Key political risks to watch in Mongolia

Mon Jan 9, 2012

ULAN BATOR Jan 9 (Reuters) - Mongolia sits on vast quantities of untapped mineral wealth, the exploitation of which is likely to turn it into one of the world's fastest growing economies over the next decade.

But political uncertainty ahead of parliamentary elections in June 2012 has worried investors, with Mongolia's shaky coalition government under pressure to renegotiate a landmark 2009 investment agreement for the Oyu Tolgoi copper deposit, which is set to begin operations later this year.

The priority for Mongolia is the development of its tiny economy, and foreign investors want to know if the government can create a stable legal environment while handling the pressures exerted by impatient citizens as well as its two giant neighbours, Russia and China.

Following is a summary of key political risks to watch:

INVESTMENT POLITICS

The government has now formally given up on its idea of renegotiating the contract for the Oyu Tolgoi copper-gold mine, after earlier saying it wanted to look again at a 2009 deal with Ivanhoe Mines, now 49 percent owned by Rio Tinto .

Foreign investors were worried that renegotiating a deal two years after it was first signed would undermine confidence, but Mongolia is under pressure to boost revenues and meet ambitious social pledges made at the last elections in 2008. Some politicians have called for the prime minister to resign over his handling of the Oyu Tolgoi contract.

The controversy over Oyu Tolgoi's ownership has spilled over into another giant mine, the Tavan Tolgoi or "Five Hills" coal deposit.

Mongolia hopes to complete an investment agreement for the project before the end of 2011 as it races to launch a much-anticipated initial public offering, and meet the promises it made to voters. Its chief financial officer said in November it would be listed in London, Hong Kong and Ulan Bator, but the date was unclear.

An initial proposal to hand development rights in the project to China's Shenhua, Peabody of the United States and a Russian-Mongolian consortium was rejected, and the government is trying to devise another deal that will include Japanese and South Korean partners.

What to watch:

-- Progress of new laws through parliament. The Democratic Party said in early January it will withdraw from the coalition government ahead of the elections, leaving several ministerial vacancies.

-- Whether the government can produce an investment agreement for Tavan Tolgoi that will satisfy foreign partners and keep the public happy, and whether it can do it in time.

-- More inward investment. In November, commodities trader Trafigura and private equity investor Origo Partners Plc , formed a joint venture to develop Mongolian coal and iron ore deposits for export.

-- Whether foreign investors will be deterred by Mongolia's less than transparent approval procedures.

THE RESOURCE "CURSE"

Mongolia's dependence on mining has alarmed environmentalists and opposition politicians, and the country is already showing classic symptoms of "Dutch disease", including soaring inflation and high interest rates.

The government is trying to put in place structures that will protect it against fluctuating commodity prices, and is keen to use the proceeds from mining to pay for infrastructure, health and education programmes and develop other sectors.

It is under pressure to spread the wealth, and has already extracted "pre-payments" from foreign firms involved in both the Tavan Tolgoi and Oyu Tolgoi projects in order to give money to the public.

What to watch:

-- How Mongolia uses the proceeds from its mining projects. It has set up education and fiscal stabilisation funds, but it has also promised direct dividends for Mongolian citizens.

-- How it deals with rapid economic change as well as inflation as foreign investment transforms the country's mainly rural economy. The International Monetary Fund warned in November that Mongolia's economic policies are creating inflationary pressures.

GETTING ON WITH THE NEIGHBOURS

Many of Mongolia's 2.7 million citizens are concerned about growing Chinese and Russian influence, and their fears were not allayed by the plan to hand the majority of Tavan Tolgoi's western block to Chinese and Russian interests.

China already dominates Mongolia's economy, buying 90 percent of the country's exports in the first half of 2011.

Mongolia's growing dependence on Russia and China for fuel, power and transportation also poses a major risk to its mining sector. Russia has been known to turn off supply taps, and China is not averse to closing crucial railway links.

Mongolia also depends on Russia's railway network to fulfil plans to deliver coal to Japan and South Korea.

What to watch:

-- Will efforts to ease dependence on China merely increase Russia's hold, and vice versa? Is the Chinese market for coal and other minerals its only option in the short term?

-- How will the government handle growing nationalist sentiment, and fears about the role of foreign firms and workers.

(sourced Reuters)

Japan's Sept coking coal imports by source

Sat,Oct29, 2011

TOKYO(Reuters) - Following is a table of coking coal imports for September released by Japan's Ministry of Finance on Friday.

Figures are converted from yen to dollars using Japan Customs' official conversion rate. Volumes are in tonnes.

Country          Sept       Sept          Aug        Aug      M/M   Yr/Yr            YTD        YTD   YTD (Yr/Yr %)
        Name         Tonnes   $/Tonne       Tonnes    $/Tonne        %       %          Tonnes    $/Tonne         Tonnes
       China         3,287     274.62       98,740     153.31     -96.7               952,382     256.03            101.7
    Mongolia             -                       -                                          -                      -100.0
   Indonesia     1,154,996     146.21    1,190,021     139.47      -2.9    -8.7    10,923,282     129.18            -21.6
       India             -                       -                                          1   7,663.54           -100.0
      Russia       265,332     269.28      228,585     305.84      16.1    85.8     1,963,922     246.26             21.0
      Canada       440,902     313.80      848,777     303.11     -48.1   -13.4     5,388,836     264.89            -21.8
         USA       227,390     264.14      500,651     279.37     -54.6   -37.1     4,300,965     257.58            123.2
      Mexico             -                       -                                     75,764     301.31         
    Columbia             -                       -                                     61,844     296.64         
   Australia     3,285,048     273.16    3,153,109     285.38       4.2    -4.2    27,226,212     241.95            -16.5
 New Zealand             -                       -                       -100.0       253,020     245.66            -27.2
       Total     5,376,955     248.65    6,019,883     257.15     -10.7    -6.8    51,146,228     222.20            -11.6
 
 
(sourced Reuters)

Chinese, Mongolian companies sign $250m coal deal

Friday,July29, 2011 |By China Daily

ULAN BATOR -- A Mongolian and a Chinese mining company have signed a coal deal worth $250 million, local media reported Friday.

Under the deal, the Aluminum Corp of China Ltd (Chalco) will purchase coking coal worth $250 million as an advance payment from Mongolian state-owned company Erdenes Tavan Tolgoi (ETT), which holds the license for the giant Tavan Tolgoi coal deposit in Mongolia's south Gobi region.

The South Korean company Korea Resources Corp (Kores) and the Japanese companies Itochu and Mitsui signed a memorandum of understanding on purchasing 30 percent of the coal from Chalco.

About 50 high-ranking Mongolian and Chinese officials, including Chinese Ambassador to Mongolia Wang Xiaolong, attended the signing ceremony.

Earlier this month, the Mongolian government said it has chosen China Shenhua Energy, US mining giant Peabody Energy and a Russian-Mongolian consortium to develop the coal mine.

Hunnu Coal gets mining licence at Tsant Uul project in Mongolia

Monday, 18 Jul 2011

Hunnu Coal announced that the Mineral Authority of Mongolia has granted a mining licence MV - 016872 for the Tsant Uul Project, covering total area of 69,233 hextare.

Key points
1. Targeting commencement of mining in the last quarter of 2011.

2. Targeting initial production of 1.5 million tonnes of coal in 2012 and 3 million tonnes in 2013.

3. Owner operator mining fleet currently being purchased with initial purchases including six CAT 773 Dump Trucks and a Hitachi 1200 excavator. Additional purchases underway.

4. Exploration and development drilling now totaling 56,101 metres of diamond drill core and RC since discovery of the Tsant Uul Deposit in middle of 2010.

5. Study for a coal haulage access road from Tsant Uul Mine site to the existing coal haulage road has been completed and is currently under Government approval process.

6. An update of the Tsant Uul Project JORC Resources is being completed. The Company's exploration target for the Tsant Uul Project is for 150 million tonnes to 200 million tonnes.*

7. Final test work and off take agreements progressing well.

8. New Coal discovery 7 kilometer north of the Tsant Uul Deposit, with drilling currently underway.

The Tsant Uul Project mining licence has been granted for an initial term of 30 years with an option for twenty years extension twice, providing a total of 70 years of mining operations.

The Tsant Uul Project is located in the World Class South Gobi Coal Province of southern Mongolia, approximately 40 kilometer to the south of the giant Tavan Tolgoi Coking Coal Deposit. The Tsant Uul Project has a current JORC compliant resource of 90 million tonnes, with 61 million tonnes in the Measured and Indicated categories.

Noble Group seeks more Mongolia coal deals

Thursday, 03 Mar 2011

Noble Group Ltd the Hong Kong based supplier of energy, food and mining commodities, sees Mongolia as its next opportunity to expand in coal and build on its record 2010 profits.

Mr Ricardo Leiman CEO of Noble Group said that “We have staff looking at several opportunities in Mongolia, especially in exploration companies. Mongolia will be an area specifically for quarter two. We look at developing a similar model there to what we have in Indonesia and Australia.”

Noble won exclusive overseas marketing rights for PT Berau Coal, Indonesia’s No 5 producer, in November, adding to its Australian assets which include Gloucester Coal Ltd. The Berau deal will contribute nicely to 2011 earnings, Mr Leiman said after his company posted record annual net income of USD 606 million from USD 57 billion in sales.

Aspire Mining Ltd which explores for coal in Mongolia said that Noble bought 4.1% of its shares and is in preliminary talks on how the two can cooperate. Xanadu Mines Ltd which plans to develop coal and iron ore fields in Mongolia.(sourced from bloomberg)