PRESENTATION

1. Mongolia’s Investment Needs
and Opportunities
Mr. Randolph S. Koppa
President
Trade and Development Bank of Mongolia
Business Council of Mongolia
13 December 2010

18. Oyu Tolgoi agreement Oct ‘09
• Signaled of a new era for Mongolia
• Great psychological and economic stimulus
• $752 million to be spent in 2010
(Now: $1.4 billion)
• $4.6 billion to be invested by end of 2013
(Now: $6 billion)
• Dramatic impact on Mongolian GDP
growth
Page 1

19. OT mine development progressing rapidly
Page 2

20. • China stopped exporting coking coal 2007
• China increasing imports of coking coal from 8.5
million tons in 2008 to 50 million tons in 2010, or
over 8% of consumption
• Mongolia moving to leading position as provider
among Australia and Russia
• In addition, China is increasing imports of thermal
coal
Meanwhile, while we were watching
OT agreement progress
Page 3

21. Activity at South Gobi Energy
Page 4

22. Mongolian Mining Corporation
The first Mongolian owned company listed abroad
Page 5

23. • Average price in 2010
$50 per ton
• Coal now Mongolia’s
#1 export!
• Sources: NSO and
TDB estimates
Mongolian coking coal
exports to China
0
5
10
15
20
25
30
2007 2008 2009 2010 2011 2012
Actual Estimate
Page 6

24. Growing steel production in China
drives iron ore imports
Page 7
0
100
200
300
400
500
600
700
800
2006 2007 2008 2009 2010F 2011F
CHINESE IRON ORE IMPORTS
Actual Forecast
mln.t

25. Launching Mongolia’s
mining of iron ore
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.8
2
2.2
2.4
2.6
2.8
2007 2008 2009 2010 /1-10/
PRODUCTIONmln.t
Page 8

26. Iron ore now accounts for
8.5% of Mongolia’s exports
0
50
100
150
200
250
300
350
400
2008 2009 2010 /1-10/ 2011F 2012F
USD mln
Page 9

27. And China’s thirst for petroleum grows
• China now #2 oil importer in world in 2009
• Consumption now 8.3 million barrels per day
• Imports 4.3 million barrels per day
• USA 9.6, Japan 4.2, Germany 2.3
• Demand will grow to 9.6 million barrels per day by
end 2011, representing 37% of world’s increase in
demand
• Source: US Energy Information Administration
Page 10

28. Spurring Mongolia into OPEC
contention?
0
0.5
1
1.5
2
2.5
2008 2009 2010
Crude oil exports to Chinamm bbl• Still small, but vast
reserves expected in
Mongolia
• More exploration
continuing
• Example: Petro
Matad, LSE AIM listed
recoverable reserves
approaching 1 bn bbl
Page 11

29. Mongolia’ economy has strong 2010
• Exports up 50 % from 2009 based on strong
prices for major commodities and China’s
demands.
• $2.55 billion for 11 months, 84% to China
• FX reserves reach $1.8 billion after nadir of $.5
billion beginning 2009
• GDP growth projected at 8% for full year
• Inflation year to date 8%! Year on Year 11%!
Page 12

30. GDP growth to accelerate
• Result: GDP doubling from five years from end 2009 to end 2014
• More than doubling from to end of 2010
Source: IMF estimates; TDB estimate
6.1
10.6
7.3
8.6
10.2
8.9
-1.6
8
10
15
20 20
10 10.1
11.3
12.7
14.2
9.6 9.1
11
9 9 9 9
-5
0
5
10
15
20
25
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Mongolia China
Page 13

31. What a storyline!
• Export revenues grow from $ 2 billion to over
$10 billion a year
• Growing mining investment and exports to
China lift Mongolia out of poverty and
eventually create a wealthy country of 3
million people a la Qatar or Norway
Page 14

32. How to get there?
• Challenges and opportunities
• Infrastructure:
Power
Railroads
Roads
Urban Development
Water
• Social
• Agriculture
• Industry
• Environment
Page 15

33. Power
Source: World Bank
Page 16

34. • Need to double capacity in next five years
• $2.2 billion investment needed
• Tariffs need to increase 30%-60%
• Mine site plants can be project financed
• Financing of UB plants?
• IFIs can help
Power
Page 17

35. Present Transportation Network
Page 18

36. Railroad
Size 1,040 km
Investment US$ 3.0 bn
Time frame 2010-2014Page 19

37. Railroad connection to the Pacific
Page 20

38. ULAANBAATAR
MRTCUD Highway Plan
Size 5,571.9km
Investment US$ 2.1 bn
Time frame 2010-2016
Page 21

39. Plus, a real Motorway!
Size 990.4 km
Investment US$ 1.9 bn
Time frame 2010-2014
Page 22

40. Urban Development
• Ulaanbaatar has 1.25 million inhabitants, 45% of
Mongolia’s population
• 60% live in substandard housing
• Heat by coal and wood stoves
• Existing district heating also highly polluting
• Ulaanbaatar world’s most polluted city in winter
Page 23

41. • Goal is to reduce air pollution by 50% in
5 years.
• Estimated cost: $14 billion, includes:
• Heating plants
• Clean energy projects
• New housing
• New infrastructure
Prime Minister declared Smokeless
Ulaanbaatar in March 2010
Page 24

42. Ministry of RTCUD 5 yr. Housing Plan
УЛААНБАÀТАР
ДАРХАН
ДАЛАНЗАДГАД
DORNOGOBI
ТӨВ
DUNDGOBI
МАНДАЛГОВЬ
SUKHBAATAR
DORNOD
KHOVD
ӨЛГИЙ
UMNUGOBI
ZAVKHA
N
GOBI-ALTAI
ЧОЙР
МӨРӨ
Н
БАЯНХОНГОР
UVURKHANGAI
BAYANKHONGOR
ЭРДЭНЭТ
ЦЭЦЭРЛЭГ
АРВАЙХЭЭР
ARKHANGAI
KHUVSGUL
BAYAN-ULGII
ULAANGOM
УЛИАСТА
Й
ХОВД
UVS
САЙНШАНД
GOBISUMBER
ЧОЙБАЛСАН
БАРУУН-УРТ
ӨНДӨРХААН
ЗУУНМОД
KHENTII
SELENGE
АЛТАЙ
75 000 household housing
in Ulaanbaatar city
10 000 household housing in
the Central region
5 000 household housing
in the Eastern region
5 000 household
housing in the western
region
5 000 household
housing in the
Khangai region Size •75,000 in Ulaanbaatar
•25,000 in Provinces
Investment US$ 6.2 bn
Time frame 2010-2016
Page 25

43. Water
• The key scarce resource in Mongolia
• UB under strain
• Desert mining areas have fossil aquifers
• OT discovers Gunii Hooloi aquifer with 40
year supply for mine and surrounding towns
• Estimates vary, but aquifer supplies are finite
and may not sustain total mining and urban
development expected in next several years
Page 26

44. Water
Page 27

45. • Water resources for Gobi: $300 million for ground
resources
• Diverting waters fro northern rivers: $400 million
• Solving Ulaanbaatar’s needs: $300 million?
• Total: $1 billion
Source: World Bank study
Water
Page 28

46. Social
• Education
• Migration
• Foreign labor
• Community involvement
• Wealth distribution
• Health
• Estimated costs: $1-$2 billion
Page 29

47. Agriculture
• Grain, dairy and main vegetables self sufficiency
• Wheat and potatoes close in 2010
• Development of further processing for domestic
markets
• Exploiting potential for export through value
added animal husbandry and meat processing.
• Estimated investment cost: $1-$2 billion
Page 30

48. Industry
• Expansion and development of existing export
industries
• Further development of import substitution
industries for building materials, mining supply
products and other consumer goods
• Estimated investment need: $5-$7 billion
Page 31

49. Transportation economics
Page 32

50. Industrial Park in Sainshand
Page 33

51. Value added proposition
• Reducing bulk and further processing can add value to basic
ores and create jobs and other sustainable development.
• About 50,000 more jobs created than through simple extract
and export approach
• GDP in 2020 could have further 45% value and exceed $40
billion
• However, all projects need to meet market tests and attract
private investment!
• Water again!
• Total investment cost: $10 to $13 billion
Page 34

52. Environment
• Land degradation
• Mine Reclamation
• Pollution
• Grazing access
• Overgrazing
• Deforestation
• Water quality
• Costs to address: $1-$2 billion
Page 35

53. Total Investment needs and opportunities
2010-2014
• Mine Development $ 9 bn. to $ 11 bn.
• Infrastructure $ 8 bn. to $ 10 bn.
• Urban development $ 6 bn. to $ 7 bn.
• Agriculture $ 1 bn. to $ 2 bn.
• Industry $ 5 bn. to $ 7 bn.
• Environment $ 1 bn. to $ 2 bn.
• Social $ 1 bn. to $ 2 bn.
• Industrial park $ 10 bn. to $ 13 bn.
Total: $ 41 bn. to $ 54 bn.
Page 36

54. How to fund the need? Opportunities for investors
• Foreign Direct Investment
• Domestic banking sector
• Domestic stock exchange
• Domestic debt market
• Sovereign borrowing
• International capital markets
• Foreign borrowing
• Grants and other
Page 37

55. Foreign Investment
Most of development of
new major mining projects
will be funded through
foreign investors.
Mongolia’s FDI has been
growing 30% annually.
This rate would mean $11
billion in new FDI in next
five years.
USD bln
0
0.5
1
1.5
2
2.5
3
3.5
4
2007 2008 2009 2010F 2011 2012 2013 2014
Actual
Forecast based on 12 month rolling average
Projected based on 30% annual CGR
Source: FIFTA, World Bank
Page 38

56. Budget
• Current Budget expenditures approx $1.5
billion, with small deficit
• Increased revenues from mining can enable
increased budget to meet many social and
infrastructural needs
• Establishment of Homeland Development Fund
aims to use surplus mining revenues to meet
such needs
• Estimate: $2 billion or more
Page 39

57. Banking sector
• Banking sector is small compared to other emerging
countries
• Mongolia bank loans to GDP only 34% at end 2009
• Central and Eastern Europe over 50%
• USA, Korea, China over 100%
• To reach CEE level in 5 years will require $250 million
of outside equity capital as GDP doubles
• Banks could provide $1.5 billion in investment
financing, apart from working capital funding.
Page 40

58. Loan growth has resumed
MNT billion
0
500
1000
1500
2000
2500
3000
3500
2005 2006 2007 2008 2009 2010.09.30
Banking Sector
41.5%
66.3%
25.8%
-12.0%
44.0%*
* annualized
Page 41

59. Lending will need to grow, as will capital
Page 42

60. Investment by businesses
• Spending by business on fixed assets will increase
from current estimated 5% of GDP
• General level of developing countries is 25% with
US at 14% and China at 40%
• Moving to 25% of GDP will generate over $6
billion in investment, of which $1.5 billion could be
provided by domestic banks. The balance requires
funding from profits or capital markets and
foreign sources.
Page 43

61. Stock Market
• Mongolia stock market very small: approx. $800 million
market cap which is 30% of domestic bank credit and
$300 per capita
• Developing countries ratios around 50% or $3000 to
$5,000 per capita
• Developed countries market cap equals bank credit, with
$40,000 or more per capita
• Potentially, $2 billion or more could be raised under
properly organized stock exchange as market cap reaches
40% of domestic bank credit
Page 44

62. Public debt
• Mongolia has virtually no public or publicly traded
debt
• Mongolia needs to establish a domestic capital market
• This will enable a forward rate which will attract
foreign investors
• Up to 20% of GDP should be possible based on other
emerging countries
• This would mean up to $2 billion could be raised
Page 45

63. Foreign Sovereign Debt
• Mongolia has less than $2 billion in foreign
debt, much on concessionary terms, or
about 40% of GDP.
• There is capacity to raise sovereign
commercial debt
• Within 5 years, additional $3 billion could
be raised and keep debt ratio below 50% of
GDP
Page 46

64. Foreign Equity Markets
• Several successful overseas listings already:
SQX, MEC, Hunnu, North Asia
Resources, Prophecy, Petro Matad, Mongolian
Mining Corporation, Haranga
• Hong Kong, London AIM, Australia, Toronto
• Government plans to list key assets
• Potentially, $6 bn. to $10 bn. to be raised
• $1.4 billion raised since February 2010
Page 47

65. Foreign Debt Markets
• Already one issuer: TDB in 2007 for $75 million
• TDB issued again $150 million senior notes in
October 2010 and $25 million subordinated notes
in November 2010
• Sovereign Issue planned late 2010 will establish
benchmark
• As credit ratings improve, more access possible.
• Potential of $3 billion or more
Page 48

66. Project and structured finance
• IFIs and international banks already active
as direct lenders.
• PPP and export finance structures expected
• Syndication market small but growing
• Potential need of $5 billion or more
Page 49

67. Summary
• FDI $ 11 bn. to $ 14 bn.
• Domestic sources $ 12 bn. to $ 13 bn.
• Sovereign Borrowing $ 3 bn. to $ 5 bn.
• Foreign Capital Markets $ 9 bn. to $ 12 bn.
• IFI & Foreign bank Loans $ 5 bn. to $ 8 bn.
• Donors and NGOs $ 1 bn. to $ 2 bn.
Total $ 41 bn. to $ 54 bn.
Page 50

68. A Reachable Goal?
• Consider: OT, TT and other major strategic
mines will generate $4 bn. to $7 bn. of exports
per year, with $2bn. to $3 bn. in net income per
year, providing significant revenues to the State
in taxes, royalties and dividends.
• Significant increases in profits and tax revenues
from other economic sectors
• Continuing growth in GDP and increasing
personal incomes.
Page 51

69. Preconditions
• Political Stability
• Strong legal and regulatory environment
• Governance
• Fiscal discipline (9.9% deficit for 2011?)
• Stabilization fund
Page 52

70. Risks and concerns
• Inflation
• Populism
• Dutch Disease
• Boom Bust cycles
• International financial markets
• China growth trend
Page 53

71. Conclusions
• New era is beginning
• Mongolia is on the RADAR SCOPE and
warrants the attention of international
investors
• Many opportunities for investors in mining
and all other sectors
• Steady growth path is possible
• Potential for a healthy wealthy state
Page 54

72. If interested,
please contact us
Page 55

73. Mongolia’s leading bank
• Mongolia’s leading corporate bank
TDB is the largest corporate lender in Mongolia with 25% corporate
lending market shares. It serves approximately 360 major Mongolian
corporates in all major business sectors.
• Leader in international banking
Having established over 110 correspondent relationships with
international financial institutions and correspondent accounts with
major clearing banks around the world TDB offers a wide range of
international banking services designed to appeal to both domestic
and international clients. Currently, TDB maintains 31 nostro
accounts in 14 currencies with 23 top rated foreign banks of 15
countries. Total amount of trade finance lines reached $115 million.
Page 56

74. Financial Results
(mln.USD) 2007 2008 2009 2010.10.31
Total Asset 444.5 520.3 567.0 861.07
Total Loans 307.2 347.4 281.2 369.05
Total Deposits 362.6* 404.6* 408.0** 698.73***
Total Equity 47.5 54.0 47.3 64.43
Net Profit 11.5 11.5 10.6 12.11
Capital Adequacy Ratio 13.8% 14.7% 12.9% 12.04%****
ROA 3.5% 2.8% 1.9% 1.82%
ROE 32% 24.9% 19.5% 22.56%
MNT/USD = 1283.38
10/31/2010
* includes USD 75.0 million bonds
** includes USD 41.0 million bonds
*** includes USD 150.0 million bonds
**** USD 25.0 million sub debt received Nov 16 increased CAR to over 16%
Page 57

75. Bank Ratings by Moody’s
 Senior Unsecured EMTN (foreign currency) Ba3
 LT/ST Bank Deposits (foreign currency) B2/NP
 LT/ST Bank Deposits (domestic currency) Ba3/NP
 LT/ST Issuer Rating Ba3/NP
 Subordinated Obligations B1
 Bank Financial Strength D-
Page 58

76. THANK YOU
Trade and Development Bank of Mongolia
Juulchin Street - 7
Baga Toiruu - 12
Ulaanbaatar, Mongolia
Tel: +976 11 319943
Fax: +976 11 312418
Email: corrbanking@tdbm.mn
http://www.tdbm.mn
http://www.bankcard.mn
http://www.mongolianbusinessguide.com
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