Fists fly in fight to mine Mongolia

By Leo Lewis

MONGOLIA is poised to name the banks that will underwrite the flotation of the world's largest untapped seam of coking coal - and the proposed listing has launched rival financiers on a sub-zero, testosterone-charged scramble for the wealth of Ulan Bator.

The process has included an ego-fuelled brawl in an Irish-themed bar in, of all places, the Mongolian capital as bankers punctuated their pitch documents with their fists.

Some of those involved have described the process as "one of the most aggressive, ill-tempered competitions in recent memory". The initial public offering, billed as "transformational" for the three million citizens of Mongolia, comes as natural disasters in Australia and relentless Chinese demand have triggered a sharp rise in global coal prices.

The listing of Erdenes Tavan Tolgoi on either or both the Hong Kong and London exchanges may raise as much as $US5 billion and could value the company at more than $US15bn.
Propelling the furious contest is the promise of a slice of the action inMongolia, the resources-heavy country whose proximity to China could make it the fastest-growing Asian economy of the next decade.

The Mongolian authorities are expected to announce their decision within the next few days, possibly offering roles to as many as four banks. Analysts say that the success of the listing implies a potentially huge flow of other business for bankers as Mongolia attracts investment and develops infrastructure to support its mineral ambitions.

One of the weaknesses of the Tavan Tolgoi deposit is that it lies about 400km from the nearest railway line, an isolation that can be addressed only by raising capital.

Benchmark prices for coking coal used in steel blast furnaces are 50 per cent higher than they were a year ago and have given Chinese coal producers a spectacular run of profitability. Even if prices stabilise, Mongolia believes that the six billion tonnes of coal beneath Tavan Tolgoi could double GDP by 2015.

Over the past fortnight, teams from more than 20 global investment banks, including JP Morgan, Deutsche Bank, Morgan Stanley and Goldman Sachs, have descended on Mongolia's frozen capital to make their pitch.

Private Mongolian companies have listed shares in Hong Kong, but Tavan Tolgoi is a government sale and is invested with huge political significance.

While the government will retain a 51 per cent stake in the holding company, and 30 per cent will be offered to global investors, the plan is to distribute 10 per cent of the shares to every Mongolian and the remainder to local companies. If the logistics of that distribution are managed well, the deal could mark a turning point in dragging the country from poverty, analysts say.

The deal is substantial by any standard, but the real prize lies in the kudos of receiving the official nod, which could lead to mandates for other deals in the private and public sectors.



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