Foreign banks seek role in Mongolian coal IPO

ULAN BATOR — Mongolia on Thursday started interviewing foreign banks seeking a role in the initial public offering of Erdenes Tavan Tolgoi, owner of a massive coal deposit in the Gobi desert, an official said.

Analysts said Goldman Sachs, UBS and Deutsche Bank were among more than a dozen investment banks that had submitted applications to advise on the IPO, which is expected to raise up to $2 billion.

The government launched the interview process in Ulan Bator, an official at state-owned Erdenes MGL LCC, the parent of Erdenes Tavan Tolgoi (ETT), told AFP, without providing further details.

Goldman Sachs, UBS and Deutsche Bank declined to comment when contacted by AFP.

The Tavan Tolgoi deposit in the south Gobi desert, 270 kilometres (165 miles) from the border with China, contains 6.4 billion tonnes of coal, making it one of the largest coal fields in the world.

About a quarter of the deposit is high-grade coking coal, a key ingredient for steel production, while the rest is thermal coal.

Foreign banks are keen to get involved in the offering partly because it could pave the way to further deals in the impoverished, landlocked country, which is rich in copper, gold, coal and other minerals.
Tavan Tolgoi is a "very big deal for the Mongolian government" and foreign investors will be aware of reports that officials were not "entirely happy with the way the Oyu Tolgoi deal played out," Neil Ashdown, an analyst at IHS Global Insight, told AFP, referring to an earlier deal.

"If the model being used here is seen as successful then the banks that helped to implement it would be in a strong position for further lucrative work in future."

In 2009, Mongolia sealed a long-awaited multibillion-dollar deal with Canada's Ivanhoe Mines and Anglo-Australian miner Rio Tinto to develop Oyu Tolgoi, one of the world's richest copper deposits and a key gold source.

Erdenes, set up to manage state-owned mining interests, owns 34 percent of Oyu Tolgoi. It created ETT to handle the coal deposit assets.

ETT is planning to contract out the development of Tavan Tolgoi to a private company or consortium, and the government is currently considering a shortlist of 15 companies, Ashdown said.

But World Bank senior mining specialist Graeme Hancock told AFP that it could take up to two years for ETT to be listed because the government needs to "put in place all the corporate governance systems".

Most of ETT will remain in Mongolian hands as the government seeks to ease concerns that the country's vast mineral resources are being sold off cheaply to foreigners, Ashdown said.

Ulan Bator will retain a 50 percent stake in ETT while 10 percent of the shares will be distributed to the Mongolian people and 10 percent to domestic companies, he said, citing a law adopted in July 2010.

The remaining 30 percent will be sold on foreign and domestic stock exchanges in 2012 "at the earliest".
source: AFP