2012.02.09 ĐОнгОН ŃĐťŃŃĐ˝ ŃдиКн СаŃгиКн ӊнӊӊгиКн йаКдаН, Đ´Ńнд Ń ŃгаŃĐ°Đ°Đ˝Ń Ń Đ°Đ˝Đ´ĐťĐ°Đł...The Business Council of Mongolia
22.06.2010 What investors in Mongolia need to know, Jim Dwyer
1. WHAT INVESTORS IN
MONGOLIA NEED TO KNOW
Jim Dwyer, Executive Director - Business Council of Mongolia
MONGOLIA MINING INVESTMENT, 21-22 JUNE 2010, SYDNEY
I. BCM INTRODUCTION
⢠BCM is a leading stakeholder advocate for businesses in Mongolia. 150
members including several Australian entities - Rio Tinto, Leighton Asia,
Sedgman Consulting, Xanadu Mines, Hunnu Coal, Aspire Mining,
Aquaterra, Australian Embassy-Seoul, Austrade and Mongolian Consul
General in Sydney. Most every large international and domestic corporate
plus SMEs, IFIâs, NGOâs and Embassies.
⢠BCM promotes trade and investment. Over 90 volunteers in 7 BCM
working groups serving as a forum for dialogue with the GoM, public and
BCM members on important âbusiness climateâ issues. Our weekly BCM
Newswire is the strongest source of business, economic and political news
on Mongolia in English (members only). Bi-lingual websites link to BCMâs
Mongolian Mining Supply Chain database of 1,500 registered companies,
90% Mongolia-owned. Monthly BCM member meetings are held in UB
with top government and industry speakers plus networking receptions. In
addition several other special workshops and events are organized.
2. II. INVESTMENT CLIMATE IN MONGOLIA (1)
⢠Mongolian government is open to Foreign Investment in all sectors and
businesses. Nearly US$2 billion has been invested by sovereign wealth
funds during the past year in companies with most or all of assets in
Mongolia. Rio and Ivanhoe are investing another $850 million in Oyu
Tolgoi (OT) in 2010 on top of about $1 billion to date with expected total
investment of $5 billion and production in 2013. Note: Mongoliaâs GDP is
approximately $5 billion.
⢠Property rights are respected for almost all asset types.
⢠One of Asiaâs most liberal ownership regimes.
⢠General trend has been to privatization. E.g. 3 bank privatizations in
1990âs. All but one of 14 banks are privately-owned. Exception is newly
formed State Bank, to act as bridge for good assets of two failed banks.
Should be privatized within 3 years.
⢠Right to own private movable and immovable property recognized under
Mongolian law.
⢠All domestic transactions are settled in Mongolian currency (tugrug).
⢠Affordable capital is scarce within Mongolia.
⢠Political violence is rare, with 9 peaceful presidential and Parliament
elections since 1990.
⢠Homogeneous population - 97%. Relatively young and very literate and
hardworking labor force.
⢠Vocational training is needed for skilled labor. Intense focus of
Millennium Challenge Corp (U.S.) with $50 million in grants plus others
including ADB and OT.
INVESTMENT CLIMATE IN MONGOLIA (2)
3. ⢠Tax regime: 10-10-10 with 2006 Tax Law with corporate deductions
broadened significantly.
⢠Mining windfall profits tax expires Jan 1, 2011. Royalty rates will be
increased from 5% to a graduated scale of up to 10%. VAT tax still
negative for mining without âcreditâ on imported equipment. Tax loss
carry-forwards recently extended from 2 years up to 8 years.
INVESTMENT CLIMATE IN MONGOLIA (3)
III. CAPITAL MARKETS (1)
⢠General status is embryonic. Commercial banking system very much
improved in 1990âs. Other capital markets in formation.
⢠Financial Crisis effects different in Mongolia. No international debt
exposure. No credit swaps, derivatives, housing market collapse. But high
inflation caused by external factors. Lack of local currency reserves at
Central Bank, bank loan portfolios worsened, IMF and other donors
(World Bank and Japan Government) caused budget deficit to be cut back
in connection with funding. Negotiations continue with respect to 2010
Government budget.
⢠Mongolian Stock Exchange (MSE) one of smallest in world. Corporate
governance and disclosure very poor. Prime Minister pushing hard for
reform. Wants large domestic companies and ânational championsâ listed
in Mongolia and on other exchanges. Tender for international
management for MSE underway to upgrade and then have privatized.
4. ⢠Sovereign bond issue of $500 million planned in late 2010, with another
$700 million planned when market conditions permit.
⢠Challenges to be addressed to bring standard practices in the Mongolian
capital markets in line with international standards:
- Increased transparency
- Amendments to Securities Law, Investment Fund Law, and Company Law
to enable new MSE international management to function well
- Modern trading platform
- Increased oversight
- Insider trading legislation
- Corporate governance requirements
- Private equity fund legislation
- Pension fund legislation and regulation
- Clear MSE delisting rules
CAPITAL MARKETS (2)
Table 1 â MSE TOP 20 â Small float
5. Table 2 Foreign-listed Companies with
Mongolian Assets.
IV. MINING SUPPLY CHAIN (1)
⢠Mongolia is a landlocked country, but is growing based upon a very
effective and neutral foreign relations policy. The two big neighbors are
offset by a â3rd neighbor policyâ which includes everyone else â Korea,
Japan, U.S., Canada, the EU and others.
⢠The multiplier effect of foreign investment on the mining supply chain will
be significant, some say 3 to 5 times.
⢠The Mongolian government is and will pay special attention for
Mongolian-based suppliers during the OT construction and operational
periods. It will be announcing objectives such as âBuy from Mongoliaâ.
6. BCMâs Mining Supply Chain Database
- The Business Council of Mongolia has developed and completed a database
comprised of 1,500 Mongolian-based suppliers of products and services (initially
completed with 1,150 entities in mid-summer 2009). These companies registered
based upon a nationwide survey conducted by Sant Maral Foundation as a result
of broad nationwide advertising via newspaper and other forms. The survey was
initiated and funded by Ivanhoe Mines Mongolia.
- The registrants are 90% Mongolian, 5% JVs and 5% foreignâowned. Their
information is classified and included under 23 different industry segments.
- See the links to the MSC database on BCMâs websites â bcmongolia.org and
bcm.mn. We expect to see this database improved significantly over time by an
IT-based entity and become a portfolio for international companies to seek
trusted Mongolian business partners.
- The size of this nationwide database will grow as the ripple effect caused by the
initial splash of the OT agreement spreads. Vocational training will have to be
ramped up significantly to provide trained and qualified Mongolian workers for
this supply chain.
MINING SUPPLY CHAIN (2)
Thank you for your attention.