India Venture to Bid for Coal Block in Mongolia

The Business of Mining - thebusinessofmining.com | January 11, 2011 | 12:01 pm

“India’s International Coal Ventures Pvt., or ICVL, plans to bid for developing huge coal reserves in Mongolia’s Tavan Tolgoi mining deposit, government officials and industry executives said Thursday. ICVL’s interest in the Mongolian block comes at a time when coal and other resource sectors are seeing a wave of multibillion dollar mergers and acquisitions activity globally, much of it driven by increasing consumption in emerging economic giants China and India.

The Indian company is lining up for a tender offer by the Mongolian government scheduled Jan. 17 to develop part of the Tavan Tolgoi mine in the country’s southeast. The mine contains some of the world’s largest unexploited reserves of coking coal, a key raw material for making steel. Overall, the mine has an estimated coking and thermal coal reserves of 6.4 billion metric tons. ICVL will likely bid for a share in the mine’s western block with reserves of 1 billion tons, a Mines Ministry official told Dow Jones Newswires.”

Source: Wall Street Journal, January 6 2011

Observations:

  • ICVL has been created by the Indian government in order to secure metallurgical coal and thermal coal assets in overseas territories. The objective of the vehicle is to own 500 million tons of reserves by 2020.
  • This blog predicted increased interest for the Tavan Tolgoi deposit last week, after speculations on an Indian counterbid to Rio Tinto’s interest in Riversdale.

Implications:

  • If ICVL invests in Tavan Tolgoi with the objective of exporting the coking coal to India this will pose a logistical challenge. The coal would have to be transported to a Chinese harbour to be shipped to India, while export to the Chinese market would be much more logical. It is likely ICVL will strike a deal with trading partners to balance and fulfill the demand.
  • The strategy of the Mongolian government on commercialisation of the Tavan Tolgoi field is still very much uncertain. A partial IPO was announced in June 2010. Potentially the government will look for an international mining company to control the development together with the Mongolian Mining Corp (MMC), triggering a bidding war.

©2011 | Wilfred Visser | thebusinessofmining.com