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Mongolian railroad authority official clarifies to frontier securities regarding reported delay of Mongolian rail plans

In regards to Reuters report  of February 10, 2012, Mongolian rail network expansion plan is delayed till 2017 (http://www.reuters.com/article/2012/02/10/mongolia-coal-idUSL4E8DA29120120210) L.Purevbaatar,  Vice Chairman of the Mongolian Railroad Authority clarified to Frontier Securities on February 17,2012

-          This is not correct information. Perhaps the sources misinterpreted the original statement that “the date of commissioning  of the railroad has been postponed till 2017”. 185th resolution of June 2011 by Government of Mongolia provides for bringing up closer date of commissioning of railroad and start 1st and 2nd phases simultaneously ( east and south). In another words, it has been decided to start both ER(MMC) railroad and Sainshand (Mongol Railroads) railroads simultaneously. Regarding ER(MMC) railroad, complete feasibility studies, design plan and funding is ready, so construction and commissioning of its railroad is a matter of only 1-2 years. However, 1st phase to be built by state is still at feasibility study and environmental impact assessment stage. Once the complete feasibility study and the design drawings of the 1st phase are complete, it will take 42 months or approximately 3.5 years to construct the railway meaning that the 1st phase is most likely to be completed by 2017. As for the financing issue, the Government is considering 2 alternative versions with the 1st one being an option to raise funds through the Development bank. The 2nd version is to list 49% of the state-owned Mongolian Railway Corporation on stock exchange. In any case, we are fully committed to start the railway construction as early as 2013.

-          We view that since 1st phase will take  considerable time, so it is better to start constructing on priority and availability railroads for which design drawing and feasibility study are ready and which are ready to be constructed, commission them and increase exports

-          Railroad between TT and Chinese border will not be used only by ER(MMC), it will also be used by Erdenes TT and TT strategic investor. This road must be built immediately. TT mining is related to this railroad. ER(MMC) railroad must be started constructed immediately.

-          Design and funding for this railroad are already resolved. Our Railway Authority, based on resolution of the Government has issued railroad permission to ER(MMC). Just now we extended it by 3 years. Taskforce has made a conclusion recently on issue of railroad gage. Direction of TT-Chinese border has been approved by 32nd resolution of Parliament.  There are also opportunities now to build other railroads

Dale Choi

Chief Investment Strategist,

Frontier Securities