Production from the eastern block of the massive Tavan Tolgoi coal deposit is expected to start on December 1, according to the head of one of the companies entrusted with its development. 1

BBM Operta Group chairman Wolfgang Peters said, “We have all the necessary rights to start production on December 1.” In August the German company was awarded the contract to develop the eastern Tsankhi block of Tavan Tolgoi along with Australia’s Macmahon Holdings.

The five-year Operta-Macmahon contract is worth US$500 million. The contract will begin in January next year at an annual rate of 3 million tonnes, using existing client-owned equipment. In the second year, production is expected to ramp up to 6 million tonnes, which will require additional capital expenditure, and eventually rise to 15 million tonnes

Mongolia plans to list the east Tsankhi block, which covers about 40% of the total area of the estimated 7.5-billion tonne deposit, in a multi-billion dollar international IPO scheduled for the first half of next year. According to Reuters, analysts have expressed concern that political uncertainties could still delay the project, with Mongolia’s parliament still to approve a politically contentious investment agreement for the western block.

Following complaints from Japanese and South Korean bidders, the government backtracked from a previous deal granting 40% of the block to China’s Shenhua Energy, 36% to a Russian-Mongolian consortium and 24% to Peabody of the United States.

The government has announced that it will relaunch discussions with some of the world's largest mining companies on further development of the Tavan Tolgoi coking coal reserves. According to a Mongolian official, the talks will involve Japanese and Korean mining companies that were not originally granted permission to develop the western portion of the reserve. Although set to begin later this month, company officials say developing a pact could take several months.

Local media reports have suggested that the Japanese and South Korean bidders would become part of a Peabody-led consortium and be granted a total stake of 33%, with Shenhua and the Russian consortium also granted 33%, but this is just speculation.

The Mongolian government is keen to get a deal in place for both the eastern and western blocks of Tavan Tolgoi as soon as possible as it strives to fulfil promises it made to the electorate in 2008. But a growing number of voices have been calling for the project to be delayed until after next year’s parliamentary elections.

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