Dalanzadgad is the capital of the South Gobi province and fastest growing provincial capital in Mongolia.

Our Firm (Eurasia Capital) estimates that the population of Dalanzadgad will quadruple in the next five years and by 2015 this town will enjoy the highest GDP per capita in Mongolia. South Gobi is home to two crown jewels of Mongolia: Tavan Tolgoi, the world’s largest untapped coking coal deposit and Oyu Tolgoi, the world’s largest undeveloped copper & gold mine.  We anticipate Dalanzadgad becoming a regional center for dozens of mining companies and hundreds of firms in multi-billion dollar mining supply chain.

FYI, Erdenet, the second largest city in Mongolia has estimated US$6,400 GDP per capita, the highest in Mongolia.  Erdenet is the capital of the Orkhon province, founded in 1975 as a new industrial center after discovery of the world class Erdenet copper mine in 1974. Erdenet is home to Erdenet Mining Corp., Mongolia’s largest company, biggest taxpayer and exporter, and accounts for 13% of the country’s GDP.

Source: Eurasia Capital

Below is a text from a newsletter I recently received from Eurasia Capital.  It is true that Japanese have been one of the most active early investors in Mongolia.  While investments from China today make up for around 80% of foreign direct investment (FDI) in Mongolia (according to some resources), Japan is still a significant presence here in Mongolia.  Enjoy reading.

Eurasia Capital: Japan and Mongolia: “Rising Sun” Looks for “Bluer Sky”

Towards strategic partnership. Japan, Mongolia’s fourth largest trading partner, is seen by the Mongolian Government as an important player for the development of the resource-rich country. In order to reduce its reliance on its two neighboring superpowers, China and Russia, Mongolia is seeking a “strategic partnership” status with the world’s third largest economy. Japan has been supporting Mongolia since the early 1990′s by providing extensive financial and technical assistance worth over US$1.3bn and helping in key aspects of democracy and transition into a market economy. Currently, Japan is actively involved in assisting in developing rural areas, protecting the environment, improving infrastructure, supporting SMEs and developing institutional and human resources in Mongolia.

Early investors. Japanese companies have been one of the early investors in Mongolia. During 1990-2005, more than 220 Japanese companies invested over US$100mn in various sectors in Mongolia including in textiles, telecom, banking and property. The prominent investments are:

• Gobi cashmere factory, the largest cashmere producer in Mongolia
• MobiCom, the first and largest mobile operator
• Khan Bank, the largest commercial bank by assets, majority-owned by the Japanese Sawada Holding Company
• Large Japanese trading houses, such as Marubeni Corp., Sojitz Corp. and Itochu Corp. have recently reached agreements with mining companies in Mongolia to sell coal to international markets and have expressed interest in developing the Tavan Tolgoi coal mine, and
• “Four Seasons Gardens” (also known as Japan Town), being developed by Suruga Mongol LLC, a construction company established with 100% investment from Japanese Suruga Corporation.

Uranium initiatives. Being the world’s third largest uranium consumer, Japan is interested in sourcing uranium from Mongolia which is estimated to hold one of the world’s largest reserves. Seeing this opportunity, the Japanese companies are active on the uranium sector in Mongolia. For instance, Marubeni Corporation signed a letter of intent with Khan Resources Inc. related to exploration and mining of Dornod, Mongolia’s largest uranium deposit. The two countries signed an agreement on joint uranium development during official visit of the Mongolian Government to Japan in July 2009.

Mongolia to become rare earths supplier. With China, which controls nearly 97% of the world’s rare earth production, cutting back exports and, in the case of Japan, ceasing exports altogether, pressures are rising for businesses and governments worldwide in search for alternative sources. The Japanese and Mongolian governments have recently announced their intention to jointly explore Mongolia’s rare earth production potential, and the Japanese government has set up a US$150mn fund to help finance the search for substitutes for rare earths.

We believe Mongolia represents a unique opportunity for Japanese investors due to strong political support, favorable economic environment and attractive investment projects. We hold optimistic view that although moderate now, Japanese investments in Mongolia will increase as investors seek to capitalize on the expected boom in this resource-rich country. We expect increased interest from Japanese investors in Mongolia-listed stocks. Investors will seek to capitalize on massive growth as the Mongolian capital market, fuelled by a number of IPOs and additional share offerings, is set to continue to expand rapidly. Apart from Mongolian equities, two sectors in particular – banking and property will also offer high return opportunities to early investors from Japan as well as other countries.

To download full report please go to www.eurasiac.com

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Eurasia Capital is a Hong Kong-based pan-regional investment bank with focus on Mongolia, China, Russia and Central Asia.  The Firm offers cross border M&A and advisory, capital raising, sales & trading and research services to its international and regional clients including government agencies, major energy and resource companies, sovereign wealth funds, private equity groups and global portfolio investors. www.eurasiac.com

Hong Kong-listed Companies as Major Acquirers of Resource Assets in Mongolia. Over the last 12 months, Mongolia has become an attractive investment destination for the companies listed on the Hong Kong Stock Exchange (HKEx). Attracted by the country’s huge mineral resources, the HKEx-listed companies have become the biggest acquirers of Mongolia resource assets since the second half of 2009 ($966mn worth of M&A deals or over 90% of total). 

Asset Injections

All recent Mongolia M&A deals in which Hong Kong companies were involved have been completed through injections of resource assets into the existing publicly listed companies. Before acquisitions, these companies engaged in a diverse range of activities and industries including agriculture, waterworks, IT, clean tech, plastic products and even manufacturing of toys and gifts.  Following acquisitions, these below HKEx-listed  companies are now primarily Mongolia-focused resource companies:

• Bestway International Holdings (0718:HK), an investment holding company engaged in trading of plastic products, has acquired two tungsten mines in Mongolia for HK$940mn (US$121mn) in July 2009
• North Asia Resources Honldings Ltd (0061:HK), formerly known as Green Global Resources Ltd. acquired 100% of North Asia Resources Group Ltd., a private resource company in Mongolia, for HK$1.76bn (US$227mn) in December 2009
• Kiu Hung Energy Holdings Ltd (0381:HK), an investment holding company with businesses in energy, gift and toy industries, acquired coal assets in Mongolia from First Dean Holdings Ltd for HK$1.4bn (US$180mn) in March 2010
• Solartech International Holdings Ltd (1166:HK), a manufacturer of cables, wires, connectors and terminals, has acquired a 87.9% stake in Sun Progress Ltd which owns copper-gold-silver mine in Mongolia for US$193mn in May 2010
• Ming Hing Waterworks Holdings Ltd (402:HK), engaged in waterworks, technology, engineering acquired a number of coal, gold and copper mining and exploration licenses in Mongolia for HK$1.94bn (US$245mn) in June 2010
• Mongolia Energy Corp (0276:HK), formally New World CyberBase Ltd was the first HKEx-listed company to acquire a resource asset in Mongolia through asset injection. It paid HK$1.2bn (over US$150mn) for a coal mine in January 2007.

Overpaid Deals

In our view, most of these companies have overpaid for these earlier stage resource assets. Poor post-acquisition share price performance only underscores investor concerns (Solartech is down 75% since May 2010 deal announcement). Owners of target companies with Mongolian assets (primarily mainland Chinese and Hong Kong private investors) are clear winners as they have disproportionally benefited from these deals.

More asset injections to come amid zeal for “Mongolia resource play”.

We expect more Hong Kong-listed companies to pursue M&A deals in Mongolia through asset injections in a quest to transform into “resource play”. Some small-cap companies may find too tempting to acquire resource assets in Mongolia in order to revive their sagging fortunes and join the growing league of Mongolia-focused resource companies at the HKEx. At the same time, the private owners of resource companies in Mongolia would target small-sized HKEx-listed companies in their effort to seek “back-door listing” through lucrative reverse takeovers.

To read full research note in English and Chinese please visit www.eurasiac.com

An MPRP MP, Mr. D.Baldan-Ochir, has told reporters that he would soon submit a proposal for wide ranging changes in the tax system.

He wants all citizens to be included in a general data base, where everybody’s income and assets will be registered. No income can be concealed, putting an end to the rampant tax evasion and bribery in today’s Mongolian society. The database will also help in the efficient delivery of social welfare benefits.

Mongolians “hardly ever volunteer information” on their sources of income or pay taxes on their total earning, he claimed. A “tax education” program to raise popular awareness has been initiated in partnership with JICA. This will include school lessons on the tax system and the duty to pay taxes.

A series of discussions are planned with the civil society, government officials, citizens and professionals to devise practical suggestions on reforming the personal income tax system.

Source: Unuudur; highlighted in the BCM Newswire by Business Council of Mongolia

ULAANBAATAR – According to a working group, air pollution level of Mongolia’s capital city has increased by 28% despite efforts.

A working group led by MP D.Terbishdagva has found during its evaluation of the impact of programs aimed at reducing air pollution that only MNT8.2 billion was spent on them last year, despite a Parliamentary resolution in 2007 allocating MNT50 billion annually from the State budget. It also found that the pollution level, far from going down, has actually increased by 28%. The group has recommended more coordination among the organizations responsible for the work and has also called for more accountability.

Source: Unuudur; highlighted in the BCM Newswire by Business Council of Mongolia

The majority of respondents in a survey carried out by Sant Maral Foundation in April said unemployment is the main problem in Mongolia today.

While 38.6 percent held this view, 21.1 percent said the standard of living is the main problem, while 8 percent believe inflation is the key issue. The representative sample of 1,200 respondents from Ulaanbaatar and from Dornogobi, Dundgobi, Zavkhan, Khentii and Arkhangai aimags was collected from April 16 to April 23. The survey is sponsored by the Konrad Adenauer Foundation of Germany.

Asked about the present economic situation in the country, 42.8 percent of the respondents said it was “bad”, 36.3 percent “not good, nor bad”, 3.8 percent answered “good” and 6 percent said “very good”. While 29.5 percent consider the economic situation to be “in decline”, 47.5 percent said it is “in stagnation”, while 14.3 percent said it is “improving”.  In five years, the economic situation will be “slightly better”, said 40.2 percent, “much better” according to 4.4 percent and 20.2 percent thought it will remain “the same”.

To the question “How satisfied are you with democracy and the present political system?”, 18.8 percent said they are “satisfied”, 39.4 percent “rather satisfied”, 22.2 percent “rather not satisfied” and 16.7 percent were “not satisfied”.
Replying to a question on which party they would you vote for if parliament elections were held tomorrow, 35.1 percent favored the MPRP, 39.5 percent the DP, 4.5 percent the Civil Will Party and 5 percent the New National Party.

Asked to choose a country as the best partner for Mongolia, 75.7 percent favored Russia, 18.8 percent China, 27.4 percent the USA, 10.6 percent the European Union, 15.8 percent Japan, and 11.4 percent South Korea.

Source: Montsame; highlighted in the BCM Newswire by Business Council of Mongolia (BCM). For the complete Sant Maral Foundation April 2010 survey, see Mongolia Reports within Resources section of the BCM website.

No agreement on the railway transportation policy is in sight. No decision can be taken on this very important part of the wider minerals policy as MPs continue to be stuck on both the direction of the new network and on the width of the track. Some MPs give their view.

S.Oyun: I think it would be wrong to have the same width everywhere. A combination would be a better option, depending on where the track is leading. Companies who are investing ought to estimate their needs. I would give more importance to economic factors than to political considerations when deciding on the railway policy. Similarly, the final choice of the route, whether it goes south or north or both ways will depend on the amount needed and the transportation benefits.

R.Amarjargal: Our national security and foreign policy concepts should be the deciding criteria. The first says Mongolia will develop an equal relationship with its two neighbors. That has to be followed no matter whether the rail gauge is wide or narrow.

R.Rash: Our position of lying between two superpowers makes it a difficult decision. We already have a long railway built by the Soviet Union and we cannot change the gauge used in it. We should not have two gauges within the country. However, new tracks built exclusively to connect to ports that will link us with Japan or South Korea can have the more international narrower gauge. We already have a few km of such narrow track between Zamiin-Uud and Erlian in China.

Work on taking Ulaanbaatar Railway to Umnugobi, where an industrial district will be built soon, must start immediately. Building a railroad takes a long time and those who say it can be done in two years are wrong. Take the Yeruu railroad. We have completed only 60 km in two years, and the remaining 30 km may not be finished this year. We must be realistic. We can utilize Tavantolgoi only after we have built the railroad. The present practice of transportation by trucks is not viable, economically, environmentally, and practically.

Source: english.news.mn

US Embassy seeks Mongolian applicants for Humphrey Fellowships and Fulbright Foreign Language Teaching Assistant Program for 2010-2012; application deadline is July 19.

The US Embassy in UB invites any interested Mongolian citizen living in Mongolia to apply for two available grant programs that provide up to one year study and professional experience in the US. The Hubert Humphrey Fellowship is a one-year, non-degree professional exchange program that brings mid-career professionals to the US. For further information, including application and eligibility requirements, go to http://mongolia.usembassy.gov/sholarship_announcements/test.html

The Fulbright Foreign Language Teaching Assistant Program (FLTA) for 2011-2012 brings Mongolian teachers of English, and other foreign English teachers, to the US for the 2011-12 academic years to strengthen foreign language instruction at US colleges and universities while providing foreign teachers of English with the opportunity to refine their skills, increase their English language proficiency and expand their knowledge of American culture and customs .The grant is for one academic year and is non-renewable.  For further information, including application and eligibility requirements, go to http://mongolia.usembassy.gov/flta_announcement.html

Application deadline for both programs is 12 noon on July 19, 2010. Both programs are administered by the Public Affairs Section of the US Embassy,  Big Ring Road, XI  Microdistrict, Ulaanbaatar, UB – 13, P/O Box 1021, Telephone: 312372 or 329095 ext 4424 or 4729.

Source: NAMBC Newsletter May 11, 2010.  Visit NAMBC website here: North America Mongolia Business Council.

Sensitive financial issues were discussed at a “secret” meeting on Monday attended by members of the Standing Committee on the Economy, and representatives of the International Monetary Fund, the MongolBank, and the National Statistics Office. They talked mainly about the budget deficit and the threat of inflation.

The Finance Ministry has proposed revisions to the 2010 budget following the increase in the price of copper and gold. If this has meant MNT 364.2 billion in extra revenue, the decision to increase the salary of civil servants by 30 percent, and reinstatement of the child allowance will lead to more expenses. Some new public projects have also been proposed. Taken together, these will take the budget deficit beyond the proposed 5% of GDP as stipulated by the IMF.

The resultant inflation may nullify the 30 percent increase in salary.  The Government’s hopes of keeping inflation under six percent have been belied. It has already reached 10 percent and many analysts predict an even darker future with inflation hovering around 27 percent by the end of the year.

The IMF, which has lent money to keep the budget deficit within manageable limits, is strongly recommending austerity measures. There seems to be rethinking in the Finance Ministry and Parliament seems to have suspended further discussion on the revised budget. These are likely to resume on Monday, after MPs will have considered what was discussed at the meeting.

Source: english.news.mn; highlighted in the weekly BCM Newswire by Business Council of Mongolia

Parliament last Friday approved the appointment of Mr. D. Dorligjav as the country’s Prosecutor General, with 92 percent of MPs accepting his nomination by the President.

Talking to reporters after the Parliament vote, Mr. Dorligjav said his priority will be to ensure that prosecutors at all times abided by the law. “Their main responsibility is to ensure that people’s legitimate expectations are met, and they must never lose sight of the fact that their power stems from the legal principles that they are expected to uphold,” he said.

People who have been sincere and conscientious will certainly not be disturbed. “Indeed, I shall offer them all assistance to be more effective. But I have already told Parliament I shall not retain those with problems of ethics and shall show no mercy to those who abuse their power and bring disrepute to the judiciary,” he told media. He clarified it would be wrong to blame prosecutors alone for all the problems in the judicial sector.

The proposed reforms program envisions a comprehensive and systemic overhaul of the sector, and piecemeal or ad hoc amendments to individual laws are not being favored. Instead, the emphasis will be on changing the big overall picture. He admitted it will not be easy to change entrenched mindsets but people’s faith in the judiciary must be restored by enforcing that cases are decided strictly on a legal basis, and on no other consideration.

Mr. Dorligjav asserted that he had no political bias. He also dismissed suggestions that transparency would mean that all details of investigations and interrogations will be made public, saying the very nature of their work meant much of what the police, the courts and the prosecutors do will have to be in secret. “But this cannot be an excuse to shut the people out of everything. They have a right to know much more than they are commonly allowed. I’ll stand by this principle,” he said.

Source: Undesnii Shuudan and Ardiin Erkh; highlighted in the BCM Newswire by Business Council of Mongolia