Baganuur coal mine expansion Opportunities for investors. Ulaanbaatar

Baganuur coal mine expansion Opportunities for investors Ulaanbaatar

Content Introduction Resources and reserves Coal production Market outlook Mine expansion plan Research and development Investment issues

Introduction ESTABLISHED IN1978. SE 130 KM FROM ULAANBAATAR. CONNECTED TO PAVED ROAD AND RAILWAY NETWORK. GOVERNMENT OWNS 75%, OTHERS 25% OF SHARES RESPECTIVELY. EMPLOYEES 1100 EXTRACTS 50% OF COAL CONSUMPTION FOR PRODUCING ENERGY OF MONGOLIA, 60% FOR CENTRAL REGION.

Coal quality standart MNS 3818 2001 Type of coal size Ash content /%/ <A ã Moisture /%/ <W ã Sulfur content /%/ S d t Volatile matter /%/V Calorific value <Q ã t Kkal/kg KJ/kg Brown coal type -B2 17.5 37.5 0.5 45 3360 13.0

Main consumers Annual supply # Thermal power plants /thous.tn/ Shares to total consumption 1 TPP-4 1600.0 60% 2 TPP-3 1100.0 100% 3 TPP-2 210.0 100% 4 Darkhan TPP 250.0 60% 5 Erdenet TPP 120.0 50%

Resource and reserve Proved in 1978 with 600.0 million tons. Updated in 1998 with 708.2 million tons as a result of detailed survey. In total, 88.4 million tons of coal has been extracted since 1978. Norvest migrated the reserve model of 1978 into Minex in 3D.

Resource and reserve Millions 900 800 700 600 5,00 4,50 4,00 Кхх, м3/тн 2-р Seam давхарга 2 2a-р Seam давхарга 2a 500 400 300 200 100 3,50 3,00 2,50 3-р Seam давхарга 3 Хязгаарласан Limiting strip ratio m3/ton хөрс хуулалтын итгэлцүүр, м3/тн - 2,00 0,2 0,3 0,4 0,5 0,6 0,7 0,8 0,9 1 1,1 1,2 1,3 1,4 1,5 1,6 Minimum thicknesses of coal seam, m Reserve can be elevated up to 700 million tones depending on the availability of minable coal seam thicknesses. 1,7 1,8 1,9 2

Quality of survey results Laboratory analysis: In total samples from drilled boreholes Ash analysis 47% Caloric value analysis 24% Sulphur content analysis 47% Volatile analysis 29% Core recovery (60-70%) Insufficient quality of survey to prepare a Feasilibility study for a bank Requires detailed survey to choose proper mine technology for the mine. Potentiality of resource increase up to 1.0 billion tones by conducting additional geological survey in accordance with international standards.

4500 4000 3500 3000 2500 2000 1500 1000 500 0 16,00 14,00 12,00 10,00 8,00 6,00 4,00 2,00 2007 2008 2009 2010 2011 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 COAL PRODUCTION Нүүрс Coal production, олборлолт, thous.tons м.тн Кхх, м3/тн Increase in earth moving.

Current situation

CHALLENGES Overdue overburden Water drainage issues Higher unit production cost than selling price Coal price set by government Outdated equipments and facilities - 90%, requires technical renovation. Movement in internal stock piling Unreachable reserves due to geological conditions Increase in transport distance HR risks- lower salary Financial issues Requires technical renovation and decrease in production cost

PROJECTED COAL CONSUMPTION IN CENTRAL REGION Million tones 20,0 18,0 16,0 14,0 12,0 10,0 8,0 6,0 4,0 2,0 18,1 15,7 13,7 12,5 8,8 6,5 6,8 7,5 10,6 11,7 13,0 5,2 5,3 5,9 7,1 2012 2013 2014 2015 2016 2017 2018 2025 Central energy Total consumption ТЭХС ийн system s хэрэглээ consumption Тєвийн in central бүсийн region нийт хэрэглээ 15,0 Coal consumption of central region projected to be 6.5 million tones in 2012 while it will reach 15.7 million tones in 2018, 18.1 million tones in 2025 respectively. Regarding the consumption projection, Baganuur mine needs to expand the mine capacity.

Capacity expansion 16,00 14,00 12,00 10,00 8,00 6,00 4,00 5,2 5,3 5,9 3,30 3,57 3,52 7,1 4,30 11,7 12,2 12,5 10,6 5,51 5,51 5,51 5,64 14,0 13,5 13,0 6,05 6,00 6,13 Багануурын Supply from нийлүүлэлт Baganuur ТЭХС-ийн Demand from эрэлт CES 2,00-2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 30% of coal consumption to TPP-5 which will be built with 820 MW capacity in 2012-2016. 100% of coal consumption to Baganuur power plant which will be built with 270MW in 2013-2016. projected coal production of the mine is 6 million tons by 2020.

Technological developments To entry Surface mining technology for Coal production and overburden To build conveyor systems for both coal and waste transport To start using underground mine technologies in some coal seams. To reduce overburden volume and optimize mine earth movements

COAL PRICE AND MINEABLE RESERVEs Millions 3 000 2 500 Technology: Surface mining + Conveyor systems 2,72 2,74 2,75 2,80 2,43 3,00 2,80 2,60 2 000 1 500 1 000 1,98 2,16 2,40 2,20 2,00 1,80 1,60 Хөрс, Waste, м3 m3 Нүүрс, Coal, ton тн Кхх, Strip м3/тн ratio, m3/t 500 140 186 392 683 717 731 749 1,40 1,20 1,00 Minimum coal thickness seam 0.4 m 0,7 0,8 0,9 1 1,1 1,2 1,3 Mineable reserve can be elevated to 749 million tones if selling price increased by 30% after technological renovation. Main option Coal price 20500 tugriks/ton

COAL PRICE AND MINEABLE RESERVE Millions 800 700 Technology: Surface mining+ conveyor system 600 500 Main option Coal price 20500 tugriks/ton 238 258 264 272 400 300 200 100 102 298 310 315 325 167 37 22 65 45 123 74 84 148 150 152 152 0,7 0,8 0,9 1 1,1 1,2 1,3 Factor impacting selling price 2 р Seam давхарга 2 2a р Seam давхарга 2a 3 р Seam давхарга 3 Minimum thickness of coal seam 0.4 m

MINE PLAN 2012-2022 Million 25 20 15 10 5 4,10 3,51 3,19 2,69 2,05 2,34 2,14 2,22 2,30 2,24 2,07 4,50 4,00 3,50 3,00 2,50 2,00 1,50 1,00 Strip ratio m3/t Хөрс waste, хуулалт, m3 м3 Нийт Coal, нүүрс, ton тн Хөрс Strip хуулалтын итгэлцүүр, ratio, m3/t м3/тн 0,50 2012 он 2013 он 2014 он 2015 он 2016 он 2017 он 2018 он 2019 он 2020 он 2021 он 2022 он Substantial decline in the volume of vesting

PROJECTED COST AFTER TECHNOLOGICAL RENOVATION Thous. tugriks 25,0 20,0 15,0 10,0 5,0 23,1 4,2 21,7 20,3 17,7 15,5 14,6 15,3 15,4 15,1 14,8 13,9 5,2 5,2 5,3 5,3 5,1 5,4 5,3 5,0 5,0 5,0 5,0 4,5 4,0 3,5 3,0 2,5 2,0 1,5 1,0 Strip ratio, m3/t 0,5 0,0 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 1 Unit тн нүүрсний cost/ton бүрэн coal өөрийн өртөг 1 Unit м3 Уулын cost/ m3 цулд rock ноогдох mass зардал Кхх Strip ratio

Preparation to stock exchange (2012) - Geophysical survey - Detailed survey drilling - Geotechnical survey - Drainage survey - Resource report in accordance with JORC - Have the resource report in accordance with Mongolian standard approved by Mineral Resource Authority. - Have the feasibility study in accordance with Mongolian standard approved by Mineral Resource Authority. - Feasibility study for a bank - Prepare documents for stock exchange - Баяжуулах үйлдвэрийн туршилт судалгаа ТЭЗҮ боловсруулах Additional shares to be sold at domestic stock exchange to raise the necessary fund while keeping state owned shares at 51% in 2012.

Investment plan 80 70 60 71,6 (/in accordance with Feasibility study done by Glogex LLC) 50 40 30 20 10 - (10) 14 11,1 9,4 7,1 4,1 3,9 2,9 2,9 1,5 1,5 1,5 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Preparation Хөрөнгийн биржд cost to stock гарах бэлтгэл ажлын exchange зардал Mine Уурхайн тоног equipments төхөөрөмж and facilities Total investment of 131.4 million USD required between 2012 and 2022

ECONOMIC PARAMETERS Investment Facilities CAPEX 2012: USD85.5 million OPEX (2013-2015): USD16.7 million OPEX (2016-2022): USD29.2 million Total: USD117.5 million Preparation cost to stock exchange USD 13.9 million Total USD131.4 million Coal price/ton: 20500 tugriks in 2012, 22500 tugriks in 2013-2022 Unit cost/ ton of coal in 2012: 23100 tugriks in 2014: 20300 tugriks in 2018: 15300 tugriks in 2022: 13900 tugriks Net present value (when NPV @ 10%): 35.6 billion tugriks Internal rate of return (IRR) - 13.4 %, Payback period 7.91years or in 2018.

Thank you for your attention We welcome any kind of cooperation