research portal specializing in sector research for independent
investors issues an exclusive interview with Mr, Harris Kupperman,
Chairman and CEO of publicly traded real estate company in Mongolia.
Mongolia Growth Group (TSX.V YAK; OTC: MNGGF).Q: Investorideas.com
For investors that don't know your company
, can you give a brief history and summary of why you are positioned in Mongolia and what directed you there personally? A: Mr, Harris Kupperman, Chairman and CEO
Over the past decade, Mongolia has been one of the world's fastest growing economies with growth rates as high as 17% in 2011 and over 11% in the first 9 months of this year. Over the next decade, I think that the growth rate accelerates as the giant mines ramp up their production of copper, gold and coal. This will create a massive wealth boom. As an investor, I want to go where the growth is--hence Mongolia.
The problem was that before we built MGG, there was no way to get exposure to that growth. There are a handful of mining companies, but I don't know anything about geology. What I know is that these mines are being built and the average Mongolian will see a huge increase in his net worth because of the mines. That will translate into a boom in consumer spending and I wanted to get leverage to that growth, so I built MGG to put my own money into Mongolia. To date, I've invested over $3 million in shares of MGG. With the help of other investors, many of them close friends; we have raised capital and built a portfolio of assets
focused on the growth of the consumer. Of course, given the dramatic GDP growth that we've already seen since we started the company, we have sizable gains on our property portfolio. However, this is just the beginning. If you look at the evolution of cities, it is all about going to the capital city, acquiring properties in the best locations and then letting the economic growth work for you. There is over $2 trillion worth of resource wealth that is in the ground, and that wealth will be mined over the next century. This will be a very long- term bull market.
Q: Investorideas.com
What has your portfolio consisted of to date? - And you note in your last newsletter that you are shifting company assets away from smaller properties that are proportionately more expensive to maintain and manage; towards larger institutional-quality assets that are easier to scale. Can you expand on this strategy?
A: Mr, Harris Kupperman, Chairman and CEO
When we first arrived in Mongolia, the key was to learn
how to do business there--to learn how the market worked--so we
purchased about 30 smaller properties. This gave us a great early
portfolio where the risk of making a mistake in portfolio selection was
negligible in terms of our company's future. We got to build a
management team around those assets and it is now the only institutional
property platform in Mongolia. We are now selling those assets as we have learned the necessary lessons. Our focus was always to own larger, institutional quality assets that are tied to consumer spending and we are migrating into those assets. In another year, our portfolio will consist primarily of retail assets on the main streets in downtown Ulaanbaatar.
When Mongolians go out shopping or dining, we want them to be doing it at our locations. Thus far, we are quite happy with the results. If you look at our numbers, in October, our average rent increased by 21.4% compared to the prior year. That is pretty much unheard of in a mature real estate market like you find in the United States. Getting growth plus income at the same time is the reason that I've gone to invest
in Mongolia. Q: Investorideas.com
Can you give us first hand insight as to what kind of changes and expansion you are seeing in Mongolia?
A: Mr, Harris Kupperman, Chairman and CEO
In the past 3 years we have seen dramatic change in every aspect of the economy. To start with, the GDP has almost doubled. Think about that for a second--the GDP has doubled!
This has led to a consumer boom and a sizable middle class. We see new businesses popping up everywhere to supply goods to these consumers. Everyone is buying a new car or getting a bigger apartment. Everyone wants the things that we take for granted here in the West--and for the first time, Mongolians can afford those things.
In addition, we have seen the government really embrace this growth. This summer, the government passed multiple laws targeted at increasing foreign investment and making the business climate even friendlier to foreigners. Over time, I think Mongolia will become a favored place for foreign investment, much like Singapore or Dubai.
Q: Investorideas.com
In your recent newsletter you note that On October 28, the Ministry of Mining for Mongolia signed an MOU with China's Shenhua Group Corp. to supply 1 billion tons of coal over the next 20 years. What environmental concerns does that raise to your as a real estate company? And on that note do you think Mongolia can learn from the environmental mistakes China made in its rapid industrial expansion?
A: Mr, Harris Kupperman, Chairman and CEO
In terms of our operations, I think that the environmental impact will be negligible. These mines are hundreds of miles from Ulaanbaatar. Mongolia is working to improve the environmental impact of mining. In terms of making the mistakes that China has made, you have to remember that Mongolia is a democracy. If they do not adequately monitor the mines, the politicians will be voted out. This is a big difference when compared to China--so politicians are taking the environment quite seriously here.
Q: Investorideas.com
What do see as the biggest opportunity and challenge over the next five years as growth accelerates?
A: Mr, Harris Kupperman, Chairman and CEO
No country has ever grown as quickly as Mongolia currently is. The biggest challenge is that things are simply growing too quickly. The demand for things like electricity and transportation infrastructure are outstripping the ability of the country to add capacity. That's what happens when your economy grows at 1% a month. The government is working to address these issues, but no country has ever grown as quickly as Mongolia is--so there is no playbook to work off of. It's difficult to plan for the needs of the country in 5 years. Unfortunately, if you don't start planning for power plants today, they won't be ready in 5 years.
In terms of opportunities, when your economy doubles every three to four years, everything is an opportunity. I think the real thing is to figure out what Mongolia will need in five years, and then bring it to Mongolia in two years. For us, that means upgrading our retail locations and getting ready for the day that international brands show up and need top quality locations. We want to be the first choice as landlord for all of these brands and over the past year, we have been approached by numerous international brands that are looking to set up a presence in Mongolia.
Q: Investorideas.com
Currently you state you are the only publicly traded company positioned in your space in Mongolia? Do see signs of that changing anytime soon with new players coming to market?
A: Mr, Harris Kupperman, Chairman and CEO
I am actually quite surprised that no one else has shown up and tried to copy us--especially given the success that we've had. I am sure that they will come, but the longer that takes, the stronger our first-mover advantage will become. Naturally, I welcome the competition as it validates what we've created thus far.
MGG (YAK: Canada & MNGGF: USA) is a fully integrated and self-managed real estate investment company
,
and one of the largest owners and operators of high-quality commercial
properties in downtown Ulaanbaatar, Mongolia. The Company focuses on
acquiring, owning, managing, and redeveloping top-tier retail,
commercial, and office properties that are strategically located,
undervalued, and possess significant supply constraints. Learn more at www.MongoliaGrowthGroup.comAbout InvestorIdeas.com:
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* Silver equivalency for the PEA includes silver, gold and copper
and excludes lead, zinc, molybdenum and tungsten values. Price ratio for
Ag: Au is (54.4:1), Ag:Cu is (7.3:1), both based on 5 year historic
metal price trends of US$22/oz silver, US$1200/oz gold, US$3/lbs.
copper. Metallurgical recovery is incorporated as recoverable metal.
Provisions for $8 million of working capital and $6 million in mine
closure have been made as part of the economic analyses in the PEA.
No smelter penalty charges for deleterious metals were applied to
the concentrate for the PEA. The study assumes that silver copper
concentrate will be shipped overseas by trucking from site to a port in
Mexico which is the most used route for concentrate producers in
operation near La Joya.
The bulk silver copper concentrates from preliminary results
produced from Manto and Structure composites show certain potentially
deleterious elements for smelting such as arsenic, antimony and bismuth.
Adding cyanide at cleaner flotation stages reduces the arsenic content
to acceptable market limits without sacrificing copper, silver and gold
recoveries. Additional test work is in progress to assess the
distribution, concentration and potential reduction of antimony and
bismuth.
* Silver equivalency for the resource estimation filed on March
27th, 2013 includes silver, gold and copper and excludes lead, zinc,
molybdenum and tungsten values. Ag:Au is 50:1, Ag:Cu is 86:1, based on 5
year historic metal price trends ofUS$24/oz silver, US$1200/oz gold,
US$3/lb copper. 100% metallurgical recovery is assumed. Classified by
EBA, a Tetra Tech Company and conforms to NI 43-101 and CIM definitions
for resources. All numbers are rounded. Inferred Resources have been
estimated from geological evidence and limited sampling and must be
treated with a lower level of confidence than Measured and Indicated
Resources. Note that AgEQ calculation for resources is different than
PEA economic analysis based on change in metal prices. Mineralization
boundaries used in the interpretation of the geological model and
resource estimate are based on a cut-off grade of 15 g/t AgEq using the
metal price ratios described above.
* 41 Optimized pit shells have been generated by keeping the
parameters used for the Whittle optimization constant (Operating Costs,
Metallurgical Recoveries, Pit Slope Angles and Discount Factor) and by
varying the Revenue using a range of metal prices illustrated in the
table above.
The 5,000 tpd processing plant will be comprised of crushing,
milling and standard flotation facilities with production of a
silver-copper concentrate as well as a gold-silver leaching circuit for
re-treatment of tailings. The PEA adopted as a guideline a mitigation of
environmental and social impact by minimizing the footprint of all
proposed operational facilities in the region.