* Tavan Tolgoi seen as one of world's largest coal reserves
* Itochu-led group to submit proposal soon -source
* Mitsui ties up with Shenhua, Peabody -sources
* Itochu group includes Korean, Russian firms -sources
The consortiums, one led by Mitsui & Co (8031.T: Quote) and another by Itochu Corp (8001.T: Quote) are expected to propose large infrastructure projects as part of their bid, including the establishment of railways and power plants, sources familiar with the matter said.
The government of Mongolia will keep ownership of the mine which has an estimated reserve of 6 billion tonnes, but will give strategic investors a chance to develop the western block on a contract basis.
"We have submitted a proposal in accordance with the requirement of the tender," a Mitsui spokesman said. He declined to provide further details.
Mitsui was planning to partner with China's state-run Shenhua Group (1088.HK: Quote) (601088.SS: Quote), and Peabody Energy (BTU.N: Quote) of the United States on the bid, two industry sources told Reuters last week.
Itochu has tied up with three Japanese trading houses -- Sumitomo Corp (8053.T: Quote), Marubeni Corp (8002.T: Quote) and Sojitz Corp (2768.T: Quote) -- as well South Korea's state-owned Korean Resources Corp and Russian's state-owned Russian Railways, the two industry sources said.
Steelmakers across Asia have been scrambling to secure new supply channels after devastating floods hit Queensland -- the heart of Australia's coal mining sector -- late last year.
Some investors said winning the deal could add lustre to the winner's stock price over the long-term.
"An investment in resource-rich Mongolia has a huge potential," Tomomi Yamashita, a fund manager at Shinkin Asset Management, said.
"It's an attractive theme that the market can play with."
The Itochu group may offer a project worth more than $1 billion, including the construction of a 400 km railway connecting Mongolia and Russia, sources said, as it aims to transport the coal to South Korea and Japan through the east Russian coast.
The Mitsui group plans to ship coal through China to Japan, the Sankei newspaper reported late last year.
The Mongolian government has set Monday as the deadline for bidders to submit initial proposals, and will decide which ones are qualified to proceed before launching the official bidding process.
The proposals must also include offers of an upfront payment to win the deal, said Ch.Baatbayer, a senior official at Erdenes MGL, the government entity that owns the mine.
A top executive at a Japanese trading house, who talked only on condition of anonymity, said global mining giants like BHP Billiton (BHP.AX: Quote) (BLT.L: Quote) which previously expressed interest in the project, have already quit. (Editing by Nathan Layne and Edwina Gibbs)