William MacNamara The next coal frontier: Mongolia

Mongolia is quickly becoming the next great frontier for the world’s supply of coal, copper, uranium, and gold. The country is as undeveloped as the Democratic Republic of Congo, though somewhat more stable, politically — although that is not saying much.

After three years of political and corporate wrangling the government last month signed the Oyu Tolgoi Invesment Agreement, which allows Ivanhoe Mines and Rio Tinto to develop the vast copper-gold deposits in the south Gobi desert. That agreement — including the 34 per cent stake in the project awarded to the government — could be the breakthrough that allows the government to accelerate development of other resources – namely the enormous coal deposits known collectively as Tavan Tolgoi.

Possessing millions of tonnes of coal near China and Russia, Tavan Tolgoi is being fought over by state-controlled companies from both countries – while the US is apparently positioning itself as “the third” alternative. The largest US coal company, Peabody, owns acreage in Mongolia alongside Aim-listed partner Polo Resources, and has backed the US government. South Korean and Indian companies can also be seen in Ulaan Bataar vying for licenses.

Tavan Tolgoi is too big for any one company to develop alone. So the issue is how the government divides the area – in two, five, 20 concessions? – and which companies are allowed to bid. No details are known yet about the selection process or the division. But the Oyu Tolgoi agreement is expected by some to lead to answers in the next two months. Caution hangs over this expectation – Oyu Tolgoi was constantly “months away from a breakthrough” and that added up to over three years.

Promoters though continue to see Mongolia as capable of becoming another Kuwait – or, perhaps a better, analogy, Botswana: an underpopulated mineral-rich country with high GDP per capita and a government diligently overseeing public-private partnership development of the resource base.

The government of Mongolia could announce the division of its Tavan Tolgoi coal concessions over the next two months, according to people involved in developing the highly promising Mongolian coal fields .

When the government announces the framework for Tavan Tolgoi the next Great Game over securing central Asia’s resources could commence. The country’s uranium deposits are almost as rich as the coal and copper deposits. And underlying every rosy estimate of the resource base is the knowledge that much of the vast, isolated country is remains unexplored.

Related links:

Coal: the big challenge for US CO2 emissions (FT Energy Source)