Mongolia's Exploration Potential

Mongolia's discovered mineral wealth is greater than USD 1.5 trillion with less than 20% of the country explored. Mongolia's potential for future discoveries and its close proximity to China makes it one of the most attractive exploration frontiers in the world. The exploration market is currently red hot with many significant discoveries being made in the last month. The following are examples of some of the most recent discoveries:

The Mongolian Resource Corporation explores for gold at its Blue Eyes and Sujigtei sites in Northern Mongolia. Proactive Investors reports that the MRC discovered high-grade gold in its first nine holes drilled at the Sujigtei gold mine. This mine first opened in 1980 and had mined 180 meters before shutting down abruptly in 1991 after the Russians left the Mongolia. After reopening the mine, MRC discovered 5.6 grams of gold per ton. This winter a second underground drill rig capable of 500 meters of diamond drilling will be used, while surface contact drilling will be suspended due to weather conditions and water constraints.

Proactive investors also reports this month that Modun Resources has established a coal resource of 489 million tons at its Nuurst Project site. The quantity exceeds initial expectations and offers the potential for a large scale thermal mine. Modun is the sole owner of the Nuurst Project and now has one of the largest supplies of coal resources at the Australian-Securities-Exchange (ASX) of listed companies operating in Mongolia. The company plans to implement a scoping study and apply for a mining license as soon as possible. Its 2012 exploration program will target more coal resources, with 84 percent of its license still left unexplored. Nuurst is is a 34.5 square-kilometer license area located 120 kilometers south of Ulaanbaatar and only 6 kilometers from an existing railway line. Modun reports a significant coal seam thickness and a low stripping ratio for the project, which suggests a well positioned large scale, low cost operation.

Xanadu Mines reported a 51% increase in its JORC coal resource, bringing its total coal resource inventory to 497 million tons. They also made a discovery of over 327 million tons of sub-bituminous coal resources at their Khar Tarvaga site. They have identified three coal streams there that are well situated for supply to the domestic coal market.

Haranga Resources recently reported a high grade iron discovery, finding high grade iron mineralization in 29 of its 33 drill holes at the Bayantsogt site. They have identified five major iron lodes in the Bayantsogt hill and are now beginning metallurgical tests. Haranga has also made a new discovery near Dun Bulag, uncovering magnetite iron mineralization. Haranga is an Australian-listed company focused on developing high quality iron ore projects in Mongolia.

(information gathered from BCM Newswire 197)

Mongolia's two largest mining sites, Tavan Tolgoi and Oyu Tolgoi, are expected to make IPOs next year on the Mongolian Stock Exchange (MSE), which will be the largest offerings in MSE history. Currently Mongolian mining companies Ivanhoe, Mongolian Mining and Hannu Coal are listed on the US, Hong Kong and Australian stock exchanges respectively. Investments in these companies can offer investors access to Mongolia as it emerges on the world market.  

Shuren Hydro-Electric Station

Development Project

Mongolia is expected to enjoy high levels of sustained economic growth over the coming decade due to its rapidly developing mining sector. The rising demand for new sources of energy heavily outweighs current supply, creating the need for a reliable and sustainable domestic energy supply. Mongolia has a hydropower potential of 56000 GWh per year but has only harnessed one percent (75 GWh) of this potential. This obvious void has created the possibility for a high impact investment with considerable growth potential.

After the recent success of a hydroelectric pilot project, the Mongolian Government has given highest priority status to the development of a large-scale hydropower facility on Mongolia's largest river, the Selenge. The proposed project will provide solutions to a long list of socioeconomic and environmental issues by satisfying long-term peak load demand, reducing hazardous pollution levels, reducing dependence on high cost Russian energy imports and creating energy security and independence.

The ongoing development of large scale mining projects over the next decade will create enormous demand for electricity, which cannot be met by existing supply. Mongolia currently imports high cost energy from Russia to cover its peak capacity consumption, a dependence that will only increase with the growth in mining. Currently, Mongolia's energy sector consists almost exclusively of coal-fired thermal power plants, which have contributed to high levels of air pollution in the capital city of Ulaanbaatar and created a potential health risk for over 1 million people, effectively one third of Mongolia's population. Desertification due to climate change poses another considerable risk, with local warming reaching 2.0 degrees, 3 times the global average. It is therefore imperative that Mongolia develop a secure and sustainable mix of domestic energy sources to cover rising demand, reduce air pollution and carbon emissions and reduce dependence on Russia.

The Shuren Hydropower project represents a near perfect solution to Mongolia's energy needs and will be a major step towards sustainable socieconomic development. The project will reduce greenhouse gas emissions by 700,000 tons per year and generate energy that is infinitely renewable, clean and domestically supplied. In addition, the the facility will provide water storage, energy storage and flood and drought mitigation. DBM has been entrusted with the responsibility of financing the project and is currently reaching out to investors.

devonalec@gmail.com

USD 600 million Euro Medium Term Note Program

Press Release

Development Bank of Mongolia has successfully issued its bonds and on good terms

The Development Bank of Mongolia has opened a new page of history in Mongolia’s banking and financial sector with its US$ 600 million Euro Medium Term Note Program, in coordination with its internationally recognized partners in ING, Deutsche Bank and HSBC.

International rating agencies, Moody’s and Standard&Poor’s have rated the Development Bank of Mongolia’s bonds similarly to the Government of Mongolia, Moody’s - (B1),  S&P - (BB-).

The Development Bank of Mongolia’s bonds are the first sovereign bonds issued with the guarantee of the Government of Mongolia. Although the world capital market situation is not favorable at present, the Development Bank of Mongolia managed to issue the bonds in the best terms and at a low interest compared with countries in a similar situation.

The five-party agreement to establish this program will be signed by S. Bayartogt, Finance Minister on behalf of the Government of Mongolia as the Guarantor and Kim, Jang Jin, CEO of the Development Bank of Mongolia. At this moment the representatives of the investment banks are also signing the agreement in their respective countries.

DBM aims to provide financing for large scale projects in priority and strategically important sectors to support economic growth and the production of value-added goods. It shall provide the funds to the following priority sector projects and programs, approved by the Parliament:

·         New Development medium term target program;

·         State policy on Railway transport program;

·         Sainshand Industrial Park; and

·         Projects and Programs included in the List of auto roads and energy facilities to be built using DBM’s own funds with a condition of to be paid later.

The EMTN Program established by the Development Bank of Mongolia provides an opportunity to start financing these strategically important projects and programs and within this program the bonds worth US$ 600 billion are planned to be sold in several stages through the Singapore Stock Exchange this December and into 2012.

We are pleased to inform you that the initial takedown of US$ 20 million will be transacted shortly. The program which we have established today represents the foundation upon which DBM will expedite the construction work that is so eagerly anticipated and through which DBM will make its valuable contribution to Mongolia’s successful development.

            We are cooperating with ING, Deutsche bank and HSBC, all of which are internationally reputable and experienced investment banks, to implement the Euro Medium Term Note Program.

            Global investment bank ING, headquartered in the Netherlands, has been carrying out investment activities in Mongolia for the last three years. It cooperates with domestic banks, such as Khan bank and Trade and Development Bank and has profound experience and knowledge about the economy and business sector of Mongolia.

            Deutsche bank, a global investment bank with a history of 141 years, provides its services in over 70 countries worldwide. In the third quarter of 2011 it was named the top bank in the Euro bond markets according to Bloomberg reports.

            HSBC, with its history of 146 years, is considered a reputable and leading bank in international stock markets. It is headquartered in London and operates in 87 countries around the world. According to Bloomberg reports it is ranked closely behind Deutsche bank in the Euro bond markets.

DEVELOPMENT BANK OF MONGOLIA

Occupy Movement, Why Wall Street is Good for Mongolia

What does occupy wall street stand for?  Thats what everyone keeps asking.  We know they are against income inequality, but how exactly do they plan on fixing it.  Well sitting around in downtown NYC is certainly not solving their problems.  If they want to reduce income inequality it would be helpful to get jobs and start working long hours like the people that they resent.

In essence the OWS movement is a backlash against a financial system that most US citizens are not educated about.  These protesters simply do not understand the complexity of our financial system, why it is fundamentally important to our way of life and our economy and why it was necessary to bail it out.  The brightest and most capable people on Wall Street help keep our country successful and help power growth and prosperity around the world.

You have to place some blame on Barack Obama's speech to Congress laying out his revision plan for the tax system.  I don't blame the policy of taxing the rich, but instead his delivery.  To pit successful Americans against the masses as if they were a consolidated group that intentionally outmaneuvers the tax system to hurt America was divisive and ill advised.  I think Obama is wishing he could get that speech back and try it again., because he unleashed an outpouring of misinformed sentiment against a group of Americans who keep our country going.  Yes I believe that income inequality is a major problem in America, but traditionally it is the government's job to solve these issues through a graduated income tax system that taxes high income individuals at a higher rate.  In sum, I am trying to say that these protesters should voice their opinions to Washington.  They should not seek to disrupt our financial sector by surrounding office buildings and trying to prevent people from getting to work.

So how does this have anything to do with Mongolia.  Mongolia would benefit  greatly from securing investments from Wall Street's top investment banks.  Investments from these banks into Mongolian railway projects, road projects and renewable energy projects would dramatically improve the standard of living and the quality of life here.  Projects to build a hydroelectric station and windmill farm could reduce heavy air pollution in the capital city and help eliminate a considerable health risk to over a million people.  A subway project in Ulaanbaatar could dramatically reduce traffic congestion and eventually bring down inflated rent prices by allowing urban sprawl and the development of suburban commuter areas.  Railway projects to build a national railway network would dramatically increase the profitability of mining projects and generate jobs for thousands of Mongolians.

My point is that Mongolia needs investment banks to fund these projects and generate sustainable growth.   So the argument that Wall Street never did anything for anyone is simply wrong.  Investments from Wall Street power growth all over the world, creating jobs and improving lives.

Diversification, Entrepreneurship and Wealth Creation

Because of its communist past, the Mongolian government has a predisposition for large scale economic projects. This is very useful for things like mining and infrastructure, but it doesn't help small businesses and little entrepreneurs who are finding it increasingly difficult to get started because of high inflation and the high cost of borrowing.

Mongolia is currently in need of diversification in its economy.  It dependence on large-scale mining and agriculture (herding) make the economy extremely vulnerable to price shocks.  It is important that Mongolia diversify vertically and horizontally, meaning that they encourage new businesses across many industries and at different scales.  This kind of scaled diversification can be built from the bottom up, by encouraging the development of small businesses through micro-lending and by creating and educating entrepreneurs.  If a small start up business is successful, then it can be scaled.

The U.S. Agency for International Development (USAID) has already initiated this process to some extent through its recent introduction of a Business Plan Initiative, meant to enhance the role of the private sector in Mongolia, to coincide with the observance of World Quality Day.  Their program attempts to inspire and support government strategies to advance policies that benefit private sector businesses by increasing competitiveness and creating a favorable financial environment for borrowing.

Here is just one idea for a successful small-scale private industry and why it would work:

Textiles: Mongolia is well positioned to have a successful textile industry, but the country currently imports almost all its non-traditional clothing.  Mongolia has domestic sources of wool and cashmere and there is already small scale cashmere and wool production.  A Mongolian textile industry would benefit from its close proximity to northeaster China, which is the highest producing cotton region in the world.  A close supply network for wool, cotton and cashmere would make raw materials cheap and easy to access.  In the ger districts surrounding Ulaanbaatar, most people do not participate in the national economy.  These districts are a good supply of affordable untrained labor and they have pockets of undeveloped land suitable for small textile factories.  A factory would have to be located on the perimeter of a ger district and adjacent to a developed part of the city in order to get access to the city's electricity and water infrastructure.  A Mongolian clothing company could easily access the retail market through one Ulaanbaatar's department stores, most likely the State Department Store, where a great number of the city's 1 million inhabitants buy their clothing.  The business strategy can be scaled to produce for a larger national or international market.  (If you want more information about this business plan, leave a comment with your contact information)

European instability could bog down Mongolia

These days the entire world economy depends on those lazy and incompetent European PIGS (Portugal, Italy/Ireland, Greece and Spain)... I'm just kidding, they're not all lazy...but I don't think we can count on these European "siesta" countries to tighten their boot straps and get to work rebuilding competitive economies.  Fortunately for them, the hard working and disciplined Germans shackled themselves to the Eurozone in 1999, meaning the Germans will likely pick up the tab and keep the bad eggs afloat.

On the other size of Euroasia, Mongolia is feeling the aftershocks from Europe.  The crisis is making it more expensive for everyone to borrow money.  Mongolia is on the verge of issuing its first ever government-guaranteed bond through the newly created Development Bank of Mongolia.  Unfortunately, the European crisis has created a heightened level of anxiety when it comes to sovereign debt and and the risk of default.  Thus, the interest rate on the new bond will be very high until the European debt crisis is settled.  So now DBM is sitting on its hands waiting for Europe to sort out its sh**.

The bond is not the only problem.  Europe happens to be China's largest export market.  If Europe defaults and enters a severe economic recession then China's economy will certainly shrink as well.  China's economic growth is already showing signs of a slow down.  Home prices are dropping and auto sales are retracting.  Reports today suggest that the special administrative region of Hong Kong entered a recession in the third quarter.  China is Mongolia's biggest trading partner.  If China experiences an economic slow down then the high projected growth that Mongolia is expected to enjoy over the next decade will be jeopardized.

China might also take matters into its own hands.  With a large stake in Europe and enormous reserves of foreign currency, China might be tempted to join in on the European bailout.  And for some reason European leaders are excited by the prospect.  They apparently feel no shame in showing the world that Europe's decadent societies can no longer stand on their own two feet without assistance from global superpowers.  But lets not get ahead of ourselves...the bailout from China might not even come.  There is political pressure on the Chinese government to make good investments and the Communist Party would risk losing legitimacy if it is seen to be making a poor financial decision by investing in Europe.  China might go for a bailout if other bargaining chips are brought to the table.  For instance, if China was offered more influence in the IMF, something it has sought for a while now, then it might take the bait and assist Europe.  But the long term solution for the global economy still rests on Europe's lap.  In order to regain confidence, Europe must reign in government spending and reform its "siesta" economies so that they can become competitive again.  Then China and the rest of the world might see twenty-first century Europe as a sound investment.

Mongolian Sandwich

Being a landlocked country between Russia and China is a huge disadvantage for Mongolia.  Chinese and Russian influences are growing, sparking concerns among investors and the Mongolian people.  The Chinese already dominate Mongolia's exports, having bought 90 percent of Mongolia's exports in the first half of 2012.  According to Mine Web, Mongolia needs to expand its trade with China in order to ease its long-term dependence.

Dependence on Russia and China also poses a risk to the mining sector.  Mongolian mines rely on Russian and Chinese fuel, power and transportation to operate.  If a major disruption occurs in Russia or China, then Mongolian mines could shut down.  Furthermore, if Mongolia wants to export to other countries like South Korea or Japan it must rely on Chinese and Russian transportation.  In theory, Russia and China could coordinate their policies by limiting Mongolia's access to their railway networks in order to keep the Mongolian extraction economy under Russian and Chinese control.

Corruption is also a major issue.  Chinese and Russian businesses are viewed as some of the most corrupt in the world.  With their increasingly overbearing influence in Mongolia, it is not unlikely that corruption could spill across the boarder and into the Mongolian economy.

For these reasons, the Mongolian government has pursued a third neighbor policy, trying to build strong relationships with Japan, South Korea and the US.  In July, the government rejected a proposal that gave the development rights of the Tavan Tolgoi coal project over to Shenhua of China, Peabody of the United States and a Russian-Mongolian consortium.  The government is now trying to devise new deal that would include Japanese and South Korean partners.  This move, though disruptive to the launch schedule of TT, will probably pay off in the long term by promoting economic relationships with fellow democratic market economies in the region.