Mongolia Opens Coal Tract to Investors
Mongolia has shifted its approach to developing a massive untapped coal deposit, offering foreign companies a greater chance to invest in the site after all but shutting them out.
In recent days, bidders from Japan and South Korea have said they are interested in developing the Tavan Tolgoi coal deposit, located in the South Gobi desert near China's northern border. Their interest comes as Mongolia's government abandoned a plan to use contract miners to develop the entire site, which has an estimated 6.4 billion metric tons of coal reserves. That makes it the world's second-largest coal deposit, after the Shengli field in China, according to data provider Raw Materials Group.
Instead, the government is now giving strategic investors a chance to invest in and develop roughly half the deposit, in the western Tsankhi area. The government itself will spearhead the deposit's development in eastern Tsankhi using contract miners. It remains unclear when the project could begin production.
"It's a big change in the development strategy," a person involved in setting up the new arrangements said. The investors have until Jan. 17 to submit their proposals.
Under a contract-mining arrangement, the government is responsible for financing development of the deposit, including the cost of any related infrastructure such as roads, and retains the lion's share of earnings from selling the extracted coal. Contract-mining companies typically work for fixed fees.
In the new arrangement, strategic investors would front the cost of developing the coal deposits, sell the yield and pay a cut of their profits to the government. By bringing in investors to help develop the mine, the government would reduce the amount of money it needs to fork out up front, a major consideration given Mongolia's limited financial resources.
The land-locked nation of 2.7 million people has stirred interest among foreign investors and mining companies because of its vast, mostly undeveloped reserves of coal, iron ore, copper, gold and other minerals.
China's voracious appetite for commodities gives neighboring Mongolia a ready-made, nearby market for its exports, though other countries in the region also are eager to gain access to its natural resources. Coking coal, such as that found at Tavan Tolgoi, is a big draw because it is used in making steel.
On Monday, a consortium of four Japanese trading houses said they planned to bid to develop the Tavan Tolgoi deposits, spokesmen for the group said. The consortium includes Itochu Corp., Sumitomo Corp., Sojitz Corp. and Marubeni Corp. It wasn't clear if they planned to ask a mining company to join their bid. The four Japanese companies are considering inviting South Korean and Russian companies to join their effort, the spokesmen said. Anglo-Australian mining companies Rio Tinto and BHP Billiton declined to comment.
Meanwhile, state-run Korea Resources Corp. said it is leading a consortium of 10 South Korean companies, including Posco and Korea Electric Power Corp. in a bid. A spokesman for steelmaker Posco said the Korean group expects to join forces with the Japanese consortium. The power company deferred comment to Korea Resources.
China's Shenhua Group and Peabody Energy Corp. of the U.S. have shown interest in developing Tavan Tolgoi and are considered likely bidders now that Mongolia has changed its strategy. Shenhua couldn't be reached for comment. A spokeswoman for Peabody said, "We look forward to continuing to engage in the process to develop Tavan Tolgoi as the project evolves."
The government set a Jan. 27 deadline for expressions of interest from contract-mining companies that can help it develop the eastern Tsankhi deposits. The government hopes to extract 15 million tons of coal a year through contract mining, according to the person involved in the new arrangements.
The government said it would place a priority on choosing a contract-mining partner that has a "positive impact" on Mongolia's ability to list shares of the holding company for the Tavan Tolgoi project, Erdenes-Tavan Tolgoi Co.
The government intends to sell 30% of the company on an international exchange and has mentioned Hong Kong as a possible venue. Another 20% of the company would be sold on Mongolia's exchange, while the government would retain the rest. While preparations for the initial public offering are underway, it was unclear whether the offering could take place next year, the person involved in the arrangements said. Another person familiar with the process said the government will have trouble conducting the offering until the project is further along. —Nisha Gopalan and Robert Guy Matthews contributed to this article.
Write to Peter Stein at peter.stein@wsj.com
In recent days, bidders from Japan and South Korea have said they are interested in developing the Tavan Tolgoi coal deposit, located in the South Gobi desert near China's northern border. Their interest comes as Mongolia's government abandoned a plan to use contract miners to develop the entire site, which has an estimated 6.4 billion metric tons of coal reserves. That makes it the world's second-largest coal deposit, after the Shengli field in China, according to data provider Raw Materials Group.
Instead, the government is now giving strategic investors a chance to invest in and develop roughly half the deposit, in the western Tsankhi area. The government itself will spearhead the deposit's development in eastern Tsankhi using contract miners. It remains unclear when the project could begin production.
"It's a big change in the development strategy," a person involved in setting up the new arrangements said. The investors have until Jan. 17 to submit their proposals.
Under a contract-mining arrangement, the government is responsible for financing development of the deposit, including the cost of any related infrastructure such as roads, and retains the lion's share of earnings from selling the extracted coal. Contract-mining companies typically work for fixed fees.
In the new arrangement, strategic investors would front the cost of developing the coal deposits, sell the yield and pay a cut of their profits to the government. By bringing in investors to help develop the mine, the government would reduce the amount of money it needs to fork out up front, a major consideration given Mongolia's limited financial resources.
The land-locked nation of 2.7 million people has stirred interest among foreign investors and mining companies because of its vast, mostly undeveloped reserves of coal, iron ore, copper, gold and other minerals.
China's voracious appetite for commodities gives neighboring Mongolia a ready-made, nearby market for its exports, though other countries in the region also are eager to gain access to its natural resources. Coking coal, such as that found at Tavan Tolgoi, is a big draw because it is used in making steel.
On Monday, a consortium of four Japanese trading houses said they planned to bid to develop the Tavan Tolgoi deposits, spokesmen for the group said. The consortium includes Itochu Corp., Sumitomo Corp., Sojitz Corp. and Marubeni Corp. It wasn't clear if they planned to ask a mining company to join their bid. The four Japanese companies are considering inviting South Korean and Russian companies to join their effort, the spokesmen said. Anglo-Australian mining companies Rio Tinto and BHP Billiton declined to comment.
Meanwhile, state-run Korea Resources Corp. said it is leading a consortium of 10 South Korean companies, including Posco and Korea Electric Power Corp. in a bid. A spokesman for steelmaker Posco said the Korean group expects to join forces with the Japanese consortium. The power company deferred comment to Korea Resources.
China's Shenhua Group and Peabody Energy Corp. of the U.S. have shown interest in developing Tavan Tolgoi and are considered likely bidders now that Mongolia has changed its strategy. Shenhua couldn't be reached for comment. A spokeswoman for Peabody said, "We look forward to continuing to engage in the process to develop Tavan Tolgoi as the project evolves."
The government set a Jan. 27 deadline for expressions of interest from contract-mining companies that can help it develop the eastern Tsankhi deposits. The government hopes to extract 15 million tons of coal a year through contract mining, according to the person involved in the new arrangements.
The government said it would place a priority on choosing a contract-mining partner that has a "positive impact" on Mongolia's ability to list shares of the holding company for the Tavan Tolgoi project, Erdenes-Tavan Tolgoi Co.
The government intends to sell 30% of the company on an international exchange and has mentioned Hong Kong as a possible venue. Another 20% of the company would be sold on Mongolia's exchange, while the government would retain the rest. While preparations for the initial public offering are underway, it was unclear whether the offering could take place next year, the person involved in the arrangements said. Another person familiar with the process said the government will have trouble conducting the offering until the project is further along. —Nisha Gopalan and Robert Guy Matthews contributed to this article.
Write to Peter Stein at peter.stein@wsj.com
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