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Bloomberg
Trafigura to Boost Mongolia Metal Trading as ‘Giant Awakens’
November 08, 2011, 5:48 AM EST


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By Yuriy Humber
(Updates with metal export volumes in eighth paragraph.)
Nov. 8 (Bloomberg) -- Trafigura Beheer BV, the world’s second-largest independent trader of non-ferrous metals, plans to expand in Mongolia to deliver more iron ore, coal and copper to the Chinese market.
It secured its first iron ore and coal supply agreements in the country in the past few months, Mikhail Zeldovich, head of Trafigura’s Russia and Mongolia unit, said in a telephone interview from Ulan Bator. Talks on more accords are in progress and Trafigura’s first Mongolian tin shipment is due this week, he said.
“In all commodity businesses I anticipate strong growth, and in the bulk commodities of coal and iron ore I am targeting a multiple of what we already have,” Zeldovich said. “We very much see Mongolia as a sleeping giant of resources that’s now beginning to awaken.”
Mongolia in June surpassed Australia as the biggest seller of coking coal to China and total exports may rise 65 percent this year, according to Ulan Bator-based Trade and Development Bank. Rio Tinto Group will begin commercial output from the Oyu Tolgoi mine in 2013, a deposit in central Mongolia that it says is one of the biggest untapped sources of copper and gold.
A mining boom in the world’s most sparsely populated nation promises the greatest influx of wealth for Mongolia since Genghis Khan conquered most of Europe and Asia in the 13th century. Economic growth may surge to 23 percent in 2013, more than twice the forecast expansion in China, as mining projects begin production, the International Monetary Fund said in April.
Funding Mines
Between 15 and 20 new mines are coming into operation in Mongolia every year and the government this year scrapped a 68 percent windfall tax on gold and copper to stimulate more industry development, Otgonbat Sedbazar, an adviser to the nation’s Resource Ministry, said last month. Mining investment reached $2.63 billion last year, almost 10 times the level a decade earlier, Otgonbat said.
Last year, Amsterdam-based Trafigura provided more than $40 million in financing to help start production at a lead and zinc mine in eastern Mongolia in exchange for an off-take accord, Zeldovich said. The trader has also invested in a trucking company in Mongolia to transport coal from producers including Mongolyn Alt (MAK) Group to China, he said. It ranks among the top three sells of copper in Mongolia, he said.
Zinc concentration output in Mongolia jumped to 112,600 metric tons last year from 22,800 tons in 2005, while tin output dropped to 13 tons in 2010 from 47 tons five years ago, according to a presentation Otgonbat made at a Hong Kong forum. Iron ore exports reached 3.2 billion tons last year from less than 170 million tons in 2005, Otgonbat said.
Headcount Rising
The Trafigura team in Mongolia, including the trader’s truckers, has grown to more than 80 local staff since it began buying copper from local smelters in 1997 and more will be added as the headcount “has to catch up with our business needs,” Zeldovich said. It employs 6,000 people globally, according to the company’s website.
Trafigura is now considering investments in a “few” miners close to starting production, Zeldovich said without providing further details. One project under evaluation is a “mid-size” coking coal deposit that could send its steel- making raw material to Russia, he said.
“The coal sector in Mongolia is rapidly metamorphosing from exploration to large-scale production,” which could see output exceeding 60 million tons by 2015, compared with 22.5 million tons last year, Moscow-based Renaissance Capital brokerage said in a June report on Mongolia.
Trafigura said yesterday it has set up a joint venture with Origo Partners Plc., a Beijing-based private equity firm with stakes in a number of exploration assets in Mongolia including Gobi Coal and Energy Ltd. The venture will explore for iron ore and coal in north and northwest Mongolia, Zeldovich said.
“There are a lot fewer opportunities close to production than there are greenfields,” Zeldovich said. “As we grow, we’d like to diversify ourselves in terms of commodities.”
--Editors: Rebecca Keenan, Ryan Woo.
To contact the reporter on this story: Yuriy Humber in Tokyo at [e-mail]
To contact the editors responsible for this story: Rebecca Keenan at [e-mail]; Andrew Hobbs at [e-mail]