Greetings from UlaanBaatar, Mongolia… the northern-most capital city in the world.
The gray skies have been spitting cold rain since I landed two days ago. CNN tells me this is the same weather pattern that broke the Chinese drought and killed 25 people in that country – not that I trust CNN.
This city isn’t built for such a deluge, and the water piles up fast and clear, overrunning the sidewalks. There is no place to walk, and the taxis take wicked pleasure in dropping a cold puddle bomb on my dumb American ass as I gingerly step past the lakes.
The days run together like a series of bad Japanese cartoons I remember from hungover Saturdays during my college years.
The flight took 31 hours, and the time difference is exactly 12 hours…
The clouds are the color of a midwinter suicide and, as the wealthy Kiwi’s here say, it’s been “pissing rain” since Korean Air Flight 857 squealed into the Chinggis Khan airport last week.
My speech yesterday was the highlight of the carnival, of course. I just told them what they already know – Mongolia is the best investment since the communists started trading company oil vouchers for vodka. Man, that was a time to get rich.
Most of the speakers here gave the talk you thought they would – all about the problems of frontier markets. CFO’s, bankers and government flacks never talk about the upside. Every problem they see is a price-moving catalyst as it is overcome.
Our favorite coal play is trading at $0.24 per pound of Newport quality coking coal. SouthGobi, its Mongolian peer, trades at $4 a pound. The open market for coking coal is running around $120 a ton for a full ship on the high seas.
Taking Coal to Peking
The Baltimore Sun recently ran an article saying the Port of Baltimore has doubled its exports of coal over the last year.
Dry cargo ships are stacked up like Nairobi traffic waiting their turn to load up. It’s incredible that it’s cost effective to blast coal out of a West Virginia mountain top, ship it to Baltimore, send it through the Panama Canal, and then over the great vastness of the Pacific to China; But they are doing it.
There are plenty of people who think the future of energy lies with nuclear power, wind or solar. They are fools. The real power of the future will be coal. And it will burn in India and China.
The Mongolian Dream
Everything I’ve told you about Mongolia is coming to pass. All four of the companies I’ve recommended have increased the size of their assets by simply having international companies audit their resources.
One company has increased its coal holdings by more than 300%. One oil company has increased its probable reserves from 614 million barrels to 1.8 billion barrels… And it still trades at a $350 million market cap. Unreal.
It should be a five billion dollar company.
And yet, inexplicably, these companies have sold off over the past three months. James Passin, the genius hedge fund manager of the Firebird Mongolia Fund, quipped that Mongolians believe positive news is a bad omen and will therefore sell all the positive.
It’s true the local market is immature, illiquid and naïve; But that’s all changing since the London Stock Exchange took over management of the Mongolian Stock Exchange (MSE).
Over the next two years, the MSE will become as advanced as any other major exchange and, in fact, will use the same systems (Oden help us).
The upside catalysts in Mongolia remain as strong as ever. The Chinese slowdown fears coupled with the increase in company assets mean the local stock market is as cheap as it was two years ago – before Crisis & Opportunity produced a 1058% return on one stock, and a 434% percent return on another.
Barring a macro shock, this market will run for 10 years. And even then, it will run for nine out of ten.
Editor, Energy & Capital