Mongolia: Boldly Go Where No Investor…
The Mongolian economy is not one that grabs a lot of attention on the global stage.
Landlocked between China and Russia the Mongolian economy had for years been dominated by Agriculture and herding until it became clear there was gold in them there hills.
But it is not just gold reserves sitting in the mountains and deserts of Mongolia, a country similar in size to Alaska.
The CIA world fact book says the North Asian country is also rich in copper, coal, molybdenum, fluorspar, uranium, tin and tungsten deposits.
“The undeveloped mineral wealth in Mongolia is spectacular – this is a country that really is sitting on a pot of gold. It has one of the largest undeveloped copper, gold and uranium deposits in the world and is believed to have the largest untapped supply of coal,” said Edison Research in a briefing on the country that has not been fashionable since Genghis Khan struck fear into the region in the 13th century.
“Nestled between two political giants - China and Russia, Mongolia is a vastly undeveloped resource rich country on the brink of an economic transformation,” said Resource Investment Capital in country analysis report.
“Thanks to positive recent political and economic developments, Mongolia is set for spectacular growth which is becoming noticed globally. And backed by its resource-rich landscape of world class deposits, Mongolia has been coined the “Saudi Arabia of Coal” with strong parallels to previous natural resource booms around the world,” he said.
The Challenge
Getting all those minerals out of the ground and onto the Chinese and world markets is going to be a major challenge.
With no sea port and major infrastructure spending needed it could be years before Mongolia can cash in on its untapped wealth.
“The challenge is going to be getting it out. Funding the development of the mines and constructing the necessary infrastructure will take large investment, which will have to come from outside the country,” said Edison Research.
Last year Ivanhoe Mines [IVN 26.68
-0.22 (-0.82%) 
] and Rio Tinto [RIO 71.66 -0.47 (-0.65%) ] signed a landmark deal to exploit copper and gold deposits which could pave the way for further deals to be signed, and more funds to be made available for infrastructure investment.
“Mongolia needs an upgrade – it needs new housing, new roads, new electricity and water processing networks and all the support functions that massive investment in the country will require” said Edison Research.
Bold Baatar is a former Wall Street banker and now the chairman of the Mongolian Stock Exchange and says the challenge for Mongolia is to use the countries huge natural resources to drive sustainable development.
“The Mongolian people are now all watching the copper price and are excited about cashing in on their countries new found wealth,” said Baatar in an interview with CNBC.com on Thursday in London.
Baatar is in London to sign a deal with the London Stock Exchange [LSE-LN 862.50 -10.00 (-1.15%)]that aims to improve Mongolian capital markets, increase transparency and give foreign investors confidence in Mongolian corporate governance.
“The Oyu Tolgoi joint venture between Rio Tinto, Ivanhoe Mines and the Mongolian government is 39 percent owned by the government and when listed, 10 percent of the joint venture will be given to each and every Mongolian citizen,” he said.
“Whilst Australia needs a rail road, a port, a ship and another port to get raw materials to China we can simply drive it into China over 300 kilometres of desert,” said Baatar, who admits big investment is needed to help get its huge natural resources to market.
“Access to ports in China and Russia will be important to help us diversify our buyers,” he said. “We want to target markets like India, Japan and South Korea”
The Risks Now
Investing in Mongolia is not the easiest thing to do.
Rio Tinto is not a play on Mongolia although Ivanhoe, which is NASDAQ listed, has far greater exposure as a percentage of its portfolio.
Having gained by nearly 400 percent over the last 2 years, it remains to be seen if all the good news is priced in on Ivanhoe Mines though.
Mongolia plans to create national champions equivalent to Brazil’s Vale or CBRD and predicts a national champion with a market cap of between 30-60 billion dollars listed in London.
“In coal and copper and gold we will be producing enough to be taken very seriously by the global markets. Outside of our coal and copper reserves that are being developed we have 13 other major strategic reserves with minerals like molybdenum, fluorspar, uranium, tin and tungsten. There is a huge opportunity for Mongolia,” said Baatar.
“Much progress has been made but it is still in transition to a market economy. This is evident both from the debate between the “new” breed of politicians that embrace globalization and the still-strong nationalists that believe in protectionism and full state ownership of assets, and in the underdeveloped legislative infrastructure to support a free market,” said Edison Research.
Clearly the nationalists are a risk to foreign investment, but if the so-called new breed can make the most of its opportunity, higher standards of living and quality of life for the locals could help entrench the rule of law and protection of foreign investors.
Landlocked between China and Russia the Mongolian economy had for years been dominated by Agriculture and herding until it became clear there was gold in them there hills.
But it is not just gold reserves sitting in the mountains and deserts of Mongolia, a country similar in size to Alaska.
The CIA world fact book says the North Asian country is also rich in copper, coal, molybdenum, fluorspar, uranium, tin and tungsten deposits.
“The undeveloped mineral wealth in Mongolia is spectacular – this is a country that really is sitting on a pot of gold. It has one of the largest undeveloped copper, gold and uranium deposits in the world and is believed to have the largest untapped supply of coal,” said Edison Research in a briefing on the country that has not been fashionable since Genghis Khan struck fear into the region in the 13th century.
“Nestled between two political giants - China and Russia, Mongolia is a vastly undeveloped resource rich country on the brink of an economic transformation,” said Resource Investment Capital in country analysis report.
“Thanks to positive recent political and economic developments, Mongolia is set for spectacular growth which is becoming noticed globally. And backed by its resource-rich landscape of world class deposits, Mongolia has been coined the “Saudi Arabia of Coal” with strong parallels to previous natural resource booms around the world,” he said.
The Challenge
Getting all those minerals out of the ground and onto the Chinese and world markets is going to be a major challenge.
With no sea port and major infrastructure spending needed it could be years before Mongolia can cash in on its untapped wealth.
“The challenge is going to be getting it out. Funding the development of the mines and constructing the necessary infrastructure will take large investment, which will have to come from outside the country,” said Edison Research.
Last year Ivanhoe Mines [IVN 26.68
-0.22 (-0.82%) ] and Rio Tinto [RIO 71.66 -0.47 (-0.65%) ] signed a landmark deal to exploit copper and gold deposits which could pave the way for further deals to be signed, and more funds to be made available for infrastructure investment.“Mongolia needs an upgrade – it needs new housing, new roads, new electricity and water processing networks and all the support functions that massive investment in the country will require” said Edison Research.
Bold Baatar is a former Wall Street banker and now the chairman of the Mongolian Stock Exchange and says the challenge for Mongolia is to use the countries huge natural resources to drive sustainable development.
“The Mongolian people are now all watching the copper price and are excited about cashing in on their countries new found wealth,” said Baatar in an interview with CNBC.com on Thursday in London.
Baatar is in London to sign a deal with the London Stock Exchange [LSE-LN 862.50
-10.00 (-1.15%)]that aims to improve Mongolian capital markets, increase transparency and give foreign investors confidence in Mongolian corporate governance.“The Oyu Tolgoi joint venture between Rio Tinto, Ivanhoe Mines and the Mongolian government is 39 percent owned by the government and when listed, 10 percent of the joint venture will be given to each and every Mongolian citizen,” he said.
“Whilst Australia needs a rail road, a port, a ship and another port to get raw materials to China we can simply drive it into China over 300 kilometres of desert,” said Baatar, who admits big investment is needed to help get its huge natural resources to market.
“Access to ports in China and Russia will be important to help us diversify our buyers,” he said. “We want to target markets like India, Japan and South Korea”
The Risks Now
Investing in Mongolia is not the easiest thing to do.
Rio Tinto is not a play on Mongolia although Ivanhoe, which is NASDAQ listed, has far greater exposure as a percentage of its portfolio.
Having gained by nearly 400 percent over the last 2 years, it remains to be seen if all the good news is priced in on Ivanhoe Mines though.
Mongolia plans to create national champions equivalent to Brazil’s Vale or CBRD and predicts a national champion with a market cap of between 30-60 billion dollars listed in London.
“In coal and copper and gold we will be producing enough to be taken very seriously by the global markets. Outside of our coal and copper reserves that are being developed we have 13 other major strategic reserves with minerals like molybdenum, fluorspar, uranium, tin and tungsten. There is a huge opportunity for Mongolia,” said Baatar.
“Much progress has been made but it is still in transition to a market economy. This is evident both from the debate between the “new” breed of politicians that embrace globalization and the still-strong nationalists that believe in protectionism and full state ownership of assets, and in the underdeveloped legislative infrastructure to support a free market,” said Edison Research.
Clearly the nationalists are a risk to foreign investment, but if the so-called new breed can make the most of its opportunity, higher standards of living and quality of life for the locals could help entrench the rule of law and protection of foreign investors.
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