Mongolia Energy Signs Coal Mine Production Agreement

By John Duce

Nov. 11 (Bloomberg) -- Mongolia Energy Corp., the Hong Kong-traded mineral and energy explorer, signed a $206 million agreement with a contract miner to extract coal from its pit in the west of the country.

The six-year agreement with a unit of Leighton Holdings Ltd., Australia’s largest construction company, is initially to mine 3 million metric tons of coal a year from the Khushuut pit. Production will likely start in the second quarter next year, Mongolia Energy’s Chief Executive Officer James Schaeffer said at a media briefing in Hong Kong today.

Mongolia Energy is developing the mine and owns 330,000 hectares of mineral and energy concessions in the resource-rich north Asian country. The agreement allows for production to rise to 8 million tons of coal a year.

“There’s an enormous market for coal in China and Mongolia is sitting right on its doorstep,” said Hamish Tyrwhitt, managing director of Leighton Asia Ltd. “It’s in fantastic position. Mongolia has incredible commodity resources.”

Total investment in the Khushuut mine will likely reach $2.85 billion over its estimated lifetime of 19 years, said Mongolia Energy’s general counsel, Mohan Datwani.

The coking coal will likely be sold in the northwestern Chinese province of Xinjiang and $111 million has been spent this year building a road between the pit and China.

Mongolia Energy hopes to extend the contract beyond the initial six years, Schaeffer said.

Shares in Mongolia Energy rose the most in a month in Hong Kong on Nov. 9 after an analyst report that billionaire Cheng Yu-teng had increased his stake in the company.

Cheng owns 3.7 percent of the company’s shares, according to data compiled by Bloomberg. Cheng controls property developer New World Development Co.

The shares have gained 55 percent in Hong Kong trading this year, compared with the 57 percent increase in the benchmark Hang Seng index.

Mongolia Energy’s coal reserves at Khushuut are estimated at 460 million tons and could generate $240 million in revenue next year if prices remain stable, according to a research note by Timothy Kwai, an analyst at Quam Securities in Hong Kong.

To contact the reporter on this story: John Duce in Hong Kong at Jduce1@bloomberg.net.

Source:www.bloomberg.com