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  Mongolian Investment Banking Group LLC 7 Oct, 2013      
     
  MARKET ANALYSIS
Weekly Mining and Political Analysis from MIBG in Ulaanbaatar
 
     
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COVERAGE THIS WEEK

Legal – New Investment Law: Boom or Bust Depends on Details

China – Xi Jinping Continues to Strengthen Asian Ties

Securities – Mongolian Market Cap Monitor


     
 

Legal – New Investment Law: Boom or Bust Depends on Details

The Government of Mongolia approved a new Investment Law and a new Investment Fund Law last week. Both pieces of legislation should prove essential in further developing the domestic capital market and in attracting foreign capital back to Mongolia. While this may seem like old news, questions still remain. The Government has yet to release the final draft of the law that was accepted by Parliament. Speculation is already building as to what the law will exactly look like and to what extent changes have been made. Sources close to the issue have suggested that amendments could total anywhere from 50 to 75 based on the original draft that was reviewed in May of this year.

If the key issues facing foreign investors have been resolved we believe that the new legislation will provide an incredible foundation for economic growth. In reviews that MIBG has previously conducted we have outlined those issues and the changes that the draft legislation has proposed in order to resolve these concerns.

The key changes that we have discussed previously include:

1. Removal of all discrimination against foreign investors

2. Provision of economic and legal stability

3. Removal of “Sectors of Strategic Importance”

4. Defining foreign investors as private and State Owned

5. Provision of tax stability for investments

6. Introduction of a Mongolian investment agency

We feel that as long as these changes have been upheld by Parliament the legislation will provide the catalyst that the economy requires to regain its luster. Needless to say, the past two years have been devastating for the Mongolian economy – with a 42% drop in foreign direct investments and a 23% fall in the currency, 2013 has been troubling for foreign and domestic companies alike.

Unfortunately, this cycle is not entirely new to Mongolia. In fact it is very similar to the period ending in 2009 when the Government of Mongolia repealed the Windfall Profit Tax of 2006. During that time the Government introduced the highest windfall profit tax in the world and watched as foreign investment and mining companies left the country. Similar to today, the changes that were made to key legislation provided a strong foundation for future growth. The outcome was the beginning of the largest economic expansion in the nation’s history and a resurgence of Mongolia’s exploration and mining industry.

While predicting the start of a boom cycle in a frontier market seems fatal, we do feel that most signs are pointing in that direction. The legislative environment and the financial constraints on the Government of Mongolia are ideally positioned for a major upswing and depressed prices across both publicly listed and private entities are providing lucrative. While the conditions are obviously different to those that we saw in 2009 we feel that a similar growth period is right around the corner.

 
 

China – Xi Jinping Continues to Strengthen Asian Ties

Chinese president Xi Jinping has arrived in Bali on October 5 to attend the 21st informal economic leader's meeting of the Asia-Pacific Economic Cooperation (APEC) organization. This APEC meeting is the first that Xi Jinping has attended since he assumed the Presidency. However, he is placing a great deal of importance on the sessions and has planned a number of meetings with the leaders and representatives of other Asian nations.

Before arriving in Indonesia, Xi Jinping visited Malaysia to meet with the Malaysian Prime Minister, Najib Razak. Both leaders delivered what were seen as important speeches as they agreed to upgrade the “comprehensive strategic partnership” between the two countries. During his speech, Xi stated that this partnership will benefit the entire region as the two countries aim to reach $160b in bilateral trade over the next five years.

China’s President is not the only representative making rounds in Asia. Between the 9th and 15th of this Month China’s Premier, Li Keqiang will attend the East Asia leaders meeting and plans to visit Brunei, Thailand and Vietnam. We believe that the enthusiasm currently demonstrated by China represents a growing desire to strengthen their influence, particularly among other Asian nations. This demonstrates a renewed understanding that China needs solidify its relations with other economies in the region in order to reach its long term development goals.

 
     
     
  Mongolian Market Cap Monitor  
     
  The following charts depict the week-on-week change in market cap for the main juniors and producers involved in the Mongolian mining sector.  The data being used is based on the Friday close from the previous two weeks and is presented in USD.  
 

Weekly Change in Market Cap - Mongolian Juniors


Weekly Change in Market Cap - Mongolian Producers


 
     
 

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Securities Broking

MIBG offers a comprehensive suite of brokerage services for domestic and foreign clients looking to trade on both the Mongolian Stock Exchange and on major international exchanges.

 

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MIBG is a dedicated provider of corporate financing and capital market transactions for the mining and resources sector. Delivering world class services for both Mongolian and International entities looking to initiate their business domestically.

Research

MIBG research delivers both sector and equity coverage for mining and resources in Mongolia. The research team also publishes timely sovereign, economic and political commentary highlighting key developments affecting the Mongolian investment environment.

Important Disclosures

The opinions and/or views expressed in this publication accurately reflect the personal views of the responsible author(s) and do not necessarily represent the official position of MIBG (Mongolian Investment Banking Group) LLC. The securities, products, projects, or private entities discussed in this document are presented for informational purposes only and do not constitute an offer, solicitation of an offer to purchase, hold, sell, invest or make any other financial decision. In making decisions, investors may rely on their own examinations of the parties and risks involved.

The directors, management, and/or employees of MIBG LLC advise that they may hold shares, have an interest in, and/or earn benefits either directly or indirectly from the securities mentioned in this publication.

MIBG is a registered Broker, Dealer, and Underwriter with the Financial Regulatory Commission (FRC) of Mongolia. Enquiries regarding this and any information published by MIBG LLC should be directed to research@mibg.mn for all other enquiries please contact info@mibg.mn.

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