The contract with Chalco expires in 2027

2017-04-03 15:45 GMT+8

Erdenes Tavan Tolgoi JSC paid off its debt to China’s aluminum company, Chalco. A total of USD 420 million was paid under the contract established in 2011 between the Chalco and the Government of Mongolia. 

However, we must note that the contract has not ended and it is valid until 2027. Only the amounts of coal deliveries from the East Tsankhi mine to Chalco has changed. 

During the first phase of the contract, Erdenes Tavan Tolgoi supplied 100 percent of its coal deliveries from East Tsankhi pit to Chalco.   

At the second phase of the contract which will be finished in 2022, Erdenes Tavan Tolgoi to supply 80 percent of its coal deliveries from East Tsankhi pit to Chalco. 

Erdenes Tavan Tolgoi to supply 60 percent of its coal deliveries from East Tsankhi pit to Chalco in 2022-2027.  

Base price for per tons of coal is US$ 70. The first half-million tons of coal to be sold at US$ 69.9 and the second half-million tons of coal to be sold at US$ 70. Afterward, the price will be determined based on the following index;

  • CR China coking coal index - 60 percent
  • CR Jing Tang imported coking coal index - 20 percent 
  • HS McClosky China domestic coking FOR Gujiao - 10 percent 
  • Shanxi liutin seam 4 clean hard coking coal price - 10 percent. 

Mongolia received additional US$ 30 million and 70 million loans from Chalco after received US$ 250 million as prepayment of a loan from Chalco. However, the interest rates for the loans were varied.

  • US$ 250 million - 3 percent interest rate 
  • US$ 30 million - 5.2 percent interest rate 
  • US$ 70 million -7.2 percent interest rate 

About Erdenes Tavan Tolgoi deposit: 

Tavan Tolgoi deposit is one of the world’s largest untapped coking and thermal coa deposits, located in the Umnugobi aimag in southern Mongolia. It has a total estimated resource of 6.4 billion tons, one-quarter of which is high-quality coking coal. It is divided into six sections: Tsankhi, Ukhaa Khudag, Bor tolgoi, Borteeg, and Southwest and Eastern coalfields. The Tsankhi section is the largest part, and is divided into East and West Tsankhi - these have had the most focus recently.

In 2010, the Erdenes MGL LLC formed a new company - Erdenes Tavan Tolgoi - which would hold the licenses and manage the Tavan Tolgoi deposit.

However, Tavan Tolgoi deposit lack of infrastructure. The deposit needs to build roads, power plant, processing plant as well as to conduct water and geological research. These projects will require an investment of US$ 300-400 million. 

Thus, the company plans to attract investment by issuing shares to the global market. 

Finally, it is too early to say goodbye to Chalco. The contract term will be ended 10 years later. From then, the East Tsankhi pit of the coal giant Tavantolgoi mine will finally get into Mongolian people’s full ownership.

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