Mongolia says Tavan Tolgoi not final yet; S.Korea complains

(Reuters) - Mongolia said on Wednesday its decision on three shortlisted bidders for massive Tavan Tolgoi project was not final yet as South Korea complained the bidding process was "unclear and unfair."

The latest development adds more confusion to the hotly contested deal, which has been undermined by political considerations.

Earlier this week, Mongolia said it picked miner Peabody Energy (BTU.N), China's Shenhua (1088.HK) and a Russian-Mongolia consortium out of six preferred bidders and the proposal needs parliamentary approval.

But it did not mention names of major partners of the shortlisted bidding groups. The Mongolian ambassador to China said last week that the government would consider the interests of its two neighbors, China and Russia.

"We are still in talks with the companies. It's not final yet," B. Enebish, executive director of state-owned Erdenes MGL, which owns the deposit, told Reuters on Wednesday.

Mongolia relies heavily on China for its commodities for exports, but is in talks to access Russia's railways and ports as it looks to build new trade ties with other countries in the Far East.

South Korea said the Mongolian government had asked the preferred bidders in April to form one grand consortium for the project and bidders had since been in talks to meet the request.

"While we were still in talks, Mongolian government unilaterally announced three shortlisted bidders without negotiations with the participants," Seoul's energy ministry said in a statement.

Mongolia picked a newly formed Russian-Mongolia consortium and excluded Korean and Japanese firms, it said.

"We are trying to nail down the exact composition of the Russia-Mongolian consortium...will tap the possibility of additional talks with the Mongolian government as this international bidding process has been unclear and unfair," the statement said.


Members of the South Korean firms which participated in the Russian-Korean-Japanese consortium include state-run Korea Resources, POSCO (005490.KS), utility firm KEPCO (015760.KS), trading firm LG International (001120.KS) and Daewoo International (047050.KS).

Japanese firms in the group include Itochu Corp (8001.T), Sumitomo Corp (8053.T), Marubeni Corp (8002.T) and Sojitz Corp (2768.T).

"We are still under negotiation. Our understanding is that this is not the final decision," said an executive of one Japanese firm, which is part of the consortium.

China's Shenhua teamed up with Japan's Mitsui & Co (8031.T) but the Japanese firm's name was dropped without explanation.

Mitsui said they haven't received notice from the Mongolian government and have no information whether they are still in.

The head of state-owned Erdenes MGL, which owns the Tavan Tolgoi deposit, said talks were still continuing.

The capricious nature of Mongolia's democratic government have complicated foreign investment projects in the country.

A five-year negotiation on a $6 billion Oyu Tolgoi copper project in the past was conducted against a backdrop of damaging political and legal uncertainties, including local ownership requirements and a windfall tax on mining profits that was only rescinded in 2008.

Now the democratic government, in power since the early 1990s, is trying to pull its 3 million citizens out of poverty by exploiting its largely untapped mineral wealth.

The Tavan Tolgoi coal deposit in Mongolia's south Gobi region has estimated reserves of 6 billion tons of coal, including the world's largest untapped deposit of steelmaking coking coal.

The project, which may require an initial investment of more than $7 billion, will also generate billions of dollars in revenue for the companies involved and add tens of millions of tons of increasingly rare coking coal used by steel makers.

China, Japan and South Korea are snapping up iron ore and coking coal mines globally to diversify from heavyweight suppliers such as BHP Billiton (BHP.AX) (BLT.L) and Rio Tinto (RIO.L) (RIO.AX).

For South Korea, the project is one of the key assets it has been eyeing to boost natural resources self-sufficiency to feed its manufacturing-focused economy.

(Reporting by Hyunjoo Jin in SEOUL, Yuko Inoue in TOKYO and Khaliun Bayatsogt in ULAN BATOR; Writing by Miyoung Kim; Editing by Anshuman Daga)




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