Mongolia readies to revive its giant Tavan Tolgoi coal mine

Cash-strapped Mongolia is planning to bring back to life the long-delayed and massive Tavan Tolgoi coal project in the south Gobi desert, as the land-locked country looks for ways to revive its ailing economy.

As a first step, Erdenes Tavan Tolgoi (ETT), the state-owned company that holds the license to the deposit, has already begun evaluating bids and calculating the potential economic benefits of reviving it.

Tavan Tolgoi, home to the world’s largest high-quality coking coal deposit, has reserves estimated in 7.5 billion tonnes.

"We are not ruling out any possibilities," Samdandobji Ashidmunkh, chief economic development officer of ETT, told Reuters. "If it's profitable for Erdenes Tavan Tolgoi and beneficial for the Mongolian economy, we're open to cooperate with anyone."

Hurt by falling commodities prices, an economic slowdown in China and decreased interest by foreign investors put off by anti-investment laws and inconsistent policy, the East Asian nation is desperate to lure investors back to its natural resources sector. According to the Mongolian government, the country’s untapped mineral wealth is worth about $1.3 trillion.

The country is also asking companies currently working on projects, to step up efforts to bring those projects into stream, particularly Rio Tinto’s giant Oyu Tolgoi copper-gold mine.

Task force

Last month, the government revealed it was planning to set up a task force to deal with the country’s dire economic situation, which has led to slowing growth, a declining currency and a soaring budget deficit.

Even after extreme cost-cutting measures outlined by the Mongolian People’s party, which won in July’s elections, Mongolia faces a gap between its revenues of $2.67bn (MNT5.34tn) and $4.9bn (MNT9.7tn) expenditure — a deficit equivalent to 18% of gross domestic product. That is well above the 4% statutory limit, according to Bloomberg.

Located in the South Gobi desert, Tavan Tolgoi is home to the world’s largest high-quality coking coal deposit used in steelmaking, with reserves estimated in 7.5 billion tonnes. However management of the operation has been characterized by bureaucratic bungling.

In 2011 Mongolia's National Security Council rejected a deal struck with US giant Peabody Energy, China's Shenhua and a Russian-Mongolian, just two months after they were announced as winners.

Mongolia readies to revive its giant Tavan Tolgoi coal mine

Tavan Tolgoi, the second largest mining investment in Mongolia after Oyu Tolgoi, is located in an area without the roads and railways needed to quickly and economically deliver coal to markets. (Image from archives)

The latest impasse came last year, when the parliament blocked an agreement with a consortium of foreign firms, including China's Shenhua Energy, Japan's Sumitomo Corp. and Hong Kong-listed Mongolian Mining Corp. (MMC), which were interested in developing Tavan Tolgoi.

The project is Mongolia's second largest mining investment, after Rio Tinto's Oyu Tolgoi.

That group of companies, however, still hopes for a favourable resolution of the issue, and their offer is said to still be on the table. In the meantime, the newly established government is expected to honour investment agreements that support the development of Tavan, including building a power plant as a joint project with Japan's Marubeni, and deal with ETT’s outstanding debt to Chinese aluminum producer Chalco Group.

The country’s 's mining outlook and overall growth profile should also get a boost from the setting of the China-Mongolia-Russia Economic Corridor, a project aimed at strengthening transport links and trade between the three nations that was signed in June.

That development would be key for Tavan Tolgoi’s success. This as the project, the second largest mining investment in Mongolia behind Oyu Tolgoi, is located in an area without the roads and railways needed to quickly and economically deliver the coal to markets. It also lacks the power and water supplies to support big mining camps.