East and West Tsankhi blocks of Tavan Tolgoi coal deposits both in operation

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Erdenes Tavan Tolgoi CEO: Mongolia’s debt to Chalco to be settled by next spring

The Mongol Messenger has previously reported that Erdenes Tavantolgoi JSC Company, has concluded on a negotiation to increase the price of coal of the East Tsankhi block of the Tavan Tolgoi deposits by 1.8 times or 85 percent. Since last week, an each coal price extracted from the block has been sold for USD 50 for each ton to TTJVCo - the operating company at the coal mine. This action is believed to improve the effectiveness of a contract with TTJVCo and increase a price of Tavan Tolgoi’s coal.

Erdenes Tavan Tolgoi, which is a subsidiary of the Erdenes Mongol LLC - owner of the Tavan Tolgoi deposits, is a development manager of the East Tsankhi coalfield. Newly-appointed CEO of Erdenes Tavan Tolgoi M.Ariunbold said “Chinese government’s aim to eliminate its domestic coal production is influencing the coal price and demand to remain higher and stronger. Concerning the preliminary forecast of the coal price on the index price of exchanges, a ton of coal removed from the east Tsankhi block is projected to be sold for USD 60 beginning from the first quarter of 2017”.

Mongolia has been intermittently paying off its USD 350 million debt to China’s aluminum company Chalco since 2011 in form of deliveries of coal from the East Tsankhi mine. When the contract was made in 2011, it was agreed that the base price of ton of coal to be set at USD 70 and the price would be established seasonally based on the index price of 4 exchanges located in China. “After a series of talks between a working group set-up by the Mongolian Government and Erdenes Tavan Tolgoi and the Chinese side, we have now brought the current coal price to the level that was set in the 2011 agreement. To clarify, as stated in the agreement, a ton of coal should cost USD 70, which is the payment of delivering the coal from mine to the border point. If the delivery cost is excluded, each ton of coal price would be USD 50 at the deposit”.

On the debt repayment to Chalco, CEO Ariunbold said in his interview for itoim.mn website “We are now left with around USD 80 million of debt to repay to Chalco. In the past, the Erdenes Tavan Tolgoi has been giving 65 percent of the total coals extracted from the East Tsankhi mine for the payment of the TTJVCo’s operations at the mine and the remaining 35 percent has been rendered to Chalco for reimbursement”.

In addition, the Erdenes Tavan Tolgoi has requested the Chalco and TTJVCo companies to load larger amount of coal in each shipment to China in order to repay the debt more quickly. He continued to say that if Mongolia would keep the current amount of coal on each shipment to transport to Chalco, the debt would be completed within the early spring of 2017 and after that, East Tsankhi coal would be exported to other buyers.

Another largest section of the Tavan Tolgoi, is the West Tsankhi coal. The Erdenes Tavan Tolgoi has reported that explorations at the block were resumed in order to take advantage of coal price surge and increase state budget revenue. A consortium of Mongolian companies, “SGS”, LLC, Khishig Arvin Industrial LLC and Monnis LLC has been selected as the main operator at the West Tsankhi. The developments are expected to produce 1.1 million tons of coal within the first two months and a ton coal is planned to be sold for USD 60 according to CEO Ariunbold. The total resource of the West Tsankhi mine is estimated at around 4.5 million tons.

Exploration and sales activities of the both the East and West Tsankhi mines are expected to benefit the country’s economy immensely by bringing over USD 100 million of revenue to the state budget as taxes and fees annually, creating more than 5 thousand jobs and increasing foreign currency flow of the country.

Ts.Baljmaa 

The article is featured in the Mongol Messenger's issue No. 48 for December 2.