We are presenting some parts from the conversation made with the Head of Coal Association T. Naran, Member of the Working Group of Tavan tolgoi Agreement

-As a Member of the Working Group of Tavan Tolgoi could you provide us with information regarding the process of the agreement? 

Today mining sector’s business is weakened globally. The Government of Mongolia has begun a tendering process during a very difficult time economically with coal and mineral prices are really low globally.

The process continues from the first round of selection with the difference that this time the investor is partnered with a Mongolian company which will own 51%, and the license will not be transferred to investors. This is a very unusual stipulation which rarely occurs.
Previously companies such as Peabody (USA), and a consortium of companies consisting of Shinhua (China) and Sumitomo (Japan) with Mongolian Energy Resources participated in the tendering process. With the consortium receiving the most votes and securing the bid, discussions on the agreement have recently begun.

In successfully wining the bid the consortium has the responsibility in the first 2.5 years to increase the capacity of the concentration plant output to 30 million tons. As well as build 270 kilometers of road around the Tavan Tolgoi, Gashuun and Sukhait area using its own resources which when completed will be handed over to the government. In addition the consortium needs to cover the debt to Chalco.  The investors are willing to agree to meet international standards and export a finished product to a third market.

-The 2nd question. Not so many people know that one of the leading coal companies of the world, BHP has left Mongolia considering as unprofitable to make investment in Tavan Tolgoi?

-For many years demand for coal in China has made it one of the largest markets for coal globally. The company BHP is one of the key players in this industry and market.  Previously they have held the license for Tavan Tolgoi however deemed it unprofitable due to the lack of infrastructure and high transportation costs they exited Mongolia. However in 2009/2010 natural disaster struck in Australia when many mines flooded. One of the major coal globally faced collapse as the supply of coal was diminished and the sector faced a hurry-scurry situation.

It was during this time the Energy Resources Company used this opportunity to list on the Hong Kong Stock Exchange. Globally the demand for coal was high.

In addition to the construction of industrial infrastructure, social infrastructure was built at Tavan Tolgoi. It was a very proud achievement.  This company has been selected major world class companies to cooperate with.

The Working Group and the investors are working around the clock to complete the negotiations and agreement. This agreement will be long-term and of international standards. We have studied several issues in order to ensure we have the best possible agreement.

Currently the Mongolian coal sector is having a rough time. Coal is being sold to middle traders at the border. Iи the future we need to address these problems in order to become a key player in the coal market. This is why we are negotiating this agreement.

-From your words we understood that when the Government will make a decision when Tavan Tolgoi will commence?

-Energy Resources has built the infrastructure to allow us to directly export washed coal from Tavan Tolgoi once the Agreement is signed. This is an excellent opportunity for us.