tavan tolgoi's open pit mining photo

ASIA BUSINESSJULY 6, 2011, 9:22 A.M.
ET.Erdenes: Mongolia Mine Contracts Aren't Final .

By GURDEEP SINGH
SINGAPORE?Two days after the Mongolian government named winners of a contract to develop the huge Tavan Tolgoi coal project, the head of the state-run company whose subsidiary owns the project said no deal has been completed.

"We are still in negotiations. It's not yet finalized. Nothing is finalized," B. Enebish, executive director of Erdenes MGL LLC, the parent of Erdenes Tavan Tolgoi LLC, told Dow Jones Newswires.

The situation was already murky: The identities of the companies in the Chinese and Russian consortia that had been announced as winners remain unclear, some bidders say they have not been officially told of the outcome and the South Korean government has openly declared the selection process "not fair."

View Full Image
Adrian Bradshaw/European Pressphoto Agency
Coal being loaded at the open cast section of the Tavan Tolgoi mine last year

The development of one of the world's largest untapped coal deposits has been fraught with uncertainty from the start. The Mongolian government initially planned an outright sale of part of the property to developers, but then decided to keep ownership and invite bids from prospective operators. From the bids it later selected a shortlist of six consortia.

Then Monday the government said in a statement that it had picked U.S. coal company Peabody Energy Corp., China's Shenhua International Ltd. and a Russian-Mongolian group.

The statement didn't mention the Japanese or South Korean companies that were also shortlisted. The reaction from Seoul was strong, with the South Korean government issuing a blunt statement Tuesday saying Mongolia's announcement had come "without any kind of consultation with the [Korean] consortium companies."

A senior Mongolian government official familiar with the situation said the government was still talking to the three companies?Peabody, Shenhua Group, and the Russian company?to finalize the details as some of them were leading consortia of Japanese and South Korean companies.

"Mongolia government is negotiating with only three parties," the official said. "So the government doesn't really need to know who the other consortium partners are."

Tavan Tolgoi, in the Gobi desert, holds one of the world's largest untapped coal reserves, estimated at 6.4 billion metric tons, and sits just 270 kilometers from the border with China, the world's largest coal consumer. The Tsankhi deposits, the western half of which is being offered to developers, contain much of the area's 1.8 billion tons in reserves of coking coal?highly prized as a key ingredient in making steel.

Landlocked Mongolia relies on its large neighbours China and Russia for much of its foreign trade and crucial imports, although it is keen to avoid falling under the influence of either. While China is expected to buy much of the coal, the Mongolian government wants to develop a railway network to link the deposits to Russia, from where the coal can be exported to consumers in Japan, South Korea and elsewhere.

The closest major Russian port is more than 5,000 kilometers from the mines; the nearest port, China's Tianjin, is 1,570 kilometers away.

Russia has two trump cards in the transportation issue: Russia Railways owns 50% of Ulaan Bator Railways, whose 1,815-kilometer network within Mongolia accounts for 60% of the total freight transport, and Mongolian and Russian railway networks are easily connectible because they share a common broad-gauge design. China's tracks are narrow-gauge.

Even so, a halt in supplies of diesel from Russia to Mongolia forced the country to suspend much of its rail service in June. Mongolia has no refineries and imports 90% of its oil products from Russia.

Although no official figures on investment costs have been released, analysts have estimated that investments to the tune of $7.3 billion would be required to develop Tavan's western block. The eastern block will be developed by the government itself, possibly funded through an initial public offering.

Brazil's Vale SA, as well as Xstrata PLC, ArcelorMittal and a consortium involving Mitsui & Co. were also shortlisted to bid for the project.

A Korea-Japan-Russia consortium that also made the short list was made up of multiple Korean companies including state-run Korea Resources Corp.?Kores?state utility Korea Electric Power Corp., steel giant Posco, Daewoo International Corp. and LG International Corp..

On the Japanese side, the consortium included Itochu Corp., Sumitomo Corp., Marubeni Corp. and Sojitz Corp. OAO Russian Railways was the Russian partner.

Write to Gurdeep Singh at [email protected]
(http://online.wsj.com/article/SB10001424052702303544604576429392047173496.html)

-----------------------------------------------------------

I do not know how to bring photo of above article
"Coal being loaded at the open cast section of the Tavan Tolgoi mine last year", CEO's finding of 40m & 60m thickness seams are really big, IMO.

It is too early call, but I can assume if BTE3 has been drilled at straight further down BT2(60m), it could possibly be 80m or so seams thickness.

I will wait till announcement coming.


Regards,