January 1 2010

1. BUSINESS COUNCIL of MONGOLIA
NewsWire
www.bcmongolia.org
info@bcmongolia.org
Year End Issue – January 1, 2010
BCM NEWSWIRE YEAR END ISSUE
2009 – The Year That Was
We begin a new year today, with all its expectations and surprises, uncertainties and
disappointments, opportunities and missed chances still to unfold. This is a good time to look back
at what happened in the past one year in Mongolia, as recorded in the BCM Newswire. Since this is
intended to be a document of record, the stress has been on general developments at the cost of
news about individual companies.
Instead of keeping to our weekly format of three sections, we have arranged this selection under
seven broad headings, with some unavoidable overlapping. Almost every item has been made
shorter than appeared originally.
1. Oyu Tolgoi – the chequered career of an agreement
In comments prior to their meeting at the State Department, Secretary Clinton said the USA is
“committed to supporting the government and people of Mongolia as they seek assistance to
develop, as they continue their democratization, and as they reach out to the rest of the world”.
On his part, Mr. Batbold said Mongolia was determined to deepen and expand its relations with the
USA on the basis of “comprehensive partnership, based on our shared values and common strategic
interests”. The people of Mongolia, he said, have “always been grateful to the USA for continued
support of our democratic reforms”.
Given its importance in lifting the country’s economy out of a seemingly ever-deepening hole and
also the emotions its terms continued to generate among lawmakers and the general people, it was
no surprise that the investment agreement on Oyu Tolgoi was the most important event of the
year and that reports on the progress and status of the negotiations dominated the newswire.
January 23
PROGRESS REPORTED IN OYU TOLGOI NEGOTIATIONS
The working group set up on December 11 by the Prime Minister to prepare the agreements for
investment in the Oyu Tolgoi deposit has been busy. It has been regularly meeting with
representatives of Rio Tinto and Ivanhoe Mines to iron out differences. Sources preferring to be
unidentified confirm that agreement has been reached on some major points but remains elusive on
some others. For the moment, the Mongolian Government wants to own 34% of the deposit and the
investors are ready to accept this. However, they will not agree to the Government raising its
ownership share to 50% once the initial investment costs have been reimbursed. They are also
firmly against the continuation of the windfall profits tax. The Mongolian demand for advance
payment of some taxes is acceptable to the investors in principle and on certain conditions.
However, details are still to be worked out. Talks will continue to find a common ground.
Source: Ardiin Erkh, Udriin Sonin
NGO COALITION SEEKS INFORMATION ON MINING NEGOTIATIONS
In an effort to ensure that the negotiation process in the ensuing investment agreements with
potential investors in strategic deposits at Oyu Tolgoi and Tavan Tolgoi is transparent, and that the
interests of Mongolian civil society and public are adequately protected, Publish What You Pay, an
international coalition of NGOs for transparency in extractive industries with local branches, has
addressed some questions to Prime Minister S. Bayar and the three Ministers responsible for drafting
and negotiating the agreements -- Minister of Minerals and Energy D. Zorigt, Minister of Finance S.
Bayartsogt, and Minister of the Environment L. Gansukh.
Among the questions are:
1. Which are the companies that the Government is negotiating with?
2. Who is representing the Mongolian side in the negotiations, and is any civil society representative
included in the process?

2. 3. Which are the foreign companies selected to advise the Government, and what are the
conditions under which they have been selected?
4. Were the reserves at Oyu Tolgoi and Tavan Tolgoi certified by the Specialized Minerals Council of
Mongolia? What is the size of the approved reserves?
5. Would the money claimed to be required to develop the project be audited? Have the
exploration costs claimed to have been invested so far been audited?
6. What would Mongolia give up if the prepayment of certain taxes and payments is agreed upon?
7. When will the Mongolian public be able to see the draft agreements, in the spirit of transparency
mandated by Parliament?
The coalition has said it will decide on its next course of action once the answers to these questions
are received.
Source: www.publishwhatyoupay.org
January 30
“WE HAVE TO LOOK INTO THE FUTURE,” SAYS MINISTER ABOUT OYU TOLGOI
Minister for Mineral Resource and Energy D.Zorigt has said reaching an agreement with Rio Tinto
and Ivanhoe Mines will be ―hard, but not impossible, as we are keen on it‖. Admitting that ―we
can‟t provide cash payment‖ for 34% ownership of the Oyu Tolgoi project, he said the Mongolian
side had asked Rio Tinto for advance payment of taxes but the company was yet to agree.
Expressing the hope that the negotiation will be concluded in the scheduled time frame, he said the
Government would issue a statement by February 1 on the progress and status of the talks.
Asked about Mongolia‟s advantages and disadvantages at a time when commodity prices keep
slumping and things are not very good for the mining industry, the Minister said, ―We are neighbor
to one of the biggest economies in the world. Our deposit has good grade and size. There are some
difficult issues, such as infrastructure. Also the world economy is going through a slowdown. But we
have to look far into the future and make a deal not just for today.‖
Source: www.business-mongolia.com
February 6
MONGOLIA NOT TO ABANDON 2007 STAND, SAYS MINISTER
The special Government meeting on Friday was told that work on the two Tolgoi draft agreements
was still continuing. Minister for Minerals and Energy D.Zorigt said preliminary talks with the
investors were still on, but he hoped the draft on Oyu Tolgoi would be ready before the proposed
special session of Parliament this month. The draft on Tavan Tolgoi would have to wait for the
Spring session.
The Minister refused to share information on the negotiations as they were at a delicate stage. He,
however, hinted that the Mongolian side would not abandon its position indicated in 2007.
Source: Undesnii Shuudan
SMALLER PARTIES BREATHE FIRE ON OYU TOLGOI
With a possible agreement on the two Tolgoi deposits coming nearer every day, smaller political
parties decided on Monday to remind people that they are still in the business of creating confusion
and spreading disinformation. At a joint meeting they said their lack of representation in
Parliament and in the provincial assemblies did not mean that the nation‘s politics was only about
the MPRP and DP.
The Mongolian Democratic Development Party representatives decoupled the economic crisis in
Mongolia from the wider global crisis. They said MNT360-550 billion had been spent by the big
parties on the parliamentary election last year and it was this that had left the commercial banks
with no money to lend to businesses and individuals. That was the root cause of the crisis.
The Traditional United Party of Mongolia said the Chinese Government is now backing the Ivanhoe
Mines-Rio Tinto bid for Oyu Tolgoi as China has bought 37 percent of Rio Tinto shares. The
Government‘s decision to hand over mining deposits to foreign companies was a direct violation of
the national Constitution which says all resources below the ground belong to the citizens. Instead
of asserting its sovereign rights over the national property, the Government was busy claiming only
34 percent of it. Any international court would vindicate their stand, they asserted.
Source: Ardiin Erkh
February 20
NO SURPRISE IN DRAFT OF OYU TOLGOI AGREEMENT
The working group set up by the Government to negotiate an agreement with Ivanhoe Mines and Rio

3. Tinto has finished its work. The draft will be presented to Parliament soon, after the National
Security Council finishes reviewing it. If Parliament approves it as it stands, there will be no further
obstacles to work beginning on the mines. If, however, Parliament rejects the draft, either in its
entirety or in part or parts, the talks will have to be held again.
The agreement has 160 clauses placed under 16 main articles. The more salient points are given
below.
- Ivanhoe Mines Mongolia will operate in Oyu Tolgoi and the Mongolian Government would own 34
percent of the deposits. This percentage will increase to 50 within one year of extending the
contract. This is likely to be after 30 years, though the Government will neither confirm nor deny
that the present agreement is going to be for that period.
- The Mongolian share of the investment expenses and the interest accruing on them is to be
adjusted against the dividends that will be due to it in future.
- The Mongolian side will take USD125 million in advance.
- Ivanhoe Mines will pay taxes and other dues in accordance with the laws of Mongolia.
- The mined gold will be sold to the Central Bank at the market rate prevalent on the day of sale.
- Once the initial amount of investment plus an additional 29.9 percent of it has been recouped,
income from the project will be subject to 30 percent tax.
- A copper smelting factory will be set up in Mongolia.
- All the technology used for the mining will be non-hazardous to the environment and must meet
Mongolian and international standards. The excavation has to be efficient, with as little waste as
possible.
- An Umnugobi Regional Development Council will be established. The investor will be a member
and support its activity.
- Energy for the mines and everything to do with them will come from China for the first 4 years,
after which period domestically produced power will be used. For this a power station will be built
in a place advantageous to Mongolia. The investor will build a road connecting the Oyu Tolgoi mines
and the Gashuun Sukhait border port and also construct an aircraft landing strip at the mines site.
- At least 90 percent of the employees will be Mongolian.
Source: Ardiin Erkh
NAMBC CHIEF SAYS LENGTHY NEGOTIATIONS ON OYU TOLGOI SERVE A PURPOSE
Mr. Steve Saunders, president of the North America-Mongolia Business Council, has said that the
reaffirmation that the Mongolian Government would not push to seek more than 34 percent of the
project signals that it wants to attract more foreign investment. The agreement is not yet final,
―but I think the draft communicates to the global investor community that the Mongolian
Government is sticking with the 2006 law and not doing any other tinkering with the legal
environment," Mr. Saunders said.
Mr. Saunders said that the process, while lengthy, plays an important role. "Because this is such a
capital-intensive industry, both sides need the security and certainty of knowing what each side is
going to do, not just in the next 12 months but in the full period of the development and
operation," he said.
Source: Metal Bulletin
March 6
PARLIAMENT BEGINS DEBATE ON OYU TOLGOI AGREEMENT
Parliament on Thursday began discussions on an investment framework for the Oyu Tolgoi copper-
gold mine. Two days have been tentatively allotted for the debate but it may very well go on into
next week. Earlier, in what is widely seen as the last step in formalizing the agreement before it is
ready to be signed, the Government held a special meeting on Monday and decided to submit to
Parliament the draft as it had been revised in line with some National Security Council (NSC)
suggestions. It is believed that these changes have been discussed with the investors and the draft
before Parliament incorporates the fresh terms that have been agreed upon. Neither the
Government nor Ivanhoe Mines will talk about what changes the NSC wanted or about what the
finally agreed provisions are, but it is believed they relate to the term of the initial agreement, and
the rise in Mongolian ownership once that term is due for extension.
The mood on both sides is upbeat. Earlier in the week, Mr. B.Ariunsan, Mongolia‘s Deputy Minister
of Minerals and Energy, said at a meeting with investors in Toronto, ―This agreement is almost
done. It will be approved by Parliament, I think, at the end of this week.‖ At a separate
presentation at the same conference, Ivanhoe CEO John Macken said, ―We hope that the
Government will have something to announce very soon.‖ Still, a possibility of Parliament seeking

4. more revisions cannot be ruled out.
Source: Dow Jones Newswires, www.cnnmoney.com, www.bloomberg.com
(The NSC‘s objections to the draft originally presented to it can be found in the detailed report on
the proceedings of the last BCM monthly meeting. See BCM website, BCM News & Press.)
WINDFALL PROFITS TAX GETS ANOTHER NAME, LOSES SEVERITY
The draft of the investment agreement on the Oyu Tolgoi mines now being debated in Parliament
has 16 major provisions and four appendices. The Mongolian state‘s 34 percent share will be
nominally held by the state-owned company Erdenes MGL. Ivanhoe Mines and Rio Tinto will bear all
costs of exploration, and Erdenes will pay back its share of the investment expenses adjusted
against dividends as they fall due.
A separate agreement will be made with Ivanhoe Mines whereby it will pay USD125 million as
deposit to the Mongolian Government. This issue was the most difficult during negotiations. Finally
it was agreed that the money would be paid in installments. The deposit will earn interest and
repayment is to begin after four years, again to be adjusted against taxes that will become due.
Another difficult issue was that of the windfall profits tax. The Government agreed to repeal the
tax and proposed to replace it with what it calls an ―Additional Resource Fee‖. The two sides are
now agreed that if Ivanhoe Mines makes a profit of more than 29.9 percent, the Government will
levy a 30 percent tax on that profit.
The initial agreement will be for 30 years. After that the Government will increase its ownership to
50 percent. Ivanhoe Mines has a license valid for 30 years. This can be extended twice, for 20 years
each time.
During construction at least 60 percent of the workers will be Mongolian. This will rise to 90 percent
when production begins.
A copper smelter will be set up in Mongolia. The Government will nominate three members of the
Board and Ivanhoe six.
Source: en.news.mn
March 13
INVESTMENT DRAFT UNLIKELY TO BE DEBATED IN PRESENT SESSION OF PARLIAMENT
Hopes that the draft investment agreement on Oyu Tolgoi will be approved by Parliament in its
present special session received a setback on Wednesday when both big parties and partners in the
coalition Government announced that their MPs had reservations about certain provisions in the
draft and favored more time for deliberation. Both groups of MPs have separately and
independently discussed the draft three times.
Members of the MPRP group feel discussion of the draft should be postponed to the regular Spring
session of the legislature. The present special session was summoned to discuss only economic
issues and the agreement, but the MPs feel they want more information on several provisions in the
draft before they are ready to decide on it. They realize its approval is urgent for the country, but
they also think the matter is too important to be given less than the most careful consideration.
This is the opinion of the DP group, too. It has not said discussion should be postponed but, after
discussing the draft for the third time, members of the group have sought clarifications before
finally deciding on whether to support it or not. The group feels the matter must be reviewed with
the utmost care as the Oyu Tolgoi operations will largely determine the development of Mongolia in
the coming decades.
Source: www.business-mongolia.com, www.news.mn
RIO KEEN TO „RAMP UP‟ OYU TOLGOI, NOT CONSIDERING DELAY
Rio Tinto Group has denied a report in the Sydney Morning Herald that it was planning to slow
development of the USD3 billion Oyu Tolgoi copper-gold deposit in Mongolia. ―We‘re keen to ramp
up the project,‖ Rio Tinto Chief Executive Officer Tom Albanese said in e-mailed comments. ―I
welcome the fact that the Mongolian Government is moving ahead with the investment agreement
process right now.‖
Source: www.bloomberg.com
March 20
MPs ITEMIZE AREAS OF DISAGREEMENT
The MPRP group in Parliament has listed their reservations about the draft investment agreement. A
brief summary is given below.
1. The Constitution and the Minerals Law alike say that details of all mineral resources in an area

5. to be opened to mining and quarrying should be registered at the state reserve document. Also,
the technical and economic grounds (TEG) for exploiting the deposit should be set out, the
investment amount specified, and an assessment of the cash flow made as there is urgent need to
increase the revenue to the State budget and to the Mongolia Development Fund.
2. There should be a clear explanation of why the initial investment amount has been changed to
USD5 billion. The specifics of any increased investment must also be provided.
3. What the returns on the investment on the project will be to Mongolia must be clarified with a
full account of customs duties, VAT and all other applicable taxes, as also of expenses to be
exempted from taxation.
4. The draft mentions that financial matters have been settled in accordance with TEG. It is not
clear what will happen if the investor decides on major changes to the planned phases of
implementing the project. It is merely mentioned that he has only to inform the Minerals and
Energy Minister, but nothing is said about protections against the investor abandoning the project,
or keeping it idle for long, or any other eventuality that might defeat the purpose of the agreement
to benefit the people of Mongolia.
5. The following issues, related to infrastructure, must be unambiguously explained:
a. What are the water requirements for the project and what are the grounds for their utilization?
Have the estimated amounts and the sources been ratified by authorized entities of the
Government? Who will pay for supply and use of the water? It also has to be clarified how much of
the water needs will be met from surface water and how much from underground sources.
b. Similar issues relating to electricity supply must also be clarified, and the possibilities of
supplying water from the central water supply system to meet energy needs should be specified on
the basis of TEG, and must be included in the project financing.
c. All references to roads should be clearly spelled out.
6. It has to be clarified if any shareholder can pledge or transfer his shares to a third party or
transfer his duties and obligations under the agreement.
7. Article 4 of the draft agreement must be modified to comply with the Regional Development
Concept, so that attention is paid to development of the area around the mines, to supporting the
livelihood of local residents, assisting local and regional socio-economic programs, and to operating
at all times in a transparent and responsible manner.
8. The exact legal status of Ivanhoe Oyutolgoi Ltd., registered in the British Virgin Islands, has to be
ascertained. It should be clarified whether it has the authority to sign on behalf of the parent
company, and the exact duties and obligations of the various other legal entities, such as Rio Tinto
Peak, Rio Tinto Ltd., Rio Tinto International Holding, Ivanhoe Group, Ivanhoe Mining, Rio Tinto and
China Alco must be clarified.
9. The 30-year validity of the term of the agreement must be changed to one not exceeding 15
years. It also has to be made clear for how long the agreement can be extended after the initial 15
years.
10. The amount of advance to be paid by the investors is too low and the interest to be paid on this
too high. Both have to be reviewed.
11. The issue of increasing the Mongolian ownership from 34 percent to 50 percent should be
resolved in compliance with Parliament guidelines on terms of investments. Will there be
opportunities for Mongolians to own shares? The Mongolian side and the investors should have equal
representation on the Governing Board.
12. There should be specific statements of obligations under the agreement, so that they can be
assessed and enforced, and any dispute can be resolved quickly.
13. It is stated that the text of the English version of the Agreement shall be followed if there is any
discrepancy between the English and Mongolian versions. Therefore, all terms and clauses in the
translated documents must be identical in meaning, there should be no mistakes in the translation,
nor any typing errors. The texts must be edited and proofread by professionals selected by the
Ministry of Foreign Affairs.
Source: www.business-mongolia.com
IVANHOE WELCOMES PARLIAMENT ASSURANCE THAT AGREEMENT IS “PRINCIPAL PRIORITY”
Ivanhoe Mines has welcomed the assurance given last week by Mongolia's Parliament that
completion of an Investment Agreement for the development of the Oyu Tolgoi copper-gold mining
complex will continue to be a principal priority for the coalition government when Parliament
reconvenes in the first week of April. A statement issued by the press office of Parliament
confirmed that discussion of the draft agreement would resume when Parliament returns for the
Spring session. The statement added, "We will place the review at the top of the Government's

6. action agenda to help ensure that new investment is directed to Mongolia and new jobs are created
for Mongolians to help our economy weather the present international financial crisis.‖
Saying that the coalition Government believes that the draft agreement ―represents a significant
step forward in the development of Mongolia's mineral wealth to benefit present and future
generations of Mongolians, and the nation," the statement noted that the Standing Committee on
the Economy had made significant progress in discussing the agreement last week and that Members
of Parliament had requested that a small number of points be reviewed. A Working Group formed to
address the issues will continue its review during the break between the extraordinary winter
session of Parliament, which ended on March 13, and the beginning of the regular spring session of
Parliament in early April.
Ivanhoe Mines and Rio Tinto will continue their cooperation with the Working Group during the
short parliamentary recess to prepare additional information to facilitate an early approval by
Parliament. Following the completion of negotiations earlier this month, each page of the draft
Investment Agreement was initialed by representatives of the Mongolian Cabinet and of Ivanhoe
Mines Mongolia before the document was presented to Parliament as part of the final approval
process.
Source: www.ivanhoe-mines.com
AGREEMENT WILL BE A MILESTONE, REAFFIRMS MINISTER
Minister for Minerals and Energy D.Zorigt has told newsmen he does not know what form the
agreement on Oyu Tolgoi will finally take. A working group has been formed to see if the various
suggestions put forward by MPs can be accommodated but he would neither hazard a guess what its
recommendations would be, nor say anything about the possible reaction of the investors.
He personally had no doubt that signing the agreement would be a milestone and would open the
doors to other big investments. Earlier, before Parliament went into recess, Mr. Zorigt had
answered several questions from members of the Standing Committee on the Economy. He
explained that according to the Mineral Law any investment agreement for more than MNT300
million must be for a minimum of 30 years, so if the Oyu Tolgoi and Tavan Tolgoi agreements were
to be for only 15 years, as some were demanding, Parliament will first have to amend the Mineral
Law.
He said the Government could have taken loans from abroad to operate Oyu Tolgoi by itself but
that would have carried huge risks, so it chose to have Ivanhoe as partner.
Source: www.news.mn
March 27
WORKING GROUP ON OT DRAFT ADOPTS PLAN OF ACTION
The Working Group set up to finalize the draft investment agreement on Oyu Tolgoi in the light of
the suggestions and demands made by MPs held its third meeting last Friday and adopted its plan of
work. It decided to make suggestions on the need to improve regulations and laws relating to the
minerals, geological and mining sectors; to comment on the Oyu Tolgoi investment agreement; to
study the prospects of starting immediate work on the Tavan Tolgoi coal deposits; to include the
views and comments of NGOs and social organizations; and to ensure compliance with the terms of
international conventions to which Mongolia is a signatory. Mr. H. Badamsuren, MP and head of
working group, told media that adoption of the action plan will lead to quicker progress. The group
is expected to submit the revised draft to Parliament for discussion in the Spring session.
Source: Onoodor
April 3
OT DRAFT AT 12TH PLACE ON PARLIAMENT'S ORDER OF BUSINESS
Parliament Speaker D.Demberel has issued an ordinance on the order in which issues are to be
discussed at the Spring session of Parliament. The agenda puts discussion of the draft Oyu Tolgoi
investment agreement at the 12th place.
Source: Montsame
April 10
CHANGES IN DRAFT WOULD MEAN RENEWED NEGOTIATION
A high-level delegation from Ivanhoe Mines told Speaker D.Demberel last week that the draft Oyu
Tolgoi investment agreement was a complex document, based on mutual consent and negotiation,
and "if we now change a single provision or a single clause, the whole structure will be disturbed
and the whole exercise will have to be started again".

7. Mr. John Macken, CEO of the company, said the agreement had been drafted "after long
negotiations" and "in "full cooperation with the Government". One could not expect accord on every
single thing, but "well known analysts conclude that the draft is beneficial to the Mongolian
Government", he said. The company team pointed out that the Mongolian share of the investment,
as 34% owner of the project, is to be made by Ivanhoe Mines, making the project risk-free for the
Mongolian side. On the other hand, most of the reserve is 1-2 km under the surface, which means
the investors are saddled with a lot more risk.
Mr. Macken wanted it to be understood that the project was finally going to start at a time of
recession. "Our Board thinks there should be no further delay. The project was initiated in 2003
when commodity price was low, but then it went up and has fallen now. It is the right time to build
the mine so that we are ready when the next wave of commodity price boom comes," he said.
If the agreement is signed "in the near future and funding questions are solved", construction can
start in the summer, he said. This will give employment to many Mongolians. "Our mission is to
make this project one of the top three in the world. We have the experience, the know-how and
the reputation," Mr. Macken said.
Earlier, the Speaker had assured the delegation that Parliament was "in favor of adopting a draft
investment agreement" and that is why it has been placed on the agenda of the Spring session.
However, "party groups and standing committees" wanted to review "some issues" in the present
draft "more carefully". When this is done, the Standing Committee on the Economy will "consider
their suggestions" and present a revised draft, if necessary, to the Government.
The Speaker began the meeting by assuring his visitors that MPs, in party groups and in standing
committees, had debated the provisions of the agreement in depth but wanted more information on
a few matters to make sure that it was "mutually beneficial and workable". He hoped the present
meeting would help "develop, update and upgrade mutual understanding".
Mr. Demberel said the Mongolian side considered the interest rate on the prepayment made by the
investors to be too steep, and also "wanted a copper smelting factory as the project had good
prospects, with the large reserves in the area, their high grade and increasing copper demand in
the world market".
Another point mentioned by the Speaker referred to the clause that capped taxes to be paid at 68%.
"To make it a fair deal, there also should be a clear statement on the bottom level of taxes that can
be imposed," he said. He also wanted it to be made clear that "the Mongolian side will never
receive less than 55% of the profits". He felt it would be "appropriate if both sides agreed upon a
tax on dividends, according to international practice and standards, instead of waiving it".
The Mines delegation comprised Mr. John Macken and Mr. John Fognani, Chief Executive Officer and
Executive Vice President respectively of Ivanhoe Mines, Mr. Keith Marshall, Executive Director of
the Oyu Tolgoi project, and Mr. A.Munkhbat, Vice President and Executive Director of Ivanhoe Mines
Mongolia Inc.
MP Ts.Bayarsaikhan, Head of the Standing Committee on the Economy, MP Kh.Badamsuren, MP
G.Zandanshatar, and adviser to the Speaker D.Davaasambuu also attended the meeting.
Source: Media Relations Department of Parliament
NOTE: This report is based on the authoritative version of the discussion as issued by the Speaker's
Office. As will be seen, the Ivanhoe Mines team did not use any threat or issue an ultimatum. It
merely pointed out that the draft had been prepared on the basis of consensus after prolonged
discussion, and any change will mean renewed negotiation. This will inevitably lead to more delay
in beginning work on a project vital to Mongolia's economy.
MINERALS MINISTER PLAYS DOWN TALK OF IVANHOE ULTIMATUM
After some newspapers had reported that senior officials of Ivanhoe Mines "warned" Parliament
Speaker D.Demberel on Thursday that there would be no agreement if anything was to be changed
in the draft now, Minister for Minerals and Energy D.Zorigt was asked on Monday if the Ivanhoe
team had indeed said there would be no further negotiation if the draft was revised.
Mr. Zorigt said he was not present at the meeting, but had also not heard anything about Ivanhoe
Mines making any sort of final statement that it would not accept any changes in the draft. He was
sure the Speaker had explained the present status of the draft, the points on which MPs had
reservations, and that the amended draft would be ready soon. "I do not think the investors said
everything is over if anything is touched," the Minister said. There is widespread talk that about 10
changes are going to be made in the draft before it is submitted to Parliament.
Source: www.news.mn

8. MPRP GROUP PROPOSES 16 AMENDMENTS TO DRAFT AGREEMENT
Reviewing the draft agreement at a meeting on Wednesday attended by Prime Minister S. Bayar,
the MPRP group in Parliament proposed 16 amendments before it is submitted to Parliament for
discussion. Among these are: the initial agreement will be for less than 30 years; the advance
payment of USD125 million will be increased; and the total amount of investment will be revised.
The group hoped the working group now reviewing the draft would complete its work soon so
Parliament can begin discussing it without delay.
Source: Zuunii Medee
April 17
STANDING COMMITTEE KEEPS PUTTING OFF DEBATE ON OT DRAFT
The Standing Committee on Economic Policy decided on Wednesday, for the second time this week,
to put off discussion of the Oyu Tolgoi investment draft. No reason was given why the committee
was not sticking to the agenda.
Source: www.business-mongolia.com
DP GROUP “CANNOT APPROVE OT AGREEMENT THE WAY IT IS NOW”
The Democratic Party group in Parliament ―does not find it possible to approve the draft Oyu Tolgoi
investment agreement the way it is now‖, its Head, Mr. Ch.Saikhanbileg, told media on Monday,
adding that ―the Government and the investors must provide more detailed information‖.
The main objection of the group was that the technical and economic estimates were too
imprecise. For example, it is not clear when the smelting plant will be built. ―Even small businesses
plan their investments steps in advance, but the draft leaves important things vague,‖ Mr.
Saikhanbileg said. He felt members would find it easier to assess the merits of the draft when they
debate it in Parliament only when all facts and figures were available to them.
Source: www.news.mn
April 24
OT AGREEMENT HAS BEEN POLITICIZED, SAYS MP
MP Ch.Khurelbaatar, a former adviser to the Prime Minister and State Secretary of the Ministry of
Finance and now Minister of Fuel and Energy, has said the agreement is no longer an economic issue
but has become a pawn on the political chessboard. ―Some people would like to keep the game
running,‖ he said. He agreed that some details in the draft needed further checking, clarification,
and correction but felt even after this was done, there would be delay before Parliament discussed
and ratified this important agreement.
Source: www.business-mongolia.com
MPs WISH TO STUDY NEW REPORT ON OYU TOLGOI
Both party groups in Parliament discussed the draft agreement on Oyu Tolgoi this week. The Head
of the MPRP group told reporters that they have learned the advisor to the Speaker of Parliament
has made an economic reassessment of the Oyu Tolgoi project based on proposals and
recommendations by various international organizations. Members of the group want to study this
reassessment before discussing the draft agreement again. The group is worried about the backlog
piling up in Parliament, but wants the draft to be approved in the present session, after MPs‘
concerns have been met.
The DP group discussed the draft for the fifth time, and said it wants more time ―to review each
provision and article in depth‖. Mr. D.Odkhuu, head of a working group set up by DP to review the
draft, has said while he sees ―no possibility‖ that the party will approve the draft in its present
form, there is general agreement on the need to adopt an agreement so that mining may begin and
that his party‘s MPs hope the investors will realize the legitimacy of the suggestions they make and
agree to changes.
Source: Odriin Sonin, Zuunii Medee, Ardiin Erkh
ADVISOR CLARIFIES DETAILS OF SPEAKER‟S TALKS WITH IVANHOE TEAM
Clarifying some details of the talks earlier this month between Parliament Speaker D.Demberel and
an Ivanhoe Mines delegation led by CEO John Macken, Mr. D.Davaasambuu, Advisor to the Speaker,
has said Mongolia did not intend to place any obstacles to any agreement that would be favorable
and beneficial to both sides. He said the Speaker had said at the meeting that the interest rate on
the USD1.7 billion credit to be taken by Mongolia from the investors, to be adjusted against future
dividends on its 34 percent equity, was too high. ―The country will face a risk if over a long period

9. of time dividends are to be used to repay the loan and the interest,‖ the Speaker had said, urging
lower interest rates. Mr. Macken had said the issue could certainly be reviewed. ―This means that
the investors accepted the proposal positively,‖ Mr. Davaasambuu said.
Mr. Macken did not dispute that ―such a big project needs a copper smelter‖, but said it could be
built some time later, and not right at the beginning. He referred to his own long experience in
mining and to the reputation of the investing companies and urged the Mongolian side to have faith
in their capacity to run ―such a large operation‖, and to ―provide them with an opportunity to be
Mongolia‘s partner on its way to prosperity‖. The Speaker‘s Advisor said the management skills of
the investing companies would play a key role in using the international commodity market to the
best interests of Mongolia.
Source: Onoodor
WITH LOANS COMING, MINING AGREEMENTS LOSE URGENCY
Nearly USD1 billion in foreign loans and grants have eased budgetary pressure and given the
Mongolian Government breathing space to negotiate huge mining contacts. At least in the short
term, that leaves the Government less dependent on revenues from mining contracts to address the
country's immediate needs.
In the longer term, the Oyu Tolgoi and Tavan Tolgoi mining projects currently under negotiation
will be vital to landlocked Mongolia's ability to repay the loans, as well as maintain its
independence from its two giant neighbors, China and Russia. These countries are already the
biggest source of loans, although Mongolia has also sought money from other lenders in line with its
"third neighbor" policy of keeping China and Russia at bay. "While the Government will have to
repay the loans over time, there is no real urgency to do the mining deals because of these
borrowings," said Mr. Arshad Sayed, country manager for the World Bank in Mongolia.
Source: www.reuters.com
May 1
OYU TOLGOI “HAS BECOME A BURDEN, AND MUST MOVE FORWARD”, FEELS INVESTOR
Mongolia's ambition to be a mining powerhouse may be hampered if it fails to quickly approve the
Oyu Tolgoi copper and gold project that has become a symbol of the difficulties of investing in the
country. A final decision on the joint project between the Government and Ivanhoe Mines and Rio
Tinto is expected during the present parliamentary session. At issue is the extent of ownership
Mongolia will ultimately demand, and the precedent that demand will set for future negotiations
with regional and global players such as BHP Billiton and China Shenhua Energy Co Ltd -- who are
hungry for a slice of the country's vast untapped mineral deposits.
"Oyu Tolgoi has become a burden, and until Oyu Tolgoi is approved, nothing else is going to move
forward," Mr. Gerald Harper, senior vice president, Mongolian operations, for uranium miner
Western Prospector Group Ltd, said at a recent conference in Hong Kong. "Mongolia is very much
focused on the concern that time is money. Given maybe a two-year delay before we get an
investment agreement, followed by a three-year construction period, there's the possibility that
we'll miss the next upcycle."
Government officials say the delays are a result of wanting Oyu Tolgoi to set an example for other
major deals that follow. "This contract should become an exemplar and model contract for the
exploitation of other strategically important big deposits," Mr. Kh. Badamsuren, Mongolian MP and
leader of the Oyu Tolgoi working group, said. "Some issues needed to be clarified," he added,
referring to a combination of ownership, taxation and infrastructure-related issues that have held
up the decision. "It should be perfected and discussed and approved promptly."
Source: www.reuters.com
BOTH PARTY GROUPS SUBMIT REPORT ON OT DRAFT AGREEMENT
After what it called was a ―clause-by-clause review‖, the DP group in Parliament has finally
completed its discussion on the draft Oyu Tolgoi investment agreement. Its report containing 18
recommendations was submitted to the Parliamentary Working Group on the matter which then
passed it on to the Standing Committee on the Economy. The MPRP group has already submitted its
comments.
Source: Undesnii Shuudan
May 8
AGREEMENT WILL BE BENCHMARK FOR FUTURE INVESTMENTS, SAYS MP, EXPLAINING DELAY
Mr. Kh.Badamsuren, head of the MPs‘ working group set up by the Standing Committee on the

10. Economy to recommend revisions to the agreement in the light of all the suggestions received, told
newsmen after a meeting of the group on Monday that the work was taking long ―because it is so
vital for the national interest‖. MPs are working hard, he said, reviewing every suggestion with care
and deliberation. The MPRP and the DP groups have sent their comments and ―we are in touch with
concerned working groups of Parliament and the Government‖. Since there are many aspects to the
issue, several standing committees will discuss them.
―We are aware that Parliament must take a decision without much delay and we have been asked
to submit our report by this week,‖ he said. MPs also realized that ―future investments will depend
on what agreement is signed on Oyu Tolgoi. We are doing what we can to make it a good
agreement, attractive to both sides,‖ he said. It was important not to repeat earlier mistakes, and
for that some current laws and regulations might have to be amended, Mr. Badamsuren indicated.
Source: Undesnii Shuudan
RAISING ROYALTY RATES IS A “BIZARRE” SUGGESTION, SAYS IVANHOE EXECUTIVE
The Senior Vice President of Ivanhoe Mines Mongolia Inc. (IMMI), Mr. A.Munkhbat, has termed as
―bizarre‖ the reported suggestion by the Mongolian Confederation of Trade Unions that the
Government should increase the royalty rates for Oyu Tolgoi extractions to up to 15 percent. Even
the existing rate of 5 percent is the highest in the world, as the general international practice is to
charge around 2.5 percent as royalty fee, he said. Mr. Munkhbat wondered if Mongolia could expect
any foreign investment in mining if it increased royalty rates, while retaining the 68 percent
windfall profits tax, as well as claiming 34-51 percent of the equity in mines discovered with state
funds. He was also unhappy about recent suggestions that the mining law should be amended
before the draft Oyu Tolgoi agreement is finalized, as ―such amendments are not easy work, and
time is money for investors‖.
Source: Undesnii Shuudan
May 15
STANDING COMMITTEE FORWARDS TO GOVERNMENT PROPOSALS ON DRAFT OT AGREEMENT
The Standing Committee on the Economy last week discussed the 11 recommendations submitted by
two working groups set up to review proposals and suggestions on the draft agreement. These were
received from party groups in Parliament, individual MPs, the media, and NGOs as well as
concerned citizens. The committee decided to forward these recommendations to the Government
for consideration to be incorporated in the draft before it is submitted to Parliament for approval.
They include the following.
The draft includes references to some taxes that are new and also to some at variance with present
tax regulations, but does not explain how these would be enforced.
Both party groups in Parliament have proposed to cut the initial agreement period from 30 years to
15 years, but this can be done only after amending the current minerals law. Also, according to the
draft the initial 30-year period could be extended for two 20-year periods, thus making it possible
that the agreement will be valid for 70 years. This should be clarified.
The draft is also not clear about just when Mongolia can demand raising its 34% stake to 50%. At one
point it says this can be done after Mongolia has repaid the amount invested on its behalf, but
elsewhere it says this can be done a year after extending the initial agreement.
Read more…
The arrangement of the quantum of money that is to be spent by the investors as Mongolia‘s 34%
share of ownership and that will be adjusted against future dividends was not of benefit for the
country. It was also not clear how the figure of USD5 billion had been arrived at as the investment
share equivalent to 34% ownership. The USD125 million advance payment to Mongolia carries too
high an interest rate considering the amount is not very big.
The area where the agreement will apply must clearly be limited to the Oyu Tolgoi copper and gold
deposit as registered in State documents and should not extend to any other area of the investor‘s
exploration and extraction work, nor should the various tax waivers offered in the agreement be
allowed to be claimed for any work anywhere outside the specific deposits covered by the
agreement.
The details of the work schedule on the proposed copper smelter to be set up, its capacity, and
sources of its funding should be included in the agreement.
Since the draft says that in case any conflict arises between the English and Mongolian versions of
the agreement the former will prevail, utmost care should be taken to see that both versions are
identical in language and content and both sides must consent to regard both versions as binding.

11. The investor will provide regular and adequate information about the project‘s negative impact on
the environment to the local people. The environmental restoration program must be transparent.
Members were critical of the poor quality of the feasibility study. The Minister of Natural Resources
and Energy, Mr. D.Zorigt, said an updated and upgraded version of the study has now been
submitted to Speaker D.Demberel.
Source: Zuunii Medee, www.news.mn, www.business-mongolia.com
MPs SAY OT ADVANCE PAYMENT IS ACTUALLY A “HIGH-INTEREST LOAN”
A group of MPs told a Press conference on Tuesday that according to the draft agreement as it
stands now Mongolia will be lent USD1.7 billion to acquire 34 percent ownership of the project and
pay USD4.2 billion by 2023 to settle the debt. It will enjoy dividends only after that. Among those
who spoke to the media were the Head of the Standing Committee on the Economy, Mr.
Ts.Bayarsaikhan, the leader of a working group set up to study suggestions and proposals about the
agreement, Mr. G.Zandanshatar, and two of its members, Mr. D.Damba-Ochir and Mr. D.Baldan-
Ochir.
They refuted the popular perception that Mongolia is currently losing USD1 million a day as there is
no work on the project, saying all income would go towards repayment of loans. In this connection
they said the USD125 million which Mongolia will receive is ―not so much an advance payment as a
high interest loan.‖
Mr.Zandanshatar mentioned that the start of the project would have some immediate benefits.
Some 3,500 new jobs will be created and the USD125 million advance payment would help pay for
the distribution of the Motherland Treasure to elder citizens.
Read more...
Admitting that the eyes of international investors were on what form the agreement takes, the MPs
asked everybody to understand that the issue is too complex and important to be decided in any
hurry. Oyu Tolgoi has 32 million tons of copper and 1,200 tons of gold, making it three times bigger
than Erdenet. They feel it would be right to require the company to start operations in 2011 and
work with full capacity by 2014. If the company cannot do this, the contract will be void.
Source: Ardiin Erkh
May 22
IVANHOE OFFICIAL DISPELS MISGIVINGS BASED ON MISPERCEPTION
Mr. A.Munkhbat, Vice President, Ivanhoe Mines Mongolia, answers some questions from a journalist.
Many MP’s want the draft agreement to be signed with the parent company, Ivanhoe Mines
Ltd., and not with Ivanhoe Mines Mongolia Inc. What do you think of the suggestion?
The original idea, as agreed on in the draft of the agreement prepared in 2007, was to conclude the
investment agreement with three companies - Rio Tinto, Ivanhoe Mines Limited, and Ivanhoe Mines
Mongolia Inc. However, the current Minerals Law says that the investment agreement has to be
made with a license holder and that is why only Ivanhoe Mines Mongolia was chosen. This was to
preempt any criticism that the laws were being violated. I think the investors will have no problem
accepting any Mongolian suggestion that the parent company be involved. The Minerals Law would
also not be breached if three companies from the investor‘s side, and not just the license holder,
sign the agreement. This was, in any case, the original idea.
MPs have expressed concern that Ivanhoe Mines Mongolia Inc is an off-shore company. Are
they right to worry?
This should not cause any worry among Mongolians. The company is properly registered in Mongolia
to develop a deposit located in the territory of Mongolia. It will pay all taxes and fulfill all
obligations in compliance with Mongolian laws. Being off-shore is a kind of protection to reduce the
tax burden on the parent company -- that is registered in another country -- after it has paid all
taxes and fees to Mongolia. The intention is not to evade tax, but to claim tax benefits in a
perfectly legal manner. The Mongolian side need have no fear that we shall not pay taxes and
disregard legal obligations here. All it means is that the parent company gets some tax benefits
abroad. Mongolia does not lose anything because we are an offshore company.
What do you think of the proposal by several Members of Parliament to amend the minerals
law so that resources would be added to the registered capital of the company?
Yes, some MPs are suggesting that ratification of the investment agreement should wait until the

12. minerals law is first amended. There can be no question of treating underground resources as part
of the registered capital. There is no such provision in the Constitution or in the minerals law.
Actually, treating underground resources as forming part of the registered capital of an entity or a
company will be a blatant violation of the Constitution which is clear that all such mineral wealth is
the property of the people.
Read more...
There is a common feeling that Ivanhoe Mines is selling Mongolian wealth to its Government
that it is selling 34 percent ownership of wealth it already owns. Perhaps you see it
differently?
We are talking about an investment of billions of dollars. The Mongolian Government is entitled to
34 percent ownership without paying anything. Ivanhoe Mines Mongolia Inc. will use its funds to pay
for the proportionate investment of the 34% owner. The agreement offers the 34% ownership to the
Mongolian Government free, but every shareholder has to pay their part of the investment. Since
the Mongolian Government does not have that kind of money right now, we shall be paying for
them. What we pay will be adjusted against dividends as they fall due. This is exactly what was
done in the case of the Erdenet joint venture, where Mongolia acquired 50 percent ownership free
of charge and Russia invested on its behalf. That investment was part of our ―great debt‖ and
nobody seemed to mind.
Why are the negotiations getting so complicated?
Some people are distorting the issue, maybe deliberately, maybe because of their lack of
understanding. For example, some fresh proposals are contrary to Constitutional provisions. Some
are suggesting that if the two sides cannot reach an agreement, the Government will confiscate the
investor‘s license, sell it at a fresh auction and pay a certain amount to the original license holder
as compensation. However, confiscation of property is prohibited under the Constitution. Mongolia
is a democratic country and I hope that Members of Parliament will apply their mind to the issues
involved with proper seriousness.
Some MPs have said that the underground wealth of Mongolia is being sold at foreign stock
exchanges; is this the case?
This shows a clear lack of understanding of how things work. Shares of many companies that
operate mostly in developing countries are sold at stock exchanges of America, Europe and Asia.
There is no complaint that the mineral resources of any of these countries are thus being sold off.
No minerals are sold when shares are traded. This is just a way of raising capital by advertising how
profits can be made in a particular country rich in minerals by investing in mining operations there.
Besides, the money made from sale of shares at a public issue at a stock exchange cannot be kept,
but is utilized as the source of financial investment and has to be paid back in any of a variety of
ways. If there was enough capital in Mongolia waiting to be invested, the mining companies would
certainly offer shares here. There is no economic justification to impose a condition that a
percentage of shares has to be offered in the country. That is not the way the system works.
What about complaints that the feasibility study of the project was not adequately detailed?
It all depends on what exactly you expect from a particular feasibility study. To date, Ivanhoe
Mines has completed three feasibility studies, and submitted all of them to the Government, the
first in January, 2004. The second, an integrated development plan of the deposit, was submitted
in October, 2005, while the third was worked out last year. It is under translation into Mongolian
and would be ready to be submitted to the Government by the end of this month. The English
version was delivered in March and the party groups in Parliament have it, too. However the
investment agreement has to be concluded in order that the feasibility study can be finalized. A
clear idea of the tax rates is essential to determine whether implementing a project is
economically rewarding or not. In the present case, for example, the investor as well as banks and
other financial institutions are certain that if the windfall profits tax stays there would be no
economic incentive left.
The Russian media report that Russia has agreed to participate in developing Tavan Tolgoi
and Oyu Tolgoi deposits. What do you think about this?
I understand that a joint company will be established with investment from state owned entities in
both Mongolia and Russia to develop infrastructure required for utilizing large deposits in Gobi
region. I assume that is all that the joint venture will do and not directly participate in mining
operations. The wrong understanding possibly arises from the fact that Erdenes MGL, which holds

13. the license for Tavan Tolgoi and which is expected to be the official partner of Ivanhoe Mines
Mongolia Inc, signed the agreement with a Russian company to establish that joint venture to build
railroads. But that company is not going to work in the mining sector. Also, the name of the entity
is Infrastructure Development.
Source: Ardiin Erkh
IVANHOE READY FOR AN AGREEMENT “EQUITABLE AND FAIR TO BOTH SIDES”
Announcing results and reviewing its operations in the quarter ended March 31,Ivanhoe Mines Ltd.
has said that, along with its strategic partner, Rio Tinto, it remains prepared to complete an
agreement on Oyu TolgoiProject with the Government of Mongolia that is equitable and fair to both
sides. The companies are also continuing to assess the implications for the project and its
development schedule of the delays in approval of the agreement, the sharp declines in certain
commodity prices, and continuing uncertainty in international financial markets.
Source: www.ivanhoe-mines.com
May 29
VICTORY COULD HELP SMOOTH NEGOTIATIONS
The victory of Mr. Ts.Elbegdorj could help smooth tortuous negotiations between the Government
and foreign mining companies hoping to gain access to Mongolia‘s rich mineral reserves, according
to western mining executives. Mr. Elbegdorj campaigned on an anti-corruption platform and has
promised to share more of the country‘s mining wealth with the Mongolian public. ―Elbegdorj was a
pretty ineffectual prime minister, but is generally viewed as a cleaner politician who isn‘t too
entwined with local business interests,‖ said a senior mining executive. ―On balance this is probably
a positive outcome [for international investors].‖
Read more...
The biggest challenge facing the new president will be how to revive economic growth and raise
living standards for the more than one third of Mongolia‘s 2.7m people who live below the poverty
line. Sandwiched between two giant and increasingly acquisitive neighbors, Mongolia has tried to
follow a ―third neighbor‖ policy to balance western influence against Chinese and Russian
interference in its affairs. Russia in particular has intensified its efforts to secure Mongolian assets
as part of its strategy to pull its former communist satellite back into its sphere of influence. For its
part, China is investing USD300m in roads and railways linking the country to the Chinese-ruled
region of Inner Mongolia.
Source: The Financial Times
RESULT COULD COMPLICATE OYU TOLGOI DEAL, FEAR ANALYSTS
Analysts say the outcome of the presidential election could complicate a pivotal mining deal. "The
Mongolian people have made a choice for their rights and freedoms. Mongolians have made a choice
for the material wealth that rightly belongs to them," Mr. Elbegdorj told his supporters at a victory
rally. Mr. Elbegdorj is expected to be more open to Western ties in foreign policy, as part of a "third
neighbor" strategy to counter the influence of Russia and China, but analysts say his populist
support could make policy making related to foreign involvement in the economy unpredictable. His
populist leanings could lead to a tougher stance in dealings with foreign investors in the mining
sector.
The most immediate question is whether an agreement on the Oyu Tolgoi project will be held up
further after years of negotiations. The Government hopes to use the deal as a template for future
mining projects, meaning whatever happens with it will have widespread implications.
Read more...
―I think it does not bode too well for the proceedings over Oyu Tolgoi," said Mr. Damien Ma with
political risk consultancy Eurasia Group. With Mr. Elbegdorj in the presidency, the negotiations
could potentially be delayed further, and Mongolia could also push harder on some of its positions
in the talks, Mr. Ma said. Failure to seal the deal quickly could hamper Mongolia's ambitions of
becoming a mining powerhouse and using its vast deposits of copper, gold, uranium, lead, zinc, and
coal to help pull its nearly 3 million people out of poverty.
Source: www.reuters.com
June 19
ELBEGDORJ PREFERS 50% PROFIT SHARING TO PART OWNERSHIP IN OT
In an interview on the eve of assuming office as President, Mr. Ts. Elbegdorj said he wanted to

14. change the proposed mining deal. ―I think an equity share is not a good proposal,‖ he said,
suggesting instead that the Government take 50 percent of the profit.
―I think now we are approaching the final moments to get a good agreement,‖ Mr. Elbegdorj said.
―I would like to say to the foreign investors, do not close the door, there are still opportunities.‖
Mr. Elbegdorj called reaching an agreement his ―first priority‖ on the economic front, though he
gave no more specific time frame for a deal than the next three years. This agreement is the first
agreement,‖ he said. ―If we make a good agreement, this will be an example for exploiting other
big deposits and there is no space to make mistakes.‖
Mr. Elbegdorj also proposed that the government consider changing a 2006 windfall profit tax that
imposes a rate of 68 percent on revenue when copper prices exceed a certain amount per ton.
Instead, he suggested a graduated system, for example a rate of 40 percent when copper prices
reach USD8,000 per ton and 60 percent when they reach USD10,000 per ton. ―I think one big high
rate is not very wise,‖ he said.
Source: www.bloomberg.com
“TWO NEIGHBORS” BLAMED FOR DELAYING TOLGOI AGREEMENTS
Senior Democratic Party MP, Mr. E.Bat-Uul has blamed Mongolia‘s ―two neighbors‖ for the delay in
reaching an agreement on investments on the two Tolgoi deposits. ―We wouldn‘t be begging
everybody for money if mining there had begun,‖ he said, adding, ―We got to tell the truth to the
people. The neighbors do not want to let us out of their control and do not wish western mining
giants to work here, as they think that may then allow the governments of the USA, Japan,
Australia and such countries to have more influence in Mongolia.‖
Source: The Mineral News, MNMA
July 3
FINAL MONGOLIAN DEMANDS ALMOST READY, OT AGREEMENT POSSIBLE BEFORE NAADAM
There is widespread expectation that the impasse over the Oyu Tolgoi investment agreement will
be resolved before Naadam. Minister of Minerals and Energy D.Zorigt told the MPRP group in
Parliament on Monday that considerable progress has been made in finalizing the position of the
Mongolian Government on the issue, on the basis of all the suggestions and recommendations from
various quarters, including the Standing Committee on the Economy and the working group set up
by Parliament. Informal discussions have continued to be held with the investors and the final
Mongolian version, once approved by Parliament, is expected to be then negotiated with bright
chances of an early settlement.
The final version of the Mongolian position, to be submitted to Parliament, calls for 34% Mongolian
ownership, no tax waiver, and an advance payment of USD225 million with lower interest rates. The
demand for a 55% share of the profits has not yet been decided. The Government wants Rio Tinto
International Holding and Ivanhoe Mines Canada to be co-signatories along with Ivanhoe Mines
Mongolia Inc. Two years will be given to the investors to raise funds and five years to complete all
construction and start operating to full capacity.
Since Mongolia does not have the resources to provide all the electricity needed for the project,
alternatives have been proposed. Mongolia will build the roads, but their maintenance will be the
responsibility of the project. The water supply to the project will be extended to cover the needs
of herders and the local population. An annual audit will be made and the report will be submitted
to the state auditing authority.
Source: www.business-mongolia.com
TALK IS THAT IVANHOE MAY WIN APPROVAL IN MONGOLIA
Another political deadline is looming for Ivanhoe Mines Ltd. to win approval for its flagship copper-
gold deposit in Mongolia, and there is growing speculation from investors it may actually happen
this time. It follows reports out of Mongolia that parliament could sign off on an investment
agreement to develop the giant Oyu Tolgoi project this month, before it goes on holiday.
Otherwise, a long wait is possible.
Source: The Financial Post, Toronto
July 10
PARLIAMENT AGREES TO DISCUSS OT AGREEMENT, BUT IT CAN ONLY BE NEXT WEEK
After a discussion spanning almost the whole of Thursday, Parliament agreed by 39 votes to 13 to
accept for discussion the revised draft agreement on Oyu Tolgoi. The draft now goes back to the
Standing Committee on the Economy which will review the suggestions made at today‘s session and

15. then return the draft to Parliament. All this will be after Naadam, and most likely on July 14.
The members who voted against discussing the draft in its present form were from both DP and
MPRP. They and others sought information and clarification from the working group which had
prepared the revised draft. Their reservations extended to several areas. Some wanted a provision
to be included that would allow the Mongolian side to cancel the agreement if the project does not
start in two years, others wanted a similar right to cancellation if the investor side transferred its
shares without proper notification. There was demand for regular audit by an international firm.
Several MPs pressed for Mongolia to borrow money from other sources to pay for its share of the
investment expenses as 34 % shareholder in the project.
Earlier, the Standing Committee on the Economy had decided after a meeting on Tuesday afternoon
to submit the final version of the draft to Parliament. Both the MPRP and the DP groups in
Parliament had previously announced their acceptance of the provision that the Mongolian
Government would own a 34 percent share in the project. This effectively ended the debate on
whether Mongolia should have stakes in the project or will insist on revenue from taxes and profits
only.
Any hopes that the draft will be approved before Naadam are now gone. President Elbegdorj had
said on National TV that Parliament should approve the draft before Naadam. However, once
Parliament approves the present document, signing the agreement would only be a matter of time
as all indications are that the suggested changes were discussed with the investors and only those
acceptable to them have been incorporated.
Read more…
On Tuesday the Standing Committee sought a more reliable estimate of the total reserves of Oyu
Tolgoi but did not get a satisfactory report. The Mining Authority put them at 22 million tons of
copper and 800 tons of gold, but said the copper reserves could turn out to be 20 million tons more.
Some independent experts said Oyu Tolgoi has 38 million tons of copper and 1,000 tons of gold.
Several members of the committee were not happy that the initial agreement would be for 30
years, at the end of which it could be extended. Minerals and Energy Minister D.Zorigt explained
that the investors were firm in rejecting the suggestion that the initial term of the agreement
should be for 15 years, after which the Mongolian share would be raised from 34 percent.
The MPs in the committee wanted to change the provision of the draft that says Ivanhoe Mines
Mongolia Inc. does not have to sell any of the mined gold in Mongolia. They wanted at least a part
to be sold to the Central Bank. The Minister said this could be done only after a processing plant
had been built.
On Wednesday, Ivanhoe issued a statement cautioning that some reports by media and other
sources ―include inaccurate or incomplete information on important details‖ about the status and
provisions of the draft agreement. The draft document is a ―comprehensive‖ agreement that will
cover all aspects of the huge project, including things like infrastructure, power supply and
production timelines. Once Parliamentary approval is received, the partners will need to put
financing plans in place for the mine.
Ivanhoe has said that it expects construction of the mine to take 30 months, once the investment
agreement has received final approval. The company has already begun some preconstruction work,
including sinking of the first vertical shaft. The first stage of construction will involve building an
open pit mine, an ore-processing plant, a power station and the early stage development of an
underground mine. The second stage - completion of the underground mine and expansion of the
processing plant - will be paid for out of operating cash flow remaining after government fees and
taxes.
According to a 2005 study, the Oyu Tolgoi mine could produce more than one-billion pounds of
copper and 330,000 oz of gold a year for at least 35 years. Peak annual production of more than
1.6-billion pounds of copper and 900,000 oz of gold is projected to be reached six years after initial
production begins. Goldman Sachs has estimated that the Oyu Tolgoi project will make a profit of
USD29 million in 2010, of USD105 million in 2011, and of USD89 million in 2012. If a processing plant
is built, the profits will be USD240 million in 2013, USD578 million in 2014, USD2.3 billion in 2018,
and USD3.2 billion in 2019.
Source: Onoodor, Zuunii Medee, www.miningweekly.com
LONG OT TALKS HAVE TAUGHT MONGOLIA MUCH
The six years of negotiations on the Oyu Tolgoi agreement have taught Mongolia the value of
transparency and the futility of concealment. They have also stressed the importance of asserting
national rights and interests in a nationally united manner. A single voice commands more respect
during a bargain than a fractured chorus. At the same time, they have taught Mongolia to realise

16. the brutal realities of the world market, where sentiments have no place. It has also gained the
confidence to parley with powerful investors on a footing of equality, giving no quarter, nor
expecting any. Therefore one cannot agree with those who harshly see the past six years as
needless waste of time, nor blame the Mongolian parliament for working too slowly for some. The
investors, too, have been patient, commendably so. All our disappointment of the past years is lit
up by the fact that the two major parties of the country, often at loggerheads, have regularly sat
together to formulate a joint stand on the investment agreement. This consensus to further
national interests has been our biggest achievement. In all our history, have we Mongolians ever
worked together like this?
Due credit should be given to the national civil movements, which received a lot of flak but never
gave up their vocal demand that the Oyu Tolgoi agreement must be concluded, and also must be
seen as being concluded, only on terms beneficial to Mongolia. Time and again they drew the
attention of the public to aspects of the agreement that were of doubtful merit. These days
national security is measured by economic security, and only a vigilant citizenry can ensure that
this security is not breached by carelessness, or worse.
Source: www.mongolianminingjournal.com
July 24
PARLIAMENT SIDESTEPS OT AGREEMENT, ASKS GOVERNMENT TO RESUME TALKS
Mongolia's Parliament, unable to agree on a mining deal, last week gave the Government a free
hand to renegotiate terms with Ivanhoe Mines Ltd. and Rio Tinto Ltd. over the long-delayed project
at Oyu Tolgoi. After several days of heated discussions Parliament decided on July 16 not to vote on
the latest draft investment agreement with the mining companies. Instead, it ordered renewed
negotiations, authorizing the Government to conclude a deal without further legislative approval.
Lawmakers recognized that any agreement would be so complex and fraught with politics that they
are unlikely to ever agree on it.
In asking the Government to finalize the agreement Parliament set the following conditions. First,
the Mongolian share of the ownership would be at least 34 percent to begin with and should go up
to at least 50 percent when the initial investment advance is repaid; second, the agreement should
comply with existing Mongolian laws and regulations; and third, the Standing Committee on the
Economy should monitor the implementation of the agreement.
Lawmakers present voted 63 percent in favor of ―a resolution that authorizes the Government of
Mongolia to conclude a long-term, definitive investment agreement with Ivanhoe Mines and Rio
Tinto for the development and operation of the Oyu Tolgoi copper-gold mining complex in southern
Mongolia‖, Ivanhoe said in a statement.
Legislators balked over the complicated details and provisions that would initially cap Mongolia's
share of the massive mine to 34 percent while exempting the foreign miners from a windfall-profits
and customs tax. The protracted deal making has become a test of the Government's willingness to
welcome foreign investment and counterbalance the country's economic dependence on neighbors
China and Russia.
Source: Associated Press
GOVERNMENT AND IVANHOE BEGIN TALKS ON MONDAY
Negotiations between the Mongolian Government and Ivanhoe Mines Ltd. to finalize the agreement
are all set to resume on July 27. Mr. John Macken, CEO of Ivanhoe, said in a statement on Tuesday
the Government had indicated in a letter to Ivanhoe and Rio Tinto that it would work with them to
reach an agreement that is "mutually beneficial, fair and sustainable".
Source: www.reuters.com, www.bloomberg.com
MINISTER HINTS AT RIO TINTO‟S WITHDRAWAL
Minister of Mineral Resources and Energy D.Zorigt feels the entire situation has been made
uncertain by Parliament‘s refusal to approve amendments to the general tax and other related laws
to facilitate reaching an agreement on Oyu Tolgoi and its insistence that any agreement has to be
within the framework of existing laws. Negotiations have to be started afresh, and it is difficult to
say how long they would continue and ―whether the parties at the table would remain the same‖.
Rio Tinto has repeatedly expressed its unhappiness at the continued protraction of the negotiations
and, ―therefore, when negotiations resume, we may expect some other investor talking to us‖.
Source: Undesnii Shuudan

17. PARLIAMENT PASSED THE BUCK, SAYS DISSENTING MP
Mr. Kh.Temuujin, a Democratic Party MP, was among the 13 in Parliament on July 16 who voted
against the resolution authorizing the Government to negotiate with the investors on the Oyu Tolgoi
agreement. He says he did this as he did not think it proper of Parliament to direct the Government
to do something, at the same time retaining impossible conditions in the agreement. Asking the
Government to achieve something while making sure that it had little room to maneuver was unfair.
Signing an agreement without delay is one of the guaranteed ways to lay hands on the money to
implement the action plan for economic recovery. The conditions which Parliament has imposed
will hamstring the process of negotiation, may even make it impossible to reach an agreement.
There will then be a case for the Government to resign because of its failure to fulfill Parliament‘s
direction. He said MPs ―understood two weeks ago they could not deal with the issue and so passed
the buck to the Government‖.
Source: en.news.mn
MP DEFENDS PARLIAMENT‟S DECISION
Stressing that there is no MP who does not realize how vitally important it is to reach an agreement
on beginning work at Oyu Tolgoi, Mr. Z.Enkhbold, a Democratic Party MP, has said this does not give
Parliament the right to ―discriminate between a Mongolian-Russian joint venture and a Canadian-
Mongolian company in the matter of paying taxes‖.
He also refuted the oft-repeated claim that the investors have spent six years to receive a
permission to start work on the gold-copper mine. Saying permission was granted in 2001, he said
the question of tax privileges cropped up only later. ―Our Parliament may not be ideal, but it
cannot be faulted for working according to our Constitution,‖ he said.
Source: Montsame
IMPRACTICAL DEMANDS WILL BE COUNTERPRODUCTIVE
Foreign investors prefer a stable regulatory framework to just a low-tax regime. They are watching
carefully every step in the progress to an agreement. Mongolia would never get an agreement if it
puts too tough conditions and impractical proposals before the investors. If mining giant Rio Tinto
leaves Mongolia, it would be difficult to find a reliable partner to develop our resources. There is
thus no other way but to accept some of the investors‘ proposals.
Source: Onoodor
MPs REJECT GRANT OF TAX RELIEF TO OT INVESTORS
Parliament last week decided to accept the recommendation of the Standing Committee on the
Budget not to approve the draft amendments to the General Tax Law, the Mineral Law and the
Road and Transportation Law. All the changes had been proposed in tandem with the draft Oyu
Tolgoi agreement. Parliament‘s refusal to adopt these changes makes the Government‘s job more
difficult when it resumes negotiations with Ivanhoe Mines on the agreement, as it has been
enjoined to do by Parliament.
The Standing Committee‘s objections to the suggested changes cut across party lines and were
based on several considerations. The principal among these were the worry that exclusive
provisions to grant relief to one investor would lead to similar demands from others, and the feeling
that such a big loss for the Mongolian side could be considered only after a much clearer picture
had emerged of the technical and economic estimate of the Oyu Tolgoi resources.
Source: Ardiin Erkh
July 31
GOVERNMENT‟S NEW 35 DEMANDS INCLUDE 34% SHARE IN IVANHOE MINES MONGOLIA INC.
The working group set up by the Government and Ivanhoe Mines have been meeting every day since
Monday to reach an agreement on investing in the Oyu Tolgoi project. Both sides have been
tightlipped about how things are going and no immediate breakthrough is expected.
The Mongolian side includes three members of the Cabinet -- Finance Minister S.Bayartsogt, Mineral
and Energy Minister D.Zorigt, and Environment and Tourism Minister L.Gansukh. About a dozen
officials from the three ministries are helping them in the talks. The investors‘ side is led by
Commerce Director Mr. Sam Riggall of Rio Tinto and Deputy Chairman Mr. Peter Meredith of
Ivanhoe. Both are familiar with past negotiations on the agreement.
The Mongolian side has submitted its fresh list of 35 demands. The most contentious issue is the 68
percent windfall profits tax. The Mongolian Parliament has said this can in no circumstances be
waived, while the investors have from the beginning refused to accept this, arguing that if this is

18. levied the total tax burden would go up to an unacceptable 90 percent of the profits.
Another thorny issue is that of how much share the Government will have. Parliament has
instructed the Government to try hard to raise this to 50 percent from the 34 percent that both
sides previously agreed upon. This would have been difficult to achieve as the mining law in force
does not support the Government claim to own more than 34 percent. To bypass this dichotomy the
Mongolian side is now asking for 34 percent share in Ivanhoe Mines Mongolia Inc., and not in the
project.
Read more…
The Government also wants three representatives on the 9-member Board of executives. Parliament
adopted a measure on the last day of the Spring session that disallows mining companies, including
Ivanhoe Mines, from claiming refund of VAT they pay. In addition, the Mongolian side has rejected
the investor‘s proposal that equipment and machinery for the project be allowed to be imported
without paying customs duties.
In an effort to clear misconceptions, Rio Tinto and Ivanhoe Mines have written to each MP
individually, offering to provide them information and expressing readiness to discuss all issues with
them so that they can strengthen their understanding of mining matters in general and aspects of
the project in particular.
Source: en.news.mn
FORCING RIO TINTO OUT WILL HELP CHINA GAIN CONTROL
It would appear that the only reason why Parliament decided to reassert several tough and
unacceptable conditions while pushing the Government to negotiate an agreement on Oyu Tolgoi
with Ivanhoe and Rio Tinto was to allow China to stake a claim. That development is being
facilitated by the deliberate spreading of rumors about the two companies giving up on Mongolia.
Neither of them has actually given any indication that they plan to do so. Indeed, its present
relations with China, following the arrest of four of its employees in Shanghai, give Rio Tinto an
added reason not to cede ground to that country.
If, however, China does get an opportunity to become the major investor in both Tavan Tolgoi and
Oyu Tolgoi, the mining sector of Mongolia would be under the full control of its southern neighbor.
The buyer and the producer would be the same, with unpredictable consequences on the price
fixing process. The likely loss to Mongolian revenue should be pondered by our MPs during their
present break.
Source: Onoodor
PARLIAMENT‟S DESIRE IS TO INVITE CHINA TO CONTROL ECONOMY, SAYS BAABAR
Social commentator and former Finance Minister Baabar feels the nature of Parliament‘s directions
to the Government ―completely closes all gateways‖ for Western companies to cooperate with
Mongolia in the mining sector. It was ―a deliberate and politically motivated move by our
lawmakers‖ to force Rio Tinto to abandon its interests in Oyu Tolgoi. Before it does so, Rio Tinto
will, for sure, demand the reimbursement of its loan from Ivanhoe Mines who unfortunately, has no
funds to oblige. The only way for Ivanhoe would be to seek a new partner for the project to help
with the cash to pay back Rio Tinto. The most promising partner could be state-run Chinalco or any
other company in China.
Shenhua and the Government of Mongolia are currently engaged in negotiations on investing in
Tavan Tolgoi. If China becomes a shareholder in both Tavan Tolgoi and Oyu Tolgoi, ―it would
exercise control over at least 90 percent of Mongolia‘s economy, since 50 percent of our foreign
trade is with it. Our decision makers are fully aware of this, so what they have done reflects a
carefully orchestrated policy and approach.‖
Source: Udriin Sonin
SITUATION NOT EASY, SAYS MINERALS MINISTER
Briefing newsmen on the progress of the talks on Oyu Tolgoi, Mineral and Energy Minister D.Zorigt
said on Wednesday that it is too early to report anything ―but the situation is not easy‖. He said the
investors have not yet rejected any of the Mongolian proposals or offered others of their own and
said, ―I can only repeat that the situation is not easy.‖
Source: Ardiin Erkh
MP CALLS MONGOLIAN CONDITIONS “VERY TOUGH” AND “UNACCEPTABLE”
MPRP lawmaker Kh.Narankhuu has said that the global economic downturn is not likely to reverse
course any time soon, and in this situation, Mongolia cannot afford to lose the opportunity of

19. creating hundreds of jobs by not reaching an agreement on Oyu Tolgoi. Even though the Mongolian
conditions are ―very tough‖, Ivanhoe Mines has resumed talks. Given ―all the risks involved in any
investment, particularly in these uncertain situation‖, if Ivanhoe and Rio Tinto do not accept ―our
unacceptable proposals, there is no other way but to review and change them all,‖ he said.
Source: Mongoliin Medee
August 7
TEXT OF LETTER SENT TO ALL MPs
The following is the text of the letter, dated July 27 and signed by Mr. Sam Riggall for Rio Tinto and
Mr. John Fognani for Ivanhoe Mines, which was sent to all Members of the Mongolian Parliament
individually. The letter was in Mongolian and this is a translation, not authorized by either sender
or by any of the recipients.
―We carefully followed the discussion in Parliament of the draft Oyu Tolgoi investment agreement.
We would like to officially meet with you and answer your questions if you, dear Member of
Parliament, have any questions or concerns related to the Agreement or to the Oyu Tolgoi project
implementation at this important moment when the agreement is being negotiated.
―Rio Tinto assumes that the draft Agreement discussed with the coalition Government will not only
be the first step to an exceptional leap in economic and social development but will also launch a
new era of responsible use of Mongolian minerals resources by way of creating thousands of jobs,
opening up business opportunities, and developing infrastructure.
―This is not a decision about today. This will be a decision made by current representatives chosen
by the Mongolian people about the future of succeeding generations of Mongolians.
―We think that Mongolia has come to a crossroads. One way will attract foreign investment, develop
a world class mining sector, strengthen an independent economy and create an open economy and
society. The other way will lead to a closed economy with the faith of investors and donors belied,
limiting the scope of industry, and to direct dependence on its neighbors. Your choice of whether to
support the Oyu Tolgoi investment agreement or to be against it will determine the way Mongolia
treads for the long term.
―We hope that you will give us the opportunity to exchange views in the near future.‖
Source: BCM Newswire
GOVERNMENT TO DISCUSS OT AGREEMENT
The Government will hold a special meeting at 10 on Friday morning. No official agenda has been
given to media, but it is believed the discussion will be only on the status of the Oyu Tolgoi
investment agreement.
Source: www.news.mn
SPEAKER YET TO DECIDE ON BAYAR‟S REQUEST FOR SPECIAL SESSION
MPRP leader and Prime Minister S.Bayar wrote a letter to the Speaker last week asking him to
convene a special session of Parliament on August 10, ostensibly to report on the status of the
negotiations on the Oyu Tolgoi investment agreement. There is wide speculation that he would
press Parliament to endorse an agreement on the basis of the consensus so far reached between the
Government and the investors and not to insist on certain points it has termed non-negotiable. The
Speaker, Mr. D. Demberel, could not attend to the letter immediately as he was in the countryside.
On his return he called a meeting of his council to discuss the Prime Minister‘s request but,
according to Mr. Ts.Sharavdorj, head of the Parliament Secretariat, no final decision was taken. ―It
is difficult to convene a special session every time the Government wants one. We shall review the
matter further,‖ he added. He also said some in the council saw no reason to call a session only two
weeks after the Spring session ended. Members are taking a well-earned break and, more
important, many were spending time with their constituents. However, officials from the
Secretariat saw no problem in getting lawmakers back if the council decides to hold the
extraordinary session.
Source: Udriin Sonin, Undesnii Shuudan
August 14
NSC APPROVES NEW TERMS OF OT AGREEMENT; NOW PARLIAMENT HAS TO AGREE
Finance Minister S.Bayartsogt and Minerals and Energy Minister D.Zorigt told media on Wednesday
afternoon that the National Security Council, at its meeting the day before, had approved the terms
in the draft of the investment agreement as prepared after the latest round of negotiations. The
Government will now ask Parliament to ratify the text of the agreement at a special session.

20. The Ministers announced that the Mongolian Government will own 34 percent share in the project
and invest MNT816 million, which is half of what had been agreed earlier. There will be no tax
relief measures for the investors, but now their initial outlay will be USD4 billion and not USD5
billion as earlier agreed.
The investors had previously offered to pay Mongolia an initial amount of USD125 million before
work began. USD25 million of this would have carried no interest, but the rest was to be repaid
with 9.9 percent interest. The revised draft raises the quantum of preliminary payment to USD250
million and the interest has been reduced to 5 percent.
All these are important gains for Mongolia. The investors, however, did not accept the proposal to
limit the first phase of the agreement to 15 years, after which it could be renegotiated. It will be in
force for 30 years, as decided before.
The 68 percent windfall profit tax will be in force when the agreement is signed, but the Minister
for Finance said the tax would be abolished with effect from January 1, 2011.
Source: en.News.mn
PARLIAMENT OFFICE ASKS RIO TINTO AND IVANHOE TO APOLOGIZE FOR LETTER
In its reply to the letter Rio Tinto and Ivanhoe Mines sent to all MPs on July 27, Parliament Office
said on August 7 that the companies should seek an apology from the recipients for their rude
action. In English translation, the letter reads as follows.
―Dear Mr. Sam Riggall, Director of Trade Affairs of Rio Tinto, and Mr. John Fognani, Director of
Legislative Matters of Ivanhoe Mines,
―Members of Parliament have read your words on the investment agreement on Oyu Tolgoi in your
letter of July 27, 2009 addressed to some MPs.
―The agreement draft prepared by the Government was discussed in Parliament which then passed
a resolution authorizing the Government to conclude the agreement. Accordingly we suggest that
your ‗questions or concerns that relate to the Agreement and the implementation of the Oyu Tolgoi
Project‘, as you call them in the letter, should have been addressed not to the MPs, but to the
Government of Mongolia. After the Parliament resolution only the Government has the right to
negotiate with you; similarly, you are also expected to discuss the issue with the Government, and
not individual MPs.
―We approached the content and intention of the letter as coming from a long-time partner
offering cooperation in Oyu Tolgoi for significant future development of the country. However some
things mentioned in the letter confused us. Parts of it read like giving direction to Mongolia on how
to be independent and what to do about development. Such coercion of MPs who received the trust
of the people and who work as the supreme legislative authority in the sovereign country of
Mongolia indicates that your companies lack basic political and business culture.
Read more…
―In the letter you mention that Mongolia has arrived at a crossroads. The people of Mongolia made
their choice about 20 years ago, approved their Constitution, defined the way they wanted the
country to develop, and chose the principles of democracy and the market economy as understood
at the international level today. That is why we do not think a company needs to tell us how our
country should develop. We have to make it clear to you that the people of Mongolia and their
State have the right to decide on any issue without outside interference.
―It is hard to believe that the letter, clearly meant to put pressure on the Mongolian State, reflects
the official stand of the directors of Rio Tinto and Ivanhoe Mines. Indeed, we believe the letter
would harm the reputation of the world famous Rio Tinto among the Mongolian people.
―You should seek an apology from the MPs for such a rude action. Rio Tinto and Ivanhoe Mines must
respect the laws and regulations of Mongolia. We hope that you will conclude a mutually beneficial
agreement with the Government and cooperate with us.‖
The letter was signed by Mr. S.Magnaisuren, Head of the Parliament Secretariat.
Source: www.parliament.mn
NO INTENTION TO INFLUENCE DECISION, SAY RIO AND IVANHOE
Acknowledging receipt of his letter, Mr. Sam Riggall and Mr. John Fognani wrote to Mr.
Magnaisuren, Secretary of the Parliament Office, on August 11 that ―the only purpose of our letter
dated 27 July 2009 was to offer all members of the Great State Khural the opportunity to request
any factual information they required in relation to the Oyu Tolgoi Project and the draft Investment
Agreement‖.
Emphasizing that in sending the letter ―we were not seeking to influence the decision-making
process being followed either by Parliament or by the Government‖, the two representatives of the

21. investors said they were ―deeply concerned that anybody might misconstrue our offer to provide
information as questioning Mongolia‘s commitment to democracy‖.
The letter ended with an expression of appreciation of ―your accurate perception of the Investors
as reliable, long-term partners ready to work with Mongolia to successfully deliver this large-scale
project, which will generate long-lasting benefits for all stakeholders‖.
Source: Ardiin Erkh
The full text of the letter, as published in the Mongolian media, can be seen on the BCM website,
Articles/Reports on Mongolia.
August 21
PARTY CAUCUSES AGREE TO DISCUSS DRAFT CHANGES IN PARLIAMENT
With both party caucuses in Parliament agreeing to discuss in the special session of Parliament draft
amendments to four laws proposed by the Government, another step was taken on Wednesday
towards signing the investment agreement on Oyu Tolgoi. The laws which are sought to be amended
relate to the windfall profits tax, use of water, building roads, and corporate income tax.
Before taking the decision, the Democratic Party MPs asked questions of Prime Minister S.Bayar,
Minister for Finance S.Bayartsogt and members of the working group that has been negotiating with
the investors.
There was one lone dissenter in DP ranks but the major partner in the ruling coalition, the MPRP,
was unanimous in favoring the amendments to be discussed in a plenary session of Parliament,
accepting the Government‘s contention that the changes will facilitate reaching an agreement on
the project.
However, the drafts do not go to Parliament immediately. The standing committees under whose
purview each law falls have to decide whether the amendments should be discussed in Parliament.
Acting promptly, the committee on the budget and that on the environment met on Thursday and
favored such discussion of amendments to the laws on VAT and the windfall profits tax, and on use
of water. The Standing Committee on the Economy will take a decision on corporate income tax
only after ascertaining the views of the Central Bank President.
Earlier, in his speech welcoming members to the extraordinary session, Speaker D.Demberel noted
that with 100 years of exploitable resources the Oyu Tolgoi deposits would play a significant role in
Mongolia‘s economic resurgence, so a decision has to be taken both quickly and carefully.
Source: en.News.mn
TERMS OF REVISED OYU TOLGOI INVESTMENT DRAFT REVEALED
The draft of the revised agreement, if ratified by Parliament, will be the culmination of a long, and
often tortuous, process in dealing with foreign investment. The Government wants this to be seen
as relating not just to Oyu Tolgoi, but as the template for all future investment proposals.
According to Minister of Finance S.Bayartsogt and Minister of Mineral Resources and Energy D.Zorigt
the present revised draft follows Mongolian laws and at the same time improves the policy on taxes,
infrastructure, and environmental protection. The goal is to encourage foreign investment and
develop the mining sector to the greatest benefit to national interests.
The terms that the National Security Council approved and that are now being debated in
Parliament include the following 16 points.
Read more…
1. The 68 percent windfall profits tax will be abolished with effect from January 1, 2011.
2. The Government will own 34 percent of the project. The capital the Government has to
contribute will be no more than USD816 million, down from the USD1.7 billion earlier proposed by
the investors. According to the Finance Minister this decreases the Government risk by half.
3. Investors will not be exempted from paying any tax and will also not get any compensation
beyond what the law permits.
4. Investor-dependent entities and subcontractors will also work under the proposed new tax
environment.
5. The following eight types of taxes will be stabilized:
- Company income tax,
- Customs tax,
- VAT,
- Special taxes, not including fuel tax,
- Mineral reserve usage tax,
- Payment for minerals exploration,
- Real estate tax,

22. - VAT on certain products.
6. Investment tax rebates will be allowed only during construction.
7. During construction, foreign labor will not exceed 60 percent of the work force.
8. The initial amount of investment in the project will be no more than USD4 billion.
9. No more than 60 percent of the total investment expenses will be met by sale of ordinary shares.
The rest will come from preferential shares and direct financing. This will bring in more tax to
Mongolia.
10. The Government will raise this amount on its own. In case it fails to find ways of raising the
money, the Government can seek collaboration with the investors.
11. The Mongolian side will save USD268 million from the new system of collecting VAT. The
Mongolian side will also get USD90 million more by adopting new Customs regulations. Together
these work out to USD358 million and this will start coming in as soon as work on the project starts.
12. Investors will make an initial payment in the form of a loan of USD250 million. This will be
repaid with 5 percent interest. Previously the investors had offered USD125 million, of which USD25
million was to carry no interest, while the interest on the rest was set at 9.9 percent.
13. Exploration expenses will not be met with this loan.
14. All provisions in the March negotiations that were beneficial for Mongolia have been retained.
15. Currently, the estimated value to Mongolia of the project‘s revenues has increased from the
March estimate of USD5.3 billion or 58 percent return to USD5.4 billion or 59 percent return. The
nominated price or money to take every year was previously estimated at USD28.8 billion, and now
it has risen to USD29.1 billion. The total cost of the project is estimated at USD4.1 billion.
16. Besides annulling the WPT, three other laws are sought to be amended.
i) The law on corporate tax will be amended to allow 100% loss to be carried forward for 8 years.
―We have followed the advice of foreign organizations on this,‖ the Finance Minister has said.
ii) The existing law permits roads to be built only at State expense. The proposed amendments will
allow investors to build paved roads for their needs. ―This is very beneficial to Mongolia,‖ the
Ministers said.
iii) ―Water is of great importance to continue this project successfully. We have now proposed
incorporation of several new articles and paragraphs in the existing law,‖ the Ministers said.
Source: The Mongolian National Mining Association, www.gogo.mn, www.news.mn, TV coverage.
MONGOLIAN RELATIONS WITH INVESTORS ENTERING THEIR THIRD PHASE
A new phase has begun in the relationship between Mongolia and those who invest here,
particularly foreigners. Historically this can be seen as the third phase in an ongoing process where
economics has often been subservient to politics. The first phase saw Mongolia mostly begging for
what was always described as ―aid‖ from the then Soviet Union, with the term ―investment‖ hardly
ever used as it smelt of capitalist investment and exploitation. The second phase was in the years
when, after their plunge into the uncharted sea of the market economy, Mongolians accepted that
investors were entitled to preferential treatment and pulled out all the stops to offer favorable
conditions to them. Soft loans were made available to them and the tax environment was made
friendly and inviting.
Adoption of the guiding principle of ―Equal relations and cooperation‖ when dealing with investors
marks Mongolia‘s entry into the third phase. There is clear indication that there would not be any
further tax incentives, including preferential conditions and outright exemption. This was the clear
message sent out by the Spring session of Parliament. Small businesses holding uranium licenses
were forced off the stage and a new law prohibiting mining operation near water sources and forest
areas has also been passed. It is not that only small fry are being targeted in the new policy.
Parliament was overwhelmingly in favor of revoking all tax preferences to investment in the Oyu
Tolgoi mines. MPs also voted to impose restrictions on the generous refund to mining companies of
VAT they pay on production of their exported output.
Whether the swing is wrong or right or whether it is sustainable can be assessed only after its
effects are felt over a period of time.
Source: www.mongolianminingjournal.com
August 28
MPs APPROVE ALL CHANGES, OT AGREEMENT IN TWO WEEKS
The special session of Parliament did what it was widely expected to do, and also did it faster at
the end. Around 8 on Tuesday evening Parliament approved the last of the four amendments the
Government had proposed to facilitate an agreement with the investors in the Oyu Tolgoi project,
allowing a relieved and jubilant Rio Tinto CEO Tom Albanese to say in distant Canada, "This is an