ULAN BATOR, July 27 (Reuters) - Mongolia's state-owned miner Erdenes Tavan Tolgoi (TT) has agreed to sell $250 million worth of coal from the east Tsankhi deposit to Aluminium Corp of China Ltd (Chalco) , a move insiders said was aimed at raising cash to help fund its impending listing fees.
Under the agreement, Chalco would resell 30 percent of the coal to Japanese trading houses Itochu Corp and Mitsui as well as state-owned Korea Resources Corp (KORES), Erdenes TT LLC said in a statement seen on Wednesday.
Erdenes TT said a signing ceremony was attended by China's ambassador to Mongolia and delegates from Chalco. It has also signed purchasing agreements with Itochu, Mitsui and Kores.
The government has split the massive Tavan Tolgoi coal field into two sections for development. The east Tsankhi area is owned by Erdenes TT, which is planning an initial public offering worth as estimated $10 billion, while the west Tsankhi block is being auctioned to miners via an international tender.
A source involved in the listing of Erdenes TT said the government has been working hard to raise $500 million of initial funding needed to kick off the IPO process.
"The overall capex for the project is well into the billions over the life of the mine so $500 million is just a drop in the bucket to get this project moving," said the source who asked not to be identified as his firm was still competing to win deals related to the IPO.
Erdenes TT did not say how much coal would be sold to Chalco under the $250 million deal, but it said the agreement would expire within one to 1-1/2 years. However, a newspaper report quoted B. Enebish, head of state-run Erdenes MGL, as saying the deal would last for five years.
After the deal expires, Chalco would then have to pay market price for the coal, Erdenes TT said. But it was unclear whether Chalco would continue to be the sole recipient of the coal from east Tsankhi deposit when the agreement expires.
Erdenes TT could not be reached for comment.
The government has said that it hopes to list Erdenes TT by late 2011 or early 2012, and the company would likely be listed in London, Hong Kong, or both.
Land-locked Mongolia, which has an gross domestic product of just about $6 billion, is banking on the development of its massive coal and copper resources to lift the nation out of poverty and help fund much-needed infrastructure projects across the country. (Reporting by Khaliun Bayartsogt, additional reporting by David Stanway in Beijing; Writing by Fayen Wong; Editing by Jonathan Hopfner and Ken Wills)