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HIGHLY ORGANIZED ATTACK BY ANTI-COALITION GOVERNMENT MP-S ON COALITION GOVERNMENT AND ITS NO. 1 ACHIEVEMENT AND PROJECT - OT TO DESTABILIZE POLITICAL STATUS QUO AND BREAK UP THE COALITION GOVERNMENT

HIGHLY ORGANIZED ATTACK BY ANTI-COALITION GOVERNMENT MP-S ON COALITION GOVERNMENT AND ITS NO. 1 ACHIEVEMENT AND PROJECT - OT TO DESTABILIZE POLITICAL STATUS QUO AND BREAK UP THE COALITION GOVERNMENT

Mongolian portal medee.mn has published on September 28,2011 open letter to Rio Tinto from 20 MP-s including N.Batbayar, Ts.Davaasuren, D.Gankhuyag, Ts.Batbayar, S.Erdene, B.Bat-Erdene, R. Amarjargal, D.Baldan-Ochir, G. Bayarsaikhan, S. Byambatsogt, Sh.Saikhansambuu, Ts.Sedvaanchig, D.Terbishdagva, Ts. Shinebayar, Z.Enkhbold, L.Gantumur, D. Enkhbat, Kh.Temjuin, D. Ochirbat and Z.Altai.

In overall highly hostile letter they say

• Government has not implemented 57th resolution that instructed about 50% stake. According to Constitution, Government has a duty to fulfill resolutions and laws approved by Parliament
• When price of minerals rises several times on world market it is not influenced by any country or company, it is related to increase in demand for that specific mineral. It is not fair to view that investors must benefit from increased profit more than owners of resources. We have instructed Government to create legal environment to increase payment for reserves to replace WPT. However, our Government has gravely violated Constitution, Law on Foreign Investment and 57th resolution by not proposing related draft laws and introducing clauses to close off any amendments to taxes and fees on agreement with your company.
• Government broke the law when establishing OT IA and we will resolve this issue internally
• We have a right to say that OT is a result of exploration paid by generations of Mongolian taxpayers
• It is understandable to anybody that by indirect impact more jobs will be created and whole economy will grow regardless of which company will implement the project
• We view that it is fair that by implementing 57th resolution and Parliament direction to increase reserves payment at time of copper price increase Mongolia will have a possibility to get not less than 60% of profit. Now Mongolia’s share of profit is not even 50%.
• Our economists view that total sales of only gold and copper at current market price is about 400 billion USD and initial investment will be recouped within 2-3 years and if we view that 50% of total sales is pre-tax profit investors will gain at least 20 times profit on initial investment.


Analysis by Dale Choi, Chief Investment Strategist of Frontier Securities:

• I view this as highly organized attack by anti-Coalition Government MP-s on Coalition Government and its No. 1 achievement and project – OT
• Anti-Coalition Government and anti-OT MP-s group consists of:
Old anti-OT politicians vocal during OT IA discussions
a. Author of WPT DP N.Batbayar
b. Conservative , anti-foreign investors, anti-Minister of Mines MPP MPs Ts. Davaasuren, Ts. Batbayar, B.Bat-Erdene, D. Baldan-Ochir, S.Byambatsogt, Sh.Saikhansambuu, D. Terbishdagva, D.Ochirbat, some of them related in some way or another to Father of anti-Coalition ex-President N.Enkhbayar and critical of MPP leadership that includes Father of the Coalition S.Bayar and his successor current Prime Minister and Chairman of MPP S.Batbold
c. Anti-foreign investors, anti-Minister of Mines DP D.Gankhuyag, DP Ts. Sedvaanchig and anti-mining radical environmentalist DP G.Bayarsaikhan
d. Anti-foreign investors, anti-DP Leadership, anti-Minister of Mines DP S.Erdene and DP Z. Enkhbold
e. Radical nationalist independent Ts.Shinebayar fresh from break up with ex-President N.Enkhbayar, radical civil society independents D.Enkhbat and Z.Altai

Newly joined politicians vocal in civil society DP R.Amarjargal, L. Gantumur,Kh. Temuujin

• In view of election campaign I view this in election context and primarily aimed to destabilizing political status quo and break up the Coalition Government as well as based on desire to project patriotic image to electorate in order to get scores to get re-elected
• I do not believe that that Coalition Government would break up and I believe that voters are supportive of OT, however voters are uneducated and unempowered therefore are likely to vote in famous , well-capitalized, pork spreading MP-s regardless of whether they are working in the interests of voters or not
• I do believe that MPP and DP leadership are aware of the situation and will not let it escalate out of control and derail the project
• However, I do believe there will be significant pressure on Coalition Government and there will be some minor amendments to OT IA before the elections and after initial investment is recouped
• I do not view that OT IA is untouchable due to dynamics of Mongolian political life, minor revisions can be made along the way
• Therefore, I expect stock volatility until the situation is resolved and recommend long term call options on IVN when stocks hit or close to historic lows


View expressed are views of analyst Dale Choi(Erdenedalai Choinkhor), Chief Investment Strategist of Frontier Securities,a Mongolian citizen, and in no way represent views of position of Frontier Securities.



CHIEF INVESTMENT STRATEGIST

Dale Choi

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Frontier Securities
Ulaanbaatar, MONGOLIA