Unlike most of the world, Mongolia is in the middle of a stock market boom. Its main index was the fastest-growing in the world last year, up by 132%. It doubled in size again in the first three months of this year, before falling by 50%, but is still 50% higher than it ended 2010.
The stock market performance is being driven by the global commodities boom and by optimism in the potential of the country’s huge untapped mineral resources. They include the Oyu Tolgoi copper and gold mine, being developed by Ivanhoe Mining and Rio Tinto. The mine will begin commercial production in 2013 and will produce 450,000 metric tonnes of copper and 650,000 troy ounces of gold a year.
The Mongolian government has other major mineral deposits, including the Erdenet mining corporation, which produces more than 530,000 tonnes of copper a year; and the Tavan Tolgoi mine, which holds 6bn tonnes of coal, making it one of the world’s biggest untapped reserves of fuel.
The government intends to privatise both companies via the stock market. It has signed a deal with the London Stock Exchange to co-operate and gain the LSE’s advice on developing its own stock exchange.
Narantuguldur Saijrakh, general manager of Asia Pacific Investment Partners in Ulaanbaatar, said: “The deal with the LSE has given everyone a lot of confidence in the country’s stock market and its growing importance. The government really wants to do the privatisations properly this time and re-distribute the wealth properly. In the 1990s, the government conducted a voucher privatisation, but it didn’t work well. Some people burnt their vouchers, others sold them far too cheap, others held on to them, but still don’t realise they are worth some money.”
The privatisation programme, and a potential wave of initial public offerings, has generated a huge amount of interest in Mongolia among investment banks. Goldman Sachs and Deutsche Bank landed the mandate to conduct the Tavan Tolgoi privatisation from a field of 15 banks.
Alisher Ali, chief executive of Eurasia Capital, a central Asia investment bank, said: “We estimate that investment banks have generated over $210m in fees in the last two years from Mongolian capital markets, mainly from overseas listings like Ivanhoe’s listing in Toronto. We estimate that Mongolian companies, not including Erdenet or Tavan Tolgoi, will raise at least $3bn in three years.”
Exciting times for a small country with a population of fewer than three million, many of whom are still nomads. Eurasia Capital expects gross domestic product per capita to quadruple over the next decade. That’s as much a challenge for Mongolia as it is an opportunity: a challenge for the country’s parliamentary democracy, to manage such huge wealth fairly and transparently; and a challenge for the country’s nomadic people, to preserve what is valuable in their culture while managing and benefiting from the commodities boom.
Source: Financial News