China Moves to Acquire Stake in Mongolia’s Biggest Coal Project

Mongolia has historically remained within Russia’s sphere of influence, except for it southern regions, now incorporated into the People’s Republic of China as “Inner Mongolia.”

Now Beijing’s cash is allowing it to enter the Mongolian market, as a joint venture including China’s Shenhua Energy Co moves to acquire a 40 percent stake in the western Tsankhi block of Mongolia's Tavan Tolgoi coal project, which would give Shenhua the biggest share of one of the world's biggest coking coal deposits.

In a historic reversal of influence in Mongolia between Russia and China, the Mongolian government released a statement noting that after the 40 percent Shenhua share, a Russian-led consortium would control 36 percent of the project and U.S. mining concern Peabody Energy Corp. would own the remaining 24 percent, according to a draft proposal to be submitted to the Mongolian parliament, the Shanghai Daily reported.

UOB-Kay Hian senior commodities analyst in Hong Kong Helen Lau stated, "This is a big win for Shenhua and will give a significant boost to its long-term growth prospects."

While analysts believe that the Tavan Tolgoi project may require an initial investment of more than $7 billion before it begins production, it is seen as an integral component to upgrading the nation's economy.

By. Joao Peixe, Deputy Editor OilPrice.com