ULAANBAATAR, Mongolia — Mongolia’s new prime minister wants to pursue an initial public offering of the country’s state-owned mineral assets on an international stock exchange as a way to generate more money from natural resources that have recently attracted a flood of foreign investment. View Full Image MONGOLIA Government of Mongolia Prime Minister Batbold Sukhbaatar said it was time for Mongolia to begin thinking about a move to international financial markets.
In an exclusive interview, Prime Minister Batbold Sukhbaatar said the government is studying the possibility of setting up three companies, one that would hold the mining assets, and another each for energy and infrastructure holdings. While he spoke mostly of listing the mineral assets, he also said separating the assets into different holding companies would give the government “different tools and instruments to bring to the international financial market,” suggesting all might eventually be candidates for IPOs. He said his government would first seek to list the assets on an international exchange such as London, New York or Hong Kong, and then on Mongolia’s domestic exchange. “People ask the question, ‘why we are sitting here, sitting on our mineral resources doing nothing, whilst others do get the benefits of these resources by bringing them to the international financial markets, especially the foreign companies,'” the 46-year-old Mr. Batbold said, speaking at the Government Palace in Mongolia’s capital, Ulaanbaatar.
He said those companies were “doing a good promotion of Mongolia,” but “now is a good time to think about our own approach, our own move to the international financial market.” The possible IPOs signal that Mongolia’s government wants to enjoy more of the possible upside from its mineral riches even as it is keen to signal openness to foreign investment and expertise. Mongolia, a landlocked nation more than four times the size of Germany but with only about 2.6 million people, has recently become a focal point of interest from investors that see huge potential in its largely untapped mineral and energy resources. Making it especially attractive is Mongolia’s proximity to fast-growing China, a ready customer for the country’s iron ore, copper, coal and other commodities.
Mr. Batbold, a prominent businessman and former foreign minister, took power in October after his predecessor, Bayar Sanjaa, stepped down from office in October for health reasons. Earlier that month, Mr. Bayar presided over the signing of a landmark $4 billion mining deal with Rio Tinto and Ivanhoe Mines Ltd. to develop a giant gold-and-copper deposit in the Gobi Desert. That deal now sets the stage for a host of other resource projects awaiting government approval to move forward. Together, the projects, which include plans to mine uranium, iron ore, silver, gold and copper, could potentially transform Mongolia’s tiny economy. However, there are also widespread concerns that the rush to exploit Mongolia’s resources could worsen an existing corruption problem and damage the environment. In the next major project set to move ahead, the government intends to sell a stake of up to 49% in the Tavan Tolgoi coking coal mine, potentially raising billions of dollars. Mr. Batbold said he expected a proposal for developing Tavan Tolgoi to be submitted to Mongolia’s parliament by the first half of 2010, after which discussions with potential investors could begin in earnest. Mr. Batbold noted some of Mongolia’s neighbors, including China, Kazakhstan and Russia, have successfully brought state-owned resource giants to the global stock markets. “We should learn from others’ good experience.”
In a recent speech, he noted that China Shenhua Energy Co. Ltd., Aluminum Corp. of China, and Brazil’s Vale SA are all examples of state-owned companies that have gone public and become top global corporations. Share offerings would be a major source of revenue for the government and would also improve corporate governance of the companies, Mr. Batbold said. Meanwhile, public offerings of the new companies in Mongolia would also help promote the development of the local stock exchange. Mr. Batbold said his government plans to start the process for these listings next year, and would seek advice on where to list from investment bankers that work with them. Balancing the interests of its two immediate neighbors, Russia and China, has always been a major challenge for Mongolia.
Historical ties to Russia are strong from Mongolia’s days as a former satellite of the Soviet Union. Many top Mongolian leaders, including Mr. Batbold, studied in Russia. He also attended school in the U.K., and speaks English fluently. But China has become an increasingly major economic force, both as Mongolia’s largest trading partner and its largest foreign investor. In two recent deals, China’s sovereign wealth fund, China Investment Corp., agreed to invest a total of $1.2 billion in companies producing coal and iron ore in Mongolia. That’s a significant sum for a country with a gross domestic product of about $5 billion. Mr. Batbold said that “we see China as an opportunity,” and that “we would welcome fair and competitive investment from any countries, including from China.” However, he also said Mongolia “would very much welcome balanced interest and balanced investment” from a number of countries.
He noted Mongolia considered the U.S. “a very strong strategic partner for Mongolia,” and expressed gratitude to the U.S. “for supporting Mongolia’s changes to the democratic system and the market economy” from the very beginning of those changes. On Thursday, Mongolia is commemorating the 20th anniversary of the protests that ultimately led to a peaceful transition to democracy after the fall of the Soviet Union.