By S.Bold-Erdene
Finally there is news from BaruunTsankhi, the gest coalfield region in the vast TavanTolgoi deposit. A decision is yet to be taken on the choice of strategic investors to operate BaruunTsankhi, though on this depends outside perception of Mongolia’s stance on foreign investment. The identity of the chosen operator(s) will also impact the price of TavanTolgoi coal, the mode of transporting it, and also if it will or can be sold in Japanese and Korean markets.
With negotiations stalled at the Government level, ErdenesTavanTolgoi could only wait and watch. It had been given the responsibility of issuing an international IPO that would raise funds at least equal to the whole year’s state budget of Mongolia, and the company and its executive director B.Enebish had to do something to get things moving. There was a setback when the coalition government collapsed. In April, Enebish met S.Batbold, Prime Minister at that time, with a proposal to start work on BaruunTsankhi, but was advised to wait until after the elections, when a new Government will be in place. A new Government took over in due course but it was too preoccupied with other issues to discuss BaruunTsankhi, and, tired of waiting, Erdenes TT finally opened the BaruunTsankhi mine before winter set in.
The actual ceremony to begin soil removal work at the mine was kept a low-key affair, especially when compared to what had happened two years ago when Erdenes TT first extracted coal from TavanTolgoi. The head of the Citizens’ Representative of Tsogttsetsii soum and its governor were almost the only two guests, with no Parliament member and minister invited, and nobody from the State Property Committee and the Ministry of Mining attending. It was kept a “family” affair, held in the presence of Ya.Dolgorjav, Executive director of Erdenes MGL,G.Temuulen, Chief Deputy Director, B.Enebish, Executive Director of Erdenes TT, and Graeme Hancock, Chief Operating Officer. Not many reporters and cameramen were present either.Enebish told the gathering, “We took the decision on our own. It is routine extension of our work, and has no bearing on whatever decision is taken on strategic investors. That is the Government’s domain and our decision to start soil removal and to do this without fanfare was taken after consultation with our parent company.”
But there is no doubt that it was a event for the company itself. The opening ceremony of ZuunTsankhihad seen a crowd of dignitaries and guests, including MPs and Ministers, but the company representation was limited to some 20 employees and a handful of technicians. This time, however, the gathering included nearly 300 employees and 60 technicians, along with six 240-ton BelAz trucks on show.
That is not all Erdenes TT has achieved in such a short period of time. More than 3 million tons of coal has been already extracted and exported from Zuun Tsankhi. By September 30, 6.2 million m3 soil was removed and 1.9 million tons of coal mined, of which 500,000 tons are ready for export. By the end of the year, another 3 million m3 of soil will be removed and 2 million tons of coal extracted, according to R.Natsagdash, director of Zuun Tsankhi coalfield.
The output will grow every year until, by 2016, the mine becomes one of the gest in the world with a capacity to extract 20 million tons. BaruunTsankhi, expected to produce 1 million tons next year,will also reach a capacity of 20 million tons by 2017. A 20-million-ton capacity washing plant will be set up at Baruun Tsankhi. So, as Enebish said at the ceremony, in 4-5 years’ time, there will be two mines on TavanTolgoi, together extracting and exporting some 40 million tons of coal a year.
In his address, Enebish emphasized the significance of the occasion again and again. The greatest benefits would come only if all infrastructure work related to both Tsankhis were planned together and taking the mine as a whole. Operation of the second mine also has considerable economic significance in that it will earn revenue as well as create jobs. Another thing is that share prices at the IPO will be high when both Tsankhis are seen as operating. Opening of BaruunTsankhi will also accelerate the development of infrastructure and ancillary industries.
If Peabody doesn’t accept the offer, Vale might be sounded
Surprises did not cease with the opening of BaruunTsankhi. Both investors and politicians, let alone the general public, learnt the following week that Erdenes TT had sent a letter to the President of Peabody Energy Asia, inviting him to exchange ideas on cooperating as a contract miner on BaruunTsankhi. At the moment, it is beyond Erdenes TT to operate both Tsankhis on its own, and so it decided to seek collaboration from companies with global reputation. It also decided to accord priority to companies from “third neighbour” countries, thereby putting China’s Xinhua Energy and some others at the bottom of the list. Enebish said Brazil’s Vale would be sounded if a deal is not reached with Peabody.
This unilateral move by Erdenes TT under Enebish should give a jolt to the Government to stir it into making a move. The company has submitted several suggestions to the Government on how it should proceed. In its view, the first step is to decide on the strategic investors as soon as possible and start work on Baruun Tsankhi. If there can be no agreement withinvestors on the shareholding details, Erdenes TT has said it might operate Baruun Tsankhi by itself, without any strategic investor. This will be a daring challenge, with both advantages and risks. One solution could be to set up a Baruun Tsankhi Mine LLC as a daughter company, with Erdenes TT owning 51 per cent of it and the rest offered for open sale. There can be other moves, too.
No matter which option the Government prefers, its prime consideration should be to keep the worth of its property at the highest and to get it into economic circulation as soon as possible. The global economy is unstable right now, and nearer home, budget revenue accretion is in a critical state, with coal price unlikely to recover soon. The Government needs to be bold and quick in its negotiations with strategic investors. In a way, Erdenes TT has forced the Government’s hands by beginning work at Baruun Tsankhi and Mongolia should be grateful for this.