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<strong>Eurasia</strong> <strong>Capital</strong> <strong>Mongolia</strong> <strong>Weekly</strong> May 24-28, 2010in food prices according to the statistical authority. Meat prices grew 15% y-o-y due to loss of livestockduring the severe winter. Government’s commitment to share revenues from mining contracts withpopulation and distribution of MNT115.9bn (about US$85mn) to 1.7 million people from the HumanDevelopment Fund as their share from the Oyu Tolgoi mining contract might also be contributing toaccelerating inflation. Inflation concerns forced the central bank to increase its policy loan interest ratefrom 10% to 11% effective from May 12.Money Supply Rose 6.3% in 4M2010The Central Bank reported that money supply (M2) at the end of April rose 6.3% m-o-m and 35.1% y-o-y.Loans outstanding fell 0.1% m-o-m but grew 7.2% y-o-y. The amount of NPL at the end of April declined3.7% m-o-m but registered a 1.5 time increase from April of the previous year.MNT Continues Appreciating against US$Last week MNT appreciated 0.42% w-o-wagainst US$ in the interbank market. The Bankof <strong>Mongolia</strong> lowered the official exchange rate0.38% w-o-w to MNT1,385.56 per US$.MNT/US$ Exchange Rate (Central Bank rate)14801460In foreign currency auction, there was notransaction made as commercial banks offeredto sell US$10mn versus MNT to the Bank of<strong>Mongolia</strong>.Our view. The trend is in line with our estimatethat MNT will be appreciating against the US$in 2010. US$ supply in the <strong>Mongolia</strong>n economyis likely to grow significantly due to foreigninvestments, particularly in mining, revenuesfrom resource exports and loans by theinternational financial institutions.144014201400138013601-Jan22-Jan12-Feb5-Mar26-MarSource: the Bank of <strong>Mongolia</strong>, <strong>Eurasia</strong> <strong>Capital</strong>16-Apr7-May28-May3
<strong>Eurasia</strong> <strong>Capital</strong> <strong>Mongolia</strong> <strong>Weekly</strong> May 24-28, 2010Financial Markets<strong>Mongolia</strong>n Stocks down 1.09% w-o-wMSE Top-20 index slid 1.09% w-o-w to9,515.59 mainly due to price decline in sharesof Baganuur (-6.45%), APU (-4.39%), BDSec(-3.85%), Bayangol Hotel (-2.13%) and ShiveeOvoo (-2.02%).The MSE weekly turnover decreased to a dailyaverage of MNT40.8mn last week, down fromMNT170.0mn last week.On the MSE, there were 37 company sharestraded and out of them, 12 stocks rose, 16declined and remaining 9 unchanged.MSE Top-20 Index Performance11,00010,0009,0008,0007,0006,0005,0004,000Source: MSEThe worst performers were Remicon (-26.56%), Darkhan Hotel (-14.98%), Sor (+14.58%) and Mongol Savkhi (-13.46%). The best performerswere Erdenet Khivs (+50.69%), Buligaar (+32.24%), Mongoliin Gegee (+14.49%), Eermel (12.07%) andMakh Impex (+11.59%).The most active traded stocks were Khukh Gan (weekly turnover of MNT75.5mn), Gobi (MNT34.6mn),Ulaanbaatar Hotel (MNT18.7mn), Shariin Gol (MNT16.3mn), Hermes (MNT14.6mn) and APU(MNT11.01mn)4-Jan18-Jan1-Feb15-Feb1-Mar15-Mar29-Mar12-AprTop-20 Trading Volume (MNT)26-Apr10-May24-May4,0003,5003,0002,5002,0001,5001,0005000Top-20 indexMNTmnM&A MonitorHunnu Coal acquisition of Tsant Uul deposit. On May 26, Australia listed Hunnu Coal announcedacquisition of 90% stake in Tsant Uul coal project covering 59,000 hectares. The project is located within40km of the giant Tavan Tolgoi coking coal field in Umnugobi province and approximately 6km from theexisting coal haulage road to China.Company completed due diligence programme comprising seven diamond core drill holes. Based on thisdrilling the company has estimated an exploration target of 50mn and 100mn tonnes of coal. Theacquisition of the Tsant Uul project added to Hunnu’s advanced Tenuun 2 and Khuree 2 coal projects, inthe same district.Hunnu Coal intends to become a major coal producer in the south Gobi province of <strong>Mongolia</strong>. TheCompany is also pushing ahead with its detailed review of the Unst Khudag thermal coal mine, and is indiscussions with a number of potential off-take partners, with the intention of starting mine operationsin 2010. Hunnu Coal is assessing further acquisition opportunities in the south Gobi and has aggressiveexploration programme for 2010.4
<strong>Eurasia</strong> <strong>Capital</strong> <strong>Mongolia</strong> <strong>Weekly</strong> May 24-28, 2010Our view. Positive for Hunnu Coal. The Company will gain a competitive advantage by obtaining anaccess to enormous coal resources located next to the world’s largest untapped coal mine and tomarkets, including China.Polo Resources sells its 50% holdings in <strong>Mongolia</strong>n JV. On May 24, Polo Resources announced the saleof 50% interest in Peabody-Polo Resources joint venture (JV) to Winsway Coking Coal Holdings. Under aMoU, Winsway should pay a non-refundable deposit of US$1.75mn to Polo and Polo has agreed to grantWinsway exclusivity till July 20, 2010. The parties will negotiate the terms of the deal for a considerationof US$15mn in cash, including the non-refundable deposit, and US$20mn payable within 12 months ofthe sale of Polo's interests in the JV in cash or, in certain circumstances, by the issue of shares inWinsway. Moreover, Polo receives a 1% royalty for coal sold from license areas currently held in the JV.Acording to the agreement, the royalty will not exceed US$50mn and will not continue for longer than25 years after completion of the JV sale. The JV has 56 coal and 26 uranium assets in <strong>Mongolia</strong>.Earlier in April Hopu Investment Management Co., together with two Chinese firms, has signed aUS$110mn deal to buy a 20% stake in Winsway Coking Coal Holdings. The company plans to use thecapital from the investment to expand its infrastructure. The other investors in Winsway areinvestment company Silver Grant International IndustriesLtd., a mainland China-backed firm withproperty and industrial investments in Hong Kong and China, and China Minmetals Corp., a stateownedmetals firm. Winsway Coking Coal is a subsidiary of Winsway Group, a major commoditiestrading and transportation company in China (coal from <strong>Mongolia</strong>, crude oil from Russia). Winsway isthe largest buyer of coal output from SouthGobi Resources.Our view. Positive for Winsway Coking Coal Holdings which is likely to emerge as a new <strong>Mongolia</strong> coalplay. We expect this company may consider launching a Hong Kong IPO in the next few years to raisecapital for its development plans in <strong>Mongolia</strong>.Mongol Gazar sells its share in Olon Ovoot. According to the <strong>Mongolia</strong>n newspaper Udriin Shuudan, onMay 28, Mongol Gazar, until recently <strong>Mongolia</strong>’s second largest gold miner, announced that it has soldits remaining shares in the Olon Ovoot gold mine to Just Group for US$130mn. After the transaction JustGroup owns 100% of the company. Just Group agreed to bear all responsibilities related with unpaiddebts, including loans of Zoos Bank and Anod Bank. Just Group, established in 1999, is a company withdiversified operations in such industries as oil products import, mining, agriculture, construction, foreignand domestic trading business.Corporate NewsMiningIvanhoe Mines advances the talks for Oyu Tolgoi financing. On May 21, Ivanhoe announced that it hassigned a joint mandate letter with the European Bank for Reconstruction and Development (EBRD) andthe International Finance Corporation (IFC) for evaluation of a financing package for the construction ofOyu Tolgoi mining complex. According to Ivanhoe, the EBRD and IFC with other two commercial bankswhich will be chosen by Ivanhoe will consider providing a two-part package consisting of:5
<strong>Eurasia</strong> <strong>Capital</strong> <strong>Mongolia</strong> <strong>Weekly</strong> May 24-28, 2010Mongol Keramic 650 149.6 207.3 1.00 0.14 0.44 9.5% 13.7% 71.8% 25.7%Gazar Suljmel 3,001 141.6 196.2 1.16 0.47 1.06 19.5% 40.3% 30.4% 12.5%Gan Khiits 780 136.5 189.1 -2.15 0.22 5.49 -2.0% -9.8% 15.2% -3.5%Source: MSE, <strong>Eurasia</strong> <strong>Capital</strong>International Listed Companies Performance, May 24– 28, 2010Name Ticker CurrencyClosePrice Performance MktCap52 Wkhigh52 WklowDailyturnover(52Wk)y-t-d w-o-w (US$mn) (US$mn)Ivanhoe Mines, Ltd. TSE:IVN CA$ 15.33 18.98 5.59 -1.16% 6.83% 6,413.01 15.845Centerra Gold Inc. TSE:CG CA$ 12.68 15.10 5.09 17.41% 11.52% 2,823.81 7.872<strong>Mongolia</strong> Energy Corp. HKG:0276 HK$ 2.87 5.79 2.54 -28.14% 6.72% 2,241.29 11.799SouthGobi Resources TSE:SGQ CA$ 12.65 20.39 8.91 -26.02% 23.54% 2,203.31 1.108EAST ASIA MINERALSCORPTSE:EAS CA$ 7.56 8.73 0.45 62.93% 10.04% 518.26 2.268Denison Mines Corp. TSE:DML CA$ 1.43 2.32 1.17 8.33% 6.72% 460.65 3.911Entree Gold Inc. TSE:ETG CA$ 2.28 3.59 1.02 -10.59% -3.80% 210.75 0.353Hunnu Coal Limited ASX:HUN AU$ 0.94 1.28 0.34 na na 127.85 naPetro Matad Limited AIM:MATD UK£ 49.25 62.00 13.00 170.27% 4.17% 100.53 10.739Polo Resources Limited AIM:PRL UK£ 3.70 5.95 3.60 na na 99.02 naProphecy ResourceCorp.CVE:PCY CA$ 0.61 0.86 0.30 na na 82.33 naBestway Intl. Holdings HKG:718 HK$ 0.20 0.59 0.17 -50.50% 14.45% 38.46 0.217Erdene Resource... TSE:ERD CA$ 0.42 0.70 0.20 48.21% 1.22% 35.11 0.090Khan Resources Inc. TSE:KRI CA$ 0.23 1.08 0.18 -63.49% 0.00% 11.76 0.206Source: Bloomberg, <strong>Eurasia</strong> <strong>Capital</strong>Property PriceResidential property prices in Ulaanbaatar1300120011001000900800700600500400Jan-06May-06Sep-06Jan-07May-07Sep-07Jan-08May-08Sep-08US$/sqmJan-09May-09Sep-09Jan-10May-10Source: <strong>Eurasia</strong> <strong>Capital</strong>13
<strong>Eurasia</strong> <strong>Capital</strong> <strong>Mongolia</strong> <strong>Weekly</strong> May 24-28, 2010M&A Deal SummaryTargetCompany (TC)BuyerBuyerCountryTCListingTC SectorTCReservesStake,%Deal TermsAnnounceDateSWFs dealsIron Mining China Investment Corp. CHN N/A Iron ore N/A N/A US$700mn 29.10.10Iron MiningSouthGobiResourcesSouthGobiResourcesRecent EBRD dealsEnergyResourcesTemasek Holdings/Hopu InvestmentManagementSG/CHNChina Investment Corp. CHN N/A Coal 122.3mntnChina Investment Corp.,Temasek HoldingsN/A Iron ore N/A N/A US$300mn 01.04.08CHN/SG N/A Coal 122.3mntnN/A US$500mn 26.10.10N/AUS$50mneach in HKIPOEBRD Int-l N/A Coal N/A N/A US$180mnloanAPU EBRD Int-l MSE Food &BeveragesPetro Matad EBRD Int-l AIM Oil & Gas 638mnbblsresourcesLeighton<strong>Mongolia</strong>Private Equity dealsNorth AsiaResourcesGroupFirst DeanHoldings LtdGobi Coal andEnergyOvoot CokingCoal ProjectTroy<strong>Mongolia</strong>n AltResourcesArgalant Gold-Copper ProjectPanAsianPetroleumWinswayCoking CoalErdenesThermal CoalProjectN/A N/A US$25mnconvertibleloan17 US$6mnconvertibleEBRD Int-l N/A Mining N/A N/A US$35mnloan29.01.1019.02.1022.01.1018.12.0910.11.09Green Global Resources CHN HKSE Iron ore 148.9mntn iron,180,000 tncopper*100 US$227mn 16.12.09Kiu Hung EnergyCHN HKSE Coal N/A 100 US$180mn 17.03.10Holdings LtdOrigo Partners Plc UK N/A Coal 320mn tn 21.3 US$15mn 27.11.09resourcesWindy Knob Resources AUS N/A Coal N/A 100 US$3.5mn 26.11.09+ SharesMeritus Minerals CAN N/A Gold N/A 100 US$0.5mn + 20.01.10SharesVoyager Resources AUS N/A Gold,CopperN/A 100 US$50,000+ Shares19.01.10Sunwing Energy Ltd CAN N/A Oil, gas N/A 100 All Shares 18.11.09Hopu Investment/ twoChinese firmsCHN N/A Coal N/A 20 US$110mn 02.04.10Hunnu Coal AUS ASX Coal 140-80 N/A 11.03.10180mn tn14
<strong>Eurasia</strong> <strong>Capital</strong> <strong>Mongolia</strong> <strong>Weekly</strong> May 24-28, 2010Ikh ShijirErdene LLC/Sun ProgressTsant Uul CoalProjectPolo-PeabodyJVOther dealsSolartech InternationalHoldingsCHN HKSE Gopper,gold, silver1.44mn tncopper, 4tn gold,196 tnsilverHunnu Coal AUS ASX Coal 50-100mntnWinsway Coking CoalHoldingsCHN N/A Uranium,CoalN/A US$192mn 04.05.1090 N/A 26.05.10N/A 50 US$25mn 26.05.10WesternProspectorCNNC CHN Delisted Uranium 20mn lbs(9,525 tn)Red Hill Energy Prophecy Resource Corp CAN TSX Coal 1.5bn tnresources69 US$18.5mn 15.04.09100 MergerAll SharesSMG Oil & Gas BKM Management AUS ASX Oil, gas N/A 100 All Shares,A$0.01/shareofferedSource: Bloomberg, <strong>Eurasia</strong> <strong>Capital</strong>21.01.1010.03.1015
<strong>Eurasia</strong> <strong>Capital</strong> <strong>Mongolia</strong> <strong>Weekly</strong> May 24-28, 2010ContactsAlisher Ali Djumanov CEO alisher.djumanov@eurasiac.comOyunbold GomboExecutive Director,oyunbold.gombo@eurasiac.com<strong>Eurasia</strong> <strong>Capital</strong> <strong>Mongolia</strong>Investment BankingMarat Utegenov Director marat.utegenov@eurasiac.comBekzod Kasimov Associate Director bekzod.kasimov@eurasiac.comTurbat Munkhsuren Analyst turbat.munkhsuren@eurasiac.comKhangai Tserenraash Analyst khangai.tserenraash@eurasiac.comResearchSardor Koshnazarov Head of Research, Oil & Gas sardor.koshnazarov@eurasiac.comDosbergen Musaev Analyst, Strategy dosbergen.musaev@eurasiac.comUlugbek AzamovAnalyst, Infrastructure,ulugbek.azamov@eurasiac.comPropertyAkmal Aminov Analyst, Metals & Mining akmal.aminov@eurasiac.comBatbayar Bat-Erdene Analyst, Metals & Mining batbayar.bat-erdene@eurasiac.comRentsendorj Yondon Analyst, <strong>Mongolia</strong> Equities rentsendorj.yondon@eurasiac.comZultsetseg Chuluunbat Analyst, <strong>Mongolia</strong> zultsetseg.chunluunbat@eurasiac.comBahadir Uskenbaev Analyst, Kazakhstan bahadir.uskenbaev@eurasiac.comSales and TradingDima Orazimbetov Director dima.orazimbetov@eurasiac.comZhyldyz Sadyralieva Associate zhyldyz.sadyralieva@eurasiac.comSherzod Rakhimov Analyst sherzod.rakhimov@eurasiac.comBolor Ulziisaikhan Broker bolor.ulziisaikhan@eurasiac.comEnkhbayar Davaatseren Trader enkhbayar.davaatseren@eurasiac.comAddresses:HONG KONG33/F One International Finance Centre1 Harbour View Street, Central,Hong KongTel.:+852 2824 8716Fax: +852 2166 8999MONGOLIASuite 71, 7 th Floor, Grand Office CenterJamiyangun Street 12, 1 st Khoroo,UlaanbaatarTel: +976 7013 0078Fax: +976 7013 0078UZBEKISTAN11A, Almazar StreetTashkent 100003Tel: +998 71 1403538Fax: +998 71 1403533CHINA11 th Floor, North Tower, Beijing Kerry CentreNo.1 Guang Hua Road, Chao Yang District,Beijing 100020,Tel.: +86 (0) 10 6599 7912Fax: +86 (0) 10 6599 9100KAZAKHSTANNurly Tau Business CenterBuilding 2B, office 505, 5 th Floor13 Al-Farabi AvenueAlmaty, 050059Tel: + 727 3111080RUSSIAMoscow Enbankment TowerBlock C, 18 Krasnopresnenskaya NaberezhnayaMoscow 123317Tel: +7 495 967 7676Fax: +7 495 967 7600©2009 <strong>Eurasia</strong> <strong>Capital</strong> Ltd. All rights reserved.DISCLAIMERThis report is made for information purposes only, and does not constitute an offer, solicitation of an offer to purchase, hold, sell, invest or make any other financial decision. In makingdecisions, investors may rely on their own examinations of the parties and risks involved. Information contained in this report is obtained from the sources believed to be accurate andreliable. Because of the possibility of human or mechanical error as well as other factors such information provided 'as is" without warranty of any kind and <strong>Eurasia</strong> <strong>Capital</strong> Ltd., inparticular, make no representation or warranty, express or implied, as to accuracy, timeliness, completeness, merchantability or fitness for any particular purpose of any suchinformation. Under no circumstances, <strong>Eurasia</strong> <strong>Capital</strong> Ltd. have any liability to any person or entity (-ies) for (a) any loss or damage in whole or in part caused by, resulting from, orrelating to, any error (negligible or otherwise) or other circumstances or contingency within or outside the control of any of their directors, managements, officers, employees, oragents in connection with compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential,compensatory or incidental damages whatsoever (including without limitation, loss profits) even if <strong>Eurasia</strong> <strong>Capital</strong> Ltd. is advised in advance of the possibility of such damages, resultingfrom the use of or inability to use, any such information.16
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