CPSI NewsWire brings you market updates on Mongolia, compiled by CPS International, a Mongolian marketing arm of CPS Securities, a Perth, WA based stockbroking and corporate advisory firm, specialising in capital raising for mining and junior stocks. Follow CPSI NewsWire on Twitter, Facebook
"With such an impressive oversubscription, the bonds quickly traded up to 101.20/101.50." – IFRAsia, March 15
Development Bank of Mongolia opens floodgates for frontier credits
Mongolia's only policy bank prints $580 million, with investors submitting a whopping $6.25 billion worth of orders.
March 15 (FinanceAsia) The Asian bond frenzy reached a new height last night as investors welcomed a debut frontier credit -- the Development Bank of Mongolia -- which priced a $580 million five-year bond. More than 300 investors stampeded into the deal, putting in orders of $6.25 billion. The initial guidance was 6% to 6.25%, which was later revised to 5.75% to 6% and the bonds priced at the tight end of that. Deutsche Bank, HSBC and ING were joint bookrunners.
Development Bank of Mongolia was set up by the Mongolian sovereign to fund infrastructure projects, including railroads, roads and infrastructure for housing projects, energy and industrial development. It is wholly-owned by the government and is the only policy bank in Mongolia
Similar to how Korea issues in the offshore market through its policy banks (Korea Development Bank and Export-Import Bank of Korea), Development Bank of Mongolia is expected to be the sovereign's main offshore funding vehicle. The bank's advisors include officials that work for KDB.
However, unlike KDB and Kexim's dollar bonds, which do not have explicit government guarantees, Development Bank of Mongolia's bonds are fully guaranteed by the ministry of finance on behalf of the government of Mongolia and rank on par with other senior unsecured debt issuance from the Mongolian government.
This suggests that the much vaunted Mongolian sovereign offshore bond that bankers have been salivating over for years, is not likely to happen anytime soon. "We won't see a Mongolian sovereign bond. This is it," said one banker. "Any budget shortfall will be funded by the ministry of finance onshore and their infrastructure needs will be funded by Development Bank of Mongolia offshore," he added.
The deal attracted well-balanced demand with Asian investors allocated 32%, European investors 36% and offshore US investors scooping up 32%. By investor type, fund managers were allocated 85%, private banks 12% and "others" 3%.
The bonds are rated B1 by Moody's and BB- by S&P, which is the same rating as the Mongolian sovereign. In its report, S&P said it has "equalised the issue rating with the sovereign credit rating on Mongolia because of the strength of the sovereign guarantee and ownership, and the bank's policy role."
The bonds were drawn down from Development Bank of Mongolia's $600 million medium-term note programme. The bank had already closed a $20 million private placement last year, so there was only $580 million remaining and the bank used it all up. With this deal, it is said to have concluded its funding needs for the year.
Hot on the heels of the policy bank is another credit from Mongolia. Mongolia Mining Corp has mandated Bank of America Merrill Lynch, ING and J.P. Morgan as joint bookrunners for a potential dollar bond. Standard Bank and Standard Chartered Bank are joint lead managers. A series of investor meetings in Asia, Europe and the US will start today.
Also in the market last night was DBS Bank, which was due to price a lower tier-2 bond early this morning. The 10.5-year bonds are callable after five-and-a-half years. The initial guidance was Treasuries plus 270bp and this was revised to a final guidance of Treasuries plus 257.5bp to 267.5bp. DBS, Bank of America Merrill Lynch and Goldman Sachs are joint bookrunners.
…
Mongol Bank: Monetary Policy Statement (Policy Rate Increase)
March 16 (Mongol Bank) --
Valid from: March 19, 2012
Embargo: Not for publication or broadcast before 1100 hours on Friday, 16 March 2012.
March 16, 2012 - BoM Board of Directors decided to increase the policy rate by 0.5 unit percent to 12.75%.
The National Statistical Office of Mongolia reported that the national CPI increased to 12.5% and the Ulaanbaatar CPI was to 13.3% in February 2012. The economy of Mongolia is being affected by the inflation activating negative effects of supply in 2012. The price of meat was increased by 29.6% and it was the 58% of inflation in first two months. The cost of fuel was increased by 15.6%. Therefore, the price of non-food products was increased by 2.4%. These indexes prove that the inflation on demand does not decrease.
The budget amendment is raising the excess demand and enhancing the inflation on demand and supply. Thus the Bank of Mongolia is tightening the policy rate to slow down the inflation and decrease the pressure on MNT rate against foreign exchanges.
In the future, the Bank of Mongolia stands ready to take all the proper actions in urgent times.
S Korea Bidding For At Least 10% Stake In Tavan Tolgoi Coal Project -Kores CEO
SEOUL, March 16 (Dow Jones) – The South Korean companies involved in a consortium seeking a stake in Mongolia's massive Tavan Tolgoi coal mine project want at least a 10% stake in the project, as state-run Korea Resources Corp. aims to expand the scope of its investments in overseas assets, the company's chief executive said Friday.
"South Korea wants a stake that enables [us] to have the right to participate in [project] management," Kim Shin-jong, president and chief executive of Korea Resources, told reporters.
In negotiations with Mongolia, the Russia-Japan-Korea consortium will also insist that a 36% stake is too small, Kim said.
However, any final decision on the size of the consortium members' stake is unlikely until after Mongolia's parliamentary elections in June, Kim said.
The project has been much delayed. Mongolia awarded contracts in July, then canceled them after a row over selection procedures, pitting its huge neighbors--China and Russia--against each other and leaving Japan and South Korea fuming.
Mongolia awarded a 40% share to China's Shenhua Group, 36% to a previously unreported Russian-Mongolian group and 24% to Peabody Energy Corp. (BTU).
Its decision shocked losing South Korean and Japanese companies involved in the short-listed OAO Russian Railways-Korea-Japan consortium. Seoul and Tokyo cried foul play.
The Korean members of the Russian-Japanese-Korean consortium includes Korea Resources, state utility Korea Electric Power Corp. (015760.SE), steel giant Posco (005490.SE), Daewoo International Corp. (047050.SE) and LG International Corp. (001120.SE).
KCC closed +13.33% to 34c on the announcement
Kincora Copper to acquire 100% of Golden Grouse, expands footprint in Mongolia
March 15 (Proactive Investors) Kincora Copper (CVE:KCC) said Thursday that it has agreed to acquire 100 percent of Golden Grouse, a subsidiary of Temujin Mining Corp. Golden Grouse is a Mongolian company that holds mineral exploration licenses 15075X and 15076X, which adjoin Kincora's Bronze Fox project in Mongolia.
The agreement follows the letter of intent announced in January, with amended terms.
Under the amended terms, Temujin, a portfolio company of investment vehicle Aberdeen International (TSX:AAB) and a member of the Forbes & Manhattan Group of Companies, will be issued 20 million shares in Kincora once the deal is completed, which represents a 12.6 percent equity stake.
Upon the discovery, within four years of closing of the transaction, of a minimum of one million ounces of inferred gold resources within the properties acquired, Kincora will issue an additional 15 million shares to Temujin.
Kincora also plans to spend $2 million on the exploration of the assets over the next two years.
In addition, Forbes & Manhattan will not appoint a nominee to Kincora's board, and there will be no service agreement going forward, as originally disclosed in January.
The intended private placement also announced earlier this year will as well not be proceeding, but Kincora said it does still plan to pursue an equity financing in the near future.
"The acquisition of the properties is a great addition to the Bronze Fox project," said Kincora president and CEO, Igor Kovarsky.
"We now hold two of Ivanhoe's former high priority target properties in Mongolia, the Bronze Fox and Tourmaline Hills. Kincora now holds one of the largest land holdings along the highly prospective copper belt hosting Oyu Tolgoi.
"Tourmaline Hills is a mid-stage exploration license with a number of significant gold targets. This places Kincora in a strong position to identify a significant copper-gold and gold deposit this year."
Closing of the transaction remains subject to the execution of a definitive agreement, and the receipt of all necessary regulatory approvals, including that of the TSX Venture Exchange.
Separately, Kincora said Thursday that Altai Khangai has resigned from the board of directors due to other business demands, but will continue as a special advisor to the company.
Earlier this month, Kincora announced updated exploration results for last year's drilling program and details of its 2012 drilling campaign for the Bronze Fox project in Mongolia
The company said that results from its 2011 exploration campaign continued to demonstrate the significant potential of the Bronze Fox project. Encouraged by the extent of mineralization within the license area, the 2012 exploration campaign will continue to define the resource potential, Kincora said.
Among the highlights, in West Kasulu, hole F27 intersected some small intervals of over 1 gram per tonne (g/t) of gold (up to 2.48 g/t gold) and also 30-40 metres of copper mineralization including 37 metres from 139 metres at an average 0.4% copper equivalent, with up to 3.03% copper and 1.66 g/t gold.
Kincora's 2012 diamond drilling campaign will begin in March with a total of 16,000 metres planned.
Bronze Fox is in the same geological neighbourhood as the giant Oyu Tolgoi mine, just over 100 miles to the north-east. Oyu Tolgoi is the world's largest undeveloped copper deposit, which also contains an estimated 46 million ounces of gold.
Related: Investee Company Update - Kincora Copper acquires new Mongolian property – Origo Partners PLC, March 15
Centerra Gold CEO Stephen Lang to move to chairman's job, new CEO named
TORONTO, March 14 (The Canadian Press) - Centerra Gold Inc. (TSX:CG) said Wednesday that president and chief executive Stephen Lang is moving to the chairman's job effective May 17 after the retirement of current chairman Patrick James.
The gold miner said Ian Atkinson, the company's senior vice-president of global exploration, would be promoted to the role of president and chief executive.
Lang has served as chief executive since June 2008.
Since Lang will not be considered an independent director, the company said the board plans to name a lead independent director after its annual meeting on May 17.
The moves in the executive suite came as a consortium of Canadian and Mongolian organizations accused Centerra of violating Mongolian law and international corporate responsibility guidelines.
MiningWatch Canada and its Mongolian partners lodged a complaint with the Canadian government's national contact point for the OECD guidelines for multinational enterprises.
The NGOs said that Centerra's proposed mine is located in a forested area in the headwater of the Gatsuurt River, where mineral exploration and mining operations are prohibited.
Centerra denied the allegations and said that it follows all the local laws in Mongolia.
Centerra, which was spun off from Cameco (TSX:CCO) in 2005, owns the Kumtor mine in the Kyrgyz republic, the Boroo mine in Mongolia and interests in mines in Nevada, Turkey and Russia.
MiningWatch Canada/Centerra Gold Inc. Flouting Mongolia's Environmental Protection Laws: Organizations File Complaint with Canadian Government
OTTAWA, ONTARIO--(Marketwire - March 14, 2012) - A consortium of Canadian and Mongolian organisations has filed a complaint with the Canadian government over apparent violations of Mongolian law and international corporate responsibility guidelines by Centerra Gold Inc. in its Mongolian operations.
MiningWatch Canada and its Mongolian partners, the United Mongolian Movement of Rivers and Lakes (UMMRL) and OT Watch lodged a complaint with the Canadian Government's National Contact Point for the OECD Guidelines for Multinational Enterprises concerning Toronto-based Centerra Gold Inc. and its alleged failure to respect Mongolian laws. The complaint is supported by the US-based Southwest Research and Information Center and the British NGO, Rights and Accountability in Development (RAID).
The NGOs allege that Centerra Gold's operations at the Boroo Mine and its Gatsuurt gold deposit in Selenge Province, Mongolia are in violation of key provisions of the OECD Guidelines. Forty-two OECD and non-OECD governments, including Canada, have adopted the Guidelines, which are seen as the leading international instrument for the promotion of responsible business conduct.
The Guidelines clearly state that 'obeying domestic laws in the first obligation of enterprises.' Centerra's proposed mine is situated in a forested area in the headwater of the Gatsuurt River, where mineral exploration and mining operations are prohibited. The law protecting the forests and rivers was passed in July 2009. In 2010 the Mongolian Cabinet issued a list of 254 licences to be revoked, among them Centerra Gold's licences for the Gatsuurt project. By the end of that year the company had already completed extensive mine working and a 55-kilometre haulage road from Boroo to Gatsuurt.
During 2010, the company was notified on at least two occasions by the authorities that its Gatsuurt licence might be revoked and that until a decision had been taken, it should halt its activities. Despite these formal notifications, according to UMMRL and OT Watch, who visited the Gatsuurt site in July 2011, the company has continued extensive forest cutting and disruption of the Gatsuurt River.
"The company seems to be trying to present the Mongolian government with a 'fait accompli', said Sukhgerel Dugersuren of OT Watch. "At the same time it is lobbying hard to have the law amended."
Herders complain that the forest cutting and use of explosives have released arsenic and other heavy metals into the Gatsuurt River, which is now too contaminated to be safe to drink. Livestock have developed lesions and local people suffer from skin disorders that they attribute to the company's activities.
The Gatsuurt ore has high concentrations of arsenic, according to a Centerra technical report, raising pollution concerns. Paul Robinson, an environmental expert based at Southwest Research and Information Center, explains: "If Gatsuurt proceeds, groundwater contamination problems will only get worse. Centerra plans to dispose of the spent ore at the existing tailings pile at Boroo where the arsenic release to groundwater has already been detected."
The NGOs warn that Centerra Gold's practices, in addition to flouting international guidelines, augment the risk of increasing social tension and conflict in Mongolia as a result of the rapid expansion of mining activities and weak regulation. Their petition calls on the Canadian NCP to intervene to resolve the problems with Centerra Gold.
The complaint can be consulted online at: http://www.miningwatch.ca/news/centerra-gold-inc-flouting-mongolia-s-environmental-protection-laws-organizations-file
Xanadu: Drilling to begin at Sharchuluut Copper Project in April 12
March 15, Xanadu Mines Limited (ASX:XAM) --
· EXPLORATION DRILLING TO COMMENCE AT THE SHARCHULUUT UUL PORPHYRY COPPER PROJECT IN APRIL 2012
· XANADU APPOINTS MAJOR DRILLING MONGOLIA LLC
· XANADU TO DRILL A MINIMUM OF 6,000 METRES BASED ON PRELIMINARY GEOLOGICAL AND GEOPHYSICAL MODELLING
Xanadu Mines Ltd (Xanadu) (ASX: XAM) is pleased to announce that exploration drilling will commence shortly at its highly prospective Sharchuluut Uul porphyry copper project ("the Project"). Major Drilling Mongolia LLC has been appointed drill contractor to undertake the first phase of exploration drilling at Sharchuluut Uul with a minimum of 6,000m of diamond and reverse circulation drilling.
The Sharchuluut Uul project is located in the Bulgan Province of Mongolia (Figure 1), approximately 230km northwest of Ulaanbaatar and only 30km northwest, and along strike, from Mongolia's largest producing copper deposit at Erdenet (estimated mineral resource in 2004 of 2370Mt @ 0.38% Cu and 0.013% Mo). The Sharchuluut project consists of a cluster of five porphyry-related prospects: Sharchuluut Uul, Bukhin Gol, Salkhit Khushuu, Modon Khushuu and Khamartyn (Figure 2), which occur within the central part of Exploration Licence 13670x (Kholboo) held 100% by Xanadu Copper Mongolia LLC. The exploration license covers approximately 488km² and remains relatively unexplored.
The Sharchuluut Project was identified as an area of prospective porphyry-style alteration mineralisation as part of a regional exploration programme. Since acquiring the project in March 2011, Xanadu has conducted extensive geological/alteration mapping, rock-chip and stream sediment sampling and detailed ground geophysics (magnetics, gravity and IP) over the area. The project contains porphyry copper mineralisation and porphyry related lithocaps, often resembling the shallow parts of porphyry copper systems. By comparison with other belts worldwide, such characteristics are optimal for porphyry copper opportunities.
Numerous drill targets have been generated and will be tested in this first phase of drilling.
Commenting on Sharchuluut, Xanadu's Chairman Brian Thornton said, "the project represents a compelling copper exploration opportunity in a world class porphyry district which will be subjected to an intensive diamond drilling program in 2012. Sharchuluut is along strike from Mongolian's largest producing copper, molybdenum mine at Erdenet which currently produces approximately 354,000 metric tons of copper concentrate and 3,500 tons of molybdenum concentrate each year. Xanadu is fortunate to have exposure to this brown fields copper opportunity, close to rail and infrastructure at a time of robust copper prices. Drilling is expected to commence in early April following mobilisation."
GoConnect establishes media partnership in Mongolia (and its corporate advisor will assist in local partner's proposed listing on ASX)
March 15 (Proactive Investors) GoConnect's (ASX: GCN) has entered an agreement to establish a media partnership in Mongolia for internet protocol television (IPTV) and WiFi.
Mongolia has well established IPTV services, with its largest IPTV operator, Univision, providing a pay IPTV service with 70 channels.
Under the in-principle agreement with investment holding company First Mongolian, GoConnect will hold a 51% equity interest in a jointly owned company, First Mongolian Media.
First Mongolian Media will seek to work with existing Mongolian IPTV companies, with GoConnect providing its content and licencing its IPTV and WiFi media technologies to businesses in the country.
GoConnect's English language content will be distributed via the uctv.fm and The World Business Network channels to complement existing English language IPTV content.
The IPTV/WiFi partnership is in addition to an agreement between First Mongolian and GoConnect's corporate advisor Sino Investment Services, whereby Sino will act as lead manager for First Mongolian's proposed listing on the ASX.
First Mongolian has interests in mining, business consultancy and media in Mongolia.
Ivanhoe Energy establishes $50 million secured loan financing
Proceeds to energize short-term project activities
Note: All figures are quoted in U.S. dollars unless otherwise noted.
CALGARY, March 15, 2012 /PRNewswire/ - Ivanhoe Energy Inc. (TSX: IE; NASDAQ: IVAN) today announced it entered into a $50 million short-term secured credit agreement consisting of an initial tranche of $30 million, fully underwritten by UBS AG, Canada Branch. The agreement also contains a $20 million accordion feature that can be exercised by the company, if required.
The loan, which was exclusively arranged by UBS Securities, will mature after 12 months and involves customary terms and covenants for a transaction of this nature.
"Ivanhoe Energy has established this short-term loan as an interim measure while we finalize longer term arrangements, currently underway, that are applicable and appropriate for our projects. This loan will fund activities in Ecuador, China, Mongolia, Canada and other selected areas of business development," said President and Chief Operating Officer, David Dyck.
Ivanhoe Energy is an independent international heavy oil exploration and development company focused on pursuing long-term growth in its reserves and production. Core operations are in Canada, Ecuador, China and Mongolia, with business development opportunities worldwide. Ivanhoe Energy trades on The Toronto Stock Exchange with the ticker symbol IE and on the NASDAQ Capital Market with the ticker symbol IVAN.
Ivanhoe Energy narrows Q4 loss as it cuts costs
March 15 (Proactive Investors) Ivanhoe Energy (TSE:IE, NASDAQ: IVAN) Thursday narrowed fourth-quarter losses as the heavy oil exploration and development firm substantially cut capital costs.
For the quarter ended December 31, net loss narrowed to $5.9 million or two cents per share from $19.4 million or six cents per share a year earlier. Ivanhoe's revenue grew to $9.1 million from $6.2 million.
Ivanhoe's core operations are in Canada, United States, Ecuador, China and Mongolia. It is also developing a proprietary upgrading process for heavy oil.
Capital spending fell to just under $3 million in the three months ended December 31 from just over $17 million a year earlier.
For the full year, Ivanhoe reported a net loss of $25.2 million or seven cents per share, with $37.4 million of revenue. Capital spending for 2011 was $51.1 million.
In 2010, Ivanhoe's loss was slightly higher at $26.6 million or eight cents per share and revenue was substantially lower at $21.7 million. Capital spending in 2010 was also considerably higher at just under $71 million.
Nova: Issue of Equity
March 15, Nova Resources Limited (LON:NOVA) --
Further to the announcement dated 10 February 2012, the Company has received notice from Mr Mark Elliot converting £10,000 of convertible unsecured loan notes 2015 into 133,333 ordinary shares of par value £0.01 each (the "Shares") which represents 0.13% of the enlarged share capital.
Application will be made to the London Stock Exchange for the Shares to be admitted to trading on AIM and it is expected that admission will be effective and trading will commence at 8:00 am on 21 March 2012 ("Admission").
Total Voting Rights
Following Admission, the Company will have 106,115,287 Ordinary Shares in issue. Since the Company holds no shares in Treasury, the total number of voting rights in the Company is therefore 106,115,287 and this figure may therefore be used by shareholders as the denominator for the calculations by which they will determine if they are required to notify their interest in, or a change in their interest in, the share capital of the Company under the FSA's Disclosure and Transparency Rules.
MRC: APPOINTMENT of a NON EXECUTIVE DIRECTOR and an ACTING CHIEF FINANCIAL OFFICER
March 15 -- The Board of Mongolian Resource Corporation Limited (ASX:MUB) announces the appointment of John Russell Hodder as a Non-Executive Director of the Company.
Resident in Australia, John was educated at the University of Queensland where he obtained a Bachelor of Science majoring in geology as well as a Bachelor of Commerce degree. He also holds a Master in Finance from London Business School.
John has 25 years' experience in the resources industry. Initially worked as a geologist then in project evaluation for both mineral and oil and gas companies. In 1995 he worked for an international finance corporation financing resource projects within emerging markets and where he gained skills in both Project Finance as well as Private Equity. He has spent the last five years in the Fund Management Industry within Australia where he was directly involved in investing in resource companies listed on the ASX.
The Board also announces the appointment of Ms. Tanan Jargalsaikhan as acting chief financial officer. Ms Tanan holds a Bachelor Degree in Banking and Finance from the Institute of Finance and Economics of Mongolia. This degree was followed by a Diploma in Human Resource Management (Tokyo, Japan). Completing her education was a Private Banking Course in Higher Finance from Luxembourg Institute.
After graduation, Ms.Tanan served as Senior Officer of The National Statistical Office, responsible for State Budget Income. She has served as Senior Finance Officer at the Mongol Post Bank and then in 2006 entered private enterprise as Chief Financial Officer for various successful companies in construction and banking. She has held roles in these companies as Executive Director – Business with responsibility for all finance functions as well as Investor Relations, Corporate Governance and International Correspondence.
The board is pleased to release its financials for the 2nd half of 2011 where significant progress was made on construction of its gold plant, drilling and permitting. The board also has taken the prudent view to write down the carrying value of the Australian Assets to A$500,000 reflecting current market conditions for grass roots exploration properties. This will be reviewed on a regular basis.
Related:
Interim Report – MRC, March 15
Aspire: Interim Financial Report 2011
March 15, Aspire Mining Limited (ASX:AKM) --
MSE: NOTICE
March 16 (MSE) Under the implementation of the new MIT system User Acceptance Test, system testing by the final users, have been completed successfully.
As a next stage the Mock Run, imitation of the real trading session of that current day, will be held at MSE every day from 14:30 starting March 19th, 2012. Therefore, we are inviting the member firms to participate in the Mock Run actively.
"TAKHICO" JSC DECIDED TO DISTRIBUTE DIVIDEND
March 15 (MSE) "Takhico" JSC's board of directors meeting had held on Feb 03 2012 and decided to distribute dividend of 56 /fifty six/ tugrik per share to shareholders through 2011 operational profit and planned to deposit at shareholder's accounts at central depository of MSCH&CD Co., Ltd. They decided to set 2012 shareholders meeting registration day (March 16 2012) as a registration day that make lists of existing shareholders who are eligible for dividend.
"GAN KHIITS" JSC DECIDED TO DISTRIBUTE DIVIDEND
March 15 (MSE) "Gan Khiits" JSC's board of directors decided to distribute dividend of 150 /one hundred fifty/ tugrik per share to shareholders.
Mongolia beckons BNP Paribas Security Services
March 15 (Investment Europe) BNP Paribas Securities Services anticipates a burst of new business in Mongolia as asset managers attempt to tap into its commodities growth story.
Lawrence Au (pictured), head of Asia Pacific at BNP Paribas Securities Services (BNPP SS), says Mongolia is an "exciting frontier market" with an economy forecast to grow by 8% this year.
"Mongolia is booming because of its mining industry," he says, adding that for the first time, coal exports from Mongolia have surpassed those from Australia, traditionally considered the main source of coal for Asia.
Until now, most asset managers trying to get exposure to the Mongolian growth story had two options. One was to make private equity investments in Mongolian companies, hoping they would make an initial public offering.
The alternative was to buy in to Mongolian companies listed on stock exchanges elsewhere in Asia. These two options are about to become less attractive, Au says, because there is a long list of companies on the verge of entering Mongolia's relatively underdeveloped stock exchange.
By the end of 2010, just 474 joint stock companies had listed on the exchange reaching a stock trading value of MNT262.5bn (€147m). Yet the Mongolian Stock Exchange (MSE) was the best performing equity market globally in 2010, with the benchmark MSE Top 20 Index gaining 138%, according to Asian investment bank Eurasia Capital.
Eurasia believes Mongolia is set to become the world's fastest growing economy in 2012, anticipating 20% GDP growth this year. When the MSE's floodgates open and more firms list on it, having direct access to the exchange will become essential.
Au believes BNPP SS has revolutionised asset managers' relationship with the Mongolian market, having recently implemented a unique mandate for Hong Kong-based Harvest Global Investments.
Harvest launched the Asian Frontier Equity Fund, an emerging market fund investing in Mongolia, at the end of 2011. BNPP SS is the first custodian to have enabled an asset manager to gain direct access to the Mongolian market, Au says.
Hurdles
Au faced many challenges in securing direct exposure to Mongolian markets for Harvest. With the MSE still in its "infancy stage" (despite having been in operation since 1991), Au's team had to overcome its lack of swift messaging and the fact "there is no concept of custody law. The law does not recognise the role of a custodian acting as a trust for the client".
As a result, no banks in the region offer custody services, so Au had to find brokers that "act in good faith" instead.
Good news from Sainshand
March 16 (UB Post) People are expecting a lot from Tavan Tolgoi and Oyu Tolgoi – and also from the Sainshand Industrial Complex.
Once the Sainshand Industrial Complex (SIC) is completed, a coal preparation plant, oil refinery, copper, iron and steel smelting and preparing plants will be in operation. This will be one of the most important projects in the near future; which will allow Mongolia to supply a variety of mineral products to the world market.
The technical and economic assessment is not yet complete; Bechtel, an American company, was assigned to compile the assessment by December 2011 but postponed it until the first season of 2012.
The National Development and Innovation Committee states that a total of six industrial plants will be built at Sainshand and once the assessment is complete, their currently estimated production capacity may change.
Richard Garbarino, Head Coordinator of the Sainshand Industrial Complex (SICP) project, has said that it will cost around USD 15 billion to complete the project.
Mongolia has not tackled a project as huge as the SIC project since the Erdenet copper mine. It will take five years, which is worth the wait considering today's situation of too many raw, no value-added exports from Mongolia.
Another important matter is the construction of an oil refinery. Due to Mongolia's 100% dependency on fuel imports, the country is in constant danger of fuel depletion; and sudden increases in fuel prices hit Mongolia from time to time. Changes in export or tax policies in Russia, exchange rate instability, and fuel importers are usually blamed for these events but this could be eased if an oil refinery was built in Mongolia.
As estimated by the project team, the oil refinery would have the capacity of producing 25 – 30 thousand barrels of oil annually. In 2015, a coal gasification plant will be built and shortly afterwards, a steel smelting and preparing plant will be completed.
Bechtel says that a 1050-megawatt capacity power plant to be built at SIC will supply both Tavan Tolgoi and Oyu Tolgoi with power. In addition, copper from Oyu Tolgoi will play a significant role for serving as an ingredient in the copper refining plant to be built at SIC. The plant will produce 300 thousand tons of refined copper per year.
Once the Complex is finished, 50 thousand jobs will be available.
Investing in Mongolia: Is It Time to Buy the World's Fastest Growing Economy?
March 15 (BY MARTIN HUTCHINSON, Global Investing Strategist, Money Morning) --
It is the world's fastest growing economy. It also may be the world's best kept secret.
Yet it is true. Mongolia is growing twice as fast as China and it's a market most investors know little about.
While Chinese GDP is forecast to grow by 7.5% in 2012, the Mongolian economy is set to grow at a blistering pace of 14.9%.
That's down a bit from 2011-but not by much.
According to official statistics, the Mongolian economy grew 17.3% in 2011.
Taking the two together, Mongolia would have the world's fastest growth rate, beating Qatar and Libya over the same two-year time frame.
So is there a way a regular guy can make money out of all this growth?
Or to the larger question: Is the Mongolian market where we should be putting our hard-earned savings?
Investing In Mongolia
To start, it's not all good news when it comes to investing in Mongolia. There is some bad economic news that comes along with the good.
Mongolian inflation hit 11% in December, and there is fear of it accelerating further.
More ominously, government spending swelled 56% in 2011, far faster than the economy. After all, 17% growth plus 11% only gives you 28% growth.
What's more, government spending accounts for 44% of GDP and is expected to grow a further 32% in 2012. Even the World Bank seems worried - with 17% economic growth it's hard for even its Keynesian economists to justify runaway state spending as "stimulus."
Admittedly, 2011-12 was the run-up to an election - legislative elections are due in June, and the post-Communist Mongolian People's Party government is trying to buy success in the traditional political way.
However, Mongolia has a Democratic Party president, and what seems to be a pretty vigorous alternation of parties in power, with elections being close. So while there are the usual good guys and bad guys, the political system seems to be working okay.
Nevertheless, the public spending figures suggest that even with the rapid growth Mongolia has achieved, major public spending is a problem.
Mongolia's Greatest Strength
Mongolia's big growth driver is its natural resources; the country has large deposits of copper, coal, molybdenum, tin, tungsten, and gold, which together form about a third of its industrial production.
Additionally, two giant projects in particular are close to coming on stream.
The first is the Oyu Tolgoi copper-gold-silver project for which Ivanhoe Mines (NYSE: IVN) is the prime Western partner. The second is the Erdenes Tavan Tolgoi coking coal mine project, which was due to float on London this spring, but has since been postponed.
One of Mongolia's big advantages as a natural resource producer is that it has a market right next door called China.
Here's why that is so important. In this case, it is purely about location.
At present, prices for these resources are so high that today it's worth shipping them from the world's most inaccessible spots to the Chinese markets.
For example, Brazil's Vale S.A. (NYSE: VALE) has China as its largest customer, even though bulky iron ore has to be shipped more than halfway round the world to get there.
However, when resource prices are low, Mongolia will have a huge advantage, and be able to provide just-in-time delivery to Chinese customers, thus being able to maintain its market share when this may otherwise be difficult.
Mongolia's direct political risk is thus limited, and its advantage in global resource markets is such that it should remain a major resource producer for decades to come, to the immense benefit of its citizens.
Breaking Down the Mongolian Markets
Yet I am not sure I would put huge amounts of money there.
The country's public sector hasn't seemed to have learned self-restraint, and until it does the chances of the country's mineral resources being wasted are great.
Then there's the lack of attractive opportunities.
At present, there are no Mongolian companies with ADRs listed, and the delay in the Erdenes Tavan Tolgoi listing suggests there will not be many soon.
The Mongolian Stock Exchange now has a total capitalization of about $2 billion and over 300 companies listed, but those figures suggest that individual companies are pretty small and the market has had a huge run up in the last few years.
Ivanhoe Mines (NYSE: IVN) may be worth a small flutter; if gold and copper prices continue their climb and its production ramp-up goes smoothly when it opens (currently scheduled for the third quarter of this year).
However Ivanhoe's recent announcement that it is selling non-strategic assets to finance completion of Oyu Tolgoi suggests that finance availability is not yet quite bulletproof - and the shares are selling at nearly three times net asset value.
One can only welcome Mongolia's rapid growth, and its emergence into the ranks of resource-rich middle-income Westernized countries.
But the best opportunities there at the moment seem open only to Mongolians.
[Editor's Note: Whether they are found in Mongolia, South America or elsewhere, investors are going to earn big money in resources in the years to come.
In fact, virtually every substance vital to modern life will soon become enormously expensive − and profitable for investors who know how to play it.
As commodities and mining expert Peter Krauth explains in his latest report, we are about to experience what he calls "The Five Minute Effect." When that happens it promises to be unlike anything the world has seen before.
To learn more about how "The Five Minute Effect" will send resource prices considerably higher click here. ]
Prophecy Coal: A Mongolian Energy Power Play
March 15 (Jon Springer, via Seeking Alpha) Valentine's Day 2012 for me was a seven hour road trip to visit the Chandgana site of Prophecy Coal (PRPCF.PK) where they intend to mine thermal coal and build two power plants over the next decade. On my road trip I was accompanied by Prophecy Coal Executive Director in Mongolia, Ronnie Van Eeden, and Prophecy Coal's Manager of Geology Christopher Kravits. Three days later on February 17th, I met CEO John Lee over dinner.
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The sun rose over Mongolia a little while after we set off on our drive out to Chandgana at 6 a.m. on Valentine's Day. At this hour, about minus 30 celsius, though the day warmed up to minus 15 celsius (feels like minus 10 in the sun).
Since that time, Prophecy Coal has been on the move. On February 27, 2012, Prophecy uplisted its Canadian listing to the TSX. Three days later, Prophecy Coal announced it no longer needed loans it had secured (of $7 million) because Prophecy Coal had raised $10 million in a private placement.
Eurasia Capital, a Mongolia brokerage, lists Prophecy Coal among its top eight Mongolia companies to invest in for 2012 in its Mongolia Outlook 2012 report. In the box score of Eurasia's January 31, 2012, report, it notes that Prophecy Coal's share price year-over-year was down 52.6%.
From "free" to cheap
At the time I had dinner with CEO John Lee, it was said that Prophecy Coal was essentially trading "for free." The "free" thesis is no longer exactly in effect, but it is still cheap. The theory goes that Prophecy Coal owns 43% of Prophecy Platinum (PNIKF.PK). As recently as a few weeks ago, if you discounted the value of Prophecy Coal's 43% stake in Prophecy Platinum from Prophecy Coal's market capitalization, then Prophecy Coal's market capitalization was zero.
As of March 2, 2012, Prophecy Platinum's market cap was $187.63 million and Prophecy Coal's market cap was $98.24 million. Thus, as of that snapshot Prophecy Coal's stake in Prophecy Platinum was worth $75.05 million at that time. If you deduct that valuation from Prophecy Coal's market cap, it made Prophecy Coal's market cap $23.19 million as of March 2, 2012.
Future revenue from Chandgana (excluding Prophecy Coal's other projects: Ulaan Ovoo in Mongolia; Okeover, Titan, and Kanichee in Canada)
This is a cheap value for a company that posits to generate an estimated $220 million in revenue per year by 2017 from the Chandgana power plant with the beginnings of that revenue stream in 2015. Then again, when that revenue stream starts, so to will Prophecy Coal start paying off approximately $630 million of debt over 10 years that will cost, by my estimates, $110 million per year to pay off each year, effectively halving their revenues for the first 10 years once the plant is at full operation. Nonetheless, after that, the first power plant they propose to build will be debt free with an ongoing supply of coal.
To clarify, those numbers are my conservative guesstimation. CEO John Lee stated in our conversation that cash flow would be $120 million per year before the debt was paid off with $70 million in debt/year plus interest. At the same time, Executive Director Ronnie Van Eeden had indicated revenues of $220 million per year should be within reason.
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An overview map of Prophecy Coal's Chandgana site I visited. Source: Prophecy Coal.
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A summary of the coal quality and quantity at Chandgana. Source: Prohpecy Coal.
The Chandgana location has the Chandgana Tal site with 140 million tonnes in NI 43-101 measured thermal coal resources, and Khavtgai Uul with a little more than 1 billion tonnes in measured and indicated NI 43-101 thermal coal resources. There is a small coal mine next to Chandgana Tal already in operation. Other sources of coal include two licensed areas between Chandgana Tal and Khavtgai Uul owned by Tethys, the VALE (VALE) subsidiary operation in Mongolia.
The first power plant proposed will be a 600 megawatt power station consisting of four 150 megawatt units. The reason for four 150 megawatt units is in consideration of Mongolia's power grid that would be too significantly impacted by the loss of a single 600 megawatt power station if it got knocked out.
One can see on the map above that the plan is to build the power plant almost next to the site of Chandgana Tal's mine. This will cut down on transportation, processing and cost. The expectation for Chandgana Tal is to mine 2.7 to 3 million tonnes per year. The strip ratio for both coal mine sites Prophecy Coal has at Chandgana Tal is a highly favorable 0.5:1 average and for Khavtgai Uul 2.2:1.
One sharp investment professional in Mongolia enthusiastically spoke about Prophecy Coal to me on February 16, 2012, "A .5 to 1 strip ratio, its the best in Mongolia. They will have the lowest mining cost because their input cost will be the lowest. The cost of mining and getting coal to the power plant should about $7 per ton." This investment professional believes the government wants the power plant at Chandgana to happen and that Chandgana can provide the cheapest energy among many thermal coal deposits in Mongolia including those owned by five different members of the Mongolia parliament.
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The Prophecy Coal drilling crew sets up camp near the site of the future power plant.
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Chris Kravits, and the Prophecy Coal team of geologists, drillers and location management walk back from reviewing places near the camp to try to drill. They cannot legally build the power plant on top of a location with coal resources, so in this case they're drilling in hopes of not finding coal.
The $744 million question
Prophecy Coal already has permission from the Mongolia government to build the power plant. However, they don't yet have a power purchase agreement (PPA) with the government to sell the energy produced by the power plant.
Prophecy Coal's goal is to begin construction on the power plant in April 2013. To do so, they need to get their financing done. To get their financing done, they will need the PPA with the Mongolian government for the bankable feasibility study. Part of CEO John Lee's three day visit to Mongolia was another round of meetings with the government to work on the PPA.
Once they get the PPA, Prophecy Coal estimates the cost of building the power plant as well as additional transmission lines to connect to the main power grid of Mongolia to the west, and connect to other parts of the power grid to the east and south, all totaled will be $744 million.
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CEO John Lee (in the middle at the podium) as Prophecy Coal rings the bell at the TSX to celebrate its uplisting. Also among those in attendance in this photo, the Mongolian Ambassador to Canada, the Mongolian Trade Commissioner, representatives of the Canadian Department of Foreign Affairs and International Trade, and directors and executives of Prophecy Coal. Photo courtesy of Prophecy Coal.
CEO John Lee, a native of Taiwan, is the son of a diplomat. After high school in London and university studies at Rice University, he made his initial fortunes working for technology companies in Texas and then Silicon Valley in the 1990s technology boom. He left the technology business near the end of the 1990s and relocated with his family to Vancouver where he began a new career managing the investments of the family office.
Mr. Lee is confident he can get a loan for 85% of the $744 million ($632.4 million; with 15% equaling $111.6 million remaining to be financed) from either the China Development Bank or the Export-Import Bank of China (aka China ExIm Bank). This leaves several options to finance the remaining 15% by:
· Equity financing such as the recent $10 million private placement.
· Creating spin-offs of either the power plant or coal mining portions of the company to unlock value (including perhaps spinning off their Ulaan Ovoo thermal coal property near the Russia border in Mongolia), or spinning-off their three mining projects in Canada (vanadium, copper/moly, and base metal respectively).
· A possible outright sale of Prophecy Platinum, or sale of part of Prophecy Platinum's holdings owned by Prophecy.
· A company that wants the contract to operate the Prophecy Coal power plant taking an equity stake in Prophecy Coal.
· The Mongolian government taking an equity stake in the company.
· Other loans.
· Other creative ideas.
· Some combination of the above.
Timing and Management
Manager of Geology Mr. Kravits looks to this project as a capstone to his 34 year career. He's worked on projects ranging from mine exploration (at the front end) to supporting the design of a power plant. Thus he has spent times on all the different parts of the project that Prophecy is doing, but is excited to be on a single project where all the pieces come together.
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Chris Kravits and Ronnie Van Eeden in front of the small privately run pit next to Chandgana Tal. The smoke on the right is from the truck hauling coal out of the pit below.
Mr. Van Eeden has over 34 years experience in coal mining and power plant construction, primarily in South Africa and Botswana. Most notably, he worked for 11 years managing projects with Eskom. Mr. Van Eeden who is managing the project in Mongolia laid out the timeline of the project as follows.
· PPA agreement
· Further feasibility studies meeting bank standards
· Raise all funds for the project by year-end 2012
· Start power plant construction in April 2013
· First 150 mw unit of four completed in October 2015 (30 months start to finish for the first unit)
· Fourth 150 mw unit completed by April 2017 (six months to construct each additional unit once the first one, and the infrastructure, is in place)
Community relations, in progress
We had lunch at the restaurant (there's one) in the community near Chandgana where management thinks workers will live. About 15 minutes away by car, the village currently holds 80 families and will grow to 800 families with the project. Prophecy's local Mongolian team on the ground has already been building relationships with the community and planning improvement of the infrastructure of the community.
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This village is going to grow 10 times in size to accommodate workers and their families for Prophecy Coal's Chandgana mine and power plant.
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Apologies for the off-balance picture. A few hours of bumpy roads destroys one's perspective on what's "level." The village's local restaurant is excellent. The noodle dish and milk tea are recommended.
Heat Value
While there is a lot of high quality coking coal in Mongolia, the thermal coal in Mongolia usually has problems. After two trips to Mongolia totaling a month of time there, I have found most of the thermal coal companies will gladly discuss the flaws in the competition's thermal coal quality (ash content, sulfur content, moisture, strip ratio, management, environmental concerns about the location, et cetera; there's always some flaw to pick on).
At Prophecy's Chandgana site, the biggest quality concern is moisture content (see above chart). Mr. Van Eeden believes that the moisture content can be reduced significantly with drying procedures. This could boost Chandgana's heat value by 600-700 kilocalories.
Competition
Mongolia's coal is in abundance. There are stories of local farmers paying coal companies to come and get coal off their land because the coal isn't good for grazing animals. With most of the thermal coal having various quality flaws, the most cost-effective way to make the thermal coal deposits profitable it to build power plants near the coal deposits.
At the Coal Mongolia conference in early February, a private company named Tsetsens with a deposit 117 km southeast of Mongolia's capital Ulaanbaatar discussed its own plan to build a 600 mw power plant. Tsetsens and Prophecy Coal are not alone.
Mr. Amarmend of Tsetsens (right) spoke at Coal Mongolia on February 9, 2012, about his mine at Boorolijuutin Tal that begins operations in the second quarter of this year and a possible international IPO to raise capital for a 600 mw power station. Company partners include RWE (RWEOY.PK) and Zemag.
Prophecy Coal seems to be ahead of companies such as Tsetsens in its planning and timeline. However, Prophecy Coal is a Canadian company whereas some of these other companies, such as Tsetsens, are Mongolian owned and may receive different treatment from the government.
GDP growth = Growth in energy need
Is there enough energy need for all the planned thermal coal power plants? Yes. Is there recognition of that need in the government? With national elections scheduled for June in Mongolia, what the post-election government recognizes will be key.
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The top line of this graph is projected GDP for Mongolia. The bottom line is the planned budget allocations for equalization and grants (rainy day funds). This projected GDP graph is from the presentation of Mr. Khashchuluun, Chairman of the National Development and Innovation Committee at Coal Mongolia 2012. This graph stops at 2016, but the country's two biggest mines - Oyu Tolgoi (copper-gold) and Tavan Tolgoi (coking coal) - will be ramping up to full capacity operations through 2020 with many other mines commencing or ramping up operations in the interim.
Currently, scheduled brown-outs in Ulaanbaatar occur with some regularity because Mongolia has an energy deficit. Mongolia's GDP growth through 2020, primarily based on growth on the mining sector, is expected to exceed an average of 10% annually. While some of the biggest mines are building their own power plants on site, there are many smaller mines around the country that are not. The growth in the country's GDP, the growth in mining, and the increased use of energy by the population as per capita income improves will all create further demands on Mongolia's power grid.
Infrastructure cannot be over-planned
In order to ensure Mongolia can meet its future energy demands, there should be a green light for all power plant projects. In the unlikely scenario that Mongolia builds too many power plants for its energy needs, they have a neighbor to the south in China with 1.4 billion peoplethey can sell their surplus energy to.
Prophecy Coal already has ambitious plans for a second power plant at Chandgana next to its large 1.05 billion tonnes Khavtgai Uul deposit. This is a project for down the road that proposes possibly building a 3600 MW power plant and transmission lines to China. However, if Mongolia still has energy needs to be met, Prophecy's first fidelity is to Mongolia and supplying its energy needs.
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Source: Prophecy Coal February 2012 fact sheet. For more detail, please see the February 2012 corporate presentation.
When the window on speculation closes, the window on investing will open
At this juncture, Chandgana Prophecy Coal has a good deposit and a good plan. The two things that keep the company a speculative investment are that they still need a Power Purchase Agreement with the Mongolian government and then they need to raise $744 million. After those two hurdles are met - and management is confident they will be met - one would be investing in the company's ability to execute the plans they already have outlined.
Value will be unlocked in the share price when investors are confident in the project's success. One should expect the share price to move up on the announcement of the PPA. Market reaction to the announcement of all $744 million being secured down the line will depend on the structure of the deals. Speculative investors can certainly invest now while the company is valued cheaply and waiting for the PPA, however more conservative investors may want to wait until after the structure of the $744 million in financing is in place.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Additional disclosure: I have brokerage accounts with Eurasia Capital and Frontier Securities, brokerages whose data were used in this article.
Crucial Coal: Powering Mongolia's Future
Electricity demand in Mongolia - major driver from world-class mineral deposits
March 15 (Leo Liu, Investor Relations Officer, Prophecy Coal/Prophecy Platinum, via Seeking Alpha) The dramatic and continuing rise in Mongolia's energy demand is being driven by the rapid development of the country's mining based economy. During the period of 2007‐2011, electricity consumption in Mongolia increased on an average of 6% per year. However, the Ministry of Mineral Resource of Mongolia estimates that overall electricity demand is expected to grow at 14% in the future. Major international mining firms have become involved in developing Mongolia's over-abundance of resources, including 15 world-class strategic mineral deposits with an estimate resource value of over $1.2 trillion. Projects of this magnitude require vast quantities of power from reliable sources.
Figure1. Typical strategic deposits in Mongolia
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Source: Mongolia stock exchange
Southern Mongolia - Richly endowed with Natural Resources but lacking power
The South Gobi region, in south of Mongolia, is currently isolated from the Central energy system. The mines of South Gobi (SGQRF.PK) that are in operation must, therefore, supply their own electricity. Power demand in that region is expected to grow rapidly as a result of both the existing and new mining developments. The two biggest current players in South Gobi are:
1. Oyu Tolgoi (OT) - a world-class gold and copper mine being developed by Ivanhoe Mines. The deposit is estimated to hold over 35 million tonnes of copper and 1,275 tonnes of gold. According to the Mongolia Stock Exchange, OT is poised to generate $61 billion over 27 years.
2. Tavan Tolgoi (TT) - the largest undeveloped coal deposit in the world. Mongolia is estimated to hold reserves of over 6 billion tonnes of coal. The Mongolia Stock Exchange estimates that TT will be operable for 200+ years, with an annual return of $1.6 billion for the first 29 years.
A presentation by the Ministry of Mineral Resources and Energy of Mongolia forecasts total demand from major customers in the South Gobi region of around 870MW to 1130MW.
Figure 2. Forecast electricity demand from major South Gobi mines:
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Source: The Ministry of Mineral Resources and Energy of Mongolia
Power supply in Mongolia - dominated by the central energy system
The power system of Mongolia consists of the three unconnected energy systems (the Central, Western and Eastern Energy Systems), diesel generators and heat-only boilers in off-grid areas. In total, 91% of the country's electricity is produced by the Central Energy System and 96% of the electricity demand of the country is met by the CES.
Figure 3. Map of Mongolia power systems
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Source: Energy Regulatory Authority of Mongolia
The electricity and heat is supplied by five combined heat and power (CHP) plants. The limited installed capacity of these existing power plants results in an ongoing and increasing energy deficit which is currently being offset by costly and unreliable electricity imports from Russia.
Figure 4. Electricity supply breakdown and demand
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Source: Energy Regulatory Authority of Mongolia, Eurasia Capital-INFRASTRUCTURE IN MONGOLIA April 2009
Coal fired power plants - Critical to Mongolia energy system
As the primary source of energy for Mongolia, the coal industry is critical to the operation of Mongolia's energy system. According to the Ministry of Mineral Resource and Energy of Mongolia, Mongolia's electricity generation capacity is comprised of 7 thermal power plants, 13 hydroelectric power plants, several hundred diesel generators, 20 wind power plants and 1 solar power plant. Of these sources, the overwhelming supply of electricity comes from coal-fired plants, which generate approximately 80% of the country's power.
Figure 5. Electricity generated by source in Mongolia
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Source: Mongolia national renewable energy program
There are five major thermal power plants (TPP) in the Central Energy System (CES). The current installed power capacity for coal fired power plants in Mongolia is 814 MW, but only 646 MW is available because of aging power plants, with most being over 30 years old. Because of age and deterioration, the TPP #2 is expected to retire in 2012 and the TPP #3 is expected to retire in 2016. Because Mongolia's capital, Ulaanbaatar, relies so heavily on these plants and lacks any replacement power source, they have to be kept in operation well past their lifespan.
Figure 6. Current coal fired power plants in CES
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Source: Energy Regulatory Authority (2007), Eurasia Capital.
The aging of the existing power plant infrastructure results in energy inefficiency and electricity loss due to 1) lower actual available power capacity and load factors and 2) Higher self-electricity consumption in power plants. The Mongolian government acknowledges this as a major issue and aims to reduce the whole system loss of the CES but the electricity loss remains a significant area of concern that will need to be addressed.
Figure 7. Total system electricity loss in CES
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Source: Energy Regulatory Authority of Mongolia-2010 annual report
Due to government regulated low electricity and heat tariffs, energy producers and thermal coal suppliers were historically unable to operate profitably. Companies operated with support by international loans and grants, and state budget subsidies. In late 2010, the parliament of Mongolia approved step by step liberalization of energy tariffs. The sector is planned to operate based on market principals beginning in 2014. Electricity tariffs are expected to increased to ease the operating pressure of power suppliers due to: 1) the increase of retail tariffs lagging behind the CPI and 2) wholesale tariffs increasing to maintain service level 3) licensees facing cost pressure from increasing input prices.
Figure 8: Retail Tariff Vs. CPI
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Source: ERA annual report 2009, 2010 and Website, World bank-Mongolia Quarterly Economic Update Aug 2011,
Potential source of power
1. Renewable energy - challenge for the ambitious plan
Currently, renewable energy (hydro, solar and wind) only represents about 4% of Mongolia's total electricity generating capacity. In the most remote areas, because of low demand and lack of other energy sources, use of renewable energies is viable. The Mongolian government passed the Renewable Energy Program in 2005, mandating that green energy sources account for 20-25 percent of Mongolia's needs by 2020. Solar photovoltaic and wind power have potential in Mongolia given the country's vast steppes and ample wind.
Figure 9: Mongolia renewable energy program forecast
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Source: Energy Authority of Mongolia
Modern solar cells are lightweight and portable enough to mesh well with a lifestyle involving frequent travel. Because of that, in Mongolia, solar energy use has mainly focused on decentralized individual solar home electricity systems, which would also be suitable for larger scale solar energy applications.
In terms of wind power, one Mongolian company, Newcom Group, will start construction of the first sizable wind power plant in Mongolia, with an installed capacity of 50MW.
Figure 10: Renewable power plant in remote area during 2006-2008
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Source: Energy authority of Mongolia
While a laudable goal, the practical reality of implementing such an ambitious renewable energy plan, particularly for wind power plants, is rife with significant obstacles. According to the Energy Authority of Mongolia, real-world problems include: 1) frequent performance problems; 2) a shortage of the government financing needed to acquire high quality small wind turbines; 3) contract-awarded inexperienced national companies had financial loss due to repetitive repair.
2. Diesel generators - unstable diesel supply and high cost
Diesel generators are popular in remote areas with no connection to the grid. In the South Gobi region, the Tavan Tolgoi mine is building a 20MW diesel power plant as a temporary electricity solution. Two major problems need to be solved for diesel power plants to be viable long-term:
1) The unstable supply of diesel.
Mongolia sources over 90 percent of its fuel from Russia. These imports are unstable as Russia may suddenly curtail its fuel exports as it has done in the past. This has the corollary effect of driving up domestic prices.
2) The high operating cost for using diesel to generate power.
Because Mongolia is forced to import diesel to offset its domestic energy needs, the selling in that country is higher than China, Kazakhstan and Russia. This also places Mongolia in a vulnerable position with respect to import tariffs. In May 2011, Mongolia experienced a severe fuel crisis as Russia raised duties on fuel exports by over 40 percent. Such actions particularly affect mining, agriculture and construction because these sectors have only a short operational season before the onset of winter.
Figure 11. prices of gasoline and diesel in June 2011
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Source: Mongolia Quarterly Economic Update-2011 Aug
3. New Coal-fired power plant - The ideal for powering Mongolia's future.
Although alternative energy sources will continue to be developed, until technology and efficiency dramatically improve, the solution to Mongolia's energy crisis lies in coal. The country has total coal reserves estimated at 150 billion metric tons, and three major coal fired power plants are planned to be built in order to meet the growing demand.
Standing out among these projects is Prophecy Coal Corp's (PRPCF.PK) 600 mega-watt Changdana thermal coal power plant. The first sizable new power plant in Mongolia in decades, the Chandgana project is fully-licensed and endorsed by the government. Construction is expected to commence in the second quarter of 2013, with power on anticipated for Q4 of 2015. The Prophecy project is in the advanced stages as compared to the other proposed projects, with the company looking to finalize a power purchase agreement with the Mongolian government in the coming months.
Figure 12. Major Coal fired Power Plants in progress
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Source: The world bank-Mongloa:Power Sector Development and South Gobi Development, Prophecy Coal Corp company presentation
How to play- trading vehicle for capturing energy exposure in Mongolia
North American investors can share the gain of energy industry in Mongolian by having the exposure in the stock of the public listing companies, which devoted themselves to the energy development in Mongolia. Such companies include:
1. Prophecy Coal Corp, the Canadian company which plan to build 600MW coal fired power plant in Mongolia. The company has over 1.4 billion tonnes of surface minable thermal coal resources on two coal properties in Mongolia. Prophecy's Ulaan Ovoo coal mine is in production and its Chandgana mine mouth power plant has been permitted. (Declare: I do not have any options and stocks for Prophecy Coal Corp, GE electric and Ivanhoe Mines, and no plans to initiate any positions within the next 72 hours).
2. GE electric, this US conglomerate help build Mongolia's first wind energy park in a $100m deal with Newcom, a Mongolian private investment company. (Declare: I do not have any options and stocks for Prophecy Coal Corp, GE electric and Ivanhoe Mines, and no plans to initiate any positions within the next 72 hours)
3. Ivanhoe Mines (IVN): Core assets in Mongolia are Ivanhoe's 66% interest in the world-scale Oyu Tolgoi copper and gold mine project and its 58% interest in Mongolian coal miner SouthGobi Resources. The company plan to construct the coal-fired power plant in Mongolia, which mainly for the self use of Oyu Tolgoi copper-gold mine project, but not in near term.
Conclusion
The leaders and people of Mongolia have long-recognized its potential as a modern, booming economy and international firms continue to embrace it as evidenced by massive and increasing foreign investment. With this expansion, Mongolia's critical energy shortages are expected to become more and more pronounced as new draws strain the existing supply and further increase reliance on costly and unstable imports. To sustain its impressive development, it is vital that the Mongolian government address the energy situation by utilizing their abundant coal resources and that they do so in the most efficient, modern and clean facilities technology has developed.
Disclaimer: The views expressed in this article are those of the author and may not reflect those of Prophecy Coal Corp. Neither Prophecy Coal Corp. nor the author can guarantee accuracy of all information provided. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Prophecy Coal Corp. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication. I am a private investor and currently hold the position of Investor Relations Officer with Prophecy Coal Corp. (TSX: PCY and Prophecy Platinum Corp. (TSX.V: NKL).
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
General Consulate office of Mongolia launchs in Osaka
March 15 (news.mn) General Consulate office of Mongolia launched in Osaka yesterday, March 14, 2012.
Prime Minister Sukhbaatar Batbold who visiting Japan have attended opening ceremony.
"Launch of Consulate office in Osaka is open new page in Mongolian-Japanese history.
Osaka is mail city of Kansai prefecture and one of the center of of Japanese industry, culture and education. Kansai prefecture has vital role in relation of two countries said Sukhbaatar Batbold.
Mongolia sends 130 soldiers to Afghanistan
ULAN BATOR, March 15 (Xinhua) -- About 130 Mongolian soldiers have been flown to Afghanistan for a peacekeeping mission, local media reported Thursday.
The Mongolian Defense Ministry said the soldiers, who left for Afghanistan on Wednesday, will serve as security guards at American garrisons under the U.S. "Enduring Freedom" military operation.
About 5,640 Mongolian soldiers have participated in 14 peacekeeping operations in Iraq, Sierra Leone, Chad, Western Sahara since 2002. More than 440 Mongolian soldiers are now serving in Sudan's Darfur, South Sudan, Afghanistan and Western Sahara.
"Mongolia has become one of the top 20 countries at the U.N. that sends peacekeeping troops to troubled spots around the world," said Defense Minister J. Enkhbayar.
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"Mogi" Munkhdul Badral
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CPS Securities, its directors and employees advise that they may hold securities, may have an interest in and/or earn brokerage and other benefits or advantages, either directly or indirectly from client transactions mentioned in correspondence from CPS International.
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