Mongolia In Advanced Stages Of Talks To Decide Tavan Tolgoi Operator--Source

By P.R. Venkat and James Glynn, Of DOW JONES NEWSWIRES

The Mongolian government is in advanced stages of negotiations with various bidders seeking to operate the huge Tavan Tolgoi coal mine, but the issue has become complex as talks surrounding infrastructure facilities remain unresolved, a person familiar with the situation said Sunday.

"They are taking into account all different implications of the mine and related infrastructure and related political issues," the person said, adding that talks also involved engaging with the government's of China, Russia, Japan and South Korea.

About six companies are bidding to operate the coking coal resource--one of the world's biggest underdeveloped deposits--as rapid industrialization in Asia, especially China and India, prompts miners and other investors to shore up supplies of coking coal, a key element used for making steel.

Among the companies eyeing development of the mine are a consortium of South Korea's Korea Resources Corp., Japan's Itochu Corp. (ITOCY, 8001.TO), Sumitomo Corp. (SSUMY, 8053.TO), Marubeni Corp. (MARUY, 8002.TO), Russia's Sojitz Corp. ( 2768.TO) and OAO Russian Railways.

U.S.'s Peabody Energy Corp. (BTU), Brazil's Vale SA (VALE, VALE5.BR), Xstrata PLC (XTA.LN) and ArcelorMittal (MT, MT.AE) have also been shortlisted as preferred bidders.

"I believe the talks [with the bidders] are in pretty advanced stages," the person said, but declined to give an exact timeframe as to when a final bidder would be selected.

The person said that the Mongolian government has already initiated some work toward the development of railway lines linked to the project, enhancing its ability to tap various export markets.

"The railway that will be put first will link it [Tavan Tolgoi mine] to Russian port so that they can target markets such as Korea and Japan and even further in the future," the person said.

"The government has a resolution to first create a railway connecting to a new port so that they can diversify and mitigate the risks associated with having the only target destination, which is currently China."

As part of specific time-table associated with infrastructure developments for the Tavan Tolgoi project, the person said that the Mongolian government is planning to have a direct railway line from South Gobi to China by 2015 and also looking to connect South Gobi to North East of Russia.

The person said even as the Mongolian government has plans for an initial public offering of Erdenes-Tavan Tolgoi, but the offering may happen only once the company becomes "operational."

"They are looking to find the right formula to maximize the value," the person said.

People familiar with the situation had said earlier this year that the Mongolian government has chosen four banks including Goldman Sachs, Deutsche Bank, BNP Paribas and Macquarie Group to handle its multi-billion dollar IPO.

The government plans to sell as much as a 30% stake in Erdenes-TT and another 10% to local companies and give 10% to Mongolian citizens. The government will however retain the majority 50% control.

Last year, Mongolia Mining Corp. (MOGLF, MOGLY, 0975.HK) raised US$650 million through an initial public offering in Hong Kong.

-By P.R. Venkat and James Glynn, Dow Jones Newswires; +65 64154 152 venkat.pr@ dowjones.com

Source:Dow Jones Newswires