Trafigura, Origo form coal/iron Mongolia JV
* JV may extend to all commodities and Russia
* Greenfield exploration to be JV's focus
* JV aims to "circumvent existing China/Mongolia traders"
LONDON, Nov 7 (Reuters) - Trafigura, one of the world's top commodity traders, and Origo Partners Plc , a private equity investor in Mongolian natural resources, have formed a 50:50 joint venture to develop Mongolian coal and iron ore deposits for export.
Trafigura-Origo MGL will invest in a number of Mongolian iron ore and high-quality coking coal exploration projects and target further high-grade deposits, the companies said on Monday in a joint announcement.
The partners aim to export several million tonnes a year of coking coal and iron ore to China by truck and rail.
Reserves in the five northern regions targeted by the partners can be developed and exports begun by truck, but large-scale, more cost-efficient mines would need a rail line, and this could take three to four years, Origo said.
Exports of deposits in the south could begin as soon as next year by truck.
The joint venture follows Trafigura's coal strategy of preferring to work with smaller mining companies to help them develop without taking control, said Mikhail Zeldovich, Trafigura's head for Russia, CIS and Mongolia.
"We are committed to Mongolia for the long term," he said.
Trafigura, the only commodities trader to be licensed to trade domestic Chinese coal, is already selling Mongolian coking coal to China.
"We are already moving our own coal in our own trucks across the border to China," he said.
In the near term, the partners said they would develop a coking coal deposit to supply a niche product to the Russian market.
Further ahead, any trader seeking to gain a share of the Mongolian market would be expected to seek a piece of the eastern Tavan Tolgoi project.
"Every coal trading company active in Asia wants to look at that, but that's very much in the future," Zeldovich said.
The venture will also look at expanding the scope of the venture into other countries in the region such as Kazakhstan and Russia and to cover all commodities.
BRAND NEW RESERVES
"Trafigura and Origo want to own assets and secondly to invest in logistics and sales - we're looking to circumvent the existing Mongolian and Chinese traders," said Chris Rynning, chief executive of Origo.
"We have large teams out there, and we're looking to find the projects which are not even known in Mongolia today, to find the next elephants which will be on line in a couple of years," he added.
"We have teams of people going through ministry archives looking for projects, even driving around looking for opportunities," he said.
"Long-term it's about expanding the model to acquisitions to control the feedstock," he said.
The partners could take minority stakes with an option to increase them to a controlling stake if and when a sizeable, workable deposit is found but also with an option to sell.
The venture is looking to invest $5 million to $30 million per project, and these are likely to be open-cast mines in the five northern provinces of Mongolia.
Coking coal export tonnage would need to be several million tonnes per year to be economic, Rynning said.
Origo held talks with the five biggest international commodity traders in its search for a partner, and Trafigura was the most aggressive and the quickest to make a decision to go forward and invest, he said.
WILD EAST
Trafigura and Origo are choosing their Mongolian partners to minimise risk, preferring those whose corporate governance and approach to social and environmental concerns fits with theirs.
"Corporate governance, the ability to monitor bank accounts, is critical to the success of such a venture - even to replace the chief financial officer - because if you don't ask for these things then you don't get," Rynning said.
"You cannot invest in Mongolia unless you have the local deals and contacts; there are so many bad opportunities and cowboys," he added.
The joint venture will be jointly managed by Luke Leslie, Origo's head of Mongolia and mining investments, and Trafigura's Zeldovich. Its board will include Origo's Rynning and Chris Cox, a director at Trafigura.
Trafigura is a relative newcomer to the coal market. Since it hired senior traders from trader Noble Group two years ago, it has expanded its thermal and coking coal business in the Atlantic and Pacific markets.
Origo has a wholly owned Mongolian subsidiary in Ulan Bator, whose investments include Kincora Copper, Gobi Coal & Energy, Voyager Resources and Moly World Limited.
* Greenfield exploration to be JV's focus
* JV aims to "circumvent existing China/Mongolia traders"
LONDON, Nov 7 (Reuters) - Trafigura, one of the world's top commodity traders, and Origo Partners Plc , a private equity investor in Mongolian natural resources, have formed a 50:50 joint venture to develop Mongolian coal and iron ore deposits for export.
Trafigura-Origo MGL will invest in a number of Mongolian iron ore and high-quality coking coal exploration projects and target further high-grade deposits, the companies said on Monday in a joint announcement.
The partners aim to export several million tonnes a year of coking coal and iron ore to China by truck and rail.
Reserves in the five northern regions targeted by the partners can be developed and exports begun by truck, but large-scale, more cost-efficient mines would need a rail line, and this could take three to four years, Origo said.
Exports of deposits in the south could begin as soon as next year by truck.
The joint venture follows Trafigura's coal strategy of preferring to work with smaller mining companies to help them develop without taking control, said Mikhail Zeldovich, Trafigura's head for Russia, CIS and Mongolia.
"We are committed to Mongolia for the long term," he said.
Trafigura, the only commodities trader to be licensed to trade domestic Chinese coal, is already selling Mongolian coking coal to China.
"We are already moving our own coal in our own trucks across the border to China," he said.
In the near term, the partners said they would develop a coking coal deposit to supply a niche product to the Russian market.
Further ahead, any trader seeking to gain a share of the Mongolian market would be expected to seek a piece of the eastern Tavan Tolgoi project.
"Every coal trading company active in Asia wants to look at that, but that's very much in the future," Zeldovich said.
The venture will also look at expanding the scope of the venture into other countries in the region such as Kazakhstan and Russia and to cover all commodities.
BRAND NEW RESERVES
"Trafigura and Origo want to own assets and secondly to invest in logistics and sales - we're looking to circumvent the existing Mongolian and Chinese traders," said Chris Rynning, chief executive of Origo.
"We have large teams out there, and we're looking to find the projects which are not even known in Mongolia today, to find the next elephants which will be on line in a couple of years," he added.
"We have teams of people going through ministry archives looking for projects, even driving around looking for opportunities," he said.
"Long-term it's about expanding the model to acquisitions to control the feedstock," he said.
The partners could take minority stakes with an option to increase them to a controlling stake if and when a sizeable, workable deposit is found but also with an option to sell.
The venture is looking to invest $5 million to $30 million per project, and these are likely to be open-cast mines in the five northern provinces of Mongolia.
Coking coal export tonnage would need to be several million tonnes per year to be economic, Rynning said.
Origo held talks with the five biggest international commodity traders in its search for a partner, and Trafigura was the most aggressive and the quickest to make a decision to go forward and invest, he said.
WILD EAST
Trafigura and Origo are choosing their Mongolian partners to minimise risk, preferring those whose corporate governance and approach to social and environmental concerns fits with theirs.
"Corporate governance, the ability to monitor bank accounts, is critical to the success of such a venture - even to replace the chief financial officer - because if you don't ask for these things then you don't get," Rynning said.
"You cannot invest in Mongolia unless you have the local deals and contacts; there are so many bad opportunities and cowboys," he added.
The joint venture will be jointly managed by Luke Leslie, Origo's head of Mongolia and mining investments, and Trafigura's Zeldovich. Its board will include Origo's Rynning and Chris Cox, a director at Trafigura.
Trafigura is a relative newcomer to the coal market. Since it hired senior traders from trader Noble Group two years ago, it has expanded its thermal and coking coal business in the Atlantic and Pacific markets.
Origo has a wholly owned Mongolian subsidiary in Ulan Bator, whose investments include Kincora Copper, Gobi Coal & Energy, Voyager Resources and Moly World Limited.
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