Erdenes-Tavan Tolgoi Says IPO Unlikely Before 3Q

Mongolia-based Erdenes-Tavan Tolgoi Co. said Tuesday the company's planned $3 billion Hong Kong, London and Ulan Bator initial public offering is unlikely to be held before the end of the third quarter because of poor market conditions and weak coal prices.

Another reason for the delay in listing the company's shares is that a new Mongolian securities law needed to establish the necessary legal framework for the company to list in the three cities still hadn't been approved, said Graeme Hancock, chief operating officer of the state-owned company that controls what may be the world's largest undeveloped coking-coal reserves.

His company has the rights to develop the Tavan Tolgoi coal reserves in the southern Gobi desert, near the border with China.

The Mongolian government, which needs foreign investors to help it develop huge but largely unexploited mineral resources including coal and copper. However, to do this, it needs navigate between its powerful northern neighbor Russia and resources-hungry China to the south.

"At present, the Hong Kong stock exchange doesn't allow Mongolian entities to list," Mr. Hancock noted.

Once the law had been approved by Mongolia's parliament, there would be a regulatory environment much more acceptable to the Hong Kong stock exchange, he said, speaking in the sidelines of a Mongolia investment conference in Hong Kong.

"This is what we are waiting for," he said.

The IPO has been delayed several times. In early September, Erdenes-Tavan Tolgoi said the date had been pushed back by three months to the second quarter of 2013.

The chief executive of the Mongolian Stock Exchange, Altai Khangai, said Tuesday that the new law has been submitted to parliament and that he hopes it will be passed within several months.

"The adoption of new securities law will allow dual listings of international and Mongolian companies. This law is truly the opening of the gateway to create an international market," Mr. Khangai said.

The proposed law seeks to reduce the burden on companies seeking to make a secondary listing by removing the need for registration in Mongolia and the need for compliance with both Mongolian and home-country securities legislation.

Mr. Hancock noted that his company has invited U.S. miner Peabody Energy Corp. (BTU) to undertake preliminary infrastructure work for western half of the Tavan Tolgoi deposit, which contains an estimated 7.5 billion tons of coking coal.

In July 2011, the Mongolian government awarded the rights to develop the western block to China Shenhua Energy Co. (1088.HK) with a 40% stake, Peabody with 24% and a Russian-Mongolian consortium which got 36%.

Following protests from Japanese and South Korean companies about lack of transparency in the bidding process, those awards were cancelled and the project has been in limbo since then.

Mr. Hancock said he expects Mongolia's new government, formed after elections in June, will restart the discussion with international miners on developing western Tavan Tolgoi before the end of this year.

Write to Yvonne Lee at yvonne.lee@wsj.com

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