Mongolian Mining Corp. (975) is betting there's enough demand from China to support the construction of an $800 million railway that will double export capacity to the nation that counts Mongolia as its biggest coal supplier.
Expanding transportation links between the adjacent countries "will improve the position of Mongolia as the leading coking coal supplier to China," Battsengel Gotov, chief executive officer of MMC, as the company is known, told reporters in the Mongolian capital of Ulan Bator.
Mongolia, the world's fastest growing economy, overtook Australia as China's biggest coking coal supplier last year, exporting 20 million metric tons of the raw material used to make steel. MMC is building a 250 kilometer (155 mile) rail to add 30 million tons of export capacity direct to China.
"There's still room for everybody in Mongolia" to mine and sell commodities, Gotov said from the company's head office.
MMC shares rose 3.6 percent to close at HK$4.36 in Hong Kong compared with a 2.2 percent gain in the benchmark Hang Seng index. The stock has dropped 25 percent this year as coal prices declined.
Chinese demand has been curbed by slower global growth and coking coal prices have fallen as much as 15 percent in the first half from the previous six months, Gotov said.
Prices, which fell to $206 a metric ton in the quarter ending June 30, may rebound to an average $225 a ton this financial year, based on the mean estimate of 10 analysts, steelmakers and mining companies surveyed by Bloomberg in April. Anglo American Plc (AAL) settled coking coal prices at $225 a ton for the third quarter.
MMC plans to boost output by about 41 percent to 10 million tons this year from its Ukhaa Khudag mine at the Tavan Tolgoi deposit and then to 15 million tons in 2013. It will use about half the export capacity of its planned railway and will lease the rest to mining companies, Gotov said. Mongolia will assume 51 percent ownership of the rail after 19 years.
The rail, due for completion in 2015, will halve the time it takes to transport coal by road from Tavan Tolgoi to China to between two hours and three hours, he said.
Mongolians, a third of who live below the poverty line in a nation of 3.1 million people, went to the polls yesterday. The opposition Democratic Party is leading after early counting though no party has a clear majority, President Tsakhia Elbegdorj said in an interview today.
State-owned miner Erdenes Tavan Tolgoi, or Erdenes TT, is developing the East Tsankhi part of the 60-billion-metric ton Tavan Tolgoi deposit, of which MMC's share accounts for about 4 percent. Erdenes TT is seeking to sell shares to raise $3 billion to finance new railways, roads, and power infrastructure.
Mongolia has held talks with companies including Peabody Energy Corp. (BTU), OAO Russian Railways, and China's Shenhua Group to develop the West Tsankhi part of Tavan Tolgoi.
MMC uses some of its production to power an 18-megawatt plant to supply electricity to the mine and surrounding town. Roughly 30 kilometers away, MMC is also developing Baruun Naran mine, which it acquired last June for $464.5 million from a unit of Kerry Holdings Ltd.
"Once the railway is completed, it will also be seen as the next profit-generating center," Gotov said.