According to local Media, Parliament Speaker D.Demberel has said in autumn Parliament session speech yesterday

· Parliament is on its same position to implement 57th resolution that Parliament itself approved

· Parliament has made a valid decision and made clear and public its requirements and conditions before OT IA was established

· We are confident that the party that has made IA with Government knows about it well

· Any country, a reputable organization or company who cooperates with us respects decision of Mongolian state

· Both parties must thoroughly discuss regarding implementing Parliament resolution following this tradition

· We view that the clause reflected in the resolution regarding Mongolian stake in OT not less than 50% is principal and fair issue

· It would be proper to work understanding that civilized relations among long term partners treating each other with respect are more valuable than even Oyu Tolgoi’s copper

According to Ivanhoe Mines,

· Ivanhoe Mines and Rio Tinto have formally advised the Mongolian government that the companies are not prepared to renegotiate the investment agreement.

· the companies also have written to the individual members of Mongolia’s peak political authority, the National Security Council, requesting its assistance to ensure the government’s full and immediate support for the investment agreement. The National Security Council of Mongolia consists of the President, the Speaker of the Parliament and the Prime Minister. Ivanhoe Mines expects that the parties will continue to honour and implement the terms of the agreement as previously negotiated and has asked the government to affirm its full support for the agreement.

· The investment agreement complies with all relevant Mongolian laws and regulations and all parliamentary resolutions, including Resolution 57, which authorized the government to conclude the agreement with Ivanhoe Mines and Rio Tinto. Under Mongolian law, the government’s right to acquire an ownership interest in the project is limited to 34%.

· The investment agreement has formed the basis for the construction of the Oyu Tolgoi copper, gold and silver mine that passed the 50% completion mark earlier this month and is on track to begin initial production during the third quarter of next year. The letters delivered to the government and the National Security Council noted that the Investment agreement had been presented to parliament on a number of occasions for review and comment, was signed by the government in full compliance with all applicable Mongolian laws, regulations and parliamentary resolutions and will deliver a fair distribution of value from the project to all stakeholders.

· The letters also cautioned that the government’s actions could seriously undermine the confidence that international investors have in Mongolia’s future as a safe and stable country in which to invest.

Frontier Securities conclusion:

· We view that we have apparent , rather dramatic standoff between investors and the Parliament.

· We view that Coalition Government is facing a major challenge and has a tremendous task for resolving this issue. On one hand, if Government does nothing it will be attacked badly by anti-Coalition Government crossparty alliance on a suicide mission for Mongolia who actually want exactly that and will try to maximize political scores during the election attacking the “weak” Government that has “submitted” to the foreigners. On the other hand, Government has to restore the confidence of investors. Damage to Mongolian assets and investor confidence in Mongolia globally has been enormous already, both top global Mongolian companies – IVN and MMC have been crushed in a way no one has ever seen, also added by global macroeconomic uncertainty. Credibility of Mongolia as politically stable investment destination has been substantially damaged.

· Based on track record of Coalition Government since the debate, discussion, signing and defense of OT IA up till now we believe that Coalition Government will rise to the occasion and resolve the situation.Why?1. It has no other choice. In order to win the elections, the Government must resolve the situation one way or another. Alternative would be destruction of all progress that Coalition Government has worked for since its establishment in 2008. 2. To go to court would be an economic suicide for Mongolia.3. The Coalition Government has the political power.4. Voters in general support OT, they do not want going back and they want stability most of all.

· Therefore, we adhere to our original view and believe that the situation will be resolved with some kind of minor deal to appease mass Mongolian public before the election. Alternative would be entering the election with having nothing to say to the public brainwashed by anti-OT alliance.

· Therefore, we view current dives at IVN and MMC as attractive BUY opportunities to enter for long term. IVN is essentially back to pre-OT IA levels, MMC is below IPO price. Until the situation is resolved, we expect substantial volatility.


Dale Choi

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