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Close: Mongolia Related ASX Listed Companies, August 31, 2011
S&P/ASX 200 RESOURCES
Mongolia set for $3bn coal triple listing
August 31 (FT) Mongolia plans to raise as much as $3bn by privatising the company that controls one of the world’s biggest coal deposits in an unusual triple-listing on the stock exchanges of London, Hong Kong and Ulan Bator.
The initial public offering of Erdenes Tavan Tolgoi, a state company that owns a vast untapped coalfield in the Gobi Desert, is set to go ahead in the first half of 2012, according to people close to the deal.
Only a handful of companies have ever gone public in three cities simultaneously, because doing so is more expensive than a traditional IPO and shares tend to migrate over time to just one of the listing destinations, leaving the others redundant.
“Over time, you’re most likely to see flowback to one of the international markets, and I suspect that’s probably going to be Hong Kong,” said Philippe Espinasse, author of IPO: A Global Guide.
Even people involved in the offering grumble in private that listing in three locations makes little financial sense.
However, the Mongolian government went ahead with the unusual structure because officials found it impossible to decide between London and Hong Kong as the location for the international portion of the deal, the people said.
Politicians have promised to distribute 10 per cent of shares in Erdenes TT among the 3m people of Mongolia, a logistical challenge in a country where many are nomads and few have stock trading accounts.
This domestic portion of the shares will be listed on the Mongolian Stock Exchange, a tiny bourse that in April entered into a strategic partnership with the London Stock Exchange.
Both the LSE and HKEx, operator of the Hong Kong stock exchange, have pushed hard to win the listing.
While Hong Kong pitched itself as Asia’s premier listing destination in the same timezone as Ulan Bator, London touted its long-held role as the pre-eminent international capital-raising centre for mining companies.
The Mongolian government and its advisers are now considering whether to incorporate Erdenes TT in London, a move that would allow its shares to be included in the FTSE 100 index of the UK’s biggest companies.
“If you get in the index, everyone has to buy you,” said one person close to the deal.
With Mongolian parliamentary elections due in June 2012, the ruling party wants to get the deal done within the next nine months.
However, the government has repeatedly changed its plans in recent years over how best to develop the Tavan Tolgoi coal deposit, leading some observers to question whether the IPO will be completed within the allotted time frame.
Goldman Sachs, Deutsche Bank, BNP Paribas and Macquarie are arranging the deal.
Mongolia Eyes a Triple-Play IPO
August 31 (WSJ) HONG KONG—Mongolia plans to list a stake in the world's largest coking-coal deposit in three cities simultaneously, people familiar with the matter said, a rare and cumbersome undertaking that could delay the country's biggest-ever share offering.
The multibillion-dollar initial public offering of a stake in Erdenes-Tavan Tolgoi Co., which is developing the eastern half of the coal deposit in the South Gobi desert near China's northern border, may take place in Ulan Bator, Hong Kong and London, the people said.
A triple listing is relatively unusual because of the logistical hurdles a company must clear. Such a structure would add to the work for the government, which already is struggling to launch the share sale before elections slated for mid-2012.
The Ulan Bator tranche is part of the government's plan to enrich its sparse population, many of whom live on the brink of subsistence.
Mongolia has said it plans to sell 10% in Erdenes-TT, as it is known to international investors, to local investors and give away 10% to Mongolian citizens. As much as 30% stake would be sold to international investors, and it would hold the remaining 50%.
London's stock market is a major hub for mining companies globally and offers a deep pool of investors for Mongolia to tap. In addition, London Stock Exchange Group PLC signed an agreement in January to help restructure and develop the Mongolian stock exchange.
Hong Kong has been keen to attract mining companies to list on its exchange and changed its listing rules in 2010 to make it easier for them to raise capital for discoveries already made. Mongolian Mining Corp., which operates an adjacent deposit to Erdenes-TT, listed in Hong Kong last year.
One person familiar with the matter said the logistics involved with a triple listing may push back the launch date to later in 2012 or even into 2013. Although other companies such as China Petroleum & Chemical Corp., better known as Sinopec, have listed on three exchanges at the same time, according to data providers Thomson Reuters, the practice remains relatively rare.
Before the IPO paperwork can be filed to the various exchanges for approval, the landlocked country must make a number of decisions, including who will mine the deposit and how much they will pay in royalties.
The government also has to finalize a tender to develop roughly half the coal field in the western Tsankhi area. The government itself will spearhead the deposit's development in eastern Tsankhi, which has about 1.5 billion tons in reserves, using contract miners.
All this involves placating its powerful neighbors, Russia and China, while arranging transport links to export the coal. Companies based in those two countries want a role in developing the western half of the coal deposit.
Until these pieces fall into place, estimates of the deal size are little more than educated guesses for now. Rough estimates from bankers value the company at US$10 billion to US$12 billion.
Goldman Sachs Group Inc., Deutsche Bank AG, BNP Paribas SA and Macquarie Group Ltd. are advising the government on the sale of the stake in Erdenes-TT.
Mongolia Is Said to Seek Up to $3 Billion in Three-City IPO for Coal Mine
August 31 (Bloomberg) Mongolia plans to raise as much as $3 billion by selling a stake in its Erdenes Tavan Tolgoi coal- mining company next year in the country’s biggest initial public offering, two people with knowledge of the matter said.
Meritus Prepares To Drill Untested Targets At Gutain Davaa, Mongolia
Aug 31, 2011 (TheNewswire.ca via COMTEX) -- Vancouver, B.C.: Meritus Minerals Ltd. (MML) (TSX-V - MER) advises that preliminary work on preparing targets for an upcoming diamond drilling program is progressing well. The program will start by testing several of the undrilled gold targets on the Gutain Davaa project that were identified by the previous owner, Troy Resources.
1. Toordogiin Hyar
Troy Resources located five very high grade float samples in this area that assayed 542, 417, 402, 334 and 142 g Au/t. These results have been previously reported.
The Toordogiin Hyar area is steep and scree covered with very little rock outcropping at surface. Meritus has completed further prospecting and geological mapping and has carried out additional float sampling. Some lines of closely spaced soil sampling have also been run and a road has been constructed to provide access for a drilling program.
During the course of this work additional very high grade float samples were located, (416, 231, 125.7, 115.9, 48.26, 6.73, 6.66g Au/t).
Examination of the samples suggests that mineralization is identical to the mineralization at Toordogiin Shil some two kilometers to the east.
Anomalous gold values in the area are considered to be those that assay 0.05g Au/t and above. Anomalous float has now been found in a band that has been traced for about 600 metres. An unusual feature of the anomalous samples is the high percentage of very high grade samples. A total of 24 anomalous samples have been assayed, 12 (50%) range from 0.05g Au/t to 5.00g Au/t. The other 12 are between 5.0g Au/t and 542g Au/t with seven of them (29%) exceeding 100g Au/t.
2. East Prospect
Two shallow reverse circulation holes were drilled on this prospect by Troy Resources.
Meritus carried out geological mapping, prospecting rock chip sampling and tightened up and extended the soil sampling grid. During this work a high grade float sample that assayed 23g Au/t was located. This assay is considerably higher than assays from previous samples which ran between 0.5 and 3.69g Au/t.
Once assays are received from the soil sampling program targets will be selected for additional drilling.
3. Fluorite Prospect
The area of interest is a flat plateau like area bounded to the north by a low ridge of hornfelsed meta-sediments. On one end of the ridge there exists a well developed hydrothermal breccia. Petrological examination of this breccia indicates that it is a high level multiphase hydrothermal breccia of low surphidation epithermal style that post dates peak metamorphism in the area. Associated with the breccia are large quartz, fluorite veins with pseudomorphs of blade shaped calcite crystals.
Float samples have only returned weakly anomalous gold, but the possibility of significant gold occurring at deeper levels in the system needs to be tested by drilling. The plateau area is somewhat swampy with no outcrop showing and very little float. Previous wide spaced soil sampling in the area has returned anomalous arsenic values.
4. Baits Uul
At Baits Uul, where two high value gold samples (121ppb, 115ppb) were located in a previous soil sampling program, further prospecting and closer spaced soil sampling has been completed.
Rock float of highly altered and brecciated quartz veined granitic rock and slate with anomalous gold values up to 0.13g Au/t, have been located. The soil sampling results outline a well defined gold anomaly. The prospect area covers a highly altered brecciated contact zone between a slate and a fine grained altered granitic rock. It overlies the major Baits Uul Thrust Fault.
5. Naimt and Uzuur
Geological mapping, prospecting, rock chip sampling and soil sampling is proceeding in these two areas where previous work located gold mineralization. At Naimt grab samples from quartz veins returned up to 2.18g Au/t, while at Uzuur a peak value of 1.83g Au/t was sampled in a trench. It is anticipated that this work will lead to the definition of further drill targets.
6. Toordogiin Shil
A major study of the petrology and mineralogy of the mineralized zone at Toordogiin Shil involving some 70 samples of drill core is underway. The purpose of the study is to define any particular phase of alteration that may be related to the mineralization, to define the genesis of the mineralization and to potentially guide additional exploration of the area.
Geological mapping and rock chip sampling has been completed along all new access tracks built during the winter drilling program.
During this work a previously unrecognized quartz vein containing fine disseminated gold was located. This vein has not been intersected by any of the drilling carried out.
Assays from this work are not yet available. Once all assays are received and targets are defined Meritus intends to carry out an initial 2,000m diamond drilling program to test the new prospects. This program will be followed by additional drilling at Toordogiin Shil to expand the existing gold resources.
Note. Readers should be aware grade and float samples are selective by nature and will not necessarily represent the average grade of mineralization at these targets.
TPL Corporation to raise up to A$1.42m for Australian, Mongolian coal assets
August 31 (Proactive Investors Australia) TPL Corporation (ASX:TPL) will raise up to A$1.42 million through the placement of up to 78.9 million shares at $0.018 per share to identify and acquire underexplored and undervalued coal assets in Mongolia.
The company is also continuing ongoing coal exploration within the Canning Basin, Western Australia.
Mark Gunther, managing director, said “with recent signing of Native Title Agreements in the Canning Basin these added funds will enable us to progress with obtaining required heritage clearances and subsequent on-ground exploration and also place TPL in a better position for pursuing our growth strategy, focussed on Mongolian coal opportunities.”
TPL has about 7000 square kilometres of granted tenure within the Canning Basin of Western Australia which is an emerging Permian Coal Province with considerable potential.
This was confirmed by Rey Resources' (ASX:REY) recent positive definitive feasibility study, delineation of a 536 million tonne thermal coal resource and estimated exploration target of 9 to 11 billion tonnes.
REY’s project lies to the west of TPL’s tenement holding. TPL considers its tenement holding to be just as prospective as REY’s but grossly under-explored for coal. The Permian Bowen and Sydney Basins in eastern Australia contain approximately 30 Bt of coal each.
The Canning Basin is strategically located to take advantage of the burgeoning long term demand for thermal coal from both India and China.
In comparison to coal exporting ports on the east coast of Australia the Canning Basin is approximately 6 to 9 days closer by ship to these developing fast growing economies.
MICC: Hunnu Coal - From Spec. Buy to BUY with target price of A$2.15
August 31 (MICC) --
From Speculative BUY to BUY with Target Price of $2.15
§ We are rating Hunnu Coal with BUY with TP of A$2.15. We are changing our recommendation from speculative buy to BUY based on a number of developments in the company.
§ Production plan on target; mining to commission in 4Q2011. The mining license has been approved for Tsant Uul and management expects to commission the mine in 4Q 2011. HUN has already made equipment purchases and the construction of the road from Tsant Uul to the existing haulage road has also been approved.
§ Confidence in Hunnu’s management. We believe Hunnu’s management is fully capable of successfully commissioning its mining projects in Mongolia and increase shareholders’ value. The chairman of the company has more than 18 years of experience in the resource sector, and plays a key role in acquisitions and deal making. The managing director recently managed the development of the UHG mine for MMC, Mongolia’s “national mining champion”. Comparatively the Tsant Uul project is of a much smaller scale.
§ Strategic Partnership with Banpu Minerals will bring in capital and expertise. Banpu Pcl, one of the largest mining companies in Asia, purchased 12.39% of Hunnu’s equity shares at a 20% premium in March, becoming the largest shareholder. The strategic partnership allows Banpu to share its operational expertise and support Hunnu’s development.
§ Resource expansion potential. JORC resources for Tsant Uul and Unst Khudag have been updated, and today total over 800mt. Altai Nuurs project has an exploration target of 250-500mt. This project will provide volume growth and higher margins (preliminary coal quality results are encouraging). Hunnu holds a majority interest in 11 projects, and has an exploration target of 1.0-1.5bt of coal, which implies resource upside potential.
§ Attractive valuation. HUN is currently trading at US$0.45/t EV/Resource, compared to Mongolian miners’ US$6.6/t. The low multiple certainly indicates HUN’s exploration stage status. HUN is an attractive buy given that: 1) once production starts we believe Southgobi Resources will be the closest peer due to Ovoot Tolgoi’s similar coal quality to Tsant Uul’s. Southgobi is currently trading at US$6.0/t EV/Resource compared to HUN’s $0.45/t. 2) Banpu bought HUN at A$1.50, when HUN’s share price was at A$1.25. This clearly shows Banpu sees great potential and growth for the company, and at current share price of A$1.21 HUN is a cheap buy.
Aspire: Change of Director’s Interest
August 31 (Mogi) On market sale of 1,000,000 shares for total proceeds of A$480,000 in director David McSweeney’s indirect interest in Aspire Mining Limited (ASX:AKM).
SouthGobi: Interim Report 2011
Mongolian Growth Group: A Pick And Shovel But Not For Commodities
August 31 (Seeking Alpha) One thing I have experienced with investing is that occasionally you come across a company that has the unique ability to make you feel as if you personally know the managers running the business such as Berkshire Hathaway (BRK.A)(BRK.B), Leucadia (LUK), etc. This stems chiefly from a level of communication that is straightforward and simple as opposed to abstract and esoteric. Absent is the usual corporate gibberish that permeates corporations the world over when discussing their business. I don't know if there are any statistics on this but it seems that when a company has a high level of transparency it is usually coupled with managers that have a large personal equity stake in the company as opposed to a hired gun with a high salary and tons of options that were given to them.
One interesting little company fits this mold and represents two things that are seemingly rare in developing countries: Incredibly transparent operations and large shareholder owners. These are the types of companies that you dream about as one of the biggest and arguably toughest aspects to gauge (that of management quality) is not only not an area of concern, but perhaps its greatest strength. It doesn't take long to develop an immediate comfort with the company. I experienced this simply by reading a single shareholder letter (which are written each month.) The above paragraph describes the situation that can be found with Mongolia Growth Group ( ). It has been previously written about for some good background.
If you've ever tried looking for investments in Mongolia, then you know it is a bit of a fruitless exercise (save for some large miners that have operations in the country). It was this lack of suitable investment opportunities that led hedge fund manager and current CEO Harris Kupperman to move to Mongolia and set up the business. The intent was to create the type of company he had hoped to find when initially looking for investments there. Summus Capital was the original name before being taken over by Kupperman and being renamed Mongolia Growth Group in February of this year.
The simple but incredibly powerful old recipe of: High insider ownership+Good economics = Great results.
The statistics about companies which have large insider holdings and how they tend to crush the market over extended periods of time is not exactly a secret but this approach perhaps doesn't get the recognition that it most assuredly deserves. Of course of equal importance is the price paid in buying stock in a situation like this but it remains an incredibly powerful factor to look at. What is even better is when you get the founders of the company running the show and at the same time are the largest shareholders.
As it stands today, insiders own just under 38% of Mongolia Growth Group after their most recent share offering with the CEO holding a bit over 17%. Even more comforting is the fact that the CEO Harris Kupperman and the COO Jordan Calonego take no salary, stock options, performance allocation, bonus or anything else.
This snippet alone from the first shareholder letter written in February describes the company in a nutshell:
We have no interest in building the biggest Mongolian company or anything else of that sort. Our decision to forgo compensation ensures that we gain no benefit from doing such a thing. Ego and prestige do not guide this venture. Rather, we prefer to focus on profits, returns on capital and increase in intrinsic value per share as measures of performance. If we can increase per share value, then we have done our job well.
Picks and shovels
There has certainly been a buzz around Mongolia the past few years given the immense natural resources the country possesses and its close proximity to China (for a quick primer, see this good article ). This makes it potentially a miner's/oilman's dream. Perhaps a sensible way to try and capitalize on Mongolia's growth is just to take the basket approach and ride it out. In its young history however Mongolia Growth Group has decided to avoid focusing on the natural resources sector directly and place its emphasis instead on real estate, insurance, and financial services. The company is simply trying to find ways to gain leverage to the growth of the Mongolian economy.
Even though the company was recently formed, they have been quite busy on two fronts thus far: Insurance and real estate. They entered the insurance industry forming property and casualty insurance provider Mandel General Insurance and received their license in June. They are currently the best capitalized insurance company in the country.
With respect to real estate, the company has purchased 4,400 meters of rentable office and commercial space as well as over two dozen rentable apartments to date. The company noted that real estate prices in a downtown area of a capital city experiencing high growth also experiences large price appreciation. In the July newsletter to shareholders, CEO Kupperman gave this interesting snippet about real estate pricing in Kazakhstan and how a similar price appreciation is possible in Mongolia's capital of Ulaanbaatar:
Over time, the majority of the returns from a property portfolio are created by appreciation — especially in a rapidly growing economy. One only needs to look at Kazakhstan, to see what happens to property prices when an economy grows from a low base. We like to use Almaty, the largest city in Kazakhstan, as the template for our Mongolian investments as much of the architecture has a similar Soviet design. Currently, property prices in Almaty are five to twenty times the prices of comparable properties in Ulaanbaatar — hence the opportunity that we see as investors in Ulaanbaatar.
In the August shareholder letter it was mentioned that a few "sizeable" investments were made on the real estate front but nothing specific was noted.
In this type of situation (young company with limited operations) valuation is incredibly difficult and in my mind put in the "too hard" box. I would argue that in this scenario, the quality of management becomes that much more important. The bottom line: They have a significant invested interest in the long-term success of the business.
As in a lot of young companies, we can probably expect further share dilution but I don't believe it is necessarily something to count against them, especially since the CEO and COO purchased more shares in the two private placements that have taken place since they went public.
The stock has had a big run-up since going public in February, peaking at over $6 but since retreating to around $5 at the time of writing, from an IPO price of a bit over $1.00. Is it cheap? Fairly priced? Overvalued? I wish I could say with a bit more clarity but given how young the company is, these metrics are not really applicable.
Perhaps what is, is:
· Your holding period
· The quality of management
· The strategy the company is pursuing
For myself, I can say that my holding period is long-term, the quality of management is top notch, and I believe the strategy they are pursuing (picks and shovels) will bear much fruit in the future. That said, I hold shares but am hoping for a pullback in the price to purchase, as I think it has run up too far too fast, but believe it is one of the best ways to capitalize on the economic growth of Mongolia.
Mongolia Growth is a bet on the jockey perhaps more than the horse at this point, given the young age of the company, but I believe investors have a great one in Harris Kupperman. If you believe in the long-term that the Mongolian economy will continue to grow by leaps and bounds then the only question left in my mind is, Are these the types of partners that you want to team up with? I answer with a resolute yes. If there is a better way to invest in the future economic and financial prosperity of Mongolia, I have yet to hear of it.
Disclosure: I am long MNGGF.PK. I will be a further buyer of the stock if prices come down.
Mongolia’s First Private Equity Fund Plans Debut Investment in October
August 31 (Bloomberg) Mongolia’s first private-equity fund, started by a former Uniqlo executive, plans to make its debut investment by the end of October, betting on growth in the country’s mining industry.
KDB to manage Development Bank of Mongolia
September 1 (JoongAng Daily) Korea’s state-run Korea Development Bank (KDB) said yesterday that it has signed a contract with the Development Bank of Mongolia (DBM) to manage DBM for four years.
Under the deal inked in Ulan Bator, Mongolia Tuesday, KDB will build an overall business operating system for DBM and take charge of its development financing business. The contract could be extended, KDB added.
DBM, 100 percent owned by the Mongolian government, was established in May in a bid to help bolster the development of resources, infrastructure and a manufacturing base in the landlocked country. KDB said the management contract will likely help Korean companies take active roles in resource exploration projects in Mongolia.
In 2009, Korea was Mongolia’s fourth-largest export destination. Mongolia’s economy grew 6.1 percent last year.
Outotec collaborates with the Mongolian government to develop mining and metallurgical processing of Mongolian mineral resources
August 31 (Outotec) Outotec collaborates with the Mongolian government to develop mining and metallurgical processing of Mongolian mineral resources
Outotec has agreed on collaboration with the Ministry of Minerals Resources and Energy of Mongolia (MME) during the visit of Ms. Tarja Halonen, President of the Republic of Finland, to Mongolia today. According to the agreement, Outotec supports MME as a technical advisor to develop mining and metallurgical processing of Mongolian mineral resources in the most sustainable way.
The collaboration will focus on
- Analyzing the mine-to-metal refining chain and possibilities to increase the extent of value added in different process alternatives (concentrate, metals, semi-products);
- Developing sustainability criteria and analysis for different mining and metallurgical process options in Mongolia (eco-efficient extraction of metals and other raw materials, selection of best available technologies);
- Analyzing the environmental impacts of mines and metallurgical processes;
- Developing the legislation and authorities' guidance for sustainable mining and processing;
- Organizing top-level expertise training, seminars and workshops for the Mongolian authorities and business people on mining and metallurgical processing, environmental aspects and sustainability; and
- Developing university-level education and research in mining and metallurgy (lectures, research programs, arrangement of professorship and researcher visits to and from Mongolia).
"We are glad to be advising Mongolia in developing the utilization of its enormous mineral resources. Outotec's expertise of sustainable technologies covers the whole processing chain from minerals to metals", says Outotec's CEO Pertti Korhonen.
Azuma Shipping establishing 2 subsidiaries, Azuma Mongolia LLC and Tandem Mongolia LLC
August 31 (Wall St. Cheat Sheet) --
Azuma Shipping Co., Ltd. is going to establish 2 subsidiaries, Azuma Mongolia LLC and Tandem Mongolia LLC, in September. The subsidiaries will be engaged in delivery of machines and air & ocean shipping respectively.
Russia, Mongolia to hold joint anti-terror exercises in September
August 31 (RIA Novosti) Russia and Mongolia will hold joint antiterrorist exercises in September, a spokesman for the commander of Russia's Eastern Military District said on Wednesday.
Some 500 Russian and Mongolian servicemen will take part in the Selenga 2011 exercises, which will also involve up to 200 military vehicles.
The war game will be held in two stages: the first will be held in the Russian republic of Buryatia in east Siberia, and the second in Mongolia.
Sumo champ's big business plans
August 31 (CNN) -- Dolgorsuren Dagvadorj a big man with big ambitions.
"My whole generation has experienced the opening of Mongolia," he says. "So I feel it is a great honor to be alive in this new free country. I feel blessed."
Panhandle residents enjoying Mongolian products
August 30 (The Chadron News) A little bit of Mongolia was delivered to Chadron this month.
While O’Rourke believes he is likely out of the import business, at least for the near future, he is definite that there is a strong market for the items.
“I know the market is not even close to saturated in Chadron,” he said. “Imagine what it would be in Boulder.”
<Mogi & Friends Fund A/C>
Mogi & Friends Fund is a tiny fund of A$23K I created in late September with a few friends to put my own (and a few friends’) money where my mouth (just mine) is.
"Mogi" Munkhdul Badral
CPS International LLC
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