M&A Deals in Mongolia: Quest for Resources

Junior resource companies with assets in Mongolia are quickly turning into attractive targets for acquisitions by international investors. Encouraged by the signing of the long-awaited massive Oyu Tolgoi project and the Government’s strongly expressed interest to speed up other major deals, internationally listed companies are snapping up smaller companies with assets in Mongolia. Beyond US1.5bn investments of China Investment Corporation and Temasek into larger companies with operations in Mongolia such as SouthGobi Energy and Iron Mining International, 12 deals worth over estimated US$500mn have taken place in the last six months since Ivanhoe Mines and Rio Tinto reached the landmark Oyu Tolgoi investment agreement in October 2009. Interestedly, these deals involve a diverse group of acquirers from Hong Kong, Canada, the UK, Australia and Japan.
Huge mineral endowments, proximity to China, bullish outlook for commodities, relatively attractive asset valuations and friendly business environment are driving increased interest in Mongolian resource assets. Global majors are already competing for major assets in Mongolia such as the Tavan Tolgoi, the world’s largest undeveloped coking coal deposit. A battle for the Dornod uranium property, majority owned by Khan Resources, a Toronto-listed company, has recently intensified between Chinese and Russian uranium miners.
In our view, local and foreign junior companies with operations in Mongolia will remain attractive targets for acquisitions for international mining companies and investors as the effective way to establish presence in Mongolia. The Central Asian nation with its world class natural resources that are largely underexplored and yet to be developed will also attract private equity and portfolio investors seeking earlier access to and outsized returns in this exciting frontier market.
 

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