Reuters reported that Mongolia’s government will soon hire an investment bank to sell part of a massive coal mine valued at around USD 2 billion in a historic deal that could bring a windfall to the sleepy country of windswept grasslands.

JPMorgan and Citigroup are among the banks in the running for the mandate. The government is likely to choose multiple banks to run the auction.

Tavan Tolgoi, often called the world’s biggest untapped coking coal deposit, holds a coal reserve of 6.5 billion tonnes in the landlocked country’s Gobi desert.

BHP originally won the right to develop Tavan Tolgoi in the 1990s, but found it to be uneconomical at the time and returned the license to Mongolia where annual per-capita income is about USD 1,200. The successful sale of Tavan Tolgoi could hand Mongolia between USD 1 to USD 2 billion plus ongoing revenues from its majority stake in the mine.

The Mongolian government, which is aiming to pull the country out of poverty with its uranium, lead, zinc, copper, gold, and coal deposits, will own not less than 51% of Tavan Tolgoi. It aims to offload up to 49% to a global mining giant.

Media reports have named a range of potential bidders such as Chinese coal giant China Shenhua Energy, Japan’s Itochu Corporation, Peabody and BHP Billiton. But a deal for the asset is not without its hurdles.

Analysts say uncertainties cloud what could be good timing and strong prospects for mining firms on the hunt for Mongolia’s untapped assets.

Mr Andrew Driscoll, head of resources research at CLSA said that “The prospectivity of the geology relative to the amount of exploration work that the country has undergone make it a hugely exciting prospect as a new frontier for global mining companies.”

Mining accounted for 33% of Mongolia’s gross domestic product in 2007. It now faces a 2009 budget deficit as the global financial crisis roils markets and hits commodity prices after several years of rising prices brought unprecedented revenues to the government.

sourced : Reuters

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