mongolia: investment banking adventure on the grasslands

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Mongolia: Investment Banking Adventure on theGrasslands

October 8th, 2013By Peter Fuhrman

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Investment banking isnt meant to be particularly fun. Theres too much pressure, too much

market uncertainty, too much money on the line. You toil in a big urban office tower, dressed ina suit and tie, and spend sixteen hours a day moving commas around in an Excel spreadsheet.

This may be true for some, or even most, investment bankers. But, it is decidedly not the case forme. My working life is a delight. Occasionally, its better than a boyhood dream of adventureand discovery.
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Take this recent workday: out the door and on the road by 6am to beat the traffic. In 15 minutes,weve left the city behind and cruise south on a two-lane highway. The sun is rising over stubbyhills, more like scattered lumps of clay. Gradually the land flattens, narrow valleys open intobroad vistas of low willowy bush turned a golden autumn color.

Im in Mongolia, and were driving straight across the grassland. For two hours, we drive down astraight paved road, hugging close to the single track railroad line that connects MongoliascapitalUlan Batorwith Beijing to the south and Moscow to the distant northwest.

The train from Beijing chugs by at around 9am, moving slowly, at around 30mph (50kph). I tookthe train once more than thirty years ago. Its a six-day trip from Beijing to Moscow. From thisbrief glimpse, nothing much has changed. Same green-colored carriages, dual diesel locomotivesand a restaurant car. I remember eating well the first day, when the train was still in China. Afterthat, the kitchen crews changed and little or nothing edible came from the restaurant car kitchen.

I ate mainly Chinese preserved duck eggs (and small snacks bought on the platform as

the train crossed Siberia.

Today Im in a comfortable new Lexus four-wheel drive jeep. We stay on the paved road for 120miles (200km) and then turn left onto a dirt road. Its really just a narrow path worn in the grass.We pass a small abandoned Soviet era air base, presumably once meant to be a secret facility 250miles from the Chinese border. All that remains are 30 fortified hangars, a crumbly old runwayand miles of barbed wire fencing.

We take this dirt road southeast another 100 miles or so and then pull into the iron ore mine Ivecome to visit. The whole way along the dirt road we pass nearby huge herds of grazinganimals sheep, cashmere goats, Mongolian horses and cows. We see few vehicles along theroad. Every ten miles or so, set back about one mile from the dirt path, we pass a small grouping

of white Mongolian yurts.

I ask the driver to stop at one, so I can have a closer look and meet the nomads. The driver isChinese, but was born and raised in Mongolia. He translates. We get a very warm welcome fromthe three people living in the two yurts, one of which has a solar panel. Its an older man togetherwith his son and daughter-in-law. This is their summer encampment. They have hundreds ofsheep, horses, cows roaming around.
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The wife urges me to help myself from a bowl of, well, I dont know what. Its a small heap ofbrownish solid irregularly-shaped tubes of different lengths. Something home-made. I preparemyself for something sour and strange. Instead, its sweet and chewy, a preserved candy madefrom yogurt.

Next, the men pour me three cups of their home-brewed alcohol, a slightly-sweet not veryalcoholic drink distilled from cow milk. The flavor is crisp and dry, like a slightly-corkedchablis. By the time Im back in the car, the younger man is atop a horse and riding quickly offtowards a distant ridge.

I first learned about the iron-ore mine from its owners, a Chinese SOE, about four months ago.They bought the mining rights four years ago, built the mine, hired the local workers and beganproducing high-grade iron ore two years ago. Its an open-cast mine working a particularly high-grade seam of iron ore. The rock is over 30% pure iron.

As mining operations go, they hardly get any simpler.Caterpillarbackhoes scoop up rock, whichis then put on a conveyor belt for a simple mechanical sorting operation. This doubles the gradeof ore. From here, the ore is trucked seven miles to a railroad platform the company built. It isloaded on to open freight cars and sent by rail directly to supply a large steel mill in ChinasHebei province. Even though the iron ore price has fallen over the last several years, theMongolian mine makes very good money. It is probably the lowest-cost and highest-quality oresupplier in or around China, the worlds biggest market for iron ore. They dig money out of theground.
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The owners were eager for me to visit. They want to retainChina First Capitalto act as theirinvestment bankers. They are considering a possible sale. While the mine is making very goodmoney, with almost 40% net margins, the SOE is considering a sale for two reasons. The parentcompany is huge, one of Chinas largest mining businesses. Their main business is coal mining.This is their only iron ore mine and only project in Mongolia.

Chinese companies were among the first to secure mining rights in Mongolia after thatcountrys1990 democratic revolution. But, over time, Mongolian policy has gradually shifted.Chinese companies are less welcome. The Mongolians have grown more and more anxious thattheir tiny economy will become too dominated by China. (Mongolian gdp is $15bn, or less than0.2% Chinas $8 trillion.) They know their abundant low-cost mineral resources coal, copper,iron ore will almost all end up being sold to China. But, they seem to prefer when the minesare owned by companies from elsewhere. North America, Europe, Russia are all preferred.

In the two years since it began operating, the mine has made excellent progress. It should keepproducing for another 30-50 years. Its stated reserves are probably less than one-fifth of theactual total. Its all surface-mineable, all high-grade. There are bottlenecks. The company wouldlike to increase the number of loaded train cars it sends south to China. But, its so far been ahassle to negotiate with the Mongolian state railroads. A non-Chinese owner would likely havemore luck. Also, the equipment is not winterized, so they produce and ship ore only about sixmonths a year.

After a lunch of boiled Mongolian beef bones (tastes much better than it sounds), we begin the

drive back, stopping first to visit the rail platform. After that, I jump out of the car once, to climba small hill topped by a pillar of small stones one-meter high. Its a simple TibetanBuddhiststupa. Everywhere, in every direction, the scenery is breath-taking in its simplicity andgrandeur.
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Ive only once before made a car trip across such a large expanse of largely-unpopulated andrarely-visited land. That was 24 years ago, back when I was working as a foreign correspondentforForbes. I was in Namibia, and drove the 200 mile length of the fenced-indiamond miningconcession jointly owned and operated by De Beers.

In general, no one except De Beers senior staff is allowed to enter this huge 10,000 square milepristine piece of Africa. That day I recall seeing a few ostriches running across the sandy desert.The De Beers team mentioned seeing packs of wild elephant.

This day, on the Mongolian grasslands, animals are plentiful. All are fattened by a summer ofplentiful grazing, and look remarkably healthy.

The nomads these days are selling fewer and fewer of their herds. They sell just enough tosupply the demand in Ulan Bator, a city of about 1 million. So, their herds grow larger everyyear by about a net 20%. They have more meat on-the-hoof and more milk than their ancestorscould dream of. Its never been a better time to be a yurt-dwelling Mongolian herder.

But, their lives are still tough, especially during the long winter, when they huddle together intheir yurts, with their animals sheltered nearby. Temperatures can reach minus 40 centigrade.More and more Mongolians are leaving the grasslands and migrating to take salaried jobs inUlan Bator. That city has more than doubled in size in the last 20 years.

I spend a few hours of my free time back in Ulan Bator visiting the citys largest TibetanBuddhist monastery and theZanabazarMuseum, which has the most remarkable collection of19th century Tibetanthangkas,painted and applique, Ive seen anywhere. To my knowledge,theres nothing comparable left in Tibet or elsewhere in China.
http://www.forbes.com/http://www.forbes.com/http://www.forbes.com/http://www.namibweb.com/sperrgebietpark.htmhttp://www.namibweb.com/sperrgebietpark.htmhttp://www.namibweb.com/sperrgebietpark.htmhttp://www.namibweb.com/sperrgebietpark.htmhttp://en.wikipedia.org/wiki/Zanabazarhttp://en.wikipedia.org/wiki/Zanabazarhttp://en.wikipedia.org/wiki/Zanabazarhttp://en.wikipedia.org/wiki/Thangkahttp://en.wikipedia.org/wiki/Thangkahttp://en.wikipedia.org/wiki/Thangkahttp://www.chinafirstcapital.com/blog/wp-content/uploads/2013/09/Mongolian-stupa1.jpghttp://en.wikipedia.org/wiki/Thangkahttp://en.wikipedia.org/wiki/Zanabazarhttp://www.namibweb.com/sperrgebietpark.htmhttp://www.namibweb.com/sperrgebietpark.htmhttp://www.forbes.com/


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Im fortunate to own a small collection of antique thangkas. Id been waiting twenty years tovisit the Zanabazar Museum.

I should have a chance to come back to Mongolia next year, once the frigid winter passes.Maybe this next trip Ill be bringing along some potential buyers for the mine. Im doing exactlythe kind of work I most enjoy, for clients that are a pleasure to work with. Every place I travelfor work Im welcomed with the greatest degree of hospitality, fed and housed royally.

Two other positives of my job: I need to open Excel only occasionally, and I almost never haveto wear a jacket and tie.
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mongolia: investment banking adventure on the grasslands

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