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John Polomny is an individual investor and speculator seeking unique, overlooked, and well researched opportunities and speculations from all over the world.
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  • The Next Phase Of Mongolian Growth About To Kick Off 0 comments
    Jun 23, 2013 12:53 PM | about stocks: RIO, MNGGF

    Good interview of Harris Kupperman, CEO of Mongolia Growth Group, by Chris Tell of Capitalist Exploits. Some excerpts are below.

    Regarding Oyu Tolgoi:

    The real truth is that over the past year, the papers have made advertising profits by beating up on OT, but there was never any real risk that the mine would produce a whole lot of copper. Even more amazingly, it seems to be starting up roughly on time - which is a true rarity in mining.

    Mongolia understands and recognizes that it needs foreign capital in order to build out its dozens of very sizeable mining assets. In addition, it needs foreign capital to finance the infrastructure in general. No one is going to do anything that seriously imperils that. No matter who wins the election next week, I think that the country will continue on the same path of openness, pro-business governance and rapid development.

    On the governments subsidized mortgage scheme:

    The Mongolian Government recently set up the framework for lower interest mortgages. These mortgages will be for 20 years, and are fixed at 8% interest rates. This means that the carrying cost of home ownership will drop substantially - which should allow families that have homes to reduce their interest payments and have more disposable income. It will also mean that families without property can now start on the property ladder with their first purchases.

    This is a really huge development for Mongolia and the property sector. The development of a liquid mortgage market has always been a big focus of our company. It starts with apartments but will eventually lead to lower interest rates for commercial mortgages as well. Lower interest rates will then lead to lower capitalization rates on property assets. Remember, the move from a 15 yield to a 7.5 yield means that your property asset doubles in value. That's a stunningly huge move for a property asset. The creation of a more mature mortgage market is one very big step in this process.

    Real estate prices in Mongolia:

    Prices are increasing rapidly, but it's more like 1 to 2% a month lately. Basically prices are tracking rental increases, and cap rates are staying constant in the low teens.

    The country has several near term catalysts that should begin to change investors perceptions. The Presidential election next week where the incumbent is projected to win should provide some political certainty. Oyu Tolgoi should start shipping concentrate soon after the election in my view. Some larger cross listings of Mongolian companies should happen in the next year or so. I think that if one has the means stocks on the MSE are cheap and through out all this turmoil and uncertainty have been increasing sales and earnings.

    Disclosure: I am long OTCPK:MNGGF.

    Stocks: RIO, MNGGF
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