These words from a friend I was recently discussing Mongolia with. He’s easily one of the most astute investors we know, and later this week we’ll introduce you to him, but first I want to explain why Mark and I agree with that statement.
Mark spoke about Mongolia some time back, and since then growth and returns have been spectacular and breathtaking all at once. That said, we believe that this party is far from over. In fact it’s only getting started.
Due to my unashamed and admittedly bullish stance, I’m cognizant that when discussing Mongolian investment opportunities I may come across sounding like one of those cheesy salesman advertising “the next best, most unbelievable, swish whizzy, never to be repeated again, must buy now before the sky falls in” sort of opportunities, where not only will you assuredly make millions, but you’ll have a better sex life too!
Instead I’ll attempt to temper my enthusiasm and simply provide you with a brief breakdown of some important points for you to consider. After all, we have nothing to sell, and though we believe we are correct in our assessment we’re willing to accept that maybe, just maybe, we are actually wrong, and if that is indeed the case we’d love to hear from you as to why.
On with the show then… To the land of Ghengis Khan:
- Population: 2.8 M
- 97.8% literacy rate
- Multi-party democracy
- Median age: 26
- Sits conveniently between Russia and China, and close to the worlds fastest growing economies. India, Philippines, Indonesia – you get the picture.
- 19th largest country in the world with a total of 1.56M sq.km (giving it 1st prize in terms of lowest population density in the world).
- No restrictions on foreign ownership of businesses, and the government doesn’t pre-screen. However, foreigners cannot own land directly. Incidentally, there is no discrimination between foreigners and Mongolians when buying shares.
- The currency is freely exchangeable.
- A GDP of $5.1B and a GDP per capita of $1,900.
- Strategic minerals and natural resources are subject to a 34% government stake.
- The London Stock Exchange (LSE) is helping develop the Mongolian Stock exchange and opening it up to capital flows previously not available.
With the above as a very brief overview let’s put our investor hat on and take a look at some important facts. The entire market cap of the Mongolian stock market is roughly $1B. To give you an idea of growth, in 2008 the market cap was $406M. It finished 2010 with the title of the worlds best performing equity market, up a stunning 64% YTD. This is some stupendous growth, but lets put this into perspective with what’s taking place.
Consider the two largest projects in the country: The Oyu Tolgoi Mine (OT); and, the Tavan Tolgoi Mine (TT). Together these two projects completely dwarf the current entire Mongolian economy. OT alone will produce roughly $7B of metal per year at current prices. TT is considered the largest coking coal deposit on this ball of dirt we call home, with a total coal resource of 6.4 billion tonnes of high quality coking coal. Initial estimates have it that TT will produce 30 M tonnes of coal annually for the next 30 years.
Although these are currently the two largest mining projects in Mongolia, there are literally dozens more in varying stages of implementation.
What happens when the capital required to fulfill the dreams of just these two projects alone hits such a tiny market?
The answer of course is open to debate, but we believe that the Mongolian economy and market will go from “Lada to
Mercedes Bentley” in short order. In fact it’s already happening. If you’ve ever wanted to upgrade from economy to first class we suggest you sit up and take notice.
Why might this happen?
Mongolia is still the smallest market in Asia, yet it has resources its counterparts in Asia only dream of. Remember it has the lowest population density in the world, let alone Asia. Billions upon billions of dollars are required to extract the resources known to be present. How do you push this sort of capital into such a tiny economy without an eruption?
Per capita income for Mongolians is expected to rise to US$5,000 within the next two years and to a staggering US$12,000 by as early as 2015. Back of the napkin math tells me this is about what the average Shanghainese and Beijingese earns now. What happens when Joe Sixpack, or in this instance Odtsetseg or any of his relatives, experiences a doubling, tripling or more in his disposable income?
We don’t know for sure but we’re willing to make some educated guesses.
Mongolia is about to experience the biggest boom it’s seen probably since the Khanate era. Last year the economy grew 6.1%, with international reserves hitting an all time high of $1.6B. On the back of this the banking sector is weak, and bond markets underdeveloped, liquidity is poor, and financial statements are at times non-existent or hard to come by in many instances. Problems to be sure, but these problems create severe miss-pricing in valuations. These are opportunities for an astute investor, and we don’t believe they will last.
Stay tuned to one of the ways we are personally playing this growth. We’ve made the case previously for picking the best management possible in any company. It is easily THE MOST IMPORTANT aspect for us and of all the companies we’ve ever looked at. The management of the entity we’re going to introduce you to later this week is absolutely superb, with what has to be the most shareholder-friendly corporate structure we’ve ever seen.
Lastly, since we’re possibly being monitored by any number of three letter agencies in any number of countries, please read our disclosure statement here.
“Mongolia could be the Saudi Arabia of Asia” – Marc Faber