The Mongolian government has selected a consortium comprising
U.S. company Peabody Energy Corp. (BTU), China's Shenhua
International Ltd. (SHU.AU), as well as a Russian grouping to
develop the Tavan Tolgoi coal mine, one of the world's largest
unexplored coking coal reserves.
The allocation of the hotly contested development rights to
Shenhua, Peabody and the Russian grouping allows land-locked
Mongolia to balance its interests and internationalize the project,
while also appeasing immediate neighbors China and Russia, both big
markets.
By bringing in investors to help develop the mine, the
government would reduce the amount of money it needs to fork out
upfront, a major consideration given Mongolia's limited financial
resources.
Peabody, the largest U.S. coal producer by output, will hold a
24% share in the consortium, while Shenhua, China's largest coal
producer by revenue, will have 40%. The Russian-led group will have
the remaining 36%, with the Russian parties holding 18% and the
Mongolian side the other 18%, according to a government
statement.
Shenhua Group and Peabody weren't immediately available for a
comment.
The Tavan Tolgoi project involves mining coking coal as well as
taking out gasoline from coal, the statement said.
The massive Tavan Tolgoi project has an estimated reserve of 6.4
billion metric tons of coking coal, an essential ingredient in
steel making. It is also the world's second-largest coal deposit,
after the Shengli field in China, according to data provider Raw
Materials Group.
The Mongolian government is giving strategic investors a chance
to develop roughly half the deposit, in the western Tsankhi area of
Tavan.
Although, no official figures on investment costs have been
released, analysts have estimated that investments to the tune of
$7.3 billion would be required to develop Tavan's western block.
The eastern block will be developed by the government itself,
possibly funded through an initial public offering.
The race to secure rights to operate the resource-rich Tavan
Tolgoi underscores the rapid industrialization of Asia, especially
China and India, which has prompted mining companies and other
investors to seek coking-coal supplies.
Brazil's Vale SA (VALE, VALE5.BR), as well as Xstrata PLC
(XTA.LN), ArcelorMittal (MT, MT.AE) and a consortium of Mitsui
& Co. (MITSY, 8031.TO) were the other companies short-listed to
bid for the project.
A Korea-Japan-Russia consortium that also made the short list
was made up of multiple Korean companies including state-run Korea
Resources Corp. or Kores, state utility Korea Electric Power Corp.
(015760.SE), steel giant Posco (005490.SE), Daewoo International
Corp. (047050.SE) and LG International Corp. (001120.SE). On the
Japanese side, the consortium included Itochu Corp. (8001.TO),
Sumitomo Corp. (8053.TO, SSUMY), Marubeni Corp. (8002.TO), Sojitz
Corp (2768.TO). OAO Russian Railways, was the Russian partner.
Kores, Posco and LG International said they have yet to receive
official notice that their bids have been rejected. Kepco and
Daewoo International couldn't immediately be reached.
It wasn't immediately clear whether the Russian grouping picked
to develop Tavan Tolgoi included any of the Korean or Japanese
companies.
In response to the Mongolia government's statement, the South
Korean government said Mongolia's bidding process was "not fair,"
and that it will seek the details and background behind Mongolia's
announcement.
Mongolia had requested the six bidding teams in April, to create
a "grand consortium," the Ministry of Knowledge Economy, also known
as the commerce ministry, said in a statement late Tuesday.
Following Mongolia's request, the teams were working towards
creating such a consortium, but Mongolia's announcement, excluding
companies from both Korea and Japan, was released "without any kind
of consultation with the (Korean) consortium companies," the
statement said.
Mongolia is planning to build a 1,000-kilometer railroad from
its vast, untapped Tavan Tolgoi coal deposit to Choibalsan in the
country's east to connect it with Russia. That's despite Tavan
Tolgoi, which contains over 6 billion tons of coal, being much
closer to the Chinese border.
The statement from the Mongolian government said that Shenhua,
Peabody and the Russian consortium picked have agreed to make a
payment of $500 million in the first phase of the project, and
another $500 million later.
Last month, Mongolian Prime Minister Sukhbaatar Batbold said the
government will retain the ownership of the project and that his
government was keen to create an infrastructure to link the project
to Russia and China.
People familiar with the situation have said that the Mongolian
government had already started some work on the development of
railway links to the project in a bid to tap exports markets other
than China.
-By P.R. Venkat, Gurdeep Singh and Min-Jeong Lee, Dow Jones
Newswires; +65 64154 152; venkat.pr@dowjones.com
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