Tavan Tolgoi IPO delays to 2013

Mongolian miner Erdenes Tavan Tolgoi, which owns one of the world’s largest coking coal deposits, has pushed back plans for an international stock market debut to early 2013, disappointing hopes it would boost London’s fortunes this year.

The state-owned group is planning to list 29 per cent of the firm in a float analysts say could raise about $3-billion (U.S.).

Chief executive officer Baasangombo Enebish said on Monday a listing in February or March next year was “more realistic” than 2012.

“Now we are set up to target our IPO in the first quarter next year,” Mr. Enebish told Reuters in an interview.

Earlier hopes were for a listing before Mongolian elections in June, though that had already been pushed back to later in 2012.

Tavan Tolgoi is one of the largest share listings in the pipeline for the London market, whose mining sector has seen a drought of major new floats since the financial crisis – with the notable exception of commodities trader Glencore last year.

Mr. Enebish said Tavan Tolgoi, which cannot complete listing plans until Mongolia’s parliament passes a key securities law, was waiting to determine the equity structure of the company after shares were distributed to Mongolian citizens, who can either keep them or sell them back to the state.

It is also hoping to advance core infrastructure projects including rail, road routes and a coal handling and preparation plant (CHPP) that should boost the value of coal it mines.

“Completion of these projects is very important for our company’s valuation. That is why we plan our IPO for next year,” he said, adding that building work would start this year.

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.

The delay to the listing will force the company to raise “several hundred million” dollars to pay for the start of infrastructure projects and other work that would otherwise have been financed from IPO proceeds. Mr. Enebish said no decision had been made, but options included a convertible bond.

The company is pressing ahead with plans for a three-way listing in Hong Kong, London and Ulan Bator, potentially simultaneously, Mr. Enebish said, dismissing concerns the Hong Kong leg could be dropped over regulatory issues. The London leg could be an issue of shares or global depositary receipts.

Only a handful of companies have listings in three cities, given cost and practical considerations.

Another factor behind the delay has been uncertainty around the western block of the coal deposit, which Mongolia hopes will be developed by foreign investors.

Last July, Mongolia said Chinese group Shenhua, U.S.-based Peabody and a Russian-Mongolian consortium headed by Russian Railways would be given rights to the project. Japanese and South Korean bidders complained, leading the government to say the decision was not final.

A senior executive at the mine said last week Mongolia might choose to go it alone on the development of the western block after struggling for years to find the right investors.

Mr. Enebish said that though Erdenes Tavan Tolgoi had the capacity to develop both sides of the deposit, discussions between the government and the companies were continuing. He declined to comment further.

“This investment negotiation started almost one year ago but it is not finished. (That) does not mean it is stopped completely, it is pending now,” Mr. Enebish said. “From the company valuation perspective it needs to be clarified before our IPO.”

He also said the company had added Barclays and Jefferies as book-runners, bringing the total number of investment banks working on its listing to six.

Deutsche Bank and Goldman Sachs are joint global co-ordinators for the issue, with BNP Paribas and Macquarie book-runners.

Tavan Tolgoi is aiming to produce 3 million to 4 million tonnes of coking coal this year, with output eventually rising to an annual 20 million tonnes in four years.

While it now sells raw coking coal to Chinese firms like state-owned Chalco, the new plant to produce higher value-added washed coking coal is aimed at securing access to seaborne markets beyond China, namely buyers in Japan and South Korea.

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