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Peabody, China, Russia teams to win Mongolia mine bid
July 4 (Reuters) - Peabody Energy (BTU.N), a venture between China's -Shenhua (1088.HK) and Japan's Mitsui & Co (8031.T), and a Russian-led consortium have been picked as preliminary winners to jointly develop the prized Tavan Tolgoi coal deposit, a senior Mongolian government source said Monday.
Tavan Tolgoi is touted as one of the world's biggest untapped coking coal deposit, which global steel makers such as ArcelorMittal (ISPA.AS) and Posco (005490.KS), are anxious to secure, as quality deposits have become harder to find and rising demand for steel have already made such coal prices soar.
Last week, the Mongolian government said it had halved the shortlist of bidders for the western Tsankhi block to three from six, but it did not say whether it would cut the list further.
The decision, which is still subject to approval by the Mongolian parliament, comes after a long delay in developing the massive deposit -- with estimated reserves of 6 billion metric tons of coal, including the world's largest untapped deposit of steel-making coking coal.
The project, in Mongolia's South Gobi region, is not only seen as vital to kick-starting the land-locked nation's economy, but will generate billions of dollars in revenue for the companies involved and add tens of millions of tons of increasingly rare coking coal to global supplies each year.
"They are the preliminary winners and all the negotiation materials have already been submitted to the parliament for discussion," the official from Mongolia's Resources and Energy Ministry told Reuters by telephone.
"It only needs an approval from the parliament ... the intention is to have all three parties jointly develop Tavan Tolgoi," said the official who did not want to be named as the news was not public.
If the parliament was to disapprove of Peabody's participation for any reason, the government would then look at the other mining groups that had been previously short-listed
Vale (VALE5.SA) or Xstrata Plc (XTA.L) -- to replace the U.S. coal miner, the source said.
He said there was no deadline for when the parliament would vote on the proposal, but reckoned that a decision should be reached before July 11, when the spring session of the parliament ends.
Members of the Japanese-Korean-Russian consortium include POSCO (005490.KS), utility firm KEPCO (015760.KS), trading firm LG Corp and Daewoo International, state-owned Russian Railways and Japanese trading houses Itochu Corp (8001.T), Sumitomo Corp (8053.T), Marubeni Corp (8002.T) and Sojitz Corp (2768.T).
The tender is to develop the western Tsankhi block, which holds around 1.2 billion tons of reserves, with a forecast production life of more than 30 years at 15 million tons a year.
However, with the deposit located in the middle of a vast desert that has hardly any access to roads, rail lines and power, some observers estimated that winners might need to pump in over $7 billion as an initial investment.
Separately, the east Tsankhi coal block will be developed by state-owned Erdenes-Tavan Tolgoi Ltd, for which the government is in the midst of planning an initial public offering which could raise as much as $10 billion to develop the field.
ALL ABOUT POLITICS
For landlocked Mongolia, the selection process has been laced with political concerns, as the country looks to boost its roughly $6 billion economy through mining revenues.
Mongolia relies heavily on China for its commodities exports, but is in talks to access Russia's railways and ports as it looks to build new trade ties with other countries in the Far East.
"So far it feels like more of a geopolitical decision and commerce is sort of second," said Dale Choi, chief investment strategist at brokerage Frontier Securities in Ulan Bator.
"The government is trying to involve all three, have a cooperation between all three groups. It will be complicated, since there are so many companies."
However, analysts said the combination makes sense as both the Shenhua-Mitsui venture and the Russian-Korean-Japanese consortium lack experience in developing coking coal deposits.
"Peabody can help to fill that gap," said UOB-Kay Hian's senior metals analyst Helen Lau.
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"Mogi" Munkhdul Badral
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CPS International LLC
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CPS International is a marketing arm of CPS Securities in Mongolia. CPS Securities is a Perth, Western Australia based AFSL License Holder. To trade ASX and international stocks, feel free to contact me at mogi@cpsinternational.mn or +976-99996779.
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CPS Securities, its directors and employees advise that they may hold securities, may have an interest in and/or earn brokerage and other benefits or advantages, either directly or indirectly from client transactions mentioned in correspondence from CPS International.
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