Erdenes Signs First Sales Contract For Mongolian Coal Deposits
July 27 2011 - 5:43AM
Dow Jones News
Mongolia's state-owned Erdenes Tavan Tolgoi LLC signed its
first-ever term contract to sell coal from the giant Tavan Tolgoi
coking coal deposits, possibly using the income to fund costs of an
initial public offering.
Erdenes TT will supply up to 15 million metric tons of coking
coal a year from the East Tsankhi deposit to a group of Chinese,
Japanese and South Korean companies. Erdenes will receive a signing
bonus of $250 million, that may be used for mine development and a
human development fund, said a person who did not wish to be
named.
Erdenes signed the agreement Tuesday with Aluminum Corp. of
China Ltd. (601600.SH), or Chalco, and an unidentified Chinese
steel firm, which will jointly receive 70% of the mine's output.
The remaining 30% will be shared by Korea Resources Corp, Japan's
Itochu Corp., and Mitsui Corp.
"Erdenes Tavan Tolgoi started the operation last August (at East
Tsankhi), but until yesterday [they had] not [signed] any sales
contracts," the person said.
Tavan Tolgoi contains the world's largest untapped coal
reserves, with about 6.4 billion tons. The Tsankhi deposits contain
much of its 1.8 billion tons of highly-prized coking coal.
Under the terms of Tuesday's agreement, Erdenes will supply
300,000 tons of coal to the group this year, increasing production
to 1-1.5 million tons next year and 15 million tons per year within
three to four years. The deal will likely require Parliamentary
approval.
The government plans to develop the East Tsankhi on its own
while it earlier named Peabody Energy Corp. (BTU), Shenhua
International Ltd. (SHU.AU) and a Russian-Mongolian group as the
winning bidders to develop the estimated $7.3-billion West Tsankhi
project.
Industry executives familiar with developments said that Erdenes
TT may be raising money to fund the costs of a multi-billion-dollar
IPO.
A Mongolia-based banker said Erdenes needs to raise IPO costs as
the government appears to have shelved earlier plans to arrange
financing. "It would make sense because they need the money to
list," said the banker, who did not wish to be named.
The government received interest from several large financial
institutions to arrange pre-IPO financing, but did not go through
with it since it would have sparked political opposition, he
said.
The government plans to sell a 30% stake in Erdenes TT to
international investors, 10% to local investors and give away 10%
to Mongolian citizens.
-By Gurdeep Singh, Dow Jones Newswires; 65-6415 4064;
gurdeep.singh@dowjones.com
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