Steppe on up to Mongolia

EIGHT hundred years on, Mongolia is discovering the reverse of what it was like when the legendary Genghis Khan's hordes descended on, and plundered, most of central Asia.

This time around, the hordes are descending on Mongolia, with the world's mining community looking to take advantage of the tiny state's mostly untapped mineral wealth - not to mention its convenient proximity to China's voracious resources maw.

Mongolia is sandwiched between Russia and China, and not to be confused with the Chinese-controlled ''autonomous region'' of Inner Mongolia along its southern border. Even so, it has not had a lot of freedom over the years to be self-determining. Its biggest source of money, until the collapse, was the USSR, while China has been its major export destination.

In recent years its 3 million people have not only had to deal with drought and other weather extremes, but a hefty 40 per cent inflation rate until not so long ago. It was only as the global financial crisis hit, and commodity prices peeled off, that the inflation rate slowed a little.

When the reformist government last August finally settled years of debate by agreeing to throw open the doors to allow Rio Tinto and Robert Friedland's Ivanhoe Mines to spend $US5 billion ($A5.5 billion) (some say up to $US9 billion) on developing the Oyu Tolgoi gold and copper deposit. To put that into perspective, Mongolia's GDP on a purchasing power parity basis was $US9.5 billion in 2o08, so the foreign money will have a huge impact.

Back in 2007, Friedland also converted the Toronto-listed Asia Gold into SouthGobi Energy, which has the Ovoot Tolgoi coking coal mine in southern Mongolia.

Last month, the country's Prime Minister, Batbold Sukhbaatar, pondered whether he should list separate companies on international markets, somewhat like China did last decade, with one holding mining assets, another the energy assets, and the third infrastructure.

That last would be interesting, because Mongolia's infrastructure is largely under construction. It still sources some of its electricity requirements from Russia, and most of its oil, and has a very limited rail network once you get outside the capital, Ulan Bator.

Still, since the English-educated Batbold's predecessor Bayar Sanjaa ushered in the global mining industry, there have been confident predictions that over the next decade Mongolia will become Central Asia's version of Dubai - in GDP terms, rather than bizarre architecture and over-indebtedness.

A lot of that hyperbole has, perhaps unsurprisingly, sprung from the lips of Mongolian bank chiefs, but there is little doubt the blood is up amid stories of China looking to secure sources of coking coal and Mongolia theoretically having sufficient resources to meet those demands.

As such, deals are starting to emerge among Australian exploration juniors, eager to have some of the gloss of Mongolia rub off on them.

The latest is Windy Knob Resources (ASX code: WKR) which wants shareholders next month to approve getting out of gold exploration and into buying the Ovoot coking coal project (not to mention changing its name to the less colourful Aspire Mining). Windy's Ovoot is not to be confused with SouthGobi's mine. This prospect is almost diagonally opposite across the country, about 180 kilometres west of Khuvsgul Province's capital, Mörön (those accents are important), and 400 kilometres west of the nearest railhead at Erdenet.

It is the right kind of coal, but a comparatively high ash content of 13.8 per cent means it will need washing to lift its value. It also needs other mineral resources, like the nearby Burenkhan phosphate deposit, to be developed to justify the right infrastructure - or be faced with huge trucking bills should Ovoot become a producer. Windy has agreed to buy Ovoot by paying an initial $US500,000 and a bucket of its own stock for all the shares in Mongolian company Khurgatai Khairkhan, which is controlled by 30-something Byambatseren Dorsjuren. Ms Byambatseren will only take 2 million of the 150 million Windy Knob shares for herself, with 146 million of them going to three other people, including close personal friend Gan-Ochir Zunduisuren who will also become a non-executive director. Mr Zunduiseren, who has an MBA from the Hong Kong University of Science and Technology's business school, is a mining engineer by trade and one of four new directors who will go on the Windy Knob board if shareholders give the deal the nod.

The others are David Paull and Neil Lithgow, from Red Island Resources which put together the deal, and David McSweeney, best known for Gindalbie Metals, who will become chairman. McSweeney's Big Fish Nominees has also agreed to underwrite almost 70 per cent of a 100 million share placement to raise $A2.65 million. Red Island was last seen in 2008 stumping around Madagascar looking for uranium and a $4 million float here. It gets $A100,000 when the Mongolian purchase is settled and another $US200,000 to cover costs.

There will be more deals like Windy's as local explorers seize the opportunity for small steps on to the big steppes.


By Ian McIlwraith

imcilwraith@theage.com.au

Source: The Age Newspaper of Australia


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2 comments:

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