December 3, 2017
December 3, 2017


Would you please comment on the price action of MERC? Do you maintain your thesis?

People are concerned that the price of NBSK has dropped about 15% in the last few months. Longer term, I think my thesis is intact and the price drop will inhibit any new capital coming into the sector and increasing production. I’ve recently bought a whole lot more shares under $6.

You may have already seen this, either way its great PR for the country – 1 Trillion is a big #


Yup, in a no growth world, people are attracted to growth.

When I think about some of these small cyclicals that I am in, I wonder/worry about ultimate returns to shareholders. The growth is breathtaking, lovely high ROIC investing, wonderful EBITDA/EPS growth, but unless I try to trade it, when the business/sector contracts I have lovely (formerly) productive assets at low/no utilization. I also have no dividend in my pocket and it seems like the only winners are management. Can you comment on this?

Cyclicals tend to be frustrating to own–hence they trade at low valuations. I agree with everything that you’ve said. The only time that they become interesting is when a cyclical story becomes secular and what used to be 2-3 year trends, instead becomes a 20 year trend. Otherwise, leave it to the traders. The real money is made finding strong trends and riding them–not guessing next quarter’s GDP growth.

Hi Kuppy,

I was very interested in your piece about the Togrog, so much so I email several banks in Mongolia that you mention.
Unfortunately it seems in order to get an account and therefore buy CDs you need to have a residency permit. Or at least that is the stated rule. I just wondered if you was aware of any mechanism by which you can get around this? I made very good returns a decade adopting a similar approach with the Australian Dollar, so this is a currency strategy that appeals. I managed to open accounts in Australia fairly easily, without residency simply stating I was coming to work in the country soon. Would Mongolian Banks likely respond positive to this simple statement?

I have never had an issue opening a bank account in Mongolia and I have plenty of friends who have done it also–I also know of people who have had issues.If anyone wants a contact of a bank that has told me they’ll open accounts for foreigners, please email me and I’ll send the details. hkuppy@adventuresincapitalism.com I have no financial interest in this at all–so do your own due diligence on the bank.


I’m new to MERC. Two questions on it:

1- Do you think the stock price decline of the last several months (down >50% since May) is *mainly* due to the current negativity of the European markets?

2- MERC says they bought back 1.3M shares, but 2Q to 3Q shares actually increased from 45M to 55M. Was there some major event (capital raise) this summer or is that huge increase just employee options being exercised? That seems like an extraordinary jump in shares/dilution (almost 22%!).

1. It’s negativity about cyclical companies and partly due to the price of NBSK dropping from 1030ish to 880

2. They forced a convertible to be converted–which has put a lot of pressure on the shares as all these convert shares are hitting the market.

Kuppy–In regard to your aversion toward PM mining stocks, why not invest small amounts in a diverse group of well-managed, well-financed companies in politically safe jurisdictions like, say, Canada? Taking these steps would mitigate against the risks that you deplore while still giving you exposure to a group that is VERY cheap with good prospects. Or are you doing this already? Lastly, how do you feel about the notion that we should all be solely investing in the the metals themselves rather than the stocks since the system (it is said) is going to totally melt down?

I much prefer the metals to the shares. The shares exist essentially as trading sardines. You could theoretically buy a diversified group of mining companies, but I prefer not to bother really. Over time, they continue to destroy capital and anger the locals in whatever country they’re in. With governments around the world going bankrupt. Mining companies are good targets for higher taxes. It’s best to just avoid it.

Hi Kuppy, hope you are well.  Regarding Mongolia, I read an article many months back which was stating that the freight rail infrastructure in China was so poor that it discounted the geographical advantage for Mongolia to a degree (compared to Oz for example).  How much of a factor is this?

My understanding is that the rail network in China is reasonably good and the issue is the road/rail infrastructure in Mongolia. This is an issue currently for some mines–and doesn’t matter for others. It is being worked on and likely won’t be a problem in a few years. For now, it is a viable concern with some mining projects.

Mongolia has been on my radar for the past year. For the past 5 years, I have been heavily focused on gold/silver related investments. Mongolia fascinates me in so many ways that I am contemplating moving there and starting a small business to capture the real growth potential of this economy. There seems to be numerous business ideas one could implement in the Mongolian local economy. My goal is to possibly lease a retail spot and sell consumer items or services. The start up capital would be fairly low going this route and I would still get first hand exposure to the future growth of Mongolia. I assume that Mongolia will one day form into a bubble. Fortunes will be made by those who get in early and get our before the bubble pops. Of course, we are far from a bubble forming in Mongolia but my strategy would be to start up a small business or businesses and grow them successfully before selling them outright when things begin getting real heated. I have much due diligence to perform and I need to make a trip to Mongolia before I seriously consider this option. I’m an entrepreneur at heart and there aren’t many other places in the world other than Mongolia that seem to offer the growth prospects worthy of investing capital for starting a business.

My questions are do you think my idea is a good one and could do very well? Also,do you think Mongolia will get absurdly expensive in the next 2 years? I wouldn’t be able to start a business until mid 2013 and I fear Mongolia will be really expensive by then. Lastly, are there any other places in the world that you would favor over Mongolia for starting a small business? Of course, I would like to start a business in the US but the fundamentals are horrendous and will make it extremely hard to make abnormal returns for an entrepreneur. Thank you for passing along so much valued wisdom. I’m a fairly young dude and have learned so much from your site. Maybe we can grab some beers in Mongolia, if I make a trip there in the next year.

Lots of questions here!! Mongolia will be booming by 2013 (it already is). Q3 GDP growth (just reported) clocked in at over 20%.

I’m sure there will still be great oportunities in 2013. I wouldn’t be able to tell you if a retail store is good or not. That’s for you to figure out. I know that many people make money at it–but many cannot operate well. Will prices be too high by then? Probably not. But my crystal ball cannot look out that far. Good luck in any case.