Mongolia postpones Tavan Tolgoi IPO

By bne IntelliNews January 25, 2013

bne -

Mongolian state owned Erdenes Tavan Tolgoi has dropped plans to hold an IPO in 2013 after running into financial difficulties that have forced it to suspend exports to China.

Erdnes Tavan Tolgoi (ETT), the developer of Mongolia's massive Tavan Tolgoi coal deposit, is now hoping to raise $500m to pay off its most pressing debts and finance infrastructure plans. Ulanbataar has already agreed to provide the state-owned company with $350m.

"ETT is facing ... financial difficulties. That's why we stopped our coal transportation and export," company head Batsuur Yaichil told Reuters in an interview. "We asked for $500m to bail out our debts and finance our operations before we start our infrastructure, wash plant and water-supply project... The prime minister said the government is going to provide us $350m. It's very timely, important financial assistance."

The Mongolian government had planned to hold an international IPO of the eastern Tsankhi section of Tavan Tolgoi to raise finance for the project, but the plans have now been shelved until global markets recover and the price of coal, which dropped in 2012, increases.

ETT suspended its coal exports to China, its largest export market, on January 11. At present, the $53 per tonne Chinese customers including aluminium giant Chalco, are paying for ETT coal does not cover the $61 per tonne it costs to dig and transport the coal to the Mongolian-Chinese border, Yaichil said in an interview with Bloomberg earlier this month.

As a result, ETT has a MGT4bn ($2.9m) outstanding debt to Altangovi, which provides warehouse space on the border. As a result, Altangovi says it has been unable to buy the diesel it needs to keep the space in operation. The Mongolian government is now planning to renegotiate its deal with Chalco to bring it into line with global market prices.

Mongolia saw a decrease in exports in 2012, mainly because of the drop in Chinese demand for its coal, which accounts for over 43% of total exports. This was the main contributor to the slowdown in Mongolia's GDP growth, though the economy still expanded by 12.3% over the year.

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