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. Last Updated: 07/27/2016

Mongolia Showcases Mining Wealth

ULAN BATOR, Mongolia -- The Mongolian government said it will offer tax breaks to companies such as BHP Billiton, Mitsui & Co. and Vale do Rio Doce to attract investment in coal and copper deposits in the Gobi desert worth more than $385 billion.

Mongolia wants to attract miners, as well as companies to build roads, railways, power plants, and to manufacture products such as car parts, said the country's Trade Minister Sukhbaatar Batbold. "We want industrial development of the southern Gobi, where we have a lot of mineral resources and mining potential," Batbold said in an interview.

Batbold heads the so-called South Gobi Initiative group, which will submit a development plan for parliamentary approval in April.

South Gobi holds a 6 billion ton coal deposit, or equivalent to three years of imports by neighboring China, and a copper and gold deposit containing at least $68 billion worth of metals, controlled by Canada's Ivanhoe Mines. Each deposit could produce more than $1 billion of minerals per year, said Turbat, director of Mongolian consultant Mine-Info.

"A lot of people are interested in getting mineral rights for these reserves. It's a really big dogfight," said Vale executive director Jose Carlos Martins in an interview in Seoul. "We are in the middle of negotiations."

The government is looking at cutting tax rates because "Mongolia is in competition with many other places for scarce exploration funds," said Turbat.

The value of the coal, copper and gold reserves in the southern Gobi are Bloomberg estimates based on average global prices for the minerals over the last 12 months.

BHP Billiton, Vale, and China's largest coal producer Shenhua Group are in talks to set up a group to mine and process minerals in Mongolia, Batbold said in November.

Companies from Japan and India are also in the talks, said Jargalsaikhan, deputy director of the Mineral and Petroleum Authority of Mongolia.

"We are interested in investments in Greater China, including Mongolia. Tax breaks would make it more attractive for us to invest," said Mitsui spokesman Eiki Okada.

"We are in talks with private companies in Mongolia, but nothing concrete has been decided."

Investors are interested in what specific measures the government's South Gobi Initiative will take to make it cheaper to get projects off the ground, said Togoo Tsogt, managing director of Ulan Bator-based Energy Resources Co., which controls the South Gobi coal deposit. "Government support is very important for the successful development of the mine," he said.

The coal deposit, known as Tavan Tolgoi, and Ivanhoe's copper and gold deposit, known as Oyu Tolgoi, are within 150 kilometers of China's border, where transport links are being built to ship southern Mongolia's mining wealth.

About 60 percent of Tavan Tolgoi's coal can be used to fuel power plants, which the Mongolian government and Ivanhoe want to provide electricity to copper ore processing plants they aim to build at Oyu Tolgoi. Additional power could be sold to China, Tsogt said.

The rest of the coal is a higher grade used in steelmaking that could be processed at the site and transported to Chinese mills, he said.

"If we can get international cooperation to build a smelter and a refinery, once you have refined copper, it makes great sense to make copper cable, copper wire and/or wire harnesses for automobile manufacturing," Ivanhoe's chairman Robert Friedland said. "That is a vision the Mongolian government shares."

Differences among the companies negotiating development of Tavan Tolgoi and what kind of transport links to build have delayed an agreement.

The government will offer so-called stability agreements, which guarantee tax treatments remain in place even if tax laws are changed, for companies investing in projects that allow mining and manufacturing for export, Jargalsaikhan said.

Investments would include a power plant to support mining operations at Tavan Tolgoi and Ivanhoe's Oyu Tolgoi, copper ore processing at Oyu Tolgoi, and enough spare capacity to supply Ulan Bator, 400 kilometers north, and China.

Several companies have expressed interest in building a power plant, which would cost $1 billion and generate about 1,000 megawatts, said Luvsanvandan Bold, the mineral and petroleum authority's chairman.