Mitsui and Shenhua Group ink overseas coal development pact

Japan's trading house, Mitsui & Co announced today that it has reached an agreement with China's state-owned mining and energy company Shenhua Group to jointly expand their coal business and develop supply of overseas coal to China.

The agreement encompasses expansion of coal trading to Japan and China, joint development of overseas coalmines, collaboration of coal chemical business, and development of environmental and efficient energy-use business.

Tokyo-based Mitsui has been marketing Shenhua's thermal coal to Japan for the past ten years and both companies aim to reinforce their relationship for their further mutual benefit in the future.

Both companies will jointly develop supply of overseas coal to China, including coal mine projects in Mongolia, where there are abundant coal reserves.

Although Mitsui did not reveal which coal mines it would like to target in Mongolia, the Nikkei business daily reported that the two firms would bid for development license to Mongolia's Tavan Tolgoi coalfield, one of the world's largest untapped coking coal deposit located in the South Gobi region.

The Tavan Tolgoi coal deposit is estimated to hold around 6.5 billion tonnes of coking coal reserves and the closest market for this coal is China.

In February 2010, the Mongolian government scrapped the auction of the Tavan Tolgoi coal deposits, opting instead to own the entire stake and develop it through a mining contract or a production sharing arrangement. (See: Mongolia scraps $2-billion Tavan Tolgoi coal auction, favours contract mining)