My Mongolia Presentation

Below is the material covered in my presentation which was given during my time working at the bank. I hope this will give you a feel of what is happening in Mongolia and why many believe it to likely be the next great emerging market star. 

2010 Highlights

• Mongolian Stock Exchange (MSE) climbed 121% in 2010 - MSE +50% as of Feb 2011  
• Silk Road Mongolia Index (SRMI) gained 52.7% in 2010
• Worlds second fastest growing economy in terms of USD GDP growth rate
• Mongolian Tugrik best performing currency in 2010 and as of Feb 2011
• Historical High Inflows of FDI (200% increase since 2009)

 

National Assets and Investment Rationale                                               

Mongolia contains the world's largest coal reserves and possibly one of the worlds largest copper and gold reserves. It has the world's second largest concentrated reserves of rare earth materials (17%). They also are expected to have vast uranium resources.

Given this, and given that commodity prices are expected to increase over the next few years (coal by 9.3% and copper by 3.5%, according to a Bloomberg Analyst Survey) it would prove well for investment in the Mongolian mining sector. In the graph below you can see that China's coal consumption is forecasted to grow dramatically over the next two decades, much of which can be fed by Mongolian coal output.

Also, its important to note that China has been the world's leading producer of rare earth minerals (producing over 90% of the global supply). With this in mind, and with the understanding that China has cut their exports by nearly 10% in 2010 and is expected to continue to slash their exports by additional 35% in 2011 because of a growing demand at home, one can only look even more to Mongolia to develop their rare earth reserves to meet this forecasted excess demand.

Political and Developmental Key Point

Mongolia is a young and stable Democracy and has been for 20 years. Through administrations efforts the country has been able to grow it's foreign investment, further diversify it's economy, and eradicating corruption in the nation's stock exchange (MSE). It's not a joke, Mongolia does have a stock exchange, and as of 2006 it was the world's smallest exchange in terms of market capitalisation. In January 2011 the MSE entered into a strategic agreement with the London Stock Exchange (LSE). The goal of the agreement is to provide technical assistance, appoint a new management team, and to provide up-to-date trading technology and surveillance systems designed to eliminate corruption. 

When questioned about why Mongolia would "hand over" its stock exchange to foreigners, Oyun Erdenebulgan, deputy chairman of the Mongolian governments state property committee (part of the government which owns the exchange) said "If you have a new Ferrari and you are not a good driver, how can you drive it? We want to put a Formula One drive in here." 

Aside from vamping up the bourse related infrastructure, the nation has shown a great deal of interest in expanding its hard infrastructure, namely its railroad network. This is vital for the nations growth. Below you can see illustrated plans courtesy of Eurasia Capital, a pan-regional investment bank with focus on Mongolia and Central Asia. The networks in red and green are currently being developed while the blue is a goal to be built on the horizon. It's important to note that along with a development of Mongolia's railroad network comes independence from China, the only country the nation can currently export to with their existing railway lines (shown in black and white on the map below). Because Mongolia does not want to become the raw materials supplier to just one country, these other planned railroad networks will allow them to trade with Russia at reach as far east as Russian Pacific ports, allowing them to trade with the United States, Japan, and other Asian nations. To help finance these large projects, the Mongolian government is said to be structuring many of the state-owned mine IPOs in a way which will 

demand the investor to allocate a small percentage of his invested funds towards them.

Mongolia has not only been planning expanding infrastructure but also expanding foreign policy. Their relations with the United States and Japan are strong in what is known as their "3rd Neighbour" policy. Essentially this is a free trade agreement between these nations which is to go into effect in the beginning of 2012.

A Sure Signs of Positive Movement?

One could say there are some sure signs of positive movement in the modern Mongolia story. First, it's significant that the head of mining team at UBS London joined Resource Capital management in Ulan Bator and has recently moved their with his family. Second are the multiple IPOs which have occurred in the past year which have all increased investors confidence in the small nation. From the $650mn IPO of Mongolian Mining Corporation in late 2010 to the massive much anticipated launch of Erdene's Tavan Tolgoi's IPO to be expected the first half of 2012. The government has shortlisted some of the largest investment banks in the world to usher in this IPO and it's occurrence is expected to greatly stimulate the Mongolian economy. In the IPO, the government is selling 30% of the mine in shares to be listed on the Hong Kong and/or the London Stock Exchange.