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Can Mongolia Overcome Sovereign Risk Issues to Become King of Coking Coal?

It’s been touted as the new, low-cost coal province that will displace coking coal suppliers around the globe, but significant hurdles remain for those hoping to harvest massive coal reserves in Mongolia. China Coal Report looks into the issues.

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Mongolia | Tavan Tolgoi | Coking Coal | Reserves | 2012 | 2013 | China | Supply
Mongolia | Tavan Tolgoi | Coking Coal | Reserves | 2012 | 2013 | China | Supply
PRLog (Press Release) - Nov. 19, 2012 - Several niggling sovereign risk issues remain unresolved which appear to be red-lighting foreign capital investors for now. But over-arching all that is that even in Mongolia, which sits at the bottom of the global cost curve, aspirant coal developers have not been immune to softening coking coal prices.

ETT controls a Measured, Indicated and Inferred reserve of 7.4Bt in the Tavan Tolgoi coalfields, located in the southern Gobi desert on the Chinese border and is producing around 2Mtpa at present.

“We are already seeing some signs of life in the China market for coking coal, but this needs to be seen as a sustainable rally before investor confidence will return to the point where we can list,” he added.

“We are not deterred by the current market conditions from pressing ahead with the mine development.  We believe this is a temporary lull in the coking coal price and in the medium term we are still confident of an upturn in pricing, particularly for hard coking coal.”

“I think weak coal pricing is only one of the reasons why this is not an ideal time to embark in an IPO, there is also regulatory uncertainty on royalties, foreign ownership and the ability of the Mongolian government to execute the Chinese-Mongolian railway plan, which is critical for ETT to increase production substantially,” Jean continued.

“I think weak coal pricing is only one of the reasons why this is not an ideal time to embark in an IPO, there is also regulatory uncertainty on royalties, foreign ownership and the ability of the Mongolian government to execute the Chinese-Mongolian railway plan, which is critical for ETT to increase production substantially,” Jean continued.

“If we defer development we will not be well placed for the coming upturn. Our washery project is advancing at pace as this element is critical to our operating margins which are not so good for raw coal exports,” he said.

Some analysts believe that while ETT’s reticence around current market sentiment is completely justified the miner’s reluctance to undertake a capital-raising exercise highlights current market sentiment towards Mongolia as an investment destination.

The complete story can be found in the China Coal Report which presents weekly updates on both the producer and consumer sides of the Chinese coal market.  With information on trade, transport and policy updates, the China Coal Report provides comprehensive coverage for anyone dealing with the Chinese coal market.

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