1. Mongolia
Emerging Wealth in the Final Frontier
Feb 2013

2. Summary
 Key Highlights of Mongolian Economy
 Mongolia Overview & History
 GDP
 Mining
 Inflation and Interest Rates
 Currency
 Stock Market
 Key Economic Date & Commodity Output in 2010 vs. 2020
 Credit Rating
 China : Mongolia’s largest export market
 Mongolia Asset Management
 Mongolia Frontier Fund
Mongolia Asset Management

3. Key Highlights of Mongolian Economy
 Mongolia with its vast mineral resources is expected to be the next Qatar of the
global economy
 Mongolia’s GDP grew by 17.3% in 2011 in real terms. IMF forecasts Mongolia’s
economy to grow at a double digit rate over the period from 2013 to 2017
 The world’s largest untapped copper and gold mine - Oyu Tolgoi is schedule to go
into production in 2013 and is expected to account over 30% of Mongolia’s GDP
 As China’s growth continues, its demand for raw material is powering Mongolia’s
economy. China has been the largest export market for Mongolia’s raw material
Mongolia Asset Management

4. Mongolia : World’s fastest growing economy
Top GDP Growers in 2013 (%)
Mongolia
Macau
Libya
China
Bhutan
Timor-Leste
Iraq
Mozambique
Rwanda
Ghana
0 2 4 6 8 10 12 14 16 18 20
* Source: Economist Intelligence Unit
Mongolia Asset Management

5. Mongolia Overview
 Land 1.56m km2
: The 19th largest & the most sparsely populated country in the world
 Location Bordered by Russia to the north, China to the south, east & west
 Demographics 2.75m
: 59% of the population is under the age 30 and 27% is under the age 14
 Capital city Ulan Bator (45% of population)
 Ethnic group Mongol (95%), Kazak, Russian,
Chinese, Korean
 Language Mongolian, Cyrillic alphabet
 Religion Buddhists (53%),
Non-religious (39%), Shamanism
 Politics Democracy, Parliamentary republic
: Mongolia’s constitution guarantees
several freedoms including
full freedom of expression and religion
Mongolia Asset Management

6. History of Mongolia
 1206 Mongol empire was founded by Genghis Kahn
 1700 Incorporated by Qing dynasty
 1911 Gained independence with the collapse of Qing dynasty
 1921 Gained de facto independence from China
 1945 Gained international recognition but soon colonized by Soviet Union
 1989 The collapse of USSR
 1990 Democratic revolution
 1991 MSE (Mongolia Stock Exchange) was founded
 1992 New constitution
 1993 The first election wins for non-communist party
 2003 Ivnhoe Mines gains license for mining exploration in Mongolia
 2009 Oyu Tolgoi contract
 The biggest foreign investment project in Mongolia’s history
 Expected to account a thirds of Mongolia’s GDP by 2020
Mongolia Asset Management

7. Mongolia : GDP
 In 2006-2010, average GDP growth was +6.4%
 In 2011, +17.3% growth in real terms, and in 2012, +12.7% growth is estimated
 In 2013, +15.7% growth is forecasted by IMF
 GDP forecast to triple by 2015 to US$19bn by IMF
GDP Output by World Bank (USD, bn)
70
60
50
40
30
20
10
0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2015 2025
*2013~2015 are forecasted
Mongolia Asset Management

8. Mongolia : GDP
GDP Growth (%) by IMF in real terms
20
15
10
5
0
2004 2005 2006 2007 2008 2009 2010 2011 2012* 2013* 2017*
-5
*2012 is estimated, 2013 & 2017 are forecasted
Mongolia Asset Management

9. Mongolia : Mining
 Mongolia is know as two world’s largest mining projects
: Tavan Tolgoi and Oyu Tolgoi
 Tavan Tolgoi
 TT mine is considered to be the world’s largest untapped coal deposits
 Total estimated resource of 6.4 billion tonnes, one quarter which is high quality coking coal
 Owned by Erdenes MGL (a government owned company) and the Mongolian Mining
Corporation
 Mongolian government plans to float 20% of Erdenes TT in an IPO on the Hong
Kong, London and MSE (Mongolia Stock Exchange)
 China is the closest and the largest market and a new railroad will connect the deposit to
Japanese and South Korean markets via Russian ports in 2013
Mongolia Asset Management

10. Mongolia : Mining
 Oyu Tolgoi
 OT is considered to be the world’s largest untapped gold
and copper deposits
 OT deposits contain (as of 2010) an estimated 79 billion
pounds (36m tonnes) of copper, and 45m ounces
(1.3bn grams) of gold
 Production is scheduled to begin in 2013 and to reach
full capacity in 2018
 Over the anticipated lifespan of the mine (45 years), OT
is scheduled to produce 450,000 tonnes of copper per
year, 3% of global production.
 OT is expected to produce 330,000 ounces of gold pa
 The OT mining project is the largest financial undertaking
in Mongolia's history and is expected to account for
more than 30% of the country's GDP
 Financing for the project has come in part from
the Turquoise Hill Resources (former Rio Tinto
Group) and an investment agreement between TRQ and
the government of Mongolia
Mongolia Asset Management

11. Mongolia : Interest Rates & Inflation
 Current BoM (Bank of Mongolia) policy Mongolia Average CPI (%)
rate is 12.5% 15
 Major commercial banks in Mongolia 13
currently pays over 15% annually for MNT
term deposits 11
 CPI by BoM is 14% as of Dec 2012 9
 IMF forecasts that inflation will decline to 7
7% by 2017 from current 14%
5
 Drop in inflation is expected to be
positive for both MNT as well as local
equities
* Source IMF (2013-2017 are forecasted)
Mongolia Asset Management

12. Mongolia : Currency
 MNT(Mongolian Tugrik) is the official currency
 MNT is resource and commodity currency similar to the Australian dollar but
with much higher yield and real interest rate
 MNT was the second best performing currency in the world in 2011
appreciating +13% against USD
 In 2012, MNT depreciated by 11.4% against USD. It is due to mining operations
were under heavy development and the demand for USD increased rapidly both
from the public and the government
 After the massive increase in exports due to the production at OT comes to an
end in 2014, MNT is expected to appreciate against USD.
Mongolia Asset Management

13. Mongolia : Currency
USD/MNT
1500
1400
1300
1200
1100
1000
900
800
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2015f
* Mongolian Tugrik
* Source: Bloomberg, 2015 is forecast
USD/KZT
160  From 2000 to 2007, Kazakhstan’s GDP grew
150 between 8.9% and 13.5% buoyed by high crude
140 +20%
oil prices. KZT appreciated by +20% until 2009
130
120
global crisis
110
100  Many Economists predict that Mongolia could
follow the development of Kazakhstan
Source: Bloomberg
Mongolia Asset Management

14. Mongolia : Stock Market
 MSE (Mongolia Stock Exchange) was the best performing market in 2010 up by 121%
and the second best performing market in 2011 up by 52%.
 Market capitalization grew to USD 406m by 2008 from 2006 and then quadrupled to
USD 2bn by 2011
MSE Total Market Cap (USD, m)
 Master Service Agreement between
MSE and LSE (London Stock Exchange) 1800
was signed in April 2011 1600
1400
 MSE to appoint MillenniumIT, same 1200
1000
technology that powers the LSE, BorsaItaliana,
800
JSE (Johannesburg Stock Exchange)
600
and many others around the world
400
200
 MSE Top-20 had outperformed
0
MSCI Frontier Emerging Market Index by
wide margin, and we expect this to continue 2006 2007 2008 2009 2010 2011 2012
Source: Mongolia Stock Exchange
Mongolia Asset Management

15. Mongolia : Stock Market
MSE Top-20 Index MSCI Frontier EM Index
25000 5000
+3700% +180%
4500
20000 4000
3500
15000 +67%
3000
2500
+1450%
10000 2000
1500
5000 1000
500
0 0
Source: Bloomberg Source: Bloomberg
Mongolia Asset Management

16. Mongolia 2010 vs. 2020
Key Economic Data in 2010 vs. 2020 (USD)
2010 Estimated Increase 2020
+600%, +19% pa
 GDP nominal 5 billion 30 billion
+500%
 GDP per capita 2,000 10,000
+2,000%
 MSE mkt cap 1 billion 20 billion
+900%
 Bank Assets 2.8 billion 25 billion
+30%
 USD/MNT rate 1,300 900
*Source : Eurasia Capital Report – Mongolia : 2010 – 2020 outlook, 2020 is forecast by Eurasia Capital
Mongolia Asset Management

17. Mongolia 2010 vs. 2020
Commodity Output in 2010 vs. 2020
2010 Estimated Increase 2020
+1,400%
 Coal 7mn t 100mn t
+500%
 Iron ore 2mn t 10mn t
+250%
 Copper 600,000 t 1.5mn t
+500%
 Gold 10 t 50 t
+1,300%
 Crude Oil 0.3mn t 4mn t
* Source : Eurasia Capital Report – Mongolia : 2010 – 2020 outlook
Mongolia Asset Management

18. Mongolia : Credit Rating
S&P’s Moody’s Fitch Rating
BB- Stable B1 Stable B+ Stable
 Countries in the same category by S&P’s
: Vietnam, Bangladesh, El Salvador, Angola, Nigeria, Serbia, Montenegro, Gerogia
 Countries in lower ratings by S&P’s
: Argentina(B-), Belarus(B-), Cambodia(B), Egypt(B-), Fiji(B), Ghana(B), Greece(B-),
Lebanon(B), Ukraine(B)
 Countries just above BB- by S&P’s
: Costa Rica, Hungary, Jordan, Portugal, Turkey
Mongolia Asset Management

19. China : Mongolia’s largest export market
 China will remain the world’s fastest growing major economy and stimulus spending will
accelerate the pace
 China to add $1.3 trillion in wealth to the global economy in 2013. This is more than
twice the US contribution, 3 times India’s and 10 times Brazil’s – Economist Intelligence Unit
 China to overtake the US to become the largest economy in the world by 2020, to be in
turn overtaken by India by 2050 – Citigroup: Global Growth Generators: Moving beyond
‘Emerging Markets’ and ‘BRIC’, Feb 2011
 China with 1 billion population and high GDP growth, is desperate for raw materials
 China is the largest consumer of Mongolian resources : 92% of Mongolia’s exports in
2011, largest trading partner and largest investor in Mongolia – NSOM (National Statistical
Office of Mongolia)
 75% of China’s imports are resources: nearly 100% of Mongolia’s copper concentrate and
coal exports go to China – NSOM (National Statistical Office of Mongolia)
Mongolia Asset Management

20. Mongolia : World’s fastest growing economy
MAM : Mongolia Asset Management
 MAM (Mongolia Asset Management) is a Mongolia dedicated investment
specialist
 Founded in 2012, Mongolia Asset Management operates MFF (Mongolia Frontier
Fund), a Bermuda registered Hedge Fund
 Mongolia Asset Management is the investment advisor to MFF
Mongolia Asset Management

21. MFF : Mongolia Frontier Fund
 Fund manager Mongolia Asset Management
 Fund administrator APEX Fund Services
 Cash custodian HSBC Bermuda
 Securities custodian Mongolian Securities Clearing House and Central Depositary
 ISIN Number BMG3032V4806
 CUSIP Number G3032V480
 Bloomberg Ticker MONGMFF
Mongolia Asset Management

22. MFF : Investment Strategy
 Mongolian public listed equities
 Mongolian non-listed equities
 Mongolian public listed fixed income securities both government bonds and corporate
bonds
 Bank deposits and Certificates of deposit issued by Mongolian Banks
 Mongolian “theme” stocks that are listed in overseas markets and which derive most
if not all of their economic activity from Mongolia
 Initial Public Offerings of Mongolian companies
 Derivate contracts and futures on Mongolian
commodity exports such as Oil, Copper,
Iron Ore and Gold
Mongolia Asset Management

23. Contacts
 E-mail kjung@mongoliaassetmanagement.com
 Website www.mongoliaassetmanagement.com
Mongolia Asset Management