Mongolia’s
untapped mineral riches have shifted their focus from glittering copper and
gold to coal, which promises to be Mongolia’s black gold. “Coal is becoming a
very hot topic in Mongolia,” lawmaker S. Oyun told AFP on the sidelines of the
recent Discover Mongolia meeting. “Coal prices are up and energy demand from
China is insatiable. Now is the time to diversify and get beyond copper and
gold and onto our other natural resources.”

All
eyes in the mining industry are on Tavan Tolgoi in the south Gobi desert, which
has some of the world’s largest untapped coal reserves.  “There are enormous coal resources here. They
are close to the surface, easy to mine and of high quality,” World Bank senior
mining specialist Graeme Hancock said. “At the current rate of production, they
could still be mining coal in 10,000 years.”

Alexander
Molyneux, chairman of SouthGobi Energy Resources, a unit of Ivanhoe, says
Mongolia’s exports doubled last year, with China the most obvious key market.
“Mongolia is taking its rightful place as the main supplier of China’s coal
needs,” he said, noting that in 2010, 39 percent of China’s coal imports were
expected to come from Mongolia, up from just 11 percent in 2009. He predicted
that coal exports to China — the world’s largest producer and consumer of coal,
which is used to satisfy 70 percent of its fast-growing energy needs — could
total 30 to 50 million tons by 2015.

Mongolia’s
increased presence is shaking up global coal markets, with China reducing its
dependence on Australia. Experts say Mongolia could earn between USD400 million
and USD600 million in much-needed revenue from coal in just a few years — a
figure that does not account for new production at Tavan Tolgoi.

But
considerable questions about the future of the sector remain. The government
has laid out a controversial plan to build a new railway from the Gobi Desert
to Russia, linking to the Trans-Siberian railway in order to ship Mongolian
coal to key Pacific markets such as South Korea and Japan. The railway would
send the coal 4,500 km away to distant ports while a ready market lies in
China, just a fraction of the distance to the south.

“The
government has adopted a plan to build a railway to Russia. That is our
priority,” D. Batkhuyag, head of the Mongolian Resources Authority, says.
“After building out the rail to Russia, we will focus on rail to China.”

Some
policy analysts say that move is based more on geo-politics than on sound
economics, though having a second outlet for coal would keep China honest in
its pricing mechanisms and give Mongolia added options. “If you look at the
commercial realities, it makes more sense to look at rail into China. But the
government does not want to be completely reliant on one country,” said
Hancock.