Erdenes TT Seeks to Repay Chalco Amid Low Coal Prices

Erdenes Tavan Tolgoi, Mongolia’s largest state-owned coal miner, has trimmed its debt to a Chinese customer to $130 million from $350 million, and aims to pay the remaining amount due this year.

Erdenes TT pays its debt to the Aluminum Corp. of China Ltd., also known as Chalco, in coal. It will need to deliver an additional 2.5 million metric tons to 3.5 million tons of the fuel to fully settle the advance payment, Chief Executive Officer Batsuuri Yaichil said in an interview yesterday in Ulaanbaatar, Mongolia’s capital.

The price of coal has declined over the past two years, increasing the amount of coal the company needs to ship to pay creditors. The mounting debts delay income the government needs to plug budget holes caused by declining foreign investment, which fell 54 percent last year, and reduced GDP growth, which slowed to 11.7 percent last year from 12.4 percent in 2012.

“The debt to Chalco will be resolved in the next few months; it depends on transportation,” said Batsuuri, adding that the exact amount varies on the delivery point because coal can be picked up at the mine mouth or the border, with different prices at each location.

Erdenes TT, located 270 kilometers (168 miles) north of the Chinese border in the Gobi Desert, also owes the Development Bank of Mongolia $200 million. The company will pay the debt with new shares instead of cash, Batsuuri said. The stock payment will be done “in a short period of time” he said, without giving further details.

The company has exported more than 900,000 tons of coal this year from its two pits, East Tsankhi and West Tsankhi, Batsuuri said. Unwashed coal from the West Tsankhi stockpile is selling at $35 a ton to 10 contracted companies, he said. The 2014 target for exports is 10 million tons, he said. Last year the company sold 1.9 million tons abroad, a company official said in January.

The company has put on hold plans to construct a $550 million coal-washing plant until it’s on sound financial footing, Batsuuri said. He said he’s in talks to wash coal at a plant owned by Hong Kong-listed Mongolian Mining Corp. (975), also located in the Tavan Tolgoi basin.

Unwashed coal is the raw fuel as extracted from the earth. Washed coal has been treated to eliminate ash, soil and rock. It is more expensive, burns longer and produces less carbon emissions than unwashed coal.

To contact the reporter on this story: Michael Kohn in Ulaanbaatar at mkohn5@bloomberg.net

To contact the editors responsible for this story: Jason Rogers at jrogers73@bloomberg.net Joshua Fellman, Jasmina Kelemen

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