Uyanga Mandal, Business Development Manager, Ernst & Young, Mongolia

1. Business risks in mining &
metals 2011/12
Uyanga Mandal, Ernst & Young
September 2011

2. Top ten business risks for the mining
and metals sector 2011 / 2012
Page 2
Mining in Mongolia
► Mongolia’s economy to grow by up to 10% in 2011
► The mining sector in Mongolia contributes 60% of investment into Mongolia
► Mongolia’s mineral resources include gold, coal, copper, molybdenum, tin,
tungsten and uranium.
► Minerals account for 70% of Mongolia’s exports, of which more than two-
thirds go to China. The largest export is coal, followed by gold and copper.
► Development of Oyu Tolgoi and Tavan Tolgoi will boost economic activity

3. Top ten business risks for the mining
and metals sector 2011 / 2012
Page 3
M&A in mining & metals – Mongolia
Value and volume of Mongolian deals $m
$m Number
Outbound
Inbound 1,054 6
Domestic 26 2
Total Mongolia 1,079 8
Total global 113,706 1,123
Value
($m)
Type Target
Target
commodity
Acquirer Acquirer country Stake (%) Acquirer commodity
1,037 Cross border Ivanhoe Mines Ltd Copper Rio Tinto Ltd United Kingdom 15 Diversified
26 Cross border Golden Pagoda LLC Coal North Asia Resources Group Ltd China 10 Coal
8 Cross border Ovoot Coking Coal Project Coal Windy Knob Resources Ltd Australia 100 Diversified
4 Cross border Altan Takhi Co Gold Origo Partners PLC China 30 Investment company
4 Cross border Prophecy Resource Corp Coal Victory Nickel Inc Canada 10 Nickel
0.5 Cross border Buyan Coal Project Coal Hunnu Coal Ltd Australia 60 Coal
0.3 Cross border Lotus Minerals Mongolia LLC Fluorspar Mongolian Minerals Pte Ltd Singapore 100 Fluorspar
0.1 Cross border Lotus Dai Uul LLC Fluorspar Lotus Minerals Mongolia LLC United Kingdom 49 Fluorspar
► In the biggest deal in Mongolia in
2010, Rio Tinto increased its stake in
Ivanhoe Mines in three separate
transactions, for a total value of
$1.0b, to 34.9% by year’s end.

4. Top ten business risks for the mining
and metals sector 2011 / 2012
Page 4
The top 10 business risks in mining and
metals
Up from 2010

Down from 2010

Same as 2010– New entry


5. Top ten business risks for the mining
and metals sector 2011 / 2012
Page 5
Strategic risks in Mongolia
Risk taking provides both challenges and opportunities - leaders must manage
strategic risks to maintain and develop competitive positions
► Capacity constraints
► Resource nationalism
► Social license to operate
► Project execution
Capacity
constraints
Resource
nationalism
Fraud and
corruption
Price &
currency
volatility
Maintaining
social license
to operate

6. Top ten business risks for the mining
and metals sector 2011 / 2012
Page 6
Capacity constraints - skills shortage
► Mongolia’s large mineral reserves are attracting significant attention
► As miners ramp up production the skills shortage is inevitable
► Mongolia’s population is 2.7 million
► Access and retention of talent will be a key competitive differentiator

7. Top ten business risks for the mining
and metals sector 2011 / 2012
Page 7
Capacity constraints - infrastructure access
► Insufficient infrastructure is creating bottlenecks, slowing product to market
► More strategic partnerships to improve access – often with customer
involvement
► Mining and metals companies are increasingly tempted to invest in
infrastructure but does this create or destroy value?
► Use of take or pay contracts
Company Country Type
ArcelorMittal Liberia Rail
Lanca Infratech Australia, WA Mine
Rio Tinto Guinea Rail
Various Mongolia Rail
Various Colombia Ports

8. Top ten business risks for the mining
and metals sector 2011 / 2012
Page 8
Capacity constraints — implications
Implications
Delays project
development and
production
Increases difficulty
in meeting contractual
commitments
Increased costs
Increased
economic issues
Reduces competitive
advantage
Increases fraud
and corruption

9. Top ten business risks for the mining
and metals sector 2011 / 2012
Page 9
► Government deficits putting pressure on companies to contribute more
► Mining sector is seen as potential cash-cow
► Preference for exploitation of own minerals
► Balancing the economic and social needs within a country with the need to
attract foreign investment
Resource nationalism

10. Top ten business risks for the mining
and metals sector 2011 / 2012
Page 10
Tax contagion

11. Top ten business risks for the mining
and metals sector 2011 / 2012
Page 11
Resource nationalism — implications
Implications
Keeping abreast
of ever-changing
regulations
Increased costs
Emerging markets
represent
investment
opportunities
Project pipeline
could reduce
License to
operate could be
jeopardized
Growth options
could be restricted

12. Top ten business risks for the mining
and metals sector 2011 / 2012
Page 12
Maintaining a social license to operate
► Natural resources in Mongolia are stressed by mining and forestry
► Environmental record of Mongolia mining sector is mixed
► Mining is causing substantial soil destruction
Source: WISE Uranium website

13. Top ten business risks for the mining
and metals sector 2011 / 2012
Page 13
Maintaining a social licence to operate
► Land access disputes can result without community buy-in
► Tia Maria effect — NGOs linking with communities to create political pressure
► Mine closures or staff reductions can negatively impact reputation
► Increased regulation of emissions — air, dust and noise
► Balancing cost optimization, and environmental and community investment

14. Top ten business risks for the mining
and metals sector 2011 / 2012
Page 14
Social licence to operate — implications
Implications
Adverse media
attention/tarnishing
of corporate image
Difficulty in gaining
entry to foreign
countries
Managing and
reporting on carbon
footprint can gain
a competitive
advantage
Negative impact
on share price
Loss of mining
tenements
Delays or inability
to proceed with
projects

15. Top ten business risks for the mining
and metals sector 2011 / 2012
Page 15
Price and currency volatility
► Commodity price volatility has increased risk associated with mine optimization, feasibility
studies and contracting
► Currency volatility increases uncertainty of local operating costs
► ETFs add a new dimension to price volatility beyond pre supply/demand factors
► Extent of volatility challenges confidence in planning business model – difficult to make
investment decisions

16. Top ten business risks for the mining
and metals sector 2011 / 2012
Page 16
Price and currency volatility — implications
Implications
Use of larger
downside cases
Projecting prices
and costs
Currency volatility
affecting local
operating costs

17. Top ten business risks for the mining
and metals sector 2011 / 2012
Page 17
Fraud and corruption
M&A target destination by risk
level (2009 v 2010)
Source: Ernst & Young analysis
► Regulatory changes will make
companies increasingly responsible for
fraud and corruption activities.
► UK Bribery Act — Offence to fail to
prevent bribery unless there are
―adequate procedures‖
► US Foreign Corrupt Practices Act
— A focus on ―proper books and
records and internal controls‖
► Dodd-Frank Act — Whistleblower
bounty 10% to 30% of financial
sanction
► Mongolia was ranked 116 out 178
countries on the Corruption Perception
Index in 2010

18. Top ten business risks for the mining
and metals sector 2011 / 2012
Page 18
Fraud and corruption — implications
Implications
Personal
liability
Financial
loss
Personal
reputation
Impact on
corporate
reputation
Impact on
shareholder value
Management
distraction
Regulatory
consequences

19. Top ten business risks for the mining
and metals sector 2011 / 2012
Page 19
EY Mongolia
► Ernst & Young has been operating in Ulaanbaatar, Mongolia since 1999
► We are licensed by the Mongolian Ministry of Finance to provide auditing, tax
and advisory services in Mongolia
► Over the years, Ernst & Young Mongolia has been the auditor and business
advisor of choice of many large companies and organizations in mining,
banking, retail and manufacturing in Mongolia.
► Ernst & Young Mongolia LLC is a full member of the Ernst & Young Global
network of 141,000 people across 141 countries.
Ernst & Young Mongolia Audit LLC (CPA)
Suite 200, 8 Zovkhis Building, Ulaanbaatar
Tel: 976 11 314032
Fax: 976 11 312042

20. Top ten business risks for the mining
and metals sector 2011 / 2012
Page 20
Ernst & Young
Assurance | Tax | Transactions | Advisory
About Ernst & Young
Ernst & Young is a global leader in assurance, tax,
transaction and advisory services. Worldwide, our
141,000 people are united by our shared values
and an unwavering commitment to quality. We
make a difference by helping our people, our clients
and our wider communities achieve their potential.
Ernst & Young refers to the global organization of
member firms of Ernst & Young Global Limited,
each of which is a separate legal entity.
Ernst & Young Global Limited, a UK company
limited by guarantee, does not provide services to
clients. For more information about our
organization, please visit www.ey.com
© 2011 EYGM Limited.
All Rights Reserved.
This publication contains information in summary form and is
therefore intended for general guidance only. It is not intended to be
a substitute for detailed research or the exercise of professional
judgment. Neither EYGM Limited nor any other member of the global
Ernst & Young organization can accept any responsibility for loss
occasioned to any person acting or refraining from action as a result
of any material in this publication. On any specific matter, reference
should be made to the appropriate advisor.