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Seeking to unseat Australia, Mongolia's giant coal mine plans $700 mln bond

* Tavan Tolgoi raising money for rail link, power plant - CEO

* First domestic bond tranche raised around $200 million

* Foreign investors welcome to invest in second tranche in Q3

* Project planning $3.4 billion in investment over 2021-2025

ULAANBAATAR, April 21 (Reuters) - Mongolia’s giant Tavan Tolgoi coal mine is aiming to raise 2 trillion tugriks ($700 million) through a bond issue as it tries to build infrastructure needed to replace Australia as one of China’s top coal suppliers, the head of the project said.

Gankhuyag Battulga, chief executive of the state-owned Erdenes Tavan Tolgoi JSC, said Mongolia needs to invest in railways to take advantage of simmering tensions between Beijing and Canberra, which have reduced coal shipments to zero since December.

“The Chinese government introduced a strict limit on Australian coal and this provides Mongolian coal exporters a unique opportunity to boost market share,” he told Reuters, adding that market conditions should shift in favour of Mongolia.

Tavan Tolgoi, located around 240 kilometres from the Chinese border, is one of the world’s largest coal deposits, but its development has been stymied by limited delivery capacity and longstanding financing troubles.

Part of the project was put up for tender in 2011 but the winning bid was annulled after Japan and South Korea complained the process was unfair. Mongolia has also tried to list Tavan Tolgoi on global stock exchanges.

“Underwriters warned us that there is a risk of not reaching our goal with failing coal demand and (an) uncertain world financial market,” Gankhuyag said.

The first tranche of bonds was offered for sale in late March, with an interest rate of 10% for local currency and 6.8% for U.S. dollars. It raised around $200 million.

The bonds are due to mature in two years. The underwriters were BDSec JSC and the Mongolian International Capital Corporation, two local investment banks.

Tavan Tolgoi will require $3.4 billion in investment over the 2021-2025 period, and 70% of that could be funded from the company’s own cashflow, Gankhuyag said.

The company is also constructing water pipelines, a coal washing facility and a 450-megawatt power plant that will supply electricity to Rio Tinto’s giant Oyu Tolgoi copper project.

It has become increasingly difficult to finance coal projects as banks come under pressure to divest from fossil fuels, a major source of climate-warming greenhouse gas.

Gankhuyag said Tavan Tolgoi saw the shift towards clean energy “not as a difficulty but as an opportunity”. The company will focus more on selling gas and electricity in future, he added.

The second tranche of bonds is due to go up for sale in the third quarter, and Gankhuyag said international investors were welcome.

“We are working hard to make our bond available both on local and international stock exchanges,” he said. (Reporting by Anand Turmurtogoo; Writing by David Stanway; editing by Barbara Lewis)

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