The Biggest Coking Coal Deal Ever Offered

Written By Christian DeHaemer

Posted June 9, 2011

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I’m off to Mongolia again in ten days. I’ll be presenting at the Firebird Fund Mongolian Junket.

I’d like to share with you an e-mail I received recently:

Dear Mongolia Junket Attendee:

If you are attending the tourist portion of the conference, please elect one of two following activities:

1. AK-47 and sniper rifle target practice, or

2. Tank driving and live firing exercise (As the tank is a 15 m drive from firing range, it is impossible for an attendee to do both).

This is part of why I love doing what I do.

Of course, I picked the second choice. I can shoot a AK-47 in my backyard, but how often do you get to drive what The Military Channel ranked as the number one tank ever built?

In fact, Mongolia fought with the Soviet Union in the largest tank battle in history against the Japanese in 1939. The Battles of Khalkhin Gol were so horrific that the Russians and Japanese ignored each other for the rest of WWII.

Forget the Tanks

But it’s not old battle scars I mean to pick.

No, I’m enduring the 25-hour trip halfway around the world for only one reason…

Mongolia is about to become the greatest investment story of our lifetime.

Let me give you one example.

In the next year, there will be a Mongolian energy IPO that will make headlines around the world and increase the wealth of the average Mongolian by a factor of 53.

This company is known as Erdenes-Tavan Tolgoi, or Five Hills Ltd. It is commonly referred to as TT, though it has yet to begin operations. That isn’t stopping Goldman Sachs and partner Deutsche Bank AG from doing the IPO…

GS and DB are excited because TT has a massive deposit of coking coal. In fact the 6.4 billion metric tons is the world’s largest untapped deposit.

Real Wealth

As I write this, the Mongolian government is looking for an operator. It will likely be a large, multinational corporation.

The last successful Mongolian IPO was Mongolian Mining Corp., which was offered up in the fall of 2010. MM’s IPO was listed in Hong Kong and raised $651 million. At the time, it was Mongolia’s largest privately-held producer and exporter of coking coal.

Coking coal is important because you need it to make steel.

TT will be even bigger, and is expected to raise as much as $10 billion. Here is where it gets fun…

The government has given each of its three million citizens 538 shares, or 10% of the company. At $10 billion, the shares would be worth $360 — or $193,680 per citizen. According to the CIA’s World Factbook, Mongolia had a total GDP of $11.02 billion in 2010. Per capita income was $3,600.

In other words, Mongolians will suddenly be rich.

The Mongolian stock exchange will reflect this new wealth as everything from services to retail to real estate see a surge of buying.

But this is just the start.

Coal isn’t the only thing Mongolia is blessed with. The country has copper, gold, uranium, and rare earth elements. International Monetary Fund predicts Mongolia’s annual economic growth will jump 23 percent in 2013 as mining projects begin production.


China and India to Double Coal Imports by 2015

According to Reuters, China’s thermal coal imports could rise to 200 million tonnes by 2015 up from 90 million tonnes in 2011.

India’s coal imports are expected to rise to 100 million tonnes from 67 million tonnes over the same time period.

Despite this projected growth, the recent tsunami in Japan has pushed coal prices down. The Australian coal index, globalCOAL, dropped from $140 a tonne in January to $119 a ton last week. Many Mongolian coal producers have dropped in price as well.

This looks like a great entry point on one of the clearest trends in the world.

Coal demand is surging. Mongolia has a lot of it.

My Crisis and Opportunity portfolio current holds three Mongolian coal mining companies. If you can ride through the short-term volatility, these are stocks that could make your retirement.


Christian DeHaemer
Editor, Energy and Capital

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