Bloomberg News

Mongolia Claims Project Sought by BHP, Peabody, China

December 18, 2007

(Corrects spelling of prime minister's name in second paragraph in story published Dec. 17.)

Mongolia's government claimed control of a $2 billion coal project that BHP Billiton Ltd. (BHP), Peabody Energy Corp. (BTU:US) and China Shenhua Energy Co. (1088) have been in talks to develop as prices of the fuel rose to records.

The government is the rightful owner of the Tavan Tolgoi project, according to a translation of Prime Minister Sanj Bayar's speech to Parliament on Dec. 13. ``Tavan Tolgoi has become an issue of national security and public interests,'' Bayar said in the inaugural address to parliament.

Tavan Tolgoi is owned by Energy Resources LLC, which had been in talks with BHP, Peabody and China Shenhua to sell the mine's development rights for more than three years, a period marked by populist demands to distribute more of the wealth generated by mineral reserves. Coal prices at Australia's Newcastle port, a benchmark for Asia, rose to a record last week.

Bayar ``is concerned that prices will drop and cause losses for Mongolia,'' N. Algaa, executive director of the Mongolian National Mining Association, which translated the speech, said in a phone interview.

Tavan Tolgoi, with resources of 1.5 billion metric tons of coking coal and 3.6 billion tons of thermal coal, will produce as much as 30 million tons a year for at least 30 years, according to Energy Resources. Tavan Tolgoi may be Mongolia's second- largest mining investment after the Oyu Tolgoi copper mine proposed by Rio Tinto Group (RIO) and Ivanhoe Mines Ltd., which may cost $3 billion.

No Formal Talks

``The government will decide who and which company should invest and participate,'' Bayar said on Dec. 13.

``While Bayar has announced that the government intends to take control of the project, no formal negotiations had taken place between the government and the Energy Resources up to date,'' Lkhagvadorj, a spokesman for Energy Resources, said in an e-mail today.

Tavan Tolgoi is about 150 kilometers (93 miles) from Mongolia's border with China. Oyu Tolgoi is roughly between Tavan Tolgoi and the border.

As many as six companies were bidding for the Tavan Tolgoi rights, George Tumur, Energy Resources' acting executive director, told reporters at a Nov. 9 conference in the capital Ulan Bator. A decision on the partner was expected within three months, Tumur said at the time.

Mitsui, Itochu

Beth Sutton, a spokeswoman for Peabody Energy, declined to comment. Illtud Harri, a spokesman for Melbourne-based BHP, said he couldn't immediately comment. A call placed to China Shenhua's main switchboard outside of regular business hours wasn't picked up.

Brazil's Cia. Vale do Rio Doce, Japan's Mitsui & Co. (8031) and Itochu Corp. (8001) were also involved in negotiations earlier this year, Luvsanvandan Bold, chairman of the Mineral Resources and Petroleum Authority of Mongolia, said in an interview in March.

JPMorgan Chase & Co. was advising Energy Resources on the sale, Tumur said on Nov. 9. The coal will be sold primarily to China, with Russia, Korea and Japan as other potential customers, he said.

Bayar also told lawmakers on Dec. 14 that he wants an international organization with experience in mining projects to negotiate on the government's behalf with Ivanhoe on Oyu Tolgoi, Algaa said.

Oyu Tolgoi contains about 71 billion pounds (32 million metric tons) of copper and 31.3 million ounces of gold, based on measured, indicated and inferred categories, according to company estimates from 2001 through 2006.

Bob Williamson, a media contact for Vancouver-based Ivanhoe, said the company couldn't immediately comment.

Ivanhoe fell 69 cents, or 6.7 percent, to C$9.61 at 3:59 p.m. on the Toronto Stock Exchange. The stock has fallen 16 percent this year, valuing Ivanhoe at C$3.6 billion ($3.58 billion).

To contact the reporter on this story: Rob Delaney in Toronto at robdelaney@bloomberg.net.

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net.


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  • BTU
    (Peabody Energy Corp)
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