Steel Authority of India Ltd (SAIL) plans to develop coal and iron ore deposits in Mongolia in collaboration with the local government, in a bid to ease India's persisting coal shortfall.

SAIL today signed a memorandum of understanding (MoU) with the Mongolian ministry of mineral resource and energy (MMRE) to explore business opportunities in the mining and steel sector. The MoU will enable SAIL to acquire a coking coal mine in coal-rich Mongolia.

The Mongolian ministry will provide information on iron ore and coal deposits, including location and size, upon which SAIL will undertake a pre-feasibility study, SAIL said in release.

MMRE and SAIL will also jointly take up a pre-feasibility study for setting up a mineral processing facility for iron ore and coal, both coking and thermal, in Mongolia. The two parties will also undertake construction of downstream steel plants both for local consumption and exports.

The MoU envisages investments by SAIL either solely or in a consortium with other entities to develop mineral processing/ steel manufacturing facility in Mongolia, the statement said.

SAIL said it would select the best available technology to treat Mongolian iron ore and coal deposits based on the feasibility study.

Meanwhile, a report in The Hindu, said a delegation led by C S Verma, chairman of the Steel Authority of India, and UP Singh, joint secretary in the ministry of steel, in the Mongolian capital of Ulaanbaatar, to sign the contract.

"Mongolia has very good quality of coking coal mines. We do not have such quality coalmines. Let the Mongolian government allocate some good coking coal mine and we will have reciprocal arrangement to set up a steel plant there," he said.

In exchange for the coalmine acquisition, India has proposed to construct a steel plant in Mongolia, the country's first ever plant.

The coalmine SAIL targets should be able to meet the requirement of the proposed steel plant. Any excess will be supplied to India.

India, currently imports 35 million tonnes of coking coal a year, which is mostly sourced (60 per cent to 70 per cent) from Australia, while the rest comes from the US and New Zealand.

Meanwhile, the price of Australian coking coal has spurted, from $125 per tonne in 2010 to $360 per tonne in 2011, Verma said.