Making Money on the Mongolian Mania

Nicholas Vardy

Nicholas Vardy has a unique background that has proven his knack for making money in different markets around the world.

That’s all changing largely thanks to the efforts of this week’s Global Bull Market Alert pick, Ivanhoe Mines (IVN), a Canadian company that is building what may turn out to be the world’s largest copper and gold mine: Oyu Tolgoi. And with Ivanhoe having 66% interest in the project and the government of Mongolia holding the remaining 34%, this hardly could be a bigger deal for both the company and the country.

I remember a few years back when Executive Chairman Robert Friedland first told me about Oyu Tolgoi at a meeting in London. Armed with his three-dimensional renditions of Oyu Tolgoi’s vast deposits, the project then was just a gleam in Friedland’s eye. But today, this massive deposit located just 50 miles from the Chinese border, has attracted the attention of everyone from the Russians to the Chinese government to the world’s largest mining companies.

It is estimated that Oyu Tolgoi houses 81-billion pounds of copper and 46-million ounces of gold. That means that at current prices, Oyu Tolgoi’s net asset value is more than $17 billion. That makes Ivanhoe’s current market value of around $11 billion a steal. Some say that Oyu Tolgoi may even overtake Freeport-McMoRan’s Grasberg as the world’s largest copper and gold deposit. Others are even more optimistic and say that Ivanhoe itself just may be the world’s next Freeport-McMoRan.

But Ivanhoe is more than just a mining project. It also is about Mongolia’s newfound wealth. The International Monetary Fund (IMF) projects that — thanks in part to Ivanhoe’s development of Oyu Tolgoi — Mongolian GDP will quadruple to $8,000 per capita by 2018. The Mongolian stock market already has been one of the world’s best performers this year. The Mongolian capital, Ulan Bator, is chock-full of bankers, mining executives and stock promoters all looking to get a piece of Mongolia’s next great project. For savvy investors who get in early, “turnaround plays” like Mongolia offer the opportunity of once-in-a-lifetime profits.

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So buy Ivanhoe Mines (IVN) at market today. The company is announcing earnings on Nov. 8, so it would be good to get into the stock before then. This is a volatile stock and a value play for long-term holders, so I am placing the stop at a very wide $15.50. For potentially even bigger short-term gains, I recommend the March $23.00 calls, IVN110319C00023000.

 “This is Mongolia? Heck, looks just like my ranch in Texas!”

Portfolio Update

Credicorp Ltd. (BAP) fell back slightly this past week, even as it announced an agreement with American Life Insurance Company (ALICO), to acquire the insurer’s 20.1% and 38% stakes in Pacifico Seguros and Pacifico Vida, respectively. Peru’s BAP remains a BUY.

iShares MSCI Chile Investable Mkt Idx (ECH) dropped this week, even as President Pinera said Chile’s economy will expand at least 6% this year and set a goal of creating one million jobs during his four-year term. ECH remains a BUY.

ProShares UltraShort Euro (EUO) rose slightly over the week. With negative sentiment against the U.S. dollar at almost record highs, look for a bounce against the euro. EUO is a BUY.

Global X/InterBolsa FTSE Colombia 20 ETF (GXG) ended the week up, closing near a record high of $46.58. Colombia’s economy continues to grow without spawning inflationary pressures, leading the nation’s central bank to expect “with a high degree of confidence” that price increases for this year and 2011 will be within its target range of 2% to 4%. GXG remains a BUY.

ICICI Bank Ltd. (IBN) traded flat this past week. The Indian economy grew at 7.4% in 2009-10 and now is projected to grow at 8.5% in the current fiscal year of 2010-11. IBN remains a BUY.

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Market Vectors Indonesia ETF (IDX) ended the week flat. The Jakarta Composite Index continued to consolidate near record highs last week, and is trading at less than 1% below its all-time closing high. The “Next BRIC” remains a BUY.

Bank of Ireland (IRE) ended the week flat. State Street Global Advisors (SSgA) agreed to acquire Bank of Ireland Asset Management (BIAM) for €57 million. Ireland’s top banking turnaround play is a BUY.

Itaú Unibanco Holding S.A. (ITUB) traded in a narrow range. This is a strong stock in a strong sector, and remains a BUY.

SINA Corporation (SINA) barely budged on the week. The Wall Street Journal has a big story on Sina’s Weibo twitter-style service. With this exciting story getting out to investors, Sina remains a BUY.

iShares MSCI Thailand Investable Market Index Fund (THD) pulled back slightly this week. Thailand refrained from a third straight increase in its benchmark interest rate to stem currency gains and to shield its economy from a slowdown in global growth. THD remains a BUY.

P.S. If you want to keep up with my latest insights on developments in fast-paced global markets, you can now follow me on Twitter on @NickVardy or on my new blog, NickVardy.com.

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