Mongolia's Treasure Trove

#Mongolia's Big riches for tose who can stomach the volatility. $$IVN

Mongolia's Treasure Trove
- Forbes.com

When I was invited as a U.S. representative to the Asian Development Bank to speak at the 1991 opening of the Mongolian Stock Exchange, I expected a frontier adventure, as the country had just broken free from Russia to form a fledgling democracy. I got more than I bargained for and, in retrospect, was lucky to get out of there alive.

The first challenge was vodka. Mongolians are the highest per capita imbibers of vodka in the world. I nearly drowned in the stuff as dozens of toasts and calls of “bottoms up” went on late into the evening of my arrival in the capital of Ulan Bator.

The second day I was a bit wobbly but went with my hosts deep into the rugged steppe for a traditional barbecue capped by races to the top of mountains and a clifftop midnight wrestling match. I held my own but a slip would have led to my demise.

Two decades later global investors, especially China and Russia, are eyeing its huge untapped natural resources. Mongolia, three times the size of France with a population of only 2.7 million, is a relatively poor country with a per capita income of about $3,000. But it is sitting on a treasure trove. The country’s top ten mines are estimated to be worth $2.75 trillion in coal, copper, gold, uranium and rare earths.

This makes every Mongolian a millionaire--if they can get this stuff out of the ground and to global markets. Unfortunately, corruption is a rising issue, and inflation tops 20% as a gold rush mentality takes hold.

Still, willing buyers are certainly there, with $5 billion pumped into the economy in 2011 fueling a stunning 17% increase in the country’s GDP.

The Mongolian Stock Exchange is not for the fainthearted, but the brave have been rewarded with returns of 121% in 2010 and 58% in 2011, although the index made up of the largest 20 companies has cooled 10% so far in 2012. There are 332 companies listed on the exchange, with a total market value of $3.2 billion.

There is political risk. Mongolia’s former president is facing corruption charges that he insists were engineered by the current president to keep him from participating in the recent parliamentary elections.

If you’re gun-shy about investing directly in the Mongolian market but want a piece of the action, go with Vancouver-based Ivanhoe Mines (NYSE, IVN, 8), which has a 66% share of Mongolia’s Oyu Tolgoi gold and copper mine, which is on the Mongolia-China border. Temasek, Singapore’s investment arm, recently put up $420 million for a 5.5% stake in Ivanhoe; Australia’s Rio Tinto has a controlling interest in it. Ivanhoe’s stock has lost 64% of its value in the past 12 months as copper and gold prices have pulled back.

The Oyu Tolgoi deposits reportedly contain 79 billion pounds of copper and 45 million ounces of gold. Rio Tinto has already spent $7 billion to prepare the mine for operation. It is expected to begin production in August.

For stocks listed on the Mongolian Stock Exchange, my favorite is APU JSC (APU, 3), the country’s largest beverage company. The company was founded in 1924 and privatized in the 1990s. It has the dominant market share of--you guessed it--vodka and beer while also producing milk and juices.

The Leopard Asia Frontier Fund likes and holds concrete producer Remikon JSC (RMC, 0.14), also traded on the Mongolian Stock Exchange. Right now 80% of the cement supporting Mongolia’s construction boom is imported from China, but Remikon is planning to build an $8 million cement plant near its limestone deposit.

For speculators I’m going with ­Sydney-traded Aspire Mining (AKM, 0.15). While the company has exploration licenses for five projects, a lot is riding on its Avoot coking coal project, potentially the country’s third largest. Mining is not expected on any scale until 2016. The company has about $28 million in cash with no debt, and the stock price is tempting after falling 77% over the last 12 months.

Mongolia is a frontier market with huge potential. Steel your nerves and take a small stake.

Read the article online here: Mongolia's Treasure Trove - Forbes.com

(BN) Cnooc Buys Nexen for in China’s Top Overseas Acquisition

Bloomberg News reports: 

Cnooc Buys Nexen for in China's Top Overseas Acquisition

Cnooc Ltd. (883) agreed to pay $15.1 billion in cash to acquire Canada's Nexen Inc. (NXY) in the biggest overseas takeover by a Chinese company.

China's largest offshore oil and gas explorer is paying $27.50 for each common share, a premium of 61 percent to Calgary-based Nexen's closing price on July 20, according to its statement to the Hong Kong stock exchange today. Nexen's board recommended the deal to its shareholders.

Nexen will give Cnooc assets in Canada, the U.K., West Africa and the Gulf of Mexico that produced 207,000 barrels a day in the second quarter, boosting the Chinese company's output by about 20 percent. The deal is a second attempt to buy a North American oil and gas producer after political opposition blocked Cnooc's $19 billion for bid Unocal Corp. in 2005.

"Cnooc did a nice job in adding oil reserves at less than $20 a barrel," said Shi Yan, a Shanghai-based energy analyst at UOB-Kay Hian Ltd. "It's really a good time to buy assets while crude prices are low and energy firms shed values in stock markets."

Cnooc will offer to buy Nexen's preferred shares and the Canadian company's debt of $4.3 billion will remain in place, the statment said. Beijing-based Cnooc will pay for the acquisition using existing cash funds and external financing. The agreement includes a breakup fee of $425 million if the deal is terminated under certain circumstances.

Sustainable Growth

"The acquisition of Nexen will expand the group's overseas business and resource base in order to deliver long-term sustainable growth," Cnooc said in the statement. "Nexen will complement the group's large offshore production footprint in China."

Nexen's market value has plunged 60 percent from a high of C$43.45 in June 2008 as its prices fell for natural gas, which accounts for about 20 percent of output. Production growth has also been slower than the company expected because of setbacks at projects in Canada's oil sands and North Sea.

Cnooc will add 900 million barrels of oil equivalent reserves at $19.94 per barrel through the deal, according to a document posted to the company's website. Cnooc plans to boost output by as much as 2.7 percent this year to the equivalent of as much as 930,000 barrels of oil a day.

In a separate deal, China Petrochemical Corp., or Sinopec Group, will acquire a 49 percent stake in the U.K. unit of Canada's Talisman Energy Inc. (TLM) for $1.5 billion, the Beijing based company said in a statement today.

Fertile Area

Canada has become a fertile area for Chinese oil producers seeking to add oil and gas reserves to meet demand in the world's largest energy-consuming country. After today's deal, Chinese companies will have spent $49 billion on buying Canadian fields and oil companies, according to Bloomberg data. In contrast, they've laid down just $3.5 billion in U.S. acquisitions.

Today's deal will cement Cnooc's position in Canada's oil sands after last year's $2.4 purchase of OPTI Canada Inc., Nexen's partner in Alberta's Long Lake project. After today's deal, Cnooc will own all of Long Lake, which aims to produce 72,000 barrels a day using steam to heat the tar-like oil out of the sands.

The Canadian government reviews any foreign takeover worth more than C$330 million ($325 million) and is in the process of raising that threshold to an enterprise value of at least C$1 billion over the next four years, Industry Minister Christian Paradis said in May.

Stephen Harper

Prime Minister Stephen Harper is seeking to assure foreign companies the country is open to investment amid criticism the takeover review system is unpredictable. Harper in 2010 rejected a $40 billion hostile takeover bid for Potash Corp. of Saskatchewan Inc. by BHP Billiton Ltd., saying it didn't provide a net benefit to the country. It was only the second rejection of a foreign takeover in Canada in 25 years.

Margaux Stastny, director of communications for Canadian Industry Minister Paradis, couldn't be reached for comment before regular business hours.

Bank of Montreal and Citigroup Inc. provided financial advice to Cnooc, while Stikeman Elliott LLP and Davis Polk & Wardwell LLP acted as legal counsel. Nexen's financial advisers are Goldman Sachs Group Inc. and Royal Bank of Canada, while its legal advisers are Blake Cassels & Graydon LLP and Paul Weiss Rifkind Wharton and Garrison LLP. Richard A. Shaw Professional Corp. and Burnet, Duckworth & Palmer LLP also served as legal advisers to Nexen's board.

To contact the reporter on this story: Aibing Guo in Hong Kong at aguo10@bloomberg.net

To contact the editor responsible for this story: Hwee Ann Tan at hatan@bloomberg.net

Gold Investment Statistics and Commentary Q2 2012 World #Gold Council

Gold Investment Statistics and Commentary Q2 2012 World #Gold Council 

Quarterly statistics commentary Q2 2012 We have just published our commentary on gold's price performance in various currencies, its volatility statistics and correlation to other assets in the quarter. It provides macroeconomic context to the investment statistics published at the end of each quarter and highlights emerging themes relevant to gold's future development.   Review: key macroeconomic themes during Q2 2012   Gold prices declined in most currencies during the second quarter with the exception of the euro, Swiss franc and Indian rupee, in part due to a strong US dollar. Despite a 3.8% decline in Q2 to US$1,598.50/oz on the London PM fix, gold was up 4.4% during the first half of the year. Volatility remained elevated amidst a busy event-risk period. However, gold generally outperformed risk assets. Global inflation eases but underlying trends supportive for gold: A substantial drop in energy and some agricultural commodities during the period has eased inflation pressures in many parts of the world and put downward pressure on gold prices. Reassessing "risk-free" assets: Even assets traditionally considered safe are under pressure. German Bunds interest rates climbed in June. The Swiss franc, yen and US Treasuries are also facing issues – challenging their role as assets of last resort. Despite pressures on the price of gold, its lack of credit risk, its liquidity and hedging characteristics has made gold an attractive vehicle for long-term wealth preservation. Correlation between gold and risk assets approaches long-term averages: Gold's correlation to equities and other risk assets fell towards long-run average levels in Q2 helping portfolio diversification. Gold's increased correlation to equities in Q1 was an indirect effect related to a weaker global economy coupled with a stronger US dollar.   Outlook: emerging macroeconomic themes in H2 2012 Deflationary concerns in some countries provide room for further fiscal and monetary stimulus. This may lead to a further debasement of currencies through unconventional monetary policy and an increased risk of future inflation. These factors should provide support for future gold investment. The underlying structural issues that affect the euro zone remain unresolved, despite advances in the formation of more comprehensive burden-sharing mechanisms. In such an environment of uncertainty and higher market volatility, gold will continue to be an asset that investors use to diversify risk and preserve capital. The flight to the US dollar as a safe-haven in the first half of 2012 could be reversed. The US debt ceiling debate in Q3 and federal elections in November, followed by the necessity to confront a US$1.3tn budget deficit will prove challenging to the US dollar. With most currencies under pressure in one form or another, gold is likely to provide a hedging mechanism for investors. MORE...