May 3, 2013 / 5:20 AM / 5 years ago

UPDATE 1-Mongolia seeks bids to mine part of huge Tavan Tolgoi coal mine

ULAN BATOR, May 3 (Reuters) - Mongolia’s Erdenes Tavan Tolgoi has launched a tender for a one-year contract to mine the western Tsankhi block of the giant Tavan Tolgoi coal field, a top executive of the state-owned company said on Friday.

Mongolia needs to kickstart the long-delayed project as it is under pressure to boost mine production and revenue to plug a budget gap and stave off a credit downgrade amid a sharp downturn in commodity prices.

It is also trying to attract foreign investors who have been scared away over the past year by regulatory changes and a dispute over the agreement governing the massive Oyu Tolgoi copper mine.

Bids for the western Tsankhi mining contract are due on May 31, Chief Financial Officer Batdorj Enkhbat told Reuters.

The development of the western block would add 888 million tonnes of reserves to the Tavan Tolgoi mine, bringing the total current exploitable reserves to 1.8 billion tonnes, he has previously said.

Rights to western Tsankhi have long been coveted by major foreign mining companies, including U.S. coal miner Peabody Energy and China’s Shenhua Group, who were part of a consortium that won a bid to invest in the block in 2011.

The Mongolian government backtracked on awarding those rights after other bidders from Japan and South Korea branded the decision unfair.

The current tender is only for a mining contract, similar to Leighton Holdings’ contract to run the Ukhaa Khudag mine owned by Mongolian Mining Corp, next to Tavan Tolgoi.

Peabody Energy has been in talks with the Mongolian government about developing the mine, after being asked last year to draw up logistic and infrastructure plans for the block.

Leighton declined to comment on whether it would bid for the western Tsankhi contract.

The World Bank this week cut its forecast for Mongolia’s GDP growth in 2013 to 13 percent from 16.2 percent, reflecting what it called “the recent trends of negative export growth, sharply weakening FDI (foreign direct investment) inflow and (the) slower pace of Chinese economic recovery in the first quarter”.

Standard & Poor’s revised its rating outlook on Mongolia to negative from stable in April, saying there was more than a one-in-three chance it would cut its BB- long term and B short-term sovereign credit ratings within six to 18 months.

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