ENERGY RESOURCES LLC

Energy Resources LLC

Ukhaa Khudag Project

Environmental and Social Impact Assessment

Executive Summary
TABLE OF CONTENTS
1.  EXECUTIVE SUMMARY ........................................................................................ 1 
1.1  INTRODUCTION ....................................................................................................... 1 
1.2  PROJECT DESCRIPTION ............................................................................................ 1 
1.3  OPERATIONAL FRAMEWORK ..................................................................................... 2 
1.4  ANALYSIS OF ALTERNATIVES .................................................................................... 3 
1.5  EXISTING ENVIRONMENT ......................................................................................... 3 
1.5.1  Physical ..................................................................................................... 3 
1.5.2  Social ........................................................................................................ 4 
1.6  IMPACTS AND MANAGEMENT MEASURES ................................................................... 5 
1.6.1  Environmental Impacts................................................................................ 5 
1.6.2  Social Impacts ............................................................................................ 7 
1.7  ENVIRONMENTAL AND SOCIAL ACTION PLAN............................................................. 7 
1.8  STAKEHOLDER ENGAGEMENT PLAN........................................................................... 8 
1.9  ER’S COMMITMENTS AND ENVIRONMENTAL MANAGEMENT SYSTEM............................ 8 

ENERGY RESOURCES LLC

Ukhaa Khudag Project
Environmental and Social Impact Assessment – Executive Summary
1. EXECUTIVE SUMMARY
1.1 INTRODUCTION
Energy Resources LLC (ER) has been awarded the Mining License for the Ukhaa Khudag
(UHG) coal deposit, a medium sized high quality coal deposit, which is located in Tsogttsetsii
soum, Umnugobi aimag, Mongolia. UHG is located in the large coal producing basin:
currently existing adjacent mines in that region are extracting around 2 million tonnes per
annum (Mtpa) of coal for sale locally and in China. At present, around 400-500 heavy trucks
transport coal from that area to the Gashuun Sukhait border point into China by an existing
earthen road.
ER will commence early production at the UHG coal mine in early 2009 with the mining of
about 0.6 Mtpa of "Run-of-Mine" (ROM) coking coal. This coal will be shipped by road to
customers in China using 85 tonne trucks. The first year of operation will see approximately
80 to 90 truck movements per day along the road between Gashuun Sukhait and the UHG
project site. After about 12-18 months, the second development phase will start, with the
first module of the processing plant launched: this will allow the coal to be treated and
processed prior to transportation. Around 2.5Mtpa of ROM coal will then be processed to
produce approximately 1.75 Mtpa of clean coking coal. For the development of UHG, ER
will employ an international, reputable Mining Contractor of the highest standard to both
mine and process the coal to produce coking coal.
The scope of the “Project”, subject to Environment and Social Impact Assessment (ESIA),
refers to:
• The mine project with an initial production rate of 0.6 Mtpa expanding to 1.75
Mtpa after 12-18 months (refer above). The scope of the ESIA excludes the coal
processing plant and infrastructure required for this coal processing plant. The
impacts associated with these aspects of the mining at UHG will be examined at
a later date once sufficient design detail is available; and
• the upgrade of the existing earthen road to compacted gravel, including the
excavation of the borrow pits. Further development of the road is planned by the
Government of Mongolia with a sealed road along the current route.

1.2 PROJECT DESCRIPTION

The proposed UHG coal mine is located in Tsagaan-Ovoo bagh (sub-district) of Tsogttsetsii
soum in Umnugobi aimag and the total area of the mine licence is 2,962 ha.
The total resource estimated by Norwest Corporation in late July of 2008 was 364 million
tonnes of coal.
The initial mining area consists of approximately 140 ha, or roughly 13%, of the 1,050 UHG
mining tenement.
ER’s road upgrade project aims to improve the quality of the existing earthen road between
UHG project site and Gashuun Sukhait at the Mongolian-Chinese border some 245 km of
road length.

ENERGY RESOURCES LLC

Ukhaa Khudag Project
Environmental and Social Impact Assessment – Executive Summary Page 1
Considering the current and proposed use of the road route to Gashuun Sukhait, and the
benefits of the road upgrade, the addition of a further 80 to 90 trucks per day from the UHG
coal mine project is not significant in terms of environmental and social impacts. Substantial
environmental and social benefits are expected from the development of a suitably
engineered and constructed road, particularly in regards to pasture impacts, public safety
and dust emissions.
The planned rehabilitation and up-grading of existing road will benefit all local communities
by the much needed improvement to this integral infrastructure. Improved transport
infrastructure will assist local communities in accessing trade routes to Gashuun Sukhait and
reduce the impacts associated with the multiple tracks currently being used.

1.3 OPERATIONAL FRAMEWORK

The preparation of a Detailed Environmental Impact Assessment (DEIA) for the Project is a
requirement under the Mongolian Law on Environmental Impact Assessment (1998) and the
Minerals Law (2006). ER commenced this process in 2008 with two Mongolian consultants,
Eco Trade LLC (Eco Trade) and Enco Co Ltd, being commissioned to complete the DEIA
report for the mine and road upgrade respectively. The Ministry of Nature & Environment
(MNE) has approved a DEIA prepared by Eco Trade in 2007. The DEIA for the road upgrade
has been lodged with the MNE and is currently awaiting approval.
Mongolian National Standards relevant to the Project include rehabilitation, soil
conservation, air quality and water quality standards. ER is committed to ensuring that
these standards, and laws applicable to labour, cultural heritage and pollution prevention,
are complied with during the design, construction and operational phases of the Project.
Additionally, the Government of Mongolia have signed and ratified a number of
environmental treaties and conventions that the Project will comply with.
As well as Mongolian Law, international finance companies involved in providing finance to
projects have their own set of guidelines on which they assess the environmental impact of
a proposed project. This includes organisations such as the European Bank of
Reconstruction and Development (EBRD) who have developed Environmental Procedures
which have two basic objectives:
• To ensure that the environmental implications of potential EBRD-financed
investment and technical co-operation projects are identified and assessed early
in EBRD’s planning and decision-making process and that environmental
considerations are incorporated into the preparation, approval and
implementation of projects at an appropriate level.
• To identify ways in which EBRD’s projects can be enhanced by incorporating
environmental benefits or improvements.
The Procedures have been applied in the development of ER’s Project Environmental and
Social Impact Assessments (ESIA).

ENERGY RESOURCES LLC

Ukhaa Khudag Project
Environmental and Social Impact Assessment – Executive Summary Page 2
1.4 ANALYSIS OF ALTERNATIVES
At this stage, an analysis of alternatives with respect to the mine is primarily whether or not
mining should commence or not. There will be more scope for analysis of alternatives to be
undertaken following initial start-up of the mine, when beneficiation options can be
considered (such as coal washing) and future mining plans are developed.
Following a comparison of transport alternatives, it was determined that upgrading the
existing earthen road to Gashuun Sukhait provides the best outcome for minimising negative
impacts and enhancing the positive social and environmental aspects of the Project.

1.5 EXISTING ENVIRONMENT

1.5.1 Physical
The UHG mine area is one of gently rolling desert plains with minor relief where elevations
range from 1,500 m to 1,600 m above sea level.
The region has a continental climate with extreme fluctuations of air temperature and very
low precipitation, less than 120 mm per year. Average wind speeds reach 5 m/s and
maximum wind speeds can be up to 34 m/s causing seasonal dust and sand storms. The
average temperature in the warmest month of June is about 23°С, with the maximum
temperature reached being 39°С.
The dry climate, seasonal strong winds (particularly in spring) and light desert soils provide
conditions that generate dust storms in the South Gobi area. In addition to the natural
levels of dust, the use of the existing road in the current state of disrepair (being damaged
and eroded) causes elevated localised dust concentrations adjacent to the road.
The UHG coal deposit and adjacent basin areas are within the closed Central Asian drainage
basin and have no outflow to the ocean. There are no surface water springs or creeks in
the proposed UHG coal mine area. The nearest surface water depression is Ulaan Lake
which is located approximately 10 km southwest. Also, there is no permanent surface water
within the region of the road. However, there are many dry water beds that cross the road
that contain water during rainstorms and possible seasonal flooding events.
The region containing the mine and road is dominated by poorly developed and eroded
semi-desert brown soils, desert brown grey soil and Galbyn Gobi soils. The ground surface
is subject to freezing in winter but there is no permafrost.
Seventy (70) percent of the sparse desert vegetation around the UHG mine is drought
resistant plants that are commonly found across the desert and semi-desert steppe.
Mongolian endemic plants including Caryopteris mongolica and Astragalus pavlovii and the
endangered plant Asterothamnus centrali-asiaticus were recorded in the general area.
Caryopteris mongolica is also included in the Red Book of Mongolia.
The road route crosses a variety of landscapes and therefore various vegetation
communities. There are five plant species listed as Rare in the Mongolian Red Book,
including: Cynomorium soongoricum; Amygdalus mongolica; Glycyrrhisa uralensis; Ephedra
equisetina; and Sophara alopecuroides.

ENERGY RESOURCES LLC

Ukhaa Khudag Project
Environmental and Social Impact Assessment – Executive Summary Page 3
Forty-two species of vertebrate animals belonging to 3 classes of mammals, birds and
reptiles inhabit the area containing and surrounding the UHG project area. Three species of
mammals, Cardiocranius paradoxus (Five-toed Pygmy Jerboa), Salpingotus crassicauda
(Thick-tailed Pygmy Jerboa) and Euchoreutes naso (Long-eared Jerboa) were found
surrounding the UHG area and are listed in the Mongolian Red Book. One species of bird,
the Aegypius monachus (Eurasian Black Vulture) is registered in Appendix II of CITES.
Five mammal (Wild Ass; Gottred Gazelle; Stunin Jerboa; Thick-tailed Pygmy Jerboa; and
Long-eared Jeboa), 2 bird (Chlamydotis undulata and Prodoces Hendersoni) and 2 reptile
species (Tartary Sand Boa and Coluber spinalis) are included in the Mongolian Red Book and
protected by law. In addition, 2 mammal (Wolf and Wild Ass) and 2 bird species (Aegypius
monachus and Neophron percnopterus) are included in Appendix II of CITES (the
Convention on International Trade in Endangered Species).
The existing road passes through the western edge of the “B” section of the Small Gobi
Strictly Protected Area (SGSPA). The SGSPA is divided into three zones: pristine,
conservation and limited use and the road route crosses through the limited use zone. Road
construction and therefore the upgrade of a road, is an activity not prohibited in the limited
use zone.

1.5.2 Social
Although Umnugobi is the largest aimag in Mongolia, covering 165,377 km2, it is the least
densely populated with approximately 50,000 residents. 2005 Government figures give the
population density as 0.29/km2. The capital city Dalanzadgad (approximately 80 km west of
the proposed UHG mine) serves as the province’s logistics, administrative and population
centre and has the province’s only high school and civilian airport.
The UHG mine is situated in Tsogttsetsii soum, which is located in the eastern region of
Umnugobi. The coal export road runs through the Bayan-Ovoo and Khanbogd soums, which
are perhaps the most affected by the existing poor road condition, and who in turn stand to
benefit the most from the proposed road upgrade.
Tsogttsetsii soum is indicative of the region, with the majority of the population (2,200
people) relying upon animal husbandry and government employment/entitlements for their
livelihood. Average herder families are considered economically poor by Mongolian and
International standards. Traditional nomadic herding practices involve an informal system of
seasonal grazing of sheep, goats, camels, horses and cattle. Herders rely largely on
cashmere, dairy and other animal products for subsistence. The total land area of the soum
is 7,246 km2, giving a population density of 0.30/km2.
Facilities currently available in Tsogttsetsii soum centre include a 20 bed hospital, a primary
and middle school for 400 pupils, a dormitory for the children of herders, mobile phone
access and banking facilities as well as community heating system. The Tsogttsetsii soum
centre is 2-3 km from the site of the UHG mine camp.
Bayan-Ovoo soum, through which the road runs, has a population of just 1,539 people
spread across 10,474 km2, giving a population density of just 0.15/km2. Bayan-Ovoo relies
heavily upon animal herding, although the soum centre has a high level of educational and
healthcare infrastructure, reflecting efforts made by the soum governor.

ENERGY RESOURCES LLC

Ukhaa Khudag Project
Environmental and Social Impact Assessment – Executive Summary Page 4
Khanbogd soum has a population of 2,659 people, spread across 15,151 km2, giving a
population density of 0.18/km2. Khanbogd soum has experienced substantial socio-
economic development as a result of mining and exploration activity within its region in
recent years. Issues of employment and impacts on traditional herding practices have been
raised by respondents from Khanbogd during public surveys. Yet as the soum most affected
by the road, Khanbogd stands to benefit from the road upgrade.
The most important stakeholders with respect to the Project are:
• the local herders (eg the ten herders who graze their livestock in the mine
affected area). These herders practice traditional nomadic herding lifestyles that
are prevalent throughout Umnogobi aimag;
• the administrators with respect to the local levels of government in the region
(eg bagh, soum and aimag governors); and
• the Protected Area Authority with respect to the road passing through the
SGSPA.

1.6 IMPACTS AND MANAGEMENT MEASURES

1.6.1 Environmental Impacts

Implementing the Project will result in substantial and permanent changes in landform from
mining and road construction. These changes to the landscape are largely irreversible and
will be mitigated through the implementation of measures to make the post-mining
landscape a safe, stable and non-polluting landform that, as much as practicable, reflects
the contours and surface characteristics of the surrounding landscape. This will be achieved
through implementation of a Mine Closure and Rehabilitation Plan and rehabilitation of the
borrow pits once the road upgrade project is complete.
The potential for dust emissions from open pit and borrow pits, wind erosion of waste rock
structures and coal transportation are the most significant potential impacts on air quality.
The implementation of dust controls at UHG will incorporate:
• use of engineering design criteria that includes objectives to prevent emissions
at the potential source;
• integration of effective and practical dust control contingencies and strategies in
operational procedures for all aspects of the mine site and road operations;
• a comprehensive dust monitoring program that will quantify the effectiveness of
control strategies and clearly identify the emissions associated with the Project
from other regional sources; and
• protection and enhancement of natural vegetation surrounding the Project as a
dust abatement strategy, in partnership with existing land users.
During operation, the transportation of coal will cause dust from the road. However, dust
generation will be at a lower level than current emissions due to the compaction and binding
of the gravel road. Notwithstanding, the road will be watered regularly to minimise dust
emissions during construction and operation.

ENERGY RESOURCES LLC

Ukhaa Khudag Project
Environmental and Social Impact Assessment – Executive Summary Page 5
Groundwater levels at the mine site will be lowered during and following operations of
dewatering of the open pit in the first stage of the Fast Track Mine. The coal deposit area
has a shallow aquifer and so dewatering of the pit will be required early in the mining
operations and water from the pit will be used to recharge downstream aquifers and for
dust suppression. Dewatering is a requirement to safely and effectively mine the ore body.
Potential impacts to surface water include the interruption to surface water flow during flood
events both at the mine site and at the road.
The environmental management objective for water resources is to minimize impacts as
much as possible through design and operation; and also to confine these impacts to the
Project area. Downstream water resources can be protected and maintained through
effective diversion of flow and prevention of off-site contamination from activities on the
mine site.
Dry river bed crossings along the road will include engineered floodways and culverts that
maintain surface flows during the infrequent flood events.
Wells required as a water source for dust suppression will be developed along the road
route where shallow water sources are identified. These wells will be regularly monitored to
ensure no impact to local herder wells – no local herder wells will be accessed for road
construction or maintenance purposes.
The road upgrade will result in the rehabilitation of the multiple branches of the current
earthen road. Management measures to be implemented to mitigate negative impacts to
the soil from the activities associated with the Project include minimising soil disturbance,
top soil conservation and managing vehicle access.
The removal of vegetation will only occur where necessary for the development of the mine,
associated infrastructure and road construction, including borrow pits. Vegetation will be
maintained on areas within the Project Area not used for mining and associated activities.
The Vegetation Management Plan will include measures to minimize vegetation clearing at
UHG and on the road. The rehabilitation of vegetation will occur progressively throughout
the life of the Project in accordance with the Rehabilitation Plan prepared during mine
development.
The Preliminary Mine Closure and Rehabilitation Plan will provide initial details of plans for
temporary mine shut down, progressive closure of waste facilities and the final restoration of
the site once the Project is complete.
Mitigation measures with respect to the impacts on fauna include:
• integration of exploitation, protection and reclamation activities into Mine
Development & Closure Plans;
• progressive reclamation of disturbed area; and
• fencing around holes, trenches and borefields, in order to protect livestock and
wild animals.
Impacts on the SGSPA will be managed in co-operation with the Protected Area Authority.
The increased use of the border crossing point into China requires the management of
temporary settlements and any unauthorised vehicle access to the protected area.
Management plans will include the funding and participation in regional studies including
those to improve the understanding and management of Asiatic Wild Ass and Black Tailed
Gazelle.

ENERGY RESOURCES LLC

Ukhaa Khudag Project
Environmental and Social Impact Assessment – Executive Summary Page 6
1.6.2 Social Impacts
Social Impacts from the UHG coal mine and associated mine camp will be generally positive.
Although initial screening identified the mine as a Category A project under the EBRD
project criteria, due to its size and present situation (degraded environment and social
problems caused by a nearby operator), the social impacts of the Project are limited.
Manageable and negative effects are offset by significant positive outcomes such as
employment and economic development. There is strong local demand for the UHG project
to commence, especially due to the expectation of local employment creation.
Once the mine commences production, employment of local people is expected to increase
significantly, with the potential for a large proportion of the mine’s potentially 1,000 workers
(including drivers and subcontractors) being sourced from within the Umnogobi aimag.
The changes that the mine will bring to the region also threaten to create negative social
impacts, such as risks to human and animal health from the mining activities – as well as
social changes from having a greatly expanded non-resident population in the area. The
impact of potentially 1,200 temporary residents (assuming high rates of families and
dependents) on a remote population centre of 2,200 people should not be under-estimated.
However, potential negative impacts can be managed, and ER is already taking steps to
ensure proper management and mitigation procedures are in place. Equally, the potential
improvements in the livelihoods of Tsogttsetsii residents are considerable.
Social impacts from the upgrade of the road represent a significant improvement in the
livelihoods and health for local herders. The current state of the road and its manner of use
present numerous social and environmental problems which include:
• loss of livestock to dust related illness,
• human health problems from inhaling airborne silica,
• accidents relating to drunk and/or irresponsible driving, and
• local dissatisfaction with the lack of access to employment opportunities in the
mines.
ER are working to ensure that the benefits of the UHG mine also accrue to the residents of
the neighbouring soums, Bayan-Ovoo and Khanbogd, which soums the road passes through.
Research conducted in preparing the ESIA identified that the existing small coal mining
operations in nearby basin that have been in production for the past few years are criticised
by residents of Bayan-Ovoo and Khanbogd for creating social and environmental problems in
particular in connection with road, without making any contribution to economic or social
development. Noting that the road upgrade represents a significant, if still imperfect,
improvement for the area, there is strong demand from local administration and residents
for the road upgrade to commence as soon as possible.

1.7 ENVIRONMENTAL AND SOCIAL ACTION PLAN

An Environmental and Social Action Plan (ESAP) will be developed which will detail the
actions and commitments required to manage the environment and social impacts of the
Project. The ESAP is developed to meet the requirements of the Mongolian EIA process and
EBRD’s Performance Requirements.

ENERGY RESOURCES LLC

Ukhaa Khudag Project
Environmental and Social Impact Assessment – Executive Summary Page 7
The ESAP will establish the objectives, schedule of activities and responsibilities to manage,
reduce or mitigate negative impacts and the environmental and social protection measures
required to protect the identified environmental and social values from the risks posed from
mining and related activities. The ESAP will also include the standards and regulations that
apply in Mongolia as well as define performance objectives for each action.
The ESAP will be revised and updated as required on an annual basis or as required to
respond to the outcome of the monitoring programs. The annual review of the ESAP will
require an assessment of all negatives changes in the Project and surrounding areas in
addition to the assessment of monitoring results. The annual review will also consider the
outcomes of consultation with the relevant government environmental agencies and local
communities.

1.8 STAKEHOLDER ENGAGEMENT PLAN

The Stakeholder Engagement Plan (SEP) has been prepared and forms part of the Project’s
ESIAs. The SEP will help ER build and maintain a constructive relationship with their
stakeholders, in particular the locally affected communities. ER has been active in liaising
with the governors of affected soums and has appointed both an on-site Community
Relations Manager as well as appointing an Ulaanbaatar based Director in charge of
Environmental and Community issues.
The SEP includes the requirement for periodic visits to the homes of the most at-risk groups
(eg the ten herders who graze their livestock in the mine affected area) as well as regular
(monthly) contact with bagh governors – who act as a conduit for information in the rural
Gobi.
In addition ER will organise a series of public consultation events, to be hosted in rural and
urban locations, which will set out the Project plans and request feedback from
stakeholders. As part of the on-going process of meaningful consultation, opportunities will
be provided for affected communities to make complaints through the grievance
mechanism.
The grievance mechanism will be a two stage process, with the first point of contact for all
complaints being the Community Relations Manager. All complaints will be logged by the
manager, who will then ensure that these complaints are assessed, addressed in project
planning and the result reported back to the complainant.
In cases where the complainant is unsatisfied with the result, a further complaint can be
made to the camp manager and soum governor – who will liaise directly with ER
management in Ulaanbaatar, to ensure the grievance is resolved.
The Community Relations Manager will take a leading role in ensuring regular consultation
with affected communities and stakeholders.

1.9 ER’S COMMITMENTS AND ENVIRONMENTAL MANAGEMENT SYSTEM

For the successful implementation of corporate environmental policies, ER is establishing an
appropriate management structure with clearly defined lines of authority and responsibility,
as well as a formalized system to develop objectives, monitor progress and evaluate results.

ENERGY RESOURCES LLC

Ukhaa Khudag Project
Environmental and Social Impact Assessment – Executive Summary Page 8
ER’s EMS will be developed based on the International Standard ISO14001:2004 (the
Standard). The Standard specifies requirements for an EMS to enable the development and
implementation of a policy and objectives which taken into account legal requirements and
information about significant environmental aspects. The overall aim of the Standard is to
support environmental protection and prevent of pollution in balance with socio-economic
needs.
ER’s social and environmental and health and safety management systems are fully
integrated within the overall management system to control and eliminate occupational and
environmental risks and impacts.
The Environmental Management Policy (‘the policy’) of ER is to minimize any significant
adverse environmental impacts of new business developments, through the establishment of
an Environmental Management System (EMS), the use of integrated environmental
management procedures and planning, the development of environmental performance
evaluation procedures, the prevention of pollution, the reduction of waste and consumption
of resources, the recovery and recycling of wastes, the involvement of and communication
with interested parties and the education and training of employees and contractors.
In accordance with the Mongolian regulatory requirements, ER forecasts annually, in
advance, the amount of money to be committed to rehabilitation/reclamation, and 50% of
the estimated amount is deposited with the local government. The deposited funds are
returned to the company when the reclamation work is completed, and the environmental
inspector considers the results are “satisfactory”.

ENERGY RESOURCES LLC

Ukhaa Khudag Project
Environmental and Social Impact Assessment – Executive Summary Page 9