First Site Visit – Mongolia

My first site visit as analyst turned out to be Mongolia. Spent over the weekend to read research paper on Mongolia’s economy. From the impression, it’s an underdeveloped country. After visiting, confirmed with impression, it’s underdeveloped. Poor Mongolian. They could have lived a better lives if they have a better government.

The trip was to visit a coal mine and understand how they operate. We also meet the management of some companies and government officials to talk about the political situation, election and their plan on Mongolia’s economy.

Guess what is the airport’s name? What will be a better name than the most famous Mongolian, Ghenghis Khan?

Mongolia Airport

Taking propeller plane to visit the coal mine in the middle of nowhere.
Propeller Plane

Coal Mine

Coal Mine
Coal Mine

It’s cool to visit a coal mine for the first time. We took propeller plane (my first time again) to fly to a coal mine. We visited the mine, the R&D office, the plant to wash the coal and irrigation system. The coal mine workers are paid much better than the average Mongolian because of the high commodity prices. As a result, many people want to work in the coal mine and other sectors see exodus of talents. This happens in many other countries. Almost a decade ago, stock market was rising strongly, M&A activities were so hot, money was so good in finance, many young graduates chose finance career. They still do to this date, however, finance career is less glamorous and pays not as fantastic as in the past in terms of bonus. The current hot thing is to get into start-ups, which get lots of funding and high valuation. Have a great idea, work very hard for few years, never mind if never make profit, raise more money and become millionaires when more money come in.

Different types of coal
Different types of coal

It’s one thing to see the coal production volume in paper and another thing to see the actual mine itself with our own eyes. How much work and resources are needed to keep digging and digging to mine the coal? The plant to wash the coal is efficient, only few people are needed to run the plant since the coal washing is automated.


What conclusion did I get after visiting the coal mine? Seriously, what I saw was just a few hours of the coal mining operation, so it’s very difficult to judge whether their coal mining operation was very efficient or not.

 Further, coal mining is years long operation with many problems along the way. It can be dangerous to draw conclusion from one day visit to assume that that’s how it’s run everyday. Market changes quickly and frequently.

The visit is useful to add to our experience in this sector and to make sure the asset and operations are indeed there, in existence, not just in paper. It would have been useful if we spoke with the coal miners and they complained that their wages were not paid in last 2 months because the company had cash flow problem. If this was not already in the news, then you got really important piece of information.

Washing the coal
Washing the coal

Dinner at the tent

Dinner in the tent
Dinner in the tent

Next day, we met up with the management. They were friendly and answered questions well. They had many years of experience in the industry and had the numbers on top of their head.

 Afterwards, we met with management of another company, a big conglomerate in Mongolia. Was impressed by how many businesses they controlled in the country. Management looked competent too.

We also met the government ministers. It’s the most uncomfortable meeting I ever had. We were seated at one long table, facing another long table at which the government officials were seated. All conversation were translated from English to Mongolian and vice versa. So essentially a one-hour meeting became a 30-minutes meeting. I felt like we were having diplomatic meeting. Sometimes it’s so funny that the officials gave a long answer, but the translator translated in very short English. Either he missed much of what the ministers said or most of the words said were redundant and not important at all. 15 minutes into the meeting, I knew it’s useless meeting. The answer was always vague, such as still in consideration, still in progress, still in discussion, too early to say. One thing I concluded was that the government was not stable, didnt have competent people in charge, lots of political game in play, and unclear government policy with high risk of change. That was enough.


Hands off
Last, dinner with a head of Mongolia British Chamber of Commerce. A former banker, he had businesses in Mongolia and had been staying there for many years. One sell side analyst, a global economist, asked many questions on the political situation and general economy, while I just enjoyed the dinner with another sell side analyst, who was also quiet. I knew I didn’t have interest in investing in this country. Don’t want to predict the political game, policy changes and foreign currency fluctuation. I believe investment opportunities in developed and other developing countries were better than in Mongolia. The analyst who was quiet was actually covering the coal mining companies in Mongolia. I guess she was like me, not interested in the general political situation in the country. The poor economist was working as hard as possible to gather all information during the dinner. From Peter Lynch, I learn to not forecast the general economy because it’s just not predictable. Even more so for Mongolia.

Back to Singapore, I told my fund manager that the company had good management, but the strong production growth wouldn’t be as easy as expected because it’s subject to some government approval and the government officials didn’t seem that competent. So, the management target could be best-case scenario. We worked out the model and didn’t find it attractive to invest. The intention of the visit was to check if it’s great company to invest in. And luckily we didn’t invest. In hindsight, we should have shorted heavily. With coal price falling, the company had cash flow problem and production missed the target big time. Share price crashed from 2.3 that time to 0.47 now. When the coal price was at the peak in 2011, the share price was 7.2.

Will I ever want to go back Mongolia again? I think there are better places to visit just like I think there are better places to invest our money.


2 thoughts on “First Site Visit – Mongolia

  1. I can’t answer that. My past experience in M&A was only on acquisition of a Singapore-based and China-based company by a Dutch company. It’s a small deal in which the government had no interest. So, we never had to bother anything about law. Both parties closed it with ease.

    As this post is about Mongolia and if your question is specifically referring to M&A in Mongolia, I have no idea how to protect against the local law either. Mongolia’s economy is weak, its government does not seem to me to be good at running it, rules can change often. Tavan Tolgoi coal mine is one example.

    The best thing we, non-experts, should do is avoid investing in such country altogether. Let those experts do the hard one. We look for easier investment.


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