According to leading Mongolian daily “ Unuudur” at meeting organized yesterday by President of Mongolia Ts.Elbegdorj and attended by Prime Minister S.Batbold and Parliament Speaker D.Demberel, Deputy Parliament Speakers N.Enkhbold and G.Batkhuu, MPP Caucus Leader U.Enkhtuvshin and DP Caucus Leader Ch.Saikhanbileg , President has said

· World is now listening and watching Mongolia especially investors

· Democracy does not mean that anyone can make statements, pressure and demand

· OT is historic development for Mongolia

· We must treat OT with position that deficiencies can be fixed later

· OT, which is 3-4 times larger than Erdenet, cannot be stopped

· Europe is facing crisis, copper price has dropped from 9000 USD to 6000,it is certain that this is impacting investors negatively

· I estimate that 1 of every 3 MNT of our economic growth is coming from OT

· Therefore to stop and create obstacle for OT is damaging to Mongolia and every Mongolian

· Policymakers should treat any issue based on national interests

· There are many things to discuss with investors. I wish Government would work and support investors in establishing new source of electrical power and develop infrastructure

· It is necessary to bring up closer production start period even by 1 day

· Let’s have social issues of Mongolian employees resolved. Let’s have family work, let’s have school for children to study and kindergarten, a hospital

· It is necessary to work with investors on issue to establishing plants where spouses of OT workers can work

· Because of our internal condition reputation of Mongolia before foreign market and investors has been significantly damaged. We don’t want lose whatever small reputation we already gained.

· Also, there are also issues with the investors. Making statements and comparing Mongolia with Africa. This kind of situation provokes arguments. Let’s just talk without doing such things. Let’s start finding a way out sitting face to face. It is necessary to talk and solve in Ulaanbaatar OT issues. If necessary , a closed session of Parliament can be announced and investors and Government should sit down together and discuss.

· I don’t want to OT become a political and election subject

· I want to call on everybody - let’s all together build up productive development of 21st century of Mongolia

Prime Minister said:

· I am grateful that OT issue is being discussed

· We introduced the issue to investors, they expressed that they treat our issue with respect

· We must establish together OT productive development

· We made requirement that from next year there must real benefits and profits to Mongolia starting from next year

Parliament Speaker said:

· I hope that there are no MP-s that think of disrupting or stopping OT project activities

· Significant part of OT project expenses are spent on electrical power. Mongolia must establish power plant and find profit.

· Falling copper price and signs of crisis in some countries and similar foreign conditions must be accounted for

· People want stable politics

· I agree with President and Prime Minister

President commented

· It turns out OT can make Mongolia’s name either good or bad

· Politicians should work based on national interests

Deputy Parliament Speaker N. Enkhbold said:

· During OT controversy Ivanhoe Mines stock price have dropped significantly. In correspondence to that, OT productive development will slow down. Mongolians don’t want that. I am pleased that leaders of the state have one position on this issue.

President concluded

· State of Mongolia can deliver on trust of investors. It is necessary to show that we are indeed a country that delivers on its word, means absolute yes when it says yes.

· This meeting has shown that state and government leaders of Mongolia have united position of this issue

The Joint statement by the Government of Mongolia, Ivanhoe Mines and Rio Tinto said

1. Ivanhoe Mines, Rio Tinto and the Government of Mongolia have concluded discussions on the two aspects of the Investment Agreement that were raised by the Government of Mongolia, and are pleased to confirm that all parties have reaffirmed their continued support for the Investment Agreement and its implementation.

2. The Government of Mongolia has once again confirmed that the Investment Agreement was signed in full compliance with all laws and regulations of Mongolia.

3. Since the signing of the Investment Agreement, Mongolia has achieved international stature as one of the countries most attractive to foreign investment. Mongolia's economy has become one of the fastest growing economies in the world. The people of Mongolia are reaping great benefit from the construction of the Oyu Tolgoi project and stand to benefit even more when the project becomes operational.

4. The Investment Agreement has also formed the basis for the construction of Oyu Tolgoi, which recently passed the 50% completion mark and is expected to begin initial production during the third quarter of next year. To reach this point, US$2.6 billion have been invested by Ivanhoe Mines and Rio Tinto and a significant amount has been committed to bring Oyu Tolgoi into production.

5. Section 15.30 of the Investment Agreement provides that "Upon mutual consent recorded in writing, the Parties may amend or modify this Agreement". Ivanhoe Mines and Rio Tinto acknowledge that the Government of Mongolia acted in accordance with this provision of the Investment Agreement in seeking to discuss these changes. Ivanhoe Mines and Rio Tinto respect the position of the Government of Mongolia and appreciate their continued support for the Investment Agreement.

6. The shareholders are united in their commitment to secure the necessary project finance and bring the Oyu Tolgoi Project to completion and full production for the benefit of the nation of Mongolia. All stakeholders, investors, lenders, employees, contractors, civil society and local communities can have full confidence in the future of Oyu Tolgoi.

Frontier Securities conclusion:

1. As forecasted by Frontier Securities few days ago, Coalition Government did rise to the occasion. We are pleased to note as well apparent instrumental leadership of the President, Chairman of National Security Council. We expected the Government to resolve the situation but we did not expect this so quick and swift. Which is great response to restore confidence of investors in Mongolia , a move apparently applauded by the market.

2. We forecasted minor pre-election deal after continuous negotiations. In this context, no deal is better than the minor deal. Minor deal already happened with revision of shareholder agreement and another minor deal would have set up a precedent of never ending minor deals, creating “constant deal” anxiety, damaging investors’ confidence altogether. However, we view that very likely that some sort of unformal minor deal has been struck in some manner to create more benefits to Mongolia. That Coalition Government can use to its advantage in elections.

3. It would naïve to expect that game is over. OT as No.1 achievement of Coalition Government is No.1 target for anti-Coalition political forces. We expect considerable black PR/media and campaign over this development and increasing attacks on OT IA as the elections get closer. However, it appears that establishment in the meaning of President, Government and Parliament Caucuses have decided that it went too far this time and we view that Coalition Government would be able to defend OT until the elections and beyond.

4. Lesson for OT investors from this crisis is that more attention should be paid to development of political support among Mongolians themselves for the defense of OT IA. And this can be done through even greater local procurement, demands on international suppliers to open local branches, supplying from local branches, creating local jobs, so on and so on. Mongolians themselves should be more politically active, empowered and stand up for their own interests. In this context notable are recent vocal statements in defense of OT from Mongolian OT suppliers, Business Council of Mongolia and so on. Good axiom in this context is that “ Everybody needs to push everybody”. We view that people of Mongolia support political stability and OT.

5. Therefore, we reiterate our BUY for longterm rating on Ivanhoe Mines.


Dale Choi

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