Mongolia Favors Tavan Tolgoi Contract Auction Over Stake Sale - Sources

By Ellen Sheng
Dow Jones Newswires
(Adds information about deal structure, background about Tavan Tolgoi.)

HONG KONG -(Dow Jones)- The Mongolian government appears to be leaning toward a mining contract or production-sharing arrangement rather than the sale of a stake in the huge, undeveloped Tavan Tolgoi coking coal deposit, people familiar with the situation said.

At least one bank mandated to advise on the stake sale has been dropped, one person familiar with the situation said Friday. J.P. Morgan Chase & Co. (JPM: 38.38, 0, 0%) and Deutsche Bank AG (DB: 59.51, 0, 0%) were advising on the sale of a 49% stake in Tavan Tolgoi. Government officials and bankers had expected the sale to raise billions of dollars.

Spokeswomen from both banks declined to comment.

Interested bidders included companies such as BHP Billiton Ltd. (BHP: 68.39, 0, 0%), Brazil's Vale SA (VALE: 25.24, 0, 0%), Peabody Energy Corp. (BTU: 42.1, 0, 0%), India's Jindal Group and China Shenhua Energy Co.(1088.HK) among others, a person familiar with the matter said earlier.

Mongolia's prime minister said earlier this week discussions with a consortium of 11 bidders would continue, according to a person familiar with the situation, but discussions would be focused on production-sharing and contract mining rather than a sale.

Production-sharing would require companies to pay for capital expenditure in return for a 20- to 30-year license to mine a certain amount, of which they can retain a specific percentage, the person said. Companies may or may not be required to make an upfront payment.

Meanwhile, Mongolian officials are still in talks about how to structure the development of the mining deposit.

"There is no decision on what will happen with this mine. Negotiations are still going on," urevjav Gansukh, the Mongolian ambassador in Singapore, said Friday.

The Tavan Tolgoi mining deposit, located in Mongolia's South Gobi desert, has estimated cocking coal reserves of 6.5 billion metric tons and was originally developed with government funding.

Mongolia has some of the world's largest untapped reserves of coal, copper and other commodities. Lawmakers are targeting some US$10 billion to US$15 billion in new mining investment in the next five years, Ch. Khurelbaatar, a government member of parliament and head of Mongolia's standing committee on finance and budget, said late last year.

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Source:Dow Jones Newswire