Saturday, February 13, 2016

Mongolia Growth Group appears to be bottoming out

It has been a long drawn out fall for Mongolia Growth Group. Readers may recall that this is a Canadian company that owns top shelf office and retail property in the capital of Ulan Batar. Unfortunately the company has felt the pain of the bad decisions of the Mongolia government coupled with the commodity bear market.

The good news is that the management of Mongolia Growth Group was prescient enough to realize what was happening in the country and took steps mitigate cash outflows from the company.

This has resulted in the company being in a treading water mode waiting for the economy to pick up. I think a bottom may have been finally been reached in the company stock. The last few weeks the stock price has been acting very well and appears to be putting in a bottom.

This may be because of the recent news by Rio Tinto that although they intend on cutting back on capital expenditure they will continue investing in the development of the huge Oyu Tolgoi copper and gold mine in southern Mongolia. 

Walsh said uncertainty and a rapid drop in commodity prices over the past two months had hit all aspects of the global economy, calling for a shift in how the company spends its money.

Rio aimed to slice a further $2 billion off operating costs over the next two years, after having cut $1.3 billion last year, beating its own goal.

It also planned to slice capital spending by $3 billion more than previously flagged over the next two years, although Walsh said that would not be at the expense of its investments in a new iron ore mine in the Pilbara, an expansion of the Oyu Tolgoi copper mine and a new bauxite mine in Australia.

In addition the government of Mongolia recently approved the Gatsuurt gold mine development. Mongolia is heavily dependent on foreign direct investment and it seems that with these news items the pace of investment will turn up from its recent lows. The stock of MGG will benefit as money comes into the country and rents rise and property values increase. The recent upswing in the stock may be sniffing this out. I am adding Mongolia Growth Group back into the portfolio next week. 

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