Troubled by the “many slanderous and completely false statements” about it “recently publicized in the mass media” Boroo Gold Company has prepared a newsletter to set the record straight.  
“The Mines Eye” nails the lie about allegations made in “this campaign of misinformation”. It shows how misconceived and ill-founded the charges are that the company “forced an unprofitable contract on Mongolia, robbing the country of its mineral riches”, and that it “has prejudiced the national interest of Mongolia”.

Source: www.miningmongolia.mn                                                                                                            

The entire text of the repudiation (SEE BELOW), as it appears in the Mongolian National Mining Association Newsletter of March 10, 2009 can be read at The Mines Eye, March, 2009.

 
Many slanderous and completely false statements about BGC operations have recently been publicized in the mass media. Due to this campaign of misinformation against Boroo, management has a responsibility to provide you with the facts. That is the purpose of this special edition of The Mines Eye. The entire contents of this newsletter have been prepared by senior national employees of the respective BGC departments.
Allegations:
- Boroo forced an unprofi table contract on Mongolia, robbing the country of its mineral riches
- Boroo has prejudiced the national interest of Mongolia

Fact: BOROO STABILITY AGREEMENT WAS CONCLUDED ON TERMS IN EFFECT AT THAT TIME

The Stability Agreement

In an effort to provide support for the new Minerals Law ratified on July 1, 1997 and the

contemporary Foreign Investment Law, and to attract foreign investment in the mining sector, the Government of Mongolia approved the Model Stability Agreement by its Decree no. 226 of Nov 12 1997

Based on this model, the Government entered into a Stability Agreement (SA) with several mining companies, Tsairt Minerals LLC being the first, followed by Boroo Gold on July 6, 1998 and few more that came later. At the time of signing the SA, the main investor of Boroo was a British company called Asia Mining Investment, which in turn sold its shares to Australian-based African Gold Resources, which was later taken over by Centerra Gold Inc. of Canada in mid-2002. These facts render the allegations that previous and current investors influenced Mongolian legislation before they came to invest completely false.

One of the main provisions of the Boroo SA concluded with the Government was to preserve the tax regime of Mongolia at the time for the term of the agreement. When it was signed in 1998, no significant foreign investments had been made, commodity prices were low and the Government was trying to create an internationally competitive investment environment.

According to Clause 7.6 of the Corporate Income Tax (CIT) Law, in effect at the time, a foreign invested company is exempt only from CIT, for 100 percent for the first 3 years, and 50 percent for the next 3 years. Boroo paid all other tax. Since the commencement of production in 2004, the Company was exempted from CIT for 3 years and following the Amendments to the SA, as agreed on August 3, 2007, the Company surrendered its rights to 50 percent CIT exemption and started paying CIT in full from January 1, 2007. In addition, with the August 3, 2007 Amendment, the royalty rate paid by the company increased from 2.5 percent to 5 percent of the sales price.

SA term extended

The Boroo SA was amended on May 9, 2000 to reflect the increased investment as stipulated in Clause 20.4 of the Minerals Law of 1997, “If the amount of the initial investment in the Mongolian mining project is no less than two (2) million US Dollars, the term of the stability agreement may be ten (10) years. If such investment is no less than twenty (20) million US Dollars, the term of the stability agreement may be fi fteen (15) years”. As a result, the Boroo SA term increased from 10 to 15 years, effective through July 7, 2013.

Exploration and mining licenses

Out of 9 mining licenses held by Boroo in Selenge aimag, only one – license area 198A – is covered by the SA. License area 238A covers the Ikh-Dashir alluvial deposit and is mined by our contractor Mondulaan LLC, who pays all applicable taxes on production from this license, including the Windfall Profit Tax. The remaining 7 areas have not been mined. In addition, BGC has 5 exploration licenses in Selenge aimag.

Compensation to the state for prior period exploration

Government Decree #234 of December 3, 1997 sets the rule and method to be used in calculation of prior period exploration costs. Following MRAM (former name) letter dated August 31, 2001, requesting Boroo to make compensation to the state using the above rules and methods, Boroo signed an agreement ÕÀÇ-2002/01/07 with MRAM and paid US$2,387,046 (equal to 12,970,949 Soviet roubles) to the state, completing the compensation payment.

 

Fact: GIVEN THE AMOUNT BOROO HAS PAID IN TAXES TO THE STATE BUDGET, BOROO IS LISTED AS THE SECOND HIGHEST TAXPAYER IN 2007 AND THE THIRD HIGHEST IN 2008 AMONG 47,000 MONGOLIAN BUSINESS ENTITIES
During 2004-2008, Boroo paid a total of MNT 123.9 billion to the state budget in taxes, fees, payments and charges. Under the Stability Agreement (SA) and the Corporate Income Tax (CIT) Law in effect at that time, Boroo was exempt only from corporate income tax in 2004-2006 and paid all other taxes, fees, payments and premiums in compliance with Mongolian law during the above-mentioned period.
With the 2007 amendment to the SA, the Company gave up the CIT exemption effective January 1, 2007. Since then, we have paid Corporate Income Tax at the generally applicable 25 percent rate as per the 2007 CIT Law. In 2007-2008, the Company paid a total of MNT58.1 billion in CIT. In addition, the 2007 amendment to the SA increased the royalty rate from 2.5 percent to 5.0 percent effective August 3, 2007. In 2004-2008, Boroo paid a total of MNT34.9 billion in royalty payments on gold sales. As the SA is applicable to the Boroo hard-rock gold deposit only, the Company pays Windfall Profit Tax (WPT) on sales revenue of gold extracted from the Ikh Dashir alluvial deposit according to the law. In 2007-2008, we paid a total of MNT2.7 billion as WPT. The SA is not applicable to the Gatsuurt deposit.
To date, Centerra Gold Mongolia has spent a total of MNT10.7 billion in the exploration and development of the Gatsuurt Project. In 1999-2003, the Company spent US$74 million or MNT 82.7 billion on the initial development of the Boroo Project and incurred additional capital expenditures of MNT136.7 billion during 2004-2008.
In 2007, Boroo became the second largest taxpayer of Mongolia after the Erdenet Mining Corporation among 47,000 business entities in the country. In 2008, the Company was the third largest taxpayer in the country (after Erdenet and Mobicom). During 2004-2008, Boroo paid a total of MNT123.9 billion to the state budget in taxes, fees, payments and charges.
Our Company has frequently been honoured by relevant organizations as the best company in recognition of its contributions to the development of Mongolia.
Namely:
• The Mongolian National Chamber of Commerce & Industry honours the TOP-100 business entities and organizations each year. Boroo has been selected as one of the TOP-10 companies for 5 consecutive years since 2003;
• CERTIFICATE OF APPRECIATION granted by the Mongolian Tax Administration in recognition of the Company’s compliance with tax legislation in 2003 and 2006;
• CERTIFICATE OF HONOUR granted in 2003 by the Social Insurance Department of Sukhbaatar District for timely payment of employee social insurance premiums and in recognition of the Company’s social welfare activities for its employees;
• Title “BEST PREMIUM PAYER OF MONGOLIA” granted in 2006 by the State Social Insurance Office (SSIO) in recognition of the Company’ compliance with the Social Insurance Law of Mongolia and the Government Action Plan. This award also honoured Boroo’s outstanding performance in the social protection of insurees and contributions made to the SSIO to provide high-quality and accessible social insurance services to the public through timely payment of social insurance premiums;
• CERTIFICATE OF THE LEADING PREMIUM PAYER awarded in 2005 by the Governor’s Offi ce and the Social Insurance Department of Sukhbaatar District;
• Title “RELIABLE TAX-PAYER OF THE YEAR 2005” awarded by the Mongolian Tax Administration in recognition of the Company’s significant contributions to the state budget;
• Title “BEST ORGANIZATION OF THE YEAR-2008” granted by the Federation to Support Social Insurance. These awards clearly demonstrate the absurdity of the allegation that Boroo pays no tax to the state budget.
Likewise, the allegation that Boroo does not conduct any reclamation is completely
untrue. The Company spent a total of MNT 1.8 billion on reclamation during 2004-2008.
Furthermore, Boroo has made major financial contributions to our surrounding communities. A total of MNT 4.5 billion has been spent on community development and social welfare:
2004 - MNT0.5 billion
2005 - MNT0.6 billion
2006 - MNT0.9 billion
2007 - MNT1.2 billion
2008 - MNT1.3 billion
From 2004-2008, the Company paid its national employees a total of MNT27.0 billion in wages, salaries and other income and MNT6.9 billion in employees’ social & health insurance premiums, respectively.
Boroo cooperates closely with many Mongolian businesses. From 2004-2008, the Company paid MNT274.1 billion for local purchases of goods, raw materials and services. This has a multiplier effect on the whole economy of Mongolia and encourages the growth and development of local businesses to a very great extent.
Boroo’s financial statements are regularly audited by the General Department of National Taxation, the Metropolitan Tax Department, tax authorities of Selenge aimag, Bayangol and Mandal soums of Selenge aimag, and the Social Insurance Department of Sukhbaatar District. These authorities have revealed no significant infringements during their audits and have always concluded that Boroo acts in full compliance with the legislation of Mongolia.
Moreover, KPMG, an international independent auditing company, audits the Company’s quarterly and annual financial statements and issues an auditors opinion. The auditors have consistently concluded that Boroo’s financial statements are presented accurately and in compliance with the highest international standards.
In addition, KPMG and PwC (Price Waterhouse Coopers), another international independent auditing company, frequently audit whether the Company is carrying out its activities in compliance with the Sarbanes-Oxley (SOX) Act. These audits are designed to examine the accuracy and completeness of our financial reports. These audits have also concluded that the Company operates in compliance with the SOX Act.
Besides the above-mentioned independent audits, the Internal Audit Department of Centerra Gold, our parent company, regularly reviews Boroo’s financial activities to ensure that our financial statements are presented fairly and accurately.
Quality and transparency in financial reporting and tax accounting directly depend on the professional experience and expertise of the personnel working in Boroo’s Finance &Accounting Department. The Company’s day-today financial and accounting affairs are conducted by highly-qualified and competent local and international professionals, namely six Certified Public Accountants of Mongolia, two accredited tax accountants, two certified international accountants, as well as accountants having both bachelor’s and master’s degrees received from national and foreign universities.