Project ID: 47065

Chalco provides $350 million loan to Erdenes Tavan Tolgoi LLC to facilitate coal exports

Commitment amount

$ 430458063.4694471

Adjusted commitment amount

$ 430458063.47

Constant 2021 USD

Summary

Funding agency [Type]

Aluminum Corporation of China (Chinalco) [State-owned Company]

Recipient

Mongolia

Sector

Industry, mining, construction (Code: 320)

Flow type

Loan

Level of public liability

Other public sector debt

Infrastructure

No

Category

Intent

Commercial (The next section lists the possible statuses.)

Commercial

Development

Representational

Mixed

Financial Flow Classification

OOF-like (The next section lists the possible statuses.)

Official Development Assistance

Other Official Flows

Vague (Official Finance)

Flows categorized based on OECD-DAC guidelines

Project lifecycle

Status

Completion (The next section lists the possible statuses.)

Pledge

Commitment

Implementation

Completion

Suspended

Cancelled

Milestones

Commitment

2011-07-26

Actual start

2012-01-01

Geography

Description

On July 26, 2011, Aluminum Corporation of China Limited (Chalco) and Erdenes Tavan Tolgoi LLC (ETT) — a special purpose vehicle and subsidiary of the Mongolian state-owned company Erdenes MGL — signed a $350 million (260 million euros) loan agreement. The borrowing terms of the loan are unknown. However, it is known that the borrower received a $350 million ‘advance payment’ from the lender and it was allowed to repay the loan with cash or coal from Tavan Tolgoi, which is a coal deposit located in the Ömnögovi Province in southern Mongolia. When the loan agreement was signed, ETT and Chalco also signed a long-term steelmaking coal supply contract. Under the term of this contract, Chalco agreed to purchase coal from ETT at a price of $70 per ton (well below the $200+ per-ton price of Australian coking coal). In 2012, ETT sold 2.4 million tons of coking coal to Chalco, 3 million tons less than it had originally planned to export. Then, on January 11, 2013, ETT halted coal deliveries to Chalco and announced that it would only supply coal to Chalco if the Chinese state-owned company revised the prices and volumes in the July 2011 supply contract. According to ETT, it was losing $5 on every ton of coal delivered because of rising transportation costs and the price that Chalco was paying for the coal. ETT also claimed that prices were set below the actual cost of extracting and delivering the coal. In March 2013, ETT failed to honor an $86 million loan repayment obligation to Chalco. Then, in April 2013, ETT agreed to pay a higher interest rate on its total outstanding debt ($186 million) to Chalco as part of an agreement to resume coal deliveries. ETT restarted coal shipments to Chalco on April 22, 2013 after securing a $3 per-ton-of-coal price increase from Chalco. Chalco reportedly agreed to pay $56 per ton and ETT reportedly agreed to supply 5 to 6 million tons of coal to Chalco by the end of 2013. ETT subsequently began to mine Mongolia’s West Tsankhi coal area to ramp up output and expedite the repayment of its outstanding debt to Chalco. In March 2017, ETT announced that the Chalco loan had been repaid in full — partially through coal exports and partially through cash (from the proceeds of a loan that ETT received from from the Mongolian Government).

Additional details

1. The proceeds of the $350 million Chalco loan were to be used by the borrower as prepayment for coking coal mined from Tavan Tolgoi. As such, the loan that was issued likely came in the form of a pre-export finance (PXF) facility. A PXF facility is an arrangement in which a commodity producer gets up-front cash from a customer in return for a promise to repay the customer with that commodity (possibly at a discount) in the future. PXF funds may be advanced by a lender or syndicate of lenders to a commodity producer to assist the company in meeting either its working capital needs (for example, to cover the purchase of raw materials and costs associated with processing, storage and transport) or its capital investment needs (for example, investment in plant and machinery and other elements of infrastructure). PXF facilities are usually secured by (1) an assignment of rights by the producer under an ‘offtake contract’ (i.e., a sale and purchase contract between the producer and a buyer of that producer of goods or commodities), and (2) a collection account charge over a bank account into which proceeds due to the producer from the buyer of the goods or commodities under the offtake contract are credited. There are two key documents in prepayment finance transactions: a contract providing for the advance payment by the offtaker to the producer for the purchase of goods/commodities (the 'Prepayment Contract'), and a loan agreement between a lender and the offtaker (the 'Offtaker Loan Agreement') under which the advance payment is financed. 2. The maturity field is set to 5.5 years based on the loan signature date and the final loan repayment date. The interest rate field is set to 12% because, in 2015, Mongolia Government Minister M.Enkhsaikhan disclosed that the borrower was repaying its debt to Chalco at a 12% interest rate in 2015. 3. Erdenes Tavan Tolgoi JSC is a project company and special purpose vehicle was founded on August 27, 2010. According to the Resolutions of Mongolian Parliament and Government, Erdenes Tavan Tolgoi JSC started to operate since December 23, 2010 as a subsidiary of Erdenes Mongol LLC to mine the Tavan Tolgoi coal deposit. The main operation of Erdenes Tavan Tolgoi JSC focuses on putting strategic mine deposits into economic activities, carrying out exploitation on the deposits and implementing infrastructure projects. Erdenes Tavan Tolgoi JSC has 588 employees, all of whom are Mongolians. 4. Some sources indicate that the borrower received a $250 million ‘advance payment’ rather than a $350 million ‘advance payment’ from the lender. This issue warrants further investigation.

Number of official sources

5

Number of total sources

15

Download the dataset

Details

Cofinanced

No

Direct receiving agencies [Type]

Erdenes Tavan Tolgoi JSC (ETT) [Joint Venture/Special Purpose Vehicle]

Implementing agencies [Type]

Erdenes Tavan Tolgoi JSC (ETT) [Joint Venture/Special Purpose Vehicle]

Loan Details

Maturity

6 years

Interest rate

12.0%

Grant element (OECD Grant-Equiv)

0.0%

Bilateral loan

Project finance