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Politics to continue to hinder Mongolian coal

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World Coal,

Government involvement in Mongolia’s coal mining industry is likely to constrain the sector’s development in the near term according to BMI Research, with general elections due in June.

“Tension between the Mongolian government and foreign investors over mining contracts and legislation remains a key threat to the continues flow of coal exports to China, especially as the June 2016 parliamentary elections near,” BMI Research said in a recent report on Mongolia’s mining sector.

Government influence is particularly acute in terms of the development of the Tavan Tolgoi (TT) coal mine, which holds more than 6 billion t of coal – 1.6 billion t of which is high-grade metallurgical coal – with BMM Research noting the halt of development funding for the project by a parliamentary speaker in April 2015.

Mongolia is far from the only country globally to suffer government intervention in the coal sector, however. In the US, for example, the Department of Interior has stopped approval of mining applications on federal land until a review has been completed. Meanwhile, elections this year in the US, Australia and South Africa are all providing cause for concern for coal sector investors.

Beyond politics, there are also questions about the project’s near-term viability, given the slowing demand for metallurgical coal in Mongolia’s key market – and neighbour – China.

Yet a number of smaller coal project developments are continuing to go ahead, including the Khushuut project by Mongolian Energy Corp., the Ulaan Ovoo project by Prophecy Coal and the Nuurstei and Ovoot projects by Aspire Mining.

And overall, BMI Research is relatively bullish on Mongolian coal production, forecasting average growth of 9.1% per year to 2020, when production will total 56.2 million t compared to 37.4 million t this year, as TT eventually progresses and development of Mongolia’s transport and coal processing infrastructure gathers pace.

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