THE COMPANY: Not to be confused with Erdenes Tavan Tolgoi, Tavan Tolgoi Joint-Stock Company (TT JSC, also known as Small Tavan Tolgoi) is still one of the largest coal mining companies in Mongolia. The firm’s name means “five hills” and refers to the area’s landscape. The company is part of the larger Tavan Tolgoi deposit, the world’s largest undeveloped coking coal deposit, which is said to contain around 6.4bn tonnes of resources, according to exploration work conducted during the Soviet era. TT JSC was established in 1966, when it received an order to export 3000 tonnes of coal. Currently, the local government owns 51% of the company, and 4% of the shares are floated on the Mongolian Stock Exchange (MSE). TT JSC is also distinct from most other coking coal producers in Mongolia in that it does not hire mining contractors – the mine is operated entirely by Mongolians. Moreover, TT JSC is assured strong local support, something which most foreign mining operators cannot always take for granted, as it is owned by the local government. TT JSC has probable coking coal reserves of 80m tonnes and resources of around 100m tonnes. It produces high-quality coking coal, with calorific value of 6500-7500 kilocalories per kg, ash content of below 20% and sulphur content of 0.5%. The company estimates 60% of its deposit to be coking coal, although this has not been independently verified. Tavan Tolgoi is located in the Gobi desert, 250 km from the Chinese border. This gives it good market access because Chinese steel producers have been hungry for Mongolian coking coal. TT JSC first exported coal to China in 2004. By 2007 exports had jumped to 1.75m tonnes, due to significant increases in capital expenditure. Production in 2010 was 5.2m tonnes, which showed a 60.3% compound annual growth rate from 2006/10. The company produced around 6m tonnes of coal in 2011. Currently, 95% of the company’s products are sold on the Chinese market. The rest of the coal is used locally to generate electricity. The company sells thermal coal to locals at below market price. In recent years, TT JSC has focused on work safety, planted trees at the work camp and equipped all mining employees with uniforms. The company has also installed equipment that dry-processes coal, in order to reduce waste and pollution.

While coking coal prices have dramatically increased in the last decade, the trend reversed in 2012. Prices have increased in the second half of the year, but in the first half of 2012 coking coal prices in China were down 30-35% from their peak. This has affected all coking coal exporting companies in Mongolia. Tavan Tolgoi’s revenue was MNT171bn ($119.4m) in 2010, and MNT194bn ($135.8m) in 2011. Net profits grew from MNT77bn ($53.6m) in 2010 to MNT80bn ($56m) in 2011. The company had MNT116bn ($80.9m) in assets by the end of 2011. Due to the lack of adequate disclosure requirements for companies trading on the MSE, there is no financial information available for 2012.

DEVELOPMENT STRATEGY: Tavan Tolgoi had plans to ramp up production to 8m tonnes per annum by 2014. These are impressive amounts for a company listed on the MSE. Erdenes Tavan Tolgoi, the initial public offering of which has been delayed due in part to the negative outlook for coking coal prices, will produce 30m tonnes per annum (mtpa) at its peak.

Mongolian Mining Corporation (MMC), which mines part of the larger Tavan Tolgoi deposit known as Ukhaa Khudag, will produce 15 mtpa at its peak. Tavan Tolgoi’s development depends to some degree on developments at Erdenes Tavan Tolgoi and MMC’s Ukhaa Khudag, as there is the potential for sharing infrastructure. MMC completed a paved road to the border, and recently received a permit to build a direct railway to the border, which could help TT JSC. There are no specific plans in place to build a coal-handling and processing plant, one of which MMC has built and Erdenes Tavan Tolgoi hopes to build.