Source: Business Spectator                            Date: 10 February, 2011

Little-known Xanadu Mines of Australia is counting on an alliance forged with international commodities trader Noble Group to provide a leg up in Mongolia, where it is exploring for minerals alongside sector behemoths, including Rio Tinto, Xstrata and Vale. "We are looking at a number of coking coal projects right now, which are both existing projects and new prospects," Xanadu chairman Brian Thornton has said. "We would hope in the next three months to have identified a couple of serious projects."

Noble last week increased its stake in Xanadu to 10 per cent and agreed to jointly pursue opportunities in Mongolia on a 50-50 basis. The partnership will rely on Noble's core business of commodities trading to market anything they find to Asian markets hungry for imported coal, iron ore and other industrial staples, Mr. Thornton said.

"Marketing raw materials from Mongolia is, say, very different than from Australia and a very big task, and frankly not Xanadu's business," Mr Thornton said."There are big issues getting coal through China to the ports. The China rail network is very heavily congested and that's not going to change. Getting your coal from the Mongolian border to the big coal ports is a bloody big task and that's where Noble can help."

Mongolia sits on vast quantities of mineral wealth and analysts predict it could be one of the fastest growing economies of the next decade. Mr. Thornton said Mongolian iron ore was more apt to be sold to Chinese steel firms because of its magnetite-type composition requiring beneficiation, while coking coal would find a broader market, given the similarities to prized Australian coal.

"The beauty about Mongolia for us is you can find projects sitting side by side, be they coking coal or copper finds," he said. "You wouldn't find such contiguous geology in Australia."

Only a handful of small-to mid-capped companies are prospecting in Mongolia mostly from Australia, Canada and Russia. Big mining houses, while watching to see whether Mongolia's fledgling democratic government can build needed infrastructure to support widespread mining and negotiate its way through geopolitical pressures exerted by Russia and China, are circling rich deposits that until recently fell under the radar of most geologists.

"We recognize we are a small exploration play in Mongolia and up against the bigger guys, such as Rio, Vale and Xstrata," Mr. Thornton said. "This alliance with Noble will put us in another league in Mongolia to be able to acquire and develop opportunities in the coking coal and iron ore space. It gives us a big brother in the game - a partner that has the firepower and the balance sheet to make things work," Mr. Thornton said.

Noble is one of the world's biggest commodities trading houses, with revenue in the nine months to September 30 exceeding USD39 billion. It also has a record of acquiring interests in everything from iron ore and coal mines to grains crushing businesses to fuel terminals as part of an integrated commodities business.

The  Xandau-Noble alliance, while focusing on coking coal, iron ore and ferro alloys, will also allow Xanadu to continue to independently pursue its existing Galshar and Khar Tarvaga thermal coal mining projects and its plans for copper and gold in the south east Gobi, according to Mr. Thornton. He said Mongolia's emergence as a mining destination has led to several unusual alliances, including a rumored tie-up between Peabody and China's largest metals refiner Jinchua to co-develop Tavan Tolgoi. Russian companies were also becoming more active, 22 years after the former Soviet Union finalized plans to withdraw its troops from the country. There appears to be some activity by Russia to retrieve some of that lost mineral potential, Mr. Thornton said.