BERAL, INC.
Andrew Racz
Director of Research
300 East 54 Street, Suite 26C
New York, NY 10022
Phone: (212) 319-6949
Fax: (212) 753-1944
E-mail: mlikar@aol.com

Prime Minister of Mongolia

December 3, 2008

Mr. Prime Minister:

May I first of all congratulate you on forming a new government and a coalition with the Democratic Party. I have no doubt that you are dedicated to making what is called a big change in Mongolia because of your mineral resources, and currently you are working for a final solution.

May I at the same time point out to you that factors which we have not seen a year ago, even nine months ago, have come into the picture. I am talking about the tremendous commodity price fluctuation which affects every aspect of the Mongolian situation. The decline of copper made drilling very expensive in terms of output, and the uncertainty of the future makes the Ivanhoe Group hesitant to commit billions of dollars.

The kind of forms you have been discussing in my opinion are no longer valid. You cannot assume that the price of gold will be comfortable at $800 and may go to $1,000. In a deflationary environment, the price of gold could easily go to $300 or $400, and in an inflationary environment it will go to $2,000. Your Excellency will readily appreciate that there is ten times as much gold in tonnage in the hands of central bankers than is mined up every year. In other words, the price of gold is no longer a certainty at any price.

As far as copper is concerned, you have to look at the charts for the last twenty years and come to the conclusion that you are paying Russian roulette. A possible world depression could keep copper at $1.50 for years.

All this represents two ideas. One, agreement which favors one party under one set of circumstances could be a horrible outcome for another party under different circumstances and, in fact, and this is the real danger, the project could stop and you may have five or six years before any copper or gold will come out of the ground.

That is why I have decided to calculate the possibility of a fair, workable and plausible solution to an agreement between the two parties. In the world of fluctuating commodity prices, each party has to accommodate not its own interest but the interest of the other party. Otherwise there is no deal, and if there is a deal it will not last forever.

I would like to remind your Excellency of the so-called Versailles agreement which Mr. Churchill said "is not a peace treaty; it's an armistice for twenty years". Mongolia cannot afford twenty years of disagreement, and it certainly cannot afford a collapse in the construction of gold and copper mines in Mongolia.

History has created many mistakes. In 1945, Stalin defeated the Germans with the help of the United States and Great Britain. Instead of retaining friendships with the other world power, the United States, and benefitting from the Marshall Plan, it has engaged in an imperialistic expansion which covered my country, Hungary, and Mongolia, your country. The result was a total failure for Russian economics.

In 1910, Napoleon ruled the whole of Europe. He went to Moscow in 1812 and the Napoleonic empire collapsed.

Let me tell you what I would suggest.

  1. We separate the copper and gold interests.

  2. The copper segment would pay for all the expenditures for the construction of the mines. After paying the appropriate expenses each year, the difference is split evenly between Mongolia and the Ivanhoe Group. The gold being, again, a separate group is split 50/50 between Mongolia and the Ivanhoe Group.

  3. However, gold being what it is, the Ivanhoe Group's segment of the gold interest would borrow a billion dollars in one form or another from the international bankers, and the billion dollars would then be invested in the infrastructure of Mongolia immediately. This would benefit your country, namely that monies were expended immediately to raise the standard of living of the country.

  4. Gold being what it is, marketable and attractive for the international community, could form a public company and after repaying the one billion dollars of borrowed money, could raise as a public company, again, between one and three billion dollars and that sum could be invested in the development of Mongolia.

  5. Obviously, the gold would derive a profit from their activities, and that again goes back to the gold company and at some stage the profit can be evenly distributed to the two parties.

My formulas have many advantages.

  1. Any kind of currency or commodity fluctuation is shared by two parties.

  2. The copper segment would cover the original construction expenses.

  3. The intelligent handling of the gold segment may accelerate the development of the country and can continue to invest money in infrastructure projects for five to ten years to come.

The simplicity of my suggests relieves your government to negotiate with the opposition, with parliament and with special interests in your country, as so-called percentages and very unpopular extra taxes and similar concepts are eliminated. The development of the country could begin the day after this agreement is signed.

Let me mention, Your Excellency, life is much healthier when we conduct our affairs in a simple fashion. The profit opportunities are greater when there is no special interest or special hindrance or special charges in the picture.

Last but not least, we are heading towards unchartered waters. The world has never seen two to three trillion dollars thrown into the international banking system. The world has never seen such agricultural shortages. The world has never seen seven billion people, of which five billion are working. The world has never seen an atmosphere where temporarily or permanently the leaders of the entire world want to work together. There is no east-west group. There is no special interest of region versus the other.

You have to grab the opportunities. President Nixon said in 1990, when the communist Soviet Union was disintegrating, "Seize the Moment." "Grab the opportunity." Twenty years later Russia is a developing capitalist country. The Middle Eastern nations are progressing because the money they get for oil is immediately invested in infrastructure projects.

Mongolia may become the tenth richest country in the world, but it has to avoid politicking and has to learn one of the key benefits of the 21st century: The use of mathematics. Nowhere has it ever been written that mathematicians are less constructive for the country as politicians. We have to learn from one another. Mr. Prime Minister, I'm sure you prepared yourself for politics. May I remind you that it's not going to lower your place in history by using simple mathematics to safeguard for a generation the future of Mongolia.

From the very outset when I approached your consulate in Washington, D.C., I stated that I didn't represent any of the Western companies. I want to represent Mongolia. I am grateful that the opportunity has dawned on me when I could present a very simple, solvable, fast formula on behalf of your government to the people you negotiate with.

I think I present a shortcut.

I will be happy to go to Mongolia any time when you give me an invitation and stay as long as is necessary to have a feasible approach worked out. As I mentioned to you before, nothing would make me happier than if I could become financial advisor to Mongolia.

Respectfully submitted,

Disclaimer

Information contained herein is based on data obtained from recognized statistical services, issuers reports or communications or other sources believed to be reliable. However, such information has not been verified by us and we do not make any representation to its accuracy or completeness. Any statement non-factual in nature constitutes only current opinions which are subject to change. BERAL INC. or their officers, directors, analysts or employees may have positions in the securities or commodities referred to herein, and may as principal or agent buy and sell such securities or commodities. An employee, analyst, officer or a director of BERAL INC. may serve as a director for companies mentioned in this report. Neither the information nor any comment expressed shall constitute an offer to sell or a solicitation of an offer to buy any securities or commodities mentioned herein. There may be instances when fundamental, technical and competitive opinions may not be in concert. This firm may from time to time perform investment banking or other services for or which investment banking or other businesses from any company mentioned in this report.

 

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Andrew Racz. 300 East 54 Street, Suite 26C, New York, NY 10022
Phone: (212) 319-6949 Fax: (212) 753-1944. E-mail: mlikar@aol.com

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