INTERVIEW-Mongolia to keep tight grip on giant coal mine

By David Stanway

ULAN BATOR, Sept 8 (Reuters) - Mongolia will keep full ownership of a massive new coal mine near the Chinese border, the country's mining minister told Reuters, amid intense foreign interest and speculation about its plans for the project.

Zashdorj Zorigt said the Tavan Tolgoi project, believed to be the world's largest untapped coking coal deposit, was likely to finally go ahead in 2012.

"A state-owned company is going to own 100 percent of Tavan Tolgoi and license the mining operations," he said on Wednesday. "It will be a 50 percent state-owned company, and the rest will be sold publicly", in a domestic share offering.

Mongolia is trying to make the most of its huge, untapped reserves of coal, copper, gold and uranium. Its fledgling democracy has had to manage high public expectations and show it will not sell the country's riches on the cheap.

Zorigt was reiterating a decision made earlier this year, and his comments could help quell speculation the government might change its mind. He said the government had already announced it was open to bids from "fee-based" mining operators across the world to help develop the project.

An initial 2009 bidding auction for the Tavan Tolgoi property attracted consortia from South Korea, Japan and Russia, as well as mining giants such as Australia's BHP Billiton, Brazil's Vale and China's Shenhua.

But at the beginning of this year, the government abruptly announced the auction would be cancelled, the state would maintain control and foreign companies could bid for licenses to develop and run the mine.

"We certainly believe (the decision) will give us a chance to create a national flagship company that will be a player in the region and a leading player globally," Zorigt said.

But Mongolia has not completely ruled out foreign ownership at Tavan Tolgoi, he said.

"The second portion of it -- in due time we are going to have bidding by international investors, but that will be done in conjunction with other aspects of the project, particularly transportation issues."

ADDING VALUE

Tavan Tolgoi is estimated to hold around 6.5 billion tonnes of coking coal, and total annual output could reach 50 million tonnes, with the bulk of it to be shipped south to China, where demand is almost guaranteed.

Although funding was already available for a dedicated rail line to the Chinese border, the Mongolian parliament decided in June that priority would be given to a rail route running east, enabling the coal to be shipped to Russia and the Pacific coast.

Investors suggested the decision was motivated by concerns about Mongolia's growing dependence on China, but Zorigt said it was the country's dependence on unprocessed raw materials that was the chief concern.

"It is driven by ... the logic of economic growth," he said.

"Certainly when it comes to the resources of the south, while we are aware that most of it will go to the markets in China and northeast Asia, a significant portion needs to be delivered to industrial production in Mongolia itself, and that's why the railway decision has been made."

Analysts have suggested the decision to cancel the auction at Tavan Tolgoi was partly a response to accusations the government had sold resource rights cheap to foreign firms such as Ivanhoe Mines, the majority stakeholder in the country's other flagship mining project at Oyu Tolgoi.

"There are debates about the economic benefits of the project, but I can only say that Mongolia is an open and free country and everybody is entitled to his or her views," Zorigt said.

"Our conviction is that the (Oyu Tolgoi) project is going to be a very significant one that will drive the growth of the country for the next decades."

Mongolia, dubbed "Minegolia" by analysts, could see more big discoveries in the coming years.

"Mongolia is a big country and one of the last remaining places in the world where such big discoveries can be made," Zorigt said.

But the future of its economy will ultimately hinge on its ability to transcend mining, he added.

"It is our ultimate belief that economic prosperity is not delivered by one particular industry or one particular resource. Economic prosperity and economic growth are actually made possible by the skill-sets of the people."

(Additional reporting by Jargal Byambasuren, Editing by Jane Baird)
source: Reuters
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