The Mongolia Coal Mining Boom

Written By Christian DeHaemer

Posted November 20, 2009

When I was a young high school punk, I had the good fortune of attending Jim Peckham’s wrestling camp. Coach Peckham was the 1976 USA Olympic wrestling coach. He had cauliflower ears and a face that looked like he chased parked cars. He was a certifiable badass and left a lifelong impression.

Peckham taught me three things:

  1. You have to "earn the right to win," meaning you must work harder than your opponent works or you don’t deserve victory. This alludes to the deeper meaning that even inalienable rights must be earned.

  2. Wrestling is the world’s oldest martial art; the caveman that put his fellow man on the ground was the one eating the deer or getting the cavewoman.

  3. There are two great wrestling countries in the world: Iran and Mongolia.

In Iran, they fight until the loser "turns his face towards the sun, the moon, or the stars."

And in Mongolia, they’ve fought a massive tournament every summer for more than 800 years, going back to the armies of the world’s greatest warrior, Chinggis Khan.

National Hero

When I first met Dolgorsürengiin "Slippery" Sumiyabazar at the Mongolian BBQ in downtown Ulaanbaatar, I took notice. He had Peckham’s mashed-up ears and a game face that said he could take your head off.

Sumiya is a national hero. He won the traditional wrestling tournament in 2006 after finishing second for a number of years and is also Chairman of the Board for the National Investment Bank of Mongolia (NIBM), in addition to being an elected member of the city council and in charge of the budget committee.

In other words, he has accomplished more than most.

Modern Mongolia

The Mongolian BBQ is a modern restaurant, popular with foreigners as well as locals. When I sat down, I couldn’t help but notice that the 2004 wrestling tournament was playing on the flat screen TV over his shoulder. He turned around and said, "2004 was unlucky for me."

We waited about 15 minutes as the sword-wielding chef cooked up our choice of local grass-fed, free-range beef, sheep, goat, and horse, fried with vegetables. The choices included beef tongue and fatty lamb tail.

It was around the time we were digging into our plates when Sumiya showed up on TV. So I was looking at the man at the table, and looking at him again over his shoulder.

My host, the CEO of NIBM who goes by Bayar, pointed and said, "That is him!" Soon the entire restaurant of thirty or forty people was watching.

The Sumiya sitting at our table waved it off… a bit embarrassed perhaps.

Meanwhile, the Sumiya on TV in 2004 spun and executed a hip throw which launched both huge men through the air. They crashed down on the dusty Asian steppe with a lung-collapsing drop. And Sumiya was dancing the arm waving strut of the victor.

The crowd at the restaurant cheered and pointed. I asked Bayar if he had arranged this, and he laughed and said, "Maybe… maybe."

But much to my disappointment, Sumiya didn’t want to talk about wrestling. He wanted to talk about the budget, which is increasing from $2 billion togrog to $6 billion togrog. He wanted to talk about the new airport and the US$997 million he was spending to refurbish the old Soviet roads. He wanted to talk about the future.

World’s Largest Gold Mine

Sumiya told me the Oyu Tolgoi gold mine (O.T.) is what everyone is talking about, but it is just the beginning. For those who don’t know, O.T. is the world’s largest gold and copper mine by square miles and the fourth-largest by proven reserves.

Ivanhoe Mines and Rio Tinto just signed a deal with the Mongolian Government worth between US$4 and $6 billion. This deal was possible because the newly elected government just cut taxes from 68% to a 30% ownership stake.

This deal has opened the floodgates for direct foreign investment in resource-rich Mongolia.

But as Sumiya told me, it is just the start. Mongolia is landlocked between China and Russia… and this is a benefit. The government catch phrase is Mongolia is land-linked. China needs resources and Mongolia has them… and Russia has needs, too.

Great Business Climate

Mongolia’s business climate is so good right now, a start-up nanotech company named Wisdom Assets moved there from London to take advantage of the low taxes. The regular income and corporate tax is now a staggeringly low 10%. Wisdom Assets is a group of scientists with more than 22 patents, including some that use snake venom to thin blood.

The NIBM is acting as a consultant with a number of companies that are setting up shop in Mongolia.

CEO Mongolia
Caption: Christian DeHaemer, Orgilmaa Silzkhuu – Board Secretary and head Lawyer, and Bayarsaikhan "Bayar" Banzragch – CEO National Investment Bank of Mongolia, having drinks at the Chinggas Khan Irish Pub in UB.

One of the projects is a deal to build a $500 million real estate complex in downtown UB. The project will be built to world-class standards by a South Korean company. It will include a hotel, condos, and a shopping mall. It is being billed as a ‘green building,’ with solar panels and other environmental attributes.

Dolgorsürengiin "The Blue Wolf" Serjbüdee, Sumiya’s brother, is heading up the project. He was a renowned K-1 fighter in Japan; K-1 is similar to mixed martial arts in the U.S.


K1 Fighter
Dolgorsürengiin "The Blue Wolf" Serjbüdee – Sumiya’s brother and former professional K-1 fighter in Japan, future real estate mogul. Another brother, Dagvadorj, is the 68th Yokozuna of professional Japanese sumo wrestling, and one of only two currently in the world.

45 More Mines Pending

I had spoken earlier with Altanbaatar Chuluunbaatar, Head of Registration and Service Division at the Geological & Mining Cadastre Department. He was among the government people who negotiated the O.T. deal.

Mongolia has vast reserves of high-quality coal and is lucky to share a border with the largest coal consumer in the world. This makes Mongolia a major force in the global coal market. Mongolia will play a growing role in powering China’s heavy industries and electric coal-fired generators.

Altanbaatar told me that right behind O.T. is Tavan Tolgio (called T.T.), a huge coal deal between the state-owned Mongolia coal company and a short list of bidders.

T.T. is a coal mine located 40 kilometers from the Chinese boarder and in close proximity to a rail line. With 6.5 billion tons of coal, T.T. is said to be the largest undeveloped coal deposit in the world.

The short list of bidders for the coal project includes BHP Billiton (BHP), Vale S.A. (VALE), Peabody Energy Corp. (BTU), India’s Jindal, and China Shenhua Energy Co. Ltd. (1088.HK).

Tom Albanese, CEO of Rio Tinto, says of the supply in this part of the world: "Coal from Mongolia to China is happening. It is expanding, probably doubling every two years."

And Mongolia also has vast hoards of uranium, copper, and rare earth minerals. Altanbaatar told me that there are 15 known resource deposits that may be equal to O.T. and T.T. There are another 30 that have been explored by the Soviets, but not by modern seismic equipment. These may also be major fields.

As I write this, a government report on these potential mines is being translated for me from Mongolian to English. Soon I will have the only English translation of these vast resources…

It is still early in the game, but word is leaking. I just heard an analyst on Bloomberg talking about the Mongolian mineral boom… though he was recommending the $90 billion Rio Tinto, whose Mongolian assets are maybe 3%.

First on the Ground

I was told by more than one person that I was the first foreign journalist that they had talked with, and therefore they rolled out the red carpet. I was lucky enough to have tremendous access to major players. A year from now… everything will be different.

After talking with government officials, the major players in the investment bank, the owner of the largest brokerage in Mongolia, head of the Mongolian Stock Exchange, and interviewing about seven CEOs… I probably know more about the Mongolian opportunities than all but a handful of other foreigners.

I am analyzing the information for the best way to play the coming investment boom. There are companies that trade in New York, London, Toronto, and Hong Kong that will surge. There are also a few on the Mongolian Stock Exchange with tremendous value — including one that trades with a P/E of one.

The timing couldn’t be better. The next two years will see tremendous growth.

Commodities will be where the money is on the horizon. I believe this, and my colleague Ian Cooper has been telling readers this very thing for some time now, too. In fact, his latest rare earth metals play is shaping up to be wildly profitable…

I greatly admire these young, hungry Mongolian businessmen. There are few places with more opportunity. To be young, educated, and a native Mongolian is, at this time, to be on the precipice of greatness.

You should come along for the ride. Look for my free report in your inbox on January 1, 2010.

Until next time,

Christian DeHaemer

Energy and Capital

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