Mongolian Coking Coal Project Attracts Global Mining and Steel Companies' Bids

by on

The rising cost and increasing scarcity of good coking coal supplies are pushing both mining firms and steel makers into competition with each other for the remaining resources in some pretty remote locations. Witness the fierce battle unfolding in Mongolia, where miners like Vale and Xstrata are competing head to head with steel makers like ArcelorMittal and Posco. Throw in various consortiums or trading companies and even the Russian Railways and utility firm Korea Resources Corp. and you have a pretty eclectic mix of bidders!

At stake is reported by Reuters to be the largest untapped coking coal reserve left in the world. Mongolia’s Tavan Tolgoi is estimated to hold some 6 billion tons of coal including coking coal and high-grade thermal coal. Tavan Tolgoi is only 270 kilometers from the Chinese border, although that is still a long way from any major steel manufacturing locations; China is generally considered the most viable market for Mongolian coal. Indeed, the country is already the No. 2 supplier of coking coal to China behind Australia, exporting 16.6 million tons last year, up nearly threefold from 2009 and just 2.5 million tons in 2005. Tavan Tolgoi, in Mongolia’s south Gobi region, consists of six coal fields and Tsankhi (the project currently up for bidding) is the main one, containing most of its coking coal resources. This first phase will add 15 million tons of coal per year to Mongolia’s total production, eventually rising to 30 million tons by the middle of the decade.

Coal is just part of Mongolia’s massive mineral wealth; others include iron ore, copper, gold etc., drawing increasing attention from resource hungry consumers and mining firms. The challenge for all of them is infrastructure. To put it simply, there isn’t any. Rail lines are very limited and roads even more so. Any successful bidder will have to include infrastructure as part of their development costs; consequently, estimates of this first stage project at Tsankhi are in the region of US $7.3 billion, according to one of the South Korean bidders quoted in the article.

Since the 1990s, Mongolia has adopted a largely democratic system and in recent years has begun to open up its economy to foreign investment. Inevitably, for what is in modern legal and voting terms a young country (although millennia old culturally), the challenge will be making the most of these natural resources while keeping the insidious forces of corruption at bay. Parts of Africa are an example of what can go horribly wrong when the curse of mineral riches is the only source of income. Let’s hope for our future security of supply and the well-being of the people of Mongolia that the next decade sees a sharing of the spoils and sympathetic exploitation of one of the last true wilderness regions of the world.

–Stuart Burns

Leave a Comment

Your email address will not be published. Required fields are marked *