MAC: Mines and Communities


Published by MAC on 2009-12-06

Country mining profile #2

Mongolia is one of the lowest contributors, on a citizen per capita basis, to global greenhouse gas emissions.

But it hosts one of the world's biggest unexploited coal deposits, Tavan Tolgoi.

Mongolian president, Elbegdorj Tsakhia, has co-chaired roundtable talks of the UN General Assembly, along with José Manuel Barroso, President of the European Commission. He has also participated in the forum of world businesses on climate change.

Among the bidders for Tavan Tolgoi are BHP Billiton, India's Jindal conglomerate, Vale of Brazil, and Peabody Coal of the US - number one among non-state global coal miners.

While final Mongolian government selection of the winner for Tavan Tolgoi was expected before the end of this year, this has now been postponed until 2010.

In theory this gives time for Mongolia's cabinet to impose conditions on the exploitation and use of the deposit; after all the state will nominally own 51% of the enterprise. For instance, it could limit annual output, in order to extend the "life" of the mine, and spread royalty revenue over a number of years.

It could evaluate the likely "contained" carbon output, on a per annum basis, in the context of a policy to severely limit the country's inevitably increased contribution to global greenhouse gas emissions.

However, this isn't likely to happen: Mongolia faces increasing budget constraints, so the temptation to exploit Tavan Tolgoi to the limit becomes difficult to resist. Ironically, mounting worldwide pressures to "kick the coal habit" are only likely to spur efforts to extract as much as possible over a short period of time.

None of the companies, vying with each other to take over the coal lease - and operate it -  has demonstrated a binding commitment to restrict their existing roles in boosting adverse climate change.

Doubtless they'd argue their implacable dependence on the "bottom line". When market prices go up, they will strive to deliver at a competitive price. Only when demand goes "bearish" would they keep the product in the ground.

Within the past two months, and despite widespread civil opposition, the government has given a final go-ahead to Ivanhoe Mining and Rio Tinto's massive Oyu Tolgoi copper-gold mine.

This is a project which, only a year ago, seemed unlikely to proceed without major tax concessions being made by the two companies. See:

Ivanhoe and Rio Tinto got their way; Mongolia's people didn't.

Similarly, whoever wins Tavan Tolgoi will probably also dictate their own terms. In 10-20 years time, many Mongolians may rue the day that they allowed this to happen.

Tavan Tolgoi bidder selection delayed to 2010 - execs


4 December 2009

SHANGHAI - Budget negotiations and a new Prime Minister mean that Mongolia will likely delay to early next year the selection of winning bidders for the giant Tavan Tolgoi coking coal deposit, industry executives said.

Mongolia had earlier planned to select the winners for the $2-billion stake sale by the end of this year, following quickly on the conclusion of negotiations over investment in the Oyu Tolgoi copper and gold deposit which was considered a bellwether for mining investment in the landlocked country.

The nomination of a new prime minister, after the previous one fell ill, and negotiations over next year's budget could delay the selection, said Badamdamdin Ragchaa, chairman and chief executive of Mongolian state uranium firm MonAtom.

"I believe the issue will be solved early next year," said Badamdamdin.

Masa Igata, CEO of Frontier Securities, also expected a slight delay in the selection process.

"The selection is likely to be made early next year, but it's not a big problem," said Igata.

Shortlisted bidders for Tavan Tolgoi include BHP Billiton, India's Jindal, Brazil's Vale, US coal-miner Peabody, and China's Shenhua, as well as South Korea's COPEC consortium, a group of Japanese companies, and a Russian consortium including Gazprom and Renova, according to an executive in Erdenes MGL, the state company that will own at least 51% of the project.

Edited by: Reuters

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