

10.00%

6.10%

5.50%

13.50%

13.70%

15.30%

5.10%

5.90%

7.10%

17.70%
9.80%
Worsen

0.00%
2010

2011

2012

2013

2014

2015

46.8%

Stagnating

43.3%

43.3%

Worsening
Worsening
45.70%
42.80%

43.2%
36.8%

31.8%

29.6%

25.7%

28.0%
23.3%
20.4%

19.6%
15.4%

22.6%

14.7%
Improving
4.90%

2010

2011

2012

2013

2014

2015

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

Mongolian ownership above 51%

64.00%
62.00%
60.00%

61.80%

Equal
12.00%

8.00%

58.00%

6.90%

0.60%

2013

2014

2015

0.50%

0.50%

0.20%

2.00%

52.00%

0.80%

0.40%

4.00%

54.00%

1.00%
0.80%

6.00%

55.80%

56.00%

10.40%
8.70%

10.00%

59.60%

Over 51% foreign

0.00%

0.00%
2013

2014

2015

2013

2014

2015

Source: Sant Maral Foundation

Domestic outlook- Political barometer

Where should mineral wealth be invested by the Government?
2010

2011

2012

2013

2014

2015

50%
45%
40%

40%
34%

35%
30%

36%

38%

34%

27%

25%
20%

17%

17%
15%

15%
10%

12%

11%

9%

5%
0%
Government should help the
poor directly

Invest in long term social

development programs

Cash handout for each

citizens

Invest in economic
development

Source: Sant Maral Foundation

External outlook
Coal Price (USD$) Forecast to 2025

Iron Ore Price (USD$) Forecast to 2025

$140
$120
$100
$80
$60
$40

2025

2024

2023

2022

2021

2020

2019

2018

2017

2016

2015

2014

2013

2012

2011

Copper Price (USD$) Forecast to 2025

Gold Price (USD$) Forecast to 2025

$2,000

2010

$0

2009

2025

2024

2023

2022

2021

2020

2019

2018

2017

2016

2015

2014

2013

2012

2011

2010

$20
2009

$200
$180
$160
$140
$120
$100
$80
$60
$40
$20
$0

$12,000
$10,000

$1,500
$1,000

$8,000
$6,000
$4,000

$500
$0

$2,000
$0

Source: World Bank

Domestic outlook and expectations

Current investment environment

New Investment Law

Investment Fund Law
Securities Market Law
Mineral Law
Petroleum Law

POSITIVE LEGAL
ENVIRONMENT

Uncertainties

Election in 2016
Gatsuurt uncertainties
Khan resource court ruling
Tavan Tolgoi issue

MIBGs expectations 2015

OT resolved!!!

Smart Government initiative

Mineral policy
Accessible Mineral Licenses
Reduction in corruption
Improvement in infrastructure

STABILITY

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:

Please forward any questions or comments to:

www.mibg.mn

Bilguun Ankhbayar
Chief Executive Office
Office: +976 1136 2620
Email: bilguun@mibg.mn

Important Disclosures
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.
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