Update: Top state-owned mining firm spurns foreign investors
February 28 (The Economist Intelligence Unit) --
Event
Mongolia's biggest state-owned coal mining company, Erdenes Tavan Tolgoi (Erdenes TT), has picked a domestic contractor,Khishig Arvin, to begin work at the coking coal-rich West Tsankhiblock of the Tavan Tolgoi deposit. The contract is for preparation work only, and does not include the excavation of coal.
Analysis
The selection of Khishig Arvin, a little-known company, throws into doubt the opportunities for foreign mining firms (such as US-basedPeabody Energy or China's Shenhua) to be involved in operations at Mongolia's most prized coal deposit.
Khishig Arvin has been contracted to remove topsoil at the West Tsankhi block and to carry out the box cut for the deposit—a project that is expected to take up to six months. In October last year Erdenes TT expressed an interest in contracting Peabody to perform this work, but sources close to the matter suggest that Mongolia backed off after quiet protests against such an arrangement were lodged by both Russia and China. It appears that Mongolia turned away from dealing with the US coal miner and decided to play safe by selecting a domestic producer in Khishig Arvin.
Following its six-month preparation project at West Tsankhi, Erdenes TT will need to find another firm to excavate the coal from the site. That firm could be domestic, an overseas entity or even Erdenes TT itself. The young company has until now only used contract miners but has expressed interest in hiring equipment to begin its own operations. Should Mongolia choose to go it alone, it would be turning its back on world-class mining operators that had been prepared to pour much needed foreign direct investment into the country.
Provided that there are no further delays to the project, the development of West Tsankhi will help Erdenes TT in its goal of making an initial public offering (IPO) on an overseas stockmarket. Erdenes TT is attempting to build up the Tavan Tolgoi mine, increase coal output and improve its financial position ahead of the planned IPO. However, the rejection of world-class foreign mining firms as partners provides another indication that Mongolia is increasingly favouring domestic producers over foreign ones. Foreign investors will face growing challenges from domestic companies in the race to develop Mongolia.
Impact on the forecast
Our forecast for policy trends in Mongolia is unlikely to change, given that the selection of Khishig Arvin confirms the recent trend of a more nationalistic approach to mining policy.
Event
Mongolia's biggest state-owned coal mining company, Erdenes Tavan Tolgoi (Erdenes TT), has picked a domestic contractor,Khishig Arvin, to begin work at the coking coal-rich West Tsankhiblock of the Tavan Tolgoi deposit. The contract is for preparation work only, and does not include the excavation of coal.
Analysis
The selection of Khishig Arvin, a little-known company, throws into doubt the opportunities for foreign mining firms (such as US-basedPeabody Energy or China's Shenhua) to be involved in operations at Mongolia's most prized coal deposit.
Khishig Arvin has been contracted to remove topsoil at the West Tsankhi block and to carry out the box cut for the deposit—a project that is expected to take up to six months. In October last year Erdenes TT expressed an interest in contracting Peabody to perform this work, but sources close to the matter suggest that Mongolia backed off after quiet protests against such an arrangement were lodged by both Russia and China. It appears that Mongolia turned away from dealing with the US coal miner and decided to play safe by selecting a domestic producer in Khishig Arvin.
Following its six-month preparation project at West Tsankhi, Erdenes TT will need to find another firm to excavate the coal from the site. That firm could be domestic, an overseas entity or even Erdenes TT itself. The young company has until now only used contract miners but has expressed interest in hiring equipment to begin its own operations. Should Mongolia choose to go it alone, it would be turning its back on world-class mining operators that had been prepared to pour much needed foreign direct investment into the country.
Provided that there are no further delays to the project, the development of West Tsankhi will help Erdenes TT in its goal of making an initial public offering (IPO) on an overseas stockmarket. Erdenes TT is attempting to build up the Tavan Tolgoi mine, increase coal output and improve its financial position ahead of the planned IPO. However, the rejection of world-class foreign mining firms as partners provides another indication that Mongolia is increasingly favouring domestic producers over foreign ones. Foreign investors will face growing challenges from domestic companies in the race to develop Mongolia.
Impact on the forecast
Our forecast for policy trends in Mongolia is unlikely to change, given that the selection of Khishig Arvin confirms the recent trend of a more nationalistic approach to mining policy.
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