Graeme Hancock, chief operating officer of Erdenes Tavan Tolgoi, resigned as Mongolia’s biggest state-owned coal company faces a cash crunch that’s disrupted shipments to China, a person familiar with the situation said.
The board of the state-run company accepted Hancock’s resignation this week, the person said, declining to be named before the matter is announced publicly. Hancock was the second- highest executive at Erdenes TT, as the miner is also known, and his role included preparing the company to list in Hong Kong, London and on a domestic bourse, the person said.
The departure throws into question the timing of what was slated three years ago as a $3 billion initial public offering. At that size, the money raised would be equivalent to about 30 percent of Mongolia’s gross domestic product.
“What has been anticipated by foreign investors as a chance to participate in Mongolia’s progress is now further in doubt,” said Travis Hamilton, founder of Singapore-based Khan Investment Management Ltd., which focuses on Mongolian stocks. ‘The resignation of Hancock puts into further question the company’s moving forward towards an IPO.’’
A cut in coal supplies to China, the buyer of more than 80 percent of Mongolia’s exports, may also strain the nation’s 2013 budget, which assumed coal exports would double this year.
Erdenes TT mines the East Tsankhi part of the 6 billion metric ton Tavan Tolgoi field, one of the largest coal deposits in Mongolia. The state company also owns the rights to the untapped West Tsankhi block, which Mongolia has considered leasing to foreign miners in return for royalties.
The price of Mongolia’s 5.125 percent 10-year bonds, sold in November, fell as much as 0.07 percent to 97.815 cents on the dollar today.
Erdenes TT spokeswoman Gurjav Enkhmanduul declined to comment on Hancock’s resignation. The former mining specialist at the World Bank is the second Erdenes TT executive to resign in the last three months. Baasangombo Enebish quit as chief executive officer in October, citing personal reasons.
Hancock leaves as Erdenes TT switches focus from a share sale to securing state financing and restarting shipments, as well as seeking to negotiate better sales terms from its biggest customer, Aluminum Corp. (2600) of China Ltd. Erdenes stopped deliveries to Chalco, as the Chinese company is known, on Jan. 11 after saying it could no longer pay the cost of sending the coal to the China.
Mongolia has pledged a $355 million loan to help Erdenes TT reduce debt, the mining company’s CEO Yaichil Batsuuri said last week. Still, Prime Minister Norovyn Altankhuyag said Jan. 23 that the supply deal between Erdenes TT and Chalco must be renegotiated.
Erdenes TT supplies coal to Chalco at $53 a metric ton, less than the $61 it costs to move it to the Tsagaan Khaad border station, according to Batsuuri, who took over from Enebish. While the price isn’t settled and coal prices are low the company sees no reason to seek an IPO until at least 2014, he said.
“I hope the contract talks and the delayed IPO is not a step backwards in Mongolia’s progress towards building a developed economy,” Khan’s Hamilton said. “Mongolia continues to walk a tightrope.”
Mongolia’s 2013 budget was calculated based on the plan for the country to export 34.7 million tons of coking coal to China, compared with last year’s 16.4 million tons, Hamilton said, citing government data. Mongolia is China’s top coking coal supplier.
Chalco International Trading President Li Dongguang said yesterday that the Chinese company won’t renegotiate the accord with Erdenes TT, which began operating its first mine in 2011. Instead, Chalco is willing to help the Mongolian company solve its financing problems, Li said.
The money Mongolia plans to lend Erdenes TT will help the company buy out the rest of its contract with Chalco and purchase equipment to begin the development of the West Tsankhi block, Batsuuri said.
Mongolia will use part of the $580 million raised from the March 2011 bond sale by the state-owned Development Bank of Mongolia LLC for the loan to Erdenes TT, Ulan Bator-based Origo Partners Plc (OPP) said in a note on Jan. 25, citing comments made by the prime minister in the capital on Jan. 23.
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