Wed, Jul 06, 2011 page10

• Mongolia picks trio to develop coal field

  AGREEMENT: The deal to develop the western part of the Tsenkhi block of the Tavan Tolgoi deposit was structured so that no one company or country would predominate

  • AFP, ULAN BATOR
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  Mongolia has said US mining giant Peabody Energy, China’s Shenhua (神華能源) and a Russian-led consortium have been selected to develop the prized Tavan Tolgoi coal deposit, one of the largest in the world.

  Authorities in the mineral-rich but undeveloped country are hoping its nascent mining industry — and the deep-pocketed foreign firms interested in it — can help pull thousands of people out of poverty.

  The government announcement on late on Monday made no mention of Japan’s Mitsui and South Korea’s Korea Resources Co — originally on the shortlist of preferred bidders to develop Tavan Tolgoi, located in the south Gobi Desert.

  Shenhua is to have a 40 percent share and Peabody 24 percent, while the remaining 36 percent is to be held by the Russian-led consortium, the statement said.

  The draft agreement — announced after a special Cabinet meeting on Monday — is subject to parliamentary approval and would be submitted to lawmakers this week, it added.

  The field is located 270km from the border with China and contains 6.4 billion tonnes of coal — about a quarter of which is high-grade coking coal, a key ingredient for steel production, while the rest is thermal coal.

  The selected companies will jointly develop the western part of the Tsenkhi block of Tavan Tolgoi, which contains mainly coking coal.

  State-owned Erdenes Tavan Tolgoi (ETT), set up to manage Mongolia’s coal mining interests, owns the rights to mine the block, and will do so with its foreign partners.

  It was not immediately clear if Mitsui and Korea Resources were part of the deal, but Ulan Bator-based Eurasia Capital analyst Akmal Aminov said they were likely still involved.

  Mongolia wants “all of them to collaborate and work on Tavan Tolgoi,” Aminov said. “It doesn’t want to depend on one country.”

  Mongolia-based Frontiers Securities investment strategist Dale Choi said the agreement, if approved, would be a “game changer” for the impoverished country.

  “Mongolia has the upper hand because it has managed to be the controlling interest,” Choi said.

  A Mitsui official said the Japanese firm still planned to work with Shenhua on the project, but had not yet received Mongolia’s official decision.

  Spokesmen for South Korean companies Korea Resources and POSCO said they had only seen news reports on the deal and did not know if they were part of a consortium to develop the deposit.

  China is the world’s largest producer and consumer of coal, upon which it relies for 70 percent of its fast-growing energy needs.

  Under the deal, investors will pay Mongolia a non-refundable US$500 million plus another US$500 million as an advance payment, the government said. The firms also will be obliged to pay all taxes and fees associated with the project to the government, and 5 percent of sales income will be paid to ETT.

  Peabody, Brazil’s Vale and Indian steel giant ArcelorMittal had been among six preferred bidders to develop the western portion of Tsenkhi. The others in contention were Anglo-Swiss group Xstrata, a joint venture between Shenhua and Mitsui, and a consortium of Russian, South Korean and Japanese firms.

  ETT will retain full ownership of the eastern portion of Tsenkhi and will hire a contract miner to extract the coal.

  An initial public offering of ETT slated for early next year is expected to raise up to US$2 billion and includes a plan to distribute shares to every Mongolian.
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