Tavan Tolgoi: Mining

THE COMPANY: Not to be confused with Erdenes Tavan Tolgoi, Tavan Tolgoi Joint-Stock Company (TT JSC, also known by the nickname “Little Tavan Tolgoi”) is still one of the largest coal mining companies in Mongolia. Its name means “five hills,” in reference to the area’s unique topographical features. It is part of the larger overall Tavan Tolgoi deposit, which is the world’s largest undeveloped coking coal deposit and which is said to contain around 6.4bn tonnes of coking coal “reserves”.

TT JSC was established in 1966, when it received an order to “export 3000 tonnes of coal.” Currently, the local government owns 51% of the company, and approximately 4% of the shares are floated on the Mongolian Stock Exchange. TT JSC is also distinct from most other coking coal producers in Mongolia in that it does not hire foreign mining contractors – the mine is operated entirely by Mongolians. Moreover, TT JSC is assured strong local support, something which most foreign mining operators cannot always take for granted, as TT JSC has the advantage of being owned by the local government.

RESERVES: TT JSC has probable coking coal reserves of 80m tonnes and resources of around 100m tonnes. It produces high-quality coking coal, with calorific value of 6500-7500 kcal/kg, ash content of below 20%, and sulphur content of 0.5%. The company estimates 60% of its deposit to be coking coal, although this has not yet had independent verification.

Tavan Tolgoi is located in the Gobi desert, 250 km from the Chinese border. This gives it good market access to the Chinese steel producers which have been hungry for Mongolian coking coal. TT JSC first exported coal to China in 2004. By 2007, exports had jumped to 1.75m tonnes due to significant increases in capital expenditure. Production in 2010 was 5.2m tonnes, which showed a 60.3% compound annual growth rate from 2006 to 2010. As of November 2011, the year’s production had reached some 5.75m tonnes. Currently, 95% of the company’s products are sold at the Chinese market. The remainder of the output is used locally to generate electricity. (In the interest of corporate responsibility, the company sells thermal coal to locals at lower prices.) With strong demand from Chinese steel producers, coking coal prices have increased dramatically in recent years. Coupled with higher production, this helped grow company revenue from MNT95.4bn ($74.4m) in 2009 to MNT170.5bn ($133m) in 2010. As of November 2011, revenues had reached approximately MNT180.5bn ($141m).

Net profits grew from MNT42.7bn ($33.3m) in 2009 to MNT76.5bn ($60m) in 2010. Moreover, while the company generated MNT29.5bn ($23m) in taxes revenue for state and local governments in 2009, it generated MNT64.5bn ($50.3m) in taxes in 2010, and MNT140.5bn ($110m) by the third quarter of 2011. The company’s assets increased from MNT58.8bn ($46m) at the beginning of 2010 to MNT118.6bn ($93m) at the beginning of 2011.

DEVELOPMENT STRATEGY: Production at TT JSC is expected to reach 6.1m tonnes in 2011. Moreover, the company is planning to ramp up output to 8m tonnes per annum during the next two years. These are impressive amounts for a company listed on the Mongolian Stock Exchange (MSE). As a comparison, Erdenes Tavan Tolgoi (the “big TT”), which is widely expected to triple list on the London Stock Exchange and the MSE, aims to produce 30 metric tonnes per annum (mtpa) at its peak. Moreover, the Mongolian Mining Corporation (MMC), which is listed on the Hong Kong Stock Exchange, will produce 15mtpa once it reaches its peak.

In July 2011the company halted trading to prepare for a 100:1 share split. This was effectively carried out and trading resumed in late September.

TT JSC has installed equipment that dry processes coal to decrease waste and pollution, but there are no plans to build a coal handling and processing plant, which both Erdenes TT & MMC are doing.