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Mongolia pulls plan again to triple-list coal mine

Poor prices and demand for its steel-making commodity means Erdenes Tavan Tolgoi will have to wait a year before trying to raise US$3 billion

PUBLISHED : Wednesday, 31 October, 2012, 12:00am
UPDATED : Wednesday, 31 October, 2012, 3:18am

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Erdenes Tavan Tolgoi, a Mongolia state-owned developer of one of the world's five biggest mining projects for coal used to smelt steel, has been forced to again delay its three-city initial public offering that aimed to raise some US$3 billion due to poor coal demand and prices, according to a senior executive.

The global shares offering and planned Mongolia-Hong Kong-London listing of the developer of a mine that aims to supply a quarter of Asia's coking coal is unlikely to happen before September next year, said Erdenes chief operating officer Graeme Hancock at the sidelines of the Mongolia Investment Summit.

"The feedback from the [newly elected] government is that the IPO timetable is now driven by commercial rather than political [considerations]," he said. "But this will depend on the market and it will unlikely go ahead until we see a strengthening of coal demand in China, which is unlikely until next September."

The IPO was originally slated for June this year. With its repeated delays, Erdenes will seek to raise at least US$600 million potentially via loans and bonds to fund mining infrastructure construction, he added.

Other issues that will affect attractiveness of Erdenes' shares offer include how soon the Mongolian parliament will pass a new securities law to replace an outdated one.

In addition, investment sentiment will also be affected by whether Ulan Bator will amend recent unpopular legal restrictions on foreign investment in mining that resulted in a decline in investment, and whether politicians' call for renegotiation of mining investment agreements with foreigners will be silenced, he added.

Under the outdated law, regulation and corporate governance standards over listed firms are considered too lax to meet requirements by Hong Kong Exchanges and Clearing for companies to be dual-listed in Hong Kong and Mongolia.

Ahead of Mongolia's election in June, Ulan Bator hastily passed legislation in May that increased government scrutiny and imposed ownership ceilings for foreign investment in strategic assets in the nation's mining, media and banking sectors.

It was initiated by nationalist legislators after mainland mining giant Chinalco's bid to take a 60 per cent stake in Canada and Hong Kong-listed coking coal miner SouthGobi Resources.

Christopher de Gruben, manager partner of real estate investment firm MAD Investment Solutions, called the restrictions a knee-jerk reaction and poorly devised. "Worsening corruption, increasing bureaucracy, legal uncertainty, failing infrastructure, lack of skilled workers are all becoming increasingly serious issues," he added.

The eastern section of Erdenes Tavan Tolgoi's coking coal mine is producing two million tonnes a year, behind the three million tonnes targeted for this year due to slower Chinese demand, Hancock said. It will rise to 20 million tonnes eventually.

Development rights of the western section, which is also expected to produce 20 million tonnes a year, were awarded in July to Mongolian, Russian, Chinese and American firms, but they were hastily withdrawn after Japanese and South Korean firms complained they were left out.

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