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

Sir, do not abdicate...

December 27, 2007

“Mongolia’s natural resources are valuable and attract increasing attention. Therefore, it is our duty to the next generation to use this opportunity properly. If we lose it by quarreling with each other, the next generation will blame us. We should give our next generation a wealthy country with progressive technology and high intellectual capacity.

As for the Oyu Tolgoi agreement, we should conclude a world standard agreement beneficial to our country.

As for the Tavan Tolgoi deposit, we should decide how to use it after taking it under a hundred percent state control.”

Prime Minister Sanj Bayar, Mongolia
December, 2007

Sir, as the year 2008 is opening to us, there is no question that your administration is facing monumental decisions. Mongolia is likely to become not only a rich, but a superrich country. Your cabinet and your parliament will have to make decisions of billions of income coming 90 percent from mineral resources. The sociological, political state of 2.5 million Mongolians together with your relationship with the rest of the world is going to be decided in the coming year.

You cannot abdicate your responsibilities, nor can you rewrite three years from now the agreements and the decisions you are about to make.

Sir, do not abdicate.

In 1936, Winston Churchill advised the young King Edward – later to become the Prince of Wales – referred to the Monarch’s responsibilities. In fact, he referred to a whole generation of aristocratic leadership. The House of Windsor – just as the Mongolian leadership in 2007 – is 1,000 years old. None of them should abdicate responsibilities.

In the 20th century, many small countries were born. Some are fabulously rich like the Arab Sheikdoms, like Saudi Arabia, Kuwait, and Qatar. Some had geographic importance like North Korea and North Vietnam. All of these countries had questionable political security but had internal fiction and were covered internally with intrigues and externally by wars or conspiracies.

Their respective leaders failed to exercise historical responsibilities. A small country, however rich, must exercise the real politic of being “Good Neighbors”, must fit into geographical reality and international economic partnerships. Lasting prosperity needs lasting partners and lasting geographic boundaries.

Sir, do not abdicate.

Do not nationalize. Think of Venezuela and think of Cuba. Your government has clear alternatives.

1. Strengthen your stock market. Toronto and London would be glad to assist you in this endeavor. My advice, Sir, is only a blueprint for common sense and decency.
I see only the global picture, the welfare of Mongolians. I owe no uranium mine, nor do I owe a gold reserve. There is a common demotion between the Mongolian investors, any foreign investors, and myself. We can all make money together!
The stock market! It has universal simplicity. I buy, you sell – they buy, I sell.

2. Ask equity participation via options to participate in the equity interest of companies who want to do mineral exploration work in Mongolia. These options can be valuable. Ask for 15% of the total market value of each company, exercisable 20% above a realistic market price. In five years, may amount to $1 billion.

3. Set up a gold index fund of multibillion dollar size. Such venture would bring equity money – not loans – to the Mongolian people.
None of these steps are possible unless you do, as early as possible, firm agreements with various entities particularly with the RTZ-Ivanhoe group. Such gold backed bond financing has delivered a billion dollar to the Mongolian people by the summer of 2008.
As a practical matter, only you as Prime Minister can effectuate such “Gold Indexed Fund.” No other political party can deliver $1 billion in 2008. There goes the election.

4. Create a financially sound uranium and coal policy. A well founded equity ownership in this energy related industry and early development of your energy resources is your cabinet’s prime responsibility.

Sir, do not nationalize. Speed up your energy development. Sir, do not abdicate.

It is the first edition of my Mongolian newsletter. In writing to you, I cannot forget the economic collapse of Hungary which began in 1949. A leftwing Hungarian government abdicated its responsibilities to the Hungarian people and created an economic chaos despite the highly sought intellectual abilities of the Hungarian people.

In this ruthlessly competing global economy, you undoubtedly have an opportunity to accumulate billions of dollars. Small and very rich countries are usually subject to outside pressure.

Mongolia, under your administration, has the opportunity to tie its fortunes to well-supported commercial contracts. You will avoid all the pitfalls if you move towards internationally recognized market economy.

By all means, use the stock markets in Mongolia and in overseas to monetize Mongolia’s growing wealth and use the international stock markets to raise additional capital to create more wealth. This is how you deliver to the current and future generation. You have the power to render Mongolia and oasis in Eastern Asia. Fighting for extra percentages of mineral wealth and deferring its development is exactly what past policies represented. Make commercial contracts and float multibillion dollar companies overseas like a copper and gold indexed entity, engage the international financial community to carry out your program.

Sir, make the international stock market the cornerstone of your policy. This is the 21st century. Everything else is the abdication of your historical responsibilities. You are probably advised of shortcuts. Take larger and larger equity interest in your mining reserves. This is not policy, this is politics.

If Winston Churchill visited Mongolia, he would have a simple advice to you like he advised the Prince of Whales, Sir, do not abdicate.

He referred to Spain, he referred to Germany. Today, thinking of Mongolia, he would refer to the fate of Kuwait in 1990 and Venezuela in 2007.

It is the cost of a parliamentary democracy to fight out the daily work – day by day.

You will have to educate the Mongol people, its Parliament, and indeed your own party. You have to preside over one of history’s greatest mineral wealth. Don’t be the Prime Minister who will preside over a historic fight for the disintegration of history’s greatest blessing to Mongolia. You have to balance between national interest, private interest, foreign interest. You must measure the cost of foreign capital.

Sir Cecil Rhodes, the British entrepreneur who built Southern Africa about 100 years ago said,

“So little time, so much to do.”

Sir, do not abdicate.

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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