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STABILITY


AGREEMENT









































Ulaanbaatar, Mongolia


May 13, 1998














-He


 STABILITY AGREEMENT








Pursuant to Articles 20 and 21 of the Minerals Law of Mongolia and to


guarantee a long term stable activity environment, this Agreement is entered by


and between the Government of Mongolia, represented by Minister of Finance of


Mongolia (hereinafter called as ‘’Minister”) and Tsairt Mineral Co..Ltd (hereinafter


called as “Company”) which has been established as a joint venture of Mongolian


Metalimpex Co., Ltd. and China Nonferrous Metal Industry’s Foreign Engineering


and Construction Co., Ltd., with a certificate of registration № 2548747 and the


holder of the mining license № 723A, under the requirements of Mongolian


legislation.


Article 1. Subject Matter


1.1. This agreement regulates relations with respect to legal guarantees to


provide stable tax regime, free sale of products at international market prices and


free use of hard currency derived from such sales for the entire period of mining


the ‘Tumurtiin ovoo” zinc deposit located in Sukhbaatar sum of Sukhbaatar aimag


of Mongolia by the Tsairt Mineral Co., Ltd. of Mongolia.





Article 2. General Provisions


2.1. The amount of the initial capital to be invested by Company , holder of a


mining licence, during the first five (5) years of the particular project on the territory


of Mongolia shall be no less than twenty (20) million US dollars.


2.2. The Company will be exempted from the income tax for the first five (5)


years from the commercing date of its activity and be entitled to fifty (50) percent


tax relief for the following five (5) years period. For the following years, the


company will pay fifteen (15) percent tax for the annual taxable income of up to


100,000,000 tugriks, plus forty (40) percent for the amount which exceeds


100,000,000 tugriks. The custom duties for imported goods shall be set at zero (0)


percent and the sales (or similar) tax on imported and domestically sold goods


shall be set at ten (10) percent which are the rates established by the legislation


effective at the date of this Agreement.


2.3. If Company exports its goods, the export taxes shall be set at zero (0)


percent and sales taxes for export shall be set at zero (0) percent . If Company


extracts gold and sells it to Mongolbank or any other commercial bank, it shall pay


sales (or similar) tax of ten (10) percent.


2.4. The royalty to be paid by Company shall be set at the rate specified in


the law regulating the minerals relations effective at the date of the agreement.


2.5. In exporting its products, selling them at international market prices and


using the hard currency income derived from such sales, Company shall be


granted the same rights and conditions as enjoyed by Mongolian citizens and legal


persons.














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 2.6. The Agreement will be terminated, if the Company fails to complete


performance of its obligations on investment as specified hereunder in paragraphs


4.2, 4.3 within the period exceeding six (6) months.


Article 3. Term





3.1. The term of this Agreement is from 15 May 1998 until 15 May 2013 for


fifteen (15) years.


Article 4. Duties and Rights of Company (Individual)





4.1. It shall fully perform its obligations under this Agreement and comply


with the legislation of Mongolia.


4.2. Company shall invest in Mongolia no less than twenty (20) million US


dollars during five (5) years following the signing of this Agreement.


The investment may take the forms of cash, technology, equipment, raw





materials and goods.


The term of the present Agreement shall be deemed extended if the


construction of power grid between Choibalsan and Sukhbaatar aimags, including


substation, shall not be completed on time.





4.3. The investment shall be made according to the following schedule:





№ Date Amount of Money In monetary form In other forms


Month/Year (thousand USD)


1 November, 1998 100.0 100.0


2 May, 1999 3100.0 3100.0


3 May, 2000 8200.0 8200.0


4 May, 2001 8400.0 8400.0


5 May, 2002 1200.0 1200.0


Total amount: 21000.0 1300.0 19700.0





If Company invests more than it has planned to invest for the particular year,


the excess amount shall be included into the next year’s investment.


4.4. Within a month following the anniversary of this Agreement, Company


shall prepare an annual investment report for the intervening year based on the


form to be provided by the Ministry of Finance and, following its review by the


Natural Resources Authority, deliver the report to Minister of Finance.


4.5. Company shall initially deposit its profits derived from the sale of its


products in an account opened at a commercial bank operating on the territory of


Mongolia.


4.6. If, as a result of Minister’s failure to perform his obligations under this


agreement, the guarantees provided for in the Stability Agreement were not


honoured, Company shall be entitled to the restoration of guarantees and to sue


for damages in accordance with the procedures specified in laws.





Article 5. Duties and Rights of Minister





5.1. Minister shall be responsible for providing Company with the


guarantees and conditions specified in this agreement and aimed at securing long


term stable investment environment for Company.


5.2. Upon signing the Stability Agreement, Minister shall notify Mongolbank


and other relevant organizations of the provisions of the agreement.


5.3. If Company fails to perform its obligations under this agreement or it is


proved that it has seriously breached the laws of Mongolia, Minister shall notify


Company accordingly and unilaterally terminate the agreement.





Article 6. Other Provisions





6.1. The parties shall amicably settle any disputes arising over the


implementation of the Agreement. In case of unsettled disputes, the relevant


Mongolian laws and international treaties shall be pursued.


6.2. The Agreement is made in Ulaanbaatar on 13 May 1998, two (2) copies


each in Mongolian and English language, and parties shall preserve a copy each.











ON BEHALF OF ON BEHALF OF


MONGOLIAN GOVENMENT TSAIRT MINERAL Co., Ltd.


MINISTER OF FINANCE EXECUTIVE DIRECTOR


DALAN GORBAN






























































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