Heavy Hitters on Shortlist for Mongolian Coking Coal Project Near End of Bidding

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Researched by Industrial Info Resources (Sugar Land, Texas)--With Mongolia set to replace Australia as China's supplier of coking coal for the steel and metals industries, the bidding process for the contract to develop the Tavan Tolgoi mine in Mongolia is entering the final lap. Erdenes MGL (Ulan Bator), the local company managing the process, announced the shortlist of companies and consortiums that are still in the hunt. An estimated $7.3 billion is needed to develop the mine, and four banks have been listed by the Mongolian government to sell shares in the mine, which could be worth up to $5 billion.

No local official would confirm these figures, as the government has been tuning and finessing schemes that could keep some key control of the project in local hands and benefit the industry, commerce and general population of the country. This latter process could hold up the announcement of the winner until the second half of 2011. Tavan Tolgoi is the largest unexploited coking-coal resource in the world; with total reserves of 6.5 billion tons of coal, it could produce as much as 15 million tons per year.

Peabody Energy (NYSE:BTU) (St. Louis, Missouri) was a relatively late bidder and with and joins ArcelorMittal (NYSE:MT) (Luxembourg), Vale S.A. (NYSE:VALE) (Rio de Janeiro, Brazil), Xstrata plc (OTC:XSRAF) (Zug, Switzerland), China's Shenua and Mitsui (Japan) in a spread of heavy hitters who have been through a variety of combinations and consortiums to fit the bill in the eyes of the bankers and the Mongolian government. More maneuvering and strategic alliance-making can be expected.

A powerful South Korean bidder includes the state's Korea Resources, POSCO (NYSE:PKX), LG, Daewoo International, Russian Railways and Japan's Itochu, Sumitomo, Marubeni and Sojitz.

"We are pleased that the government of Mongolia has recognized the world-class coal-mining and marketing expertise of Peabody, and look forward to potentially working with the government of Mongolia to advance a partnership and project that will unlock the full benefits of Mongolia's vast resources to benefit the people of Mongolia," said Gregory H. Boyce, Peabody Energy chairman and chief executive. This statement touches the bases that all bidders are trying to cover as they compete for the contract. Peabody won awards for two coal mine restoration projects in Mongolia last year.

Mongolia has a population of about 2.9 million and a land area of 1.56 million square kilometers, and is set to become a global resource leader. Much of the terrain is mountainous and harsh. Arable land is at a premium. With the price of coking coal heading for $333 a ton, from the current $225 per ton, the inhabitants of this country must be watching their government's strategy in the Tavan Tolgoi bidding process with a keen sense of personal involvement.

For related news, see February 18, 2011, article - India Proposes Mongolian Steel Plant and Bids for Tovan Tolgoi Coking Coal, and February 24, 2011, article - Mongolia to Construct $2.5 Billion Russian Rail Export Link, Chinese Rout Still Beckons.

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