UPDATE: Mongolia Picks Developers For Tavan Tolgoi Coal Project
05 July 2011 - 10:37PM
Dow Jones News
The Mongolian government has selected a consortium comprising
U.S. company Peabody Energy Corp. (BTU), China's Shenhua
International Ltd. (SHU.AU), as well as a Russian grouping to
develop the Tavan Tolgoi coal mine, one of the world's largest
unexplored coking coal reserves.
The allocation of the hotly contested development rights to
Shenhua, Peabody and the Russian grouping allows land-locked
Mongolia to balance its interests and internationalize the project,
while also appeasing immediate neighbors China and Russia, both big
markets.
By bringing in investors to help develop the mine, the
government would reduce the amount of money it needs to fork out
upfront, a major consideration given Mongolia's limited financial
resources.
Peabody, the largest U.S. coal producer by output, will hold a
24% share in the consortium, while Shenhua, China's largest coal
producer by revenue, will have 40%. The Russian-led grouping will
have the remaining 36%, with the Russian parties holding 18% and
the Mongolian side the other 18%, according to a government
statement.
The Tavan Tolgoi project involves mining coking coal as well as
taking out gasoline from coal, the statement said.
The massive Tavan Tolgoi project has an estimated reserve of 6.4
billion metric tons of coking coal, an essential ingredient in
steel making. It is also the world's second-largest coal deposit,
after the Shengli field in China, according to data provider Raw
Materials Group.
The Mongolian government is giving strategic investors a chance
to develop roughly half the deposit, in the western Tsankhi area of
Tavan.
Although, no official figures on investment costs have been
released, analysts have estimated that investments to the tune of
$7.3 billion would be required to develop Tavan's western block.
The eastern block will be developed by the government itself,
possibly funded through an initial public offering.
The race to secure rights to operate the resource-rich Tavan
Tolgoi underscores the rapid industrialization of Asia, especially
China and India, which has prompted miners and other investors to
seek coking-coal supplies.
Brazil's Vale SA, Xstrata PLC, ArcelorMittal and a consortium of
Mitsui & Co. were the other companies short-listed to bid for
the project.
A Korea-Japan-Russia consortium that also made the shortlist was
made up of multiple Korean companies including state-run Korea
Resources Corp. or Kores, state utility Korea Electric Power Corp.
(015760.SE), steel giant Posco (005490.SE), Daewoo International
Corp. (047050.SE) and LG International Corp. (001120.SE). On the
Japanese side, the consortium included Itochu Corp., Sumitomo
Corp., Marubeni Corp., Sojitz Corp. OAO Russian Railways, was the
Russian partner.
Kores, Posco and LG International said they have yet to receive
official notice that their bids have been rejected. Kepco and
Daewoo International couldn't immediately be reached.
It wasn't immediately clear whether the Russian grouping picked
to develop Tavan Tolgoi included any of the Korean or Japanese
companies.
Mongolia is planning to build a 1,000-kilometer rail road from
its vast, untapped Tavan Tolgoi coal deposit to Choibalsan in the
country's east to connect it with Russia. That's despite Tavan
Tolgoi, which contains over 6 billion tons of coal, being much
closer to the Chinese border.
The statement from the Mongolian government said that Shenhua,
Peabody and the Russian consortium picked have agreed to make a
payment of $500 million in the first phase of the project, and
another $500 million later.
Last month, Mongolian Prime Minister Sukhbaatar Batbold said
that the government will retain the ownership of the project and
that his government was keen to create an infrastructure to link
the project to Russia and China.
People familiar with the situation have said that the Mongolian
government had already started some work on the development of
railway links to the project in a bid to tap exports markets other
than China.
-By P.R. Venkat and Gurdeep Singh, Dow Jones Newswires; +65
64154 152; venkat.pr@dowjones.com
--Lin Min Jeong in Seoul contributed to this article.
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