Justin Kapla, President of SouthGobi Sands LLC, has been under an exit ban from Mongolia for approximately 3 months. His family in Minnesota believe his exit ban, which does not allow him to leave Mongolia, began at the same time as SouthGobi's Australian attorney Sarah Armstrong. Ms. Armstrong's exit ban was lifted just prior to Christmas 2012 on December 24, and it has been assumed to-date that there were no other SouthGobi employees left living under an exit ban in Mongolia thereafter.

SouthGobi Sands LLC is a wholly owned subsidiary of SouthGobi Resources (SGQRF.PK). SouthGobi Resources is 58% owned by Turquoise Hill Resources (TRQ). Turquoise Hill Resources share price was impacted worse than SouthGobi by prior news cycles regarding Ms. Armstrong's exit ban, but both stocks have risen significantly since Ms. Armstrong's travel ban was lifted December 24, 2012.

Photo of Justin Kapla from his LinkedIn home page.

Ralph Keitel works as Principal Investment Officer for the International Finance Corporation [IFC] of the World Bank Group, which concentrates on the private sector. I had the opportunity to meet Ralph at the Syneidesis Group conference in early December 2012 and listen to him present about the IFC's case for investing in Emerging (and Frontier) markets. The World Bank's Antoine van Agtamel is credited with coining "Emerging Markets" in the 1980s while the IFC's Farida Khambata is credited with coining the term "Frontier Markets" (as a subset of Emerging Markets) in the early 1990s.

Why do you care? Because the IFC, as the World Bank's investment arm, is among the most successful investment agencies in the world. Contradictory to popular belief about bureaucracy making business impossible, the IFC, with 184 member countries, is a large institution supported by 184 governments that has averaged

On my Sri Lanka Investing Blog which will be the hub of all my work about Sri Lanka, one of my readers wrote:

It looks to me in a preliminary way that Sri Lanka is in that select category of frontier markets which have a decent chance to evolve and progress into becoming emerging markets. There was a time not that many decades ago when countries we now think as emerging markets, Indonesia, South Africa, India for example, were in the nascent frontier stages of economic development. I believe that is a worthwhile long-term investment theme to consider.

- Valley Boy on Seeking Alpha, December 27, 2012

Sri Lanka has everything necessary to emerge into a higher level middle income country. It is a question of if the right policies are implemented and if businesses are ready to take the next steps.

Why Sri Lanka? Why Now?

I

On December 24 and December 27, 2012, I published two articles calling a bottom and turnaround on the price of Turquoise Hill (TRQ) shares, a company I had previously been negative on. In these articles I mentioned that I believe all Mongolia related stocks would turn positive on the recent news cycle. Mongolia Growth Group (MNGGF.PK) has now moved to the front of the line of other Mongolian companies ready to move up with additional positive news.

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Source: Yahoo Finance Turquoise Hill chart from December 24, 2012, to January 4, 2013.

After the market closed on January 4, 2013, Mongolia Growth Group announced that the company will be up-listing its primary Canada listing from the Canadian National Stock Exchange to the TSX Ventures Exchange (pending final approval).

Mongolia Growth Group's primary business in Mongolia is investing in real estate in Mongolia's capital of

On December 24, I issued a buy signal article regarding Mongolian stocks, including Turquoise Hill Resources (TRQ) and SouthGobi Resources (SGQRF.PK). An article in Xinhua on December 26, 2012, doubles down on this buy signal with some strong words from President Elbegdorj, who is also a member of the ruling Democratic Party in Mongolia. It should be noted that China's Xinhua has a reporter based in Mongolia to cover Mongolian markets.

Mongolian President Tsakhia Elbegdorj says his country should respect the Oyu Tolgoi copper-gold deposit agreement reached between the government and foreign investors and create a better investment environment.

...

The Oyu Tolgoi agreement is a legal document signed by the government and foreign investors after years of negotiations and Mongolia should respect the agreement, he added.

...

Elbegdorj expressed strong disapproval of a law on strategic investment adopted by the parliament in May, saying the measure has worsened

Following my article on Friday Will New SouthGobi Troubles Wreak Havoc On Turquoise Hill?, there has been a reversal in the case. Expect Turquoise Hill Resources (TRQ) and SouthGobi Resources (SGQRF.PK) to be up on the news today. This may, or may not, signal the beginning of a shift in Mongolian political policies and public relations that will allow all Mongolian stocks to rise.

From Yahoo! Finance:

HONG KONG, CHINA--(Marketwire - Dec 23, 2012) - SouthGobi Resources Ltd. (SGQ.TO)(1878.HK) (the "Company" or "SouthGobi") has received notification from the Mongolian Independent Authority Against Corruption [IAAC], that it has concluded its questioning of SouthGobi''s Chief Legal Counsel Sarah Armstrong and that she is no longer a suspect in their investigations. The IAAC has informed the Company that she will shortly be able to leave the country.

The IAAC has also confirmed to SouthGobi that it is

From the Business Council of Mongolia news wire:

SOUTHGOBI RESOURCES INVESTIGATED FOR MONEY LAUNDERING

The investigation into SouthGobi Resources Ltd. and a former Mineral Resources Authority (MRA) head has revealed evidence of money laundering and tax evasion.

The investigation in former MRA Chairman D. Barkhuyag's involvement in the illegal distribution of mining permits has reportedly revealed that SouthGobi Resources avoided paying up to MNT 150 billion in taxes from the years 2007 to 2010.

Furthermore, USD 4.3 billion was transferred to the firm's bank account in Mongolia from Hong Kong, allegedly for an investment into its mining operations. This transferred sum was not reported in the company's annual financial report. It seems most of the money transferred ended up in the hands of Monnis International.

SouthGobi Resources David Lokhav and Dennis Dortaj fled the country during the investigation into them, while company lawyer Sarah Armstrong has been prohibited

On the heels of my recent article about emerging market debt, I was listening to an audio interview with Harris Kupperman where he said how he came to start a hedge fund while in college at Tulane: "When the market crisis happened in 1997, I was just watching it, and watching all these rich old guys losing a bunch of money, and I came to the conclusion if they were losing a bunch of money, someone else has got to be making it."

Emerging market debt is trading near all-time low yields. Someone I know who runs a distressed debt fund did some research after my last article and wrote me:

I asked a [large Wall Street firm] about emerging market default/recovery rates for both corporate and sovereign debt. I was pretty surprised to find out that they had no data, their analysts, despite covering that market,

Recently I published an interview with a local expert that thinks now is the time to buy in Mongolia. My colleagues at Capitalist Exploits also have suggested it is time to jump back into Mongolia markets. Yet, I am not sure people are done leaving yet.

Systemic problems still seem to exist in the banking sector. The financial stability in the banking sector has improved a bit overall. However, the sector is still fragile.

The recently sold infratructure bond is good news for the government. However, the funds still need to be spent, and spent correctly. Yet, days after the capital for the sovereign infrastructure bond was raised (November 29, 2012), the government was faced with the possibility of it's governing coalition breaking up. Far from doing planning on how to spend the bond money and getting the cash into Mongolia's economic system, the government was instead

Primarily covering frontier markets on Seeking Alpha, I never expected to write an article about bond yields. However, it has come to my attention that the legacy of Alan Greenspan and Ben Bernanke has not only led to all-time low yields on U.S. Treasuries (TLT) and T-bills (BIL), but has created low yields in the higher risk world of investing in emerging and frontier market sovereign debt.

This article will begin with a discussion of a specific Mongolian sovereign debt issue (because I have a degree of expertise about Mongolia) before discussing the broader world of emerging market debt, and the wild risks investors are taking currently investing in this debt.

What The Yield?

It was announced on November 29, 2012, that the Mongolian government raised $1.5 billion dollars for sovereign bonds:

A $500 million, five-year bond sold at its launch price of 4.125% yield. A $1 billion, 10-year

Those who abandoned technology investing in 2001 when the NASDAQ bubble burst missed out on fantastic gains in the last decade. Since the technology bubble burst in 2001, those who continued investing in technology crowded into Google (GOOG), Apple (AAPL), LinkedIn (LNKD), and other high-performance names.

In the same fashion, even when the majority of Frontier Markets (FM) and Emerging Markets (EEM) decline, there are always others on the rise.

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Apple is in last place on this chart. Timing matters. Source: Yahoo! Finance, April 2012.

In Dumb Money Still Flocks To Emerging Markets, Howard Gold emphasized the BRICs ETF (BKF) was trading below its 50 and 200 day moving average. John-Paul Smith of Deutsche Bank, a bear on emerging markets for two years, added:

The biggest problem with emerging markets now... is massive government involvement in the corporate sector... there's no comparison with the relative laissez-faire

Sri Lanka is one of many countries covered by the iShares MSCI Frontier 100 Index Fund (FM), an inclusive Frontier Markets fund covering markets from Argentina to Vietnam. The countries in which this index operates provide a good guide to a list of many of the fastest growing economies in the world over the next few decades.

During my two week visit to Sri Lanka in October 2012, the most important questions to answer for prospective investors seemed a clear assessment of the risks of investing in Sri Lanka. Eleven questions were assembled to explore risk in Sri Lanka, and Deputy Governor Dr. P. Nandalal Weerasinghe kindly answered these questions in writing prior to meeting with me in person on 26 October.

Prior to assuming his Deputy Governor position at the Central Bank of Sri Lanka, Dr. Weerasinghe held an Alternative Executive Director position at the IMF in

This summer, Nick Cousyn became the first native English language speaking employee at Mongolia's largest domestic brokerage, BDSec. Mr. Cousyn came to the company with an American resume of working with institutional investors and high net worth individuals as BDSec's new Chief Operating Officer.

Although BDSec primarily trades on the Mongolia Stock Exchange, this interview will focus on the macro market outlook for the Mongolian economy, and companies doing business in Mongolia that are publicly traded in the United States.

In the interview Mr. Cousyn makes recommendations for investors to consider buying opportunities in Mongolia Growth Group (MNGGF.PK), Mongolia Blue Wolf Holdings (MNGLU), and Turquoise Hill Resources (TRQ). As my last three articles on Mongolia have been quite negative, it seemed time to give investors a different view from an expert on the ground in Mongolia who, by nature of his job, has some of the best local

A battle is brewing regarding Mongolia's huge Oyu Tolgoi copper mine which, at full production, will be among the top five copper mines in the world. As discussed in my recent article about Mongolia's politics, the Mongolian government has raised the royalty taxes on Oyu Tolgoi in contravention of the Oyu Tolgoi agreement of 2009, and these additional tax revenues are included in Mongolia's planned budget. Turquoise Hill Resources (TRQ) came out with their quarterly reporting on November 14, 2012. In their report, Turquoise Hill acknowledged the new law pending presidential signature, but said it does not apply.

Request to renegotiate Investment Agreement rejected

In October 2012, the Company, Rio Tinto and Oyu Tolgoi LLC, rejected a request from the Government of Mongolia to renegotiate the Oyu Tolgoi Investment Agreement. The rejection followed the receipt of a letter from the Minister of Mining requesting the parties renegotiate the

I recently attended the Mongolia Investment Summit in Hong Kong on October 30 & 31, 2012. The opening keynote speech by Christopher de Gruben of Make A Difference Investment Solutions was titled The Mongolian Tango. In it Mr. de Gruben suggested that the dictionary definition of Dutch Disease would one day be renamed Mongolian Disease. The outlook for foreigners investing in the country became more dour from there, both inside the convention hall, and even more so in the conversations that took place outside the hall in the corridors.

This article will end on a note of reasons for long-term optimism about Mongolia, but the near-term outlook is not good. If currently invested in Mongolian holdings, evaluate your positions on an individual basis. I stand by my recent article on the three safest companies to hold at this time, albeit with less confidence in the near-term: Mongolian

Mongolian stocks across international exchanges in Australia, Hong Kong, Canada, and the U.S. have taken a beating in the last six months. In the run-up to June's elections this year, there were questions that anti-corruption laws were selectively enforced against some parties more than others. Additionally, a new law on foreign investment was passed hastily before the election largely to prevent the Chinese takeover of a coal mining operation in Mongolia.

Against this backdrop, there has been uncertainty in global markets and buzz about China's economy slowing.

The newly elected government is now settling in and appointments to cabinet-level ministries have been made. In an earlier draft of this article, I noted that this was bringing stability to the political environment vis-a-vis its relation to the investment climate. Unfortunately, this is not true, again.

By my count, for the fifth time in about the last 15 months, members of

Ivanhoe Mines (IVN) made two major announcements on April 18, 2012, that should not have surprised anyone and do not change the volatile outlook for the company through Mongolia's national elections in June 2012. Yet, Ivanhoe Mines shareholders rejoiced and sent the shares 16% higher on April 18 after losing about 25% in the prior 11 trading sessions.

Friedland Resigns

Announcement 1: CEO Robert Friedland and multiple members of the board are resigning. Rio Tinto (RIO) management will step into their place.

We have known this would happen eventually since December 13, 2011, when Ivanhoe Mines lost an arbitration hearing to Rio Tinto that cleared the way for Rio Tinto to take over Ivanhoe Mines. And this has certainly been clear since Jauary 25, 2012, when Rio Tinto raised its stake in Ivanhoe Mines to 51%. Bloomberg wrote two days later that they anticipated Rio Tinto would

In this article:

• New problems for Ivanhoe Mines and SouthGobi Resources.
• Review of the story regarding the West Tsankhi deposit of Erdenes Tavan Tolgoi as it provides a possible timeline for the resolution of the current problems of Ivanhoe Mines and SouthGobi Resources.
• Near-term investing counsel for Mongolia investments: caution and seek opportunistic investments.
• Brief comments on that state of political institutions in Mongolia and the investment climate.
• Brief remarks on why investors in Mongolia should care about how all Mongolia citizens benefit from the country's economic boom.
• Closing words on Mongolia's bright outlook going forward.

There is a new problem for Ivanhoe Mines and SouthGobi Resources which I tried to telegraph might be coming in my previous article based on heretofore unconfirmed rumors I had heard. I submitted my previous article at 5 pm April 15, 2012 and it was published at 2 am the following morning (New

In this article:

• Part 1: Ivanhoe Mines' (IVN) share price is down again, for the 3rd time since September 2011.
• Part 2: A look at select details from the Oyu Tolgoi 513 page technical report that rating agencies and media have cited for Ivanhoe Mines share price decline and downgrades.
• Part 3: Current events may create further price dislocation.
• Part 4: Value opportunities created in junior copper-gold miners operating in the same region by Ivanhoe Mines' recent share price action. Review of the price action in four junior copper-gold miners in the region I discussed previously in November and December 2011.
• Part 5: An in-depth look at two of those junior copper-gold miners in the region, one of which I interviewed in Mongolia in February 2012.
• Part 6: Conclusion and notes.

Ivanhoe Mines' share price is swooning again under the weight of a

The Aluminum Corporation of China's (ACH) recent tender for up to 60% of SouthGobi Resources (SGQRF.PK) has knock-on effects throughout the Gobi Desert in the Mongolian mining complex, and the country of Mongolia. It is not possible to know how this will play out, but it is possible to know there is a lot to consider.

Aluminum Corporation of China, also known as Chalco (and sometimes referred to by its 100% Chinese state-owned parent company's name Chinalco), recently announced an agreement related to Ivanhoe Mines (IVN) and SouthGobi Resources to purchase up to 60% of SouthGobi Resources (also known by its Mongolian subsidiary name: SouthGobi Sands) shares at CAD$8.48. This announcement happened April 1, 2012 (in Canada) before the markets opened in Asia on Monday, April 2, 2012. The tender was made for a 28% premium over Friday's SouthGobi closing