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

Mongolian Newsletter, First Edition

July 2, 2008

Mongolian Newsletter

First Edition

The Summit At Ulaanbaatar

Undoubtedly, when the recently re-elected Prime Minister Sanj Bayar will invite the so-called Ivanhoe group to discuss the final mineral laws, it represents at least a regional summit that has far-reaching international implications.

Mongolia is rich in resources. It could become the Tenth Richest Country in the World, yet the population remains mired in poverty. The previously broadly split parliament had failed to agree to revisions to the mining law seen as essential to promoting foreign investment or to approve the long-stored multi-billion dollar Oyutolgi copper and gold project backed by Ivanhoe Mines of Canada and Rio Tinto.

There is no doubt that when the Prime Minister will call a meeting it has the implication of a Summit. It is not only a Summit of Mongolia's future, what happens now in Mongolia is a reflection of the future of another small nation, economically and diplomatically. Mongolia, a mostly poor country, sandwiched between China and Russia is struggling to modernize its agriculture-based economy. The government says that per capital income is just $1,500 a year in a country of about 3 million people. In the recent election, ending June 29, the subject is how to tap the recently discovered huge mineral deposits—including copper, gold and coal.

The outgoing parliament was unable to pass an amendment to the Capital Minerals Law. The governing party re-elected by a large majority, may succeed. There is disagreement whether 50 percent of the mineral deposits would be held by the state or private Mongolian companies.

We have consequently, argued that public companies jointly owned by Mongolian investment interests is the way to go. Furthermore, and this has not been publicized in Mongolia, that an international private company with joint ownership would create a multiple of premiums on the public market. In other words, a $1 million gold mined in a public company may be worth $5 million or $10 million. Working together would magnify the gain, and actually can make Mongolian interests a major factor in the international stock markets. Brazil, China, India, and Russia monetized their resources with the benefits accruing to stockholders. My recommendation is make every Mongolian citizen a stock owner capitalist.

This can only be achieved if the stocks are jointly owned with the Ivanhoe group and other foreign investors.

The world knows about Summits. Between 1940 and 1941 ten decisions have changed the world. The first major decision was by the British War Cabinet that agreed to fight on after the German defeat of France. Another major decision was Pearl Harbor. Altogether the ten decisions have changed the entire world.

Curiously, the most effective Summit was held in 1985 in Geneva between President Reagan and General Secretary Mikhail Gorbachev. Neither of the participants went for the killing. After half an hour lecturing by the 20 years older President Reagan, Gorbachev objected "Mr. President, you are not a prosecutor, and I am not the defendant. Why don't we discuss your movies? My family particularly liked 'Bedtime for Bonzo."

Five years later the Cold War ended. This was, in the history of mankind, by far the most effective Summit.

Now, let's go back to the expected Mongolian summit. The issues are: long-term fuel and food supply to the 2.5 million Mongolian people, the yearly monetary needs to build Mongolian infrastructure, the price of gold, the price of copper, the cost of building and maintaining the mines, the elimination of any outside party to interfere with the projects.

It is a complex equation. It can only be formulated with mutual flexibility. The world and the various prices of commodities fluctuate so widely that rigidity in structure would lead back to 1919, to Versailles that Winston Churchill named "An Armistice."

This is why it occurred to me that any rigid opening number, whether it is 51 percent or 34 percent, has actually no meaning, the real division varies year to year, depending on respective monetary benefits drawn down.

I have recommended formation of a public company that can pay up front money, can pay construction money, and retain the depository of benefits to both parties.

If, after 30 months there are sufficient amounts of gold that create surplus cash, and if, right at the beginning the Mongolians would get A shares and the Ivanhoe group would get B shares, the dividend payout ratio can be adjusted that the Mongolian A shares can draw more than the Ivanhoe B shares, which in fact could assure a long-term and peaceful development of Mongolia. The respective ratio after each dividend is paid.

To kill this summit upon which Mongolia's future depends, by rigid numbers, is exactly to make the summit at Ulaanbaatar worse than Munich, and worse than Versailles.

The full understanding of benefits is perfectly in order. Restrictive up front numbers is exactly what kills the future.

We live in a world that changes faster than the price of gold. In the year 2008 we are friendly with Lybia, we are about to be friendly with North Korea, and Americans may very soon visit every weekend in Havana.

Look at the tragedies of Palestine, the 27 percent inflation of Venezuela, and the sufferings of Iraq. Quite frankly while I personally wish that the sister nation, Mongolia, to my native Hungary will become an oasis between Russia and China, I know it will only happen if the Ulaanbaatar summit doesn't start with a rigid 51 percent, but rather with well prepared and legitimate files of the miraculous prosperity of Mongolia.

Stalin came with demands to Potsdam. He wanted 100 percent of Eastern Europe or nothing. The result was devastation. For 50 years both Hungary and Mongolia suffered a fate they have not deserved. And that was when the Cold War began.

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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