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SUMITOMO IS IN CHARGE OF THE MAIN SALES THEREFORE IS TO INVEST MAJORITY


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SUMITOMO IS IN CHARGE OF THE MAIN SALES THEREFORE IS TO INVEST MAJORITY

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Tavantolgoi Investors have been announced on January 5th and consortium of Sumitomo Japan, Shenhua China and Energy Resources Mongolia have won the bids, followed by the series of negotiations. First phase of which have focused on current situation, financials and Gashuunsukhait railroad.

Parties have reached the mutual understanding. Minister of State M.Enkhsaikhan have reported on the negotiation progress and announced that this week two major meetings are to be conducted involving the extended working groups.

How far the negotiations went?

Mongolia is not to bear any financial risks. Therefore, we have proposed the investors to come up with their versions of concession agreements. Mongolian side represented with over 30 officials including Ministers of Mining, Foreign Affairs, Justice, Road and Transportation and Investment Agency have reviewed the initial concession agreement draft and have concluded that it covers all the issues and matters to be concerned of.

This is the important result. Basing on the first outcomes we are conducting the second phase of negotiations with extended working groups. We are reporting the negotiations progress to the Government of Mongolia and National Security Council. This is important to have integrated context on mega projects like this one, as it will be the milestone for other projects.

How the investments are to be funded?

Investors to provide 30 percent of the total investments from their own sources, while remainder 70 percent will be raised from the capital markets involving international banks and financial institutions. Sumitomo is in charge of the main sales therefore is to invest majority. Meaning, Sumitomo will provide about 20-30 percent of the total investments required.

What are the issues that have been addressed during the negotiations?

Negotiations are half done. We have negotiated on what issues to be covered and what agreements to do. Second phase of the negotiations are focused at coming up with solutions.

We are aiming at processing plants for production of the value added products and are linking the railroad projects here as well. There are issues with regulating the relations of State Owned Companies Erdenes Tavantolgoi and Mongolian Railways. On top of investment agreement and railroad concession agreements.

What has been agreed so far?

Agreement scope is very broad. One agreement covers over 80 issues. It is hard to report on each of them as of now. There are many issues in the investment and concession agreements to comply with Mongolian legislation. Moreover, we are working on fulfilling the investors’ requirements and comply to international standards as well.

What are the investors’ requirements?

 There are many. We understand that their main focus is on the sustainable and successful implementation of the project. We are representing Government of Mongolia and during the negotiations there are requirements to comply with international standards, as the investors are to raise funds from international capital markets and banks. We have initially agreed on mutually beneficial strategy. This further ensures the transparency and innovation in the talks.

What are the economic benefits of the project?

Yesterday during the progress reports at the State Great Khural we have briefly introduced on the economic benefits for this project. If the negotiations are successful total multiplier effect over 30 years is calculated to be at USD 94 billion.

The project is sure to have high economic benefits. What is important here, there are many sensitive issues to be discussed during the negotiations. Therefore, second phase negotiations for this week are as well very important.

What about 1072 shares?

1072 is not the share that can be transferred over. There are no dividends for those. We are working to make it work. 20 percent of Erdenes Tavantolgoi has been transferred into 1072 shares.

Investments are to be directed at debt payments and operations and it is obvious that 1072 shares can be still frozen. We have reported on this matter to the State Great Khural, further we are to solve this issue.

Why the investments are to be raised from the financial market? There is possibility to raise funds from the capital markets as well?

The project is estimated for at least 30 years and there is no potential investor to invest in Mongolia, as Mongolia is considered as risky in terms of the investments. In this regard, investors usually stay away from such risks.

In order to diversify the risks investors seek for the financial markets. We are being positive, but we are not hiding anything.


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