We are writing to you concerning a SouthGobi Sands LLC (“SGS”) business matter that has become a public issue recently due to misinformation being spread by the Confederation of Trade Unions and others. It is important for SGS that key stakeholders be informed of the issue correctly so that SGS can receive fair treatment.

As a result of discussions with its Employee association in late 2011, SGS changed the Ovoot mine site work schedule of 14-14 to support an overall employee income enhancement policy that addresses employee requests for higher salaries.

Under the new working schedule our employees work 14-day on site and 7-day off site. Benefits of the schedule change are that the employees can work more hours per year and make more money, substantial increase in hourly salaries of SGS, and the employees’ monthly salary increases by 50%. Unfortunately, we needed to reduce number of workplaces due to the change of work schedule and made 48 workers redundant after discussing and agreeing with them. SGS still employs 687 people.

SGS provided for the employees affected by the redundancies with a severance package over and above requirement of Mongolian regulation.

When some of the severed employees requested meetings to discuss issues they have as a result of the redundancies, SGS management met with them. Furthermore, SGS formed a working group to discuss the issues directly with representatives of the affected employees. The working group met three times. Initially the representatives requested re-instatement of the affected employees. However, SGS explained that there were not positions available to re-instate because the change to its operations had actually made the jobs redundant. Because during the meetings severed employees raised various issues that affected them financially, SGS made a proposal to increase the severance packages. The proposal would have provided substantial extra financial protection for redundant employees and their families even further above obligations under the law. SGS was disappointed after the meetings the proposal was not accepted by the representatives of the 48 redundant employees.

Publicity around SGS’ operating change has led uninformed people to say SGS’ foreign managers treat its Mongolian employees badly. We firmly inform this is untrue. SGS pay rates are among the best in Mongolia. Our operating change merely brings our operating site schedule to a similar arrangement to the largest mining operations in Mongolia (including MAK, Energy Resources and Oyu Tolgoi).

SGS prides itself on being a leader in terms of its attention to safety, environmental practices and social responsibility.

Our 687 employees are 97% of Mongolian nationals and 53% of residents of the three local Soums surrounding our Ovoot Tolgoi mining operation.

We thank you for your kind attention and request that you contact us directly should you have any concerns or issues.