According to leading Mongolian daily “Unuudur” on October 27,2011, First Deputy Premier of Mongolia, Head of Government TT taskforce N.Altankhuyag  has said


Regarding latest TT strategic investor situation after National Security Council has returned results of the tender and recommended renegotiations


  • Negotiations have started. Some of the companies have changed their positions from what has been agreed in the previous negotiations. Therefore, there is a need to continue negotiations.  In principle we gave lower scores to companies who have not offered substantially favorable to us proposals
  • Government is paying attention to positions of participant companies on major productive development in Mongolia. During previous negotiations, Japanese and Korean companies were saying something like “it is problematic to build major plants in Mongolia because of few population”. Then when we proposed to them increase the amount of the prepayment they did not say favorable amounts.
  • Now Government is asking the companies to increase the prepayments
  • Russian/Japanese/Korean consortium is not broken. We asked Japanese and Korean companies. They stated that they are together with Russians. Therefore stakes should be negotiated with Russia. If they are separate they can discuss stakes with our Government. It is understandable that Mongolia is not going to give stakes to whoever requests them. Most important is what would be benefit for Mongolia, decision would be based on that.
  • Perhaps if Russian stake will increase from 18%, then Mongolia will have to share with Japan and Korea from its 18%
  • Japanese and Koreans indeed have started to offer  more favorable conditions. In this case, there could be an option that Mongolia can give a certain share.
  • The taskforce is firmly protecting Mongolia’s interests. We don’t want always to export raw materials. We are making many requirement such as coking plant. Indeed we want to sell TT without any garbage left.
  • 40% is given to China not because it is neighbor country but because we have agreed on many favorable to us conditions such as purchase by Chinese side thermal coal, construction and becoming customer of a power plant and so on.
  • I don’t think that only Mongolian stake should be touched. Peabody Energy’s 24%, Shenhua Energy 40% could be deducted some as well. Indeed the only way for one side’s stake to increase is the other side’s stake to decrease
  • This is not back to starting point, negotiations have continued for many months, only the stakes are being negotiated again
  • For any party this is not an easy situation , some participants are not happy their stakes are to decrease from what has been settled before, some are perhaps encouraged that they are persisting to increase their stakes
  • We will give bigger stakes to whoever proposes most favorable condition to Mongolia, who has more capital, who is good partner.
  • Russia offered to increase its investment to railroad, Japan and Korea are offering to bring best and latest technology
  • TT train has departed, the only issue left is for have the consortium of five countries, USA, China, Russia and Korea to operate. It’s these five countries because they will bring confidence in TT in world financial market. During TT IPO in March-April of next year these companies will guarantee by their reputation price of TT shares. Only in that case 536 shares to come to hands of Mongolians with have a strong price.


In related news on  Oct 26, 2011, according to Reuters, “a contentious investment agreement on Mongolia's huge Tavan Tolgoi coal deposit needs to be completed within three months to ensure that a much-heralded initial public offering for the project goes ahead on time, a legislator told Reuters on Wednesday.


An initial plan to grant 40 percent of the western section to China's Shenhua Group, 36 percent to a Russian-Mongolian consortium and 24 percent to Peabody Energy Corp of the United States was rejected by the Mongolian Security Council (MSC) and branded as "unfair" by bidders from Japan and South Korea.


A new deal is currently being thrashed out, and is expected to give a 33 percent share to a Peabody-led consortium that will include Japanese and South Korean firms. Any agreement will require MSC approval before it is finally submitted to parliament.


Graeme Hancock, chief operations officer with Erdenes Tavan Tolgoi, the state-owned entity in charge of the project, told the conference that the scale of the IPO for the eastern block would depend on the investment agreement.


"Once the terms of engagement on the west block are clear, that will have an impact on the IPO valuation," he said. "I am hoping there will be resolution on this in the very near future so this can be built into our future cash flow."


Terbishdagva said that if an agreement was not signed within three months, the international IPO would have to wait until after Mongolia's parliamentary elections in June.


Government ministers have continued to insist that the IPO for Tavan Tolgoi's eastern block will go ahead in the first or second quarter of 2011.


Tavan Tolgoi has already short-listed BNP Paribas , Deutsche Bank , Goldman Sachs and Macquarie as advisers on the IPO, which some say could raise as much as $15 billion.


Hancock said there were still a number of uncertainties about when and where the listing will take place -- with the state of the global economy also a consideration.


"Clearly one of the issues is what the market is like at the time," he said. "To a degree we are probably less sensitive to market conditions than some others might be but clearly we would prefer to be listing when the market is strongest."


"I think at this point, certainly we would like to be listing during next year and earlier next year would be better. But basically we don't have a fixed time at this point."





Analysts have expressed concern that political jockeying ahead of next year's elections was disrupting Mongolia's economy and harming its investment climate.


Hancock of Erdenes Tavan Tolgoi said parliamentary approval of the project was unlikely to be delayed by political divisions.


"The coming elections do create some political uncertainty, but I think that there is very, very strong political support for Erdenes TT," he said.


"I don't anticipate there will be any negative political comments about us moving forward with the programme and the project."



  • Negotiations will be not easy but based on track record of Government of Mongolia on OT we expect it to be eventually resolved
  • Success of TT strategic investor tender with TT IA would be best news after OT IA
  • clearing up and clarifying TT strategic investor for western block will help the IPO, will provide better valuation and cash flows can be projected.

For further inquiries please contact:

Chief Investment Strategist

Dale Choi

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