Mongolia needs coal deal in 3 months to ensure IPO

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A contentious investment agreement on Mongolia’s huge Tavan Tolgoi coal deposit needs to be completed within three months to ensure that a much-heralded initial public offering for the project goes ahead on time, a legislator told Reuters on Wednesday.

Terbishdagva Dendev, a member of Mongolia’s Grand Khural parliament, said on the sidelines of a conference in Hong Kong that discussions on an investment agreement for the western block of the coveted 7.5 billion tonne deposit were expected to get underway in November.

Mongolia plans to open the western block of the vast deposit up to foreign investors, while the eastern block will be listed on international stock markets next year.

An initial plan to grant 40 percent of the project to China’s Shenhua Group, 36 percent to a Russian-Mongolian consortium and 24 percent to Peabody Energy Corp of the United States was rejected by the Mongolian Security Council and branded as “unfair” by bidders from Japan and South Korea.

Graeme Hancock, chief operations officer with Erdenes Tavan Tolgoi, the state-owned entity in charge of the project, told the conference that the scale of the IPO for the eastern block would depend on the investment agreement.

“Once the terms of engagement on the west block are clear, that will have an impact on the IPO valuation,” he said. “I am hoping there will be resolution on this in the very near future so this can be built into our future cash flow.”

Terbishdagva said that if an agreement was not signed within three months, the international IPO would have to wait until after Mongolia’s parliamentary elections in June.

Analysts have expressed concern that political jockeying ahead of next year’s elections was disrupting Mongolia’s economy and harming its investment climate.

Terbishdagva was one of the MPs who signed a petition earlier this year urging the government to renegotiate an agreement signed with Canada’s Ivanhoe Mines Ltd in 2009 for the massive Oyu Tolgoi copper-gold project.

A group of 20 parliamentarians called on the government to renegotiate the terms of the deal to allow Mongolia’s stake in the project to rise from the current 34 percent to 50 percent as soon as Ivanhoe recouped its investment.

The government submitted a request to Ivanhoe in mid-September, but subsequently announced that no changes would be made to the agreement, which allows Mongolia’s stake to increase to 50 percent only after 30 years.

Nine of the petition’s original signatories have subsequently call for the resignation of Mongolia’s prime minister, Sukhbaatar Batbold, saying he has failed to implement parliamentary resolutions.

Source: Reuters

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