Source: The Telegraph, UK  Date: April 14, 2010

If there was a competition to find the ugliest city on Earth, Ulaanbaatar would be the leading contender for the title. The combination of grim, Soviet-style concrete high-rises, rambling slum-shanties and towering coal-fired power plants belching out smoke over the city reeks of the depression and decay that was a legacy of decades of communist rule.
But look more closely and it is clear that change is afoot in this mineral-rich former Soviet acolyte which is on the cusp of a mining boom that has led investors to describe Mongolia as the "Kuwait of Central Asia". The augurs of new wealth are already visible on Ulaanbaatar’s dowdy streets – luxury brands such as Louis Vuitton and Armani have opened branches in the past year, catering to customers in Range Rovers and Porsche Cayennes. And in the city's Grand Khaan Irish Pub the vanguard of the coming investment boom can be found quaffing pints and discussing deals – suited diplomats and investment bankers rubbing shoulders with rough-necked mining engineers and their suspiciously pretty local "girlfriends".
For decades the global resources industry has had its eye on Mongolia's huge mineral deposits – it has world-class reserves of gold, copper, coal, fluorspar, silver, uranium and tungsten – but has been deterred by a combination of corruption and political instability. That all changed last year, however, with the formation of a pro-business government that is now, albeit cautiously, welcoming foreign investors to partake in a boom that it hopes will triple the nation's GDP in the next decade.
Headline-grabbing, public investments are only the tip of the iceberg, according to Mr. Matthew Totty, managing director of Redwood Capital, which specializes in bringing Chinese firms to the international markets. Mr. Totty is among those who see Mongolia as the next big opportunity or, as he puts it, "the last major untapped frontier" for mineral exploration, with the lure of a resource-hungry China on its doorstep.
Mr. Totty said investing attitudes towards Mongolia had been transformed over the last year. "Since they sorted out the windfall tax and settled with Ivanhoe, the floodgates have opened. I've seen a 180-degree turnaround in Hong Kong; private equity firms that wouldn't touch Mongolia a year ago are now actively focusing on the country."
Such confidence in the "new" Mongolia is not universally shared, however, particularly after the Government announced this year that it was canceling its auction for a 49 percent stake in the world's largest undeveloped coal field, the USD2-billion Tavan Tolgoi (TT) deposit. Having invited bids from heavyweights including BHP Billiton, Vale SA, and U.S. miner Peabody, Prime Minister S.Batbold announced last month the Government had decided it preferred complete state control, adding that other projects would be decided "on a case-by-case basis".
Such uncertainty was seen by some as a disturbing throwback to the last decade, as was the passage of a 2009 Nuclear Energy Law which appropriated 51 percent of all state-discovered uranium deposits to the Government for no fee, effectively halting all uranium projects in Mongolia.
Worries also persist over the impact of strategic squabbles between Russia, which still exerts political influence over Mongolia, and China, the natural customer for its mineral resources. Tensions between the two are being blamed for the failure to agree a deal to build a planned railway linking the Oyu Tolgoi and Tavan Tolgoi mines to China, a move described as a "no-brainer" commercially, but unacceptable politically to Russia and sections of the Mongolian public who fear China's growing influence.
And yet, notwithstanding these political risks, the potential rewards continue to lure investors like Mr. Totty. "This is the last virgin frontier for minerals exploitation, but you have to accept that there are strategic aspects the government will seek to control. Much of the elite is savvy, Ivy League-educated and understands international business culture. In the end, Mongolia desperately needs the foreign investment and the know-how. If they screw over a big public company they're done for, and they know it."