Massive Coal-Mine Project Moves Ahead in Mongolia

JAKARTA—Mongolian Prime Minister Sukhbaatar Batbold Sunday said that his government hopes to finalize the first round of negotiations with bidders to pick the operator of the Tavan Tolgoi coal mine project by the end of June, although the timeline could be stretched.

"This, however, could be carried out for a longer period of time if required. The final decision of the process hasn't been made," Mr. Batbold told reporters at a press conference here at the World Economic Forum on East Asia.

A person familiar with the situation said that the talks with the bidders have become complex due to issues over infrastructure facilities.

"They are taking into account all different implications of the mine and related infrastructure and related political issues," the person said, adding that the talks also involved engaging with the government's of China, Russia, Japan and South Korea.

The massive Tavan Tolgoi project has an estimated six billion metric tons of reserves of coking coal, an essential ingredient for making steel. The race to operate the huge resource underscores the rapid industrialization in Asia, especially China and India, which has prompted miners and other investors to seek supplies of coking coal.

Among the parties eyeing development of the mine is a consortium of South Korea's Korea Resources Corp., Japan's Itochu Corp., Sumitomo Corp., Marubeni Corp., Sojitz Corp. and OAO Russian Railways. U.S.'s Peabody Energy Corp., Brazil's Vale SA, Xstrata PLC, ArcelorMittal and a consortium of Mitsui & Co. and Shenhua Group have also been shortlisted as preferred bidders.

The prime minister also said the government could select three to four major parties to create a consortium to operate Tavan Tolgoi.

"Ownership will be retained [by the government] completely," Mr. Batbold said, adding that the companies will have to commit to a long-term agreement.

He added that his government was working on creating infrastructure to link the project to Russia and China.

A person familiar with the situation had said that the Mongolian government has already started some work on the development of railway lines linked to the project, enhancing its ability to tap various export markets.

"The railway that will be put first will link it [Tavan Tolgoi mine] to a Russian port so that they can target markets such as Korea and Japan and even further in the future," the person said.

Mr. Batbold said that negotiations with various governments for creating the infrastructure network was underway and that it had an indirect impact on the process to select the mine's operator. "The government has to make sure that we have access to connectivity," he said.

On the initial public offering for Tavan Tolgoi, Mr. Batbold said the aim was to go to the market soon, but launching an IPO will require "certain processess."

The person familiar with the situation said that an IPO for Erdenes-Tavan Tolgoi Co., the company that controls the mine, could happen only once the company becomes "operational."

"They are looking to find the right formula to maximize the value," the person said.

People familiar with the situation had said earlier this year that the Mongolian government has chosen four banks—Goldman Sachs Group Inc., Deutsche Bank AG, BNP Paribas S.A. and Macquarie Group—to handle its multi-billion dollar IPO.

The government plans to sell as much as a 30% stake in Erdenes-TT and another 10% to local companies, as well as giving 10% to Mongolian citizens. The government will however retain control with a 50% stake.

"We'd like to lift up the quality of our stock exchange and also plan to list major assets in international stock exchanges," Mr. Batbold said.

Write to P.R. Venkat at venkat.pr@dowjones.com and James Glynn at james.glynn@dowjones.com

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