GOVERNMENT OF MONGOLIA CHINGIS BOND FIXED INCOME INVESTOR UPDATE

Transcription

1 GOVERNMENT OF MONGOLIA CHINGIS BOND FIXED INCOME INVESTOR UPDATE November 2012

2 DISCLAIMER This presentation is being made to you based on your deemed representation to each of Deutsche Bank AG, Singapore Branch, The Hongkong and Shanghai Banking Corporation Limited, J.P. Morgan Securities plc, Merrill Lynch (Singapore) Pte. Ltd. and TDB Capital LLC (the Joint Lead Managers ) that either (i) you are not a resident of the United States and, to the extent you purchase the securities described herein you will be doing so pursuant to Regulation S under the US Securities Act of 1933, as amended (the Securities Act ) OR (ii) you are acting on behalf of, or you are, a qualified institutional buyer, as defined in Rule 144A under the Securities Act. This presentation is being communicated only to persons who have professional experience in matters relating to investments and to persons to whom it may be lawful to communicate it (all such persons being referred to as relevant persons ). This presentation is only directed at relevant persons and any investment or investment activity to which the presentation relates is only available to relevant persons or will be engaged in only with relevant persons. Solicitations resulting from this presentation will only be responded to if the person concerned is a relevant person. Other persons should not rely or act upon this presentation or any of its contents. THIS PRESENTATION DOES NOT CONSTITUTE AN OFFER OR INVITATION TO PURCHASE OR SUBSCRIBE FOR ANY SECURITIES OF THE GOVERNMENT OF MONGOLIA AND NEITHER ANY PART OF THIS PRESENTATION NOR ANY INFORMATION OR STATEMENT CONTAINED HEREIN SHALL FORM THE BASIS OF OR BE RELIED UPON IN CONNECTION WITH ANY CONTRACT OR COMMITMENT WHATSOEVER. THE SECURITIES HAVE NOT BEEN, AND WILL NOT BE, REGISTERED UNDER THE SECURITIES ACT, OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER JURISDICTION AND MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES, EXCEPT PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND ANY APPLICABLE STATE OR LOCAL SECURITIES LAWS. ANY INVESTMENT DECISION SHOULD BE MADE ON THE BASIS OF THE FINAL TERMS AND CONDITIONS OF THE SECURITIES AND THE INFORMATION CONTAINED IN AN INFORMATION MEMORANDUM AND/OR OTHER MATERIALS THAT WILL BE DISTRIBUTED TO YOU PRIOR TO THE CLOSING DATE AND NOT ON THE BASIS OF THIS PRESENTATION. This presentation is confidential and has been prepared by the Government of Mongolia for selected recipients for information purposes only. The Joint Lead Managers do not make any representations or warrant the completeness or accuracy of the information contained herein, nor have they independently verified such information. Opinions and estimates constitute the sole judgment of the Government of Mongolia as of the date of this material and are subject to change without notice. In addition, certain information and statements made in this presentation contain forward-looking statements. Such forwardlooking statements can be identified by the use of forward-looking terminology such as anticipate, believe, considering, depends, estimate, expect, intend, plan, planning, planned, project, trend, and similar expressions. All forward-looking statements are the Government of Mongolia's current expectation of future events and are subject to a number of factors that could cause actual results to differ materially from those described in the forward-looking statements. Caution should be taken with respect to such statements and you should not place undue reliance on any such forward-looking statements. Certain data in this presentation was obtained from various external data sources, and the Government of Mongolia has not verified such data with independent sources. Accordingly, Government of Mongolia makes no representations as to the accuracy or completeness of that data, and such data involves risks and uncertainties and is subject to change based on various factors. Past performance is not indicative of future results. Any securities, financial instruments or strategies mentioned herein may not be suitable for all investors. The recipient of this presentation must make its own independent decision regarding any securities of financial instruments. The Joint Lead Managers may act as market maker or trade on a principal basis, or have undertaken or may undertake to trade for their own account, transactions in the financial instruments or related instruments of any issuer discussed herein and may act as underwriter, placement agent, advisor or lender to such issuer. The Joint Lead Managers and/or their employees may hold a position in any securities or financial instruments mentioned herein. 2

3 SUMMARY OF OFFERING Issuer Programme Description Issuance Principal Amount Tenor Issuer Ratings Government of Mongolia ( GoM ) US$5,000 mm Global Medium Term Note ( GMTN ) Program Senior Unsecured Notes US$ Benchmark 5 years and/ or 10 years Moody s: B1 (Stable) / S&P: BB- (Stable) / Fitch: B+ (Stable) Expected Issue Ratings Moody s: B1 / S&P: BB- / Fitch: B+ Form of Notes Listing Use of Proceeds Governing Law Joint Bookrunners Joint Lead Managers Regulation S / 144A Notes SGX-ST Finance infrastructure and industrial projects in Mongolia (via both debt or equity injections), including but not limited to mining, railways, roads, highways and power plants. Proceeds will not be used to fund the general budget nor social welfare programs New York Law Bank of America Merrill Lynch, Deutsche Bank, HSBC, J.P. Morgan Bank of America Merrill Lynch, Deutsche Bank, HSBC, J.P. Morgan, TDB Capital 3

4 KEY INVESTMENT HIGHLIGHTS 1 One of the Fastest Growing Economies Globally 2 Large Mineral Resource Base that Can be Leveraged for Industrialization 5 Strengthening Financial Sector 3 Attractive Environment for FDI and Trade 4 Proven Fiscal Track Record Augmented by Forward Looking Initiatives 4

5 AGENDA 1 MONGOLIA OVERVIEW 2 KEY INVESTMENT HIGHLIGHTS 5

6 MONGOLIA OVERVIEW Largest land per capita, enormous natural resources, well positioned for rapid economic expansion Close Proximity to the Largest Global Resource Markets Nominal GDP 2011 in USD billions Population 2011 in millions RUSSIA US$1, Mongolia s key advantages 11. LARGEST LAND / CAPITA Territory: 1.6 million sq km Population: 2.8 million Relatively YOUNG POPULATION with the HIGH LITERACY rate among emerging economies MONGOLIA US$8 3 CHINA US$7,318 1,344 One of the fastest growing economies globally Large mineral resource base that can be leveraged for industrialization Attractive environment for FDI and trade Proven fiscal track record augmented by forward looking initiatives Strengthening financial sector S.KOREA US$1, JAPAN US$5, ABUNDANCE OF UNEXPLOITED NATURAL RESOURCES Located close to some of the LARGEST global commodity MARKETS 33. FLOURISHING DEMOCRACY IN THE REGION Tested with 6 CONSECUTIVE SUCCESSFUL democratic ELECTIONS GDP/Capita $2,824 $7.9b Nominal GDP (2011) 17.5% Real GDP Growth Economy could grow at double-digit rates for at least the next decade, raising per capita income (now at US$3,503) fourfold within a decade - Parmeshwar Ramlogan, Former resident representative for Mongolia IMF, July 2011 Source: World Bank 6

7 Mongolia China Sri Lanka Nigeria Vietnam Bolivia Ukraine Philippines Lebanon Mongolia Vietnam Nigeria Bolivia Ukraine Sri Lanka Lebanon Philippines China ONE OF THE FASTEST GROWING ECONOMIES GLOBALLY Real and Nominal GDP Emerging Sovereign GDP Growth Comparison Emerging Sovereign Inflation Comparison (US$ mm) 32.3% 0.5% 27.7% 31.8% YoY GDP Growth in 2011 YoY Inflation in % (1.3%) 6.4% 17.5% 18,6% ,5% ,2% 8,3% 6,8% 5,9% 5,1% 5,1% 3,7% 10,2% 10,6% 8,0% 8,0% 6,9% 5,5% 4,8% 4,1% 1,7% Real GDP (US$ mm) YoY growth of Real GDP Nominal GDP (US$ mm) YoY growth of Nominal GDP Mongolia continues to outperform its peers in the emerging markets, demonstrating robust growth momentum while maintaining moderate levels of inflation Source: National Statistical Office of Mongolia, Moody s country reports; Note: Exchange rate (MNT/USD) uses corresponding year end rate, 1, (2007), 1, (2008), 1, (2009), 1, (2010), 1, (2011), 1, (June 30, 2012) (1) Using annualized nominal GDP in MNT, which equals the nominal GDP as at June 30, 2012 multiplied by two 7

8 31/12/05 31/12/06 31/12/07 31/12/08 31/12/09 31/12/10 31/12/11 30/6/12 Mongolia Vietnam Nigeria Bolivia Ukraine Sri Lanka Lebanon Philippines China 5,9% 10,2% 10,6% 6,8% 8,0% 5,1% 8,0% 5,1% 6,9% 8,3% 5,5% 1,7% 4,8% 3,7% 4,1% 9,2% 17,5% 18,6% ONE OF THE FASTEST GROWING ECONOMIES GLOBALLY (CONT D) Diversified Earnings Drivers and Revenue Base Stable Exchange Rate and Growing Foreign Reserves Expanding GDP with Manageable Inflation Financial and Insurance 3,4% Manufacturing 6,0% Real estate activities 6,9% Transportation and storage 7,1% Others 19,1% Wholesale and retail trade; repair of motor vehicles and motorcycles 9,2% Mining and quarrying 21,0% Net taxes on products 15,0% Agriculture, forestry and fishing 12,3% , , , , , , , ,18 Total Nominal GDP (US$ mm): 7,940 CAGR (1) ( ): 22.3% Source: Bank of Mongolia, 2012 YoY Inflation Real GDP Growth Government Revenue Breakdown (2011) Non-tax revenue 11,5% Direct taxes 29,5% Others 5,9% Indirect taxes 53,1% Total Revenue (US$ mm): 3,151 CAGR (1) ( ): 23.7% Net Foreign Reserve and Import Cover ,5 8,4 6,6 5,3 5,2 2, YTD Net Foreign Reserve Foreign Reserves Import Cover Trends of Inflation and Real GDP Growth 35,0% 25,0% 17,5% 20,0% 25,0% 22,1% 13,2% 17,8% 15,0% 10,2% 8,9% 13,0% 14,7% 4,2% 10,2% 10,0% 15,0% 5,0% 6,4% 5,0% 0,0% (1,3%) (5,0%) (5,0%) (10,0%) (15,0%) (15,0%) (20,0%) (25,0%) (25,0%) H2012 Inflation Real GDP Growth Source: National Statistical Office of Mongolia, Bank of Mongolia; Note: Exchange rate (MNT/USD) uses corresponding year end rate, 1, (2007), 1, (2008), 1, (2009), 1, (2010), 1, (2011), 1, (June 30, 2012) (1) CAGR is calculated by using nominal GDP and total revenue in MNT during the period respectively 8

9 LARGE MINERAL RESOURCE BASE THAT CAN BE LEVERAGED FOR INDUSTRIALIZATION Growing Share of Mineral Sector in the Economy Minerals Main Composition of Total Exports (2011) (US$ mm) 5,3% 3,0% 2,3% 9.2% Coal Copper 63.8% 81.0% 2, % 4, % 12,1% 20,9% 47,2% Others Iron ores & scrap Crude oil Zinc Gold 1, % 39.0% 2,262 Mongolia s World Class Mineral Reserves Main Mineral Resources Estimated Reserves (YTD 2012) Copper (thousand tons) 83, H2012 Total Exports Mineral Exports % of Nominal GDP Mineral Exports % of Total Exports Coal (mm tons) 18,473 Gold (tons) 2,402 Total coal exports are estimated to exceed 30 million tons at the end of 2014 once railway infrastructure is in place and is expected to further increase to 50 million tons by 2017 Lead (thousand tons) 1,740 Iron ore (mm tons) 1,047 Mongolia continues to outperform its peers in the emerging markets, demonstrating robust growth momentum while maintaining moderate levels of inflation Source: National Statistical Office of Mongolia, Erdenes MGL (1) Using annualized total exports, which equals the total exports as at June 30, 2012 multiplied by two 9

10 LARGE MINERAL RESOURCE BASE THAT CAN BE LEVERAGED FOR INDUSTRIALIZATION (CONT D) Silver 6.4 mm tons Copper / molybdenum ore 1.2 bn tons Gold ore mm tons Iron ore mm tons Uranium mm tons Asgat Phosphorite 300 mm tons Lignite coal mm tons Lignite coal mm tons Coal 7.5 bn tons Metallurgical coal mm tons Copper 37mm tons Gold 1,431 tons Burenkhaan Erdenet Boroo Tavan Tolgoi Nariin Sukhait Gurvanbulag Tumurtoi Mardai Dornot ULAANBAATAR Baganuur Shivee Ovoo Tsagaan Suvarga Oyu Tolgoi Tumurtein Ovoo Uranium mm tons Uranium mm tons Zinc 7.7 mm tons Copper / molybdenum ore 10.6 mm tons of oxides; mm tons sulphides Mongolia has vast and diverse under developed mineral deposits, providing the economy with significant long-term upside potential This slide outlines the 15 strategic deposits that have been identified by the Mongolian government. The deposits cover a broad basket of minerals, ranging from coal, copper, gold, iron ore, molybdenum, phosphorite, rare earth oxides, silver, uranium, and zinc 10

11 LARGE MINERAL RESOURCE BASE THAT CAN BE LEVERAGED FOR INDUSTRIALIZATION (CONT D) Oyu Tolgoi Overview Tavan Tolgoi Overview Oyu Tolgoi is one of the world s largest copper reserves. It is expected to produce more than 0.6 million tons of copper, 20.3 tons of gold and 93.8 tons of silver per annum once it reaches full production in 2018 As of August 2012, US$6.2 billion has been invested by Rio Tinto and Turquoise Hill. Production is expected to commence in 2013 Strategically located in the South Gobi region of Mongolia, approximately 550 km south of Ulaanbaatar, and 80 km north of the Mongolia - China border The Government of Mongolia owns 34% of the project According to the Australasian Joint Ore Reserves Committee, the Tavan Tolgoi formation, is one of the world s largest under-developed coal deposits with an estimated 7.4 billion tons of coking and thermal coal resources Strategically located in the South Gobi desert near the Chinese border Target coal production of approximately 6 to 7 million tons at both East and West Tsankhi in 2013 One of the financing options considered is to conduct an initial public offering ( IPO ) of Erdenes TT s shares Tavan Tolgoi is one of the world s largest underdeveloped coal resources capable of supporting large-scale, long-life mining operations, while Oyu Tolgoi is believed to be the world s largest underdeveloped copper-gold project, the commencement of operation in these projects will drive Mongolia s GDP growth Source: Tavan Tolgoi website, Turquoise Hill website; (1) Erdenes TT is the company that holds GoM s interests in Tavan Tolgoi 11

12 LARGE MINERAL RESOURCE BASE THAT CAN BE LEVERAGED FOR INDUSTRIALIZATION (CONT D) Establishing Direct Links to the Seaports of China and Russia to Improve International Market Access 5,600km of new railways will be built in 3 phases Direct railroad access to mining deposits Establishing export routes to Russia and China 990km highway to be constructed to promote cross border trade Existing Railways Existing Railways in Russia and China Phase I Phase II and III Potential seaports and seaways Both China and Russia have discussed the possibility of establishing trade zones in strategic locations in proximity to the highway Planned investments in transportation infrastructure will improve direct access to Chinese and Russian seaports and further accelerate export growth by tapping more distant markets Source: Ministry of Roads and Transportation of Mongolia 12

13 ATTRACTIVE ENVIRONMENT FOR FDI AND TRADE China and Russia Mongolia s Most Important Trading Partners 1H2012 Imports Total Trade Volume (US$ mm) Others 46,3% Russia 27,0% Russia China 26,7% Mongolia 1H2012 Exports Russia 1,5% Others 4,5% China Source: National Statistical Office of Mongolia Close Relationship with Russia and China China 94,0% H2012 Exports Imports Commitments to Free International Trade Mongolia has a long history of international trade, driven by its strategic location China is Mongolia's largest trading partner and one of the largest investors in Mongolia's mining projects Mongolia and Russia have a long history of cooperation, signing a Joint Declaration of Cooperation and a bilateral trade agreement in 1991, and a Treaty of Friendship and Cooperation in 1993 Trade Agreements: Has complied with the General Agreement on Tariffs and Trade ( GATT ) 1994 upon its accession to the WTO Currently negotiating free trade agreements with China, Japan, South Korea and the EU. The EU is Mongolia's third largest trading partner by volume and value Mongolia is strategically located with direct access to China and Russia, two of the largest markets in the world. Trade volumes are expected to grow alongside GDP as output increases 13

14 ATTRACTIVE ENVIRONMENT FOR FDI AND TRADE (CONT D) Rapidly Growing FDI into Mongolia Breakdown of FDI by Industry 8.5% (US$ mm) 16.2% 12.5% 24.4% 58.2% 40.9% 0,8% 0,2% 1,2% 4,4% 0,6% 0,4% 17,9% 26,1% 30,5% 6,0% 4,1% 0,8% 3,1% 4,0% 7,1% 24,4% 21,0% 67,5% 68,4% 80,4% 66,3% 84,7% 74,8% H2012 Source: Foreign Investments and Foreign Trade Agency As % of Nominal GDP Recent Changes in Regulations Relating to Foreign Investments Foreign Investment Protection and Promotion Agreement with 43 countries A foreign investor may apply for a stability agreement to govern their investment 121 projects to be implemented with private sector participation H2012 Information and communication technology Banking and financial services Geology exploration Construction Others Prudent Regulatory Framework Supporting the Industrial Sector Minerals Law: Government is able to acquire an up to 50% stake in strategic deposits if it has contributed to exploration and up to 34% if there was no contribution Progressive Royalty Rate scheme. Rates increase as mineral prices rise and are not applicable below certain threshold mineral prices Rates are lower for processed minerals to encourage mining companies to engage in more value-added activities FDI into Mongolia continues to be dominated by the Mining and Exploration sectors as the Government continues to prudently open these industries to outside investment Source: Foreign Investments and Foreign Trade Agency of Mongolia (1) Using annualized imports and exports, which equals the imports and exportd as at June 30, 2012 multiplied by two 14

15 ATTRACTIVE ENVIRONMENT FOR FDI AND TRADE (CONT D) Government Overview Government type: Mixed parliamentary/presidential Head of State: President (elected for a term of four years) Executive branch: Prime Minister and Cabinet, appointed by the State Great Khural (the Parliament ) in consultation with the President Legislative branch: State Great Khural (unicameral, 76 seats; members are elected for a term of four years) Suffrage: 18 years of age; universal State structure: Unitary state; territory of Mongolia is divided administratively into 21 aimags (provinces) and the capital city Balanced Parliamentary Composition and New Coalition Government Parliamentary Election 2012 (76 seats) Independent Civil Will- 3,9% Green Party 2,6% Justice coalition (New MPRP and MNDP) 14,5% MPP 32,9% Seats under dispute/ reelection 5,3% Democratic Party 40,8% Current government is a coalition government consisting of the Democratic Party, Justice Coalition and the Civil Will- Green Party Mongolia is a vibrant and true democracy with stable institutions and a high degree of rule of law. The population is young and with a high literacy rate Recent Developments with High Priority Countries / Organizations China: Strategic partnership agreement in 2011, together with eight other agreements on economic and technical cooperation, expanding cooperation in the petroleum sector, and an agreement of cooperation with the Export-Import Bank of China The Bank of Mongolia has RMB10 billion (USD 1.6 billion equiv.) local currency swap line with the People s Bank of China ( PBoC ) for the purpose of financing trade between the two countries and providing short term RMB liquidity for stabilization of financial markets Russia: In 2003, in order to encourage bilateral trade and investment ties between the two countries, Russia wrote off outstanding debt between 1946 and 1991 In January 2009, Mongolia and Russia announced a joint venture to develop uranium deposits located in Dornod Germany: In October 2011, Germany and Mongolia signed several trade and cooperation agreements in relation to mining, manufacturing & technology International Organizations: On March 17, 2011 the Government and the United Nations signed the United Nations Development Assistance Framework ("UNDAF") for 2012 to 2016 In 2009, the IMF provided Mongolia with a US$242 million loan facility under the 2009 Stand By Program, of which US$194 million has been drawn [Add upgrades by ADB/IFC?] The Mongolian government continues to further develop relationships with key trade partners and international organizations 15

16 PROVEN FISCAL TRACK RECORD AUGMENTED BY FORWARD LOOKING INITIATIVES Manageable Levels of Public Sector Debt (US$ mm) 51,1% 36,6% 31,0% 45,2% 35,5% 32,2% 36,1% 31,0% 30,4% 27,6% ,3% (1) 759 (1) 30,1% Recent Developments with High Priority Countries / Organizations Fiscal Stability Law: The budget deficit in any given year shall not exceed 2% of GDP Total expenditure growth rate of the budget should not exceed the growth rate of nominal non-mineral GDP for the given year of the proceeding 12 months External debt should not exceed 50% of GDP for 2013 and 40% of GDP for H2012 Total Public Sector Domestic Debt Total Public Sector External Debt Total Public Sector Debt as % of Nominal GDP External Debt as % of Nominal GDP Fiscal Stability Fund ( FSF ): Any excess mineral revenues that exceed the amount estimated in the budget's revenue are to be placed in the FSF The FSF must represent at least 5% of the GDP in any given fiscal year A portion of the savings generated by the FSF may be used to finance domestic and foreign investments Future Bond Issuances: The proceeds from the bond offering will not be used to fund the general government budget or general welfare programs The 2013 budget policy guideline outlines the framework for continued economic growth while establishing fiscal discipline through the Fiscal Stability Law Source: National Statistical Office of Mongolia, Moody s Country Reports Note: Exchange rate (MNT/USD) uses corresponding year end rate, 1, (2007), 1, (2008), 1, (2009), 1, (2010), 1, (2011), 1, (June 30, 2012) (1) Using annualized nominal GDP, which equals the nominal GDP as at June 30, 2012 multiplied by two 16

17 PROVEN FISCAL TRACK RECORD AUGMENTED BY FORWARD LOOKING INITIATIVES (CONT D) Government Revenues and Budget Balance Trends in Select Components of Government Revenue (US$ mm) 37,9% 33,1% 30,3% 37,2% 39,7% 38,5% (% of Nominal GDP) 21,1% 22,4% 2,7% (4,5%) (5,2%) ,5% (1) (3,6%) (4,4%) ,5% 15,2% 16,3% 15,7% 13,8% 12,5% 13,7% 11,7% 11,7% 12,1% 7,1% 5,3% 4,6% 4,5% 4,0% 3,9% 2,3% 0,5% 0,3% 0,3% 0,5% 0,5% H2012 Other Revenue Non-tax Revenue Tax Revenue Fiscal Surplus/Defict as % of Nominal GDP Total Revenue and Net Lending as % of Nominal GDP H2012 Indirect taxes Direct taxes Non-tax revenue Others Government revenues, boosted by the strong mining sector with the receipts and a booming economy, have increased by a CAGR (1) of 23.7% from 2007 to 2011, with the deficit still well covered by GDP Source: National Statistical Office of Mongolia; Note: MNT/USD = Note: Exchange rate (MNT/USD) uses corresponding year end rate, 1, (2007), 1, (2008), 1, (2009), 1, (2010), 1, (2011), 1, (June 30, 2012) (1) Using annualized nominal GDP, which equals the nominal GDP as at June 30, 2012 multiplied by two 17

18 PROVEN FISCAL TRACK RECORD AUGMENTED BY FORWARD LOOKING INITIATIVES (CONT D) Government Expenditures and Net Lending (US$ mm) Trends in Select Components of Expenditures (% of Nominal GDP) 114 (234) (237) (33) (280) (409) 35,3% 6,0% 37,6% 9,5% 35,5% 36,6% 7,0% 7,0% 43,2% 47,4% 9.6% 9,8% 351 7,6% 6,0% 6,0% 5,7% 9,5% 8,7% 8,3% 7,7% 7,8% 7,0% 7,0% 6,0% 6,2% 9,8% 9,6% 9,1% 7,2% 6,6% 6,0% ,1% 0,5% 1,0% 1,0% 0,7% H H2012 Net Lending Budget Deficit Capital Expenditure Current Expenditure Total Expenditure and Net Lending as % of Nominal GDP Capital Expenditure as % of Nominal GDP Wages and salaries Subsidies to public enterprises Purchase of goods and services Capital expenditure On the back of higher global mineral prices, development of new mines, and increased fiscal spending, Mongolia s growth momentum has been fully supported and will continue to see positive tailwinds Source: National Statistical Office of Mongolia, Bank of Mongolia 18

19 STRENGTHENING FINANCIAL SECTOR Monetary Policy Overview Historical Policy Rate The Bank of Mongolia s policy objectives are twofold Maintain inflation at low and stable levels Allow exchange rate flexibility in line with macroeconomic fundamentals 6,4% 8,4% 10,3% 9,8% 12,8% 10,0% 11,5% 12,3% 13,3% To effect its policy, the Bank of Mongolia relies on 6 key tools: The Policy Rate to directly target inflation Reserve Requirements to affect broad money supply Open Market Operations to absorb excess liquidity FX Market Intervention to control exchange rate volatility Repo Facilities to manage intra-day liquidity Medium-term Price stabilization program with the Government Lie 07 Lap 07 Rgs 08 Lap 08 Geg 09 Rgs 09 Bal 11 Spl 11 Bal 12 Policy Rate YoY Inflation Rate 28,0% 17,8% 22,1% 13,0% 10,2% 14,7% 8,0% 9,6% 4,2% 10,1% 9,2% 7,2% H2012 YoY Inflation Rate Annual average inflation The Bank of Mongolia continues to play an active role in safeguarding the economy, mobilizing tools to curb inflation, maintaining competitiveness of Mongolian exports, and supporting economic growth Source: National Statistical Office of Mongolia, Bank of Mongolia 19

20 Million USD STRENGTHENING FINANCIAL SECTOR (CONT D) Togrog is relatively immune to FX supply shocks Commodity Currency Volatility 500 Stability since March 2009 Daily average volatility: 0.08% in % in Currencies (last 34 months) Daily average volatility (%) Maximum depreciation per day (%) Maximum appreciation per day (%) MNT (Mongolia) (1) 0.20% 1.26% 1.69% AUD (Australia) 0.61% 3.50% 3.67% CAD (Canada) 0.47% 2.13% 2.53% NZD (New Zealand) 0.65% 3.05% 3.28% RUB (Russia) 0.50% 2.55% 3.18% CLP (Chile) 0.49% 2.24% 4.78% SAR (South Africa) 0.00% 0.07% 0.07% BRL (Brazil) 0.63% 3.76% 5.05% NOK (Norway) 0.63% 2.20% 3.23% FX Net flows Togrog referance rate, RHS The Togrog has remained relatively stable since 2009 with daily average exchange rate volatility at 0.08% from the beginning of 2012 and 0.24% in 2011 TZS (Tanzania) 0.33% 9.09% 4.55% PGK (Papua New Guinea) 0.17% 2.27% 2.52% Average (ex-mnt) 0.45% 3.09% 3.29% The Togrog has remained relatively stable versus other commodity currencies since 2010 Source: Bank of Mongolia, Bloomberg (1) Data from Bank of Mongolia 20

21 STRENGTHENING FINANCIAL SECTOR (CONT D) Increasing Money Supply Stable Capital Adequacy Improving Quality of Outstanding Loans (US$ mm) (US$ mm) (US$ mm) 17,1% ,0% 11,1% 13,3% 15,1% 14,8% 15,4% ,4% ,0% 72 5,8% 4,9% , ,2% H2012 M1 M H2012 Capital CAR (%) H2012 Performing Loans Non-performing Past-due NPL Ratio Mongolia s banking sector continues to expand in line with the economy while maintaining a healthy degree of capitalization and low incidence of loan delinquency Source: National Statistical Office of Mongolia Note: Exchange rate (MNT/USD) uses corresponding year end rate, 1, (2007), 1, (2008), 1, (2009), 1, (2010), 1, (2011), 1, (June 30, 2012) (1) Using annualized M2 in MNT, which equals the M2 as at June 30, 2012 multiplied by two 21

22 OVERVIEW OF GOVERNMENT PROJECTS Mongolia s Planned and Ongoing Industrial and Infrastructure Projects Sector Commencement Date Estimated Completion Date Investment Size (US$ mm) 1. Mining N/A 6,200 (1) 2. Road Construction , Railway 2012/ , Power 2011/ , Sainshand Industrial Park ,500 Mongolia is actively developing various industrial and infrastructure projects to support its mining industry and economic growth Source: Mineral Resource and Petroleum Authority of Mongolia, 2011, ResCap Mongolia 101, January 2012 Note: Exchange rate (MNT/USD) uses corresponding year end rate, 1, (2007), 1, (2008), 1, (2009), 1, (2010), 1, (2011), 1, (June 30, 2012) (1) The accumulated investment amount as of August 31, 2012 for Oyu Tolgoi 22

23 KEY INVESTMENT HIGHLIGHTS 1 One of the Fastest Growing Economies Globally 2 Large Mineral Resource Base that Can be Leveraged for Industrialization 5 Strengthening Financial Sector 3 Attractive Environment for FDI and Trade 4 Proven Fiscal Track Record Augmented by Forward Looking Initiatives 23

24 GOVERNMENT OF MONGOLIA Appendix

25 KEY ECONOMIC INDICATORS As at 31 December Key Parameters As at 30 June Nominal GDP (US$ mm) 4,237 5,172 4,568 6,693 7,940 4,609 Real GDP (US$ mm) 3,111 3,127 2,713 3,311 3,503 1,810 Real GDP growth 10.2% 8.9% (1.3%) 6.4% 17.5% 13.2% Nominal GDP per capita (US$) 1,620 1,957 1,697 2,444 2,824 - Unemployment rate 9.2% 9.2% 11.6% 9.9% 7.7% 8.4% Inflation 17.8% 22.1% 4.2% 13.0% 10.2% 14.7% (3) Fiscal Surplus/ Deficit (% of nominal GDP) 2.7% (4.5%) (5.2%) 0.5% (3.6%) (4.4%) (1) Total debt (% of nominal GDP) 36.6% 30.8% 50.6% 28.8% 28.4% 28.6% (1) Current account balance (% of nominal GDP) 4.1% (13.1%) (7.7%) (10.7%) (30.0%) (30.5%) Net foreign exchange reserves (US$ mm) ,145 2,091 2,274 2,910 Banking sector Capital adequacy ratio 14.0% 11.1% 13.3% 15.1% 14.8% 15.4% Non-performing loans ratio 3.3% 7.2% 17.4% 11.5% 5.8% 4.9% Loan to deposit ratio 97.0% 135.7% 102.3% 75.2% 95.0% 98.1% Stock market capitalization (2) (US$ mm) ,093 1,553 1,412 Exchange Rate (2) (USD/MNT) 1, , , , , , Source: Bank and National Statistical Office of Mongolia, Statistical Yearbooks of 2010 and 2011 and June 2011 Monthly Bulletin (1) Using annualized nominal GDP, which equals the nominal GDP as at June 30, 2012 multiplied by two. (2) Period end data (3) Compared against June 30,

26 SOVEREIGN COMPARISON Emerging Market Sovereign Risk Indicators: Economic Data (As at Dec 2011) Asia-Pacific Latin America CEEMEA Mongolia Philippines Sri Lanka Vietnam Bolivia Venezuela Ukraine Belarus Lebanon Nigeria Government Bond Ratings Moody's B1 Ba2 B1 B2 Ba3 B2 B2 B3 B1 - S&P BB- BB+ B+ BB- BB- B+ B+ B- B B+ Fitch B+ BB+ BB- B+ BB- B+ B - B BB- Economic Structure and Performance Nominal GDP (US$ bn) Nominal GDP per Capita (US$) 2,824 2,341 2,741 1,418 2,386 10,705 3,610 4,802 8,895 1,515 Nominal GDP (% change) 31.8% 12.6% 15.3% 17.1% 24.0% 33.5% 19.9% (17.0%) 2.7% 24.9% Real GDP (% change) 17.5% 3.7% 8.3% 5.9% 5.1% 4.2% 5.1% 5.3% 1.7% 6.8% Inflation (% change) 10.2% 4.8% 6.9% 18.6% 8.0% 28.5% 8.0% 53.2% 5.5% 10.6% Government Finance Revenue / GDP 39.7% 14.6% 14.9% 25.7% 34.8% 34.9% 42.0% 40.3% 21.6% 29.5% Primary Balance / GDP 8.4% 0.8% (1.4%) (3.2%) (0.2%) (1.3%) (0.3%) 0.7% 2.8% 0.8% Debt (US$ bn) Debt / GDP 28.4% 41.9% 78.5% 43.7% 32.2% 25.2% 27.1% 25.3% 135.1% 19.1% External Payments and Debt Current Account Balance (US$mm) (2,759) 7,078 (4,615) ,205 (9,006) (10,440) (5,707) 14,381 Current Account Balance / GDP (30.0%) 3.1% (7.8%) 0.2% 2.2% 8.6% (5.5%) (15.7%) (14.4%) 6.3% Net FDI / GDP 58.2% 0.6% 1.5% 6.0% 3.6% 1.7% 4.3% 7.10% 8.6% 2.4% Forex Reserves (US$mm) 2,274 75,346 6,748 14,347 12,054 28,447 31, ,327 36,797 Monetary Indicators M2 (% change) 37.0% 6.5% 20.5% 11.9% 20.7% 54.4% 14.2% 121.2% 5.4% na Source: Moody s Country Report, Bank and National Statistical Office of Mongolia, Statistical Yearbooks and December 2011 Monthly Bulletin Note: Exchange rate (MNT/USD) uses corresponding year end rate 1, (2011) 26