Source: Reuters                       Date: 16 September, 2010

Japan's No.2 trading house Mitsui will team up with the world's largest coal producer Shenhua Group to bid for development rights to Mongolia's Tavan Tolgoi coalfield, the Nikkei business daily has reported. Chinese Premier Wen Jiabao has also pledged a total of 500 million yuan to the Mongolian government, in the form of both aid and loans, but the Mongolian government is believed to be cautious about falling under the economic control of China, the business daily reported.

The collaboration with Mitsui will mitigate the fear and will give Shenhua an edge in winning the project. For Mitsui, which hopes to tap Shenhua's coal mining know-how, the tie-up would provide an opportunity to increase its mine concessions, the Nikkei report said. Rival bidders include a consortium of Japan's Itochu, Sumitomo, Marubeni and Sojitz.

The agreement comes as the world is closely watching whether Mongolia could bring in investment from a third party for the development of its massive mining resources, and negotiate its way through the geopolitical pressures being exerted by its two large neighbors, Russia and resource-hungry China. Mongolia originally planned to sell as much as 49 percent of Tavan Tolgoi to a foreign bidder, but cancelled the sale early this year in favor of 100-percent state ownership, with plans to sign a development contract without giving any equity away. Now, it plans to divide the deposit in two parts, one for Mongolia, the other for foreign development, although a final, detailed plan about foreign involvement -- including Shenhua's -- has yet to emerge. The government is receiving proposals from engineering companies and hopes to move forward with a plan this year.

Shenhua has decided to extend its private railway network to the Mongolian border to provide a coal transport route.