Erdenes Tavan Tolgoi LLC, Mongolia’s largest-state owned coal company, suspended deliveries to China, starting on the 11th January, Ya.Batsuuri, its chief executive officer said. Most of the China’s coking coal imports from Mongolia is mined from Tavan Tolgoi, located in the South Gobi desert which contains reserves of the world’s largest high-quality coking coal.
China imported 16.8 million tonnes of metallurgical coal from Mongolia in the first 11 months of 2012, comprising over one third of total imports. The monthly average supply in 2011 was 1.7 million tons.
The reason behind the halt is to do with the fact that Mongolia wants to raise its coking coal export prices for China. According to the CEO of Erdenes Tavan Tolgoi LLC, the company is currently selling its coal for USD 53 per tonne, which cannot even cover the operational cost of mining a tonne of coal – USD 61 including mining and transportation expenses. The company is therefore in negotiations with its largest buyer Chalco over increasing the price.
As the company is facing hardship on its financial standing, its talks with investors for the West Tsankhi, an area known for its rich resources of coking coal within Tavan Tolgoi, have been suspended too. Most of the USD 250 Million, an advance payment Tavan Tolgoi had received from Chalco in July 2011, was immediately transferred to the government’s Human Development Fund for cash hand-outs.
The company is currently seeking a government loan for as much as USD 400- USD 500 million to repay its debts and fund the construction of the required infrastructure projects, Ya.Batsuuri said last week. No specific decisions on its request have been made from the government to date.
Erdenes Tavan Tolgoi is developing Tavan Tolgoi, Mongolia’s largest coal field with a total estimated resource of 6.4 billion tonnes, one quarter which is high quality coking coal. It is divided into six sections including Tsankhi, Ukhaa Khudag, Bor tolgoi and Borteeg coalfields. The Tsankhi section is the largest part and is divided into East and West Tsankhi.