ANNUAL%20REPORT%202015%20eng

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Management Discussion and Analysis On 19 June 2015, the Law on Accounting and Law on Auditing were revised by the Parliament and have became effective since 1 January 2016. Under the revised Law on Accounting, a legal entity or any of its representatives who operate in Mongolian territory can record its financial transactions in a currency other than MNT, if agreed by the government authority in charge of finance and accounting. However, financial statements submitted to the relevant government authority shall be denominated only in MNT. Under the revised Law on Accounting, a company with one or more subsidiaries shall be required to submit consolidated financial statements. If its ultimate parent company is registered in a foreign country, the top parent company registered in Mongolia is obliged to issue consolidated financial statements. On the Law on Auditing, the main change was that the term for conducting audit service provided by an audit firm to a legal entity is extended to five consecutive years from three consecutive years. In accordance with these changes, the Group has undertaken required changes to its internal regulations and procedures related to taxation reporting in Mongolia. During 2015, the excise and customs duties of imported gasoline and diesel were increased by the GoM which has the authority to set the excise duty on imported gasoline and diesel within the range defined under the Law on Excise Tax and Parliament Resolution No.27, 1999. The changes include: (a) (b) (c) On 19 January 2015, the GoM issued Resolution No.18 and increased excise duty for imported diesel from MNT30,000 to MNT265,000 per tonne, and increased excise duty for gasoline with octane rate up to 90 from MNT30,000 to MNT252,000 per tonne and gasoline with octane rate above 90 from zero to MNT259,000 per tonne, which are imported through Sukhbaatar, Zamiin Uud, Ereentsav and Altanbulag border ports of Mongolia. Such resolution has become effective on 20 January 2015. On 16 February 2015, the GoM issued Resolution No. 65 and increased the customs duty for imported diesel and gasoline from 1% to 5%. This resolution has become effective from 18 February 2015. On 9 November 2015, the GoM issued Resolution No.438 and increased the excise duty of imported diesel via Sukhbaatar, Zamiin-Uud, Altanbulag at MNT520,000 per tonne and at MNT390,000 per tonne for diesel imported via Ereentsav. It also increased the excise duty for gasoline at MNT400,000 per tonne which are imported through Sukhbaatar, Zamiin Uud, and Altanbulag and MNT270,000 per tonne for gasoline imported via Ereentsav border ports of Mongolia. This resolution has become effective since 10 November 2015. Investment related legislation On 14 May 2015, the Parliament amended the Law on Investment such that certain powers vested in other government ministerial level body have been shifted to the Investment Agency. Pursuant to the relevant clauses under the Law on Investment, Energy Resources LLC (“ER”), an indirectly whollyowned subsidiary of the Company, has applied for the Stabilization Certificate according to the procedures prescribed by this Law. On 13 August 2015, the Stabilization Certificate was issued by the Investment Agency to ER. Effectively, ER now has four main taxes namely, corporate income tax, customs tax, VAT and royalty, stabilized for the period until 17 April 2033. Annual Report 2015 21
Management Discussion and Analysis BUSINESS OVERVIEW Coal Resources and Exploration Activities Ukhaa Khudag (UHG) deposit The UHG deposit sits within the 2,960 hectare Mining License MV-11952 (“UHG mining license”), granted to the Group effective for 30 years from 29 August 2006, extendable twice by 20-year periods. Since acquiring the UHG mining license, the Group has prepared three JORC compliant Coal Resource estimates, the most recent of which, stated as of 30 November 2015, represents only a minor update from the second estimate stated previously as of 31 December 2014. This most recent Coal Resource update has been made in accordance with the requirements of the JORC Code (2012), including in compliance with the most recent Australian Guidelines for the Estimation and Classification of Coal Resources (2014). Compared to the previous JORC Coal Resource estimate stated as at 31 December 2014, this update was made only on the basis of revised surface topography, to account for depletion as a result of mining activity between 1 January 2015 and 30 November 2015. No further exploration data was incorporated. Exploration activities conducted in the process of preparing the two preceding JORC compliant Coal Resource estimates and used by the Group to prepare the structural and coal quality geological models supporting the latest Coal Resource estimate as at 30 November 2015, included: 1,556 individual boreholes drilled for 191,275 metres (“m”), including 104,369m of HQ-3 (63.1 millimetres (“mm”) core, 96.0mm hole diameter) and 86,906m of 122mm diameter open hole drilling; 37,548 individual analytical samples collected and analysed; 71 kilometres (“km”) of high resolution 2D seismic in-field measurements, collected by Polaris Seismic International Ltd (“Polaris”) and analysed by Velseis Processing Pty Ltd (“Velseis”); and results from large-diameter, bulk-sample drilling samples analysed at the ALS Group laboratories in Ulaanbaatar. Internal peer audit of these latest structural and coal quality geological models was conducted by Mr. Gary Ballantine, employed by the Group as Executive General Manager of Exploration and Geology. This confirmed that the Group’s work to update the UHG geological model, and thus the Coal Resource estimate for the UHG mining license area, was in compliance with requirements of the JORC Code (2012). Figures reported based upon an in situ density at an as-received moisture basis are summarised in Table 2. By mine survey measurement, it is calculated that production activity between 1 December 2015 and 31 December 2015 has depleted the stated JORC Coal Resource by less than 1 Mt, and it is thus considered that such production activity has imparted no material change. With updated surface topography being the only new information used in preparation of the updated JORC Coal Resource estimate, and all other information and methodology remaining consistent with the previous JORC Coal Resource estimate, Appendix I of the Company’s 2014 Annual Report can be referred to for the detailed information required to be presented under the JORC Code (2012) upon release of a JORC (2012) Coal Resource estimate. 22 Annual Report 2015
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