Capitalist Exploits's picture

Originally posted at

By: Chris Tell

In 1997 the Congo, known formerly as Zaire, was in the midst of an all-out blood spilling, slaughtering, raping, no-holds-barred war. Few investors were brave enough to put not only their capital on the line but certainly their own precious selves too. In May of that same year Laurent Kabila rolled into Kinshasa and declared himself president.

The Congo, or Democratic Republic of the Congo (DRC) as it has since been named, is one of the most resource rich countries on the planet.

An intrepid investor by the name of Dan Gertler hit town shortly after Laurent Kabila's taking of Kinshasa. Gertler swiftly embedded himself with the young army general Joseph Kabila, Laurents son.

Gertler took his personal fortune, apparently made from trading diamonds, and invested it in the country. Specifically, he outlayed $20m in cash to obtain a monopoly on the DRC's diamond mines. Pretty ballsy considering that the country had just experienced the world's deadliest conflict since WWII.

Fast-forward a bit, and after doing deal upon deal in the country Gertler's fortune is estimated to be $2.5 billion today.

Sweetheart deals? Sure you bet. Nobody else was there to make them, so it's not like he was fighting tooth and nail amongst a group of NY hedge funds or TA guys who thought the squiggles on the chart looked good.

Dirty? Probably, I mean who wants to finance child soldiers, ethnic genocide and butchering of innocents?

(Side note: Our good friend Harris Kupperman wrote a great article on the subject of investing in Africa here. Having grown up in Africa and understanding what he went through it made me laugh. In any event his conclusion was that no investment is worth dying for. Instead Harris is hunkered down guessed it, Mongolia.)

So what's the take-away?

I love history, and this is shows us a path to fortune and/or poverty. In the midst of it our task is to seek the former and avoid the latter. An important take-away from this story is that when circumstances of deep value present themselves the fortunes go to the bold. Stupendous fortunes in the case of Dan Gertler.

Mongolia - On the other side of the world and endowed with similarly vast resources.

Right now the Mongolian government has just completed elections bringing a certain level of closure to a group of posturing politicians (are their any other kind?)

I think that capital will begin returning to Mongolia again. Remember that in late 2012, while political uncertainty was high the government managed to close on a bond issuance which, I dare say made no sense to me. Investors were 10 times oversubscribed and bought a US$500 million five year tranche for 4.125% and $1 billion tranche yielding 5.125%. It just goes to show how yield hungry investors really are to take such risks. Nuts in my book, but hey what do I know?

As long as QE remains...and lets face it the good Chairman and his ilk at the BOJ and ECB can't stop feeding the junkie now that he's hooked. Withdrawal will be too painful, and political will and pain don't really go hand in hand now do they?

The Mongolian stock market has been under pressure most of the last 6 months and the tugrik has cooled.

Excellent we can't go straight up forever. Let's not forget that 2010 saw the MSE lock in 121%; 2011 saw it up 73%. This is of course nothing compared to some of the gains in individual stocks.

Looking at the fundamentals in the country and its history of political flip-flopping over investor issues, I have to say that this smells of opportunity to me.

Let's make a few comparison between the aforementioned DRC and Mongolia...


  • Widely considered to be the richest country in the world in natural resources. Estimates of its untapped bounty run to around US$24 trillion.
  • Per capita income $120.
  • Ethnically fractured, with over 250 identified ethnic groups.
  • Population - 71 million.
  • The political and legal infrastructure is in disarray.
  • The country is still at war in various regions.
  • A long and unhappy history of war and brutal dictatorships.
  • Unhappy and unfriendly neighbours.


  • Resources...yeah, they have them too... Ooh boy do they have them. We've discussed this before, here, here and of course here. We even enlisted a young graduate to come cut his teeth in the place.
  • Per capita income $3,100 (2011).
  • Ethnically homogenous.
  • Population - 2.8 million.
  • a much more developed financial economy.
  • 20+ years of stable democratic government.
  • a functioning political and legal system.
  • Good relations with neighbours.

Mongolia isn't the DRC to be sure, however there are some similarities. it's resource rich beyond measure, and it poses some risks. Mark and I've made a bunch of money by buying when perception doesn't meet reality. Read through any history book, look at the charts and the valuations and you'll see that this clearly is the way to make a fortune.

It's why we're in Fiji right now, and its why Mongolia is even more exciting to us today, because of and despite the turmoil, than at this time last year. Fundamentals are in fact better today while valuations are lower.

Back to the Democratic Republic of the Congo for a second...

First, it's far from democratic, nor is it a republic. I've argued before in these musing that democracy is not what is needed for prosperity. There are fundamental reasons that some countries are prospering while others are blowing up, and these fundamentals have little to do with political freedom.

Mongolia, the DRC or any country for that matter doesn't need a democracy to prosper. Democracy may be a better political framework than some others, but the nuances are so varied that using the term broadly typically leads to confusion. Should we really compare India's political democracy with that of Switzerland? I think not.

A year ago Mongolia was hot. Today it's Myanmar. Scott wrote about this in "Mongolia - Where did everybody go?" We really don't want to be buying when Tom, Dick, and Harry are buying, or when Hillary Clinton is making the rounds. At the same time you don't want to be catching falling knives.

The question is therefore, this: are we catching a falling knife by buying into Mongolia right now?

Nobody knows for certain and those who say they do are liars, charlatans or politicians, but I repeat myself. In fact, any time I read an analysts opinion loaded with certainty, especially those on the sell side I just think "wow what an intellectual dimwit".

The fact is one needs to research diligently, look at valuations and play the risk/reward game intelligently. We're personally stepping up our hunt for deals...hopefully our timing is right. We'll just have to see.

I needn't point out that nobody pays us to be bullish or bearish on anything; we get paid when we're right.

Oh, one last thing...

I know I just spent a well of ink telling you about the resources in the DRC, Mongolia and a bit about Myanmar, but these are not resource economies.

"Of course they're resource economies Chris...what are they putting in your oatmeal?"

I don't think so! They are foreign capital inflow economies. Foreign capital comes flooding in, in anticipation of them becoming fully-fledged resource economies.

Consider that OT has yet to really begin full blown production. Ditto hundreds of other current projects in Mongolia. Myanmar - no different. It will be some years before production of many projects either begins or scales up to a stage where it becomes meaningful. Australia, those are resource economies.

Nevertheless, Mongolia for our money is a speculation worth making

- Chris

They need people like us, who come and put billions in the ground. Without this, the resources are worth nothing." - Dan Gertler

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
shovelhead's picture

Long Congolium miners.

No wax floors to make a comeback.

Hongcha's picture

Thank you for a very interesting article.

Both Mongolia and Myanmar are or will end up Suzerainties to the People's Republic of China.  The PRC is the only country that still knows how to colonize and you'd best believe they are interested in arable and un-destroyed land at this point. 

We were in Myanmar in 2005 and it was breathtaking how untouched it was.  We were nine hours on a ferry on the Irrawaddy and looking ashore did not see a single paved road, motor vehicle or billboard.  I believe I am not going to go back - just leave it that way in my memory.  Of course, it was unspoiled because it was oppressed, a great irony.

Yet another great and related irony is Aung-San's freedom; probably won at the cost of having to deal with Chevron and the definite cost of opening the floodgates for Thai-style exploitation and overbuilding.  Cue waves of lobster red and pink Russian tourists and kiss it goodbye.

Panafrican Funktron Robot's picture

Ownership of a nation's natural resources is subject to your regulatory capture skillset.  In the absence of USD hedgemony, Mr. Gertner's fortune could be reduced to dust in a hurry.  China is thusfar proving to be a better partner for African nations, and as much as Mongolia has been fiercely independent vs. both China and Russia historically, I'm not sure they wouldn't go along with what they're selling if the west doesn't play nice.

lakecity55's picture



mess nonster's picture

some countries are prospering while others are thriving

so my question is...

is thriving better than prospering, or is it better to prosper, rather than to thrive?

Im sorry, what panet do you live on?

Element's picture

Take a walk down memory lane and look at what smart investors were saying about buying real resources, commodities, primary productive capacity in food and farming from Sept thru March 2012 when it was fresh-news that we were likely going into a 10 to 30 year cycle of global recession(s), currency collapse(s) and exteneded depression(s). Many people were saying just that.

And is it ever wrong to have that stuff?

Maybe if you're nervous, impatient and fickle, and count price to earnings in pure fiat terms.

I'd rather have the resources over paper promises any day when the shtf though.

And so would Japan, China, and India.

And the world will be reminded of this again ... and quite soon.

tango's picture

But these investers and investments always look good after the fact.  It's like profiling - 90% of it's use is after a crime is committed.  What we don't hear about are the dummies who made the wrong decision, backed the wrong faction in the wrong country for the wrong resources.  We hear repeatedly that hard resources are the key yet the big money is made in the financial machinations surrounding these products.  This has happened so many times as to become commonplace.  

Arnold's picture

Sucessful accomplishment makes good reading.

Study failure for the real lesson.

Class dismissed.

You all get full credit,as soon as that student loan is Paid in full.

Element's picture

Who said there's no risk involved in reward?

Start a business and at best it's a 50:50 chance of going broke.

If you can't live with that you don't go into business.

Same with investing.

As opposed to mere financial paper skimming, as 'trade' ... which is not what I spoke of ... as that sort of 'trading' is as real to trading in stuff, as debt is an equitable proxy for a real material asset.

Solitary words converted to perfectly integrated lies ... doncha just love how they do that? ... you refer to the double-speak term, while I refer to the real thing, itself. The BS of financialism doesn't survive when you just call things what they really are. Speak directly and honestly to any financializer about their 'product' (another of those perfectly integrated lie words) and they'll run away from you as fast as they can concoct an excuse to exit the conversation ... and that's pretty fast.

falak pema's picture

you put in billions in borrowed money at ZIRP and take out trillions in organised mayhem using local henchmen who ensure that no LOCAL development occurs in "dark africa" for the autonomous african people. What's new ?

Its been that way since the 1600s when the slave trade began towards the new world colonies.

Why nurture humanity when you can rape it?

After all, our religion is profit not elevating man. Galapagos for them! 

shovelhead's picture


Africans are helpless little children that can't count and simply wait around for evil Whitey to come and steal all their marbles.

I'm sure they appreciate your patronizing attitude, which incidentally, is not really different than the Euro-colonialist mindset.

Corruption of the ruling class that hold power is the main reason African societies can't flourish with their natural resources, not because they need outside investment and expertise to unlock those resources. Crooked companies that exploit resources and labor can't exist without crooked leaders who allow them to operate.

A failure of leadership is not to be confused with a failure of capitalism. The capital will come but it's the leadership who will decide if it will go to roads, schools and hospitals or to Switzerland.

That ain't evil Whitey's job.