Mongolia seeks more profit from rich coal deposits
Tue Sep 12, 2006 1:28am ET
yahoo.reuters.com
By Luke Distelhorst
ULAN BATOR, Sept 12 (Reuters) - International coal miners are flocking to Mongolia, lured by the landlocked country's rich coal deposits and booming demand from its giant neighbour China.
But investors are wary of Mongolia's new minerals legislation, which allows the government to own a percentage of strategic mineral deposits without clarifying the terms of the state's investment.
Mongolia is fearful of turning into a mere raw materials exporter and is seeking ways to keep jobs and profits at home. The new Minerals Law, passed in July, calls for developing power plants and other industries, and provides for a state share.
"If the Chinese can build power plants, it would be good for Mongolia, it will provide us with more power and employ Mongolians," said T. Naran, executive director of the Mongolian Coal Association.
"We support the development of big mines, such as Tavan Tolgoi and Sharyn Gol, as long as the coal is processed in Mongolia."
The Tavan Tolgoi coal deposit may be a test case for the new policies. Only 150 kilometres (90 miles) north of the Chinese border in the Gobi Desert, the deposit is the largest unmined coking coal deposit in the world, industry estimates show.
It has approximately 6 billion tons of coal, including an estimated 1.8 billion tons of high metallurgical value coking coal used in making steel.
BHP Billiton Ltd. (BHP.AX: Quote, Profile, Research), the world's largest miner, held the rights to Tavan Tolgoi between 1998 and 1999. It relinquished them after studies showed Chinese coal prices at the time would not justify initial development costs totalling over $1.5 billion.
But Chinese coal prices have doubled over the last three years. Now miners including Japan's Itochu Corp. (8001.T: Quote, NEWS, Research) and Mitsubishi Corp. (8058.T: Quote, NEWS, Research) and Russia's Severstal Group have expressed interest in developing Tavan Tolgoi.
Tavan Tolgoi was found with state funds giving the government a possible 50 percent stake in future development under the terms of the new law. The project is now being developed on a smaller scale by Mongolian companies.
RAW MATERIALS
Politically dominated by Russia for nearly seven decades, Mongolians now fear being economically dominated by China, which has nearly 500 times Mongolia's population.
China imported over 2.5 million tonnes of coking coal in 2005 from Mongolia, according to Mongolia's National Statistics Office, or nearly one-third of its total 8.2 million tonne coal output. The remainder was used for domestic power and heating.
"We support both foreign and domestic investment, but we don't want it to be taken away in its raw form," said Naran.
Dump trucks carry Mongolian coal exports from mines to the Chinese border, far from consuming centres. Proposed rail links between Mongolian mines and the Chinese national grid could allow Mongolian coal to be sold directly to higher-priced markets.
But some nationalists warn that rail links would create further dependency on China and run through fragile ecosystems
Officials from the State Grid Corp. of China have also proposed a plan to build three coal power plants in the Gobi to sell to China and southern Mongolia. They could generate power for Ulan Bator and projects such as the giant gold-copper mine at Oyu Tolgoi, under development by Ivanhoe Mines Ltd (IVN.TO: Quote, Profile, Research).
Mongolia hopes to develop coal-processing industries at home, including coal liquefaction and producing refined fuel from coal, in addition to developing power generation near coal belts.
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