1. Economic assessment of the impact of
Mongolia’s foreign investment environment
and the proposed new mineral law
Dr Brian Fisher
Presentation to the Business Council of Mongolia,
18 March, Kempinski Hotel, Ulaanbaatar

2. Economic assessment of the impact of Mongolia’s
proposed new mineral law
Purpose and contents of the analysis
Purpose of the analysis: The analysis seeks to estimate the total impact (direct and indirect) of proposed new mineral
law implementation on the Mongolian economy (domestic and external sectors, households and government)
Contents:
• Role of the mining sector in the Mongolian economy
1
• Proposed new mineral law
2
• Methodology and assumptions used in the analysis
3
• Implications of the proposed new mineral law on the economy (model insights)
4
• Conclusions
5

3. The contribution of
mining to the
Mongolian economy

4. The mining sector became Mongolia’s export engine of
growth after the GFC
Mining sector impact on GDP and exports
Nominal GDP Exports
16 6
MNT t Mining sector Non-mining sector Mining Exports Other exports
US$ b
14
5
12
4
10
8 3
6
2
4
1
2
0 0
2009 2010 2011 2012 2009 2010 2011 2012
On average, the mining sector contributed around a quarter of national GDP over the past four years. After OT and TT reach
full capacity, the mining sector will make further significant contributions to the domestic economy. The GDP share has not
fully reflected the importance of the mining sector in recent years. From 2011, the mining sector has contributed more than
90% of total exports. Coal, copper and gold make up about 80% of mineral exports.

5. The growing demand for mining commodities and a
favourable business environment in the past have
attracted foreign direct investment into Mongolia
Mining sector impact on investment
Foreign direct investment Major foreign investment in the mining sector
5.0 4
US$ b Mining FDI Non-mining FDI US$ b MMC's IPO and Bond OT CAPEX
4.5 MAK loan from EBRD
3
4.0
3.5 3
3.0
2
2.5
2
2.0
1.5 1
1.0
1
0.5
0.0 0
2009 2010 2011 2012 2010 2011 2012
Of the total FDI inflow, US$8.6 billion or approximately 81 per cent has been injected into the mining sector in Mongolia in
the past four years. Of this percentage, OT alone has invested US$6.2 billion of CAPEX in its first phase. In 2012 the
Mongolian Mining Corporation (MMC), which owns one of the largest coking coal mines, Ukhaa Khudag, planned for its
capital expenditure on infrastructure to rise by approximately US$1.3 billion.

6. Income from the growing mining sector is a vital source
of finance for the Mongolian government
Mining sector impact on government revenue
Key taxes that apply to mining in Mongolia Budget revenue (MNT trillion)
6
Income Tax Revenue from sources other than mining
(10%-25%)
Export Revenue from mining (including prepayment)
Duties VAT 5
(none)
Import Withholdin 4
Duties g Tax
(5%) (20%*)
Mining
Tax 3
System
Tax Holiday Depreciation
(none) (Mainly 10 years) 2
Progressive
Royalties 1
Royalty
(5%) 37%
Loss Carry (0%-15%)
Forward 31% 23%
35% 27%
(4-8 years) 25%
0
*Subject to double taxation treaties 2007 2008 2009 2010 2011 2012
The government’s reliance on mining sector income has grown higher in recent years via both tax and non-tax income
collection. In the past four years the government earned MNT 4.2 trillion in tax income and MNT 0.75 trillion of prepayment
from the mining sector. Not only is direct tax income from the mining sector important, tax income from mining service
companies is also growing significantly. For example, a total of MNT 283.9 billion has been paid to local suppliers from Oyu
Tolgoi LLC in the past three years.

7. If the business environment is favourable a number of
mining companies are expected to commission
operations in the near future
Strategic Resource Classification
Number of projects
40 9 NEW
PROJECTS
35
30
25
20
15
10
5
0
2000 2008 2010 2011 2012 2013 2014 2015
copper coal gold iron ore
In the coming three years mining companies may implement nine new projects if business conditions are favourable. Coal
projects are likely to constitute the majority of new projects. It is estimated that the total investment in these new mining
projects could be US$6.3 billion by 2015.

8. Mineral law

9. The Mineral law is the main regulation affecting the mining
sector but there are many other laws that have an impact on
mining
Legislation relevant to mining projects
General Law
on Law on Land
Environment Subsoil
Protection
Law on Public Admin
Land Law
Explosives Law
Mining
Law on
Nuclear Health and
Protected Mineral Law
Energy Law Equipment
Areas
Certification
Competition Corporate
Labour Law
Law Law
Foreign
Law on Law on Land
Investment
Taxation Fees
Law
Foreign Long Named
Water Law Labour Force Environment
Laws^ Law*
^Sending Labor Force Abroad and Receiving Labor Force and Specialists from Abroad
*Law to Prohibit Mineral Exploration and Mining Operations at the Headwaters of Rivers, Protected Zones of Water Reservoirs and Forested Areas

10. Foreign investment environment needs to be stable in order
to continue to attract foreign capital
• The attractiveness of a country to foreign direct
investors is dependent on the domestic investment
environment, the stability of the policy regimes in
place and the effective tax rates imposed compared
with alternative investment destinations.
• An uncertain environment where tax rates and other
policies are unpredictable and where there is pressure
to re-negotiate established investment agreements will
be less attractive to investors than locations where
policies are stable and predictable and where
investment agreements, once established, are
honoured in full.

11. Impact of proposed new mineral law on exploration
companies is very negative
Relevant law article to the mining projects
Types of mining companies Summary of law implication
• Higher ownership requirement (up to 75% vs up to 50%)
• Impractical requirement for local involvement (at 60%
Big mining projects: OT, procurement, mandatory cooperation agreement with the
community in prospecting and exploration)
TT, EMC
• Prohibition of high grading (required to extract entire ore
without regard to the commercial value)
• Reduced financial incentive for investment (stabilization
Medium and small agreement is only available to strategic deposits, upfront closure
cost payment tying up the capital investment)
projects • Reduced security of tenure (if the stabilization agreement ceases
to comply with the interest of Mongolia, reopens the agreement
and the equity is transferred to Mongolia free of charge)
• Prohibitive minimum exploration expenditure requirements
Exploration companies (US$100k)
• Lack of transparency in the licensing process (Where a tender is
rejected or blocked, it locks up potentially prospective ground for
up to 4 years)

12. Despite potential future mining growth implementation of
the proposed mineral law and any failure to honour
existing investment agreements would restrict investment
Likely implication of the draft mineral law on mining companies
Impact Implication
1 • Decreased FDI (no investment on
Large mining • Higher ownership requirement underground at OT and West Tsankhi
projects (OT, TT, • Impractical requirement for local at TT)
EMC) involvement • More bureaucracy
• Costly operation
2 • Sharp decrease in FDI in domestic
• Prohibition on high grading companies listed abroad (no growth in
Medium and
• Reduced financial incentive for investment production)
small projects
• Reduced security of tenure • No additional investment in domestic
companies (no growth in production)
• New projects will not be launched
3
Exploration • Prohibitive minimum exploration expenditure • No additional exploration
companies requirements • Potential expropriation of a number
• Lack of transparency in the license process of existing small to medium size
companies

13. Methodology and
assumptions used in the
economic assessment of
the new mineral law

14. MINCGEMv2: A dynamic general equilibrium model with
detailed sectoral, national and government accounts
Methodology of the economic analysis of proposed new mineral law
Database: GTAP8 database Methodology: Dynamic CGE
Highest Impact:2020 XXX: 2025
(MINCGEMv2) (Computable General Key features
Equilibrium)
1 GTAP v8 database with a base 1 Dynamic multi-region, multi- CGE models ensure that the most
year of 2007 and covers 129 sector CGE model developed by
BAEconomics important economic identities
countries/regions across the and constraints (extremely
world and 57 commodity groups 2 Capable of simulating economic important for simulating long-
term scenarios):
scenarios over a long time
2 The MINCGEMv2 expands the horizon. Each time step is one • GDP measured by the
GTAP commodity groups to 71 year expenditure approach and the
and was aggregated into 10 income approach;
economies (Mongolia, China, 3 Demand for commodities in the
• Supply of capital, labour and
Russia, India and others*) and 20 model is determined by the natural resources;
commodities social accounting matrices of the • Market clearance of individual
 Mining (thermal coal, met coal, modeling regions, the prevailing markets;
copper, gold, oil, gas, coke, economic conditions and policy
CGE models are structured on • The relationship between the
petroleum and other minerals) settings
the basics of supply and demand. current account and the
 Agriculture (crops, livestock, Each sector of the economy is capital account;
4 linked by supply structured on
CGE models are and use of • The relationship between
fishing and forestry)
factors and intermediatedemand.
the basics of supply and inputs. government expenditure and
 Manufacture (Processed Food, Each sector of the economy is taxes;
Copper refining and linked by supply and use of are respected during each
manufacturing, other CGE models account for the
factors and intermediate inputs.
manufacturing) simulation time step.
industrial flow-on effects
5 CGE models account for the CGE models contain detailed
 Electricity triggered by shocks in other
parts of the flow-on and the
industrial economy effects industry cost structure and
 Transport bilateral trade information in their
economic feedback effectsother
triggered by shocks in that
databases such that substitution
 Construction
are of the economy and the
parts neglected in many between commodities and
 Public Administration, Defense, government policy analyses that
economic feedback effects competition between economies
Health and Education are neglected in many can be modelled explicitly
 Other services government policy analyses
CGE models have several features making them the most appropriate tool for policy and scenario analysis
*see detail in appendix

15. RunDynam software: for recursive dynamic models

16. Two scenarios were developed under the MINCGEM framework
to assess the macroeconomic implications of the new mining
law and instability in the investment environment
Assumptions in the alternative scenarios
New mineral law and
Existing mineral policy uncertainty
law scenario scenario
1
• All the existing mining projects will be • The current mining projects will be
Mining operated including the projects of operated* but new exploration projects will
production exploration companies be severely affected
2
• Commodity prices are based on • Commodity prices are based on
Mining consensus prices and discounted to consensus prices and discounted to
prices Mongolian border price Mongolian border price
• Additional FDI investment in the mining sector • Determined endogenously by an
3
• Thermal coal - US$1.4 billion alternative sectoral growth pathway
Mining FDI
(exploration
• Metallurgical coal - US$1.2 billion with lower FDI investment in the
& expansion) • Copper - US$8.7 billion mining sector
4 • Endogenously determined with the inclusions of • Determined endogenously by an
additional infrastructure projects alternative sectoral growth pathway
Infrastructure • Coal washing plant: with lower FDI investment in and lower
projects
• ETT and MMC demand for infrastructure projects
• Power plant:
• Tavan Tolgoi and Chandgana
* - Oyu tolgoi will only operate open-pit mining
** - Tavan tolgoi will only operate East Tsankhii

17. Production from the mining sector is projected to be
severely affected under the new mineral law and policy
uncertainty
Assumptions : Mining production volume (coal and copper as main commodities)
New mineral law and policy
Existing mineral law scenario uncertainty scenario
Coal* Coal*
200 200
Mt Mt
150 150
100 100
50 50
0 0
2005 2010 2015 2020 2025 2030 2005 2010 2015 2020 2025 2030
Paid Copper Paid Copper
1.2 1.2
Mt Mt
1.0 1.0
0.8 0.8
0.6 0.6
0.4 0.4
0.2 0.2
*included HCC,
0.0 0.0
SSCC, thermal
coal and washed 2005 2010 2015 2020 2025 2030 2005 2010 2015 2020 2025 2030
coking coal, Bef0re 2011 Mongolia’s thermal coal was mainly used in domestic consumption (power and heating).
Thermal coal exports began at the end of 2012 (November).

18. Price assumptions are based on latest consensus
prices from economists around the world
Assumptions : consensus prices (2013 real prices)
Thermal coal Coking coal
120
80 US$/t
US$/t
70 100
60
80
50
40 60
30 40
20
20
10
0 0
2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030
Copper Gold
400 1,800
USc/lb US$/oz 1,600
350
300 1,400
1,200
250
1,000
200
800
150 600
100 400
50 200
0 0
2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030
Coal price is discounted to Mongolian border price in the model

19. Modeling results

20. Mongolian economic growth would be 4 percentage
points a year lower on average over two decades under
the proposed new mineral law and policy uncertainty
New Mineral law impact on the GDP
Real GDP (MNT trillion, 2013 price) Average annual real GDP growth (%)
120 14
Existing mineral law scenario Existing mineral law scenario
12.4
New mineral law scenario New mineral law scenario
100 12
9.8
10
80
8 7.6
60 6.7
6
40
4
20
2
0 0
2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2013-2020 2021-2030
Under the new mineral law scenario, average GDP growth (2013-2030) would be 4 percentage points lower (7% vs 11%)
compared to what it would be under the existing mineral law. This translates to a MNT 358 trillion (in 2013 price) loss
over the period 2013-2030 which is 23 times greater than GDP in 2012
^Domestic suppliers, employees and government’s import purchase based on revenue from OT
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21. Mongolian GDP per person growth would be 4
percentage points a year lower over two decades under
the proposed new mineral law and policy uncertainty
New Mineral law impact on the GDP per capita
Real GDP per person (MNT million, 2013 price) Average annual real GDP per person growth
35 (%)
14
Existing mineral law scenario Existing mineral law scenario
New mineral law scenario New mineral law scenario
30 12
10.1
25 10
8.7
20 8
6.1
15 6 5.7
10 4
5 2
0 0
2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2013-2020 2021-2030
Under the new mineral law and policy uncertainty scenario, average GDP growth (2013-2030) would be 4 percentage
points lower (6% vs 10%) compared to what it would be under the existing mineral law. This translates to a MNT 106
million (in 2013 price) loss in 2013-2030 which is 19 times greater than GDP per person in 2012
^Domestic suppliers, employees and government’s import purchase based on revenue from OT
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22. All production sectors would experience significant
growth under the existing mineral law despite the
competition for labour and capital from the mining sector
Domestic Sectors
GDP by sectors (MNT trillion, 2013 price)
New mineral law and policy uncertainty
120 scenario
Existing mineral law scenario
Agriculture Mining
120
Agriculture Mining Manufacturing Transport
Manufacturing Transport 100 Services
100 Services
80
80
60
60
40 40
20 20
0 0
2013 2015 2017 2019 2021 2023 2025 2027 2029 2013 2015 2017 2019 2021 2023 2025 2027 2029
The size of the mining sector would at least 50% smaller under the scenario with the new mineral law and policy uncertainty.
The size of the other production sectors would also be significantly smaller. The positive effects generated by the mining
sector is far greater than the potential ‘Dutch disease’ effect.
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23. The proposed new mining law would have significant
impacts on international trade
External Sectors
Impact on international trade (MNT trillion, 2013 price)
Impact on exports Impact on imports
35 35
New mineral law New mineral law
scenario scenario
30 Existing mineral 30 Existing mineral
law scenario law scenario
25 25
20 20
15 15
10 10
5 5
0 0
2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030
By 2020, the total exports would exceed 12 trillion MNT (in today’s prices) under the existing mineral law. This is about
threefold what it would be under the new mineral law and policy uncertainty. Strong economic growth and
appreciation in the real exchange rate under the existing mineral law increases the purchasing power of domestic
households and thus increases the demand for imported goods.
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24. New mining law and policy uncertainty weakens the
domestic exchange rate of Mongolia in the short run and
reduces the purchasing power of domestic households
External Sectors
Impact on terms of trade and exchange rate (index, 2012=1)
Impact on terms of trade Impact on exchange rate
2.0 2.0
1.8 1.8
1.6 1.6
MNT depreciation
1.4 1.4
1.2 1.2
1.0 1.0
0.8 0.8
0.6 0.6
0.4 0.4
New mineral law scenario Existing mineral law scenario
0.2 0.2
Existing mineral law scenario New mineral law scenario
0.0 0.0
2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030
Strong export growth, coupled with steady increases in commodity prices before 2020, triggers a rise in the terms of
trade under the existing mineral law scenario. Rising terms of trade is strongly connected to the appreciation of the real
exchange rate before 2020. Rising terms of trade increase the purchasing power of domestic households and the
welfare of consumers.
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25. New mining law and policy uncertainty hurts private
consumption and reduces real wages (purchasing power)
Households
Impact on real consumption and real wages (index, 2012=1)
Impact on real wages Impact on real consumption
5.0 5.0
4.5 4.5
4.0 4.0
3.5 3.5
3.0 3.0
2.5 2.5
2.0 2.0
1.5 New mineral law scenario 1.5 New mineral law scenario
Existing mineral law scenario Existing mineral law scenario
1.0 1.0
2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030
By 2020, real consumption private household consumption under the existing mineral law scenario is 36% higher than
that under the new mineral law scenario. Fast labour productivity growth, driven by technology transfer from foreign
companies and ‘learning-by-doing’ under the existing mineral law scenario is the main driver of real wage increase. By
2020, average real wages under the existing mineral law are about 33% high than under the new mineral law scenario.
^only goods import (not included service import) БҮХ ЭРХ ХУУЛИАР ХАМГААЛАГДСАН © 2012, ОЮУ ТОЛГОЙ ХХК 25
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26. The proposed new mining law and policy uncertainty
would weaken the government’s financial position and its
capability to raise debt in the international market
Government
Impact on state budget (MNT trillion, 2013 price)
Total tax revenue
Tax revenue from mining
5.0 30
4.5
25
4.0
3.5
20
3.0
2.5 15
2.0
10
1.5
1.0
5
New mineral law scenario New mineral law scenario
0.5
Existing mineral law scenario Existing mineral law scenario
0.0 0
2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030
Under the new mining law, the government will receive considerably less tax from the mining sector and from other
parts of the economy. Over the projection period from 2013-2030, the government will receive 37 trillion MNT (in today’s
prices) less from the mining sector and 110 trillion MNT (in today’s prices) from the whole economy under the new
mining law with policy uncertainty, in comparison with the existing mineral law scenario. Note that dividends from
mining projects have not been included in these figures.
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27. Chinggis bond repayments in 2017 and 2022 would be
threatened by total revenue loss under the new mining
law implementation under policy uncertainty
Government
Impact on state budget (MNT trillion, 2013 price)
Total tax revenue loss under the new mineral law and policy uncertainty scenario
0
-2
-4 US$1.5 billion
-6 US$13.5 billion
-8
-10 *Period of 5yr Chinggis bond ^Period of 10yr Chinggis
payment (US$0.5 billion) bond payment (US$1 billion)
-12
-14
2012 2013 2014 2015 2016 2017* 2018 2019 2020 2021 2022^ 2023 2024 2025 2026 2027 2028 2029 2030
GoM raised US$1.5 billion in bonds from the international market in 2012 for the economic development of Mongolia.
If we assume there will not be any budget expenditure change (decrease based on revenue decrease), budget deficit
will be US$1.5 billion more than otherwise by 2017 and US$13.5 billion more than otherwise by 2022 under the
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^only goods import (not included service import)
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28. The negative impacts of the proposed new mineral law
and policy uncertainty on Mongolia are significant
Conclusions
Under the new mining law and policy uncertainty:
•Average GDP growth over the projection period (2013-30) will be 4 percentage points lower
(7% vs 11%) compared to what it otherwise would have been under the existing mineral law.
•Under the proposed mineral law all sectors of the economy would be significantly smaller
Economic than they would be under the existing mineral law. Strong growth in the minerals sector has
Sectors significant positive spillover effects on other sectors of the economy.
•From 2020 to 2030, total exports will be around 60% lower than what they otherwise would
have been under the existing mineral law. Total imports and Mongolian trading firms will
Households suffer a similar fate.
•By 2030, real private household consumption would be around 30% lower under the
proposed law with policy uncertainty. Average real wages would be around 35% lower than
Government
otherwise.
•Lower labour productivity growth is driven by fewer opportunities for Mongolians to learn
the latest technology from world leading companies. Technology transfer and ‘learning-by-
doing’ are the two key factors driving the economic success in East Asian countries.
•Over the projection period from 2013-2030, the government would receive 37 trillion MNT (in
today’s prices) less in taxes from the mining sector and 110 trillion MNT (in today’s prices)
from the whole economy, in comparison with the existing mineral law scenario thus poising a
significant threat to the budget and the government’s ability to implement its programs.
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29. Appendix

30. The Mongolian economy has grown significantly since
the GFC based on mining and service sector output
Domestic Sectors
Mining sector impact on GDP
Real GDP (MNT trillion, 2010 prices) Real GDP growth (%, y-o-y)
12 20
Agriculture Mining China
Manufacturing Construction downturn
10 Transport Service 17.5 impact
15
Net tax*
8
Coal
12.3
4.0 10.2
growth
10
3.5 8.8
6 2.8 2.8 3.0
2.4 GFC 6.4
5
4
1.8 2.2 0
2 1.8 1.7 1.9 2.1
-1.2
0 -5
2007 2008 2009 2010 2011 2012 2007 2008 2009 2010 2011 2012
Before 2010, Erdenet was the main contributor to the mining sector. Since 2010, coal sales have increased significantly based
on exports from MAK Chinhua, SGS Ovoot Tolgoi, Mini TT, ETT (East Tsankhi) and Ukhaa Khudag. Mining sector’s impact
on service^, construction^^ and external sector^^^ is high. As the result net tax increased significantly
*Net tax included VAT, excise tax from vodka & tobacco and taxes on foreign trade
^Directly: most of mining sector’s suppliers in service sector. Indirectly: most of consumption is contributed to service sector (whole and retail trade mostly) based on money inflow from abroad (mining export
revenue and investment to mining)
^^Infrastructure development based on mining
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^^^Mining export contributed around 90% of export and mining equipment and trucks import’ share is high in total import of Mongolia

31. Although the mining sector is the main contributor to export revenue,
import purchases by this sector are high due to the lack of domestic
companies that produce final goods such as fuel, electricity and other
machinery and equipment
External Sectors
Mining sector impact on external sector
Exports (US$ billion) Imports (US$ billion)
6 8
Copper Met coal Auto vehicles and their spare parts
Gold Crude oil Machinery and equipments
China 7 Diesel and petroluem
Other mining Non mining exports
5 downturn
Other imports
impact***
6
4 Coal
growth** 5
3 4
GFC*
3
2
2
1
1
0 0
2007 2008 2009 2010 2011 2012 2007 2008 2009 2010 2011 2012
The mining sector contributes the dominant share of total exports. About 80 per cent of mineral exports is made up of coal,
copper and gold. Mining related imports (mostly trucks, mining equipment, electricity, fuel) have increased significantly in
the past few years as the number of new mining projects grew quickly.
*Copper price declined by 70% after reaching a peak in July 2008 at the height of the global commodity boom
**New big coal mining projects and coal price structural change in 2011 (Before structural change (2010) Border average price is US$50/t , After it US$100/t)
***Coal border price declined by 15%, Copper border price declined by 13% relative to 2011

32. Although the mining sector is not a labour intensive
sector, impact on average wages is high
Households
Mining sector impact on households
Number of employees (million persons) Monthly average wage (MNT million)
1.0
Agriculture Mining Manufacturing Agriculture Mining Manufacturing
1.4
Construction Trade Transport 0.9 Construction Transport Service*
Otherservice
1.2 0.8
0.7
1.0
0.6
0.8
0.5
0.6 0.4
0.3
0.4
0.2
0.2
0.1
0.0 0.0
2007 2008 2009 2010 2011 2012* 2007 2008 2009 2010 2011 2012
Average salary in the public service increased by ~60% compared to 2011 (highest growth in education and health sector).
Average salary in the mining sector fell in 2012 due to the China downturn impact on coal prices.
**Electricity, whole sale and retail trade, hotels and restaurant, financial and insurance, public administration, education, health , community and personal service and other services

33. Only mining projects already operating will continue to
operate and all exploration projects will be closed given the
new mineral law and policy uncertainty’s impact on FDI
Assumptions : Mining production value (US$ billion, 2007 prices), by commodity and project type
New mineral law and policy
1 Existing mineral law scenario uncertainty scenario
Mining By commodity type By commodities
production 20 Other 20 Other
18 Copper 18 Copper
16 16
Met coal Met coal
2 14 14
12 Thermal coal 12 Thermal coal
Mining 10 10
prices 8 8
6 6
4 4
2 2
0 0
2005 2010 2015 2020 2025 2030 2005 2010 2015 2020 2025 2030
By project type By project type
20 20
Explorations and other Started other projects
18 18
Not started big projects**
16 16 Started big projects*
14 Started other projects 14
12 Started big projects* 12
10 10
8 8
6 6
4 4
2 2
*EMC, OT open pit, TT East Tsankhi 0 0
**OT underground, TT West Tsankhi
2005 2010 2015 2020 2025 2030 2005 2010 2015 2020 2025 2030
Mongolia’s thermal coal was used in domestic consumption (power and heating) only before 2012. Exports of this
product commenced in November 2012

34. Summary Findings
Economic Indicators (MNT trillion 2013 prices)
Now: By 2020 we expect:
2012 Existing mineral law New mineral law and policy
scenario uncertainty scenario
Real GDP 15.7 38.9 28.2
Exports 6.0 21.2 8.4
Imports 9.4 26.7 11.2
Real exchange rate 1.0 (index) 1.1 (index) 0.7 (index)
Real wage (purchasing power) 1.0 (index) 2.5 (index) 1.8 (index)
Tax revenue from mining 1.1 4.2 1.3
Total tax revenue 4.7 11.7 8.3
Real GNP 14.5 36.5 27.1
БҮХ ЭРХ ХУУЛИАР ХАМГААЛАГДСАН © 2012, ОЮУ ТОЛГОЙ ХХК 34
COPYRIGHT © 2012 OYU TOLGOI , ALL RIGHTS RESERVED

35. The world is divided into 10 economies in MINCGEM
Mongolia v2
1. Mongolia 6. Russia
7. Rest of Europe
2. China
8. North America
3. Japan, Korea and Taiwan
9. South America
4. India
10. Middle East and Africa
5. Rest of Asia and Oceania

36. Each economy is divided into 20 production sectors in
MINCGEM Mongolia v2
1. Thermal Coal 11. Livestock
2. Coking Coal 12. Fishing and Forestry
3. Oil 13. Processed Food
4. Gas 14. Copper refining and manufacturing
5. Copper concentrate 15. Other Manufacturing
6. Gold 16. Electricity
7. Other minerals 17. Transport
8. Coke 18. Construction
19. Public Administration, Defense, Health and
9. Nuclear & petroleum fuel
Education
10. Crops 20. Services

37. Summary description of new mining law implications
• HIGHER OWNERSHIP REQUIREMENT_ (1) 75%, 51% or 34% of the shared capital of the company holding a Mining
Licence, must be a Mongolian Citizen
• IMPRACTICAL REQUIREMENT FOR LOCAL INVOLVEMENT_ (1) 60% local procurement required – unable to be
supported by existing market; (2)Community cooperation agreements required for prospecting and exploration
tenements
• PROHIBITION OF HIGH GRADE MINING _(1) If companies are required to mine the entire reserve without regard to the
commercial value of the extracted mineral it will act as a deterrent to investment in the industry. The definition should include
an economic/commercial cutoff.
• REDUCED FINANCIAL INCENTIVE FOR INVESTMENT_ (1) The new legislation provides for DDAs to be negotiated for
strategic deposits only; (2) Upfront payment of closure costs - requires a deposit of a huge sum of the money tying up capital
for the life of the project; (3) Royalty structure (separate piece of legislature)
• REDUCED SECURITY OF TENURE_ (1)Minerals of strategic importance/percentage of state equity/equity obtained free of
charge (An investor may incur significant costs in exploration and appraisal risk that the GOM will take an unspecified interest
in the project)
• PROHIBITIVE MINIMUM EXPLORATION EXPENDITURE REQUIREMENTS _ (1) prohibitive min expenditure
(US$ 100K) for all but the most successful projects. Mongolian and international juniors not likely to be able to meet min
spend requirements.
• LACK OF TRANSPARENCY IN THE LICENSE PROCESS_ (1) tender process – prone to corruption. Ability to increase
royalties; may be tendency to place this above other criteria such as capacity and experience. Where a tender is rejected
or blocked, it locks up potentially prospective ground for up to 4 years.