Mongol hoard: HK battles London for IPO

PUBLISHED : Thursday, 20 January, 2011, 12:00am
UPDATED : Thursday, 20 January, 2011, 12:00am


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The Mongolian government is pressing ahead with an initial public offering of shares in the Tavan Tolgoi coal deposit, an immense reserve in the Gobi Desert that has an estimated five billion to six billion tonnes of coal, mostly coking and thermal.

Bankers said the deal is most likely to take place in Hong Kong, a natural market for Mongolian mining assets given the landlocked country's proximity to mainland China.

Investment banks have been asked to pitch for roles advising on the offering by January 31, said people with knowledge of the situation.

The site could be the world's second-largest coal deposit, after the Shengli field in China, according to data provider Raw Materials Group.

Asian investment bank Eurasia Capital estimates the Tavan Tolgoi deposit holds 5.1 billion tonnes of coal that could be mined continuously for 200 years.

One investment banker based in Mongolia said Tavan Tolgoi would be a much bigger listing than that of Mongolia Mining, which raised nearly HK$5 billion on the Hong Kong stock exchange last October. Mongolian Mining, which mines coking coal from a deposit in the South Gobi Desert, now has a market capitalisation of almost HK$40 billion.

An official in the Mongolian State Property Committee said in a telephone interview that the government was pushing for the float to happen before May or June in Hong Kong, London or Mongolia. 'The IPO for the Tavan Tolgoi deposit is in preparation,' he said.

Because the Mongolian exchange is too small to accommodate such a large listing, Hong Kong or London makes more sense.

The Hong Kong stock exchange, which wants to turn itself into a mining hub by attracting listings from mining entities outside China, is facing intense competition from the London Stock Exchange. LSE officials recently flew into the country to discuss the deal.

The official said current plans call for the government to own half the reserves. He said some of the coal will likely be distributed to the Mongolian public for free.

'How that would be carried out is still under preparation and it requires a lot of work,' he said.

One investment banker said the Mongolian government is most likely to list Erdenes Tavantolgoi, or Erdenes TT, a company directly overseeing the business of the Tavan Tolgoi coal deposit.

This is the latest plan for Tavan Tolgoi. Mongolia has changed its strategy to develop the deposit several times.

It first decided to sell 49 per cent of the deposit, but cancelled an auction in February this year after Mongolian politicians worried this would cede too much of the nation's wealth to foreign miners.

The government then said it would retain 100 per cent of Tavan Tolgoi and employ a contractor to develop the mine, before realising it could not afford that option.

Early last month tender documents went out to international miners, which are now vying for contracts to operate the mine.