Mongolia”s state-owned
Erdenes Tavantolgoi LLC has signed its first-ever term contract to sell coal
from the giant Tavantolgoi coking coal deposits, possibly using the income to
fund costs of an initial public offering. Erdenes TT will supply up to 15
million metric tons of coking coal a year from the East Tsankhi deposit to a
group of Chinese, Japanese and South Korean companies. Erdenes will receive a
signing bonus of $250 million,that may be used for mine development and a human
development fund, said a person who did not wish to be named.

Erdenes signed the agreement
Tuesday with Aluminum Corp. of  China or
Chalco, and an unidentified Chinese steel firm, which will jointly receive 70%
of the mine”s output. The remaining 30% will be shared by Korea Resources Corp,
Japan”s Itochu Corp., and Mitsui Corp.

Under the terms of Tuesday”s
agreement, Erdenes will supply 300,000 tons of coal to the group this year,
increasing production to 1-1.5 million tons next year and 15 million tons per
year within three to four years. The deal will likely require Parliamentary
approval.

Industry executives familiar
with developments said that Erdenes TT may be raising money to fund the costs
of a multi-billion-dollar IPO.

A Mongolia-based banker said
Erdenes needs to raise IPO costs as the government appears to have shelved
earlier plans to arrange financing. “It would make sense because they need
the money to list,” said the banker, who did not wish to be named.

The government received
interest from several large financial institutions to arrange pre-IPO
financing, but did not go through with it since it would have sparked political
opposition, he said.

The government plans to sell
a 30% stake in Erdenes TT to international investors, 10% to local investors
and give away 10% to Mongolian citizens.