Signs from the new Mongolian government to drop plans to lift its stake in Rio Tinto's Oyu Tolgoi (OT) copper and gold mine, are being read as positive for the country’s nascent coal industry.
Sources in Mongolia said the government has finally set aside the ‘obsession’
“There seems to have been a realisation they can’t afford to be kicking foreign investors around,” a source in Mongolia offered.
After appearing to consider partial nationalisation of some key resource assets, the government is close to deciding on the consortium which will develop a part of the Tavan Tolgoi coal field. Representatives from China, Russia, the US, Japan and South Korea are interested after having tendered for the right to bid on the contract.
Asked to comment on speculation global mining major Peabody Energy is tipped to become the operator of the project, Vic Svec, Peabody’s spokesman had this to say: “We continue to believe that Peabody is in the best position to meet the needs of Mongolia in developing the Tavan Tolgoi project, and we look forward to continuing to advance discussions on multiple levels.
“As has been our practice, we would not comment on the status of specific discussions related to the project,” he added.
While the government is already mining a part of the deposit (by contractor), the Mongolians cannot develop their massive coking coal deposits on their own. As such, they need foreign involvement but figuring out the geopolitical implications of which ones would best serve the country’s export aspirations is critical. At the same time the newly formed government has to find a way to manage rising aspirations on the home front.
Because Mongolia is surrounded by superpowers China and Russia, both countries are critical partners to secure access to markets; China as its major consumer and Russia as a conduit to Asian export markets.
But the Mongolian government has made it very clear it is not prepared to simply provide feedstock to Chinese blast furnaces and be a victim of China’s market power. One plan would see a rail line connecting to the Trans Siberian line to help diversify the customer base.
During a recent visit to Japan, Luvsanvandan Bold, Mongolia’s Minister for Foreign Affairs, told Bloomberg “Our priority is third-neighbour relations,” meaning nations other than China and Russia. Sources suggest Bold’s visit to Japan might be a precursor to finalising the consortium to develop ETT.
The consortium arrangement is expected to resemble an Indonesian style production sharing contract whereby the government-owned ETT owns the underlying title and the consortium manages and develops the asset.
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