Mongolian Mining to build $800 million railway to China

June 28, 2012

Mongolia is now China’s largest supplier of coking coal as such Mongolia Mining Corp. is planning to build an $800 million railway between the countries that will double export capacity.

Expanding transportation links between the adjacent countries “will improve the position of Mongolia as the leading coking coal supplier to China,” Battsengel Gotov, chief executive officer of MMC, as the company is known, told reporters in the Mongolian capital of Ulan Bator, Bloomberg reported.

Mongolia, the world’s fastest growing economy, overtook Australia as China’s biggest coking coal supplier last year, exporting 20 Mt (22 million st) of the raw material used to make steel. MMC is building a 250 km (155 mile) rail to add 30 Mt (33 million st) of export capacity direct to China.
“There’s still room for everybody in Mongolia” to mine and sell commodities, Gotov said from the company’s head office.

MMC shares have fallen 28 percent this year in Hong Kong as coal prices declined. Chinese demand has been curbed by slower global growth and coking coal prices have fallen as much as 15 percent in the first half from the previous six months, Gotov said.

Prices, which fell to $206/t ($186/st) in the quarter ending June 30, may rebound to an average $225/t ($204/st) this financial year, based on the mean estimate of 10 analysts, steelmakers and mining companies surveyed by Bloomberg in April. Anglo American Plc settled coking coal prices at $225/t ($204/st) for the third quarter.

MMC plans to boost output by about 41 percent to 10 Mt (11 million st) this year from its Ukhaa Khudag at the Tavan Tolgoi deposit and then to 15 Mt (16.5 million st) in 2013. It will use about half the export capacity of its planned railway and will lease the other half to mining companies, Gotov said. Mongolia will assume 51 percent ownership of the rail after 19 years, Bloomberg reported.

The rail, due for completion in 2015, will cut in half the time it takes to transport coal by road from Tavan Tolgoi to China to between two and three hours, he said.

Mongolia is relying on developing of key copper, gold and coal deposits to lift the wealth of its 3.1 million people, a third of who live below the poverty line.

State-owned miner Erdenes Tavan Tolgoi, or Erdenes TT, is developing the East Tsankhi part of the 60-Gt (66 billion st) Tavan Tolgoi deposit, of which MMC’s share accounts for about 4 percent. Erdenes TT is seeking to sell shares to raise $3 billion to finance new rail, road, and power infrastructure.

Mongolia has held talks with companies including Peabody Energy Corp., OAO Russian Railways, and China’s Shenhua Group to develop the West Tsankhi part of Tavan Tolgoi.

MMC uses some of its production to power an 18-mW plant to supply electricity to the mine and surrounding town. Roughly 30 km (19 miles) away, MMC is also developing Baruun Naran mine, which it acquired last June for $464.5 million from a unit of Kerry Holdings Ltd.



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