MONGOLIA MINING FOR MONEY IN HONG KONG

C O N F I D E N T I A L HONG KONG 000800 SIPDIS STATE FOR EAP/CM, EEB/IFD, TREASURY FOR OASIA E.O. 12958: DECL: 04/29/2034 TAGS: ECON EFIN PGOV PREL HK MG SUBJECT: MONGOLIA MINING FOR MONEY IN HONG KONG Classified By: Acting Consul General Chris Marut, Reasons 1.4 (b) and ( d) ¶1. (C) SUMMARY: A private conference in Hong Kong March 31 brought together top level Mongolian government officials, world class economists, some of the biggest investors in Mongolia and multinational companies to help participants identify the best investment opportunities in Mongolia and how to access them. Promises by government officials didn't boost investor confidence. Instead, attention was focused on those who had been disappointed with Mongolia's investment climate. For most Hong Kong investors, continued regulatory confusion and a government lacking credibility will keep Mongolia in the "prospect" file. End Summary. ¶2. (C) COMMENT: With two large pending mining deals that will reportedly double the GDP of Mongolia, the absence of representatives from Ivanhoe or Rio Tinto, the two largest investors in those projects, was surprising. In a separate conversation, an Ivanhoe board member told ConOff that he was still confident a deal would be signed but had no idea when, noting that the CEO of Ivanhoe has been predicting an imminent deal for over six years. The lack of certainty in Mongolia is clearly keeping Hong Kong investors on the sidelines. Until they see others having success, most are unlikely to put their own resources in. End Comment. ¶3. (U) More than 300 representatives from Hong Kong's biggest banks and private equity firms attended the March 31 conference, jointly sponsored by EUROMONEY/Foreign Investment Foreign Trade Agency (FIFTA) of Mongolia. Panel discussions focused on Mongolia's economic outlook; political, economic and legal reforms currently underway; strategies for financing Mongolia's infrastructure needs; and developments in the mining sector. The mining regulatory environment, specifically regulations affecting the two major mining projects, Oyu Tolgoi and Tavan Tolgoi, were the focus in every panel discussion. Mongolia's Isolated, Get In Now! ================================ ¶4. (U) The Vice Chairman of FIFTA, Zanabazar Battushig, the Mongolian Ambassador to China, Galsan Batsukh, and the Mongolian Deputy Prime Minister Miyeegombo Enkhbold kicked off the event with virtually identical messages: Mongolia was not exposed to the international financial crisis, the current issues surrounding the two major mining deals would be resolved soon and now is the time to get involved in Mongolia's large mining projects. DPM Enkhbold openly discouraged investment in activities ancillary to mining; he said domestic investors are already fully meeting the needs of those markets. He stressed his desire for international investors to focus on the largest mining development projects. No First Mover Advantage ======================== ¶5. (C) Peter Morrow, CEO of Khan Bank, (Note: Khan Bank was privatized in 2003 and is the country's largest bank. End Note) pitched hard for international investment in large mining projects, while simultaneously noting how Mongolia's lack of integration with the rest of the world financial system has protected it from financial contagion. However, comments by Ralph Parks, Chairman-Asia of Oaktree Capital, were the focus of panels and side-bar discussions for the remainder of the conference. Parks, who has been exploring deals in Mongolia for several years but has yet to successfully invest there, was decidedly pessimistic about the government's promises to resolve regulatory disputes and clarify regulatory confusion related to the large mining projects the government was flogging. At the break, Parks was swarmed by scores of delegates who wanted to know why his group pulled out of planned investments in Mongolia and what advice he could offer them. The Vice Chairman of FIFTA and Deputy Prime Minister, who noticeably made themselves available to participants, received no attention from investors. MARUT