Peabody, China, Russia to develop Mongolia mine

4th July 2011, Comments 0 comments

Mongolia said Monday it has chosen US miner Peabody Energy, China's Shenhua and a Russian-Mongolian consortium to develop the highly coveted Tavan Tolgoi coal deposit in the south Gobi desert.

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

The Tavan Tolgoi deposit, 270 kilometres (165 miles) from the border with China, contains 6.4 billion tonnes of coal, making it one of the largest coal fields in the world.

About a quarter of the deposit is high-grade coking coal, a key ingredient for steel production, while the rest is thermal coal.

The deal is for developing 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.

The Shenhua group is to have a 40 percent share, Peabody is to take 24 percent, and the remaining 36 percent is to be divided equally between the partners in a Russian-Mongolian consortium, the government said in a statement.

Sandwiched between energy-hungry China and Russia, Mongolia has sought to follow policies that do not alienate either of its giant neighbours, but is also seeking closer ties with the United States -- geopolitical realities that perhaps helped Ulan Bator choose the companies for the Tavan Tolgoi project.

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, which is to be submitted to parliament later this week for its approval, investors will pay Mongolia $500 million "irrevocably" plus another $500 million as an advance payment, the government statement added.

The firms also will be obliged to pay all taxes and fees associated with the project to the Mongolian government, and five percent of sales income will be paid to ETT.

Last week, the government had said the shortlist of candidates had been whittled down to three, without naming them.

"The government aims to make the Tavan Tolgoi deposit one of the biggest coal mines in the world," an official statement said last week.

"Specific criteria must be satisfied by the operator who will run the coal extraction operations."

Peabody, Brazil's Vale and 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 China's Shenhua and Japan's Mitsui, and a consortium of Russian, South Korean and Japanese companies.

The government statement released late Monday made no specific mention of Mitsui, so it was not immediately clear if the Japanese firm would be involved.

The statement also did not mention the South Korean and Japanese firms that had initially been part of the Russian-led consortium.

Mongolia's parliament is likely to examine the deal before July 11, which is a national holiday, although there is no deadline for approval of the proposal.

ETT will retain full ownership of the eastern portion of Tsenkhi and will hire a contract miner to extract the coal. Australia's Macmahon Holdings, Germany's BBM and India's Nesco are on that shortlist.

© 2011 AFP

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