Sharyn Gol JSC. Enkhbayar Davaatseren March 2011

Transcription

1 31-Dec 28-Feb 30-Apr 30-Jun 31-Aug 31-Oct 31-Dec 28-Feb MNT thousands 29 November March 30, , 2010 MSE Ticker/Code SHG/309 Equity Research/Metal & Mining/Initiation Equity Research coverage Mongolia Sharyn Gol JSC Stock Data Rating BUY Price, MNT 23,300 Price, US$ Target price, MNT 40,288 Upside potential 73% Historical high, MNT 35,099 52Wk Range, MNT 2,700-35,099 Mkt cap, MNTbn 196 Mkt cap, US$mn 160 Avg daily turnover US$ 56,061 Free float, % 5.7% YTD performance, % 122% Key indicators Gross margin, 2011E 31.6% EBITDA margin, 2011E 25.9% EV/Resource, US$/t 0.4 Dividend yield 0% Share Price, MNT Source: MSE Company Snapshot Sharyn Gol JSC is a thermal coal producer listed on the Mongolian Stock Exchange. The Sharyn Gol mine is one of the oldest coal mines in Mongolia dating back 46 years to its first production. During the peak time of production, extraction reached 2.5 mtpa of thermal coal. Current production is 0.5 mtpa where approximately 80% of production is supplied to Darkhan and Erdenet Thermal Power Plants (TPP). NY-based Firebird Fund is a 61% shareholder and has recently instituted new management and is working to convert the company into a western style coal company through an ongoing full-scale restructuring initiative. Enkhbayar Davaatseren [email protected] We initiate coverage of Sharyn Gol JSC, a Mongolian thermal coal miner with a BUY recommendation. Our target price of MNT 40,288/share ($32.23/share) implies approximately 72.9% upside potential to the current price of MNT23,300/share. Our valuation method combines DCF and comparative valuation based approaches using an EV/Resource multiple. We believe that the DCF valuation reflects the short/medium term view of regulated electricity selling prices domestically hence we place some weight on our EV/Resource multiple valuation as underpinning the long term potential of the company. Mongolia is a candidate for being one of world s largest coal exporters to emerging markets of the global economy, given its undeveloped world class resources, cost advantages and relatively easy access to large consumers like China and Russia. An engine to privatize electricity market has begun as the government s privatization plan from includes a 24% stake privatization of Baganuur thermal coal mine reaching 49% interest in private hands, privatizations of Thermal Power Plant-3 and Erdenet Thermal Power Plant by concession agreement and 100% stake privatization of the Power Distribution Company. As Sharyn Gol mine is directly connected to the Trans Mongolian railway through a rail spur, the coal product can be transported from the mine site to both local and foreign sale points, giving a transportation cost advantage. Notwithstanding the existing mine's current strip ratio of 6:1 translating into high mine gate cost, we are encouraged by the new pit that has a strip ratio of 3:1 as well as increasing coal exports through the direct access to the Trans Mongolia rail system that have an immediate see-through to materially higher profitability. New income stream: With plans for increased production, the company is developing a strategy to access international export markets, providing premium income streams. ResCap Securities view: Sharyn Gol is one of our regional top picks due to its high quality thermal coal suitable to export to the international market through an already established railway from mine gate, one of the most transparent companies on the MSE and strong corporate governance with both international and local mining and finance experience. Risk to our rating: Thermal coal price volatility; greater than expected capex and operating costs and delay in implementation of the restructuring programs; greater than expected bargaining power of coal users and coal traders operating in Russia; and fund raising through issuing shares on the capital markets may negatively impact the stock price by supply side pressure to the current illiquid MSE market. March 2011

2 Table of contents INVESTMENT THESIS 3 INDUSTRY ANALYSIS 4 KEY MODEL ASSUMPTIONS 6 VALUATION 10 RISKS TO TARGET PRICE 13 COMPANY BACKGROUND 15 ANNEX I MANAGEMENT TEAM 17 ANNEX II MAJOR COAL MINES IN MONGOLIA 19 ANNEX III FINANCIAL STATEMENTS 25 March

3 Investment thesis We initiate coverage of Sharyn Gol JSC, a Mongolian thermal coal miner with a BUY recommendation. Our target price of MNT40,288/share ($32.23/share) implies 73% upside potential to the current price of MNT23,300/share. Our valuation method combines a DCF model and comparative valuation based on EV/Resource multiples. Sharyn Gol is an MSE publicly listed domestic thermal coal producer, catering to the needs of Darkhan and Erdene thermal power plants and some local clients. The company recently announced a quadrupling of its JORC resource following a 17,000 meter drilling program. The Company is beginning to increase coal exports, resulting in sales volume growth of two times by The existing mine s current strip ratio of 6:1 translates into a high mine gate cost, however Sharyn Gol s new mine has a strip ratio of half existing (3:1) and both mines are very well-connected to the Trans Mongolia railway. This has resulted in low transportation costs offsetting the operating costs and increasing the profit margin from coal exports. Firebird, a New York based fund, is the majority shareholder and joins management of the company which represents a major differentiating factor among MSE listed companies with strong corporate governance and western-based practices. The stock currently trades at US$0.4 per tonne EV/Resource which is a significant discount to its internationally listed peers that are already in production. Sharyn Gol is the only mining company on the MSE to have an international standard resource statement (JORC code) with thermal coal product suitable for export to international markets. The initial steps to privatizing the electricity market has begun as the Mongolian government s privatization plan includes a 24% stake privatization of the Baganuur thermal coal mine decreasing the government s interest to 51%, privatizations of Thermal Power Plant-3 and Erdenet Thermal Power Plant by concession agreement and 100% stake privatization of the Power Distribution Company. The liberalization of the electricity market would be a positive for local thermal coal prices, giving wider profit margin to thermal coal producers like Sharyn Gol. As the mine is directly connected to the Trans Mongolian railway through a rail spur, the coal product can be transported from the mine site to both local and foreign sale points, providing a cheap transportation cost advantage. A new international institutional shareholder and experienced management (Firebird) provide further investor confidence for the potential of the company s future wealth creation through growth and expansion. With plans for increased production, the company is developing a strategy to access international export markets, providing premium income streams versus existing sales channels. March

4 Industry analysis Coal mining in Mongolia Mongolia is a candidate for being one of world s largest coal exporters to emerging markets of the global economy In Mongolia there are dozens of coal mines in the exploration, development and production stages with a combined estimated coal resource of over 150bn tonnes with varying quality from low-grade coal- lignite to highquality bituminous coking coal. The country possesses over 100 coal deposits and about 300 occurrences. Most of them are proven but have not been developed due to a lack of infrastructure and capital to date. In addition to its large resources, Mongolia has very good mining conditions usually suited for surface mining. Due to typically low strip ratios, extraction costs are usually low, giving mining operations a major competitive advantage compared to peer operations in Russia, China and the rest of the world. Mongolia s proximity to China and Russia is another factor making its coal industry attractive. Given its undeveloped world class resources, cost advantages and relatively easy access to large consumers like China and Russia, Mongolia is a candidate for being one of world s largest coal exporters to driving forces of the global economy. Electricity price Thermal coal price supplied to local thermal power plants is expected to re-rate in medium to long term Mongolian electricity prices are regulated by the government and electricity price per kwh of 4.67 is 58.4% and 36.8% discounted to Chinese and Russian electricity prices, respectively. We believe there is a meaningful opportunity to upgrade electricity prices in Mongolia as GDP per capita grows in parallel. Electricity price worldwide, US cents per kwh Denmark Italy Netherlands Germany Philippines Sweden Ireland Spain France UK Croatia Singapore Portugal Hong Kong (HK Is.) Hong Kong (Kowloon/ NT) Iceland USA Belgium Perú South Africa Malaysia China Australia Finland Russia Canada Mongolia Source: PEI, EEP and ResCap estimation March

5 At the same time, the Mongolian government is planning to privatize the coal sector and tending to liberalize the electricity market step by step in our view. The engine to privatize these sectors has begun as privatization plans from include a 24% stake privatization of Baganuur thermal coal mine reaching 49% of the stake in non-government hands, privatizations of Thermal Power Plant-3 and Erdenet Thermal Power Plant by concession agreement and 100% stake privatization of Power Distribution Company. The liberalization of the electricity market will also be positive for local thermal coal prices, increasing profit margins to thermal coal mines like Sharyn Gol. Russia and Far-Eastern coal market Russia is focused on strenthening its partnership with Mongolia in developing and operating the railway network, which will be crucial in ensuring that Mongolia s future coal mines will have access to their export markets Due to strong demand from Asian economies, thermal coal trades at 2 year high at Russian seaports By 2030, Asia is expected to reach 45% of global electricity demand, compared with 20% in 1990 Russia is focused on strengthening its partnership with Mongolia in developing and operating the railway network, which will be crucial in ensuring Mongolia s future coal mines will have access to export markets. Mongolia s railways are owned and operated by UB Railway, which is jointly owned by Mongolian and Russian governments. Mongolian authorities chose to build a new railroad in 2011 linking Mongolia s largest coal deposit Tavan Tolgoi (TT) with Mongolia s domestic rail network (c 450 km), rather than establishing a direct route straight to China from TT. We understand that a consortium has been selected and work will begin in late 2011/early The government is planning to build 5,600 km of new railroads by three phases with the first phase during 2011 to 2012, 1040 km railway Tavan Tolgoi - Sainshand - Choibalsan route providing access to Russian far eastern ports. The Russian eastern seaport is the major-end port to ship through sea to far eastern markets. Thermal coal prices are trading at 2 year highs at Russian seaports due to strong demand from Asian economies. As coal is a primary source of electricity generation worldwide, its role is expected to increase further. The International Energy Agency forecasts that by 2030, Asia is expected to reach 45% of global electricity demand, compared with 20% in Coal s share in Asian electricity production has been projected by the IEA to rise from 56% in 2004 to 63% in China s massive demand for energy changed it from being a net coal exporter to a net coal importer. Indonesia, the world s second largest coal exporter, is suggesting that it will not be able to meet expected demand growth in the Asia-Pacific region as the domestic consumption is increasing. Electricity generation accounted for 25% of all Asian energy use in 1990, but, in 2006, in China, the country s long dependence on coal has grown as coal-fired plants have been commissioned on a weekly basis. It is clear that Mongolia going forward will play a significant role in energy market of Asia. March

6 Key model assumptions Coal prices forecast We assumed selling price of Sharyn Gol coal by two separate prices such as local coal price sold to domestic clients and export price sold at the Russian port of Vostochnii (FOB) using seaborne consensus thermal coal prices as the benchmark. Unlike some thermal coal players in Mongolia with previous government ownership, Sharyn Gol is free from legal obligation to sell its coal at discounted coal prices regulated by the government of Mongolia, although have continued to sell a portion through moral/political obligation to supply its coal to provincial power plants at discounted prices. In our view, the Mongolian government is intending to reduce the amount of local coal supplied at discount prices to thermal power plants (TPPs) as part of the privatization plan of the coal sector. However, we conservatively assume that Sharyn Gol coal selling price to local clients will grow only modestly at the future inflation rate, until we see evidence to support a more aggressive thesis. We assume Sharyn Gol export price of coal sold at the Russian port of Vostochnii will trade at a small discount (5%) to that of seaborne thermal coal prices (broker thermal coal consensus prices) due to coal quality. We understand that the transportation cost from mine to port (+4000km) by rail is approximately $50/t. We present details of our coal price outlook for Sharyn Gol as following: Prices per tonne Coal price to local clients MNT MNT MNT MNT MNT 30,098 31,603 33,183 34,842 36,585 Thermal coal (broker consensus) $115 $110 $100 $98 $95 Sharyn Gol discount to seaborne price (re coal quality) (5%) (5%) (5%) (5%) (5%) Sharyn Gol export selling price at Russian sea port of Vostochnii $109 $105 $95 $93 $90 Source: ResCap estimates and broker consensus March

7 Production The company is planning to increase production volume to 1mn tonne per annum in the near term and increase to 2.5mn tonnes per year in the medium term. Sharyn Gol mine Source: Company data We are assuming that most of the new coal production will come from the new coal seam discovered as a result of 17,000 meters drilling in The following is our Sharyn Gol production assumption by coal seams: Sharyn Gol exploration work in 2010 Production breakdown, mn tonnes From old coal seam From new coal seam Total Source: ResCap estimates Revenue breakdown In recent years, coal production has decreased due to an increasing strip ratio and deteriorating equipment, however, since the arrival of Firebird Fund as majority shareholder, we are told that the company is under fullrestructuring. According to a recent company announcement, coal quality and washability test work indicate strong potential to produce a high yield, low ash, moderate to low sulfur, and high calorific value thermal coal product suitable to export to international markets. In the SW area of Sharyn Gol, the average yield for a 12% ash product with an estimated calorific value of 6,200 Kcal/kg was reported at 86%. In their Satellite area, the average yield for an 8.6% ash product with an estimated calorific value of 6,200 Kcal/kg is almost 90%. Source: Company data March

8 In near term, the company is planning to export 0.5mn tonnes of coal. In order to export coal, the coal must be washed and in our view, the company will export washed coal extracted from the SW area and Satellite area. As for exports, the company has previously sold coal to Russia and China in 2006 and We understand that Sharyn Gol is targeting a split of approximately 80% export and 20% domestic coal sales. The following is our assumption for Sharyn Gol coal sales by local and export sales, with not all coal produced being sold in a given year: Sales breakdown, mn tonnes Domestic Export Total saleable production Domestic 100% 56% 47% 41% 38% Export -- 44% 53% 59% 62% Source: ResCap estimates Sharyn Gol Operations Source: Company data Direct cash costs We assume the direct operating cost based on the current year s financial results and old and new coal seam strip ratios and transportation costs. In FY 2010, direct cash cost were MNT17,040 per tonne (US$13.6). The following figure shows breakdown of cash cost: Direct Operating Costs, US$/t Waste Stripping Coal Mining Processing (CHP) Wash Plant Mine Ancillary Support Site Infrastructure Transport cost Total Direct Cash Operating Costs Total Direct Cash Operating Costs (real) Source: ResCap estimates March

9 Transportation costs As the mine is directly connected to the Trans Mongolian railway through a wholly owned rail spur, Sharyn Gol coal can be transported directly from the mine site to both local and foreign sale points via rail, resulting in a transportation cost advantage. If the company transports coal by Mongolian-Russian JV Railway, the cost of thermal coal transportation is estimated at US$6.5 per tonne. This includes US$4.9 per tonne of transportation cost over 179km of rail haulage from the Sharyn Gol mine to the northern border of Mongolia (Naushki port) and the thermal coal export tariff of US$1.6 per tonne. However, due to a lack of wagons in the Mongolia-Russian Railway JV, the company has needed to make an agreement with the Russian company which has resulted in availability to provide required wagons to transport coal, in our view. We believe the company will pay additional fees to such middlemen or coal traders of Russia locals. We understand that the all-in transportation cost from mine to Vostochnii port (+4000km) by rail is approximately $50/t. Sharyn Gol rail spur Source: Company data Capital expenditures We understand that Sharyn Gol has plans for a production expansion programme in 2011E and 2012E as well as building a coal wash plant. The estimated total replacement cost is approximately US$100mn for infrastructure, old processing and other facilities, and as such we believe that the company can implement its expansion plans within a total budget of US$50-60mn given existing infrastructure and equipment in place. After new facilities are launched we expect maintenance capex to account for around US$0.9mn-US$4.5mn. March

10 Valuation We estimate Sharyn Gol equity value by using combined DCF valuation and EV/Resource multiple approaches. Historically, Mongolian thermal coal producers have not operated with any material profit margin due to the regulated electricity and thermal coal sector by the government. However, over the medium/long term, we believe electricity and thermal coal sector liberalization is viable given the expected sharp GDP per capita growth in Mongolia and the increase in buying power and affordability of the population. We believe that the DCF valuation reflects the short/medium term view hence we place some weight on the EV/Resource multiple valuation as the underlying fundamental basis of the company s value over the longer term. Valuation approach Weights Share price DCF 75% MNT 28,425 EV/Resource 25% MNT 75,874 Target Price MNT 40,288 DCF valuation Based on our production volume, operating cost and coal price assumptions described in respective sections of this report, we have prepared a DCF model, which suggests that the fair value of Sharyn Gol s share price is MNT28,425 (US$22.7). MNTm, unless otherwise stated EBITDA 5, , , , , , , ,587.2 Cash taxes payable (102.2) - - (1,816.2) (4,391.8) (6,464.5) (7,730.5) (9,279.5) Capital expenditures (8,915.5) (58,230.3) (1,894.8) (2,418.1) (2,625.0) (3,907.0) (4,814.8) (6,123.9) Changes in working capital (8,531.5) (10,000.1) (1,902.5) (2,868.5) (257.0) (8,223.1) (5,450.9) (7,708.8) Unlevered free cash flow (12,182.7) (43,093.0) 19, , , , , ,475.0 NPV@10%, MNTm 244, NPV@10%, US$m Less: Debt 2, Equity Value, MNTm 242, Price per share, MNT 28, Source: ResCap estimates EV/Resource multiple approach Although the EV/Resource multiple approach is mainly used as a cross-check reference, we believe that this valuation approach is more appropriate to assess the underlying fundamental value of the Sharyn Gol coal resource and longer term potential. Local thermal coal sold to Thermal Power Plants (TPPs) is still being regulated at discounted prices by the government to maintain regulated lower electricity prices and liberalization of the electricity market and thermal coal market in mid to long run is potentially realistic, with material upside results for the likes of Sharyn Gol. It is worth noting that Sharyn Gol is free from legal obligation to sell its coal product at regulated prices. Hence, we apply this valuation approach but also adjust March

11 Company name EV, US$m the multiples of the peer group of Mongolia public coal mines to Sharyn Gol mine in terms of coal quality and development stage. Resource, mn tonnes EV/Resource US$/t Adjusted EV/Resource multiple, US$/t Note of EV/Resource multiple adjustment to Sharyn Gol Mongolian Mining 4, Coal quality discount of 60% Southgobi Resources 2, Coal quality discount of 60% Mongolia Energy Corp 1,396 1, Coal quality discount of 60% Hunnu Coal Coal quality discount of 50% to SG but development discount of 50% to Hunnu Aspire Mining Coal quality discount of 60% to SG but development discount of 50% to Aspire Prophecy Resource 187 1, Development discount of 40% to Prophecy Xanadu Mines Development discount of 40% to Xanadu Tavan Tolgoi Coal quality discount of 50% Baganuur Coal quality discount of 30% to Baganuur Shivee Ovoo Coal quality discount of 40% to Shivee Aduunchuluun Coal quality discount of 40% to Aduunchuluun Mogoin Gol Coal quality discount of 40% Median Source: ResCap estimates The following international thermal coal miners in Asia and Australia: Name Mkt Cap, US$m EV, US$m Resources, Mt EV/Resources, US$/t HUOLINHE OPENCUT COAL IND A 5,149 5,470 1, SHANXI LU'AN ENVIRONMENTAL-A 11,239 11,264 1, INNER MONGOLIA YITAI COAL-B 10,368 11,237 1, DATONG COAL INDUSTRY CO A 5,508 5,322 3, SDIC XINJI ENERGY CO A 4,207 5,187 1, ANHUI HENGYUAN COAL INDUST-A 3,276 3,397 1, INNER MONGOLIA PINGZHUANG -A 2,331 2,056 1, CHINA SHENHUA ENERGY CO-H 86,195 88,795 17, CHINA COAL ENERGY CO-H 22,654 21,093 15, YANZHOU COAL MINING CO-H 20,886 22,661 3, SOUTHGOBI RESOURCES LTD 3,041 2, KING STONE ENERGY GROUP LTD China (median) 4.0 ADARO ENERGY TBK PT 8,649 9,575 3, BANPU PUBLIC CO LTD 6,503 9,244 2, INDO TAMBANGRAYA MEGAH PT 5,544 5,250 1, BUMI RESOURCES TBK PT 7,036 11,394 7, TAMBANG BATUBARA BUKIT ASAM 5,246 4,723 7, BAYAN RESOURCES GROUP 6,622 6, STRAITS ASIA RESOURCES LTD 2,215 2,446 1, HARUM ENERGY TBK PT 2,659 2, INDIKA ENERGY TBK PT 2,327 2, SEMIRARA MINING CORP 1,679 1, BERAU COAL ENERGY PT 2,106 2,624 1, SE Asia 3.1 BHP BILLITON LTD 247, ,564 18, March

12 COAL & ALLIED INDUSTRIES LTD 10,387 10,237 3, NEW HOPE CORP LTD 4,017 2, WHITEHAVEN COAL LTD 3,488 3,437 1, GLOUCESTER COAL LTD 1,692 1, BANDANNA ENERGY LTD , KANGAROO RESOURCES LTD Australia 2.6 Average 3.1 Source: Bloomberg and ResCap estimates (price data as of 11 March 2011) International peer analysis shows a median of US$3.1/t of EV/Resource multiple (at US$3.1/t EV/Resource, Sharyn Gol s share price per share is MNT 168,364 or US$136). We use international peer analysis as just a cross-checking reference only given most of the above international thermal coal miners have additional revenue streams such as electricity power generation and other energy related sales. At EV/Resource multiple of US$1.4/t, Sharyn Gol JSC is valued at US$512 million or MNT 75,874 per share. Sharyn Gol Facilities Source: Company data March

13 Risks to target price Thermal coal price volatility Thermal coal prices are volatile and depend on many factors, most importantly, global supply volumes and demand from the energy industry. Greater than expected Capex and operating cost and delay in implementation of the restructuring programs Fair value of Sharyn Gol is dependant on successful implementation of its concrete restructuring plan to increase the capacity of the mine and construct a washing plant. Delays in the completion or greater than our assumed costs required to complete the restructuring and expansion programs are possible and would likely impact Sharyn Gol s future cash flow. Greater than expected bargaining power of coal users and coal traders operating in Russia In our model, export coal price is a reasonably based on Naushki thermal coal prices after its wash plant is operational in Greater than expected bargaining power of coal user/traders and middlemen operating in Russia could cause Sharyn Gol to realize lower than expected export income and earnings. Fundraising through issuing shares on capital market be challenging given current supply side issues of stock on the illiquid MSE market In order to finance the Sharyn Gol restructuring plan, the company will likely require a fundraising through either issuing shares or raising debt. Given the current situation of the MSE where the average daily turnover is only US$150k, it may prove difficult to issue new shares in such an illiquid market. However, we believe that the MSE turnover may increase on back of following MSE catalysts: 1. Due to expected IPO of the world-class Erdenes Tavan Tolgoi in Q or Q with dual-listing on an international stock exchange (LSE or HKex) and Mongolian Stock Exchange at same time, MSE listed stocks appear poised to attract more attention by international investors with additional funding flows onto the MSE by institutional investors; 2. A penetration rate of Mongolian population s trading on MSE is at a very early stage. By 2012, we expect a significant amount of Mongolian citizens to have trading accounts on the MSE due to the world class coking coal Tavan Tolgoi IPO. The Securities Clearing House and Central Depository (SCHCD) have started preparation work to effectively and fairly operate on opening an account for all Mongolian citizens as preparatory work of distributing 10% of TT to all citizens. SCHCD is working with State Registration Office and Mongolian Tax Authority with regards to this issue. Currently at the SCHCD, there are 449,282 individual accounts and 795 corporate accounts opened. This translates March

14 into 84% of all Mongolian citizens and 99% of Mongolian companies not having an account at the SCHCD as there are about 65,000 companies registered at state registration office as a legal entity in Mongolia. March

15 Company background Company overview Sharyn Gol is a Mongolian thermal coal producer with 374 million tonnes of JORC compliant resources, listed on the Mongolian Stock Exchange. In 1995 the company was partially privatized, floating on the MSE, and in 2005 it became a 100% private (non government held) company. The mine is one of the oldest coal mines in Mongolia, dating back 46 years to first production in During peak production, coal extraction reached 2.5mn tonnes annually. However, in recent years, due to deterioration of equipment and an increased strip ratio, its production dropped to around 0.5mn tonnes per year and 80% of its coal supplied to Darkhan and Erdenet Thermal Power Plants (TPP). Since the recent introduction of New York based Firebird Fund as a 61% shareholder, Sharyn Gol has had the benefit of improvements to its management team which is working to convert the company into a western style coal company through an ongoing full-scale restructuring. Sharyn Gol Mine Source: Company data Asset overview The Sharyn Gol coal deposit is located 50km south of Darkhan city and 240km north of the capital city Ulaanbaatar. It was discovered in the 1930 s and initially explored by a joint venture of Mongolia and Russia efforts in the 1940s and 50 s. The Sharyn Gol coal mining license area covers 16,060 hectares. According to the company announcement released on Feb 28, March

16 2011, total JORC compliant coal resources quadrupled to 374mn tonnes (191mn tonnes measured, 84mn tonnes indicated, 99mn tonnes inferred) as a result of additional drilling program of 17,000 meters conducted in 2010 focusing on two areas within the mining lease called the South West Area and Satellite Area. According to the JORC resource announcement, further significant exploration upside identified the possibility of substantially adding additional coal to current resources. In JORC resource all coal inventories identified above the Base Line of Weathering have not been included in this resource estimate; the JORC resource estimate has been calculated from a larger non-jorc coal inventory of 437 Mt; remaining coal reserves and resources in the open cut have been excluded from the estimate; a corridor containing significant coal inventory has also been excluded from the estimate. Target areas for additional resources have been identified within the existing open cut, within the corridor, and within the still open southern and northern extensions of the Satellite Area. Corporate governance During an event of the 20 th Anniversary of the Mongolian Stock Exchange, Sharyn Gol JSC was awarded the most transparent joint stock company among MSE listed companies. The company is one of just a few companies on the MSE which has audited financial statement by an internationally known audit firm (Ernst & Young). The company signed an agreement with GTS Advocates LLC to complete a legal due diligence of the Company. As the part of transferring the company to western style public company, the company started to distribute annual reports, stock exchange announcements, stock quotes, financial statements, conduct shareholders meetings and share registry to its shareholders via its own website. The board of directors was changed in 2010 and now includes 2 Australians, 2 Americans and a new CFO (British citizen) who was appointed and has over 10 years of experience in accounting, capital markets and compliance. The company has independent directors among its board. March

17 Ownership structure Sharyn Gol s major shareholder is New York based Investment Fund Firebird owning 61%, local management team 33% and the remaining 6% is free float on MSE. Shareholders structure Batmunkh Batkhuu and Batbold; 21.4% Sharyn Gol Energo ; 11.5% Free float; 5.7% Firebird; 61.3% Source: Company data and ResCap estimates Annex I Management Team Batmunkh Batkhuu Chairman is co-founder and manages B&G Group of Mongolia and its subsidiary companies. Batmunkh holds a B.A in Financial Management from the School of Economic Sciences, National University of Mongolia and completed the MBA program at University of California, Berkeley Walter Haas School of Business. He started his career in 1996 at Bank of Mongolia and has worked as CEO for several Mongolian companies, including Bodi Leasing financing Ltd, Orix Consulting Ltd and B&G Equipment Ltd. He joined Sharyn Gol JSC in 2003 serving as a Board member and Chairman of the Board. Batmunkh speaks English and Russian. Anthony Milewski Vice-Chairman Sharyn Gol, joined the board of Sharyn Gol as part of Firebird s tender offer bid in early He has since played an intricate role in helping modernize and develop Sharyn Gol. Anthony has extensive experience in the natural resource sector in various emerging markets including Russia, Kazakhstan and Mongolia. He lived and worked in Russia for several years and has spent a significant amount of time in Mongolia. Anthony holds a B.A. in Russian history from Brigham Young University, an M.A. in Russian studies from the University of Washington, and a J.D. from the University of Washington. Anthony spent a year in Russia as a Fulbright scholar. He holds an LLM in Russian law from the Russian Academy of Sciences. Anthony currently serves as a board member for several publicly listed and privately held Mongolian companies. Bailikhuu Dambachultem has been a member of the Board since He graduated from the School of Economics Sciences, National University of Mongolia where he majored in economics and received his MBA degree. He worked in the Ministry of Food & Light Industry from 1982, as Deputy March

18 Director, as well as Adviser to the State Property Privatization Commission and Secretary at State Property Privatization Commission. Bailikhuu holds a title of state honored economist and speaks Russian. His current position is Adviser to the State Property Committee. Dayanbilguun Danzan has been a member of the Board since He graduated from the University of European Linguistics and holds an MBA from the Institute of Finance and Economics. Dayanbilguun is an Executive Director of BDSec brokerage and dealing company. Batbold Jigjidsuren joined Sharyn Gol JSC in 1996 as Executive Director and Chairman of the Board. He graduated from the Federal State Polytechnic Institution in Sverdlovsk of Russia as Mining Electro Mechanical Engineer. Batbold is an administration methodologist and master of business administration. He has working experience of private and public entities including the technical college of Darkhan province of Mongolia, Darkhan Eleksim LLC and Sharyn Gol Energo Ltd. Batbold speaks Russian. Joseph Naemi can be best described as an Entrepreneur, who has been a founder or co-founder of numerous commercial entities that were or are engaged in the energy sector internationally. Joseph is 47 years of age, and during the past twenty years has had significant exposure across the energy sector value chain throughout Central Asia, Latin America, and Africa. Joseph serves on the board of several companies, including Australian and Canadian publicly listed entities until 2007, and is a member of The Energy Institute in London, UK; International Association for Energy Economics in Cleveland, Ohio, USA; Australian Institute of Management (NSW & ACT Branch) in Sydney, Australia; and The Australian Institute of International Affairs. He is an Australian citizen with a broad understanding of multi-cultural issues and cross-border transactions. James Passin co-founded and manages Firebird Global Fund, Firebird Global Fund II, and Firebird Mongolia Fund. He is a former editor at investment newsletter Taipan. James is a graduate of St. John's College, where he majored in philosophy and classical literature. James serves on the board of directors of several Mongolian and Canadian public companies, including Sharyn Gol JSC, BDSec JSC, Vanoil Energy Ltd., Vangold Resources Ltd., as well as Maghreb Minerals PLC, a mineral exploration company listed on AIM. Ian Spence has over 15 years of experience within the Mining and Mining Finance related industries. For a period of approximately 10 years Ian gained significant experience in both open cut and underground mining environments in numerous technical management and supervisory roles. Following the attaining of an MBA in 2002 Ian moved into the Mining Finance arena as a Resources Analyst and Consultant. During the 6 years in that role he was involved with the establishment of a number of successful resource companies as well as numerous capital raisings and extensive March

19 project evaluations on an international level over a wide range of commodities including coal. He is currently Managing Director of Triton Coal Pte Ltd. Educated in the UK and Western Australia having both UK and Australian citizenships Ian holds an MBA from the University of Western Australia, an MSc in Mineral Exploration & Mining Geology from Leicester University (UK) and a BSc Hons degree in Geology & Petroleum Geology from Aberdeen (UK). Ganbat Tsogzol is a co-founder of the B&G Group and member of the Board since He graduated from Mongolian University of Sciences and Technology as a Communication Line System Engineer. He is an Executive Director of B&G International Ltd and Sharyn Gol Trading Ltd. Annex II Major coal mines in Mongolia Erdenes Tavan Tolgoi Erdenes Tavan Tolgoi LLC incorporated as an associated company of the Erdenes MGL LLC. The company's functions are to carry out exploration and exploitation on the strategically important Tavan Tolgoi coal mine by holding special licenses, to centralize benefits of the Tavan Tolgoi mine and transfer them to the state budget, and to collect investments for building extraction and processing factories based on the deposit and for developing infrastructure. The Tavan Tolgoi deposit is the biggest undeveloped coking coal deposit in the world with 6.4bn tonnes of coking and thermal coal. It has good quality thermal coal with 4,900kcal/kg and coking coal with 6,500-7,500kcal/kg. The coal has low sulfur content of less than 0.8% for all seams, low ash content of 10 to 33.3%, moisture 8.5% and content of volatile matter %. Combination of high quality, low cost, proximity to key end market in China, Russia, Japan and Korea and experienced management team with strong international partners is giving the mine the best-in-class coal opportunity from Mongolia in our view. Mongolian Mining Corporation MMC owns a 2,960ha mining license on Ukhaa Khudag deposit in 6.4b tonnes Tavan Tolgoi Coking Coal complex in the South Gobi of Mongolia. MMC commenced mining at the Ukhaa Khudag in April The deposit holds 286m tonnes of JORC-compliant proven and probable reserves and 499.9m tonnes of measured and indicated resources, where the majority of reserves and resources are hard coking coal. In September 2010, the Company completed its IPO on the Hong Kong Stock Exchange selling a 20% offering of new shares and raised $650m. MMC produced about 4mt in 2010 and plans to increase to 15mt by MMC is finalizing the construction of a paved road to transport its coal to China and the initial March

20 5mtpa coal washing plant of a planned 15mtpa (3x5mtpa) and a 18MW power plant. MMC has a license to build rail road and plans to build a 240km rail road from the deposit to the Chinese border in MCS Holding, Petrovis, Kerry, Casafina/Ancora, Shunklai, and EBRD own 44.0%, 11.4%, 8.1%, 6.2%, 4.9% and 3.1%, respectively, and the free float is 22.3%. MAK MAK, one of the largest business groups in Mongolia, has three coal mining operations Eldev, Naryn Sukhait and Qinhua-МАК-Naryn Sukhait JV and, also, holds mining licenses in the Aduunchuluun deposit. The Eldev coal deposit is located 330km south of Ulaanbaatar and 21km from the Trans- Mongolian railway. MAK produces 500ktpa from the Eldev deposit which has 30m tonnes of reserve and supplies to domestic buyers Erdenet Mining Corp, Khutul Cement-Limestone Plant, etc. The Naryn Sukhait deposit is located 50km north of the Chinese border in the South Gobi and its geological reserve is 220m tonnes of coking coal with 6,500-7,800kcal/kg. MAK commenced the operation at the deposit in Dec 2007 and begun exports in May Installed capacity is 3mtpa and plans to increase it to 5-8mtpa after the completion of the railway to connect with the border crossing that is being built by MAK. In 2002, MAK launched a JV with Qinhua Corp of China in the Naryn Sukhait deposit, and started coal exports in April The JV has been exporting 1.5mtpa from the deposit. In 2010, MAK exploited a historical record 5.1m tonnes. SouthGobi Resources SouthGobi owns three coal projects in Mongolia - Ovoot Tolgoi Mine (producing) and two development projects, the Soumber Deposit and the Ovoot Tolgoi Underground Deposit. The Ovoot Tolgoi deposit is next to MAK s Naryn Sukhait deposit and 40km from the Chinese border. The Ovoot Tolgoi s open cut mine proven and probable reserves are 114m tonnes and open cut and underground total measured and indicated resources are 260m tonnes of high-volatile B to A bituminous with over 7,212kcal/kg. SouthGobi commenced production in April 2008 and exporting it to China. In the first 9 months of 2010, it produced 1.4m tonnes, below the targeted 4m tonnes in 2010, and sold at an average $39 per tonne. SouthGobi is planning to build a 45km paved road to the border expected to cost $48m by 2012, and to build a dry ash separation plant which will cost $45m by the end In Oct 2010, the Company agreed to buy 19.9% of Aspire Mining for A$20.1m. Ivanhoe Mines and China Investment Corp own 57.0% and 13.3%, respectively and the free float is 29.7%. Tavan Tolgoi JSC Tavan Tolgoi JSC has two coal mining licenses within basin of 6.4b tonnes Tavan Tolgoi Coking Coal deposit in South Gobi of Mongolia, covering 169 hectares with a total resource of 40mn tonnes of coking coal with a calorific value of 6,500-7,500kcal/kg, 20% ash and 8.5% moisture. The South Gobi provincial government owns 51% of the Company and the rest is privately held by retail investors on the MSE. From 2004, the Company started selling March

21 coal to China. The company sells its coal to dealer companies which further sell to China. In 2010, it exploited 5mn tonnes, most of it went to China. Although in Gansu and Inner Mongolia coking coal prices are around $100/t, the company is still selling the coal at $6.5/t to the local market due to the state-regulated sale prices and is exporting at around $25-35/t. Mongolia Energy Corporation MEC acquired several projects or licenses for coal, ferrous and non-ferrous metal resources in Western Mongolia since MEC s main asset is Khushuut Coal Mine, which is located in Khovd Aimag (Province) of Mongolia. MEC conducted a drilling programme at the deposit in 2007 and discovered JORC compliant resources of 149m tonnes of coking coal. MEC has been constructing a paved road to the Chinese border which was planned to cost RMB866m and expected to be complete by the end of In January 2010, MEC entered a long term coal supply agreement with Baosteel Bayi in China for supplying at least 9.6m tonnes of coking coal through years 2010 to In June 2010, MEC contracted Leighton Asia for a A$273m 6-year contract to develop and operate the Khushuut mine. Initially, 3mtpa will be produced from the mine and production will increase further to 5-6mtpa. The mining commenced in July 2010 and the initial production was expected by the end % of the company is held by the public and 18% by Lo Lin Shing, Simon, 12.0% by Liu Cheng Lin, and 0.11% by other directors. Aspire Mining Aspire Mining has three coal projects in Northern Mongolia Ovoot Coking Coal project, Nuramt Coal project and Jilchilibag Coal project. In the Ovoot project, the Company has six exploration licenses covering a total area of 509 square km and announced JORC compliant measured and indicated resources of 276m tonnes of coking coal in October Only 10% of the deposit area is explored and the Company expects the resource base to be increased after 2011 drilling. The most feasible coal transportation option is to build a 552km railroad from the deposit to Erdenet City of Mongolia, and the Company targets production by The other two projects are also being explored. The Company s directors own 38% of the Company, SouthGobi Resources 19.9%, Mongolian Vendors 14.1% and 27.6% is held by other shareholders, in the fully diluted basis. Prophecy Resource Corp Prophecy has two thermal coal projects in Mongolia Ulaan-Ovoo and Chandgana totaling 1.4b tonnes measured and indicated resources. The Ulaan-Ovoo, located in northern Mongolia 10 km from the Russian border and 120 km from both Mongolian and Russian rail links, has 209m tonnes measured and indicated coal resources (proven and probable reserves are 20m tonnes) (NI ) with a 5,204 kcal/kg calorific value. As a mining permission was granted for Ulaan-Ovoo in Nov 2010, the Company started supplying coal to Erdenet and Darkhan cities power plants through a contract mining with Leighton Engineering. The Company targets to produce March

22 0.8m tonnes in 2011 and to reach 2m in It is actively negotiating off take agreements with Russian power plants as well as prospective Asian customers at the Russian east seaports. The Chandgana deposit with 1,211m tonnes of measured & indicated resources with the calorific value of 4,354kcal/kg is located 290km east of Ulaanbaatar and 160km from the existing railway. The Company researches to build a 600MW mine mouth power plant with extension to eventual 4,200MW. Institutional and insiders investors hold 35% of the Company. Xanadu Mines Xanadu s major coal projects in Mongolia are Khar Tarvaga and Galshar. The Khar Tarvaga deposit with a JORC compliant resources of 327m tonnes (172m tonnes are Indicated and 155m tonnes are Inferred) is located 200km south east of Ulaanbaatar and 30km from the Trans-Mongolian railway. Xanadu works to covert the exploration license on the deposit to a mining license and discussing with several groups interested in exploiting the potential of the Khar Tarvaga. One possible option is to implement a coal to liquid project. The Galshar project with non-jorc compliant resources of 203.6m tonnes (measured 158.1m and indicated 72.5m) and targeted JORC compliant resources of m tonnes is located 285km south east of Ulaanbaatar and 65km from the Trans-Mongolian railway. In January 2011, Xanadu commenced the scoping study on the deposit. The exploration will continue at the deposit this year. From the drilling data of , the coal quality of these two deposits ranges 4,201-6,424kcal/kg. The Company has other coal, gold and copper exploration licenses in Mongolia. Xanadu completed its IPO on the ASX in December The largest shareholders of the Company are Straits Energy Trading Pte, Eagle Securities, Bikibi Atoll Investments and Farrington Corporate Securities respectively owning 16.7%, 11.0%, 8.9% and 5.0% of the Company. Hunnu Coal Hunnu Coal establish as a premium coal company focused on exploration and development of its interest in coking and thermal coal deposits in Mongolia. Hunnu Coal has positioned itself, through a number of joint venture agreements in the premier coking coal basins of southern and eastern Mongolia, with a focus on infrastructure and access to the Chinese export coal markets. their all venture agreement projects has JORC resource of over 400.0mn. At the current stage, their major projects are Unst Khudag (Hunnu coal owns 80% of the project) and Tsant Uul (90-80% in hand of Hunnu). Unst Khudag has JORC resource of mn tonnes of thermal coal with an average calorific value of 6,784 kcal/kg dry ash free (daf). Tsant Uul has 90.0nm tonnes of coking coal with an average calorific value of 7,008 to 7,455 kcal/kg, 17.54% to 39.01% ash. Shivee Ovoo JSC Shivee Ovoo supplies 25% of Mongolian domestic coal demand. 80% of Shivee Ovoo coal production is supplied to TPP-4, the biggest thermal power March

23 plant in Mongolia. The Mongolian Government owns 90% of the Company and 9.0% is held by Firebird Fund. Designed production capacity of the company is 2mtpa, however, the company produces 1.4mtpa. In 2010, the Parliament of Mongolia established a cooperation contract with the Chinese government to build a 4800MW thermal power plant relying on the Shivee Ovoo coal deposit. The deposit, a strategically important deposit, covers 4,293ha and is located 260km southeast of Ulaanbaatar and connected with the Trans-Mongolian rail line. Total explored reserve is 600mt of brown coal and expected resource is 2.1bn. Out of the explored reserve, 564mt is economic reserve. Coal contents are 2,963-4,407kcal/kg calorific value, 40% ash content, 8.5% of moisture, 0.5% sulphur and 43% volatile material. Because of regulated low coal price, MNT13,958 ($11.11) per tonne in 2010, Shivee Ovoo has been operating with operational losses. Baganuur JSC Baganuur supplies over 50% of the coal consumption of the Mongolian Central Energy System. The Baganuur coal deposit, a strategic deposit, is located 139km east of Ulaanbaatar and connected with the city through a railway. The initial estimated economic reserve was 304m tonnes and resource was 296m tonnes with a calorific value of 3,200-3,500kcal/kg, 12.9% ash and 32.9% moisture. Since its inception in 1978, the Company extracted over 80m tonnes from the deposit. Currently the mine extracts 3mtpa due to central-region demand, old equipment and financial constraints. However, because of state regulated coal price, MNT18,190 ($14.5) per tonne in 2010, Baganuur has been operating with operational losses. The deposit s strip ratio is reaching 6:1. The State owns 75% of the company and the biggest private shareholder is Firebird investment fund, holding over 14%, the rest is free float. Baganuur JSC is included in the privatization plan, approved by the parliament of Mongolia in early Due to the plan, 24% of Baganuur will be sold to the public by the offering of additional shares. The Mongolian Government plans to build TPP-5 in Ulaanbaatar based on Baganuur coal by Mogoin Gol JSC Mogoin Gol mine was established in 1970, and now mainly supplies coal to centers of Khuvsgul and Zavkhan provinces and eastern soums of Zavkhan province. In 1983, 1989 and 1995 production capacity had been expanded by investing new mining equipments and machines, increasing to 200,000 tonnes of coal production per annum. In 1995, the company was partially privatized, floating 49% of the company on the MSE. Then the state owned 51% was transferred to provincial government ownership. Currently, the company has 74 employees. Mogoin Gol coal deposit is located in Tsetserleg soum of Khuvsgul aimag, 880km northwestern from UB city and 209km western from Khuvsgul province center. The deposit covers an area of 89 hectares. Total resource is 11.2mn tonnes of coal with 5,200-7,100kcal/kg of calorific value, 7.3% ash and 0.9% moisture, of which 3.6mn tonnes are March

24 viable to mine by open pit mining. Mogoin Gol s average strip ratio is about 5-7. Aduunchuluun JSC The Company was established with underground mining operations in 1954 to supply the Eastern Mongolia Region and Choibalsan city with coal. In 1979, the scope of operations was expanded and capacity increased to 600ktpa. In later years, the Company has been producing 300ktpa and selling coal at $6.6 per tonne. Aduunchuluun deposit is located in 5km from Choibalsan city, a centre of the Dornod province, 650 km east of Ulaanbaatar and 100 km from the Mongolian-Chinese border. The total proven reserves and resources of brown coal are 241.3mt and 423.8mt respectively with gross calorific value of 3,203Kcal/kg, 9.9% ash content, 38.7% moisture, 1% sulphur and 45.8% volatile matter. The deposit is connected with Russia through railway, and it is able to export the coal to Russia and China. The Company plans to increase its production to 1.5-2mtpa as Dornod Power Plant s coal demand is expected to increase significantly in the coming years. March

25 Annex III Financial statements Income statement Income Statement, MNTm, unless otherwise stated Revenue Sales of coal 16, , , , , ,563.9 Operating costs COGS (10,265.8) (44,479.7) (58,495.8) (75,845.5) (83,419.1) (122,031.1) Gross margin 6, , , , , ,532.8 Gross margin (%) 38.0% 39.0% 31.9% 27.4% 22.7% 22.6% Royalty (767.3) (2,081.3) (2,120.2) (2,302.3) (2,147.9) (2,936.9) SG&A (154.4) (1,172.9) (1,589.7) (2,099.1) (2,324.1) (3,471.7) Exploration EBITDA 5, , , , , ,124.2 EBITDA Margin 32.4% 34.5% 27.6% 23.2% 18.6% 18.5% Depreciation (4,768.1) (9,102.6) (10,836.5) (12,570.3) (13,437.2) (17,771.8) Amortization (Intangibles and deferred exploration) (148.5) (148.5) (148.5) (148.5) (148.5) (148.5) EBIT , , , , ,203.9 EBIT Margin 2.7% 21.8% 14.8% 11.0% 6.0% 7.1% Interest income (expense) , , , ,787.7 Income before taxes and minority interest , , , , ,991.5 Taxes (114.4) (112.9) (294.5) (2,364.2) (5,157.6) (7,411.5) Income before minority interest , , , , ,580.1 Minority Interest Net income , , , , ,580.1 Net income margin 2.3% 22.3% 15.9% 10.8% 4.1% 4.8% Source: ResCap estimates March

26 Balance sheet Balance Sheet, MNTm, unless otherwise stated Assets Current assets Cash and equivalents 9, , , , , ,342.9 Accounts receivable 3, , , , , ,534.5 Inventories 1, , , , , ,716.6 Other current assets , , , , , ,594.1 Property, plant and equipment 12, , , , , ,790.7 Intangible assets and deferred exploration costs 5, , , , , ,048.7 Investments Other assets Total assets 32, , , , , ,433.4 Liabilities Current liabilities Accounts payable 2, , , , , ,074.9 Current portion of debt Other current liabilities Total current liabilities 2, , , , , ,074.9 Long-term debt 2, , , Other Liabilities Deferred income taxes Total liabilities 4, , , , , ,074.9 Minority interest Shareholders' Equity Common shares 30, , , , , ,025.3 Retained earnings (1,807.1) 14, , , , ,333.2 Total equity 28, , , , , ,358.5 Total liabilities and equity 32, , , , , ,433.4 Source: ResCap estimates March

27 Cash flow CF statement, MNTm, unless otherwise stated Operating Activities EBIT , , , , ,203.9 Depreciation 4, , , , , ,771.8 Amortization Minority Interest Income Tax (114.4) (112.9) (294.5) (2,364.2) (5,157.6) (7,411.5) Net Interest , , , ,787.7 Cash flow from operations 5, , , , , ,500.4 Decrease (increase) in non-cash working capital Accounts receivable 1,423.9 (12,343.5) (2,862.5) (4,056.9) (775.7) (10,867.7) Inventory (4,686.8) (1,920.0) (2,376.7) (1,037.5) (5,289.3) Accounts payable (10,087.3) 7, , , , ,934.0 Net cash provided by operating activities (3,230.4) 15, , , , ,277.3 Investing Activities Capital expenditures (8,915.5) (58,230.3) (1,894.8) (2,418.1) (2,625.0) (3,907.0) Other Net cash used for investing activities (8,915.5) (58,230.3) (1,894.8) (2,418.1) (2,625.0) (3,907.0) Financing Activities Changes in debt (501.7) (501.7) (501.7) (501.7) (501.7) -- Common shares issued 20, , Net cash provided by financing activities 19, ,498.3 (501.7) (501.7) (501.7) -- Beginning cash balance 1, , , , , ,068.2 Net increase (decrease) in cash balance 7, , , , , ,370.3 Ending cash balance 9, , , , , ,438.6 Source: ResCap estimates March

28 ANALYST CERTIFICATION AND DISCLOSURES Analyst Certification We hereby certify that all of the views expressed in this research report accurately reflect our personal views about the subject company or companies and its or their securities. We also certify that no part of our respective compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this research report. Important Disclosures Resource Investment Capital ("ResCap") is a boutique corporate finance advisor working with clients in connection with mergers and acquisitions, project development, public and private capital raisings and other strategic matters. ResCap is based in Ulaanbaatar, Mongolia with a dedicated focus advising on Mongolian-related transactions. ResCap seeks to foster long-term, seniorlevel relationships with clients and offers the services to both Mongolian and international enterprises focused on natural resources and related infrastructure projects. Research analysts of ResCap and its subsidiaries, including those responsible for preparation of this report, receive compensation based on a number of factors including quality of research, client feedback, firm profitability (including equity trading) and competitive factors. Disclaimer This 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 making decisions, 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 and reliable. 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 ResCap, in particular, make no representation or warranty, express or implied, as to accuracy, timeliness, completeness, merchantability or fitness for any particular purpose of any such information. Under no circumstances, ResCap has any liability to any person or entity (-ies) for (a) any loss or damage in whole or in part caused by, resulting from, or relating to, any error (negligible or otherwise) or other circumstances or contingency within or outside the control of any of their directors, managements, officers, employees, or agents 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 ResCap is advised in advance of the possibility of such damages, resulting from the use of or inability to use, any such information. Address 3rd Floor, Monnis Tower, 15 Chinggis Avenue 1st Khoroo Sukhbaatar District , Ulaanbaatar, Mongolia Tel: Fax: For general inquiries: [email protected] Web: ResCap Securities LLC. All rights reserved. March