“Mongolia’s pitch to become the new frontier for metals and mining is facing renewed scrutiny from investors around the world as a Mongolian coal miner completes a landmark listing in Hong Kong.
Mongolian Mining Corp (MMC) is set to raise at least $650m after pricing its shares on Tuesday in Hong Kong in the middle of a target range set by advisers JPMorgan and Citi.
The initial public offering, representing 20 per cent of the company’s equity, creates the first homegrown, multibillion-dollar miner in a country that possesses little capital or infrastructure, but vast deposits of coal, copper and gold.”
Source: Financial Times, October 5 2010
Observations:
- MMC holds the license to part of the enormous Tavan Tolgoi coal field. The government says this field is perfectly suited to export coal to the Chinese market. The government is planning to sell 50% of the ownership of the deposit to investors.
- Tavan Tolgoi is located in the south of Mongolia, in the same area as Oyu Tolgoi, a copper deposit partly owned by Rio Tinto via Ivanhoe Mines.
Implications:
©2010 | Wilfred Visser | thebusinessofmining.com
Categories: Investments
Tags: business, China, coal, coking coal, copper, IPO, Ivanhoe, mining, MMC, Mongolia, Oyu Tolgoi, Rio Tinto, Tavan Tolgoi
“A dispute between Rio Tinto and Canada’s Ivanhoe Mines over a Mongolian copper and gold mine escalated on Wednesday when the Vancouver-based company suggested it was opening the door to “third-party strategic investors
Ivanhoe said its board voted on Tuesday to terminate a clause in a 2006 pact between the two companies that prevents Ivanhoe from issuing more than 5 per cent of its shares to third parties.
The move means Rio, the financier of the Mongolian mine at Oyu Tolgoi near the Chinese border, faces the threat of dilution of its holding in Ivanhoe or the possibility that another miner may gain a foothold on the project. Rio said it was ‘very confident of its existing rights under the private placement agreement with Ivanhoe [from 2006]‘. However, on Monday, the Anglo-Australian miner launched arbitration against Ivanhoe over an earlier complaint.”
Source: Financial Times, July 15, 2010
Observations:
- Rio Tinto is owning part of the Oyu Tolgoi project, one of the richest undeveloped copper deposits in the world, via its stake in Ivanhoe.
- A special agreement between Rio and Ivanhoe enables Rio to increase its take in the project by exercising warrants to increase Ivanhoe ownership. However, the agreement prevents Rio from obtaining a majority stake in the Mongolian project until 2011.
Implications:
- Rio Tinto clearly wants to gain control over the development and operation of the new copper mine, which will enable the company to provide secure access to copper for the Chinese market. The company will try to buy additional shares of the project as soon as possible after the agreement with Ivanhoe expires.
- Ivanhoe management will be driven by hopes to retain as much control as possible over the project and at the same time tries to increase the value of its stake and shares to gain more from Rio’s attempts to buy control. Inviting other companies to buy parts of Ivanhoe will increase the price Rio will eventually have to pay to buy a majority share.
©2010 – thebusinessofmining.com
“Rio Tinto has ended months of speculation by confirming plans to swap its shares in Ivanhoe Mines for a direct stake in Mongolia’s Oyu Tolgoi copper and gold project, which is 66 per cent owned by the Canadian miner.
Rio owns an indirect interest in Oyu Tolgoi, one of the world’s largest undeveloped copper deposits, through its 29.6 per cent stake in Ivanhoe.
The group also confirmed in a US Securities and Exchange regulatory filing on Wednesday that Chinalco, the Chinese aluminium producer that is its largest shareholder, was interested in investing in the Mongolian project, either directly or through buying an equity stake in Ivanhoe.
The end result of the talks could be a two-way or three-way agreement between Ivanhoe, Rio and the Chinese company, Rio said in the filing.”
Source: Financial Times, July 8, 2010
Observations:
- Rio Tinto could increase its stake of the Oyu Tolgoi operation to 47%, leaving Ivanhoe with 19%. 34% of the remaining shares are owned by the Mongolian government.
- The mine is planned to start operation in 2013, helping Rio Tinto to secure access to copper volumes, one of the key priorities in the company’s portfolio balancing.
Implications:
- Teaming up with Chinalco would both enable Rio Tinto to undertake more development projects with its restrained $5bln capital budget for the year and would strengthen the ties with Chinalco. Rio’s management has been working on strengthening the links with the Chinese state controlled company since early 2009.
- Rio Tinto is clearly more interested in Oyu Tolgoi than in the other Ivanhoe assets (Ovoot Tolgoi coal operations, Kazakh Kyzyl gold, Mt. Isa & Tennant Creek). As takeover options for Ivanhoe are limited, gaining direct control over Oyu Tolgoi appears to be the best option to increase control over operations.
©2010 – thebusinessofmining.com
“Mongolian Prime Minister Sukhbaatar Batbold plans to list 20% to 30% of Tavan Tolgoi, the country’s giant coking coal deposit, on the Mongolian Stock Exchange, a person familiar with the situation said Monday.
Under the proposal, about half of the shares would be distributed to Mongolian citizens, with the rest reserved for sale to Mongolian companies, the person said. An initial public offering on the international market could be considered at a later stage, the person said. Mr. Batbold’s plan is subject to approval from Mongolia’s Parliament. “
Source: Wall Street Journal, June 8 2010
Observations:
- Tavan Tolgoi, in the South Gobi desert, is one of largest coking coal deposits in world with over 5 billion tons in reserves.
- The government is choosing for a phased IPO: initially listing on the local exchange and making shares available to Mongolians and Mongolian companies and potentially in a later stage listing on other exchanges as well. Discussions about western mining companies gaining ownership over the deposit appear to have been dismissed.
Implications:
- Mongolia is in this way pursuing an alternative to the Australian taxation approach in trying to distribute the wealth from natural resources to the local people. Western firms will only be able to gain from the deposit using a contract mining arrangement. This structure is often used in the petroleum industry in the former Soviet Union.
- One of the key challenges is the infrastructure challenge rising from its remoteness. The Mongolian government will need to use a significant part of the money raised through an IPO to improve the infrastructure to the mine.
©2010 – thebusinessofmining.com
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