The Mongolian government has scrapped the auction of the Tavan Tolgoi coal deposits close to the Chinese border, the world's biggest untapped coking coal deposit in the South Gobi region, opting instead to own the entire stake and develop it through a mining contract or a production sharing arrangement.

Last year, Mongolia's government hired Deutsche Bank and JP Morgan to sell up to a 49-per cent stake of the Tavan Tolgoi coal deposits through an auction, which could have got the country an estimated $2 billion.

Mongolia's state-owned Erdenes MGL was to hold the remaining 51 per cent in the deposit.

But the Mongolian government terminated the auction this week in favour of holding the prized deposit itself, which had attracted global mining giants to get a piece of the massive coal deposit estimated to hold 6.5 billion tonnes, according to a Reuters report yesterday.

Yesterday, Reuters reported that according to sources that JP Morgan and Deutsche Bank were no longer advising the Mongolian government on the sale.

Bidders for Tavan Tolgoi included mining giants Anglo Australian miner BHP Billiton, Vale of Brazil, the US coal miner Peabody, South Korea's COPEC consortium, China's Shenhua, a Russian consortium that including Gazprom and Renova and India's Jindal Steel and Power Ltd.

Ironically, BHP Billiton, which had won the right to develop the Tavan Tolgoi coal deposits in the 1990s, had returned the stake to the Mongolian government as it found the deposit too expensive to develop at that time.

A spokesman for the government told Reuters that the Mongolian government

had two options, the first was to own 51 per cent of the stake and auction 49 per cent, and second was to own 100 per cent.
The Mongolian Prime Minister Sükhbaataryn Batbold preferred the second option.

The government, while retaining 100 per cent of the stake, is now planning to hire the services of a contract mining company to develop the Tavan Tolgoi coal deposit.

Mongolia with a population of just 2.6 million, is a mineral rich country holding the world's largest undeveloped copper and coking coal reserves. It also has huge deposits of untapped uranium, gold, phosphorite and fluorspar as well as rare earth metals.

Nearly half of the gross industrial output and 60 per cent of the country's export earning come from the mining sector.