Speculators with a taste for exploration in high-risk emerging markets are focusing on Mongolia.
The Central Asian country is rapidly emerging as a global mining hotspot, in part due to its potential to supply energy to nearby China and its underexplored coal basins.
There has been plenty of hype, but some recent events suggest more substance in the Mongolian story for Australian Securities Exchange-listed companies, at least 14 of which now have one or more projects there.
The latest news is this month's takeover offer for Hunnu Coal by Thai company Banpu Public Company.
Hunnu raised $20 million through an initial public offering (IPO) in January 2010. Its 20 cents issued shares quickly soared above $1, making it one of that year's best floats.
Banpu's $1.80-a-share cash offer values Hunnu at $477 million and provides investors in its float with a ninefold gain in less than two years, and plenty of incentive to look for the next Hunnu.
Another important development is the upcoming $50-million float of iron ore explorer FeOre, which wants to produce iron ore within a couple of years from its Ereeny deposit in the Mandalgovi Province of Mongolia.
It will be among this year's larger floats and an important test of investor demand for emerging markets exploration.
A large offer in such a weak IPO market will surely test retail investors and FeOre could need institutional investment support.
A successful FeOre offer could pave the way for other Mongolian exploration floats.
Queensland explorer Guildford Coal announced in August it had engaged UBS to advise on a potential IPO for its 70 per cent-owned subsidiary Terra Energy, which it expects to produce coal in Mongolia in the first half of 2012.
After listing in July 2010, Guildford shares have soared from a 20 cents issue price to $1.10, even though it does not yet have a resource that complies with the Joint Ore Reserves Committee (JORC) Code, something it hopes to address by the fourth quarter of this year.
Other Mongolian IPOs have had mixed results. Haranga Resources shares soared from a 20 cents issue price after listing in December 2010 to as high as 74 cents, only to fall to 24 cents.
Haranga has an iron ore project and its links with Hunnu Coal (it shares the same chairman, Matthew Wood) excited investors in the IPO.
It last week announced exploration results from a 16-hole drilling campaign at its Selenge project, which it hopes to make JORC compliant by the first half of 2012.
Shares in Xanadu Mines, one of the larger Mongolian-focused IPOs, have disappointed since listing in December 2010.
After raising $24 million, Xanadu's 60 cents issued shares peaked at 80 cents, only to fall to 50 cents amid broader share market weakness.
Xanadu has two main coal exploration projects in Mongolia, one with a JORC resource of 327 million tonnes of thermal coal.
Shares in a more established Mongolian-focused explorer, Aspire Mining, soared from below 10 cents in 2010 to $1 in early 2011, and now trade at 53 cents.
Aspire's main focus is its fully-owned Ovoot Project, the largest coking coal deposit in northern Mongolia.
It released good exploration results this week.
Mongolia clearly has drawing power for speculators attracted to companies in emerging markets that provide more leverage to exploration success. The focus on coal and iron ore also sits well with Australian investors who favour those commodities.
But Mongolia has significant infrastructure challenges, a big problem for bulk commodity producers, and is arguably riskier than even exploration in many African and South American countries at this stage.
It is clearly a market for more sophisticated speculators and those comfortable with high risk - and potentially high opportunity for companies that find large coal and iron ore resources in Mongolia and get them to production later this decade.
