The New Mongol Invasion

Until recently, Ulan Bator, the Mongolian capital, had more horses than cars. No longer. Ulan Bator looks increasingly like a Chinese boomtown, with all the same trappings — exploding property prices, huge capital inflows, rising concerns about corruption, widening gaps in income disparity, and a flood of flashy automobiles on the roads. Mongolia is in the middle of an epic "gold rush" but it's copper and coal that have enticed businessmen, investment bankers, and miners from London, Dallas, and Toronto by the planeload. Ulan Bator is abuzz with talk of options and percentages, yields and initial public offerings. The country's stock exchange ( the world's smallest) rose 125 percent last year, and the IMF forecasts double-digit GDP growth rates for years to come. Renaissance Capital, an investment bank that specializes in emerging markets, notes that overall economic output could quadruple by 2013.
"Mongolia is about to boom. Of that, there is no longer any doubt," says John P. Finigan, the Irish CEO of one of Mongolia's largest banks.

A Louis Vuitton boutique opened for business in the posh Central Tower building near Sukhbaatar Square. A glass cabinet holds a horse saddle encrusted in gems. "It's one of a kind, custom-made for Mongolia," the manager notes. Downstairs, the offerings are more conventional. A crocodile purse fetches $20,000; watches run $17,000.
The sums are astounding in a country that is still among the world's poorest. Per capita GDP in 2008 was about $3,100, making Mongolia the world's 166th-poorest country — just ahead of the West Bank.
Yet that hasn't stopped Ermenegildo Zegna, Hugo Boss, and Burberry from opening up. "There's lots of new money here," says Zoljargal, marketing manager for Shangri-La Ulaanbaatar, which is rushing to finish a new shopping plaza, along with Mongolia's first luxury hotel.

The reason for the boom: China.

Mongolia has some of the world's largest undeveloped fields of coal, vital for China's steel mills and power plants. Mongolia is also rich in copper, needed for the power-transmission lines being strung at record rates in fast-growing Chinese cities and for the production of batteries, especially those for the booming market in electric cars. China currently consumes nearly 7 million tons of copper each year (about 40 percent of global demand), but it's on track to triple its copper needs within 25 years, according to CRU Strategies, a London-based mining and metals consultancy. Ovoot Tolgoi is a coal mine 30 miles from the Chinese border run by a Canadian company called SouthGobi. The company has invested $200 million in a state-of-the-art facility that is on pace to sell 4 million tons of coal to China annually, with plans to double production by 2012. "Mongolia: the Saudi Arabia of Coal," reads the slogan on the firm's website. It possesses proven initial reserves of 114 million tons, enough to last up to 16 years, but that's a conservative estimate and that's just the one mine in production. SouthGobi also has licenses for two other sites.