- May 30 (Eurasia Capital: Mongolia Weekly 23-27, 2011) On May 25th, Eurasia Capital held its second annual Mongolia Investment Conference which was a big success. With more than 150 attendees including Mongolian public and private sector leaders and international and regional investors from over 20 countries, the conference profiled many of the extraordinary investment opportunities Mongolia has to offer and conference participants left the day expressing their strong interest in taking part in the Mongolian growth story. Budget deficit revised down to 6.7% for 2011, Vice Finance Minister says: The Vice Minister highlighted selected recent economic performance indicators. Although Mongolia was hit hard by the global financial crisis, the economy stepped into recovery with 6.1% growth in 2010 and is performing even better this year, hitting a historical high of 9.7% real growth in 1Q2011, he said. He continued by stating that nominal GDP growth hit a remarkable 24.9% in 1Q2011 while inflation remained in single digits at 5.5%. MNT appreciation is making local financial instruments more attractive, as well as helping to contain inflation. Strong revenues brought budget surplus in 1Q2011 too. Initially, 9.9% budget deficit was anticipated for 2011. However, it was revised down to 6.7% for the current year, Mr. Gankhuyag informed the audience. He noted that developments such as Oyu Tolgoi agreement, IPOs of Mongolian Mining Corp (MMC) and other mining companies and offering of 10% of Erdenes Tavan Tolgoi shares to domestic enterprises brought about current performance of the Mongolian economy. Erdenes Tavan Tolgoi share offer at nominal price incentivized domestic businesses to register and pay taxes, Mr. Gankhuyag said. Vice Minister pointed at some bottlenecks in Mongolian economy. Lack of infrastructure remains as a bottleneck and timely investments are needed to eliminate them, he said. The country needs new rail routes, border crossings, equipment, etc. Eliminating bottlenecks in financial markets may allow Mongolia Stock Exchange (MSE) to compete with Hong Kong Stock Exchange and Shanghai, he stated. "We need to dream big and aim high" Mr. Gankhuyag said. He noted that contracting London Stock Exchange to manage and modernize MSE is a welcome development in that direction. Vice Minister Gankhuyag informed the audience that Tavan Tolgoi negotiations are still underway. Each Mongolian national will receive 536 Erdenes Tavan Tolgoi shares plus one share of Erdenes MGL, a state assets holding company. The Development Bank is in the final stages of management team negotiations, according to the Vice Minister. The Development Bank will issue MNT800bn bonds guaranteed by the government. Additional MNT-bonds equivalent to US$200mn will be placed on MSE to fund construction and cashmere sector. And finally, Mongolia Stabilisation Fund has already accumulated US$50mn in the current year. The fund is expected to help to overcome risks of commodity prices volatility. The fund targets to accumulate MNT183bn this year. Mongolia is Global Outperformer in Next Decade, Alisher Ali of Eurasia Capital Describes Mr. Alisher Ali, Chairman of Eurasia Capital, called Mongolia as a "global outperformer" over the next decade. He said that Mongolia will be the world’s fastest growing economy in the next ten years primarily thanks to substantial increase in investments, exports and overall income. He recommended seven asset classes that investors should focus in investing: local equities, stocks of internationally listed companies, the Mongolian tugrik (MNT), fixed income instruments, private equity/pre-IPOs, property and infrastructure. Net Capital Inflow is up 2.7 times y-o-y in 1Q2011, According to Deputy Governor of Bank of Mongolia Mr. Zoljargal, Deputy Governor of the Bank of Mongolia (BoM) started his speech by comparing 2010 numbers which are totally different with the 2009 numbers. He said 2010 numbers are exciting and represent big changes. For the next two years he gave positive outlook for the economy and expressed readiness of the central bank to solve the challenges. During 2011 he informed that from the monetary policy prospective the BoM will be focused on "two wild horses" to control, namely, inflation and appreciation of the MNT. According to the National Development and Innovation Committee (NDIC) estimations, the Mongolian economy will grow not less than 7.5% for the next ten years. NDIC projected that in 2011 GDP will grow 7.5% and will top double digit growth level of 20.6% in 2014 and gradually slows down to 16.9% in 2020 making Mongolia one of the fastest growing economies in Asia (China, India, Indonesia, Vietnam). Mr. Zoljargal believes that CNY5bn currency swap agreement signed with China in early May this year will improve credibility of the MNT and helps the MNT to be convertible in the future. He also informed that serious part of the Mongolian M2 is in CNY. According to Mr. Khashchuluun, Chairman of NDIC, Mongolian GDP is estimated to exceed 10% and be around 12% in this year and GDP per capita will reach nearly US$3,000. By 2015 GDP will increase 14% and GDP per capita to reach around US$6,000, Mr. Khashchuluun said. Erdenes Tavan Tolgoi IPO Expected at the Beginning of Next Year IPO of Erdenes Tavan Tolgoi is expected in the beginning of 2012, Mr.Enebish Executive Director of Erdenes MGL said. He informed that Erdenes Tavan Tolgoi had already started mining activities on the Eastern Tsankhi coalfield with 250,000 tonnes of coking coal currently ready to be exported. According to Mr. Enebish, Tsankhi and Borteeg coalfields primarily contain coking coal. NorWest estimates suggest that Eastern Tsankhi coalfield contains 1,078mn tonnes of JORC compliant coal resources with 78% being coking coal. Erdenes TT JSC will hire a contract miner to develop the coalfield. Western Tsankhi coalfield contains 1,204mn tonnes of coal resources with coking coal accounting for 65% of resource. Mongolia is currently in the process of selecting development partner for the Western Tsankhi coalfield. Mr. Enebish informed that full production capacity of the mine will be 15Mt per year which will be reached in 2014. The mine life is not less than 50 years. As of May 15, 2011, 1.6 million BCM of prestriping was performed. Approximately 250 thousand tons of coal are uncovered and now being prepared for export. The Resource report of the Eastern Tsankhi area or Erdenes Tavan Tolgoi mine area was commissioned (in April). The Eastern Tsankhi Coalfield Feasibility Study on mining of 15 Mtpy for Erdenes-TT mine was approved (in April). Water for Erdenes Tavan Tolgoi will be taken from Balgasiin Ulaan Nuur underground water deposit (resources 465 l/sec) which is 70km from coal t deposit. Mr. Enebish said that Erdenes MGL is planning to establish other subsidiaries around other assets in holds, including Oyu Tolgoi. He said Erdenes OT will be established without specifying time. 24-hour Trading System to be Installed at MSE by Q42011 Chairman of MSE Mr. Bold said that the exchange is negotiating with legal firms on Erdenes Tavan Tolgoi listing issues whether listing should take place in London or Hong Kong or both and what instruments like ADR, GDR or common stocks to use. Whole 24 hour tradable internet trading system will be introduced to the MSE under the agreement with the London Stock Exchange (LSE). By Q3 or Q4 2011, the system will be installed. Mr. Bold stated that the key challenge with the clearing house is that it is a separate entity. MSE is waiting for the LSE’s recommendations. At this stage there is no specific guidance whether the clearing house should be separate from MSE or unified or a subsidiary. He added that over the next months there will be many changes.