I Told You to Buy Mongolia!
I have been pounding the table on Mongolia for over a year now, as the fundamentals were stacking up nicely for it to become a high growth pioneer market (click here for the call at http://www.madhedgefundtrader.com/september_2__2009.html ). Never mind that you can’t buy it unless you become a resident of Ulan Bator and pay with local currency.
But the indirect plays I recommended are doing extremely well, including Ivanhoe Mines (IVN), up 93% in a year, and Rio Tinto (RTP), up 53%. Government officials were in New York this week negotiating with NASDAQ to take over the management of their nascent exchange, which even after the double, has only 300 listed companies with a total market capitalization of only $1 billion.
There’s nowhere I won’t go to make a buck, so I had to sit up and pay attention when friends in Tokyo told me that the next big Asian equity play will be in Mongolia. Genghis Khan’s ancestral land has enormous mineral resources which make it a natural commodity play (did he know?), and it has one of the world’s most GDP friendly population pyramids.
But incompetent government administrators with antiquated Soviet era sentiments managed to kill every development opportunity in the crib with onerous windfall taxes and harsh joint venture restrictions. The resources stayed in the ground. National elections finally turned over the regressive administration in 2008, and the anti growth tax regime was dumped last week.
Mongolia has inked a deal with Ivanhoe Mines and Rio Tinto to develop the massive Oyu Tolgoi mine, the world’s largest undeveloped copper resource, which could lead to a doubling of the GDP in five years. We’re talking a gigantic 450,000 tons of copper and 330,000 ounces of gold a year. Friends have been e-mailing in the results of core drillings from Oyu Tolgoi, and it is clear that this is one of the richest ores ever discovered. Also on tap is the development of huge coking coal and uranium deposits.
The spillover benefits for the rest of the economy would be substantial. Now that visas are no longer impossible to get, as they were in my day, my Japanese and Chinese speaking trilingual son tells me that Ulan Bator has become the trendy place for American college grads fleeing unemployment at home.
Who knows? Give me a low enough PE multiple and I might even develop a taste for the country’s national dishes, sheep brains and fermented mare’s milk.
To see the data, charts, and graphs that support this research piece, as well as more iconoclastic and out-of-consensus analysis, please visit me at www.madhedgefundtrader.com . There, you will find the conventional wisdom mercilessly flailed and tortured daily, and my last two years of research reports available for free. You can also listen to me on Hedge Fund Radio by clicking on “This Week on Hedge Fund Radio” in the upper right corner of my home page.