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Ulaanbaatar, Mongolia

May 13, 1998



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


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



 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


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.