Chinese sign five-year contract for TT coal

It was agreed that China’s three companies will purchase coal from the eastern Tsankhi field of Tavan Tolgoi deposit which is the leading coal reserve in the world, for five years.
On July 26, State-run Erdenes Tavan Tolgoi Company signed a contract with ‘Chalco’, subsidiary of China’s state-run ‘Chinalco’ Corporation, and China’s Jinan Steel Company for the sale of coal from the east Tsankhi field of the Tavan Tolgoi deposit. B.Enebish, CEO of Erdenes MGL and Erdenes Tavan Tolgoi (ETT) Company who signed the contract representing the Mongolian side, said that a total of three companies will participate, the third company has not come recently, but will soon be added.

The Chinese side is to pay Mongolia an advance payment of USD250 million and in return, the Mongolian side will supply these Chinese companies with coal for five years.
The same day, a memorandum of understanding on purchasing coal of Tavan Tolgoi deposit was established between Erdenes Tavan Tolgoi Company and Chinese companies, S.Korea’s ‘Korea Resources’ and Japan’s ‘Mitsui’ and ‘Itochu’companies.
It is interesting that a memorandum of understanding was established with S. Korean ‘Korea Resources’ and Japan’s ‘Mitsui’ and ‘Itochu’ which were partnering with the Russian state-run company as a consortium for strategic investors tender in eastern Tsankhi, but whose names were not mentioned at all and were “missed” when the preliminary winners were announced.
State Property Committee chief D. Sugar said, “The East Tsankhi field is a deposit under 100 percent stateownership. With the signing of the contract, the government will start its work. Many companies were studied to export and sell coal. One of the reasons that the Chinese companies were chosen is that they will pay an advance payment of USD250 million. Erdenes Tavan Tolgoi Company has to give a certain amount of money to the Human Development Fund. The advance payment to be paid after the contract signatory is deposited in the Human Development Fund. We should bear duty because we are receiving an advance payment. Therefore, we have a duty to supply Tavan Tolgoi’s coal to Chalco Company until the advance payment is completely recovered. It means we are giving a certain quota to China as a preference because we are borrowing money.

Pursuant to the contract established, the Chinese company will purchase coal at higher price in accordance with market principle after completing recovery of the advance payment. We don’t intend to supply all of the coal to China. As a result of long-term talks, we decided to supply up to 30 percent of the coal in the eastern Tsankhi field to S.Korean and Japanese companies through Chinese Company for five years according to the contract. It is the reason of signing the memorandum with Korea Resources, Mitsui and Itochu companies. After five years, Mongolia
will supply coal at conditions and favorable prices to interested markets. We believe the contract has been very profitable and successful”.
But Mr. Enebish said that market price will be adhered from the beginning when Mongolia supplies coal to the Chinese company and that the sides will quarterly negotiate the coal price by considering market prices. For the price of coal to be sold to S.Korean and Japanese companies, Chinese companies will settle the price by considering transportation cost as well as others.

The Mongolian side will only supply its coal of the eastern Tsankhi field of Tavan Tolgoi deposit to the three Chinese companies until it completely recovers the advance payment of USD250 million from the Chinese side. For five years of the contract, following the advance payment, the Chinese companies will be still supplied with coal and up to 30 percent of coal being extracted from the east Tsankhi field will be supplied to Korea Resources, Mitsui and Itochu companies through the Chinese companies. The Mongolian side plans to completely recover the advance
payment of USD250 million in a period of a year and year and half.
Beginning early August, coal extracted by the national company ‘Erdenes Tavan Tolgoi’ will start to be exported to China through the auto road. Currently it has been ready to load 50,000 tonnes of coal from the eastern Tsankhi field and overburden stripping has been made to extract 250,000 tonnes of coal. Within this year, it is intended to extract and export about a million tonne of coal, and starting next year, the volume of extraction will be increased. It is intended to bring the extraction volume to 15 million in the near future, said Mr. Enebish.
A tender to select a contract mining operator for eastern Tsankhi field was announced; however, a winner for the tender has not been yet announced. State Property Committee chief D.Sugar offered his thoughts about resolving the selection of a contract extractor/operator in accordance with the process of operations in the western Tsankhi field: “Three companies sent their documents for the tender of mining operator, and the tender has been closed. But big international companies sent their offers to cooperate in the western Tsankhi field as strategic investors.
We think to select one of three companies which sent documents for the tender of extractor/operator, combine it with a company which sent its document to the tender of strategic investment for western Tsankhi field to establish a consortium and enable the consortium to extract coal from the eastern Tsankhi field. We believe there will be no difficulty to select any
of them.” Regarding an agreement to be established with the strategic investor, he said, “Talks are underway. Twice, we were near to reaching an agreement, but more things need to be
clarified”.A tender to select a contract mining operator for eastern Tsankhi field was announced; however, a winner for the tender has not been yet announced. State Property Committee chief D.Sugar offered his thoughts about resolving the selection of a contract extractor/operator in accordance with the process of operations in the western Tsankhi field: “Three companies sent their documents for the tender of mining operator, and the tender has been closed. But big international companies sent their offers to cooperate in the western Tsankhi field as strategic investors. We think to select one of three companies which sent documents for the tender of extractor/operator, combine it with a company which sent its document to the tender of strategic
investment for western Tsankhi field to establish a consortium and enable the consortium to extract coal from the eastern Tsankhi field. We believe there will be no difficulty to select any
of them.” Regarding an agreement to be established with the strategic investor, he said, “Talks are underway. Twice, we were near to reaching an agreement, but more things need to be
clarified”.

Source: THE MONGOL MESSENGER