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Potential targets. We believe Mongolian coal companies and assets are expected to generate strong interest from both global and Asian players. The country holds estimated 160 billion tonnes of coal resources with significant further exploration potential as only 17% of Mongolias territory is explored to date. In our view, a number of Mongolian coal companies, both publicly-listed and private, with coal assets in Mongolia will be the potential targets for acquisitions. Among such companies are SouthGobi Resources (SGQ:TSX), Winsway Coking Coal (1733:HK), Mongolia Energy Corp. (276:HK), Aspire Mining (AKM:ASX), Sharyn Gol (SHG:MO), Gobi Coal Energy (privately-held) and a number of others. In various degrees, these companies would represent access to the Mongolian coal industry for larger, international players. Potential strategic buyers. In our view, now it is the right time for the global and regional coal groups to expand to Mongolia in order to be earlier entrants in one of the worlds largest untapped mining provinces. Such major players as ArcelorMittal, Vale, Xstrata, Glencore, Noble Group, KORES, JOGMEG, Teck Resources and others are already making strategic purchases globally and we expect these well capitalized groups to expand actively into Mongolia. For example, Glencore raised US$10bn in IPO earlier this year and already started to use the proceeds to acquire resource assets globally, including US$1bn acquisition of Optimum Coal of South Africa earlier this month. We believe the Mongolian coal companies will remain one of the most attractive targets for the global and regional mining groups. Proximity to the major coal consumers in Asia, including China, South Korea, Japan and India, and strong outlook for coal international prices make Mongolia an ideal place to expand operations by major coal players. Therefore, we expect the global and regional major coal players, including energy, steel-making and commodities trading companies, to capitalize on attractive industry opportunities in Mongolia by acquiring both publicly listed and private-held coal companies. We recommend portfolio investors to take positions in Mongolian coal companies as M&A activity would lead to higher valuations across the industry amid expected generous takeover premiums (as Banpus takeover bid for Hunnu Coal illustrates).
1 2
Mongolian Mining Corp Kerry Holdings and MCS Holding Mongolia Energy Co Ltd Banpu Minerals Plc Hunnu Coal
MGL HK/MGL
Approximately 150Mt 252.9 Mt contained in M&I category 149.2Mt Exploration Target of between 250Mt and 500Mt. -
100 100
31.05.2011 22.07.2008
3 4 5
HK TH AUS
Khushuut Coal Mine Hunnu Coal Rio Tinto Minerals Development Ltd Peabody-Polo Resources B.V. Peabody-Polo Resources B.V. Mongolian based company
100 12.4 70
154.1 45 40
6 7 8
9 10 11 12
Winsway Coking Coal Holdings Peabody Energy Corp Guildford Coal Ltd (through its subsidiary Terra Energy LLC) SouthGobi Resources Gulfside Minerals Ltd Noble Group Origo Partners PLC
HK US AUS
50 50 100
35 25.8 25
CN CN HK UK
Aspire Mining Ltd Onjuul Coal Property Aspire Mining Gobi Coal and Energy Ltd
20.1 19 15.95 15
14 15
JP SK
16 17 18
HK AU AUS
19 20
AUS CN
21
22 23 24 25
Windy Knob Resources (named to Aspire Mining) Blina Diamonds Polo Resources Ltd Mangreat Ltd Prophecy Coal
AU
Winsway Coking Coal The open-pit Nuurst Khotgor mine, located in Bukhmurun sum, Uvs aimag Shine Shivee LLC Khurgatai Khaikang LLC 8 coal licences located in SouthGobi Region Terra Energy LLC 6 Mining Exploration Licenses and coal propertis with 5 Private Mongolian Companies Ovoot Coking Coal Project Mongolian BML LLC Mongolian Companies Erdenetsogt project Private Mongolian Company Nuurst Thermal Coal Deposit Mongolian Company Private Mongolian Company Berkh Uul JSC Mining Assets "Monster" Coal Property Keen Business Ltd Buyan Coal Project Tsohio Coal Project Well Delight Holdings
10,662.49 N/A
10 51
12 10
06.12.2010 29.12.2010
2.14Bt -
10 7.73 7.7
479.53 13.72
20 80
7 5.8
31.03.2011 11.07.2011
328.58
100
3.5
26.11.2009
AUS VG VG CN
250Mt 125Mt -
2.2 2 2 2
26 27 28
TVN Corporation Ltd Xanadu Mines Lucky Strike Resources Ltd Local Mongolian Companies Mongolia Energy Co Ltd Gulfside Minerals Ltd China Grand Forestry Green Resources Group Hunnu Coal Hunnu Coal
AUS AUS CN
200Mt -
1.5 1 0.9
29 30 31
MGL/US HK CN
0.3 -
32
HK
178.56
100
03.08.2010
33 34
AUS AUS
437.34 437.34
60 60
08.06.2010 02.06.2010
35
HK
100
30.05.2010
437.34
37
Hunnu Coal
AUS
437.34
90
26.05.2010
80
12.04.2010
38 39
HK AUS
437.34
100 80
17.03.2010 11.03.2010
40 41
CAN AUS
125.96 94.39
1.5Bt -
100 100
21.01.2010 22.07.2011
42 43
AUS/HK AUS
437.34
80 15
1,194
15.06.2011 25.01.2011
Contacts
Research Sardor Koshnazarov Dosbergen Musaev Akmal Aminov Rentsendorj Yondon Sales and Trading Zhyldyz Sadyralieva Hoosniddin Hakimov Bolor Ulziisaikhan Narantsatsral Batgerel Head of Research, Oil & Gas Chief economist Associate, Metals & Mining Associate, Mongolian Equities Associate Associate Associate Broker sardor.koshnazarov@eurasiac.com dosbergen.musaev@eurasiac.com akmal.aminov@eurasiac.com rentsendorj.yondon@eurasiac.com zhyldyz.sadyralieva@eurasiac.com hoosniddin.hakimov@eurasiac.com bolor.ulziisaikhan@eurasiac.com narantsatsral.batgerel@eurasiac.com
Addresses: MONGOLIA th Suite 65, 6 Floor, Grand Office Center st Jamiyangun Street 12, 1 Khoroo, Ulaanbaatar Tel: +976 7013 0078 Fax: +976 7013 0078 HONG KONG 33/F One International Finance Centre 1 Harbour View Street, Central, Hong Kong Tel.:+852 2824 8716 Fax: +852 2166 8999
Eurasia Capital is a pan-regional investment bank with a focus on Mongolia and Central Asia. Headquartered in Ulaanbaatar, the Firm offers cross border M&A and advisory, capital raising, sales & trading and research services to its international and regional clients including government agencies, major energy and resource companies, sovereign wealth funds, private equity groups and global portfolio investors. For more info, please visit our website: www.eurasiac.com
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