China’s Shenhua Agrees to Buy 1 Billion Tons of Mongolian Coal
Three companies that mine coal in Mongolia’s Tavan Tolgoi basin have agreed to export 1 billion tons of the fuel to China’s Shenhua Group Corp. in the next 20 years, said the chief executive officer of one of the suppliers.
Erdenes Tavan Tolgoi JSC, Mongolia Mining Corporation (975) and Tavantolgoi JSC signed the memorandum of understanding with Shenhua on October 25, Yaichil Batsuuri, CEO of state-owned Erdenes Tavan Tolgoi, said in an interview yesterday in Ulaanbaatar. The coal delivered by the three companies could generate about $50 billion at current prices, Batsuuri said.
The MOU would ensure a long-term buyer for the companies operating in the Tavan Tolgoi basin, which contains 6.4 billion tons of coal reserves. Shipping 1 billion tons of coal over 20 years would be an average of 50 million tons annually. That’s almost triple the 18 million tons that Batsuuri said he expected the three Mongolian companies to export this year.
The agreement signed with Shenhua also stipulates that any coal supplied by the Mongolian companies and not wanted by Shenhua can then be sold on the international market, Batsuuri said.
Mongolia’s total coal exports fell to 11.38 million tons in the first nine months from 14.29 million tons a year earlier, according to the nation’s statistics bureau. The value of the coal exports dropped to $783.94 million from $1.43 billion a year earlier, according to the agency.
State-owned Erdenes TT may export 5 million tons of coal this year, Batsuuri said. The company doesn’t currently earn revenue from these shipments, which are going to Aluminum Corp. of China Ltd. (2600) to pay back a $250 million loan from 2011.
Batsuuri said 3 million tons of coal, valued at $170 million, needs to be delivered to Chalco to pay off the balance on the loan. He said he expects the debt to be paid in full by January or early February.
MMC exported 3.2 million tons of coal in the first half of 2013, according to an August statement by the company, citing data from the National Statistics Office. It accounted for 42 percent of Mongolia’s total coal exports in the period.
Shenhua, China’s biggest coal producer, also signed a separate MOU with the three companies and Mongolia’s state-owned railway company to build a freight line that will help deliveries to the Chinese border. Shipments of coal from the Tavan Tolgoi basin to the border have stalled this year amid complications with trucking companies, said Batsuuri.
To contact the reporter on this story: Michael Kohn in Ulaanbaatar at firstname.lastname@example.org
To contact the editor responsible for this story: Andrew Hobbs at email@example.com