Mongolia Growth Group: Bruised Or Broken?

Terrier Investing profile picture
Terrier Investing
3.05K Followers

Summary

  • At a sixth of book value with no debt, MGG is very cheap if you believe that Mongolia's tremendous natural resources will eventually be developed.
  • While I believe MGG management is exceptional, I'm also not sure if they have enough levers to pull to create value, while we're waiting for things to clear up.
  • Significant risks from political instability and the Mongolian government's poor fiscal management leave me on the sidelines for now despite the valuation.

Mongolia Growth GroupMongolia Growth Group (OTCPK:MNGGF) (TSX:YAK) is the sort of stock that certain investors usually only dream about - it's trading at a sixth of tangible book value with no debt, the CEO is an owner-operator (and likely a certifiable genius) who doesn't draw a salary, and under the right circumstances, it could be a hundred-bagger. If you want to get contrarian, I'm not sure you can get more contrarian than this.

It's an alluring story on many levels, and one I've wanted to like ever since meeting founder-CEO Harris Kupperman ("Kuppy") several years ago - but I'm obviously glad I've stayed on the sidelines. I couldn't resist taking another look after the complete battering shares have taken since July, and while I want to throw caution to the wind and make this a jockey bet, there are still several issues I can't get over. Since Free Cash Flow 50 wrote a good overview in August (and there's a good writeup on VIC that I'll link to in the next paragraph), I'm not going to waste space repeating the basics - I'll just highlight the reasons why I'm not yet ready to hop on board here.

1: Mongolian Political and Economic Stability Still A Wildcard

Part of the thesis, as expressed by Kuppy and others, has been that investments in Mongolia don't entail the same risks as other frontier markets due to the massive, imminently-to-be-exploited resource potential, as well as the pro-Western government. VIC author AAOI, who wrote up the bullish case in October 2012, went so far as to say this:

"I realize this isn't orthodox opinion but I just don't see Mongolia as particularly risky on an absolute basis or relative to other western developed nations. That's not to say that Mongolia doesn't have its owns very real risks and

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Terrier Investing profile picture
3.05K Followers
Value investor.Seeking Alpha T&C requires me to disclose that I'm a registered investment advisor; regulations require me to reiterate that nothing I say is investment advice - it's just my Monday-morning-quarterback opinion for your entertainment and amusement. Always do your own due diligence, consider your own financial position, and please consult your preferred financial professional before making any investment decision.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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