OVERVIEW OF TAVANTOLGOI PROJECT. September 8 th, 2015

Transcription

1 OVERVIEW OF TAVANTOLGOI PROJECT September 8 th, 2015

2 CONTENT 1. Operational overview: Global coking coal market overview Chinese coking coal market overview Mongolian coking coal market update ETT performance: Business, operation and investment 2. Coal-bed methane project Coalbed methane (CBM) Global practice CBM at Tavantolgoi

3 COKING COAL GLOBAL MARKET OVERVIEW COKING COAL CONSUMPTION Global steel production is dependent on coal over 70% of total global steel production relies directly on inputs of coal. Over 1.2 billion tonnes of coal are used in global steel production - 15% of total coal consumption worldwide. China is the main player in steel and coking coal markets as to growing urbanization. Today most steel is used in China which accounts approximately 46.2%, in comparison to only 28.3% in China represented 50.6% of total world coking coal consumption today. High quality hard coking coal remains scarce in the global coal market. Major steel users Coking coal import volume, by countries (Mt) 300 2% 3% 3% 4% 5% 6% 7% 9% 2% 59% China USA India Japan South Korea Russia Germany Turkey Brazil Italy Japan China India Total Europe Rest of the World Resource: World Coal Association, World Steel Association

4 Total Volume, Mt CHINESE COKING COAL MARKET OVERVIEW Economic growth: China s 2Q2015 GDP dropped 7% for the 1 st time in 6 years due to economic slowdown; Weakening demand for steel: 1H2015 steel and coal consumption decreased by 4.7% and 14.7%, respectively, leading up to 30.1% decline in total coal import due to over stock, and imbalanced demand and production; Stricter environmental regulations on coal imports: 3%-6% of tariff has been put on coking coal import; Steelmaking industry relocation: China s steelmaking industry is relocating to the coast to increase access to seaborne raw materials. In , Chinese coal market has been unfavorable for the coal producers, especially for Mongolian coal exporters as we are challenged by the infrastructure and logistical constraints. Chinese coking coal production and consumption volume (Mt) 2Q2011-2Q % 5.9% 5.7% 3.9% 6.2% 0.4% 1.9% 0.0% 10% 5% 0% % % -10% % -15% 0 2Q2011 2Q2012 2Q2013 2Q2014 2Q % Coking Coal Production Coking Coal Consumption Production YoY growth Consumption YoY Growth Resource: World Coal Association, World Steel Association

5 CHINESE COKING COAL MARKET OVERVIEW: Price drop RMB/TN 1,400 1, Washed and Raw coking coal prices at Gantsmod port (RMB) /Dec Aug 2015/ - 55% 1, Washed coal Raw coal 0 The fall in price of coking coal, which started in 2012, reached 55% in August The main reason for the fall in price of coking coal was the excess supply in Chinese coal market. Resource: 5

6 MONGOLIAN COKING COAL MARKET SHARE IN CHINA ml.tons % 6.9 Mongolian shares in China s coking coal imports / / % % % % % % 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Others Mongolia Mongolia's rate Others 2.2% Breakdown of Chinese coking coal import in 2Q 2015 Russia 8.4% Canada 10.2% Australia 50.2% Mongolia 29.0% Australia Mongolia Canada Russia Others 1H H 2015 % change Australia % USA % Canada % Russia % Mongolia % Rest of the world % Total % In 1st half of 2015, Mongolia and Australia contributed almost 80% of the total coking coal import to China. Resource:

7 MONGOLIA AND ETT SHARES IN THE MARKET Mongolian shares in Chinese coking coal imports in the 2Q of thousand.tons 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5, , % 30, % 21, % 5,969 7,530 6,268 2Q Q Q % 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Mongolian export Others Mongolia's percentage 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 ETT shares in Mongolian coking coal exports in the 2Q of thousand.tons 0 5, % 374 7, % 6, % 2,628 2,597 2Q Q Q 2015 ETT export Others ETT's percentage 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Chinese coking coal imports have decreased by 31.1% to 21.6 ml tons in the 2Q 2015, compared to 30.9 in 2Q2014. However, Mongolia increased its portion in the total export volume from 24.3% to 29.0% from the year before. ETT s share in Mongolian total export was at 6.3% in 2Q2013 and rose up to 41.4% in 1H2015 with the export of 2.6 million tons of coal. Resource:

8 ETT: Business overview thousand.tons Production Volume thousand.tons Export Volume Billion MNT 3,000 2,500 2,439 2,439 3,000 2,500 2,628 2, ,000 1,759 2, ,500 1, Q Q Q ,500 1, Q Q Q West Tsankhi East Tsankhi Total Sales Volume Sales Income As of September 1 st, 2015: As of September 1 st, 2015: 3.5 ml tones of coal has been mined. 3.1 ml tones of coal has exported.

9 ETT: Business operation ETT s financial performance in the 2Q of Billion MNT (50.0) (100.0) (5.9) (11.5) (23.0) (20.2) (59.0) (49.3) 2Q Q Q Sales revenue Operational expense Profit (loss) from operations Foreign exchange gain/loss Net profit 9

10 ETT: Investment overview Tendering for the Strategic Investor 20 th of August: GoM issued Resolution #268, which was to recommence the tendering to select a strategic investor to develop the Tsankhi areas of Tavantolgoi. 1 st of December: Closing date of proposal submission. Tendering proposals were received from: Consortium of Chinese, Mongolian, and Japanese parties American Peabody Energy April: After 3 months of negotiation, the working group submitted the following draft agreements to the GoM : 1. Investment agreement 2. Cooperation agreement 3. Concession agreement Aug Sep Oct Nov Dec 2014 Jan Feb March April May June July Aug ST of September: Invitation for bidding was sent to the shortlisted companies. Month of December: Government level working group evaluated the proposals. On the 24 th of December, Consortium of Shenhua, Energy Resource and Sumitomo was announced as the winner for the bidding. 5 th of January: Negotiation with investors officially started. 17 th of April: The GoM submitted draft agreements to the Parliament. The parliament established its working group to evaluate the draft agreements. July: The GoM withdrew the draft agreements and established new working group to negotiate with the investors.

11 ETT: Investment overview PORT RAILWAY PROJECT Project specifications: Objectives: Construct 11 km railway that surpasses Chinese Gashuunsukhait border Benefits: Allow Mongolian coal exporters deliver their products to the China s in-land end customers and to the sea ports directly. Investors: ETT, ER, Tavan Tolgoi and Shenhua Progress of the project: Gashuunsukhait Railway LLC has been established. On January 15, 2015, Feasibility Study approved by the Board of Science and Technology at the Ministry of Road and Transportation. Tendering of the general contractor for construction of the railway is under preparation.

12 ETT: Investment overview COALBED METHANE PROJECT Project specifications: Objectives: Build CBM Demo plant to: produce, purify, refine, and store the coal bed methane. Developers: ETT, KOGAS, and ELGEN: ETT to provide geological research data; KOGAS to conduct research and survey of CBM, and to finance required expenses; ELGEN to conduct drilling. Location: Boorteeg area in TT coal field Initial investment cost: $8.6 ml USD Commencement date: August 12, 2015 Progress of the project: Created an exploration contract with Petroleum Authority of Mongolia. Preliminary study was done between The pilot plant commenced its operation on 12th August The developers are working on the composition of the reserve, reserve expansion and processing methods. A detailed feasibility study preparation work is planned to start in six months once vigorous research study is complete at the current cooperation setting. Experimental CBM gas pilot plants and required equipment will be installed. The developers are working with the Petroleum Authority of Mongolia to create a Product Sharing Agreement.

13 CONTENT 1. Operational overview: Global coking coal market overview Chinese coking coal market overview Mongolian coking coal market overview ETT performance: Business, operation, investment 2. Coalbed methane project Coalbed methane (CBM) Global practice CBM at Tavantolgoi

14 WHAT IS COALBED METHANE? What is Coalbed Methane(CH4)? It is a form of natural gas extracted from coal beds. How to get the methane out of the ground? Drilling: A hole is drilled into the coal seam and lined with steel tube. Fracturing: To free the methane from the coal, gas (usually nitrogen) is injected at high pressure into the well. Water removal: If the coal is dry, start producing the gas immediately. If there is water present, it must be pumped out. Compression: The gas must be pumped to compressor stations. Types Coal methane mine /CMM/ Started extracting for the safety relevance Coalbed methane /CBM/ Started extracting for the economical relevance Usage Direct: Power plants Household consumptions (heating, cooking, etc.) Converted: CNG (Compressed Natural Gas), LNG(Liquefied Natural Gas) DME (Dimethyl Ether) GTL (Gas to Liquids) Nafta, Diesel

15 COALBED METHANE Pros&Cons Potentials and Concerns of extracting CBM Pros & Potentials Cost efficient: Able to produce heat 2.5 times more than coal and 1.2 times higher than petrol. Economically beneficiary: Production and transportation costs are much cheaper than the traditional production methods of generators such as coal power plants. Environmentally friendly: Burning methane adds a lot less Carbon Dioxide to the atmosphere than does the burning of coal, Production of methane from coals prior to mining reduces the amount of methane released to the atmosphere during the mining process, Producing methane then can serve a double purpose in the campaign to reduce the release of gases that contribute to the global warming, Cons & Concerns Relatively young industry: so much more engineering studies need to be done in order to enrich the current understanding and recovery of this unique resource. Environmental modification: CBM extraction entails significant surface modification for roads, pipelines, wells and gas concentration facilities, which has secondary effects such as substantially increased noise, dust.

16 CBM GLOBAL PRACTICE GLOBAL CBM RESERVES 1 Tcf = 20ml tons 1 MMBTU = cubic meter Global Practice The global CBM reserve is estimated to be more than 7,000 Tcf. First commercial extraction of coal seam gas began in 1996 in the Bowen Basin of Queensland, Australia. The pricing of CBM differs depending on the geographical factors: Australia: USD4-6/MMBTU China: USD5-7/MMBTU Challenges: Building the required infrastructures to get the gas to market.

17 GLOBAL CBM INDUSTRY AND OUTLOOK The causes of the increase in the usage of CBM: Low production costs cheap alternative source of energy and heating Environmentally friendliness cleaner burning source of energy than coal CBM usage by sectors in 2014 bn.ft 3 Projection of CBM consumption 17% 10% 3% Industrial 34.7% Power Generation Residential 5, , , , , , , , , % Commercial Transportation 1, In 2014, 35.3% of the CBM production was used in the power generator sector and the sector demand is expected to grow at the rate of 8.5% until Global CBM consumption was 3,124.4 bn.ft 3 in 2014 and is expected to reach 4,382.0 bn.ft Asia Pacific is expected to be the most dynamic regional market, with significant unexplored reserves. The Chinese Ministry of Land and Resources has already announced plans to produce 52.5 bn.ft 3 of coal bed methane by 2015, to reduce air pollution. Indonesia has already audited 1,000 bcf net resources and has production target of over 15,000 bn.ft 3 by Resource:

18 Seam CBM RESERVES IN TAVANTOLGOI Estimated reserve amount: 51.0 bn.m 3 M-05 Хийн нягт: 0.784kg/Nm 3 The preliminary results are based on theoretical calculation of drilled holes and the seismic survey covering total area of resource base: TT deposit s CBM reserve 51.0 billion m 3 (40.0 million ton) - GIP Gas composition(%) CH4(93.3), CO2(5.8), N2(0.8). Gas in base Thickness (Gas-In Place - GIP) [m] [billion m 3 ] [million ton] 9b ab bc a b a Sum

19 STRATEGY OF CBM PROJECT AT TAVANTOLGOI Possible business operations of CBM from Tavantolgoi Exportation of gas Supply to Power plants CBM at Tavantolgoi Distribute to UB through gas pipelines Ger district heating Fuel supply Power generation Exportation of power Distribute power in the Gobi and near regions Major challenges: costly infrastructure and distribution channels

20 THANK YOU FOR YOUR ATTENTION