CPSI NewsWire brings you market updates on Mongolia, compiled by CPS International, a Mongolian marketing arm of CPS Securities, a Perth, Western Australia based stockbroking and corporate advisory firm, specialising in capital raising for mining and junior stocks.
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Prophecy Secures $10 Million Loan to Acquire Tugalgatai Coal Licenses, Mongolia
VANCOUVER, BRITISH COLUMBIA--(Marketwire - July 16, 2012) - Prophecy Coal Corp. ("Prophecy" or the "Company") (TSX:PCY)(OTCQX:PRPCF)(FRANKFURT:1P2) has arranged a $10 million secured debt facility (the "Loan") with Waterton Global Value, L.P. ("Waterton Global"). The funds will be used to complete the purchase of the Tugalgatai, Mongolia coal licenses on which a large coal resource is known to exist as described in the Company's news release of June 18, 2012. The Loan has a one year term and bears interest at 14% per annum. A structuring fee of 2.5% plus a bonus of $600,000 are payable through the issuance of 2,735,617 of the Company's common shares on closing of the Loan which occurred today. These shares are subject to a four month hold period.
John Lee, CEO of Prophecy, stated today that, "We appreciate Waterton Global's continuing support. The proceeds will fully fund completion of the acquisition of Tugalgatai coal licenses which are expected to significantly increase our coal resources."
Cheryl Brandon, Portfolio Manager at Waterton Global, stated, "We look forward to working with Prophecy Coal to finance the Company as they continue to expand in the Chandgana Coal Basin. The Waterton Global facility provides the required capital to complete the recently announced $10 million coal license acquisition and implement the company's production growth strategy in the region."
1733 dropped 10.145% to HK$1.24 on the announcement today
Winsway Coking Falls Most In 3 Months After First-Half Loss
July 17 (Bloomberg) Winsway Coking Coal Holdings Ltd. (1733), which processes and moves coal to China from Mongolia, fell the most in more than three months in Hong Kong after saying it posted a first-half loss because of lower prices and demand.
The stock fell as much as 10.9 percent to HK$1.23, the most since March 28, in intraday trading and was at HK$1.29 as of 10:56 a.m. local time. The benchmark Hang Seng index gained 1.5 percent.
The company didn't specify the loss for the six months ended June 30. Finance costs increased following the sale of $500 million, five-year bonds in April last year, Winsway said today, citing unaudited financial results.
The price of coking coal, the raw material used to make steel, fell as Chinese mills and coke plants cut back demand, the company said today in a statement to the Hong Kong stock exchange. Winsway has dropped 34 percent since April 23, when China's biggest aluminum producer Aluminum Corp. (2600) of China Ltd. agreed to purchase a majority stake.
Finance costs also rose after buying Calgary-based Grand Cache Coal Corp., Winsway said today. Winsway acquired Grand Cache with Japanese trading house Marubeni Corp. (8002) for about C$1 billion ($986.9 million) in March.
BoM Auctions $56.8M at ₮1,342.5
July 17, 2012 (Bank of Mongolia) – Forex auction: The BoM sells USD 56.8 million at closing rate of MNT 1342.50 and refuses for the bids to sell CNY considering the demand and supply of CNY is balanced.
Mongolia Democratic Party in coalition talks with anti-mining group
ULAN BATOR, July 17 (Reuters) - Mongolia's Democratic Party, which failed to win an outright majority in last month's elections, will discuss forming a new coalition government with a controversial party opposed to foreign mining, members said on Tuesday.
Mongolia has some of the world's biggest unexploited mineral deposits and is one of the hottest destinations for mining investment, resulting in its economy growing at more than double the pace of neighbouring China in the past year.
New Democratic MP Tsedevdamba Oyungerel told Reuters the party was in talks with the Justice Coalition to form the next government following inconclusive elections held on June 28.
"They (a five-member working group) are open to any party, but I think we are going to the Justice Coalition because they offered first," she said, but added nothing had been finalised.
The Justice Coalition consists of the Mongolian People's Revolutionary Party (MPRP) and the Mongolian National Democratic Party (MNDP), and both have sought to reverse policies they believe to be over friendly to foreign mining investors.
More than a quarter of the 76-seat parliament is now held by politicians who advocate local control of mines.
The broadly free-market Democratic Party won 31 out of 76 seats, eight short of an overall majority. The Justice Coalition picked up 11 seats, causing concern among foreign investors that a new dose of resource nationalism was likely.
The MPRP is led by former president Nambar Enkhbayar, controversial figure in Mongolian politics whose ongoing corruption trial has turned him into both a pariah for some and a hero for others.
He has called for the $13 billion Oyu Tolgoi copper and gold mine project with Ivanhoe Mines to be renegotiated to grant better terms to the government, and also wants to keep the coveted Tavan Tolgoi coal mine, potentially one of the world's biggest coal suppliers, in local hands.
Rio Tinto has a majority stake in Ivanhoe and has full operational control over the Oyu Tolgoi mine, which is due to start production this year.
"The DP assembly voted to create a coalition government with the MPRP-MNDP coalition. The next step would be for the sides (to) sit down and work on terms of (a) coalition agreement," Enkhbayar Batshugar, the former president's son, said in an email.
But sources said Enkhbayar could be a potential stumbling block in any coalition agreement. He and his family have angrily accused the current president, the Democratic Party's Tsakhia Elbegdorj, of fabricating graft charges against him in order to undermine his political fortunes.
The DP group in parliament has also nominated party chairman Norov Altanhuyag to serve as the country's next prime minister, said reports leading news portal news.mn.
The 54-year old mathematician and career politician has held several high posts, including Deputy Prime Minister in the outgoing government and Minister of Finance from 2004 to 2006.
Mongolia's economy, driven largely by mining development, grew at a roaring 16.7 percent year-on-year in the first quarter of 2012, according to the World Bank.
In the run-up to the election, nationalist politicians introduced a law to cap foreign investment, but it was later relaxed to allow overseas firms to own more than 49 percent in Mongolian deposits with parliamentary approval. Foreign state-owned companies need parliamentary permission to invest at all.
JUSTICE COALITION SAYS YES TO DEMOCRATS
Ulaanbaatar, Mongolia, July 17 /MONTSAME/ The Governing Council of the "Justice" coalition (Mongolian People's Revolutionary Party and National Democratic Party) discussed and then accepted the proposal of the Democratic Party (DP) to form a coalition government on Tuesday.
This was reported the same day by D.Terbishdagva, the coalition's faction head, and his deputy N.Battsereg.
"No political force with a majority seats appeared after the recent parliamentary election, so we have accepted the DP's proposal to work on a joint government. Our working group has been set up to hold talks with the DP," D.Terbishdagva said. The group is led by Ch.Ulaan MP and comprises newly elected N.Battsereg, L.Tsog, M.Sonompil, D.Battsogt MPs and N.Udval, a secretary-general of the MPRP.
D.Terbishdagva said that, in elaborating the new goverment's plan of actions, their coalition is to maintain to its election campaing programme "Five revolutions". It coincides with that of the DP, "so we suppose that making the governmental programme will not be very difficult," he said.
About the number of ministries he said that it must not be a huge structure, "but we think their number should be as many as they are able to function in accordance with the society and economics demands".
Portfolios distribution is likely to be based on the DP and the coalition's proportion in parliament--31 to 11, he went on.
No comments are available on a situation regarding three members of the coalition N.Enkhbayar, E.Batshugar and S.Narangerel who are being discussed at the Constitutional Court, he said.
Local news agencies suggested it might get postponed again as one of the judges is on vacation
Enkhbayar Trial Scheduled To Recommence Wednesday
Ulaanbaatar, Mongolia, July 17 /MONTSAME/
Following events are expected July 18:
- Prize granting ceremony will take place on occasion of 90th anniversary of Internal Troops
- Ceremony of worshipping the Khan khokhii Mountain will run with a participation of President Ts.Elbegdorj
- Trial on corruption case of N.Enkhbayar, former President of Mongolia and chairman of Mongolian People's Revolutionary Party.
Speculations on the new government and factions in the Democratic Party
July 16 (D. Byambajav via Mongolia Today) The Democratic Party (DP) has decided to negotiate with the MPRP-MNDP's "Justice" coalition on forming a coalition government. However, according to its latest statements, the DP received proposals from the CWGP and independent MPs to join the coalition government. Such a "grand coalition" may reduce the number of noisy oppositions. Also it might be a better option for the DP in terms of the public identity of the new coalition government.
However, before deciding partners for a coalition government, the National Consultative Council of the Democratic Party has approved N.Altankhuyag's nomination as Prime Minister and Z.Enkhbold's nomination as the Chair of the State Great Khural. Recalling intra-party convulsions in the past, there was expectation that inter-factional competition within the DP for the distribution of political offices may cause some unexpected political turns. The seemingly smooth process of the nomination of N.Altankhuyag and Z.Enkhbold indicates that influential leaders and major factions of the DP reached a consensus on the distribution of key political offices.
Factions in the DP?
Since the DP was established in 2000 as the coalition of five political parties there has always been rumors about the rivalries among factions. Although most people may know the names of faction leaders, the question of who are the members of these factions and how they actually work has been ambiguous. Unless it is an official statement of one who is in the inner circle of party leaders, any discussions about factions and their relations with each other have always been speculations. However, recently some factions have openly declared their members and objectives. Importantly, an indication of the influence of a faction in the DP is the number of members it has in the National Consultative Council, which makes final decisions on the most important issues in the DP.
After the DP was set to form a coalition government there is a lot of talk going around factional politics, especially about how major factions within the DP such as "Altangadas" (Pole star), "Shonkhor" (Falcon), "MoAH" (Mongolian Democratic Union), "MUDN" (Mongolian National Progress Party), "North East Asia" and "Neg Ardchilal" (One Democracy) would agree on the coalition partner and the distribution of political offices. N.Altankhuyag, the Chairman of the DP, is known as the leader of "Altangadas," which is regarded as the most influential one among other factions. Z.Enkhbold who is set to be the Chairman of the State Great Khural is the leader of "Shonkhor." Former Minister of Roads, Transportation, Construction and Urban Development Kh.Battulga who is the leader of "MoAH" has recently been critical of N.Altankhuyag for working merely for the interest of his own faction.
The roots of some of these factions traces back to the 1990s when three opposition parties (the Mongolian Democratic Party, the Mongolian National Progressive Party (MNPP), and the Renaissance Party of Mongolia) merged into the Mongolian National Democratic Party (MNDP) and to 2000 when the MNDP and four other opposition parties including the Mongolian Social Democrat Party merged and established the DP.
Based on available sources, the following is a rough description of some major factions in the DP.
"Altangadas"
In 2002, M.Enkhsaikhan (Mogi: who's now head of MNDP in Justice Coalition) became the chairman of the DP. With a group of DP members who were not included in the inner circle of the DP chairman, N.Altankhuyag, who was the secretary of the MSDP previously and the secretary general of the DP from 2001 to 2003, initiated an association within the DP in 2003. The name of the association was "Altangadas" (Pole star) and it had its own journal www.altangadas.mn. Although it was declared that the association aimed to discuss national policy priorities and reforms, it transformed into an influential faction in the DP, especially after the 2004 parliamentary election. Except Kh.Battulga, most ministers from the DP in the 2008 coalition government were the MPs allegedly affiliated with the "Altangadas" association.
"Shonkhor"
The Democratic Coalition Union (www.dcu.mn), an NGO initiated by Z.Enkhbold and some MPs of the DP in 2010, was the beginning of this faction. In January 2012, the members of the General Council of the DCU, which included MPs such as Z.Enkhbold, S.Erdene, Ts.Gankhuyag, and G.Bayarsaikhan, announced the birth of the "Shonkhor" faction in the DP. According to their statements, Shonkhor or falcon symbolizes the Right or right-wing politics.
"MoAH"
Kh.Battulga, one of the influential leaders of the DP and former Minister of Roads, Transportation, Construction and Urban Development, is the current leader of the Mongolian Democratic Union (MDU). Newly elected MPs such as R.Burmaa and S.Tuvdendorj are members of this faction.
"MUDN"
Mainly former members of the MNPP constitute this faction. Former PM and current MP R.Amarjargal has announced before the election that he was re-forming the "MUDN" faction.
"North East Asia"
Former MPs Batj.Batbayar and Badamdamdin and Baabar are regarded as the founding members. In recent years, MP Lu.Bold leads this faction.
"One Democracy"
Initiated by young MPs of the DP such as Kh.Temuujin and L.Gantumur, "One Democracy" club (www.onedem.mn) seems to be an organization within the DP representing emerging young leaders.
A Historic Window of Opportunity In Mongolia: James Passin
July 16 (The Gold Report) --
The Gold Report: James, the Bank of England (BOE), the European Central Bank (ECB) and the People's Bank of China have made moves to boost flagging economies. The BOE added £50 million to its quantitative easing program. The ECB reduced its key lending rate to a record low of 0.75%. China cut its key lending rate for the second time in a month to prevent a further slump in manufacturing and a fall in property values. What effect will these moves have on the gold price through year-end?
James Passin: It's clear that loosening monetary conditions will stimulate commodity prices generally and will eventually support the beginning of a great inflationary wave. In the short term, it's impossible to call, as strong deflationary pressures are emanating out of weak economic conditions and deleveraging. Gold, while far less popular than in recent years, is still a widely held asset of hedge funds. The consequence is that it's harder for gold to have any kind of sustainable short-term reaction to changes in monetary conditions.
TGR: Gold is trading around $1,600/ounce (oz) right now. Will it hold?
JP: It could potentially test the lower ranges, but it feels as if it's building a strong base and could start to move higher toward the end of the year.
TGR: Will China's lending rate cut affect the pricing of base metals and other bulk commodities, like copper and iron ore?
JP: China is facing significant domestic economic headwinds. I'm skeptical that the recent move in itself is going to be enough to have any kind of significant sustainable increase in base metal prices. Longer term, I'm optimistic about China's ability to engineer an economic recovery.
At the same time, my view is that interest rates will remain negative in real terms and will generally be stimulative and supportive to commodity prices generally, including base metal prices.
TGR: Will China's rate cut have an impact on the Mongolian economy?
JP: It's hard to say. The more important question is: To what extent will China's monetary and credit policy offset the weakening trends in the Chinese economy? The Mongolian economy will be dramatically impacted by Chinese economic conditions.
TGR: What's happening in Mongolia in terms of growth and opportunities?
JP: Mongolia is the fastest growing economy in the world. The economy has been compounding at almost 20% in real terms. There's a lot of evidence that the real gross domestic product (GDP) is a lot higher, due to unreported economic activity. The trends underpinning this growth are still intact and the economy is growing from a very low base. It's likely, if not inevitable, that Mongolia's economy will continue to compound at an extraordinarily high real rate of return for the next several decades.
TGR: What other countries would you compare Mongolia's growth trajectory to?
JP: Looking back to the beginning of the great oil boom in the Gulf countries, such as Kuwait, there is similar economic potential and a similar population base, too. Those economies grew from very small bases to become substantial and important from a global perspective. This was driven by the export of oil, but also from sustainable policies of building up sovereign wealth funds and maintaining strong sovereign balance sheets.
"Mongolia is the fastest growing economy in the world."
Mongolia has other attributes that might even lead to more rapid and sustainable growth, which includes its very strong democratic political system, the breadth of literacy, its natural entrepreneurism and its proximity to some of the most dynamic economies in the world, such as China.
Present day, it's very hard to find other countries that have similar potential. The countries that look interesting today Myanmar, North Korea have various issues and problems, but also very exciting attributes.
Mongolia is an early-stage frontier market with many of the problems typically associated with developing countries. But, it also has a fairly advanced civil and political infrastructure. Its unique setting will enable Mongolia to continue to compound at extraordinarily high rates of growth that are going to continue to attract both strategic and portfolio investors.
TGR: But if China sneezes, Mongolia gets a cold. If China's growth drops to 7% this year instead of its projected 8%, how much is that felt in Mongolia?
JP: There is a very high correlation between Mongolian exports and Chinese demand. There is a very quick pass-through mechanism from China to Mongolia. Even a moderate slowdown in Chinese growth could have a disproportionate effect on Mongolia.
However, the Mongolian banking system is much stronger than it was during the global financial crisis. The sovereign balance sheet is strong relative to the size of the economy. The likelihood of Mongolia having any kind of severe crisis or systemic existential problems is quite low even if there is a more dramatic deceleration in the Chinese economy.
TGR: Is China one of the bigger contributors of foreign direct investment (FDI) in Mongolia?
JP: Absolutely, China is a significant contributor of FDI in Mongolia. From 1990 to 2010, China was responsible for about 50% of its FDI.
FDI from China is quite controversial. In fact, a law was recently approved by parliament that is directed at regulating FDI primarily from China. These days, a lot of the FDI is flowing from Canada, Australia, Japan, South Korea, Europe and the U.S. China is a large contributor to FDI, but it's not the dominant contributor. However, FDI is primarily facilitating the construction infrastructure needed to deliver raw materials to China. So, ultimately, the FDI story is still very much China-driven.
TGR: How would you compare the investment risks in Mongolia with the investment risk in countries like Kazakhstan, Uzbekistan and Turkmenistan?
JP: I know Central Asia quite well, having traveled extensively throughout the region over the last 15 years and having deployed capital in various equity plays in Kazakhstan. While we historically generated significant net returns investing in Canadian-listed companies that were de facto vehicles for the Kazakh elite, we do think that Mongolia alone of all Central Asian countries has the potential to develop a deep and globally significant domestic capital market. One of the key facts to remember is that Mongolia is a democracy. A democracy is arguably inherently more stable than a dictatorship or a de facto kingdom at least to the extent that greater transparency builds confidence in financial markets and policies enable broader participation in domestic wealth creation.
TGR: One interesting case study on risk in those types of places versus Mongolia is Centerra Gold Inc. (CG:TSX; CAGDF:OTCPK). Centerra has had all sorts of problems with the government in the Kyrgyz Republic, including getting permits for its Kumtor gold mine. Centerra also has two gold operations in Mongolia. It's diversifying the risk of Kyrgyz by operating in a more favorable jurisdiction.
JP: The political landscape in the Kyrgyz Republic is very difficult to navigate.
Mongolia is the 18th largest country in the world by size. It's sitting on the continental subduction zone between the Asian and Indian subcontinents. It hosts some of the world's most prolific mineral belts with some of the world's largest known undeveloped mineral deposits, some of which are just beginning to get into early phases of production. The exploration is just scratching the surface.
"Mongolia hosts some of the world's most prolific mineral belts with some of the world's largest known undeveloped mineral deposits."
Some geologists talk about the possible existence of 20 or 30 Oyu Tolgoi-type deposits in Mongolia not to mention the other minerals from iron to uranium to silver to molybdenum. There are also remnants of a sea, the origin of coal-bearing sedimentary basins, with projected 100 billion tons (Bt) thermal coal and 30 Bt coking coal, as well as hydrocarbon potential.
The mineral potential is already in the trillions of dollars and the true value is probably in the tens or even hundreds of trillions of dollars. It really is an incomparable destination for strategic investors.
TGR: Another major factor is that very little of the country has been exposed to advanced exploration techniques.
JP: Many of the existing surveys were conducted by the Soviet Union 50 years ago, when surveying exploration technology was quite primitive. Some of the new tools are very powerful, leading to the ability to make new discoveries and to drill to deeper targets at lower costs. New satellite tools can even conduct imagery from space.
Our private equity business has control of certain mineral exploration licenses and has conducted a number of exploration programs. My personal experience is that the application of modern exploration technology and practices to exploration programs in Mongolia has led to very significant discoveries. The size of Mongolia is so vast that the new generation of exploration is just starting.
TGR: Has the development of Oyu Tolgoi (which translates to "turquoise hill"), by Rio Tinto Plc (RIO:NYSE; RIO:ASX) and Ivanhoe Mines Ltd. (IVN:TSX; IVN:NYSE), put Mongolia on the radar screens of investors?
JP: Absolutely. By following Ivanhoe back in 2004, it led me to look at Mongolia's long-term potential. Robert Friedland's success in negotiating a strategic investment agreement with the Mongolian government enabled the financing and development of the project, which is almost close to beginning pilot production.
The long-term increase and capture of new employment and the feedback effects of all the economic activity will have an unpredictable impact on the Mongolian economy. It will cause interest rates to trend down and make funding costs cheaper, which will lower hurdles for businesses and enable them to fund more marginal projects and business opportunities in all sectors. That will result in more tax revenue for the government to build infrastructure, including rail, road and power transmission and distribution, that will help to lower the cost of manufacturing and transportation costs, which will help to boost productivity.
There will be more and more world-class mineral deposits defined, discovered, developed and brought into production. That will trigger the development of all kinds of related businesses that will benefit from the higher level of economic activity. This feedback effect is going to drive the exponential real compounding growth in Mongolia's GDP. It will also lead to one of the greatest increases in GDP per capita in world history over a relatively short period.
TGR: Oyu Tolgoi is the biggest copper deposit in the world, but it also contains 21 million ounces of gold. Have there been any other significant discoveries besides Oyu Tolgoi that you could tell us about?
JP: A lot of projects that we're monitoring look quite exciting, for example, Sharyn Gol JSC (SHG:MSE), a Mongolian Stock Exchange-listed company that Firebird took control of in 2010. It was nearly insolvent and had a market cap of $8 million when we took control of the company. We provided a line of credit that enabled the company to drill its license area, resulting in a 12x increase in known resources and the receipt of a Joint Ore Reserves Committee compliant resource of 374 million tons, 80% of which is open pittable.
It's just one example of modern exploration technology used at a legacy deposit. We've had additional success investing in the rehabilitation of legacy brownfield mines. We also have a number of greenfield exploration programs.
Considering the prospectivity of Mongolia and the infrastructure that is starting to be built, it may be worthwhile for professional investors to consider chasing some of these exploration projects.
TGR: You're chairman of Undur Tolgoi Minerals Inc. (UTM:CNSX), in which your firm has a significant position. Can you update us on its early exploration?
JP: Undur Tolgoi was founded by Firebird. We took the company public through a reverse takeover. The company controls a mineral exploration license of over 9,620 hectors in Mongolia's Gobi Desert. It's on the edge of the Devonian arc, which is the right address for potential copper-gold porphyry systems.
It's an early-stage exploration program. The company has conducted ground samples and gravity and magnetic surveys and is about to launch an induced polarization survey. There's potential for some high-grade epithermal veins that could be very interesting near surface. However, we are primarily looking for deeper, larger disseminated mineralization systems.
TGR: Are there any other significant companies that are developing gold projects in Mongolia?
JP: There are some interesting gold projects and properties that are privately controlled by Mongolian groups or in partnerships with foreign groups. I can't point to a particular listed company offshore that has a world-class gold property, but there are some very interesting gold properties in Mongolia.
TGR: What about other metals?
JP: Some well-known properties that look pretty interesting are in various stages of development some large iron ore deposits and molybdenum.
TGR: The market is of a risk-off sentiment right now. Many investors have taken a defensive strategy in their investment portfolios. Why should they abandon at least a portion of that tact to invest in what's perceived to be very risky commodity play?
JP: In an environment where people are willing to loan trillions of dollars to governments with returns approaching zero and effectively negative interest rates in real terms, who am I to argue about risk versus return? In an environment where every central bank is in a race to zero interest rates and the solution to fiscal imbalances is to monetize that through printing money, it seems to me that the great risk is hyperinflation. In highly inflationary environments, it's better to be in equity. And it's even better to be in mining-related equities. There's a risk to not being invested in mining companies.
"This might prove to be the historic moment to deploy capital in a country like Mongolia."
In early-stage frontier markets, like Mongolia or Africa, the risk is to get in too late. Getting in too early, even with small amounts of capital, enables investors to enjoy the initial appreciation before the investment story becomes clear.
During environments of fear, uncertainty and risk aversion, that's when there are great bargains for those willing to provide capital and to finance deals and transactions. This might prove to be the historic moment to deploy capital in a country like Mongolia.
TGR: Thanks for sharing your insights with us.
James Passin joined Firebird in 1999. He co-founded and manages Firebird Global Fund, Firebird Global Fund II, Firebird Mongolia Fund and Firebird New Mongolia Fund. Passin is a graduate of St. John's College, where he majored in philosophy and classical literature. He serves on the board of directors of several Mongolian and Canadian companies, including Sharyn Gol JSC, Baganuur JSC, BDSec JSC, National Investment Bank of Mongolia and Undur Tolgoi Minerals Inc. Passin is also the chairman and CEO of Vanoil Energy Ltd., a Canadian oil exploration company focused on Kenya and Rwanda, and the non-executive chairman of Fluormin Plc, a UK company listed on the London Stock Exchange's Alternative Investment Market. Passin was named "Fund Manager of the Year" at the 2012 Mines and Money Conference in Hong Kong.
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DISCLOSURE:
1) Brian Sylvester of The Gold Report conducted this interview. He personally and/or his family own shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of The Gold Report: Undur Tolgoi Minerals Inc. Streetwise Reports does not accept stock in exchange for services. Interviews are edited for clarity.
3) James Passin: I personally and/or my family and/or funds that I manage and in which I have a beneficial interest own shares of the following companies mentioned in this interview: Sharyn Gol JSC, Undur Tolgoi Minerals Inc. and Ivanhoe Mines Ltd. I personally and/or my family was not paid by any company mentioned in this interview. I was not paid by Streetwise Reports for participating in this interview.
Can You Guess the World's Fastest Growing Economy? (No, It's not China)
July 16 (The Atlantic) Mongolia is part of a new class of countries that, like the Middle Eastern states that got rich selling oil to the West, have hitched their economies to resource-hungry China.
If you can make your way into the VIP room on the second floor of the Louis Vuitton outlet in Ulan Bator -- it's near the Burberry store, but the Burberry in Central Tower and not the one at the forthcoming Shangri La resort hotel -- you'll be handed a glass of champagne and asked to gaze upon a special, gem-encrusted saddle made just for this store. It symbolizes "the fusion of the brand's travel heritage and Mongolia's tradition of expert horseback riding," according to a Louis Vuitton press release, and it includes a special container for carrying caviar across the same Mongolian steppe that bred Genghis Khan.
This is the new Mongolia, and it doesn't always look like the old Mongolia. The ancient ways are still here -- though the yurt-like gers that have littered the steppe for centuries now sometimes carry satellite dishes and solar panels -- and why shouldn't they be? Neither Chinese nor Soviet dominance could change Mongolia's famously nomadic, individualistic culture. But, now that it has the world's fastest growing economy, according to NPR, no one is quite sure if Mongolia's breakneck transformation will prove for the better.
Mongolia's rise is about Mongolia, but it's also about an otherwise minor global player that has been pushed and pulled with the fates its two powerhouse neighbors -- China to the south and Russia north -- and rises or falls along with them. Mongolia was a dictatorial, underdeveloped disaster in its 70 years behind the Iron Curtain. Finally democratic and free market, it was perfectly positioned to join China's ascent, but also China's risks.
Mongolia has vast natural resources -- copper, gold, uranium, and perhaps most importantly coal -- and few citizens among whom to divide the spoils. Though it's over three and a half times the size of California, it has a population of only 2.7 million people, fewer than live in just the urban center of Fuzhou, China's 30th largest city.
With China's increasingly insatiable appetite for exactly the minerals that its norther neighbor boasts in abundance, Mongolia is joining a small class of once-impoverished Asian nations that are getting rich by selling to Beijing. Kazakhstan, which was never as Borat portrayed it but wasn't exactly Vienna either, has financed a gleaming glass capital and a nationwide modernization by feeding Chinese energy demands.
Countries like Kyrgyzstan and Uzbekistan are building their economies on China's import market. It's hard not to think of the Persian Gulf states that sold enough oil to the West to transform themselves, in only 50 years, from heavily nomadic and illiterate societies into countries so rich that they have a problem with too many Ferraris on their streets.
The problem is that Mongolia's wealth is not sustainable. If the Chinese economy takes a sudden downturn, as it might, the Mongolian economy could shut down almost overnight. Even if that doesn't happen, there's no question that one day, maybe in 50 years or maybe in 20, the coal mines will empty.
Now that so many Mongolians have abandoned their rural, from-the-land lifestyles to crowd into the rapidly growing capital city, they're dependent on the mineral economy. Many of them may not have an old way to return to should the new way fail them. And with inflation so high, a hard landing could be severely painful.
So, if Mongolia is profiting off of a Chinese version of the same model that made Middle Eastern oil exporters so rich, then it faces a similar challenge: to invest that money into more sustainable industries so that it will have something to fall back on when the buyers go away or the resources run out. There's nothing wrong with Mongolians enjoying the fruits of their new success, but if they put all of their money into gem-covered saddles, then Mongolia's first golden age in centuries could be short-lived.
Nirmal Ghosh on the hidden costs of Mongolia's boom
July 17 (Straits Times) On the floor of the factory shed in a ramshackle potholed industrial zone on the outskirts of Mongolia's capital, are strewn nine huge cylinders of hydrochlorofluorocarbons (HCFC), an industrial gas used in this case to make insulation pads for the walls of buildings.
The hundreds of foam pads are stacked up against a wall. After a couple of years of doldrums, Bilguun Trading can't turn them out fast enough now. Ulaan Baatar is seeing a massive building boom on the back of Mongolia's staggering 17.3 per cent economic growth last year driven mainly by controversial extraction of natural resources.
The international media has lately been full of stories on the boom, and the transformation of the capital. There are so many big modern buildings coming up now that you can barely see the storied mountains outside the city or the big skies that the country is famous for. The statue of Lenin still standing outside the Soviet-era Ulaan Baatar hotel is being dwarfed by gleaming new high rises.
But none of the articles I have seen mention the sting in the tail which remains hidden from the public eye or lost in the clear blue sky.
The problem is, the HCFCs while relatively benign to the critical ozone layer, are significant drivers of global warming. The Mongolian government wants Mr Bataa to stop using HCFCs to comply with its international obligations.
HCFCs are only one of a two-pronged problem closely linked to economic growth and urbanisation. The other is another family of gases called hydrochlorofluorocarbon (HFC), used in air conditioning – an industry that is growing by 20 per cent per annum in Asia.
From Mongolia to Myanmar, and across Asia, new construction booms and a rising affluent middle class are fuelling a dangerous rise in the use of these gases.
At current rates of use and growth, HCFCs and HFCs used in building insulation, air conditioning and refrigeration, will drive 27 per cent of global warming by 2050. The biggest drivers are of course the giant economies of China and India. But no less critical are new sources coming on line as thus far low-impact cities like Ulaan Baatar and Yangon, enter the scene with their frantic building sprees fuelled by foreign investor interest.
In his first floor office, director of Bilguun Trading Mr Bataa Ch – who collects rare Mongolian-Tibetan Buddhist tangkhas in his spare time - spoke occasionally bitterly, with visiting government and United Nations (UN) experts about the difficulties of converting his production system.
Mr Bataa has two years to switch from HCFCs to another technology. He will get US$ 65,000 (S$83,000) to help him, from the Montreal Protocol. But that is not nearly enough, he says. Setting up a new production system could cost him a million Dollars.
Under the 1987 Montreal Protocol, considered the world's most successful environmental agreement, the earlier family of gases used in refrigerators and air conditioners and propellants and foam from car seats to household upholstery – and which decimated the ozone layer - was phased out and replaced with HCFCs and HFCs.
But while that helped the ozone hole discovered in the 1970s to stabilise and even edge towards recovery, these gases pack a greenhouse gas punch far higher than carbon dioxide, the chief villain of global warming. HFCs for instance, have a greenhouse gas effect 2,100 times greater than carbon dioxide.
The Multilateral Fund under the Montreal Protocol, helps finance conversion to gases less harmful to ozone, and less powerful as agents of global warming. But conversion is difficult even without resistance from entrenched industrial interests.
Less harmful substitutes like hydrocarbons have been developed, but red tape and restrictions – because some are flammable - make them difficult to convert to. There are also industrial giants that produce HFCs – and resisting the use of natural refrigerants like hydrocarbons, experts say.
'If there are difficulties here, can you imagine what a problem it is in other countries like China and India where there are scores of factories like this,' the visiting United Nations Environment Programme (UNEP) expert Mr Atul Bagai said as the team left Bilguun Trading.
The 1987 Montreal Protocol deals with gases that destroy the ozone layer. The Kyoto Protocol – the subject of tortuous and by and large ineffective climate change talks from Copenhagen in 2009 to Durban last year – deals with a basket of 6 gases but only with total emissions, of which HFCs are still just a small portion.
HCFCs are under the Montreal Protocol. HFCs used in the booming air conditioner and refrigeration industries, are not. Many experts have been clamouring for HFCs to also be placed under the successful Protocol, which regulates their production and funds industry to convert to less harmful substitutes. But as of now, the gases remain under the failing Kyoto Protocol.
'The Montreal Protocol can no longer work in isolation,' warned Mr Bagai, Bangkok-based ozone programme coordinator for 38 Asian countries.
'Leapfrogging to environmentally friendly refrigerants has to be part of a much broader debate on food security, urbanisation, safe habitat, energy security and climate change.'
Mongolia goes for gold with London medals
OLYMPICS: In the sand dunes and dirt tracks of the Gobi Desert, Mongolia is staking its place at the heart of the Olympics by providing metal for the medals that will be handed out in London.
July 17 (AFP) Copper and gold that was extracted in a remote corner of the fast-developing country has been transformed into medals -- the heaviest ever made for the Olympics -- that are currently being stored at the Tower of London.
And while they will become an individual symbol of achievement for the 4,700 athletes who make it to the podiums, sports officials in Mongolia see each and every medal as a source of national pride.
"It is a great honour for the Mongolian people, and an example of our involvement with the Olympics and our commitment to the Olympic movement," Mongolian National Olympic Committee president Demchigjav Zagdsuren told AFP.
Success in Beijing in 2008, when Mongolia won its first two gold medals, had already ramped up enthusiasm for the Olympics.
Steeped in the traditions of their conquering hero Genghis Khan, Mongolians have for centuries favoured traditionally "manly" sports of archery, horse racing and wrestling displayed every year at the country's sports festival, Naadam.
The 800-year old event - which was originally held to test military skills - continues to produce sporting heroes for Mongolians, so it was no surprise that the country's first gold medals four years ago were in judo and boxing.
However, the traditional nomadic lifestyle from which Naadam developed is beginning to be eclipsed in Mongolia, as the country undergoes rapid change on the back of a spectacular mining boom.
-- Mining frenzy --
Foreign investment, which mainly comes from the huge mining companies such as Rio Tinto, quadrupled last year to nearly $5 billion, according to government data.
The boom is transforming parts of Mongolia, most visibly in the capital of Ulan Bator where a surge of construction is underway and the new rich showcase their wealth with the latest luxury cars and fashion accessories.
However, many of the poorest of Mongolia's 2.8 million people complain that little of that money has trickled down to them, and there are concerns among some that mining is having a damaging effect on the vast country's environment.
The focal point of the mining frenzy is the Oyu Tolgoi copper and gold mine, located in South Gobi, Omnigovi Province, two hours' drive from the Chinese border.
The biggest economic undertaking in Mongolia's history, the mine accounted for more than 30 percent of the nation's total gross domestic product in 2011, a year when the country's economy grew by 17.3 percent.
Oyu Tolgoi, which is controlled by Australian mining giant Rio Tinto, will not become fully operational until next year, with about 15,000 construction workers currently on site.
Exploratory works carried out during the construction phase have provided gold and copper used for the Olympic medals.
Rio Tinto supplied the metals for the medals from two of its mines - one in Mongolia and the other in the United States - as part of a sponsorship agreement with the Olympic organisers.
The mining giant supplied eight tonnes of gold, silver and copper for the medals from both Oyu Tolgoi and the Kennecott Utah Copper Mine in Salt Lake City, Utah.
The metal was transformed into flat discs - known as blanks - at a range of plants in Europe before they were delivered to the Royal Mint in Wales.
The blanks were then moulded to meet the designs specified by London 2012 and the International Olympic Committee (IOC).
The medals are the heaviest ever made for the Olympics, weighing 375-400 grammes. They are 85mm in diameter and 7mm thick.
-- Bringing the gold home --
There are high hopes that some of the 29 Mongolia athletes going to London will return with metal originally dug out from their homeland, helping Mongolia make its mark on the international stage through sport as well as economics.
"We hope to win more medals in the four kinds of Olympic sports that Mongolia excels in, judo, shooting, wrestling and boxing. And we want to defend our two gold medals that we won in London," said Zagdsuren.
Indeed, the level of expectation in Mongolia for the nation to take its place on the world stage is revealed in a memorandum erected in the tiny Olympic museum in Ulan Bator.
The document, signed by IOC chief Jacques Rogge and Mongolian President Tsakhia Elbegdorj, outlines ambitions for the country to stage its first East Asian Games by 2017, Asian Games by 2018, and its first Olympics by 2040.
Breakneck development has seen the remote and sparsely populated country set its sights high.
"I think that Mongolia is already an Asian tiger in that it has one of the fastest growing economies in the world, but the medals definitely add some more spice to the story," said the president of the Oyu Tolgoi mine, Cameron McCrae.
Misc
Tradition 'Wrestles' With Modernity at Mongolia's Naadam Festival
July 16 (Vanishing Cultures Project) It's a warm July afternoon in Ugtaal County in central Mongolia, and a crowd gathers on the open steppe under a rickety bandstand. I'm here with the Vanishing Cultures Project and videographer Lauren Knapp to document the traditions of Mongolian nomadic herders. In our efforts to research the effects of globalization on this traditional culture, we've found ourselves here this afternoon to record one of Mongolia's centuries-old surviving traditions.
As a Mongolian flag flaps lazily in the breeze, men on horseback and women bouncing babies in their arms gather on either side of a grassy causeway created by two lines stretched between wooden stakes. Suddenly, dark dots appear on the horizon, rapidly cresting the hill one after the other. The crowd's excited chatter rises by a few decibels, and as the dots come closer, their shapes become distinguishable against the electric green of the valley -- they are horses, and this is Ugtaal County's race of stallions. The crowd at the finish line begins to cheer the winners home.
Horse racing is part of the trifecta of "manly sports" that make up Mongolia's annual Naadam, a nationwide sports festival that is seeing a recent resurgence in popularity. The "three manly sports" of horse racing, wrestling, and archery are all ancient military arts that have been practiced for centuries as a requisite part of Mongolian warrior culture. Today, these sports are celebrated during Naadam -- named after the verb naada, "to play" -- as cornerstones of Mongolian heritage.
Like Ugtaal, every county and province hosts its own Naadam in early July to select finalists to compete at the national Naadam, which takes place on July 11-13 each year in Mongolia's capital, Ulaanbaatar. As a national holiday, shops close, workers head home, and people refer to it as the best time of the year.
"The three manly sports are a source of pride for Mongolians because they're such old traditions, and they've been happening for so many centuries," says Battulga, the mayor of Ugtaal. "Everyone waits the whole year to see these sports, and once Naadam is over, people start waiting eagerly for next year's Naadam."
The tradition of Naadam can be traced back to the 13th century, when Chinggis Khan threw them as celebrations of successful military campaigns. Returning warriors marked their victory by drinking, eating, wrestling, and showing off their manly skills. Eventually, this also became a way to train young men in the military arts. Centuries later, after Mongolia's socialist revolution of 1921, Naadam became institutionalized as the official celebration of the people's army, and it took on the organized form of competition that is seen at modern Naadams today.
"I have always participated in Naadam, every year," says Gantumur, a lifelong resident of Ugtaal. "There was a time when not many people participated in Naadam. But now it's getting better, more people are becoming involved."
Mongolia is experiencing a cultural revival: while an economy estimated by the International Monetary Fund to be the fourth-fastest growing in the world launches Mongolia onto the world stage, feelings of nationalism are driving people to reclaim a Mongolian heritage and identity that were actively effaced during the Soviet Era of the 20th century. And Naadam, as a direct line to Mongolia's rich cultural past, is a natural choice for a celebration and show of cultural pride.
Each of Naadam's three manly sports is steeped in historic tradition. Wrestlers wear an age-old costume of leather boots, open-front jacket, and briefs, all embroidered with traditional patterns. Archers compete in silk and brocade deels, the traditional Mongolian robe. As is the ancient practice, Mongolian horse races require child jockeys, and before each race children aged seven to twelve gather on horseback to sing the Giigoo, a folksong of praise, to their horses to urge them to do well.
But amidst the throwbacks to ancient culture, signs of modernization dot the holiday landscape both locally and nationally. Food trucks set up shop around the Naadam stadiums, selling Coca-Cola, plastic toys, and ice cream bars to the revelers. Teenagers on horseback chat on cell phones, and mothers in traditional deels strut by on spiked heels. All across the countryside, harbingers of an economy growing at break-neck speed make their appearance in Western commodities, fashions, technologies, and tastes. But as Mongolia ushers in this new market-economy culture, perhaps the traditions of the past will continue to inspire pride in the generations to come.
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"Mogi" Munkhdul Badral
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