Mongolia to sell stake in its giant Tavan Tolgoi coal mine

Mongolia to sell stake in its giant Tavan Tolgoi coal mine

Tavan Tolgoi (Image from WikiMedia Commons)

Mongolia is considering the sale of stakes in 10 state-owned companies over this year and next, including part of its $4 billion Tavan Tolgoi (TT) mine —its biggest coal operation—, as the country tries to shore up investor support for its flagging economy.

The government will mainly focus on divesting holdings in power plants and other businesses, Bloomberg reports.

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 7.4 billion tonnes. However management of the operation has been characterized by bureaucratic bungling.

The latest impasse came in April, when the parliament cancelled a deal with a consortium of foreign firms, including China's Shenhua Energy and Japan's Sumitomo Corp., interested in developing Tavan Tolgoi.

The lawmakers continue to raise objections to financial and legal aspects of the TT investor agreement, hinting at the possibility that the mine could suffer a similar fate to that of Rio Tinto’s Oyu Tolgoi. An expansion at the global miner’s $5 billion copper operation was only unblocked in May, after two years of wrangling.

On again- Off again

In 2011 Mongolia's National Security Council rejected a deal struck with US giant Peabody Energy, China's Shenhua and a Russian-Mongolian consortium mid-September, just two months after they were announced as winners. At the time losing bidders from Brazil, India and South Korea raised serious concerns and Japan went so far as to call the bidding process “extremely regrettable.”

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Foreign financial contribution is key to move the project forward. Tavan Tolgoi, 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.

The mine is divided into six sections: Tsankhi, Ukhaa Khudag, Bor tolgoi, Borteeg and south-west and eastern coalfields.

Tavan Tolgoi is considered to be crucial to the efforts of Mongolia to convert its mineral wealth into economic gains.