James Passin of Firebird Management discusses Firebird being the first institutional investor in Mongolia starting in 2006. Firebird accumulated positions on the Mongolian Stock Exchange during periods of low liquidity and market distress. Firebird gained control of Sharyn Gol, one of Mongolia's largest mining companies, and led its restructuring. Firebird believes in championing corporate governance to increase investor confidence and equity valuations over the long run. The presentation outlines Firebird's view that Mongolia's stock market is poised for significant growth as international interest increases due to the country's economic growth and mineral wealth.
Being the First Institutional Investor in Mongolia
1. “Being the First Institutional Investor in Mongolia”
James Passin, Principal
Firebird Management LLC
Discover Mongolia – 2011
International Mining Investor’s Forum
September 8th, 2011
Ulaanbaatar
2. Legal Disclaimer
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3. Legal Disclaimer -- Continued
There are special considerations associated with international investing, including the risk of currency fluctuations and
political and economic events. Investing in emerging markets may involve greater risk and volatility than investing in
more developed countries. Due to their narrow focus, sector-based investments typically exhibit greater volatility.
Investors should be aware that hedge funds often engage in leverage, short-selling, arbitrage, hedging, derivatives, and
other speculative investment practices that may increase investment loss. Hedge funds can be highly illiquid, are not
required to provide periodic pricing or valuation information to investors, and often charge high fees that can erode
performance. Additionally, they may involve complex tax structures and delays in distributing tax information. While
hedge funds may appear similar to mutual funds, they are not necessarily subject to the same regulatory requirements
as mutual funds.
Past performance is no guarantee of future results.
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4. Legal Disclaimer -- Continued
No warranties
As FG2 Advisors, LLC (“Firebird”), nor any entity affiliated with Firebird, is NOT an investment fund for the purposes of
the Securities Markets Law of Mongolia and it makes no representations or warranties in relation to this presentation or
the information and materials provided on this presentation.
Without prejudice to the generality of the foregoing paragraph, Firebird does not warrant that the information on this
presentation is complete, true, accurate or non-misleading. Nothing on this presentation constitutes, or is meant to
constitute, advice of any kind. If you require advice in relation to any legal or financial matter you should consult an
appropriate professional.
This overview is for informational purposes and is not an offer to sell or a solicitation of an offer to buy any securities
and may not be relied upon in connection with the purchase or sale of any security as described herein. Nothing herein
should be considered a recommendation by Firebird of any security, assets or investment.
Firebird will not be liable to you in relation to the contents of, or use of, or otherwise in connection with, this
presentation.
Reasonableness
By using this presentation, you agree that the exclusions and limitations of liability set out in this presentation disclaimer
are reasonable.
If you do not think they are reasonable, you must not use this presentation.
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5. Mongolian Stock Exchange (“MSE”)
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MSE Top 20 Index
World’s Best Performing Stock Market
2010 - 2011
MSE Trading Floor
Limited Liquidity and Price Action
2005 - 2009
6. 6
Firebird – Pioneering investor in Mongolia
• Firebird first started accumulating shares on the Mongolian Stock Exchange
(“MSE”) in 2006
• Firebird used the 2008 global financial crisis and 2009 – 2010 Mongolian
banking crisis as a means of consolidating its ownership positions
• Awarded “Top Investor in Mongolia’s Capital Markets” in 2011 by joint
committee of the Mongolian Stock Exchange (“MSE”) and Financial
Regulatory Commission (“FRC”)
• Gained control of and led restructuring of Sharyn Gol JSC, one of the
largest thermal producers in Mongolia
• Firebird was fortunate to invest in Mongolia before its fundamental merits as
a frontier market were broadly understood
7. Essence of Firebird’s Approach
• Accumulate largest possible position in all stocks while market is quiescent
or distressed
• Identify undervalued or underperforming companies with strategically
important assets
• When necessary, exert influence through voting of shares
• Seek to champion corporate governance and transparency
• Provide bridge capital for restructuring initiatives
• Assist companies in attracting equity and debt capital from international
investors
• Generate highest possible returns through long-term, sustainable increases
in equity valuations
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8. The Mongolian Stock Market Epochs
• 2006 – 2008: “Dead Zone”
– No liquidity
– Limited transparency
– Inadequately capitalized market participants
– We took the view in that Mongolia’s great “Mineral Rush” was imminent – the
catalyst for igniting interest in the market
• 2009 – 2010: “Consolidation”
– Ivanhoe reaches deal with government – dawn of the “Mineral Rush”
– Government advances capital market-friendly policies
– Sharyn Gol JSC (“SHG”) and certain other companies launch visible corporate
governance initiatives – building investor confidence
• 2011 – ?: “Mother of All Bull Markets”
– Exploding international and domestic interest in the MSE
– LSE management contract
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10. Corporate Governance Cycle – Amplification of
Underlying Economic and Market Cycle
• Firebird is a proponent of focusing on corporate governance, even in early stage
frontier markets
• Propagating corporate governance culture may increase investor confidence and lead
to a permanent rerating of equity valuations
• The leaders in corporate governance and transparency will be the first to launch
GDRs and dual listings
• LSE leadership will accelerate the improving corporate governance cycle
• Rising confidence levels will enable early investors to monetize investments during a
prolonged period of liquidity expansion
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11. Mongolia’s New Capital Market
• World’s fastest growing economy
• Strong political support for capital markets
• Exploding media coverage
• Entrance of new funded foreign market participants
• Rising influence of well funded Mongolian business groups
• LSE providing needed leadership, technology, and marketing to the MSE
• Supportive and proactive government policies
• New flotations will help to absorb liquidity and prevent the formation of
unsustainable “bubbles”
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13. Market Characteristics Inconsistent with Topping Process –
Despite New Abundance of Global Media Coverage
• Poor relative liquidity
• Archaic settlement procedures
• Limited sell side research
• Foreign investors focused on internationally listed Mongolian proxies
• Market caps of many listed stocks near zero
• Evidence of improving profitability
• Rising dividends
• Declining interest rates
• Lack of deep foreign and domestic investor participation
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14. The “Mother of All Bull Markets”?
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Rising Asset
Prices
New Foreign
Funds
New Access
Products
Mongolian
Business
Groups
Mongolian
Retail
Investors
Growing
Media
Coverage
Growing Tugrik
Demand
Declining Rates
Surging Tax
Revenue
Loose Fiscal
Conditions
Investor-Friendly
Government
Policies
Enhanced MSE
Architecture
Momentum
BUYING
PRESSURE
LIQUIDITY
EXPANSION
Falling Cost of Capital
Rising Corporate Profitability
15. Key Visible Risks to Mongolian Story
• Global macro shock
• Flood of foreign capital – potential for high profile
business disputes
• Political “noise”
• Inertia
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16. 16
“A great wall of domestic liquidity will
support the local stock market, creating a
new bull market which will last for decades.
The local stock market currently has
depressed valuation and almost zero
liquidity… The Ivanhoe deal marks the
beginning of the Mongolian mining boom
and I think the most leveraged long-term
way to play this mining boom is through the
local stock market.”
- James Passin, The Energy Report,
November 2009
17. THANK YOU
FG2 Advisors LLC
152 W. 57th St., 24th Floor
New York, NY 10019 USA
Tel: (1) 212 698 9260
Fax: (1) 212 698 2666
www.fbird.com
Contact: Ellen D’Aleo, Client Services
Email: edaleo@fbird.com
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