Mongolia, More than a Gold Rush

For the first time in history, the world of international finance sees Mongolia with increasing appetite. A 3M – people country, landlocked in east Asia with ⅓ of its population still nomadic, draws the attention of bankers and investors. The reason is quite simple: its soil is resource rich, with immense deposits of gold, uranium, gold, copper, molybdenum, zinc, silver, and lead. Its mines are vast and untapped.
The Government decided to sell its jewels and international bankers are flocking to the capital Ulan Baatar. Last January, the London Stock Exchange signed a “strategic partnership” with its Mongolian counterpart, founded only in 1991 and still one of the smallest in the world. Even if unusual, the news is explained by the recent agreement LSE signed with the Canadian Tmx, to gain extensive control of the mining companies’ trade.
One month later 150 executives of 18 top investment banks flew to Ulan Baatar for interviews. The Mongolian Government wants to sell 49% of its most precious asset, Erdenes Tavan Tolgoi. The State company owns the biggest (or the second biggest after the Chinese Shengli) coal mine in the world. Located in the Gobi desert, 200 km away from the Chinese border, it is estimated to hide 6.5 bn. tonnes of reserves.
After the first talks, Ulan Baatar has shortlisted 4 potential partners: BNP Paribas, Deutsche Bank, Goldman Sachs e Macquarie Group. They will compete to manage the company’s Ipo. Uncertainties on the size and value of the future deal did not discourage the negotiations. A political issue lingers on the business, since the Government promised to distribute 10% of the shares, to be eventually listed in Mongolian Stock Exchange, among its citizens. The other shares to be sold will be listed in Hong Kong and London.
Another question is the construction on the infrastructure, since the existing one is largely obsolete. The final destination of a new railway line, either China or Russia, has political implications. The choice of a friendly neighbour might convert the other one in an enemy.
History taught unforgettable lectures. China is currently Mongolia’s biggest trading partner, but it is perceived as an aggressive power . If next elections, to be held in June, will confirm the ongoing administration, listings might take place as early as the beginning of 2012. Likely, the international prices of minerals should stop their rising. For Mongolia, an often neglected country, victim of an infamous climate, this financial operation will mark its full access to globalization.