Up until recently, the term “Mongolian financial market,” may have been considered an oxy-moron, but with Chinese-level economic growth stemming from coal and copper mining in the nation, that’s soon to change. Mongolia is well-positioned, both geographically and financially, to experience the run-off of Chinese success. The country, only months ago, defined by its third world nomadic culture, sparse tents and herding, is now populated by stock holders. Desolate and lacking in industry, the sudden shift elicits images of Chinese imperialism, but that’s not the case. Rather, the government, having decided to take advantage of their rich natural resources, has awarded Mongolians 538 shares in a coal company that is becoming one of the most anticipated IPOs of 2011.
The gifting of stock in Erdenes-Tavan Tolgoi Ltd., commonly called TT, is an attempt by the Mongolian government to provide incentive for the populace to support the large scale mining in the country. There seems to be a division, as is expected in times of massive change, on whether the mining and P
Mongolia is a cash strapped nation. Its populace relies heavily on small-scale farming and herding, so the rich presence of copper and coal would seem like a stroke of much needed good-fortune. There are; however, certain environmental risks associated with the change, as well as the reality of an absurdly fast economic shift and the implications of that on future. The massive change has the potential to create backlash, as the economy becomes almost entirely reliant on the energy and construction whims of China. Beyond the sudden dependence on their neighboring nation, Mongolia faces the threat of massive inflation.
Already, with the mining money piling up and valuations for a potential IPO mounting, inflation is rocketing. The International Monetary Fund or IMF is predicting inflationary increases of as much as 20 percent by year-end. Property investors are pushing up prices in a frenzied manner as the stock market shines and the sudden stock holders acquaint themselves with the beginning of a new type of economy, that’s coming into view faster than they could imagine.The IMF is predicting that Mongolia’s economy may grow at a 23 percent rate as early as 2013.
As the newly-minted Mongolian shareholders watch their shares appreciate at record speeds, metals and mining investors in the US are perhaps lamenting their positions. Gold for August delivery has been declining of late on the New York Mercantile Exchange, though up slightly higher again on Thursday. Silver fell 4 percent in recent trading. Domestically, declining crude-oil futures and base metals robbed the wind from beneath the wind of gold and silver. Copper was higher for the day.
Southern Copper’s (SCCO) decision to increase its production in 2011 and explore new operations in South America pushed the company higher. Southern Copper plans to increase its copper production at its Beuenavista mine in Mexico to 600,000 tons for the year, up from 450,000 a year earlier. Freeport McMoran Copper and Gold (FCX) has also been on the rise on suspicion that gold and copper have the capacity to continue to rise. The Standard & Poor's Ratings Services said an expectation of high copper and gold prices may lead to a ratings rise for the mining operator. Elsehwere, bridging the gaps between the two worlds is Canadian company, East Asia Mineral Corp, which among other things, mines Uranium out of Mongolia . The company, despite the Mongolian boom, and perhaps a result of its uranium focus on the company, declined.
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