IT IS NOT KNOWN HOW MUCH WOULD BE TT STAKES AFTER RENEGOTIATIONS, IN GENERAL, ALL STAKES WILL DIMINISH IN PROPORTION AFTER JAPAN AND KOREA ARE RE-INTRODUCED BACK TO TT
To clarify recent controversy surrounding recent TT developments regarding National Security Council’s position on TT, Frontier Securities was able to determine the following:
• There are no official statements on the issue by National Security Council, President or Government. Emails requesting confirmation were not returned immediately.
According to leading Mongolian news portal news.mn on 09/13/2011, President Ts. Elbegdorj has said during National Security Council’s meeting on TT
• Members of National Security Council have familiarized themselves with introduction and materials prepared for the NSC by Working Office of the NSC. The main thing in it is that there is a conclusion that Law on Minerals, other laws effective in Mongolia, certain Parliament Resolutions, some clauses of recommendations of NSC and some parts of ideology and policy of National Security have not been implemented.
• Secondly, if negotiations are to be continued in the future duties have been assigned to work and adhere to this matters and be based on laws and national interests of Mongolia
• The main issue rising is where are national interests of Mongolia
• Also there is request from members of the Cabinet to take back the introduced document
• Therefore, we viewed that it is correct to return draft agreement introduced by the Government with materials from NSC
• Perhaps it is correct to say that in general it is not possible for the draft agreement introduced by the Government to be supported on NSC level
According to news.mn on 09/13/2011
• Draft TT agreement has been introduced to Working Office of NSC on 07/22/2011 by the Government and the Office has made research and last week it has been returned to the Government
According to news.mn on 09/15/2011,
• Based on return by NSC, TT taskforce that includes Chief of Staff Ch. Khurelbaatar and First Deputy Premier N.Altankhuyag is to make draft TT resolution compliant to Parliament’s 39th and 40th resolutions on TT and amend to version that has mining TT deposit to mine in whole
• Thoroughly review and research possibility on how to introduce Japan and Korea
• Make amendments to previously agreed stakes of 40% for PRC, 24% to USA, 16% each to Russia and Mongolia
First Deputy Premier, Chairman of DP, member of TT taskforce N.Atankhuyag said in extensive interview to news.mn on 09/16/2011
• NSC returned to clarify some issues on issue of selecting foreign and domestic consortiums
• Specifically, for example, how Korea and Japan are to be introduced. Actually, Government did not deduct Japan and Korea. Japan and Korea entered in consortium with Russia, one Korean company with China. There was a dispute within consortiums regarding stakes. So it was told to clarify again this issue. According to this, this issue is being started to be clarified.
Regarding compliance to 39th Parliament resolution
• There is no conflict with 39th resolution. 39th resolution instructs to openly select foreign and domestic invested company on a certain part of TT. The only issue that is being talked about is within this issue. All other matters of the resolution are being implemented
About splitting the deposit
• There is a confusion about this matter. Parliament resolution instructs to transferring TT licenses from Erdenes MGL to Erdenes TT without splitting. Some people understood this as instruction as not to split TT deposit itself. It is confusion between Erdenes MGL , big company that owns TT, 34% of OT and Erdenet and Erdenes TT which is a small coal company.
• 40:24:18:18 have been decided as result of negotiations such as who and how will buy coal, how and how will participate in building of a railroad, how much prepayment will be paid, which port will be used. Consortiums will invest according to this stakes. TT is not being given to foreigners. Big TT deposit is Mongolia’s, ETT has started exporting coal.
Re Japan and Korea
Since we are in between Russia and China we have no choice but to deal with neighbors. As for USA, we need its technology. And Japan and Korea will be the buyers. I don’t know how much would be the stakes after renegotiations, in general, all stakes will diminish in proportion.
• Again, all work is proceeding in TT. The only issue is issue of stakes of consortiums in one part of TT, we will renegotiate and fix whatever needs to be fixed as called for attention by NSC. There is no deadline to renegotiate the stakes as it will take some time to say to someone that his stake is now turned 20% after he has been told it would be 30%.
Frontier Securities conclusion:
1. It is still not clear from President’s quote or Deputy Prime Minister’s interview is there an issue or not on splitting the actual TT deposit. Deputy Premier ignores it as a confusion over other matter.
2. According to the Premier there was a dispute on stakes within the consortiums and now it does appear that Japan and Korea are to be re-introduced in some way or another, and as a result , “all stakes will diminish in proportion”
Chairman of Erdenes TT(ETT), Chairman of State Property Committee(SPC) of Mongolia D.Sugar briefed on September 5, 2011:
Regarding strategic investor
• On western Tsankhi deposit there is a possibility that Shenhua, Peabody, Russian Railways, Japanese and Korean companies will cooperate
• Currently mentioned 40:24:36 stakes are not the final version
• There was no any kind of official decision to exclude Japanese and Korean companies, the Government has no such position. This could have been arisen from mentioning only consortium leaders. All will participate in selection starting on august 8,2011. It is also true that Japanese and Korean companies are not making any solid and needed proposals other than buying coal.
• Russian railways proposed majority ownership of railroads according to 1949 agreement. Of course, it is impossible to accept. It would be fair for state of Mongolia to own 51% of railroad, preferably all main road network and sell 49% through stock exchange and have Russia, Korea and China participate . I hope there will be results from negotiations over 1949 rail agreement. Historical conditions have changed since 1949
Regarding contract miner
• SPC announced two times tender for contract miner for eastern part of Tsankhi
• As a start Macmahon was selected
• When this was introduced to Government it was postponed due to need to thoroughly examine if there any potential conflict of interest with Leighton
• As a result of investigation it has become clear that Leighton owns 19% of shares of Macmahon
• However, anybody can buy shares of open company and it should be thought over if whether this would qualify or not for abovementioned issue
• ETT started exporting and will work to reach 1.3Mtpa this year
• Foreign technology and technical equipment is needed to ramp up production
• Most importantly, reputable contractor is important for IPO, ETT is known only in Mongolia at the moment
• Work has been started, contract miner will be added
• If possible even two contract miners will be selected, that’s not the most important part
On 10% par value shares to enterprises
• We will fulfill decision of MP-s what they will decide about 10% par value TT shares to enterprises
• It could be better to sell 10% with the 29% for the IPO and distribute to citizens proceeds
COAL INDUSTRY - OFFICIAL BACKGROUND
Minister of Mineral Resources and Energy D.Zorigt has said on COAL MONGOLIA 2011 Conference on February,2011
• probable coal reserves of Mongolia are 162B tns including 30B validated.
• Domestic coal prices will be liberalized by 2014.
• Consolidation within the industry will be supported.
• In line with Government’s industrialization policy, enterprises “will be pressured and demanded” to increase coal processing such as washing, etc.
• Projections for coal exports are 50mtpa by 2025 and 90mtpa by 2050.”Mongolia will become one of the price setting producers in the region.”
• Interest from investment banks in TT IPO “ shows that the project is quite competitive”
Coal industry – background by Frontier Securities
COAL EXPORTS QUANTATIVE DATA
According to National Statistics Office of Mongolia YTD external trade data(as of 06/15 of 2011)
AVG COAL PRICE JUMPED 3.20% IN FIFTEEN DAYS, 94% YOY
exports are up 63% yoy to 1.77B USD and included
coal(MMC(975),MAK(private),TTL(MSE),SGQ(1878),etc) 6 788 300 tons – 634 645 000 USD,
• Value of Mongolian coal exports 2011YTD is 634.64M USD compared yoy to 228.21M USD, increase of 178%. Value of total coal exports in 2010 was 878.45M USD.
FRONTIER SECURITIES forecasts 2011F value at range of 1.8B USD
Value of coal exports in 2011YTD is 115MUSD per month and 3.84M USD per day.
• Mathematical average price of Mongolian coal in 2011YTD is 93.49USD compared to 90.59USD 15 days ago compared to 75.06 USD per ton as of 04/15/2011 and compared to 69.04USD 2.5 months ago and 65.86 USD 3.5 months ago and 60.04USD 4.5 months ago and compared yoy to 48.08 USD per ton yoy. Math average price for Mongolian coal for 2010 was 52.75USD, in crisis 2009 it was 43.05USD, in pre-crisis 2008 it was 44.29USD, in 2007 it was 35.55USD.
• The trend is line with Frontier Securities forecast in early 2011 that this up trend will be supported throughout 2011.
• Volume in 2011YTD is 6 788 300 tons compared yoy to 4 746 400 tons, 43% increase yoy. Volume is 1.23M tons per month and 41141 tons per day.
FRONTIER SECURITIES forecasts 2011F volume at range of 20Mtpa , 2015F 35Mtpa, 2020F 55Mtpa
• Volume for 2010 was 16 635 100 tons, in crisis 2009 it was 7 113 200 tons, in pre-crisis 2008 it was 4 169 300 tons, in 2007 it was 3 269 000 tons.
According to media briefing of reps of Government taskforce, State Property Committee and Erdenes MGL LLC on 1/4/2011
• TT in total has over 6B tns of coal reserves and resources including 1.4B coking coal. Those will increase when they would be transferred to internationally accepted methodology such as JORC.
• Western part of Tsankhi will be mined with strategic investor. Western part has 1.2b tns of coal,65% coking coal.
• Eastern part of Tsankhi has 1.07b reserves,78% coking coal. It will be contract mined for initial 5-10 years,then by Erdenes TT itself
• Erdenes Tavan Tolgoi(ETT) LLC, subsidiary of Erdenes MGL LLC, possesses TT licenses
STATE POLICY ON TT
According to interview of Prime Minister of Mongolia S.Batbold to major Mongolian daily “Unuudur” in 2011, he
• sees “mining of TT and stable operations in a very short time, specifically, within this year. This must be done as a model project.” in contrast to operations of Mongolian SOE-s that “ are not open, they are closed. Basically, there is no public supervision, profitability is poor.”
• views that “TT must become world standard, model company, suited to modern market conditions”, brings up example of Rio Tinto, “which bought most of shares of our OT”, stresses transparency and corporate governance.”
• says that TT “will follow model of Chinese SOE-s” that in 90-s were completely closed, had poor profitability and were transferred to market condition and IPO-ed in world financial centers and became modern corporates
• “this is the reason why we were are doing management contract with LSE and aiming to develop MSE to modern standards. Then we will pull flows directed at TT from world’s major markets.”
• “Erdenes TT must become first of Mongolian champion companies. Operations will be brought to stable level and price of shares to be given to citizens will be clear within this year. Interests of citizens and national enterprises will be equal, there will be no preferences and no special group interests. Mongolian state stake and control will not be reduced from 51%, Government will adhere to strict position on this issue”.
• regarding distribution of TT shares to public cautions against endless perfectionism that “ might slow down progress”, “best available option should be chosen now” and improvements done “ down the road”
TT STRATEGIC INVESTORS
On 07/04/2011 Government of Mongolia stated that
• Participants were able to reach agreement on all conditions such as amount of stakes
• It has been agreed that Shenhua Group is to own 40%, Peabody 24% and Russian-Mongolian consortium 36%(18:18)
Frontier Securities view that choice of Shenhua is related to recent Government statement regarding PM’s recent visit to PRC
• “ Policy is adhered to introduce interests of neighbor countries in a sense that TT has significance of to be resolved together with issue of markets and transit transportation
• In general, PRC is main market for OT and TT therefore Mongolia will support participation of PRC enterprises, in this sense active participation of PRC-supported Shenhua in international consortium to implement TT project has been discussed”
• Peabody Energy(NYSE:BTU, ,mkt cap 15.95B )
is world’s largest private coal miner. It will be the first major US corporate to do large-scale business in Mongolia . USA has strong interest in it as it was reported that it was discussed on high level during President Elebgdorj’s visit to the USA. Official announcement of BTU is in line of Mongolia’s current foreign diplomacy direction for third neighbor to balance Russia and China and is in line with already established partnership with Canadian Ivanhoe Mines and Australian-British Rio Tinto on OT. It appears that BTU is competitive on investment condition, prepayment issue, sales and marketing of coal, which perhaps compensated other “counterconditions” that Mongolia is looking for and that include transit transportation, transit transportation customs discounts, access and use of ports, etc and etc. It will be be exciting to see BTU work on Russian standard gage railroads.
Moreover, Frontier securities views that BTU will be good major corporate partner for Mongolia because it would be best positioned to develop TT as world class mine with the best-in-class technology and with highest global safety and environmental standards, highest standards of productivity in mining as compared to any competitor in the world and ability to brand “TT coal” to the rest of the world with best price by using global sales and trading expertise and doing it all responsibly, in a way that keeps the highest standards of safety, environment, social and community development.
• Russian-Mongolian consortium which apparently replaced previous Russo-Japanese-Korean Consortium was led by Russian Railways and also included Russian biggest coal miner Siberian Coal & Energy
This consortium is helped by existing Russian standard gage railroad, priority Russian standard gage railway policy including TT-Sainshand-Choibalsan Russian gage railroad priority stage, Sainshand industrial hub. Russia was ahead of China in offers to Mongolia’s “counterconditions”. It would be interesting to see how a number of issues and distance to Russian railroads/ports will be resolved
According to latest statement of Korea’s energy ministry, Mongolia picked a newly formed Russian-Mongolian consortium and excluded Korean and Japanese firms in a "unclear and unfair" manner.
Frontier Securities conclusion:
We believe that Mongolia’s choice on TT strategic investor tender is ideal victory for Mongolia geopolitically which perhaps will translate in significant geopolitical stability for TT investors. In our view it signifies major progress
- Mongolia has become genuine strategic partner with PRC
- Old strategic alliance with Russia is not forgotten
- Third strategic neighbor USA is brought in
TT IA WITH STRATEGIC INVESTORS
• On 07/04/2011, Government of Mongolia stated that Cabinet meeting discussed draft TT IA, GOM TT taskforce head introduced draft’s final version, Cabinet meeting evaluated work of TT taskforce as good work, the draft IA is to be introduced to National Security Council and to submitted to Parliament coming Wednesday(today)
• Investors to directly issue to Mongolia non-refundable 500M USD and prepay 500M USD
• Besides all taxes and fees to pay to Mongolia, Erdenes TT is to be paid 5 per cent payment from sales income minus transportation costs
Transportation and infrastructure
TT Paved road
Paved road state policy
Government of Mongolia(GOM) stated on May 25,2011 on coordination of productive development in Gobi by united policy
• “PM assigned GOM to work with integrated policy because development of South Gobi is connected inseparably to national development
• In particular, mining enterprises are not to build separate roads for themselves but it is correct to unite capital and resources and build one road
• PM stressed that GOM must coordinate this with united policy
• PM instructed taskforce headed by First Deputy Premier to introduce to Cabinet priority and mid-term plans for sectors such as power, infrastructure and urban development
• The taskforce will boost work of Strategic Plan on South Gobi Development and general developments for plans for Tsogttsetsii(TT), Khanbogd(OT) and Gurvantes(MAK, SGQ) soums/villages and resolve infrastructure and urban development in integrated manner
• Attention will be paid to work of boosting paved road work of Mandalgobi- Dalanzadgad(provincial capital) 163 km, Dalanzadgad-TT-OT 251 km, research and resolve Gurvansaikhan airport, TT-Dalanzadgad 110kWt power transmission line
PM instructed and assigned duty to South Gobi provincial administration
• to eliminate in short time discrepancies and conflicts in the province arising due to reasons such as treating work from private benefit and interest viewpoint, incorrect information and misinterpretation of the law
• Make operations of TTL open and transparent, if necessary change structure, organization and management of TTL
• Have TTL participate in great productive development
Cabinet members criticized that administrations of Khanbogd and Tsogttsetsii are not vacating the land for several months during construction of water line for productive development saying the license possessor is not permitting it
• It has been touched upon during Cabinet meeting that if necessary all options should be considered such as accounting responsibility and freeing from position
• Provincial Governor promised that land issue will be resolved within 28th of this month and reply will be given
The Governor said that building railroad is the most correct resolution due to negative environmental and social impact of coal transportation.
Cabinet members view that enterprises that extract coal and transport and yet don’t build paved road and pay expenses such movement of seasonal herding area and water wells should be expelled
PM firmly called attention in the conclusion – “ Work adhering to principle that government policy absolutely must not whatsoever get mixed up in private interests and politicization in medium and lower levels of the government”.
State Property Committee of Mongolia (www.spc.gov.mn) has announced on 03/11/11 competitive selection for BOT 435 km paved automobile road concession with route TT-Khanbogd-Khangi
• Khanbogd is soum(county) center 40km from OT
• Khangi is border crossing to PRC/Mandula roughly 220km to east of major current border crossing Gashuun Sukhait/Ganqimaodu(used by MMC, TTL, etc) 100 km southeast from Khatanbulag soum(county)center of Dornogobi province(to the east of Umnugobi province), 275 km from Zamyn Uud. It is used locally and Mongolian iron ore exporter Monlaa and southward in PRC direction is Baotou.There is a rail from Baotou till Bayanoboo and rail is planned to from Bayanoboo to Bayanhua, some distance from Mandula/Khangi
• The road is to be used for minerals and public transportation
• MMC expects completion of its paved road from TT/UHG to Gashuun Sukhait/Ganqimaodu by Q2/Q3 2011.
• OT LLC(66% IVN)has recently closed accepting tender bids for construction of 105 km paved road from OT to Gashuun Sukhait/Gaqimaodu which is to be a part of state A0203 highway from Tsogtsetsii(TT county center)-Gashuun Sukhait/Ganqimaodu and to be started to be constructed in spring 2011 and compeleted by August of 2012.
Paved road issues
• Temporary Suspension on TT gravel road used by coal miner MMC has since been lifted on 14 May 2011 after the road was suspended on April 19,2011
• In case of ETT, state would be a stakeholder user of TT roads
On 07/04/2011 Government of Mongolia stated that
• Agreement has been reached on issue of railroad to the south and to the eastern border
On 3/28,2011 when Russo-Korean-Japanese TT consortium was valid
• Lotte Engineering said that the $3.0 billion preliminary deal to build a 1,040-kilometre (650 miles) railway linking TT-Choibalsan(connected to Russian rail network)between Korean consortium and Mongolian Railway was signed in Seoul on Thursday, adding that work is planned to begin next year.
• Besides Lotte Engineering & Construction,the consortium includes the state-run Korea Rail Network Authority and top builders such as Daewoo Engineering & Construction and Hyundai Engineering & Construction
It was followed by Government of Mongolia which stated on 03/24-25/11, that
• “ Mongolian side has expressed that it will support major Korean investment into productive development of a deposit of strategic significance and infrastructure surrounding it”
• Prime Minister S.Batbold has said to President of Republic of Korea Lee Myung-bak “ We support participation of major Korean companies in productive development in our country” while President Lee has said “ Operations and investment of major Korean companies in Mongolia has significance of creating more jobs.”
The Korean rail consortium proposal was possibly likely to support TT strategic investor bid by shortlisted Russo-Japanese-Korean Consortium led by Russian Railways and that includes Russian biggest coal miner Siberian Coal & Energy, Korean state body Korea Resources, POSCO , Korean utility firm KEPCO , trading firm LG Corpand Daewoo International, Japanese trading houses Itochu Corp ,Sumitomo Corp, Marubeni Corp and Sojitz Corp.
It would remain to be seen , in view of Frontier Securities, whether Korean offer would still be on the table now.
Mining expert Dr. Graeme Hancock has commented to Frontier Securities at that time
• “Tying the TT mine to the rail transport will make it an incredibly complex deal to complete, given that it will need to have terms and conditions in it relating to the pricing of coal, freight rate tariffs, rail financing and transfer, rail regulation, shared access and the like. It is likely that any deal structured in this way will take a long time to negotiate the details.
Presentation of James A. Reichert, Senior Infrastructure Specialistat the World Bank Mongolia at COAL MONGOLIA 2011 on 02/25/11 stated:
“Challenges in Transport System
No appropriate systems in place to transport mineral resources to market
• Building Railway from TT to Sainshand and beyond creates its own set of challenges:
Likely to impact negotiations for TT
Funding to construct new line not secured - at least $1 billion to Sainshand, likely more
Tied in with development of Industrial Park at Sainshand - viability still being assessed
Could delay large exports of coal by rail for three or more years
• Years after completion, China likely to remain primary market for Mongolian resources:
RRs in eastern Siberia likely to require upgrades to accommodate large quantities of exports
access to Pacific ports questionable – privately-owned/controlled by local municipalities
tariffs for int’l freight transiting Russia 3xs higher than for domestic freight
• Decision taken to build railway, but market response is to build roads south
• TT to Sainshand Railway is now policy - could prove to be beneficial over long-term, but skepticism remains:
carry out internationally recognized feasibility study and make public the results and reasoning (as for IP)
assess best technical and financial options
• Conclude cross-border transport agreements (define requirements), negotiate L-T access to neighboring rail systems and seaports
On 07/04/2011 Government of Mongolia stated that
• “300X2 or 600mWt power plant is to be built”
On 5/18/2011 6:25 PM Government of Mongolia(GOM) stated:
• Cabinet has assigned to the Minister of Mines to resolve issue of building major Thermal Power Plant (TPP) to resolve power supply in Gobi within June 2011 and start work within 2011 in order to stick to schedule of construction, begin extraction in nearest future and support budget funding
• GOM has decided to bring up duration of building TPP closer by 4 years to 2012 and start construction as urgently as possible, the construction is possible to start in 2012. The plan was to commission TPP in 2016-2018. The Ministry has received a duty to decide within June where to build TPP.
• GOM taskforce consisting from reps of ministries and agencies is researching two options to build the TPP either at OT or TT
• If TPP is to built in TT it is needed in short time to resolve long term water issue, additional f/s, Technical and Economical Justification(TEJ), EIA, etc.
• OT LLC is interested in building the TPP at OT and has made to certain degree related preparations such as water, EIA, TEJ
• Because it is necessary to import power for OT construction from PRC the Ministry has given permit to build 220kVt transmission line and substation from OT to PRC border
• However, OT investors have requested from GOM support on issue of land for waterpipes and power transmission lines and on issue of construction short-term power supply and TPP
• It is planned to discuss the issue in Beijing on 5/30-5/31 of 2011 at mining and energy sector consultations between of Mongolia and PRC
It appears, in opinion of Frontier Securities, that it has been decided to build major regional TPP at TT.
TT Value added
On 07/04/2011 Government of Mongolia stated that
- “It has been agreed to build value added plants such as CTL and coking plants”
Di TT Diesel
Recently during diesel crisis, the Minister of Mines stated that “In general, diesel supply has stabilized, major mines at OT and TT have been fully supplied diesel” therefore we expect no significant disruption of diesel particularly applicable to TT.
TT FREE SHARES TO MONGOLIAN CITIZENS
ON 6/23/11 Cabinet meeting has supported in principle bill by MPs to invalidate sale of 10% of Erdenes TT shares to national enterprises and instead add it to 10% to be owned by all citizens
Most recently, Chairman of Board of Directors of Erdenes TT, Chairman of State Property Committee of Mongolia (SPC) D.Sugar briefed local media:
• 536 TT shares to be distributed to all citizens are ordinary shares, price will be determined at the time of Erdenes TT IPO and shares will be allowed to freely traded when price will stabilize. Ordinary shares are guaranteed by assets of the company. Citizens can vote and participate in decision making based on number of ordinary shares.
• SPC also introduced to GOM to restructure Erdenes MGL in accordance with Law on Human Development Fund of Mongolia. Erdenes MGL has 100 thousand ordinary shares. 15 daughter companies with strategic signifances are related to Erdenes MGL. For example, Erdenes MGL owns 51% of Erdenes TT and 34% of Oyutolgoi LLC, to own 75% of Baganuur Coal mine and 90% of Shivee Ovoo coal mine. Next strategic deposits will be enter in stages. Erdenes MGL will be major bountiful corporation.Dividends from all those companies will be pooled at Erdenes MGL and Parliament will decide annually how to spend those dividends, how much to distribute to citizens and how much to re-invest.
• On top of 100 thousand common shares of Erdenes MGL, Parliament is deciding to issue 3 million preferred shares of Erdenes MGL enough for all 2.8 citizens of Mongolia. Remainder of 200,000 preferred shares will be issued to new citizens to be born. Population of Mongolia increases by 40-60 thousand per year, those 200 thousand shares will be sufficient for 3-4 years. However, distribution of preferred shares and payment of dividends will be not happen shortly. TT and OT have not started production yet, dividends from Baganuur and Shivee ovoo are small . Citizens can understand that when OT and TT will start production they will start getting dividends from preferred shares, perhaps in 2-3 years. Preferred shares are issued for many reasons and this time it is to distribute dividends to citizens. Preferred shares are not guaranteed by assets and votes in the company.Parliament will decide how much money to pay as dividend to preferred shareholders. GOM supported our proposal and soon will make final decision next week.
• At the moment three independent directors on Board of Directors of Erdenes TT Directors J.Batzandan, Dondov and Ochirkhuu will represent 2.8 million citizens. Next this issue will be improved further with our main goal and criteria being high education level,strengthening corporate governance and non-politicization.
At that time, Government of Mongolia has stated:
• “Historic decision has been made today that every citizen is indeed an owner of TT deposit
• Each of 2796341 citizens will receive 536 shares, 1.5B shares will be divided
• Strategic deposits will be put into production in stages and profit from natural resources will be distributed in fair, equal and inclusive manner to every citizen
• Exact price of the share will be determined at the time of global IPO of Erdenes TT
• To protect citizens from risk, citizens will not be permitted to sell shares until price of shares will stabilize in realistic manner after extraction and coal exports stabilize, paved and railroads, power supply resolved and construction of CHPP started
• GOM will regularly inform about the process of putting TT into production in order to make it transparent, open and understandable
• However, citizens being shareholders must be responsible themselves, exercise supervision, this possibility will be opened to each citizen/shareholder, mistakes of past privatization will not be repeated
• State and Government will pay attention to knowledge and education of citizens/shareholders about capital market and citizens/shareholders should do their best as well
• TT project will be developed as model for future projects
• Distribution of TT shares will be organized by State Property Committee, State Registration Agency, Central Depositary of Securities Payments and Clearances and Labor, welfare and service Agency.Record of shareownership is to be made at Human Development Fund recordbook of each citizen
• Next steps of many work to be done is selection of investor and contractor, preparation of Technical and Economical Justification(related to feasibility study) and IPO on MSE and international stock exchange
In March 2011, Chairman of Board of Directors of Erdenes TT, Chairman of State Property Committee of Mongolia D.Sugar briefed major Mongolian daily “Unen”:
• “We are ready to distribute TT shares to 2 785 969 citizensof Mongolia.Each person will receive 538 shares.
• 53336 enterprises will be allocated 28123 shares each
• Other information is not confirmed yet as Government(GOM) has not made yet official decision, but in preliminary manner it is being discussed that par value of the shares is to be between 300-1000MNT
• As GOM has a duty to finish all this work in Q1 it will be clear soon
• I cannot say whether Erdenes TT shares will rise as much as listed small TT but it will reach high price. When we will start to solve infrastructure and build power plant, CHPP and railway it is possible that price will get higher. TT strategic investors too will help in all that.
• Selection of the investors is in active progress, second stage negotiations will start this week. I will not refuse possibility of third stage negotiations.
• Soon we will introduce to GOM about TT contractor, choose one from three bidders and start work
• We have not chosen by accident TT IPO managers Deutsche Bank, Goldman Sachs.they have passed requirements of evaluation committee and examination. DB and GS are indeed reputable in world organizations.
• State must provide correct information and promotion regarding shares to citizens. Regarding dividends, citizens should treat it calm and wise. It cannot be understood by citizens that they will get rich overnight.there is a lot of work to be done like commissioning the mine, recouping expenses and so on. Waiting and patience is required timewise. But once we get on solid footing indeed dividends will be paid for dozens, hundred years.”
Also in March 2011, Chairman of State Property Committee of Mongolia and Chairman of Board of Directors of Erdenes TT D.Sugar has spoken to Mongolian National Public TV
• “Distribution of TT shares is ready to proceed. A soon as the Government makes a decision, we are ready to start”
• “Each citizen is likely to receive 538 shares free of charge“
• “Each share is to likely to have nominal price of 300MNT-1000MNT”(0.25USD- 0.83USD)(total shares outstanding is 15B,total population is 2.7M), each citizen would receive free of charge equity worth 161 000MNT-538000MNT(132USD-442USD)
• “this is initial price of the share and it is likely to significantly appreciate when productions starts”
• “in order not to repeat mistakes of previous privatization when few got major assets and most were left with nothing,there will be initial lock-up period for citizens to sell”
• “Citizens should increase their knowledge of stock market, when to buy and when to sell, and state should also pay attention to that”
• “Distribution of shares to citizens is in decisive stagewhile sale to national enterprises is to be hold off for short time”
• “Very soon it would be possible for citizens to buy more TT shares on MSE “
During this time , CEO of Erdenes MGL and current CEO of Erdenes TT B.Enebish has said to local media that investment banks to do IPO of Erdenes TT have already started their work, namely, joint sponsors and lead managers Deutsche Bank and Goldman Sachs and selling agents BNP Paribas and Macquarie.
“ Contract is a contract.”
”The work has started since the day an authorization was given to banks.” “Train indeed has departed”
Also in March 2011, Chairman of Board of Directors of Erdenes TT, Chairman of State Property Committee D.Sugar briefed local media :
• officially confirmed that Erdenes TT shares(10%) will be distributed to all citizens free of charge before National Holiday Naadam(July 11,2011)-” It can be understood this way”
• informed that “pricing for TT shares will be determined in Q1 of 2011. For that, first, TT deposit should be appraised and this must be done by most reputable, experienced company. This will create confidence in our company’s shares.
• Selection of investment bank is proceeding most actively. First, we thought of prequalification, but now we have no time, so we will choose right away. There will more than 1 bank because it will be needed to raise 2-4 billion USD. It can be understood that 3-4 banks will be chosen.
• By mid-next week we probably announce results. Selected banks will work with us on appraisal and announcement of pricing per share. This is first work for us.
• Second work would be ensuring preparation of distribution of shares to citizens and selling to enterprises, after Government makes political decision, the distribution and sale will be started.
• It is being discussed whether for shares be common or preferred as not to repeat failure of last privatization when only few got assets and remainder left without nothing. It will closed for some time to sell distributed shares, but it will be open to buy additional shares through MSE.
• As for national enterprises, as soon as secondary trading will start, they can sell and buy just like any other stocks. After IPO and price is set, trading in TT shares will be open. After citizens will understand shares and stock market well, it will be permitted for them to sell TT shares too. In future, Erdenes TT will become of the top listed mining companies in the world with significant value. Preliminary valuation is over 10 billion USD.”
• Mr.Sugar talked in detail on proposed scheme of opening accounts at Securities Clearing House and Central Depositary and brokerages.
In February TT developments, according to local media,
• Tender for contractor has been closed on 1/27/2011 and tender for strategic investor has been closed yesterday,01/31/2011.
In January 2011,
Deputy Premier Altanhuyag, Head of Government TT taskforce, which includes Minister of Mines Zorigt,Finance Minister Bayartsogt,Minister of Infrastructure Battulga and Chief of Staff Khurelbaatar, briefed today:
• every Mongolian citizen will be issued 550 shares of Erdenes TT
• every national enterprise will be sold 30,000 shares at nominal price, prelim estimate is that there are 43K national enterprises, but if more than 25% of an enterprise is foreign-invested it will not be considered "national", enterprises should not have any violations such as tax debts, then enterprises are free to resell the shares.
• also repeated are 2011 goals of Erdenes TT reported earlier, such as to extract and export 2-3M tns of coal, to raise project financing,cooperate with international investment banks and advisors to prepare for IPO on international and domestic stock exchange, start work on CHPP, water supply,modern miners camp,power plant and automobile road.
Parliament’s Standing Committee on Security and Foreign Policy has issued resolution that week directing Government to negotiate with enterprises with IA-s including Erdenes TT(IA not established) to apply newly approved progressively increasing royalties to them.
Reps of Government taskforce, State Property Committee and Erdenes MGL LLC had joint media briefing on 1/4/2011 about TT progress.
• Erdenes Tavan Tolgoi(TT) LLC, subsidiary of Erdenes MGL LLC that possesses of TT licenses, has 15B shares. Government Chief of Staff has stated that work of having all Mongolian citizens own 10% of the company, and sale of another 10% at nominal price to Mongolian enterprises will be organized in Q1 of 2011, while First Deputy Premier has stated that work of IPO-ing 29% on MSE and foreign stock exchange will implemented in 2011 in stages within 1 year due to its importance and urgency.
• Tender for contract miner of Erdenes TT mine or eastern part of Tsankhi of TT deposit is continuing.
• As of end of 2010 0.5 cubic meters of soil has been stripped and layer of good quality coal is being reached.Exports will start in nearest months, it is planned to export 2-3m tns of coal in 2011
• It is planned in 2011 to raise project financing,cooperate with international investment banks and advisors to prepare for IPO, start work on water supply,modern miners camp,power plant and automobile road.
• First Deputy Premier stated that Government policy is to supply TT coal to Sainshand industrial hub and export value added products to third markets.
• Chief of Staff of Government has stated that regarding participation of Mongolian companies in strategic investor tender,only SOE-s can participate in strategic investor tender.
• Minister of Infrastructure has stated that surveying for new railway route from TT is completed. Next work is Technical and Economic Justification study.
• TT coal is to be started to be exported after 1-2 months
• Erdenes TT is negotiating with winner of CEO tender, Russel Phillips, former VP of Peabody China, former rep of Anglo Coal in Beijing, PRC on CEO compensation
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