laws; shortly after, the government
agreed that the deal would need to be
approved by parliament – and the deal
essentially died.
“When we submitted the proposed
agreement for the Tvan Tolgoi coal
mine project, I said there was a 50-50
chance for approval,” one of the
country’s chief negotiators,
Mendsaikhan Enkhsaikhan, told
Reuters in September.
5
“At this
moment, it’s less than 10% that it will
be approved by parliament and will be
implemented.”
Similar politicking has plagued
Tavan Tolgoi since the government
first began looking for development
partners in 2010. An initial deal that
included Shenhua and US mining
company, Peabody Energy, was signed
in July 2011 but cancelled two months
later following protests from the
Japanese and Korean governments
whose companies had been excluded.
The project hasn’t progressed much
since then – and if last year’s
shenanigans are anything to go by,
may remain stalled for some time yet
unless Mongolia can put in place an
institutional structure for mining that
keeps politics at arms length.
“Taven Tolgoi is going to remain a
failed case of Mongolian mining
governance unless the parliamentary
election of 2016 or the next commodity
boom changes conditions,” wrote
Jargalsaikhan Mendee of the Political
Science Department at the University
of British Colombia in a recent opinion
piece for IndraStra.
6
“It may continue
to fail unless politicians unite to
provide autonomy for bureaucrats and
professionals to increase institutional
resilience of Mongolian mining
governance.”
Beyond Tavan Tolgoi
Although Tavan Tolgoi remains
stalled, a number of smaller mine
expansions and exploration projects
from smaller players are making better
progress and will help to boost
Mongolia’s coal production in coming
years.
These projects include the
expansion of Naryn Sukhait by
Mongolian Alt Group, the
460 million t Khushuut coal project by
Mongolian Energy Corp. and the
175 million t Ulaan Ovoo project by
Prophecy Coal. Meanwhile, TerraCom
(formerly Guildford Coal) announced
in February 2015 that its Baruun
Noyon Uul (BNU) metallurgical coal
mine had begun production.
According to the company’s
quarterly report to the end of
December 2015, BNU produced
179 140 t ROM coal and shipped
164 839 t to China over that three
month period, compared to production
of 154 374 t ROM and shipments of
64 618 t in the previous quarter.
Despite the success in bringing
BNU to production, TerraCom said it
was facing financial pressures as a
result of “continuing weak global
market conditions” and was seeking to
restructure its existing financial
facilities as well as generating new
funding. The restructuring of its
balance sheet was due to be completed
in 1Q16.
ASX-listed Aspire Mining is also
actively developing projects in the
country with stakes in both coal
mining and railroad projects in the
north of the country. Aspire’s projects
include the Ovoot metallurgical coal
project and the Ekhgoviin-Chuluu
joint venture with Noble Group (which
owns a 90% stake in the Nuurstei
metallurgical coal project).
The ASX-listed company also owns
Northern Railways, which aims to
connect Ovoot to the country’s
national rail network and then onto
Russia’s Trans-Siberian Railway. Upon
completion, the line will be able to
transport 100 million tpy of coal and
will increase Mongolia’s access to
Russian, Chinese and seaborne
metallurgical coal markets.
7
Moving the mountain
Aspire’s development of a railway to its
Ovoot coal projects highlights another
challenge facing the Mongolian coal
industry: infrastructure. As Russell
Taylor, a mining executive with
experience of working in Mongolia,
pithily put it to
World Coal
: “Without
suitable transport and export
infrastructure, the coal is just as
landlocked as Mongolia itself. China
and Russia both have large reserves, so
Mongolia can’t rely on those two
nations as a complete market.”
Despite this, “Mongolia has not
implemented a suitable railway
network to transport coal out of
Mongolia [nor does it have] access or
agreement to a port in either China or
Russia.” If it is ever to restart its coal
sector, this lack of infrastructure needs
to be resolved, Russell concluded.
Moving coal by truck to China – as
TerraCom does with its BNU coal – is
hardly a long-term solution.
CRU’s Stephen Duck takes up this
theme: “Due to a lack of transport
infrastructure, Mongolian coal miners
have been losing competitiveness
against other exporters due to the high
transport cost of trucking,” Duck told
World Coal
. “For Mongolian
metallurgical coal to be more
competitive, transportation costs must
fall significantly. In April 2014, a JV
was established to construct 18 km of
railroad connecting the Gashuun
Suhait/Grants Mod board crossing by
the end of 2014. This development
would reduce the transportation cost
for this route from US$7 – 8/t to
US$2/t. However, development of the
project is behind schedule.”
Yet where mining projects go, so too
go their associated infrastructure:
“There is a scheduled parliamentarian
election in the summer of 2016,”
continued Duck. “We do not expect
that any big decisions on rail
infrastructure will be made before the
election in June 2016. The new
government will only likely form a
cabinet by the Autumn 2016 and no
major decisions will be taken before
then.”
This means that – even in a
best-case scenario – a new railway is
unlikely to be commissioned before
2019, according to Duck. “With this
assessment in mind, we are pessimistic
on the development of the Tavan
Tolgoi railway project and other
infrastructure projects in Mongolia in
the medium-term. We believe that
transportation bottlenecks and weak
market conditions will prevent
Mongolian producers from ramping
up exports; we forecast 2019
metallurgical coal export volumes of
around 11 million t.”
18
|
World Coal
|
March 2016
