Mongolia struggles to find the right investors for Tavan Tolgoi

Apr 24 • Business, Mining, News • 1079 Views • No Comments on Mongolia struggles to find the right investors for Tavan Tolgoi

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Mongolia might choose to go it alone on the development of the western block of its giant Tavan Tolgoi coal mine after struggling for years to find the right investors, an executive with the state-owned firm in charge of the project said.

Speaking at a regular meeting of leaders from Mongolia’s private sector on Monday, Graeme Hancock, the chief operating officer of Erdenes-Tavan Tolgoi, suggested that the Mongolian government would not be able to appease the diverse foreign investors hoping to invest in the project.

“In my view, this is a very difficult group to put together into a consortium,” said Hancock. “We’ve got a pretty good chance it will never happen.”

If that were the case, Erdenes-TT was likely to reassume control of the property and lead the western block of the project itself, he said.

Last July, Mongolia announced that China’s Shenhua Group , U.S.-based Peabody and a mysterious Russian-Mongolian consortium headed by Russian Railways would be handed the rights to develop the project, but after Japanese and South Korean bidders complained the government said the decision was not yet final.

The Tavan Tolgoi coal deposit, in Mongolia’s south Gobi region, has estimated reserves of as much as 7.5 billion tonnes of coal, including the world’s largest untapped deposit of coking coal used to make steel.

A final decision on the structure of the consortium has been repeatedly delayed, and Hancock said the matter was now unlikely to be settled before a parliamentary election in June.

Shenhua and Peabody were not immediately available for comment when contacted by Reuters.

Analysts have accused Mongolia of putting politics ahead of business, saying its priority was to appease its two giant neighbours, Russia and China, rather than get the best deal for Tavan Tolgoi.

MINING BOOM

Mongolia’s tiny economy is at the beginning of a mining boom and others warn the country might still need experienced overseas firms to help develop huge projects like Tavan Tolgoi.

“All options are open to the government,” said Dale Choi, chief investment strategist at Ulan Bator-based Frontier Securities. “I think it’s in Mongolia’s best interest to have a major coal company involved because Erdenes is a small young company.”

Mongolia’s plans to list Tavan Tolgoi’s eastern Tsankhi section, originally scheduled for the first half of 2012, have also been delayed, with parliament still deliberating over not just the investment agreement for the western block, but also a new securities law.

Analysts have said a domestic and overseas initial public offering for 29 percent of Erdenes-TT could raise around $3 billion. Hancock of Erdenes-Tavan Tolgoi said a decision to take control over the western block could potentially double the value of the company.

He added that the company would go ahead with the development of the western block in May or June, whether an investment agreement had been put in place or not.

Mongolia sits on vast quantities of mineral resources but it has struggled to find the investment required to build the infrastructure, processing facilities and transport network required to deliver its coal or copper to markets.

Tavan Tolgoi, around 300 km (190 miles) from the Chinese border, is already producing 2.5 million tonnes a year. It aims to raise total annual output to 6 million tonnes by 2013, eventually rising to 20 million tonnes.

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