Petro Matad’s Doug McGay talks at Asian Advance Summit, Shanghai

Doug McGay, CEO of  London listed oil and gas exploration junior, Petro Matad (AIM:MATD) recently took questions at the Asian Advance Summit, Shangai.  Below is a copy of the transcript, produced on the Advance website (http://www.advance.org)
 
In January, 1997 Doug McGay first visited Mongolia and instantly recognised the vast potential of the country and the people. Within one year he had relocated permanently to the country, first working within his profession by starting a mineral resource company.
 
In 2003 McGay established his own exploration company, Batu Mining, with Australian and Mongolian capital. He later sold his interests in that venture and started an oil exploration company, led by Australian directors and initially Australian capital. As the CEO, McGay led the company into a very successful partnership and then amalgamation with the exploration arm of Mongolia’s largest oil importing and distribution company, Petrovis.
 
Mr McGay is ready to take your questions…
 
With 40% ownership by local capital (Mongolians) and 25% Australian capital, why was the London Stock Exchange indentified as the best trading market for the oil business?
 
No single large reason, but many small factors combined to lead us to London. Our Board of Directors, even though predominantly Australian, had previous experience in Europe, as well as Australia. The Mongolian shareholders had pre-existing contacts in London. The City had a greater history of dealing in resources in Central Asia (although we acknowledge Australia’s active input into East and South-East Asia). There were also some statutory and regulatory aspects that were considered, along with the fact that ours was an IPO more suited to a secondary market, and Australia no longer has any such facility. Finally, at the time, it was perceived that larger pools of capital for start-up resource companies existed in Europe (and even Canada) than was achievable in the Australian investment market.
 
Having said all of that, when we listed, our main new small shareholders came from Australia, while a few larger, institutional types were sourced in the UK, Switzerland and the US. In other words, numerically, Australia and Australians still came to the fore when asked. In the global economy, the actual location of the listing to investors seemed of little consequence.

You have been quoted many times for drawing parallels between Mongolia and Western Australia. That seems like a far reaching comment, we would like to hear your insight...

I will begin with the obvious similarities. Both are primary producing areas, with large areas and small populations. In fact, Mongolia and WA have the lowest population densities in the world. Both WA and Mongolia share a common historical background of being predominantly rangeland agricultural economies. In the 1960’s WA rapidly developed its minerals resources and moved from the dominance of the agricultural economy. I believe Mongolia has the natural resources to do that, and in fact it has made a start on the same development track over the past 10 years.

There are subtle, cultural similarities as well. Western Australians have an “isolation complex”. Distance from neighbors has bred an independent, tough and innovative population. Mongolians are also, metaphorically speaking, on an island. They are surrounded by two huge nations, in China and Russia, and over the centuries have had to develop the same survival skills.

Both the state of WA and the nation of Mongolia are dependent on China (in the large part) as customers for their resource wealth. That brings many benefits, but also entails similar concerns such as market domination.

I recognize that there are differences as well. Mongolia has a culture and history spanning millennia, while the non-indigenous history of WA is not even 200 years old. WA is predominantly an immigrant country, with people from all over the world becoming Australians and helping development. While Mongolia has an almost exclusively mono-cultural and single racial background.

But, having lived through the resources boom in Western Australia, and seen the benefits it can bring an area, I was fortunate enough to find a country that has everything ahead of it in the 1990’s. And lucky enough to be accepted by the people and the country, and to be able to make it my second home. With good fortune and firm vision, Mongolia will develop on the “Resources Back” in the same way as the lucky state in the lucky country has been able to.

With such a world economic downturn in financial markets, what opportunities do you see in natural resources?
 
I was living and working in my hometown of Kalgoorlie during one of the periodic downturns in the resources sector in Western Australia, about 25 years ago. Gold and nickel prices had dropped, mines were closing and life looked pretty bleak. A cartoonist published a cartoon in a local newspaper that depicted vultures circling the head of the statue of Paddy Hannan (the prospector founder of Kalgoorlie at the turn of the century). Paddy was grinning at them in a resigned sardonic way, and the caption read “So what? I’ve seen you blokes before”.
 
I had the presence of mind to purchase the original of that cartoon and still have it. It serves as comfort when the markets turn sour yet one more time. And reminds me that these things are, and always have been, cyclical. Kalgoorlie survived that, and other downturns due to a stubborn belief that in the long run the world needs natural resources.
 
There are far greater experts and soothsayers than me who know the Chinese market. I venture that none of them has a long term view of China that foresees that country foregoing the natural development of the nation and its people. That development will need resources that exceed China’s capacity to find and produce. And China is not alone as a developing nation. The same outlook applies to all countries of the world. The human condition is to develop. And that requires resources of all types. Human, capital, environmental and importantly natural resources.
 
Mongolia is the next door neighbour to one of the greatest development stories of the 21st century. There is no need for oil tankers, or iron ore and coal ships to reach China from Mongolia.
 
A little more about Mr McGay…
 
Douglas McGay is a Western Australian, who has made Mongolia his second home for the past 11 years.
 
A licensed surveyor by profession, McGay built one of the largest survey firms in Australia in the 1970’s and 1980’s, with a head office in Kalgoorlie, Western Australia and offices in Queensland and South Australia.
 
After selling the company, McGay’s surveys, in 1988, McGay worked in the mineral resource industry as an entrepreneur and manager, and recommenced his profession by way of a high technology mapping company. By the mid 1990’s those activities had taken McGay offshore, with work in the Phillippines, Central Asia and Africa, with a full time office in Indonesia.
 
In 1998, McGay moved permanently to Mongolia. Utilising his experience from working in the Western Australian mineral industry, McGay was appointed country manager for international exploration companies during the period 1998-2003, and was involved with world-class mineral discoveries.
 
At the same time, McGay continued the community type involvements that he had always carried out in Australia. In particular, the American-Mongolian Business Group, the Mongolian National Mining Assocation (in which he has been awarded Honorary Life Membership), and the Australian-led charity Lotus Children’s Centre. He is also very active in the expat and Mongolian community to this day.