December 3, 2017
December 3, 2017


Back in Ulaanbaatar… My most recent piece on Togrog seems to have had a technical glitch (now fixed). If the link didn’t work yesterday, try it again today.

My Q is on Energold and what you would consider the right value for the company. I understand and agree with your thinking that it is undervalued at this time but as an unseasoned investor I have a hard time determining what number would equal fair value. In other words, if their plans and forecasts fall in line with expectations, what price per share do you expect the stock to be at 6 months from now, a year from now etc? I know there are a lot of variables but I am assuming you have a price in mind where you would consider the stock fairly valued?

This is a company that has increased the rig-cound 5x in the past 5 years (excluding the new oil sands drills). Even if it were fairly valued, I wouldn’t be a seller. I buy growth and there isn’t much growth out there. I think the company can earn $1 a share next year if it were not growing, though it will likely earn a bit less b/c it’s growing so quickly. Is 10x earnings a silly number for a company growing this quickly? If you told me the right PE was 30, I wouldn’t argue with you either. But 10 is conservative I think.That gets you a double digit share price and because of the balance sheet, there isn’t much risk either.

I refer you to a book written in 2009 The Great Depression-  A Diary by Roth

I pass this along for readers who may want more detail on the topic.

Hi Harris, another question on EGD working capital… I’m wondering whether EGD could use receivable financing. Their presentations slides showed a list of reputable major miners and you mentioned their clients are mostly funded.
I’m just worried that if the cash flow of 2H 2011 looks like 1H 2011, they need to do another equity offering early 2012, unless they choose to stop growing. Receivable financing is not free, but it seems to be better than the shareholder dilutions down the road.

The company has talked about doing this. The issue is that many of the receivables are to the offshore subsidiaries of large companies, so the rates are higher.

Mongolia Coal on the move


You’ll see a lot more of these sorts of news stories. China needs coal and Mongolia has it.

Kuppy–I’m heavily invested in the precious metals area for the first time ever. My concern is that although pm’s are not widely owned, among those who own them the commitment is absolute. Does the fanatic following in this area make you more comfortable in something like MERC–even if, perhaps, the logic of owning MERC does not appear as certain as in the PM area where some kind of financial disaster seems almost inevitable? In other words, in a certain segment of investors the PM investment is the conventional wisdom, and I wonder if that is a warning sign for you or whether you find that sometimes the conventional wisdom is the right and safe investment.

PM investing has a core group of diehard advocates. But the majority of people do not own them. Besides, just because people own something, that doesn’t mean it’s a bad investment either.

MERC is a totally different animal. It’s trading at 2x cash flow and the company just bought back 3% of the shares this quarter. They intend to continue the buyback and deleverage. It has different sorts of risks b/c the NBSK market is volatile, but I need diversification. Cannot only own money printing names.

Hi Kuppy. Great post on the MNT. I had actually been looking at finding a way to put some cash to work in a Mongolian CD, so very timely for me! My question is this: for a US citizen with a bank account in Mongolia, what taxes are owed to the Mongolian government, and how does the US IRS treat the interest? Any info would be great. Thanks!

I am not a tax expert, so please speak to a professional, but here is my understanding. The US and Mongolia do not have tax treaties. This means that you will have to pay taxes to BOTH the Mongolian government and the US government. You will also have to pay a tax on profits that you take out of the country. The individual tax rates vary somewhat so please contact a professional. If you’re smart at tax planning, there are ways to minimize both sets of taxes. I believe that the Mongolian tax rate is 10% and the US tax rate is at your marginal rate. The exit tax is another 20% which means that you’re going to want to keep the money in Mongolia for a while once you invest–which probably isn’t a bad outcome in any case…

What languages do you speak? Can what get by well in Mongolia speaking only english? Is the local language easy or hard to learn? What do YOU speak in Mongolia?

I speak English and a tiny bit of Spanish. Mongolian is stunningly impossible to learn. I’ve tried and failed at it, though I now know enough to stumble my way through most regular activities in Mongolia (food, drinks, taxi rides, etc). Fortunately, there are many people who speak English and can help me when I get into trouble.

I read about the mongolian currency Togrog on your blog today. What you write sounds intriguing. I checked at least two mongolian banks regarding the interest rate they pay (13,4%) and so far it looks quite good.

But as i used google i also found out that the inflation in Mongolia is about 13% (see http://www.mongolbank.mn/documents/sanhuugintb/20111104_2.pdf) with following forecast “If Bank of Mongolia does not take any measure inflation in next year is forecasted at 14-27% or on average reach 19%.”

So the inflation is about the same you get as interest. That does not sound that good to me. And i also found out that the exchange rate USD/MNT went from 1:1200 in 2004 to 1:1290 today (ok in 2009 it was 1:1500). So i am a bit sceptical whether this currency will be doubling/tripling over the next decade. OK maybe the investments in Mongolia started in 2009 (at least Deutsche Bank invested 250 Million USD in Mongolia in 2009) so the currency went from 1:1500 to 1:1290 which is pretty good.

This is a good question. Let me start by stating the obvious, there are very few currencies in the world that offer you a positive carry (interest rate higher than inflation). When compared to other options, MNT is one of the few that I know of. More importantly, the government is focused on taming inflation and last week they raised the central bank rate by 1/2 of 1% again.

Let’s talk about inflation rates. Does anyone actually believe that inflation in the US is under 2%? That inflation is around the 3-4% quoted in Europe? If you look at shadow statistics, which I find to be the best source of such data, it says the inflation rate in the US is 11.5%. From casual observations, I’d say that 11.5% seems as accurate as any other data. After having spent most of the last year of my life in Mongolia, I feel strongly in saying that inflation in the US is higher than here in Mongolia. The Mongolian government is just more honest in reporting the data. Also, the meat component of the inflation data here is very high as it is a staple of the Mongolian diet and meat prices worldwide are rising–which gets reflected heavily into the Mongolian inflation stats. In the US, they hedonically adjust computing power and other funny numbers into the CPI number in order to artificially keep it low.

As per the exchange rate, over short periods of time, it’s much more volatile than other exchange rates as it is so illiquid. What happened from 2004 to 2009 doesn’t matter that much because they weren’t building these massive mines then. Everything changes in Q3/2012 when Oyu Tolgoi starts producing. Longer term, I feel very safe owning MNT and cannot think of a currency that I would rather own over the next few years. Russian Ruble is probably a close second at best for me, followed by CAD.

I didn’t mention foreign currency reserves, but Mongolia has very high foreign reserves including a sizable gold component. The country will soon be producing one ounce of gold for every two citizens–which is the highest rate of any country that I know of–in a world where you want exposure to gold, MNT is a very good thing to own.

Kuppy, I get it. Mongolia is the greatest investment idea in history!! But I feel I missed the move. The stock market has been up 2 years in a row. What else are you looking at? I’m sick of hearing about Mongolia. It’s already happened.

Greatest investment idea in history may be a bit strong… but it’s pretty damn good. VBG

Who cares that the market has gone up for 2 years in a row. Look at what happened in Kazakhstan when it boomed from 2002-2008. The stock market increased nearly 25 times in 6 years. Property prices increased 10 to 50-fold. The banking sector increased massively. Everything went up. With commodity economies, you need to look at what happens right when the big producers come on line. The catalyst in Kaz was an increase in oil production and oil prices.

Assets in Mongolia are cheap. The largest company on the exchange here is expected to pay nearly a 20% dividend yield next year. They’ve more than doubled dividends every year. Assets aren’t expensive at all. All these assets will eventually trade at Western multiples. The fun part is just about to start…