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Confronting Mongolia’s coal mining challenges

Interview - April 28, 2014
With Mongolia finally starting to build better infrastructure in order to boost its coal exports, in an interview with United World, Mr. Batsuuri – the CEO of state-owned mining company Erdenes TT – is confident that the foreign investment needed to complete its projects will soon come flooding in
We would like to know your point of view about investment opportunities in the mining sector, aside from all the matters related to Oyu Tolgoi, the government, and private international companies. What are the potentials for investors here in the mining sector? 

Coal is one of the main commodities of Mongolian exports. Mining is almost 90 percent of Mongolian mineral products; but coal is the number one commodity. And that is why the government is trying to increase our exports and taking all the steps to support it. Still, we are facing some problems, number one being the market. During the last 2 years, the price of coal has been decreasing. However, we are still striving to overcome this difficulty.

We are sure that we are quite competitive because our mine is very close to China, who is the biggest coal importer and largest consumer. Of course, one huge advantage for us is our close proximity to the market, only 250 km from the Chinese border. Second, our mines are open pit mining, which means our extraction costs are lower. 
At the same time, we currently lack a wash plant. The country exports raw coal and there is no such benchmark price for our coal in the international coal market. Thus, we are not able to sell our coal at higher prices. Our other issue is that transportation is very expensive at the moment, and we lack railway transportation. More than 20% of the total expenses are related to the transport, and it is very expensive to transport by trucks.

That is why we are working to solve these two issues. First we have to have a wash plant and second, access to a railway. Fortunately, the railway is under construction, as Mongolian Railway is building this project. Recently, we signed a special agreement with Energy Resources and Shinhua to build a 19 km long cross border shorter railway first. Shinhua has been looking to build its own railway from the seaport up to the Mongolian border. From there, an extended railway would come into the territory and we will load our coal in Mongolia and send it to the Chinese consumers, which will save a lot of transportation costs. 
You need investors to build all those facilities. How is the government working to attract more investors and adding credibility to international markets? 

We are working with Chinese, Korean, Japanese and USA investors on financing. Several companies have expressed their interest to work with us to fund our projects. Of course, we have some negotiations and dialogues frequently with these investors. 
What are the main concerns when you speak with them about Mongolia? 

The market, which is the huge problem for everyone. Anyways, we are having a negotiation with them to create long-term cooperation with these potential foreign investors. As I mentioned, we need to build up a wash plant and a railway to produce more coal. 
You have said that right now it is a difficult time for the market, coal prices are going down, and China is the biggest power. We met with President Elbegdorj and he hold us that Mongolia is learning by doing, and it is still figuring out how to participate in a market economy. ETT has made some decisions in the past that put the market in this situation. I was wondering if that was a lesson learned, so in the future, it won’t be repeated. 

Yes, we will not repeat those mistakes again. ETT is a very important company for Mongolia’s future development. For example, the citizens of Mongolia own 20 percent of the shares, and they hold high expectations for our project. We are doing our best to ensure that the project is a success. 

Are you going to meet those expectations, for both foreigners and Mongolians? 

Yes, and it is inevitable to have FDI to complete this project. We already have interested parties, with whom we are having negotiations. In the coming years, we will succeed, complete our project, and ETT will become one of the biggest coal producers. The deposit is 7.4 billion tons of coking coal and the quality is very high for steel plants, as it is for metallurgical plants. We have a huge demand from China, the biggest consumer of coking coal. We will also send it to India, Korea and Japan. We are sure that we can compete with other coal companies in the world. 
Can you share with us more about your strategy for the next 5 to10 years? What is your strategy and ultimate vision for the company? 

Within the next 5 years, we will construct a wash plant. Secondly, we will complete the railway to the mine in order to reach end-users in China and the sea born market. Additionally, we will build 150-megabyte power plant. As for thermal coal, we will deeply process it and implement coal to gas projects in the future. 
I would like to ask, since Mongolia is still a developing country, there is a lot of potential and economic growth, as we have seen in the last decades. In 5 years time, unlike many other countries, a lot can happen in Mongolia. We have seen institutions like the State Property Committee, and public institutions becoming privatized. So, do you think that ETT in the near future could be a private company? 

Yes, in fact, it is already privatized. 20% of the company’s shares are owned by Mongolian citizens and 10% is open for ownership by Mongolian national companies. Also, we plan to make our IPO in Mongolia, Hong Kong and London Stock Exchanges by the end of next year or in 2016. 

Are you also looking to place your IPO on the Toronto Stock Exchange, as it is the biggest mining exchange in the world? 

We will see. At the moment, we are working with the London and Hong Kong exchange.  It depends on the market, and currently it seems all investors are depressed. When the market recovers, we will go to several exchanges to list our shares. 
We are launching our report in Washington, LA and also the Toronto Stock Exchange. So I would like to know, what is your message to the public, the potential investors, and anyone that is interested to know more about ETT and about Mongolia? 

ETT is the biggest project in Mongolia and it has huge deposits of 7.4 billion tons of coking coal. It is the world’s finest deposit. The market is next to us, and we are very close to the market. If investors invest in our project, they can make a lot of money.