Japan Firms Expect to Join Tavan Tolgoi

Japanese steel industry expects Japanese companies would participate in Mongolian major coking coal development project, Tavan Tolgoi. Mongolian government will revise the development scheme while the government announced joint development scheme with Chinese, Russian and US companies last week, according to Japanese industry. The government would allow participation of Japanese companies and South Korean companies as partners of the developers. Japanese industry is willing to develop the next generation coking coal mine with more than US$ 8 billion investment through international cooperation with China, Russia, USA and South Korea to secure supply to Japan and improve supply stability in seaborne trade market.

Itochu Corporation, Sumitomo Corporation, Marubeni Corporation and Sojitz Corporation have tried to participate in the project through consortium with South Korean 9 companies including POSCO and Korea Resources Corporation (KORES) and Russian Railways. Mitsui & Co. tries to join the project with Shenhua Group Corporation of China. Sig groups including Peabody Energy competed for the project initiative.

Mongolian government announced the scheme of joint development with Shenhua Group, Peabody Energy and Mongolian-Russian consortium last week. Russian Railways is apparently included in the consortium with Mongolian company. The government shortlisted 6 groups into part of companies from 3 groups.

Under the scheme, the developers pay US$ 1 billion for the interest and develop US$ 7.3 billion level project including 400 kilometers rail for Russian route and 270 km rail for Chinese route along with mining development. The developers also pay 5% of additional royalty on FOB coal price while they have to develop power plant and other infrastructure for Mongolia.

However, the government has to revise the scheme when Mongolian national security authority rejected the scheme before discussion in the congress. The government intends to revise the scheme. The interest rate could be changed while the government scheme indicated 40% interest by Shenhua Group, 36% interest by Mongolian-Russian consortium and 24% interest by Peabody Energy.

Vale of Brazil and other unselected groups apparently have no chance to enter the project. However, partner companies of Shenhua Group and Russian Railways are expected to participate in the project. Japanese industry expects Mongolian government would allow participation of Japanese and South Korean companies.

Tavan Tolgoi is major coal basin with 6.2 billion tonnes of resource including 2 billion tonnes of premium coking coal. Mongolian state company has the interest and develops east half of the basin for own and west half of the basin through the international consortium scheme. The project is expected to produce annual 15-30 million tonnes of coking coal depending on the mining plan. The project is important both for Mongolian economy and East Asian resource source while the project is difficult in severe weather condition and limited availability of water.