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Posts Tagged ‘Tavan Tolgoi’

Mining Week 08/’12: GlenStrata’s antitrust & an Indian giant

February 25, 2012 Comments off

Top Stories of the Week:

  • Glencore and Xstrata to seek merger approval in Brussels
    • Despite earlier statements that Xstrata and Glencore would not need to seek approval from the European Commission the parties have now decided to submit their case for approval in Brussels.
    • The companies argue that there is no significant increase in market domination because of the strong ties the companies already had prior to the merger.
    • The European Commission will now have to decide on the potential restrictions to the new company, such as the obligation to sell certain elements of the business. A market density index calculation is used to see whether or not the new company would have a too dominant position. The big uncertainty in this calculation is how the Commission will scope the market or markets the companies are active in.
    • Sources: Wall Street Journal; Financial Times; EU Merger Control Rules
  • Vedanta merges Indian assets to create Indian mining giant: Sesa Sterlite
    • Vedanta has decided to merge all its Indian assets, including Sesa, Sterlite, and Cairns India, into one big Indian company. This new Entity will be named Sesa Sterlite and will have a market capitalization of around $22bln. Vedanta will hold just under 60% of the shares.
    • Sources: Times of India; Economic Times; Vedanta presentation
  • Tavan Tolgoi plans to list in June
    • The Mongolian government plans to list a significant part of Tavan Tolgoi, a large coking coal project in the south of the country, in both London and Hong Kong this summer. Regulatory issues threaten to delay the HKEx listing.
    • The government plans to eventually hold 51% of the shares, give 20% to the population, sell some 10% to local business at a discount, and make the rest available to international investors. A significant part of the 20% given to the population might find its way to international investors.
    • Sources: Wall Street Journal; FOX Business

Trends & Implications:

  • The creation of Sesa Sterlite builds both a second diversified miner with a significant oil & gas business (next to BHP Billiton) and a second diversified miner with a significant interest in zinc (next to Glencore/Xstrata).
  • If Vedanta manages to both make the merger integration of the 7 or more individual companies a success and to manage its investments in other developing countries successfully, it creates the primary candidate to become the stable Indian mining giant. Growth of the Indian industry is phenomenal but faces many challenges. The mixture of a very strong Indian foothold with high growth assets in many other developing countries could prove to be a good basis for risk diversification.

©2012 | Wilfred Visser | thebusinessofmining.com

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Mongolia’s future as commodities exporter

May 24, 2011 Comments off

“Mongolia is going to be a major future supplier of commodities from coal through gold to copper – and maybe even crude oil. But how soon will this landlocked country with a population of 3m really begin delivering these resources to the world in a significant, market-moving way?

Although Mongolia is located right next to its biggest customer, China, their history of rivalry makes Mongolia suspicious of its southern neighbour. And capricious politics – parliament has tried to oust Dashdorj Zorigt, minister for mineral resources and energy, twice this year – mean that economic logic is sometimes subordinate to politics or nationalism.

Take the development of Tavan Tolgoi, by some calculations the world’s second-largest coal deposit. The government recently scrapped plans to build a railway directly to the border, less than 300km away, even after feasibility studies and initial permits for the line had been granted. Instead a new line will go east, connecting the mines to the Trans Mongolian Railway that leads to both Russia and China, albeit by a longer route. …

There are some exceptions to this pattern: the Oyu Tolgoi mine, which is co-owned by Rio Tinto, Ivanhoe and the Mongolian government, is ahead of schedule and will come online next year. The copper and gold produced there will be shipped out by truck, posing fewer logistical difficulties than the bulky coal. But still, the investment agreement governing the mine took more than five years to negotiate and remains a source of intense political debate.”

Source: Financial Times – Commodities Note, May 20 2011

Observations:

  • Tavan Tolgoi holds estimated coking and thermal coal reserves of 6.4bln tons. Indian ICVL has expressed interest in buying into the project, which the Mongolian government wants to bring to the stock exchange.
  • Rio Tinto’s development of copper and gold deposit Oyu Tolgoi with/through Ivanhoe is the first major foreign investment project in the country, which appears to go smoothly so far. Rio Tinto’s shareholder Chinalco has repeatedly indicated it would like to take part in the project, but has been kept out by Rio Tinto to date.
  • In October last year Ivanhoe was still hoping to export the products from Oyu Tolgoi by rail. In current plans the transport to the Chinese border (80 kilometers) will initially take place using trucks.

Ivanhoe's Oyu Tolgoi logistics plan

Implications:

  • Western companies will try to tease the Mongolian government into collaborating in the construction of direct rail links to the Chinese rail network in the south. The government’s objective in linking the producing region to the Trans-Mongolian Railway mainly is to stimulate domestic processing industry and to gain political leeway in the relationship with China by having the option to supply to Russia. Most likely the corporates and the government will come to a compromise in which the costs of infrastructure development is shared in some way.
  • The elections in Mongolia next year could create a complicated situation for the western miners in the country, as any new government will try to review and/or renegotiate development and royalty deals currently in place.

©2011 | Wilfred Visser | thebusinessofmining.com

India Venture to Bid for Coal Block in Mongolia

January 11, 2011 Comments off

“India’s International Coal Ventures Pvt., or ICVL, plans to bid for developing huge coal reserves in Mongolia’s Tavan Tolgoi mining deposit, government officials and industry executives said Thursday. ICVL’s interest in the Mongolian block comes at a time when coal and other resource sectors are seeing a wave of multibillion dollar mergers and acquisitions activity globally, much of it driven by increasing consumption in emerging economic giants China and India.

The Indian company is lining up for a tender offer by the Mongolian government scheduled Jan. 17 to develop part of the Tavan Tolgoi mine in the country’s southeast. The mine contains some of the world’s largest unexploited reserves of coking coal, a key raw material for making steel. Overall, the mine has an estimated coking and thermal coal reserves of 6.4 billion metric tons. ICVL will likely bid for a share in the mine’s western block with reserves of 1 billion tons, a Mines Ministry official told Dow Jones Newswires.”

Source: Wall Street Journal, January 6 2011

Observations:

  • ICVL has been created by the Indian government in order to secure metallurgical coal and thermal coal assets in overseas territories. The objective of the vehicle is to own 500 million tons of reserves by 2020.
  • This blog predicted increased interest for the Tavan Tolgoi deposit last week, after speculations on an Indian counterbid to Rio Tinto’s interest in Riversdale.

Implications:

  • If ICVL invests in Tavan Tolgoi with the objective of exporting the coking coal to India this will pose a logistical challenge. The coal would have to be transported to a Chinese harbour to be shipped to India, while export to the Chinese market would be much more logical. It is likely ICVL will strike a deal with trading partners to balance and fulfill the demand.
  • The strategy of the Mongolian government on commercialisation of the Tavan Tolgoi field is still very much uncertain. A partial IPO was announced in June 2010. Potentially the government will look for an international mining company to control the development together with the Mongolian Mining Corp (MMC), triggering a bidding war.

©2011 | Wilfred Visser | thebusinessofmining.com

Riversdale: Scramble in Africa

January 3, 2011 Comments off

“Rio Tinto, one of the world’s biggest mining companies, has certainly seen something it fancies in Riversdale, an Australia-based firm that operates mines in Mozambique which produce both coking and thermal coal. Two days before Christmas Rio bumped up its offer for the firm to $3.9 billion. The bid says much about Rio’s ambitions and the battle that giant mining firms will face in getting their hands on the world’s mineral resources. …

Not all miners reckon that attempting mammoth mergers is the best use of their bulging wallets. Yet the remaining option of pursuing smaller, bolt-on acquisitions comes with problems too. Firms of the size of Riversdale are small enough for any number of potential bidders to be able to contemplate buying them.”

Source: The Economist, December 28 2010

Observations:

  • The Economist notices the risk of overpaying for ‘small’ acquisitions like Riversdale as many potential bidders can start a bidding war for the target.
  • A government backed Indian consortium, Vale, NMDC and Tata (a current shareholder) might emerge as competing bidders for Riversdale. A combined effort in which the Indians put in part of the >$1bln required infrastructure investment and obtain long term contracts to buy the coal might be drafted.

Implications:

  • Rio Tinto’s strategy in the coal business is to secure a portfolio of world class assets (large, long life, low cost). It recently divested its share in American Cloud Peak Energy and Jacobs Ranch, trying to invest in larger assets that are closer to the Asian growth markets. If the investments in Oyu Tolgoi’s Copper asset in Mongolia prove successful, the company might consider buying into the nearby Tavan Tolgoi Coal asset.
  • In the aftermath of Cancun’s climate discussions the debate over the mining industry’s role in reducing carbon emissions is heating up. Should miners play an active role in reducing coal supply or is the miner’s only task to supply the natural resources the downstream industry needs?

©2011 | Wilfred Visser | thebusinessofmining.com

The ‘Natural Resource Curse’ in Mongolia

October 29, 2010 Comments off

“Mongolians were until recently wont to describe themselves as “beggars sitting on a huge pile of gold”. The country has vast but largely untapped mineral deposits. Until recently wages were low and jobs scarce. Shoppers in Ulan Bator, the capital, were not spoilt for choice—unless they were in the market for dried meat, vegetables or furry hats.

But with the recent launch of several big mining projects, a transformation looms. It will present the government with a different set of problems: how to manage a promised economic boom without devastating the environment or destabilising either the economy or the nation’s fledgling democracy.”

Source: The Economist, October 21 2010

Observations:

  • Mongolia had a GDP of of $9.4bln in 2009. The benefits for the country from the Oyu Tolgoi copper deposit and the Tavan Tolgoi coal deposit will add many billions to the GDP, turning the trade deficit into a significant surplus.

Implications:

  • The natural resource curse implies that the abundance of natural resources in a country hinders the development of stable government organizations, as it provides a reason for corruption and promotion of weak legislation. Mongolian government is trying to escape from this curse by strengthening anti-corruption legislation, taxation policies and by improving transparency of the dealings with foreign companies.
  • Foreign mining companies investing in Mongolia (Ivanhoe, Rio Tinto and potentially Chinese partners) clearly need political stability. Key part of their entry strategy will have to be a non-market strategy: aiding the government to institute legislation, penalize corruption and build infrastructure. Reducing the risk of the projects in the long term is worth a good deal of money, given the foreign capital expenditure of over $4bln.

©2010 | Wilfred Visser | thebusinessofmining.com

Mongolia confident IPO will ease doubts

October 8, 2010 Comments off

“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:

    Potential infrastructure - Ivanhoe explanation

  • In order for foreign investors to invest in the coking coal deposit, the government will need to invest heavily in infrastructure. Both transportation to the mine (and from the mine to China) and availability of water in the region are concerns the government will have to answer to.
  • Cooperation between the develop of Tavan Tolgoi and Oyu Tolgoi by extending the required 290km railway connecting Oyu Tolgoi to the Chinese rail network to the Tavan mine appears to be inevitable.

©2010 | Wilfred Visser | thebusinessofmining.com

Mongolia to list major asset

June 8, 2010 Comments off

“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