Mining in Mongolia, the new Afghanistan?
For those of you who have already perused today's Financial Times, you may have noticed the analysis they've done on the current state of mineral wealth in Mongolia. While the country is off the radar of most people, with only a third of its territory being mapped in detail, it may prove to be one of the most lucrative source of precious minerals in the world.
Long before Genghis Khan raped and pillaged his way through central Asia, large mineral deposits have been lying beneath the surface of the country, and to this day have remained relatively untouched. Since breaking away from the Soviet Union after its collapse, more information regarding exactly how profitable mining the country has surfaced. Currently all the big players in the industry such as Rio Tinto, Peabody, and Shenhua have been pouring massive amounts of capital into R&D and are gearing up to break ground.
However, now that the country is an effective democracy, with a government sensitive to the people's demands, a large bureaucratic obstacle has been halting progress. The people want to ensure that profits benefit them, and dont just go strictly to large foriegn corporations, which of course is understandable. Unfortunately these concerns have produced somewhat of a stalemate that is delaying efforts to begin mining.
So <abbr title="Wall Street Oasis">WSO</abbr>, how do you see this playing out? Do you believe China will find a way to monopolize mining and control an even greater percentage of the worlds precious minerals, or do you think that western corporations stand a chance at getting in on the action, which would produce a higher volume of M&A opportunities that would benefit both the monkeys looking to break into <abbr title="investment banking">IB</abbr>, as well as those currently employed in <abbr title="investment banking">IB</abbr> as well as PE?
TL;DR bulletpoints:
*Mongolia has a bunch of minerals ripe for the taking. Rivaling even Afghanistan.
*The country borders China which gives them the upper hand.
*Bureaucracy in Mongolia is impeding progress, but the potential for profit is too great for this remain an obstacle for too long.
*Senior guys in PE, and IB, though you probably already are aware of this development, I thought id bring it up for further discussion, as the potential for a new source of deals is significant.
Source: Financial Times, Thursday June 28, 2012. Pg. 7
I used to work with Chinese companies and have taken a look at a few Mongolian companies (not necessarily in mining).
Here is another article from the Economist: http://www.economist.com/node/21543113
The politics is the biggest risk factor by far. It was only a few months ago that the former President was arrested on corruption charges. Corruption is common (and a cost of doing business in China) so if you want to succeed I think you'd need to know whose hands to get your money into.
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