Shenhua, China's largest mining company by output, will get the largest share of Mongolia's Tavan Tolgoi coalfield project. [CFP]
Shenhua Group Corp Ltd is to get a 40 percent share in developing Mongolia's Tavan Tolgoi coalfield, the world's largest untapped source of coal, which will help the country to further diversify its energy resources.
The Mongolian government announced on its official website late Monday that Shenhua Group, Peabody Energy Corp and a Russian-Mongolian group have been selected to develop the central-western part of the field.
Shenhua, China's largest mining company by output, will get the largest share of the project and Peabody will get 24 percent. The remaining 36 percent will be divided among the Russian-led consortium's partners, according to the statement.
The plan has been sent to Mongolia's parliament for final approval, with the result scheduled for release on July 11.
The Tavan Tolgoi coal deposit, in Mongolia's south Gobi region, has estimated reserves of 6 billion tons. The western side of the field, which is close to Mongolia's border with China, has about 1.2 billion tons of reserves, of which 68 percent is high-quality coking coal. The field has an estimated production life of more than 30 years at 15 million tons annually.
Experts said it is significant that China won the bid in terms of ensuring energy supply and meeting increasing coal demand.
"Chinese companies have become more involved in international cooperation in the energy sector in recent years, which greatly helps to provide diversified energy resources to the country and reduces the price of imported coal," said Zhou Dadi, former president of the energy research department at the National Development and Reform Commission.
"Tavan Tolgoi is an open-pit mine that can be easily and safely exploited. Compared with over-mined domestic coalfields, which are mostly underground, the advantage of this project is obvious," Zhou said.
The field has a rich reserve of coking coal, which can be used in steel production or as a substitute for thermal coal. China has become a big importer of coking coal as the demand for steel demand soars.
China imported 47.27 million tons of coking coal in 2010, with more than 30 percent of those shipments coming from Mongolia, said Dai Bing, a senior analyst at coal trading website coal.com.cn.
He said domestic coking coal prices might decline late next year if Shenhua begins production after winning the bid this year.
High-quality thermal coal accounts for about one-fourth of the Tavan Tolgoi field's total reserves, which eventually will help ease supplies for power plants in northern China, said Dai.
However, Shenhua still faces challenges, experts said.
"The first problem will be the huge costs of production and transportation" at the project, said Zhou. "But in the long run, it will be profitable because of its proximity to ports."
Dai said Shehua must invest about $7 billion in the first phase of the project, and the company's estimated share of annual production from the Tavan Tolgoi is at least 7 million tons.
Apart from coal, Mongolia's other abundant mineral resources also provide good opportunities for investors, such as its iron ore mining industry, but "we need more advanced technology in this sector," said Khash Chuluu, chairman of the Mongolian National Development and Innovation Committee last month in Beijing.
He said Mongolia is working hard to expand its rail network, which is critical for the mineral industry.
