Mongolia grants 1-year contract to mine Tavan Tolgoi west block

ULAN BATOR, July 19 Fri Jul 19, 2013 3:21am EDT

ULAN BATOR, July 19 (Reuters) - Mongolia has lined up three local firms to mine the West Tsankhi block of the giant Tavan Tolgoi coal mine for a year, an executive at the state-owned mining company said on Friday, as the country aims to boost coal output.

Mongolia is racing to start producing coal from the long-delayed project as it is under pressure to plug a budget gap and help pay down debt to Aluminium Corp of China (Chalco) amid a sharp downturn in coal prices.

Delgersaikhan Tsagaan-Uvgun, head of mine planning and technical coordination of state-owned Erdenes Tavan Tolgoi, said the company has finalized a one-year contract for mining at the 888 million-tonne West Tsankhi block to a consortium of three local companies.

The Mongolian firms Khishig Arvin Industrial, Mera, and Mongolian National Miner make up the Mongol Uurkhaichid group, which means Mongolian Miners in English, and will together begin work at the deposit this weekend.

The deposit is owned by Erdenes Tavan Tolgoi, which has contracted out work at its East Tsankhi deposit to Australia's Macmahon Holdings and Germany's BBM Operta.

The company said it expects to mine a total of 5-6 million tonnes this year at the east block and 2 million tonnes at West Tsankhi.

Erdenes Tavan Tolgoi owes Chalco $170 million, the outstanding amount from a total debt of $350 million from an off-take agreement it signed with Chalco in 2011 to be paid in coal exports.

The company expects to repay the sum by December this year, according to an interview with Chief Executive Yaichil Batsuuri on the news website Business-Mongolia.com in June.

Chief Financial Officer Batdorj Enkhbat told Reuters that the company was in talks to export coal to new international markets, such as Japan or Korea, as the landlocked country looks to ease its dependence on China.

Mongolia's massive neighbour consumes more than 90 percent of all minerals produced in the country.

Erdenes Tavan Tolgoi has not yet given up on trying to come up with a strategic agreement with international stakeholders to develop the West Tsankhi block, but that plan has been held up by political debate over foreign investment.

The Mongolian government backtracked on awarding rights to West Tsankhi in 2011 to a consortium including Peabody Energy and China's Shenhua Group after rival bidders from Japan and South Korea branded the decision unfair.

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