US mining giant Peabody Energy, China's Shenhua Energy Co and a Russian-Mongolian consortium have been chosen by the Mongolian government to jointly develop part one of the world's largest coking coal deposits at Tavan Tolgoi, 270 kilometers from the Chinese border.

Under the long awaited deal, Shenhua will hold a 40-per cent stake, the Russian-Mongolian consortium will own 36 per cent, while Peabody, the biggest US coal miner, will hold the remaining 24 per cent.

Bidders for Tavan Tolgoi included mining giants Anglo Australian miner BHP Billiton, Vale of Brazil, South Korea's COPEC consortium, Japan's Mitsui & Co, Swiss diversified miner Xstrata, India's Jindal Steel and Power Ltd and ArcelorMittal, the world's largest steel maker.

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.

Early last year, the Mongolian government scrapped the auction of the Tavan Tolgoi coal deposits, opting instead to retain ownership of the deposit and develop it through either a mining contract or a production sharing arrangement.

The winning companies will pay the Mongolian government 500 million as a ''direct payment'' and another $500 million as an ''advance payment'' as well as taxes and fees.

The coal will be subject to a 5-per cent royalty fee due to Mongolia's state-owned Erdenes Tavan Tolgoi, which is the owner of the deposit.

The deal also includes building of facilities like a 600 megawatt power station, coal-to-liquid fuel and coking fuel facility as well as north and southbound railways for transporting the coal.

The government will submit the shareholding plan to parliament next week for approval, according to a government statement.

The Tavan Tolgoi coking coal deposit is spread over 68,000 hectares (168,000 acres), located mainly in the central Tsankhi area and is estimated to hold 6.5 billion tonnes, touted to be one of the largest coking coal deposits in the world.

Mongolia, a landlocked country with a population of just 3 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.