Please click here for our 2012 Mongolia Outlook report with TOP12 to Watch For in 2012.

Key Highlights:


1. Industry consensus view is that furious expansion of the Mongolian economy will continue in case of favorable commodity prices. GDP growth is forecasted between 15.1% to 16.6% for 2012 but forecast do not assume significant falls in commodity prices and therefore growth will be potentially more subdued and less then these rates in case of softening of commodity prices. Growth from private sector (OT, TT and others) will continue but lower commodity prices resulting in lower tax receipts will mean lower growth from Government expenditures. Most infrastructure spending (fundamental driver of growth) still comes from Government.   Mongolia is completely at the mercy of commodity prices being a mineral dependent economy and bust is just around the corner. If commodity prices fall the growth will follow. 

2. Double Digit Inflation in 2012. How high would be double digits.

3. After 13% appreciation of MNT in 2010, Bank of Mongolia’s reference rate of  togrog against USD depreciated by 11% in 2011 due to four times annual increase in current account deficits and increase in short-term demand for foreign exchange. Trend in exchange rate in 2012 will depend on Mongolia’s terms of trade condition, foreign exchange supply and demand, market participants’ expectation, market sentiment and Bank of Mongolia’s policy measures.

 4. Progress and investments at OT are critical for growth of Mongolian economy.  OT appears to be on track and close to closure of funding. Latest developments include: Facilities required for first ore production in mid-2012 remain on schedule and commercial production is expected to commence in the first half of 2013. The stringing of power cables is expected to commence in spring 2012. Bilateral agreement is expected in 2012 to ensure that imported power will be available at the Oyu Tolgoi site by Q3’12. Oyu Tolgoi LLC is finalizing a study of alternative power-generation arrangements if it became apparent that interim imported power would not be available by Q3’12. Ivanhoe Mines, Rio Tinto and a core lending group are working together to finalize an approximate $4.0 billion project-finance facility for the Oyu Tolgoi Project, with the objective of signing loan documentation in early Q2’12 Rio Tinto’s raised interest in Ivanhoe Mines from 48.5% to 49.0%.   According to Ivanhoe Mines, one result of the recent arbitration decision is that Ivanhoe’s Shareholders’ Rights Plan remains in effect and applicable to all shareholders, including Rio Tinto. Anti-dilution rights granted to Rio Tinto by Ivanhoe Mines in the 2006 Private Placement Agreement also remain in effect. Rio Tinto’s maximum permitted interest in Ivanhoe Mines remains capped at its current level of 49% until January 18, 2012. The Shareholders’ Rights Plan does not expire until April 2013. Rio Tinto’s ownership in Ivanhoe Mines is now at the maximum permitted level of 49.0% until the current standstill limitation expires on January 18, 2012. After that date, Rio Tinto is free to engage in the currently prohibited activities if it so chooses, subject to the provisions of its contractual agreements with Ivanhoe Mines and the provisions of the Shareholder Rights Plan. According to Rio Tinto in December 2011, an independent arbitrator has upheld Rio Tinto's claim in respect of Ivanhoe Mines' Shareholder Rights Plan. This means that after 18 January 2012, Rio Tinto has the ability to purchase additional shares in Ivanhoe beyond its current holding of 49 per cent without being diluted by the SRP. The arbitrator dismissed Ivanhoe's counterclaim and ruled that Rio Tinto did not breach the Private Placement Agreement with Ivanhoe. From 19 January 2012, Rio Tinto will no longer be subject to a standstill agreement with Ivanhoe. Thereafter, Rio Tinto may seek opportunities to increase its shareholding in Ivanhoe to a majority position but currently has no intention of making a full takeover bid for Ivanhoe's shares. Rio Tinto reserves the right to change its intention in the future. So, when Rio will take over Ivanhoe?

5. TT ramp up: ETT to export 3Mt in 2012.  In 2012 prices to offtaker Chalco are to be adjusted according to agreed index.ETT to build parallel 2 lane paved highway beside MMC highway, construction to start in mid-2013. If there is a successful IPO for TT then this will also drive investments in 2012 and 2013 and maintain growth. If TT cannot raise money for mine development then infrastructure like rail could be delayed and wait until West Tsankhi is developed or MMC is allowed to build their rail to China. With lower commodity prices it will be more difficult for local mining firms to IPO and there could well be disappointing valuations. TT south railroad to be started at the same time as the one to the east to Sainshand Industrial Hub.

6. With ramp up of South Gobi coal producing region coal exports including value-added(washed) are to be yet again record in 2012. Frontier Securities estimates that 2012 volume would be in a range between 25-30 million tons per annum and value of 2.25-2.75 billion USD. Although there is a lot of progress with coal highways, industry consensus view is that still, infrastructure capacity is increasingly becoming a constraint to export growth. With softening prices the total value of coal exports is unlikely to increase as much as the new tonnage, however, with new volume compensating for price softening.

7. Yet again record iron ore exports and softening commodity prices in 2012. Gold to remain a Tier 2 export commodity despite favorable prices in 2012.Frontier Securities estimates volume of iron ore exports in 2012 to be in a range of 8 million tons and value in a range of 500 million USD. Frontier Securities estimates volume of copper exports to remain virtually the same as well in 2012 and value to be in a range of 1 billion USD.

8. Will banking super profitability continue in 2012 with prevention of buildup of risk during current economic boom? Will strong progress in agriculture continue? Is there a bubble emerging in construction sector?

9. Investor receipt of Development Bank of Mongolia Eurobonds would be an early benchmark for investor appetite for Mongolian growth in 2012.

10. If successful, TT IPO will dominate major Mongolian IPO-s in 2012. If listed, Iron Mining IPO would be the largest and first Mongolian iron ore IPO. MSE needs to work harder to establish itself as a preferred location for exploration company listings.

11. MSE has been best performing stock market in the world in 2010 with growth of over 130% and despite recent downturn still managed to be the second best performing stock market in the world in 2011 with 47% growth after Venezuela’s Caracas Stock Exchange. However, liquidity is tiny: as of December 6,2011 total volume of stocks YTD has been 119 million shares resulting in total turnover YTD of 100 billion MNT(74 million USD) We expect that that best performance trend will continue MSE will be one of the best performers in 2012 as well. We expect market cap and daily equity average turnover consistently increase in 2012, however gradually. 

12. DP is exiting Coalition government to prepare for elections without burdens of official  positions. What would be the outcome of Parliament Elections in 2012 and whether Coalition Government is over for the elections only or indeed over for good?


These increased global and domestic risks make Mongolia enter a phase reminiscent of pre-crisis years. The approved 2012 budget is leaving Mongolia vulnerable to a bust similar to the one that occurred in 2008-9. Accordingly, pro-active, prudent and risk-averse investment management is now needed more than ever, as the economy shows signs of overheating while global and domestic risks are rising, and mineral prices are falling.  Mongolia’s future road is certainly not clear of bumps yet ripe with rewards as never before.