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Back To Black: Germany Looks To Mongolian Coal To Secure Energy Future

Last Thursday, German Chancellor Angela Merkel signed a resource trade agreement with her Mongolian counterpart in the Mongolian capital of Ulaanbaatar. Surrounded by a contingent of German industry leaders, the German delegates were eager to secure access to Mongolia’s burgeoning mining economy, specifically its coal, rare earth elements and other commodities, in exchange for German technology and skills to support local mineral processing operations.

The talks were highlighted by a US $500 million 5 year coking coal mining contract establishing a joint venture between German BBM Operta Group and Australian Macmahon Holdings (ASX:MAH) formalizing the deal made in late August of this year. The project is expected to begin operations at the Eastern Tsankhi area of the Tavan Tolgoi coal mine region next year, with 3 million tons (MT) per year of production expected in 2012 from the large-scale open cut pit. Production is projected to increase to 6 MT per year by 2013 and top out at 15 MT per year with further capital investments directed at developing mine and transport infrastructure.

With recent concerns over the risks involved in Mongolia’s mining sector, a German government official told reporters in Berlin that Germany hoped a deal signed at the government levels would help individual companies enter contracts that would ensure access to materials.

Following the recent acrimony arising from some political posturing on the part of the Mongolian government, a number of analysts had raised red flags on mining investment in Mongolia. Despite this, Mongolia is fast becoming the next big mining jurisdiction, home to, among other things, the world’s largest untapped coal deposit at Tavan Tolgoi.

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