Showing posts with label Mongolia. Show all posts
Showing posts with label Mongolia. Show all posts

Sunday, February 3, 2013

Rio Tinto faces tough talks in Mongolia over giant mine

ULAN BATOR/MELBOURNE – Rio Tinto faces tough negotiations next week in Mongolia, where the government is under pressure to plug a budget deficit and increase its share of the wealth from the $6.2-billion Oyu Tolgoi copper and gold mine.

Oyu Tolgoi, 34% owned by Mongolia and controlled by Rio Tinto, produced its first concentrate this week and is on track to start supplying metal and paying royalties by June.

The success of the mine is crucial for both sides as, at full tilt, Oyu Tolgoi will account for nearly a third of Mongolia's economy, while Rio Tinto is depending on the mine to drive growth beyond its powerhouse iron-ore business.

Rio Tinto is not expected to have to give up a bigger share of the mine, but some analysts say it could end up agreeing to provide more funding in areas like infrastructure to remove uncertainty over a project that is expected to produce 425 000 t of copper and 460 000 oz of gold a year.

Rio Tinto and its subsidiary, Turquoise Hill Resources, last year fended off an attempt by Mongolia to renegotiate their 2009 investment agreement on Oyu Tolgoi.

The government is drafting a law that would require Mongolians to hold at least a 34% stake in mines, however talk that this would apply to Oyu Tolgoi has died down.

Instead, there is speculation the government may press Rio for more funding outside the agreement, which includes a 5% royalty on all sales, as Mongolia faces a revenue squeeze despite being touted as the world's fastest growing economy as recently as 2011.

"It looks as if the government of Mongolia will run a large budget deficit in 2013," said Nick Cousyn, COO at BDSec, an investment bank in Mongolia.

"How they will close this gap is anyone's guess, but we think unilaterally changing the OT agreement is off the table," he said.


In meetings scheduled for next week, the government could question why project costs have blown out, raising concern that Rio Tinto may want to slow development due to the steeper costs, as it has done with other major capital projects.

Rio Tinto executives in Ulan Bator and a spokesman declined to comment on the upcoming talks.

Turquoise Hill last year put the total project cost at $13.2-billion, including developing an underground mine and sustaining capital costs, up from a 2010 estimate of $9.55-billion.

A Bloomberg report this week said Rio was considering a temporarily halt of construction to protest against demands by the government for a bigger stake in the project and new royalty rates.

In response to the report that cited two unnamed sources, Rio Tinto said it remained on schedule to start selling ore from the mine in the first half of the year.

One analyst said the firm may be considering delaying the project's second stage to build an underground mine, but others said it was unlikely to hold up the expansion for too long.

"It's not going to kill the project off because it's a cracking asset," said Hayden Bairstow, an analyst at CLSA.

The feasibility study for the underground mine is due to be finished in the first half of 2013. Construction was estimated last year at $5.1-billion.


Rio Tinto's latest battle in Mongolia poses a challenge for its new CE, Sam Walsh, who replaced Tom Albanese in January after the firm reported $14-billion in writedowns in aluminium and coal.

Walsh may want to smooth relations with the government rather than play tough to ensure that the firm does not have to keep fighting off a clamour for greater Mongolian ownership, CLSA's Bairstow said.

"When it's effectively a third of GDP, getting the entire country offside isn't a go-forward position that's going to work," he said.

If the firm bowed to some of the government's demands and as a result had to take a small writedown, the market may be forgiving, as it would remove uncertainty, Bairstow said.

The talks with Rio Tinto are part of a wider effort by the government to squeeze more out of the mining industry.

At a meeting on Friday, Mongolian miners complained about the proposed new mining law that would impose taxes on exploration and step up local ownership of resources to as much as 51%.

Though one of the aims of the law is to make sure resources stay in Mongolian hands, some local miners are just as worried over the legislation as foreign counterparts.

The proposed law includes heavy fines and could even have a company's licensed land revoked by the government, said Enkhsaikhan Batmunk, director general of Magma Mines.

Another concern is that if the state owns 51% of a firm, it will be tough to raise money via a public listing.

But while Mongolians recognised the need for foreign investment, "What's under the ground belongs to them like the sky," said Namgar Algaa, executive director of the Mining Association.

Edited by: Creamer Media Reporter

Tuesday, September 4, 2012

Chalco drops $926m offer for Mongolia coal miner

Chalco has dropped its $926-million offer for a majority stake in Mongolia-focused coal miner SouthGobi Resources in the face of stiff political opposition.

The State-controlled Chinese aluminium giant's April bid triggered a sharp backlash in Mongolia, which in May passed a law limiting foreign ownership to 49% for companies in strategic sectors including mining.

Turquoise Hill Resources, which owns a 58% stake in SouthGobi, said in a statement on Monday that there was "minimal prospect of obtaining the necessary regulatory approvals within an acceptable timeframe".

Shares of SouthGobi, which owns large coal projects in Mongolia close to the Chinese border, have wilted since April as the C$8.48 per share bid by state-controlled Aluminum Corporation of China, or Chalco, ran into opposition from the Mongolian government.

The firm's Hong Kong-listed shares slumped 5.57% on Monday ahead of the widely-expected announcement to close at HK$20.35. The Toronto listed shares last traded at C$2.69.

"This is good news for both Chalco and SouthGobi," said Helen Lau, analyst at UOB Kay Hian,

"For Chalco it wouldn't need to pay such a high premium for SouthGobi shares and for SouthGobi now the political risk has been removed and that probably will see the company returning to normal production and sales."


SouthGobi's second-quarter profit plunged after Mongolia suspended its mining licence following Chalco's bid.

Operations at its flagship Ovoot Tolgoi mine in the south of the country had been "fully curtailed" since June 30 and were not expected to resume in the third quarter, SouthGobi said last month.

The proposed deal had the backing of Turquoise Hill, but Mongolia is becoming wary about the growing Chinese presence in its mining sector.

The former Soviet satellite, landlocked between China and Russia, passed a controversial law in May aimed at capping foreign ownership in the mining, finance, media and telecommunications sectors

Bids above $75-million or involving state-owned firms like Chalco that aim for majority control are subject to scrutiny by a government panel.

Chalco has been investing in coal, iron ore and electricity projects as the profit margin for its core aluminium business shrinks.

Edited by: Reuters

Wednesday, May 2, 2012

Mongolian coal group Tavan Tolgoi eyes 2013 market debut

LONDON - Mongolian miner Erdenes Tavan Tolgoi, which owns one of the world's largest coking coal deposits, has pushed back plans for an international stock market debut to early 2013, disappointing hopes it would boost London's fortunes this year.

The state-owned group is planning to list 29% of the firm in a float analysts say could raise about $3-billion.

Chief executive Baasangombo Enebish said on Monday a listing in February or March next year was "more realistic" than 2012.

"Now we are set up to target our IPO in the first quarter next year," Enebish told Reuters in an interview.

Earlier hopes were for a listing before Mongolian elections in June, though that had already been pushed back to later in 2012.

Tavan Tolgoi is one of the largest share listings in the pipeline for the London market, whose mining sector has seen a drought of major new floats since the financial crisis - with the notable exception of commodities trader Glencore last year.

Enebish said Tavan Tolgoi, which cannot complete listing plans until Mongolia's parliament passes a key securities law, was waiting to determine the equity structure of the company after shares were distributed to Mongolian citizens, who can either keep them or sell them back to the state.

It is also hoping to advance core infrastructure projects including rail, road routes and a coal handling and preparation plant (CHPP) that should boost the value of coal it mines.

"Completion of these projects is very important for our company's valuation. That is why we plan our IPO for next year," he said, adding that building work would start this year.

The Tavan Tolgoi coal deposit, in Mongolia's south Gobi region, has estimated reserves of as much as 7.5 billion tonnes of coal, including the world's largest untapped deposit of coking coal used to make steel.

The delay to the listing will force the company to raise "several hundred million" dollars to pay for the start of infrastructure projects and other work that would otherwise have been financed from IPO proceeds. Enebish said no decision had been made, but options included a convertible bond.

The company is pressing ahead with plans for a three-way listing in Hong Kong, London and Ulan Bator, potentially simultaneously, Enebish said, dismissing concerns the Hong Kong leg could be dropped over regulatory issues. The London leg could be an issue of shares or global depositary receipts.

Only a handful of companies have listings in three cities, given cost and practical considerations.


Another factor behind the delay has been uncertainty around the western block of the coal deposit, which Mongolia hopes will be developed by foreign investors.

Last July, Mongolia said Chinese group Shenhua, US-based Peabody and a Russian-Mongolian consortium headed by Russian Railways would be given rights to the project. Japanese and South Korean bidders complained, leading the government to say the decision was not final.

A senior executive at the mine said last week Mongolia might choose to go it alone on the development of the western block after struggling for years to find the right investors.

Enebish said that though Erdenes Tavan Tolgoi had the capacity to develop both sides of the deposit, discussions between the government and the companies were ongoing. He declined to comment further.

"This investment negotiation started almost one year ago but it is not finished. (That) does not mean it is stopped completely, it is pending now," Enebish said. "From the company valuation perspective it needs to be clarified before our IPO."

He also said the company had added Barclays and Jefferies as bookrunners, bringing the total number of investment banks working on its listing to six.

Deutsche Bank and Goldman Sachs are joint global coordinators for the issue, with BNP Paribas and Macquarie bookrunners.

Tavan Tolgoi is aiming to produce between three-million to four-million tons of coking coal this year, with output eventually rising to an annual 20-million tons in four years.

While it now sells raw coking coal to Chinese offtakers like state-owned Chalco, the new plant to produce higher value-added washed coking coal is aimed at securing access to seaborne markets beyond China, namely buyers in Japan and South Korea.

Friday, March 9, 2012

Mongolian politics pushes stake sale of massive coal mine further out

Mongolia’s plans, first mooted in 2010, to sell a stake in its Erdenes Tavan Tolgoi coal-mining company to the public faces more delays over politics and regulatory problems while talks with companies to developed the western block of the largest coking coal deposit on the globe are also on ice.

The country was hoping to raise as much as $3 billion, putting the valuation for the company at $15 billion through a listing in London, Ulan Bator and Hong Kong.

Apart from the difficulties in Hong Kong (the stock exchange does not count Mongolia as one of the 20 jurisdictions from where it accepts listings from) Mongolian laws also need to be changed for a local listing of Erdenes-TT, as the company will be known.

The FT reports to complicate matters further parliamentary elections in the country are scheduled for June meaning an IPO is now at least six months away.

The privatization process will see Mongolia’s government holding a majority 51% stake after selling 19% to investors and distributing the remainder to its 2.7 million citizens although the exact ratios still needs to be ironed out and will also require changes to Mongolian laws.

Bloomberg notes that the current prime minister Sukhbaatar Batbold’s Mongolian People’s Party promised $750 (a cool million in the local currency, the tugrik) in cash to all of Mongolia’s adult citizens during the last election that put him in power.

The Tavan Tolgoi deposit – mined since the 60s – in the South Gobi desert is the world’s largest with a 6 billion tonne resource of high-quality coking coal used in steelmaking.

Metallurgical coal has been trading at around the $220–$235 per tonne level in January this year, down from record levels of $330/tonne last year.

Bloomberg is also quoting Mongolia’s prime minister as saying that Mongolia has “stopped” all talks with international miners on developing the western Tsankhi block of Tavan Tolgoi which on its own holds 1.2 billion tonnes after a shambolic bidding process that stretches back to 2007.

Some politicians are demanding that Mongolia develop West Tsankhi itself echoing calls from lawmakers last year that Mongolia get a bigger slice of Ivanhoe Mines’ Oyu Tolgoi copper and gold mine.

Tavan Tolgoi is the second largest mining investment in Mongolia behind Oyu Tolgoi. In October Ivanhoe and partner Rio Tinto dodged a bullet when the Mongolian government said it was rethinking a 2009 deal that gave Ivanhoe Mines and Rio Tinto a 66% stake in Oyu Tolgoi and that it wanted half of the $6 billion project, already more than 70% built.


Thursday, March 1, 2012

Oyu Tolgoi sucks up cash and Ivanhoe must sell off assets. Investors chase stock up 5% betting on rich buyers

After steady gains throughout the day Ivanhoe Mines (TSE:IVN) – building one of the richest copper and gold mines in the world – ended Thursday up 5.47% at $18.11 on the TSX.

Investors were reacting to a statement put out by Ivanhoe’s founder and CEO Robert Friedland on Tuesday saying the company has received “detailed, written expressions of interest on potential asset divestments that could realize significant capital to support the ongoing development of Oyu Tolgoi.”
Ivanhoe has already spent over $5 billion on the 66%-owned project in Mongolia and the mega-mine, scheduled for production in Q3, is still sucking up all of Ivanhoe’s cash.

Ivanhoe holds a 58% stake in Mongolian coal miner SouthGobi Resources and a 59% stake in Ivanhoe Australia where it has a number of copper-gold projects in various stages of development. The company also owns half of a private gold project in Kazakhstan.

Ivanhoe stock is flat for 2012 and down from a peak above $28/share reached in February last year. After Thursday’s gains the market put a value of $13.4 billion on the company.

World number three miner Rio Tinto took control of Ivanhoe Mines in January after Ivanhoe scrapped a controversial “poison pill” shareholder provision clearing the way for Rio, which already owned 49% of the Vancouver-based company, to do a complete takeover.

Rio paid $20/share for the additional 2%.

In October Ivanhoe and Rio dodged a bullet when the Mongolian government said it was rethinking the 2009 deal that gave Ivanhoe Mines a 66% stake in Oyu Tolgoi and that it wanted half of the $6 billion project.

Ivanhoe shares plunged on the news, but the firm took a tough stance and after some desperate negotiations Mongolia backed off.

Oyu Tolgoi, which Ivanhoe has been advancing for the last 8 years, is one of the biggest mining projects in the world and will help turn Mongolia into the world’s fastest-growing economy with staggering GDP growth of 35%.

73%-built, the mine is set to produce more than 1.2 billion pounds of copper and 650,000 ounces of gold each year.

While Oyu Tolgoi is nearing completion, Mongolia’s other massive resource project Tavan Tolgoi seems to be stalling once again.

Read here why investors are asked to wait once again before they can get their hands on world’s largest met coal deposit.