UPDATE 2-Chalco threatens legal action in Mongolia coal dispute

Mon Jan 28, 2013 7:56am EST

Related Topics

* Will seek compensation if Tavan Tolgoi breaches deal

* Offers to help pay Mongolian transportation costs

* Already paying $100 per tonne

By Wan Xu and David Stanway

BEIJING, Jan 28 (Reuters) - The Aluminium Corporation of China (Chalco) warned it would seek legal redress if Mongolia breaks what it says is a loss-making coal supply deal.

Mongolia's state-owned Erdenes-Tavan Tolgoi (E-TT), which runs the 7.5 billion-tonne Tavan Tolgoi project, wants to renegotiate a 2011 deal with Chalco to supply $250 million worth of coal.

E-TT last week delayed an IPO of up to $3 billion, citing problems with infrastructure and the deal with Chalco.

Li Dongguang, the president of China Aluminium International Trading Co Ltd, a subsidiary overseeing the Mongolian deal, told a news conference the company would punish any breach.

"If they maliciously breach the contract in order to seek their unilateral interest and neglect the interests of the other side, in that case the compensation will have no upper limit. In that case, we would take legal action," Li said.

Li said Chalco imported 2.37 million tonnes of coal from Tavan Tolgoi in 2012, less than the original plan for 3 to 4 million tonnes.

Chalco made an advance payment of $250 million in July 2011. Shipments to China were suspended earlier this month because the Mongolian firm was unable to pay the costs of delivery.

Chalco would be willing to provide financial help to E-TT to keep operations running, and would consider paying the company's transportation costs, but it says all offers have been ignored.

"We have proposed many solution plans, but there has been no response from them," said Liu Xiangyu, the manager of the company's Hong Kong unit, who is in direct talks with Mongolia. "All they request is to adjust the price, cut the volume, and renegotiate."

HIGHER PRICES

Batsuuri Yaichil, the chief executive of E-TT, last week told Reuters the prices paid by Chalco were lower than the cost of production, and that Mongolia wanted to sell its coal to other customers at international prices.

Chalco said the prices were index-based, with a 10 percent discount compared with Australian prices to account for the lower quality of Mongolian coking coal.

Li said Chalco was paying as much as $100 per tonne to move Tavan Tolgoi coking coal across the border to markets in southern and eastern China.

"The new management team (of E-TT) doesn't understand the situation," he said.

Chalco has long sought to invest in Mongolia's mines, but it has faced political opposition.

A $926 million bid for Canada's Mongolia-based coal miner SouthGobi Resources was dropped in October after it became clear the bid would not be approved.

Last year, the Chinese firm also abandoned an agreement to buy a 29.9 percent stake in Winsway Coking Coal Holdings , which delivers coal from Mongolia to China, for $308 million, as it would not be able to win approvals from Chinese and overseas authorities.

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