Prime
Minister S. Batbold is dealing with an imposing challenge: raising the standard
of living for his tiny population of three million people, says a report in the
Financial Post, Canada. Mongolia has done almost everything possible to open
its doors to outside investment in recent years, but Batbold is aware that a
lot more needs to be done. The country is only 20 years removed from the days
of Soviet control, and is still finding its feet as an established democracy.

As
Canadian mining companies in Mongolia know well, breaking free of that legacy
has been a challenge, with rapid progress but occasional missteps along the
way. Like many developing nations, Mongolia is massively rich in natural
resources, but does not have enough to show for it. Its unemployment rate has
remained well above 30% for years, and has remained high despite the rapid
development of its resources in recent years.

Batbold,
an entrepreneur with a successful business background who became prime minister
last year, believes that something as simple as a functioning stock market
would allow Mongolians to benefit from the billions of dollars of investments
being made in the country. Mongolia has had a stock exchange since 1991, and
while it lists many domestic companies, liquidity is extremely poor. It is open
for less than two hours a day and does not have the standards needed to attract
any international companies. “It doesn’t really operate as a capital market,”
Batbold said.

By
the end of the year, he hopes to open a proper international exchange managed
by a leading global player. While the choice has not been made, the London
Stock Exchange Group PLC is the frontrunner. To help kickstart the exchange
into relevancy, Mongolia is planning an initial public offering of Tavan
Tolgoi, a large government-owned coal mine, as well as other state assets that
should be attractive to domestic and foreign investors. Mr. Batbold wants
foreign players with Mongolian business interests to list as well, but that
could be tougher: They remain wary of the lack of international standards and
the general lack of demand from the Mongolian market.

But
as least one Canadian company is eager to take the plunge. SouthGobi Resources
Ltd., the coal-mining spinoff of Vancouver-based Ivanhoe Mines Ltd.,
hopes to be the first international company with a Mongolian listing. It has
already hired an armada of lawyers to help the government deal with the
impediments to foreign listings, from the proper defining of a security to
putting in limitations on directors’ liabilities.

“The
government says it wants [foreign companies] to list on the Mongolian Stock
Exchange. Everyone else says ‘that’s stupid, there are no rules for foreign
companies, blah blah blah,’ ” said Alex Molyneux, SouthGobi’s chief executive.
“But we want to list there because we want the Mongolian public to participate
in this creation of value. And it’s much easier for them if they have a market
at home for the stock.”

While
it may seem far-fetched to investors today, Molyneux envisions a day when
Mongolia is a source of capital along the lines of Dubai, with a powerful
sovereign wealth fund and massive resource-related revenue as it realizes the
wealth from its mineral deposits. He wants to get in early. “Maybe we can only
do USD10 million [on the Mongolian exchange] at first. So what? In Kazakhstan,
the stock market increased 1,000% in size in the space of about six years. It’s
going to happen in Mongolia,” he said.

Of
course, Mongolia’s biggest source of wealth in coming years will be Oyu Tolgoi,
the massive copper-gold deposit being developed in the Gobi Desert by Ivanhoe
Mines and its partner Rio Tinto Ltd. They continue to co-operate despite an
ongoing spat at the corporate level. After years of tense negotiations, an
investment agreement on the project was reached between the government and
Ivanhoe last year. Mine construction is now moving quickly, with about 4,500
people at the site. By the time full production is reached, expected by 2018,
Oyu Tolgoi should make up an astonishing 30% of Mongolia’s gross domestic
product on its own.

Batbold
visited the site with his Cabinet in August and was amazed at what he saw.
“It’s something really astonishing,” Batbold said. “I have never seen such a
sophisticated underground operation. Probably this is even unique on a world
scale.” He views Oyu Tolgoi as just one example of what can happen when
companies from Canada and elsewhere invest in Mongolia, and he hopes it is a
catalyst for more Canadian investment in the country, and closer links between
the two nations across a number of sectors.

“We
see that Canada has made great success in many areas, and we think it’s
interesting to learn from the Canadian experience. Free trade, technology
transfer, mining, agriculture and infrastructure, are all very important,” he
said. “We need to make a more sophisticated institutionalized society here, so
we need to learn from your experience.”