Mongolia’s Tavan Tolgoi Basin to Sell Fuel to Shenhua Group Corp

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Mongolia’s Tavan Tolgoi Basin to Sell Fuel to Shenhua Group Corp
Mongolia’s Tavan Tolgoi Basin to Sell Fuel to Shenhua Group Corp

Mongolia’s Tavan Tolgoi Basin to Sell Fuel to Shenhua Group Corp

According to various reports coming up, three companies that mine coal in Mongolia’s Tavan Tolgoi basin have agreed to export 1 billion tons of the fuel to China’s Shenhua Group Corp. The exports will be done in the next 20 years by three companies e.g. Erdenes Tavan Tolgoi JSC, Mongolia Mining Corporation (975), and Tavantolgoi JSC.

The tree companies have signed the memorandum of understanding with Shenhua. According to Yaichil Batsuuri, CEO of state-owned Erdenes Tavan Tolgoi, the coal delivered by the three companies could generate about $50 billion at current prices. Earlier, in July this year, China Shenhua Energy Co., Peabody Energy Corp. (BTU) and a Russian-Mongolian group were picked to develop Mongolia’s Tavan Tolgoi deposit.

Reportedly, Tavan Tolgoi has the world’s largest untapped coking coal reserve and has a great potential to fulfill the requirement for fuel from China which became the largest consumer of liquid fuel recently. The agreement will help Mongolia received Forex in exchange of the fuel that it will export to China.

Partnering for Better

According to reports, the Shenhua-led group will get a 40 percent share in the project. The other two partners have been given rest of the share. Whereas Peabody will hold 24 percent, the Russian-Mongolian venture will be holding 36 percent. The three companies which are operating in the Tavan Tolgoi basin own more than 6.4 billion tons of coal reserves.

Now that they have agreed to export 1 billion tons of coal over 20 years to China, the company can still manage to export the rest of the amount to other markets. Nonetheless, the current export will be in tune of 50 million tons annually on average. According to the agreement any coal supplied by the Mongolian companies and not wanted by Shenhua can then be sold on the international market.

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Falling Coal Exports from Mongolia

Mongolia has been facing a falling rate of coal exports recently. The recent data shows that the country has been able to export only 11.38 million tons of coal whereas it was able to export 14.29 million tons a year earlier. Similarly, there has been a decrease in the value of the exports of coal wherein it has fallen to $783.94 million from $1.43 billion a year earlier.

Additional agreement regarding building a freight line that will help deliveries to the Chinese border too has been reached upon by Shenhua, China’s biggest coal producer, and the three companies and Mongolia’s state-owned railway company.

To contact the reporter of this story: Jonathan Millet at john@forexminute.com