Peabody targets Mongolia coal to lift China exposure

Fri Oct 26, 2012 4:06am EDT
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By Sonali Paul

MELBOURNE (Reuters) - Coal miner Peabody Energy (BTU.N: Quote), eager to tap Mongolia's massive coal resources, said on Friday it expects to resume talks with the government in early 2013 over acquiring a stake in the undeveloped western block of the Tavan Tolgoi deposit.

Peabody was part of a consortium that won a bid last year to develop west Tsankhi in the remote South Gobi desert, but the bid process was rejected by Mongolia's National Security Council after bidders from Japan and South Korea cried foul.

In the interim, state-owned Erdenes Tavan Tolgoi has invited Peabody to discuss infrastructure ideas to develop Tavan Tolgoi efficiently and provide management services, which Chief Executive Gregory Boyce said boded well for its prospects in Mongolia.

"There's no guarantee in these discussions, but we view it positively that they recognize our skill sets," Boyce said in an interview with Reuters in Melbourne.

Peabody held a 24 percent stake in the consortium that won the bid to develop west Tsankhi, along with China's state-controlled Shenhua Group SHGRP.UL and a group led by Russian Railways, and Boyce said there was a possibility it may win a slightly bigger stake.

"Our preference would be to have a role in mining and have an equity component in the project. We think that's the best way to align the interests of ourselves, our partners and the government, and that's still the structure that we're working towards," he said.

Peabody is targeting Mongolia to increase its exposure to its giant neighbor China, where the company sees coal imports doubling to around 425 million metric tons between 2011 and 2016.

Boyce shrugged off Mongolia's sensitivity about Chinese control over its resources, as reflected in stiff political opposition to Chinese state-controlled Chalco's (2600.HK: Quote)(601600.SS: Quote) recently scrapped plan to buy a majority stake in SouthGobi Resources (SGQ.TO: Quote)(1878.HK: Quote).   Continued...