What Mongolia’s Mines Mean For Gold, Copper ETFs

by on October 7, 2009 | ETFs Mentioned:

After more than six years of negotiations, the government of Mongolia has signed a major deal expected to drive billions of dollars of foreign investment into the Asian country. The agreement for the $4 billion Oyu Tolgoi copper and gold mine is a major step forward for one of the world’s most resource-rich countries that has struggled to attract investment dollars from developed nations.

Mongolian CountrysideIn many underdeveloped countries, mineral wealth has offered opportunities for development and prosperity during the recent commodity boom. But uncertainty over the degree of government involvement in mining operations and tax ramifications has caused many would-be investors to steer clear. With a clear framework now in place, Mongolia looks to be ready to unlock some of the world’s largest untapped reserves of coal, copper, gold, and other commodities.

The Oyu Tolgoi mine, located just north of the China-Mongolia border, is owned by Ivanhoe Mines, a Canadian firm in which mining giant Rio Tinto owns a 10% stake. The mine is expected to produce 450,000 metric tons of copper, equal to about 3% of global supply according to Elisabeth Behrmann. The mine could yield some 330,000 troy ounces of gold. With gold prices surging above $1,000 per ounce, the market value of the untapped reserves could top $350 million.

The mine isn’t expected to go online until 2013, and even then the quantity of minerals expected to be produced makes it unlikely that Oyu Tolgoi will have a major impact on world supply for precious metals or copper. But if the mining operation proves to be a success for both foreign investors and the Mongolian government, it could open up one of the world’s largest untapped sources of minerals and other natural resources.

Mongolia is a vast country with a significant nomadic population. Although it is the world’s 19th largest country and second-largest landlocked country, Mongolia is the least densely-populated independent nation in the world, with a population of less than three million. While mineral resources such as copper, coal, tin, and gold account for a significant portion of the Mongolian economy, a significant portion of the vast country remains untapped, limited by a lack of infrastructure and necessary technology.

ETF Plays On Mongolia’s Mining Move

Mongolia’s move to open its doors to foreign investors stands to provide a huge boost to the developing nation. But it also provides a major opportunity for resource and mining companies around the world to get a piece of the action. Three ETFs engaged in global mining operations are highlighted below:

  • Emerging Global Advisors Emerging Markets Metals & Mining Titans Index Fund (EMT): This ETF offers targeted exposure to companies engaged in industrial and precious metals exploration, extraction, and production in the emerging world. EMT invests in several countries bordering Mongolia, including China and Russia. Since its inception in May of this year, EMT has gained more than 35%.


  • Market Vectors Gold Miners ETF (GDX): Gold ETFs have been extremely popular in recent months as investors embraced cheap, easy exposure to a tested inflation hedge and safe haven. GDX offers exposure to firms engaged in the discovery and extraction of gold, a group of equities that generally performs well as gold prices rise. GDX has seen cash inflows of nearly $1.2 billion this year, and has gained more than 70% over the last year (by comparison, GLD is up about 21% over the last 52 weeks).


  • Market Vectors Hard Assets Producer ETF (HAP): HAP is slightly more diversified than GDX, investing in companies engaged in the production and distribution of hard assets and related products and services. HAP’s holdings include precious and industrial metal firms, as well as energy and agriculture producers. HAP has gained more than 30% so far in 2009.


Disclosure: No positions at time of writing.