Rio, BHP bid for $US2b Mongolian mine February 18, 2009 - 2:47PM Vale, Xstrata and Rio Tinto are among the companies that have submitted proposals to develop Mongolia's prized $US2 billion ($3 billion) Tavan Tolgoi coal mine, according to two sources with direct knowledge of the matter.
Mongolia's government has hired Deutsche Bank and JP Morgan to sell up to a 49% stake in what is often called the world's biggest untapped coking coal deposit.
BHP Billiton and coal giant China Shenhua Energy have also bid, according to the sources.
Tavan Tolgoi holds a coal reserve of 6.5 billion tonnes and is also drawing bids from consortiums of Japanese, Russian and Korean firms - which include energy, commodity and trading companies - one of the sources said.
But Shenhua, which analysts long considered the leading bidder because of China's proximity to Mongolia, may not have frontrunner status, the source told Reuters.
"There's a pretty strong pitch that they shouldn't be selling to the Chinese," said a Hong Kong-based investment banker, adding the Mongolian government is leaning toward an established international player.
The sources declined to be identified due to the sensitive nature of the process, which is at an early stage.
The bids have been put forward in different forms - some detailed development proposals, some 1-page expressions of interest, the investment banker said.
Debt-laden Rio Tinto, which last week struck a near-$US20 billion investment deal with China's state-owned aluminium producer Chinalco, already has a joint project in Mongolia with Canada's Ivanhoe Mines -- the Oyu Tolgoi copper and gold deposit.
Difficulties
Media reports have named a range of potential bidders such as Japan's Itochu Corporation and Peabody. But the process has been plagued by setbacks as Mongolia clarifies its mining laws, and no timetable for development has been confirmed.
"It's a fabulous asset and that will present a great opportunity to whoever is the successful bidder, and certainly we'd love to see that put into motion as soon as possible, but I'm not holding my breath," said Andrew Driscoll, Head of Resources Research at CLSA.
The 2006 version of the law allowed the state a share of up to 34% of deposits found with private funds and up to 50% of those discovered with state funds. Mongolia has since delayed revising its contentious minerals law.
BHP originally won the right to develop Tavan Tolgoi in the 1990s, but found it to be uneconomical at the time and returned the license to Mongolia, where annual per-capita income is about $US1,200.
The successful sale of Tavan Tolgoi, which means "five heads" because of the contours of the site's hilly landscape, could hand Mongolia up to $US2 billion, plus ongoing revenues from its majority stake in the mine.
Vale, Xstrata, and Shenhua were not immediately available for comment. BHP and Rio Tinto declined to comment when contacted by Reuters.
Reuters
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