Wednesday, December 14, 2016
Coal will benefit Mongolia Mining Corp.
Former frontier market darling Mongolia has had a tough time in a world of low commodity prices, with its government struggling to make ends meet, but a spike in global coal prices could see the country stage a comeback.
But following reforms in China this year to rein in overproduction, and growing demand in Asia Pacific, coal prices soared. In November, Reuters reported premium coking coal prices in Australia had jumped to $289.30 a metric ton, up from about $85 at the beginning of June. Coking coal is a key component in steel production.
The recovery in prices has spurred Mongolia's hopes for a complex restructuring of the Tavan Tolgoi coal mine in the South Gobi desert, a move that would settle outstanding debt to Chinese aluminum producer Chalco Group. An end to the Tavan Tolgoi upset would make it easier to invite new investors such as Chinese state-owned firm Shenhua Group to help ramp up production and shipments to key market China at better prices.
This is why Mongolia Mining Corp is such an interesting speculation. Shenhua, during earlier negotiations was partnered with Sumitomo and Mongolia Mining Corp. Considering that many large shareholders of MMC are members of the new MPP government in Mongolia, and hold a substantial majority in parliament, I expect MMC to be heavily involved in whatever deal is realized. I also expect the deal sooner rather than later as the government has to get the economy moving again.