July 19 (Bloomberg) -- Mongolia plans to borrow $300 million from China to fund construction of power plants and railroads it hopes will lure companies to develop the country's coal and copper resources.

Mongolia agreed ``in principle'' to accept the loan from Export & Import Bank of China, Gund Dugar Jargalsaikhan, deputy chairman of the Mineral Resources and Petroleum Authority of Mongolia, said in a July 13 interview in Sydney.

Mongolia is in talks with companies including Cia. Vale do Rio Doce, the world's biggest iron ore exporter, on developing deposits that Mine-Info Inc. estimates may produce more than $1 billion of minerals a year. China wants to tap the resources to ease a raw materials shortage amid soaring industrial production.

``This is just the beginning,'' Jonathan Anderson, chief Asia-Pacific economist at UBS AG, said in a July 13 briefing in Beijing. ``You have a very specific policy from the government encouraging energy and resource companies to go out and find assets'' to help satisfy demand from domestic manufacturers.

The two countries have been in talks over the loan since President Hu Jintao visited Ulaanbaatar two years ago amid increasing concern in China's government over shortages of minerals such as copper concentrates and coking coal.

Demand for raw materials has been stoked by economic growth in China. China's industrial production in May climbed 16.6 percent from a year earlier to a record 570 billion yuan ($69 billion) after a 16 percent gain in April.

China's Ministry of Foreign Affairs declined to respond to faxed questions asking for confirmation of the loan to Mongolia.

Tavan Tolgoi

Interest in South Gobi's mineral potential center on two deposits, both within 150 kilometers (93 miles) of China's border, where transport links are being built to ship southern Mongolia's mining wealth.

Tavan Tolgoi, controlled by Ulaanbaatar-based Energy Resources Co., holds 6 billion metric tons of coal, equivalent to three years of imports by neighboring China.

China International Trust & Investment Corp., the investment arm of the country's central government, Brazil's Vale, Itochu Corp., Japan's fourth-largest trading company, and other mining companies want stakes in the development of Tavan Tolgoi, which holds enough coal to satisfy China's demand for three years.

Mitsubishi Corp., Japan's largest trading company by market value, is in talks to invest in the deposit, Greg Cochran, vice president of business development at Mitsubishi Development Pty, said in a July 13 interview in Sydney.

A copper and gold deposit controlled by Vancouver-based Ivanhoe Mines Ltd. contains at least 32.9 billion pounds of ``measured and indicated'' copper resources, according to studies by AMEC Americas Ltd. of Canada.

To contact the reporter on this story: Rob Delaney in Beijing at robdelaney@bloomberg.net

Last Updated: July 18, 2005 20:35 EDT