Mongolia going it alone at Tavan Tolgoi. For now

Mongolia's state-owned Erdennes Tavan Tolgoi, says it will start work on a coking coal block previously slated for development by foreign miners.

Reuters reports Batdorj Enkhbat, the chief financial officer of  E-TT, said a domestic company would start initial development at West Tsankhi, possibly as soon as April, but could not be drawn on whether foreign miners will be invited.

Located in the South Gobi desert Tavan Tolgoi – mined since the 60s – is home to the world’s largest high-quality coking coal deposit used in steelmaking, but management of the resource has been characterized by bureaucratic bungling.

Last month cash-strapped E-TT suspended all coal exports to neighbouring China from Tavan Tolgoi which boasts a 7 billion tonne total resource a in a wrangle over pricing.

The country last year stopped all talks with international miners on developing the West Tsankhi which on its own holds 1.2 billion tonnes.

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Mongolia’s National Security Council rejected a development deal struck with US giant Peabody Energy, Shenhua and a Russian-Mongolian consortium mid-September 2011, just two months after they were announced as winners.

Mongolia has also put on ice plans to publicly list Tavan Tolgoi that could have raised $3 billion.

Mongolia is walking a diplomatic tightrope with Tavan Tolgoi.

Aside from from closer ties with China it wants to use the project to strengthen its longtime political and cultural links with Russia and at the same time make room for the US as a geopolitical balancer in Asia.

From levels above $300 a tonne in the first half of 2011 coking coal prices have steadily declined to the $150–$200 a tonne level it is trading at today.