ULAN BATOR, Mongolia (AP) – Mongolia’s Cabinet has decided to review a draft agreement on ownership of Tavan Tolgoi, a potentially huge coking coal project in the Gobi Desert that has attracted interest from some of the world’s biggest mining companies.
The decision means the Mongolian government will set up a working group to renegotiate ownership and investment rights for the project with the current owners, Energy Resources LLC, S. Batbaatar, a government spokesman, said Wednesday.
Energy Resources, a consortium of 14 Mongolian companies owned by some of the country’s richest businessmen, owns the license for Tavan Tolgoi. But the passage in 2006 of a new Minerals Law allowed the government to renegotiate rights for such projects.
Tavan Tolgoi is among many mining projects caught up in Mongolia’s difficulties over how to secure an adequate share of the country’s abundant mineral wealth without scaring off foreign mining investors.
Batbaatar said the Cabinet’s decision was in response to public criticism of Energy Resources’ control of the project, which has not yet produced any coking coal.
‘The government of Mongolia trusts that it will reach an understanding with the consortium of national companies regarding this move,’ the government said in a statement.
Mongolia’s prime minister, Bayar Sanjaa, was appointed just last week. He has proposed nationalizing Tavan Tolgoi, citing public opposition to the draft investment agreement for Tavan Tolgoi.
The agreement, which was never approved by Parliament, gave the state a 50 percent stake, with Energy Resources retaining 14 percent.
The remaining 36 percent would have been opened to international bidding, and America’s Peabody Energy Corp., Rio Tinto and China Shenhua Energy Corp. are among major mining companies reportedly vying for a stake.
Under Mongolia’s Minerals Law, the government has the right to acquire up to a 50 percent interest in a strategically important minerals deposit if state funds were used to determine the size of the reserves. It can take up to a 34 percent stake in a deposit if the reserves were proven using private funds.
Development of the project has been delayed for years.
Tavan Tolgoi was discovered in the 1950s, when Mongolia was a Soviet satellite. The country made a peaceful transition to democracy in the early 1990s.
Mining giant BHP Billiton earlier held rights to the project but judged the deposit too expensive to develop.
In recent years, the construction of transport links with China and surging prices for coking coal have combined to make it more attractive.
‘We are looking forward to negotiating with the government and developing this deposit,’ said S. Odjargal, president of MCS Group, one of Mongolia’s largest private conglomerates and a major shareholder in Energy Resources.
He defended the company’s handling of Tavan Tolgoi, saying his company acquired its license for the project legally and had invested in research and feasibility studies.
‘We have not have exported a single shovelful of coal and have no intention of selling the deposit to foreign companies,’ he said.
AP Business Writer Elaine Kurtenbach in Shanghai contributed to this report.
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