Hidden riches in Mongolia pose big challenges
It is a stellar index of companies that you've almost certainly never heard of and which mostly have something to do with coal.
The story behind this breathless advance is one of depth and proximity, of mammoth metal and energy reserves sitting on the doorstep of mineral-hungry China.
If you believe that China's appetite will only swell from here, runs the argument, Mongolia should be a sure thing.
Chinese imports of coking coal more than quadrupled in 2009 from a year earlier. Much of that came from Australia: Mongolia's promise lies in being the nearer, cheaper supplier of choice in the future.
Quoted with all the excitable touting of Mongolia is its exposure to "a world where China is growing at 8 per cent a year".
Last month in Hong Kong, a gathering of the world's biggest investors was encouraged to relish the "monster" prospects of Mongolian shares listed on the exchange that will be celebrating only its twentieth birthday next year and is run from a pink, recently refurbished children's cinema in Ulan Bator.
But the rise in Mongolia's stocks is as deceptive as it is impressive. Despite owning 10,000 years of coal (based on current output), rich seams of gold and uranium and copper reserves to rival Chile's, the investment and infrastructure to make it boom remains elusive.
The country, accordingly, has a GDP only slightly larger than that of Barbados and the combined market value of all companies listed on the Mongolian Exchange is just over $800 million.
Outside Ulan Bator, investment views on Mongolia's prospects are mixed.
Low price and proximity to China is no advantage so long as transport links remain feebly financed and rife with bottlenecks. The mines need huge capital expenditure before they start producing the goods.
The big 20 Mongolian companies may be enjoying their domestic rally now, but know that they need to raise billions to set the right projects in motion, and they will not find those billions at home.
The bid for investment has recently taken several Mongolian companies - or companies with exposure to its fortunes - to Hong Kong and into a more severe market environment.
Yesterday, the reception was cool. Shares in Winsway Coking Coal Holdings - a logistics company responsible for moving about 65 per cent of Mongolia's coal into China, suffered a 9 per cent fall in the value of its shares as they made their debut in Hong Kong.
A bigger challenge is to come tomorrow when shares in Mongolian Mining Corporation begin trading, also in Hong Kong.
So far, the listing has fared well: the coke producer raised its price range and raised $US650m ($661m). The performance of the MMC shares, senior investors say, will be the critical test of whether the world outside Ulan Bator really believes the Mongolian story.
Comments
Post a Comment