Mongolia and coal

Mongolia has substantial high quality coking coal reserves and is on track to become one of the world's largest coal exporters. There are also substantial thermal black coal deposits as well as lower quality brown coal deposits.

The scale and rate of coal developments hinge on the markets and transport infrastructure. A 2009 World Bank review of the potential mining developments suggested that coking coal export projects were most likely as a result of the Chinese market may require an additional 20 million tonnes of imports per year "with Mongolia in a good position to dominate China’s import market." However, the potential for exporting thermal coal is likely to hinge on freight costs via new rail lines either though China or Russia.

A 2010 Mongolian government economic review states that in 1999 five million tonnes of coal were produced for domestic consumption. However, by 2009 13.7 million tonnes per annum were produced of which 7.8 million tonnes were for export. An Australian government report promoting mining opportunities for business states that "since 2004 export opportunities have increased with the discovery of high quality, coking coal deposits at Tavan Tolgoi, Ukhaa Khugag, Bortolgoi, Ovoot Tolgoi, Khoshoot and Altai Nuurs."

The government is projecting a massive expansion of coal production from the current 13 million tonnes to just under 40 million tonnes in 2011 and rising to 60 million tonnes by 2013. The government is also planning to build an additional 5 gigawatts of electricity production in the "next 4 years, including 4.2 Gigawatt for export" to China. Overwhelmingly, this would be produced from proposed coal-fired power stations.

The government has identified as "top priorities in the midterm" the development of the Tavantolgoi coal mine, the $US4 billion 3,600 megawatt Shivee Ovoo power station, the 5-600 megawatt Tavan Tolgoi power station, the 4-500 megawatt Ulaanbaatar Thermal Power Plant No. 5 and the the Shainshand railway line.

Mongolia is significantly increasing its coal production to over 40 million metric tonnes of coal annually. This is a quadruple of the country's coal production from 2008 levels.

Background
Coal mining in Mongolia dates back to the early 1900's. In 1990 Mongolia exported a little under half a million tonnes of coal and buoyant domestic demand consumed a further 6.6 million tonnes. But the coal mining sector in Mongolia experienced a dramatic slump following the political and economic upheavals in the former USSR, which withdrew financial and technical support. For most of the 1990's export markets evaporated and domestic demand dropped by over 20%. Between 1993 and 2003 only 5,000 tonnes of coal was exported. Subsequently it has been boom time for the coal sector.

In a 1995 review of the Mongolian energy sector, the World Bank found that there were 16 coal mines producing approximately 5.5 million tonnes a year. Of these, three were large scale open-cut mines were the Baganuur mine, the Shivee-Ovoo mine and the Sharyn Gol mine and a mine at Aduunchuluum in eastern Mongolia, a 600,000 tonne per annum medium scale mine. The remainder were small scale mines. The three large mines produced all the coal necessary for the country's combined heat and power stations. However, there were problems with all the mines and the whole sector. The Baganuur mine and the Shyrn Gol mines were designed and equipped "on the basis of Russian mining principles and technology" including inflexible and high-cost rail overburden removal systems.

While the Shivee-Ovoo mine was more modern and better planned it produced poor quality coal. "Without resolution of the quality issue, there is no demand for this coal. Currently, mazut (a low-quality fuel oil) must be added to maintain proper combustion at the CHP plants," the review argued. The Sharyn Gol mine, the bank's review team argued, could at best continue produce high-quality until the turn of the century. But it foreshadowed that increased overburden would increase its costs relative to the alternative mines. At the time the mine was producing 1.1 million tonnes a year.

The World Bank review also argued that the government owned coal mines should be either shifted into separate government owned businesses and operated independent of the direct involvement of government officials or privatised. The review anticipated that "coal demand will grow very modestly through the end of the decade." The bank's review team suggested that, with "some improvements in efficiency", coal demand for combined heat and power would grow only by "10-15% between 1993 and 2000." Total coal demand, is expected, would not exceed 7 million tons until after 2000.

Proposed coal mine and infrastructure projects
Mongolia has extensive coal deposits which have been only recently begun to be explored and defined with modern exploration techniques. As a result of China's massive demand for coal and the high prices for quality coking coal, a coal rush is currently under way with numerous companies scrambling to get mineral exploration and mining titles in Mongolia. Many coal prospects may boost the share price of otherwise small companies but few deposits are likely to be developed in the short term. See Coal mine prospects in Mongolia for further details.

Infrastructure for new coal exports
In March 2010 the Australian commodities forecasting agency, ABARE, stated that "Mongolia is considered to have some world class metallurgical coal deposits, and would be a logical supplier to steel mills in China’s north and west. There is also the potential for Mongolia to export to other Asian markets such as Japan and the Republic of Korea, although this would require freighting through a port in China or the Russian Federation. However, there are a number of challenges to development: ownership rights to deposits, lack of fiscal and regulatory certainty and insufficient infrastructure. In addition, agreements between Mongolia and China would need to be completed prior to significant increases in coal being exported to or through China."

A 2009 World Bank review of the potential mining developments suggested that Mongolia had significant prospects for dominating China's increasing demand for coking coal. However, it considered that its prospects for exporting thermal coal were "much more marginal" as a result of China's substantial cheap domestic supplies and the significant freight costs. The World Bank estimated that Mongolian coal production costs could be "in the order of $10-$30/tonne" with the same costs being incurred for freight into China. However, it noted that with Chinese buyers paying in the range of $18-$55 per tonne "depending on the thermal value of the coal", the cost of freight would decide whether thermal coal exports were viable. While noting that higher prices could be gained outside China, this would require exporting through either China or Russia.

The World Bank concluded that the lowest cost railway would be a railway from Tavan Tolgoi directly to Baoutou in the Chinese autonomous region of Inner Mongolia. Exporting coal via this route, the bank estimated, could -- at 2009 coal prices -- "result in $1,460 million of profit from sales of 20 million tonnes per year. In contrast, selling the same quantity of coal by way of a new railway to Russia might generate profit of around $246 million per year."

It was reported in June 2012 that the Mongolia Mining Corp. was planning the construction of an $800 million railway that would double export capacity to China.

Tavan Tolgoi
Most current international news reporting of coal developments in Mongolia focus on potential developments within the Tavan Tolgoi coal deposit, in particular the prospects for metallurgical coal exports. The Tavan Tolgoi coal fields are located in the South Gobi desert near China's northern border and is ranked as the world's largest undeveloped coal deposit. However, it is important to clarify what is being referred to in relation to developments at the coal fields as there are two existing mines and either four or six separate deposits within the coal fields broadly referred to as Tavan Tolgoi.

In mid-September 2011 Mongolia rejected plans for Peabody Energy, China's Shenhua Group and a Russian-Mongolian consortium to jointly develop the Tavan Tolgoi coal deposit. Mongolian officials said they would hold new negotiations with various companies involved.

The coal fields broadly referred to as Tavan Tolgoi fields comprise, according to a Mongolian government official, six coal deposits, these being the Tsankhi, Ukhaa Khudag, Bor Tolgoi, Borteeg, and Southwest and the Eastern coalfields. The entire deposits are often referred to as containing over 6 billion tonnes of coal comprising, by one estimate, 1,529 million metric tonnes of coking coal and 4,480 million tonnes of thermal coal. Another Mongolian government estimate from around the same time states that the deposit has 6.4 billion tonnes of coal.

A 2009 World Bank study on the other hand refers to the Tavan Tolgoi deposit as comprising four fields -- Uhaahudag, Tsanki, Eastern Tsanki, and Bortolgoi -- and with established resources of "4.5 billion tons of established resources, of which 1.9 billion tons are coking coal, and the remainder is thermal coal." However, it states that additional resources "are inferred taking the total resource envelope up to 6.0 billion tons."

Within the broad Tavan Tolgoi deposit, there are two existing but relatively small scale mines. The 2009 World Bank report referred to a "joint venture between the aimag [provincial] government and Qinhua currently operates a small mine within the Tsanki coalfield, trucking about 1 million tons of coal per year to the Chinese border." This appears to refer to a mine operated by Tavan Tolgoi Inc. On its now rather dated website, the company states that in 2004 it produced 2.9 million tons of coal and that in 2007 1 million tonnes were exported to China.

The other operating mine belongs to Energy Resources LLC, which was granted a mining license, MV-11952, for the Ukhaa Khudag coking coal deposit in August 2006. The mining licence covers an area of 2,960 hectares and mining commenced in April 2009.

Beyond that, the government owned Erdenes MGL holds the titles over the remainder of the other Tavan Tolgoi deposits. (The titles, which cover 68,522 hectares, are 11943A, 11953A, 11954A, 11955A and 11956A.) In September 2010 Erdenes MGL created Erdenes Tavan Tolgoi to be the company which -- along with minority private investors -- have carriage of the the development in the Tavan Tolgoi deposits. While the exact stake of the government in the project has changed several times, it is intended that Erdenes TT will hold a 50% stake in the project, with 10% of shares issued to be spliut amongst all Mongolian citizens, 10% to be listed on the MSE [Mongolian Stock Exchange] and 30% open to foreign investment. A 2009 World Bank reported estimated the mine could have a 200 year plus life span if producing 15 million tonnes a year and initially employ 1500 people. The bank estimated the mine could commence production in 2012.

Most of the current media discussion relates to the bidding process for six short-listed international coal companies or consortia for the development of a new coal mine at Tavan Tolgoi. These reports are referring to the possible exploitation of the Tsankhi coalfield, which contains most of its coking coal resources in the area. The deposit has also been referred to as Tsankhi block 1. In a separate development, the Mongolian government is seeking bids from companies which want to tender to mine the eastern section of Tavan Tolgoi under contract to Erdenes MGL.

On July 4, 2011 it was announced that United States based Peabody Energy, China’s Shenhua and a Russian-led consortium were selected to develop the Tavan Tolgoi coal deposit in Mongolia. Authorities in the country stated that they hoped its mining industry "could help pull thousands of people out of poverty." The government announcement made no mention of Japan’s Mitsui and South Korea’s Korea Resources Co — originally on the shortlist of preferred bidders to develop Tavan Tolgoi.

The Tavan Tolgoi deposit is estimated to hold 6 billion metric tons of steelmaking coal. Shenhua is to have a 40 percent share and Peabody 24 percent, while the remaining 36 percent is to be held by the Russian-led consortium. The draft agreement is subject to parliamentary approval and would be submitted to lawmakers. The selected companies will jointly develop the western part of the Tsenkhi block of Tavan Tolgoi, which contains mainly coking coal. State-owned Erdenes Tavan Tolgoi (ETT), set up to manage Mongolia’s coal mining interests, owns the rights to mine the block, and will do so with its foreign partners. (See Tavan Tolgoi coal deposit for more details on developments relating to the Tavan Tolgoi coalfields.)

Other coal mines
Other coal mines under development or being considered are:


 * Khushuut mine is an open cut coking coal mine with a project life of 19 years mine life with production at 8 million tonnes per annum. The project, which is currently being brought into full production, is owned by Mongolia Energy Corporation, a Hong Kong listed public company. The mine is being operated by Leighton Asia.


 * Ovoot coking coal project is a proposed open cut coking coal project owned and operated by the small Australian firm, Aspire Mining Limited. An exploration program to define the existing resource was scheduled to be completed at the end of 2010.


 * Unst Khudag coal mine is a high quality thermal coal project owned by Hunnu Resources. A trial mining operation was commenced in August 2010 to allow potential customers to undertake test work on the coal.


 * Togrog Nuur mine is a 2 million tonne per annum brown coal mine producing coal briquettes. The mine is owned by Togrog Nuur Energy LLC, a subsidiary of the Ming Hing Group of Hong Kong.


 * Baruun Naran coal project was referred to in a 2009 World Bank report as having a potential life span of 20 years producing 6 million tonnes a year. The report stated that the mine could begin production in 2012.


 * Tsagaan Tolgoi coal project was referred to in a 2009 World Bank report as having a potential life span of 20 years producing 2 million tonnes a year. The report stated that the mine could begin production in 2015.


 * Sumber coal project was referred to in a 2009 World Bank report as having a potential life span of 50 years producing 5 million tonnes a year. The report stated that the mine could begin production in 2015.

Coal exports
It was reported in October 2011 that Mongolia became Australia's lead supplier of foreign coal, overtaking Australia. It was estimated that China could save $6 billion annually by importing coal from Mongolia because of its low price. China imports coking coal from Mongolia through the Sehee border point.

Existing coal mines
Existing coal mines or projects currently under development are:


 * Eldev coal mine is a 500,000 tonnes per annum coal mine which has been developed by the MAK Corporation.


 * Ukhaa Khudag mine is owned by Energy Resources LLC and mined by Leighton Asia; the mine is being expanded to produce 10 million tonnes per year by June 2011." A 2009 World Bank reported estimated the mine could have a 40 year life span and employ 1000 people.


 * Ovoot Tolgoi mine, which began producing coal in 2008, is projected to reach full capacity of 8 million tonnes per annum in 2012. The mine is owned and operated by SouthGobi Resources, which is 57% owned by Ivanhoe Mines.


 * Nariin Sukhait mine is a 3 million tons per annum coal mine which began production in May 2008. The company proposes that the mine increase production to 5-8 million tons per annum upon completion of a railway to faciltate export sales. A 2009 World Bank reported estimated the mine could have a 40 year plus life span if producing 12 million tonnes a year and employ 150 people. The mine commenced production in 2003.


 * Ulaan Ovoo mine, a proposed high quality bituminous coal mine.


 * Shivee-Ovoo mine is producing approximately 1.2 million tonnes of coal a year. It has a rated production capacity of 2 million tonnes per annum. The construction of the proposed 3,600 megawatt mine-mouth Shivee-Ovoo power station would require approximately 20 million tonnes of coal per year, necessitating a massive expansion of the existing mine. A 2009 World Bank reported estimated the mine could have a 200 year plus life span if producing 14 million tonnes a year and initially employ 600 people. The bank estimated an expanded mine could commence production in 2015.


 * Baganuur mine has the capacity to produce 4 million tonnes of coal a year. However, in 2005 actual production was 2.8 million tonnes.

Existing coal-fired power stations
In July 2010 a Mongolian government official explained that the small existing combined heat and power stations in the capital, Ulaanbaatar are approaching the end of their working life. The 21 megawatt (MW) CHP‐2, the 48MW CHP-3, he stated, will be "out aged by 2015". He also projected that by 2020 heat demand will increase substantially and electricity demand grow by 700 MW. "These factors show that there will shortage of heat and electricity capacity in UB [Ulaanbaatar] from 2011 and necessity of construction CHP‐5," he argued.

The World Bank reported in 2009 that CHP #2 was "initially supposed to be retired in 2005", CHP #3 was to be retired in 2008 and then 2011 and the Darkhan CHPPP was to be retired in 2013. "Some deferral of these plants’ retirement is possible, but it is now anticipated that TPP#2 will need to be retired in 2012, and TPP#3 will be retired in 2016," the report stated.

Proposed coal-fired power stations
The Mongolian government is planning on catering for substantial growth in electricity demand, especially for the booming mining sector. In a 2008 presentation a Mongolian government official stated that projected additional loads were anticipated from the Oyutolgoi copper mine (100-227 МW), the Tavantolgoi coal mine (100 МW), the Tsagaan suvarga mine (80 МW), the Dalanjargalan mine (40 МW), the free zone of Zamyn Uud (30 МW) and a cement factory at Khukh tsav (20 МW). In response to this projected rapid increase in demand, a number of coal-fired power station proposals have emerged. These include the:


 * Shivee Ovoo power station is a proposed 4,800 megawatt coal-fired power station which has been proposed by the Mongolian government with approximately 4,000MW slated for export to China and 300MW to meet increasing domestic power demand, especially from the rapidly expanding mining sector. The power station would consumer approximately 20 million tonnes of coal a year from the Shivee Ovoo mine. It would also require the construction of the 1400 kilometre long 630 kV DC Shivee Ovoo to Erlian (Mongolia) to Shouguang (China) transmission line;


 * Tavan Tolgoi power station is proposed as a 100 megawatt (MW) coal-fired power station be built and gradually upgraded to 600 MW. The power station would be built near in conjunction with the exploitation of the Tavan Tolgoi coal deposit. The power station is estimated to cost $US350 million;


 * Mogoin gol power station is a proposed 60 megawatt coal fired power station at the Mogoin gol mine in northwestern Hovsgol Province. The power station is scheduled to be commissioned by early 2012. and


 * Ulaanbaatar Thermal Power Plant No. 5 is a 4-500 megawatt coal-fired combined heat and power station proposed to be built on the eastern side of the city. The projected cost is $US650 million. In a May 2008 briefing on energy developments in Mongolia, the State Secretary of the Ministry of Fuel and Energy stated that "the international bidding is planned to be announced in the near future."


 * In Jun 2011, China Energy Conservation & Environmental Protection Group, a state-owned project developer, said it will build a $1.5 billion “clean coal” plant in Inner Mongolia with U.K.-based Seamwell International. The plant on the YiHe Coal Field will produce power by the end of 2014 or 2015, and will generate 1,000 megawatts of electricity for about 25 years. Once demonstrations and approvals are secured from the Chinese government, the companies said they will set up a joint venture in which Seamwell will own 49 percent and China’s energy conservation group 51 percent.

Effect on local populations
The 2012 report, "Spirited away – Mongolia’s mining boom and the people that development left behind" by CEE Bankwatch Network in the Czech Republic, urgewald in Germany, Bank Information Centre in the United States and Oyu Tolgoi Watch in Mongolia, argues that coal and copper mining in southern Mongolia is threatening the livelihoods of herders and straining water supplies, as mines are being developed without sufficient scientific information about the potential environmental and social impact of the operations. Towns located near the mines lacked adequate services and infrastructure to handle their burgeoning populations, it said, while increased coal dust caused by mining and trucks was exacerbating "desertification and the decreasing quality of vegetation", as well as fueling the number of asthma and bronchitis cases in the area.

In an April 2013 review of Mongolia, the World Bank noted that:


 * "Mining generates mixed reactions in Mongolia, though it is increasingly bringing revenue and employment. The dissatisfaction arises from the way the benefits and impacts are distributed, interruption to the traditional life styles of Mongolians in the rural areas, as well as concerns about water which is scarce across country and in particular in the Gobi region where major developments are taking place (Tavan Tolgoi coal and Oyu Tolgoi copper, gold and molybdenum). The government maintains high share of ownership over strategic deposits."

U.S. VP Biden visit
On August 22, 2011, U.S. vice president Joe Biden traveled to the country to meet with Mongolia's President Tsakhia Elbegdorj. Biden is the most senior American leader to visit Mongolia since 2005 and his trip comes months after Elbegdorj promised to give US companies a role in the country's growing energy sector.

Related SourceWatch articles

 * China and coal
 * Opposition to coal in China
 * The Australian government and coal in Mongolia
 * Global use and production of coal

World Bank reports

 * Mongolia Energy Sector Review, World Bank, November 3, 1995. (Large pdf)
 * Mongolia - Coal Project: Implementation Completion and Results Report, World Bank, June 2002.
 * Mongolia - Coal Project, World Bank, April 2009. (Large pdf).
 * "Ulaanbaatar Clean Air", Asian Development Bank, August 28, 2009.

Other reports

 * Robin Grayson and Chimed-Erdene Baatar, Remote sensing of the coal sector China and Mongolia", World Placer Journal, volume 9, 2009, pages 24-47.
 * Peter Leaman, Project Manager, Mongolia, BHP Billiton, BHP Billiton - Minerals Exploration in Mongolia, Presentation to the Discover Mongolia conference in Ulaan Baatar, Mongolia, September 12, 2006.

External articles

 * Senator Bob Brown, "Did Australia's Minister help remove Mongolia's mining tax?", 'Blog of Bob Brown'', July 13th 2010.