Thursday, September 23, 2010

Mongolia opens door for extensive mining investment

One of the world's largest landlocked countries, Mongolia began a campaign to promote its rich natural resources to potential investors. 

Beneath Mongolia's surface lies untold mineral wealth. The country's reserves of coal, copper, gold and uranium have lately become the talk of the world's mining industry. 

The country organized a global mining conference named Discover Mongolia in which leading industry experts and business leaders spoke about Mongolia's untapped mineral riches. 

Investor’s have shifted their focus from glittering copper and gold to coal, with energy-hungry neighbor China a key customer. 

Analysts said coal is becoming a very hot topic in Mongolia as coal prices are up and energy demand from neighboring big brother China is insatiable. 

Last year, Mongolia sealed a long-awaited multibillion-dollar deal with Canada's Ivanhoe Mines and Anglo-Australian miner Rio Tinto to develop Oyu Tolgoi, one of the world's richest copper deposits and a key gold source. 

This year, now that construction of the Oyu Tolgoi mine is under way, all eyes in the mining industry are on Tavan Tolgoi in the south Gobi desert, which has some of the world's largest untapped coal reserves. 

The deposit, 270 kilometres (165 miles) from the border with China, contains 6.4 billion tons of coal - about a quarter of which is high-grade coking coal, a key ingredient for steel production, while the rest is thermal coal. 

Last year, the government began accepting bids from mining firms hoping to buy an exploitation licence for Tavan Tolgoi. 

China's Shenhua group, US giant Peabody Energy, Anglo-Swiss miner Xstrata and Brazil's Vale were among those that showed interest, but the government has since cancelled the auction, deciding instead to retain 100 per cent ownership. 

Mongolia has formed Erdenes MGL LLC to manage state-owned mining interests. The firm, which owns 34 per cent of Oyu Tolgoi, has created a subsidiary, Erdenes Tavan Tolgoi (ETT), to handle the coal deposit assets. 

ETT is planning to contract out the development of Tavan Tolgoi to a private company or consortium. ETT is hoping to find a partner to develop a major portion of Tavan Tolgoi by the end of the year, but ETT officials declined to comment on the specific timeline for the project. 

Mongolia's coal exports had doubled last year, with China the most obvious key market. In 2010, 39 per cent of China's coal imports were expected to come from Mongolia, up from just 11 per cent in 2009. 

coal exports to China - the world's largest producer and consumer of the fossil fuel, upon which it relies for 70 per cent of its fast-growing energy needs - could total 30 to 50 million tonnes by 2015. 

Mongolia's increased presence is shaking up global coal markets, with China reducing its dependence on Australia. Molyneux said about 47 per cent of China's coal imports would come from Australia this year, down from 66 per cent in 2009. 

Experts say Mongolia could earn between US$400 and 600 million in much-needed revenue from coal in just a few years - a figure that does not account for new production at Tavan Tolgoi. 

Mongolia laid out a controversial plan to build a new railway from the Gobi Desert to Russia, linking to the Trans-Siberian railway in order to ship Mongolian coal to key Pacific markets such as South Korea and Japan. 

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