China Shenhua says hopes to restart talks on Mongolia mine

* Shenhua in talks to buy assets in N.America, Africa,Australia, Indonesia -CEO

* Coal sales this yr seen exceeding earlier target (Recasts with quotes, details)
By Charlie Zhu and Alison Lui

HONG KONG, March 26 - Shenhua Energy Co Ltd , China's largest coal producer, expects its negotiations to invest in Mongolia's giant Tavan Tolgoi coal mining project to restart after the country's parliamentary elections in June, its CEO said on Monday.
"Because this year is Mongolia's election year, I think we will restart our talks when the election is over," Shenhua CEO Ling Wen told reporters at the company's results briefing.
Shenhua is the most competitive bidder for the project given its technology, transport infrastructure, access to the Chinese market and the backing of the Chinese government, he said.
Shenhua chairman Zhang Xiwu added that the launch of a railway linking Inner Mongolia's Baotou city with Mongolia later this year would give a further boost to Shenhua in the race for a piece of the project.
In July last year, the Mongolian cabinet said it would give Shenhua a 40 percent stake in Tavan Tolgoi's western block and 24 percent to Peabody Energy Corp of the United States. The remaining 36 percent would be given to a Mongolian-Russian consortium led by Russian Railways.
But after bidders from Japan and South Korea branded the process unfair, the Mongolian government backpedaled and said nothing had been decided yet.
Political uncertainty ahead of Mongolia's parliamentary elections in June has worried investors. Politicians in Mongolia are under constant pressure to be seen to getting a good deal for the country from resources investors.
The Tavan Tolgoi coal deposit in Mongolia's south Gobi region has estimated reserves of 6 billion tonnes of coal, including the world's largest untapped deposit of coking coal, used to make steel.
The western Tsankhi block holds about 1.2 billion tonnes of reserves, 65 percent of which is coking coal. It has an estimated production life of more than 30 years at 15 million tonnes a year.
Shenhua is scouring the world for other asset buys and is in talks to buy coal mines in North America, Africa, Australia and Indonesia, Ling told Reuters on the sidelines of the briefing, without giving further details.
Shenhua on Friday posted an 18 percent rise in 2011 net profit on higher domestic coal prices and increased production volume, supported by strong demand in China, the world's top coal producer and consumer, for its power plants, steel and cement industries.
Chairman Zhang told reporters that he expected Shenhua's coal sales volume to reach 425 million tonnes this year, slightly exceeding its previous target.
"From the sales momentum we have seen in the first two months of this year, we feel our full-year sales target now looks a bit conservative," Zhang said, adding that he expected double-digit coal sales growth.
Shenhua CFO Zhang Kehui said Shenhua aimed to keep its coal production cost increase at below 10 percent this year.
Analysts say the outlook for Shenhua and smaller peers Yanzhou Coal Mining and China Coal Energy is clouded by a slowing Chinese economy, government price controls and rising mining costs. (Editing by Chris Lewis and Jonathan Hopfner)


WorleyParsons wins contract in Mongolia

Engineering giant WorleyParsons has won a contract to build a copper and molybdenum processing plant in Mongolia.
The company, in a statement on Friday, said it had been awarded the engineering, procurement and construction management contract for the Tsagaan Suvarga project operated by the largest privately-owned firm in Mongolia, Mongolyn Alt Corporation.
WorleyParsons said it expected revenues of about $65 million from the contract, which will involve a 14.6 million tonne per annum copper and molybdenum concentrator and associated infrastructure, including a 280-kilometre power line.
Chief executive John Grill said WorleyParsons recently opened an office in Ulaanbaatar and wanted to secure a long-term presence in the nation.
A mining boom has been underway for several years in Mongolia, which is rich in coal, gold, uranium and copper.
Shares in WorleyParsons were 30 cents firmer at $29.85 at 1324 AEST.

Source:Sky News


N.K. envoy meets with Nakai proxy in Mongolia

ULAN BATOR — A senior North Korean official in charge of Japanese affairs spoke in Mongolia Saturday with a Japanese professor believed to be serving as a de facto proxy for Hiroshi Nakai, a former state minister in charge of the abduction issue.
Sadaki Manabe, a Takushoku University professor involved in assisting those kidnapped and their families, was apparently sent to explain to Song Il Ho why Nakai was unable to make it to Mongolia to meet with him.
In addition to the abduction issue, the two apparently exchanged opinions on the temporary return of Japanese women who were convinced to migrate to North Korea with their Korean spouses starting in 1959, and the chances of securing the return of the Japanese who hijacked a Japan Airlines plane in 1970.
After the talks, Song stressed to reporters that he met with Manabe in an unofficial capacity and said the professor is neither a government representative nor a politician.
Nakai, chairman of the House of Representatives Budget Committee, wanted to visit Mongolia via Taiwan but was thwarted by objections from the opposition parties, which started protesting after getting wind of the planned talks with the North Korean official.
Manabe has accompanied Nakai to a secret meeting with Song before.
Meanwhile, Nakai flew to Taiwan as scheduled on Saturday and is expected to meet with Taiwanese President Ma Ying-jeou on Monday before returning to Japan later the same day.


KPMG Forms Alignment to Expand Capabilities in Mongolia

Agreement with NIMM Audit creates country's largest audit, tax and advisory services provider

HONG KONG, March 18, 2012 /PRNewswire via COMTEX/ -- KPMG in Mongolia and NIMM Audit, a leading Mongolian professional services company, have agreed to align as KPMG LLC -- forming a combined team including 50 local audit, tax and advisory professionals along with seconded industry experts from other KPMG member firms that will establish KPMG as the largest service provider of its kind in Mongolia, KPMG International announced today.
The move demonstrates the strategic importance of Mongolia to the KPMG network, strengthening the ability to assist clients in the country's critical growth sectors including energy and natural resources, infrastructure and financial services. Mongolia has gained greater global attention with stock market performance that has led the world over the past decade, rapidly increased foreign direct investment and double-digit GDP growth.
"We are delighted that NIMM is joining the KPMG organization, and we are excited about the opportunities to help clients prosper in the fast-growing Mongolian economy," said Michael Andrew, Chairman, KPMG International. "NIMM brings an extraordinary depth of local knowledge, combined with KPMG's strength across audit, tax and advisory, that's a critical advantage in this rapidly changing market."
Andrew said there are solid growth prospects in Mongolia, largely driven by the vast untapped mineral reserves and need for infrastructure development. "Globally, KPMG has very strong Energy and Natural Resources and Infrastructure practices, with deep experience to support the new Mongolian firm and contribute to these important projects," Andrew said.
KPMG is dedicated to providing world-class services to its clients in Mongolia, who expect the same high standards of risk management and quality control that they find worldwide. To achieve this, the new member firm will be led by a senior KPMG partner, Edward Kim, who has extensive audit, transaction services, risk management and marketing leadership experience with KPMG members firms in Australia and Korea.
Kim will work alongside L. Enkh-Amgalan, managing partner, NIMM Audit, who has more than 25 years of professional experience in Mongolia and serves as the President of the Mongolian Institute of CPAs.
"This is an important time in the Mongolian economy, and we are very proud to have teamed up with KPMG," said Enkh-Amgalan. "Our nation has a bright future, and the joint venture with KPMG will be critical in serving our growing international and Mongolian client base."
For further information, contact:
Edward KimPartner, Samjong KPMG, Inc.+82 2 2112 0770
Matthew HolmesCommunications, Samjong, KPMG, Inc.+82 2 2112 0997
Kent MillerCommunications, KPMG International+1 201-307-8632
About KPMG
KPMG is a global network of professional firms providing Audit, Tax and Advisory services. We operate in 152 countries and have 145,000 people working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.

Mongolia’s Oyu Tolgoi to Start Copper and Gold Production in Late 2012

by Stuart Burns on MARCH 15, 2012
As Chile is hit by falling ore grades and Peru is hit by delays due to populist agitation, the copper market is pinning a lot on the start of copper production later this year at Rio and Ivanhoe’s Oyu Tolgoi mine in southern Mongolia’s Gobi desert.
First identified over ten years ago, Rio and their subsidiary, Ivanhoe, along with the Mongolian government that holds a 34 percent stake, have poured billions into what is one of the most exciting mining projects in the world. Admittedly not as large as Chile’s Escondida, Oyu Tolgoi still holds the promise to yield some 450,000 tons per year of copper and 330,000 ounces of gold when it reaches full production sometime in 2013.
The ore body is growing in estimation as further exploration is done, but already extends over 30 kilometers (19 miles) long by 1 kilometer wide (0.65 mile) and over a kilometer (up to a mile) deep. Oyu Tolgoi is estimated to have reserves of at least 36 million tons of copper and 45 million ounces of gold, enough for a 45-year mine life.
The region’s position just 50 miles from the border with China places it ideally for delivery to the world’s largest consumer, easing global copper supply by replacing supplies China would have pulled from elsewhere.

Is There a Catch?

But bringing this vast resource to productive life has not been without its challenges.
Resource nationalism simmers beneath the surface in Mongolia, struggling as it does with widespread poverty, poor employment prospects and weak governments prone to caving in to populist pressure, seen as a legacy of its socialist past when Mongolia was part of the Soviet Union. Those in power arenot blind to the balancing act they must pull off, maximizing the country’s return for the exploitation of its natural resources while continuing to encourage new investment for future projects elsewhere.
As points out when it quotes Bloomberg Businessweek’s Dexter Roberts, “Four-fifths of the country is still un-surveyed. Over the next decade copper production is expected to double, iron ore to triple, coal to grow by six times, and gold and oil by 10 and 13 times, respectively.” With such riches available, Mongolia does not want to scare off the foreign investment and knows that will be needed to realize such wealth.
Oyu Tolgoi will go some way to replacing the “lost” production from chronic under-investment by the industry a decade ago — at 3 percent of global production, the mine will make a sizeable contribution, but as Reuters pointsout, it will take further investment at Escondida, the realization of projects currently underway in Peru and BHP’s Olympic Dam to achieve capacity before the copper market can be said to have a sustainable supply outlook.

Crucial Coal: Powering Mongolia's Future

Electricity demand in Mongolia - major driver from world-class mineral deposits
The dramatic and continuing rise in Mongolia's energy demand is being driven by the rapid development of the country's mining based economy. During the period of 2007‐2011, electricity consumption in Mongolia increased on an average of 6% per year. However, the Ministry of Mineral Resource of Mongolia estimates that overall electricity demand is expected to grow at 14% in the future. Major international mining firms have become involved in developing Mongolia's over-abundance of resources, including 15 world-class strategic mineral deposits with an estimate resource value of over $1.2 trillion. Projects of this magnitude require vast quantities of power from reliable sources.
Figure1. Typical strategic deposits in Mongolia
Source: Mongolia stock exchange
Southern Mongolia - Richly endowed with Natural Resources but lacking power
The South Gobi region, in south of Mongolia, is currently isolated from the Central energy system. The mines of South Gobi (SGQRF.PK) that are in operation must, therefore, supply their own electricity. Power demand in that region is expected to grow rapidly as a result of both the existing and new mining developments. The two biggest current players in South Gobi are:
  1. Oyu Tolgoi (OT) - a world-class gold and copper mine being developed by Ivanhoe Mines. The deposit is estimated to hold over 35 million tonnes of copper and 1,275 tonnes of gold. According to the Mongolia Stock Exchange, OT is poised to generate $61 billion over 27 years.
  2. Tavan Tolgoi (TT) - the largest undeveloped coal deposit in the world. Mongolia is estimated to hold reserves of over 6 billion tonnes of coal. The Mongolia Stock Exchange estimates that TT will be operable for 200+ years, with an annual return of $1.6 billion for the first 29 years.
A presentation by the Ministry of Mineral Resources and Energy of Mongolia forecasts total demand from major customers in the South Gobi region of around 870MW to 1130MW.
Figure 2. Forecast electricity demand from major South Gobi mines:

Source: The Ministry of Mineral Resources and Energy of Mongolia
Power supply in Mongolia - dominated by the central energy system
The power system of Mongolia consists of the three unconnected energy systems (the Central, Western and Eastern Energy Systems), diesel generators and heat-only boilers in off-grid areas. In total, 91% of the country's electricity is produced by the Central Energy System and 96% of the electricity demand of the country is met by the CES.
Figure 3. Map of Mongolia power systems
Source: Energy Regulatory Authority of Mongolia
The electricity and heat is supplied by five combined heat and power (CHP) plants. The limited installed capacity of these existing power plants results in an ongoing and increasing energy deficit which is currently being offset by costly and unreliable electricity imports from Russia.
Figure 4. Electricity supply breakdown and demand
Source: Energy Regulatory Authority of Mongolia, Eurasia Capital-INFRASTRUCTURE IN MONGOLIA April 2009
Coal fired power plants - Critical to Mongolia energy system
As the primary source of energy for Mongolia, the coal industry is critical to the operation of Mongolia's energy system. According to the Ministry of Mineral Resource and Energy of Mongolia, Mongolia's electricity generation capacity is comprised of 7 thermal power plants, 13 hydroelectric power plants, several hundred diesel generators, 20 wind power plants and 1 solar power plant. Of these sources, the overwhelming supply of electricity comes from coal-fired plants, which generate approximately 80% of the country's power.
Figure 5. Electricity generated by source in Mongolia
Source: Mongolia national renewable energy program
There are five major thermal power plants (TPP) in the Central Energy System (CES). The current installed power capacity for coal fired power plants in Mongolia is 814 MW, but only 646 MW is available because of aging power plants, with most being over 30 years old. Because of age and deterioration, the TPP #2 is expected to retire in 2012 and the TPP #3 is expected to retire in 2016. Because Mongolia's capital, Ulaanbaatar, relies so heavily on these plants and lacks any replacement power source, they have to be kept in operation well past their lifespan.
Figure 6. Current coal fired power plants in CES
Source: Energy Regulatory Authority (2007), Eurasia Capital.
The aging of the existing power plant infrastructure results in energy inefficiency and electricity loss due to 1) lower actual available power capacity and load factors and 2) Higher self-electricity consumption in power plants. The Mongolian government acknowledges this as a major issue and aims to reduce the whole system loss of the CES but the electricity loss remains a significant area of concern that will need to be addressed.
Figure 7. Total system electricity loss in CES
Source: Energy Regulatory Authority of Mongolia-2010 annual report
Due to government regulated low electricity and heat tariffs, energy producers and thermal coal suppliers were historically unable to operate profitably. Companies operated with support by international loans and grants, and state budget subsidies. In late 2010, the parliament of Mongolia approved step by step liberalization of energy tariffs. The sector is planned to operate based on market principals beginning in 2014. Electricity tariffs are expected to increased to ease the operating pressure of power suppliers due to: 1) the increase of retail tariffs lagging behind the CPI and 2) wholesale tariffs increasing to maintain service level 3) licensees facing cost pressure from increasing input prices.
Figure 8: Retail Tariff Vs. CPI
Source: ERA annual report 2009, 2010 and Website, World bank-Mongolia Quarterly Economic Update Aug 2011,
Potential source of power
1. Renewable energy - challenge for the ambitious plan
Currently, renewable energy (hydro, solar and wind) only represents about 4% of Mongolia's total electricity generating capacity. In the most remote areas, because of low demand and lack of other energy sources, use of renewable energies is viable. The Mongolian government passed the Renewable Energy Program in 2005, mandating that green energy sources account for 20-25 percent of Mongolia's needs by 2020. Solar photovoltaic and wind power have potential in Mongolia given the country's vast steppes and ample wind.
Figure 9: Mongolia renewable energy program forecast
Source: Energy Authority of Mongolia
Modern solar cells are lightweight and portable enough to mesh well with a lifestyle involving frequent travel. Because of that, in Mongolia, solar energy use has mainly focused on decentralized individual solar home electricity systems, which would also be suitable for larger scale solar energy applications.
In terms of wind power, one Mongolian company, Newcom Group, will start construction of the first sizable wind power plant in Mongolia, with an installed capacity of 50MW.
Figure 10: Renewable power plant in remote area during 2006-2008
Source: Energy authority of Mongolia
While a laudable goal, the practical reality of implementing such an ambitious renewable energy plan, particularly for wind power plants, is rife with significant obstacles. According to the Energy Authority of Mongolia, real-world problems include: 1) frequent performance problems; 2) a shortage of the government financing needed to acquire high quality small wind turbines; 3) contract-awarded inexperienced national companies had financial loss due to repetitive repair.
2. Diesel generators - unstable diesel supply and high cost
Diesel generators are popular in remote areas with no connection to the grid. In the South Gobi region, the Tavan Tolgoi mine is building a 20MW diesel power plant as a temporary electricity solution. Two major problems need to be solved for diesel power plants to be viable long-term:
1) The unstable supply of diesel.
Mongolia sources over 90 percent of its fuel from Russia. These imports are unstable as Russia may suddenly curtail its fuel exports as it has done in the past. This has the corollary effect of driving up domestic prices.
2) The high operating cost for using diesel to generate power.
Because Mongolia is forced to import diesel to offset its domestic energy needs, the selling in that country is higher than China, Kazakhstan and Russia. This also places Mongolia in a vulnerable position with respect to import tariffs. In May 2011, Mongolia experienced a severe fuel crisis as Russia raised duties on fuel exports by over 40 percent. Such actions particularly affect mining, agriculture and construction because these sectors have only a short operational season before the onset of winter.
Figure 11. prices of gasoline and diesel in June 2011
Source: Mongolia Quarterly Economic Update-2011 Aug
3. New Coal-fired power plant - The ideal for powering Mongolia's future.
Although alternative energy sources will continue to be developed, until technology and efficiency dramatically improve, the solution to Mongolia's energy crisis lies in coal. The country has total coal reserves estimated at 150 billion metric tons, and three major coal fired power plants are planned to be built in order to meet the growing demand.
Standing out among these projects is Prophecy Coal Corp's (PRPCF.PK) 600 mega-watt Changdana thermal coal power plant. The first sizable new power plant in Mongolia in decades, the Chandgana project is fully-licensed and endorsed by the government. Construction is expected to commence in the second quarter of 2013, with power on anticipated for Q4 of 2015. The Prophecy project is in the advanced stages as compared to the other proposed projects, with the company looking to finalize a power purchase agreement with the Mongolian government in the coming months.
Figure 12. Major Coal fired Power Plants in progress

Source: The world bank-Mongloa:Power Sector Development and South Gobi Development, Prophecy Coal Corp company presentation
How to play- trading vehicle for capturing energy exposure in Mongolia
North American investors can share the gain of energy industry in Mongolian by having the exposure in the stock of the public listing companies, which devoted themselves to the energy development in Mongolia. Such companies include:
1. Prophecy Coal Corp, the Canadian company which plan to build 600MW coal fired power plant in Mongolia. The company has over 1.4 billion tonnes of surface minable thermal coal resources on two coal properties in Mongolia. Prophecy's Ulaan Ovoo coal mine is in production and its Chandgana mine mouth power plant has been permitted. (Declare: I do not have any options and stocks for Prophecy Coal Corp, GE electric and Ivanhoe Mines, and no plans to initiate any positions within the next 72 hours).
2. GE electric, this US conglomerate help build Mongolia's first wind energy park in a $100m deal with Newcom, a Mongolian private investment company. (Declare: I do not have any options and stocks for Prophecy Coal Corp, GE electric and Ivanhoe Mines, and no plans to initiate any positions within the next 72 hours)
3. Ivanhoe Mines (IVN): Core assets in Mongolia are Ivanhoe's 66% interest in the world-scale Oyu Tolgoi copper and gold mine project and its 58% interest in Mongolian coal miner SouthGobi Resources. The company plan to construct the coal-fired power plant in Mongolia, which mainly for the self use of Oyu Tolgoi copper-gold mine project, but not in near term.
The leaders and people of Mongolia have long-recognized its potential as a modern, booming economy and international firms continue to embrace it as evidenced by massive and increasing foreign investment. With this expansion, Mongolia's critical energy shortages are expected to become more and more pronounced as new draws strain the existing supply and further increase reliance on costly and unstable imports. To sustain its impressive development, it is vital that the Mongolian government address the energy situation by utilizing their abundant coal resources and that they do so in the most efficient, modern and clean facilities technology has developed.
Disclaimer: The views expressed in this article are those of the author and may not reflect those of Prophecy Coal Corp. Neither Prophecy Coal Corp. nor the author can guarantee accuracy of all information provided. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Prophecy Coal Corp. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication. I am a private investor and currently hold the position of Investor Relations Officer with Prophecy Coal Corp. (TSX: PCY and Prophecy Platinum Corp. (TSX.V: NKL).
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

By Leo Liu

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