ULAN BATOR, May 7 (Reuters) - Mongolia’s plan to develop the untapped western block of its massive Tavan Tolgoi coal mine will help raise cash from new customers to offset an exclusive but loss-making supply deal with China’s Chalco, an official with the mine’s developer said.
The mine’s state-owned operator, Erdenes Tavan Tolgoi (ETT), expects to begin exporting coal from the West Tsankhi coal field in the third quarter of this year after opening it up to tender last week, said Tsagaan-uvgun Delgersaikhan, head of mine planning at the firm.
“The bid is for one year but we have to complete it quickly, hopefully in six months. We just want to make some coal available to sell to some other customers besides Chalco, which may give some extra cash,” Tsagaan-Uvgun told Reuters.
Mongolia is under pressure to raise funds to plug a budget gap and stave off a credit downgrade.
Chalco has exclusive rights to purchase coal from the east Tsankhi coal field via a $250 million offtake agreement signed in 2011.
ETT suspended deliveries to Chalco in January and said it was seeking to renegotiate the deal as the cost of digging the coal was higher than the contracted price. However, it resumed sales this month after a threat of legal action.
Bids for a contract mining tender for the western Tsankhi are due on May 31.
The company hopes to produce 2 million tonnes this year from the western block, which it has said holds 888 million tonnes of reserves, but the arrangement was a “temporary measure”, Tsagaan-Uvgun said.
“The government instructed us to increase the number of customers so we will go and ask some other customers to buy it,” he said.
The contract mining tender fell short of expectations of major miners, who are hoping for a strategic partnership to mine the coal deposit, but Tsagaan-Uvgun said the one-year deal would not prevent Mongolia from pursuing long-term agreements.
Tavan Tolgoi, located about 300 km (185 miles) from the Chinese border, is thought to contain as much as 7.5 billion tonnes of high-quality coal. It is regarded as one of the most promising coal deposits in the world, but its development has been repeatedly delayed due to financing problems.
The west Tsankhi block has long been coveted by major foreign mining companies, including U.S. coal miner Peabody Energy and China’s Shenhua Group.