India Proposes Mongolian Steel Plant and Bids for Tovan Tolgoi Coking Coal

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Researched by Industrial Info Resources (Sugar Land, Texas)--Mongolia's coal and iron ore resources are a target for major companies in the mining and steel sectors, as the international competition to secure future supplies of key minerals heats up. India has joined the competition with a two pronged approach by proposing a steel mill project and bidding for Mongolia's rich coal deposits.

India's International Coal Ventures (ICVL), a special purpose vehicle of the country's mineral and metal public service undertakings, is putting together a prequalification bid to develop the western block of the Tovan Tolgoi coal deposits. The move has the backing of India's steel industry. If successful, the mining project could take an investment of $2.2 billion to set up the new mine at the site and expand the inadequate rail infrastructure to carry the coal on the first leg to export destinations.

At the same time, state-owned Steel Authority of India (BSE:500113) (SAIL) (New Delhi) is proposing setting up a 3 million-ton-per-year steel mill in Mongolia. The $3.3 billion project will go ahead if the Mongolian government guarantees the iron ore and coal linkages to feed the production process. The 6.5 billion-ton Tavan Tolgoi coal body is the largest deposit of coking coal in the world. Coking coal is the fuel feed for steelmakers. SAIL has been in talks to discuss the feasibility of the project with local officials, and it is reported that an agreement on the project could be signed within the next six months if all the conditions in the scenario are met.

SAIL Chairman C.S. Verma said that Mongolia was a growing economy with a current steel demand of about 3 million tons per year and that the proposed plant would help the country to meet its entire requirement from domestic sources. He said that the plant could go on stream 30 months after the signing of the formal agreement.

The Mongolian government is involved in a balancing act concerning the development of its mineral wealth, which contains not only coal and iron, but also a number of key metal resources for heavy and high-tech industries worldwide, including gold. The government has a plan to sell about 30% of Tavan Tolgoi's shares to foreign investors. It has also stipulated that an additional 10% of the mine's output should be distributed among the citizens of Mongolia, and another 10% to Mongolian businesses. The government will retain at least 50% of the shares. This scheme tends to change shape at different presentations, and some now say 49% will be sold to an international company or consortium.

A company such as SAIL could acquire some shares, sign up for the development contract and do a mutually beneficial deal on the setting up and operations of the steel mill, while keeping the Mongolian interests satisfied at the same time.

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