Wal
King of Leighton, the world”s largest contract miner, is so excited about  Mongolia that he recently took the entire
board of parent company Leighton Holdings 
to the country ahead of their annual planning meeting in Hong Kong, to
see things for themselves. King”s local client, Energy Resources LLC, is
selling high-quality coking coal to the neighboring Chinese at USD60 per ton
compared to Australian miners BHP Billiton and Rio Tinto, who are charging more
than double the price.

The
senior vice-president of China Shenhua Energy Company, Wang Jinli, endorsed the
potential of the country earlier this year when he said: “Mongolia is
coal-rich, especially along the border region with China.  “This puts China in a strong position to
co-operate with Mongolia.”

“This
is the best opportunity for a considerable period of time (to develop Mongolia)
because it completely suits the Leighton model of working with people. Big,
gutsy earthmoving contracts in remote locations. The Leighton strength really
comes into its own in locations like Mongolia,” King has said to a
journalist from The Australian. Energy Resources” UHG Coal Mine in the South
Gobi region of the country, part of the giant Tavan Tolgoi coking coal field,
is the first large-scale coal mine in Mongolia developed and operated to
international mining standards and practices. 
And thus the opportunity for King and Leighton. Coal from the UHG mine is
currently transported at high cost over 220km by road to the Chinese border for
sale to China”s expanding steel industry. But Energy Resources has now awarded
Leighton Asia the design and construction contract for the Ukhaa Khudag to
Gashuun Sukhait freight railway in the South Gobi region, which will transport
coal from the southern Mongolian coal fields to China.

For
Leighton Asia, the project has gone from a strategic initiative two years ago
to being an active contributing business. It now makes up a third of the
division”s business, and analysts believe Mongolia has the potential to
generate future annual revenues in excess of USD600 million.

After
years of politicking, Mongolia is open for business. “The opportunity and the
timing are right. And with all gold rushes, it is an alignment of the stars all
happening at the one time,” says Hamish Tyrwhitt, managing director of
Leighton Asia. “You get one opportunity in your career to be in the right
place at the right time and to be able to participate in what will in time be a
turning point in the resource world.”

Importantly,
Leighton has good relations with the government. It has received special
dispensation for trucks at the UHG project to drive on the left-hand side of
the road (to match up with Leighton”s Australian mine models) and for women to
be employed as drivers (a practice otherwise banned in Mongolia).

But
there are still massive challenges ahead for Leighton and other multinational
companies looking to make a dollar from the predicted development boom. The
infrastructure challenges in Mongolia are also immense.

Only
3.5 per cent of the roads are paved. The country still sources some of its
electricity from Russia, and most of its oil, and has a very limited rail
network which doesn”t match the import-export flows. This will worsen as more
mines start production.

“The
potential of Mongolia is vast, but the issues relate to how quickly the country
can accept this rapid rate of change. We talk of resource shortages in
Australia. There will be resource shortages in Mongolia, in terms of
infrastructure and in terms of people,” King says. “So the big
challenge is to allow the economy to expand at a rate that doesn”t produce
inflation and allows the wellbeing and standard of living of the Mongolian
people to advance but not be overwhelmed. It is going to be a balancing act for
the government to allow the economy to expand but at the same time controlling
the rate.”

Tyrwhitt
says, “Our strategy in Mongolia is to provide services to companies. We
are not going to compete with Mongolian companies. We are there to provide a
service to them.”