Mongolian Coal Resources Complement to China

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Coaltrans China Beijing
Mongolian Coal Resources Complement to Chinas
Inner Mongolia Rise of Inner Mongolia Energy
Base
Yijun Chang Chairman, Shanxi Fenwei Energy
Consulting Co., Ltd. April 20 2009
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Agenda
1. Coal Resources in Mongolia 2. Coal Resources
in Chinas Inner Mongolia 3. Mongolian Coal
Resources Complement to Chinas IMAR Their
Comparison 4. Interdependent Development of
Mongolia and IMAR, and Rise of IMAR Energy
Base 5. IMAR will Replace Shanxi to Become the
Largest Energy Base in China
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Coaltrans China Beijing
1. Coal Resources in Mongolia
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A. Coal-Forming Ages and Characteristics in
Mongolia
Sketch of Tectonic Structure in Mongolia and China

1. Coal formation in Mongolia was controlled by
   Siberia Plate. In Carboniferous Age, Mongolia was
   still in marine environment when coal was
   depositing in North China.
2. At the beginning of Permian, Altai Mountain began
   to uplift and marine environment subsided from
   west to east.
3. Later, good coal-forming environment was formed
   from west to east with coal bearing strata of
   Permian, Jurassic, Craterous and Paleogene in
   turn geographically.
4. During Alpine Tectonic Movement (namely Himalayan
   Movement), Altai fold uplifted which made coal
   seams buried shallowly, thick, and stably
   distributed that are suitable for opencast
   mining.

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A. Coal-Forming Ages and Characteristics in
Mongolia
1. Resources up to 152 billion tonnes, ranking
top 15 globally. 2. Main coal formation ages
Carboniferous-Permian, Jurassic, Craterous and
Tertiary. 3. Thick coal seams formed in all
ages, but lots of partings and sub-seams. That
reflected a relative stable inland coal-forming
environment. 4. Generally shallow buried and
good mining conditions It is one of resourceful
areas that are most suitable for surface mining.
Coal-bearing Strata in Mongolia
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B. Coal Type, Quality and Characteristics in
Mongolia
Mongolian coal type is primarily influenced by
plutonic metamorphism. Degree of metamorphism
depends on coal-forming ages. With regular
distribution of coal-forming ages, coal types are
also distributed regularly coking coal in west
and central south parts, steam coal in central
part, and lignite in eastern part. Due to pile-up
effect of dynamic metamorphism of Altai fold
belt, the metamorphism of coal measure in same
age is rising from east to west. For instance,
Carboniferous coking coal is JM and 1/3JM in
central south part but JM, SM, and PM in western
part. Most coal is of low ash, low sulfur, and
low phosphors. Most coking coal is easy to be
washed and has great potential for future use. It
is significant to complement and improve coking
coal in Inner Mongolia and Xinjiang.
1. Rich coking coal resources, accounting 35
of total coal resources in Mongolia. One of areas
with most abundant coking coal reserves and full
coking coal types 2. Metamorphic degree becomes
higher southwestwardly in same geological age 3.
Better washibility than IMARs coal. Most coal
seams are featured by good washbility, low sulfur
and low phosphor.
Distribution of Coal Type in Mongolia
Degree of Metamorphism Increasing
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Coaltrans China Beijing
2. Coal Resource in Chinas IMAR
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A. Coal-Forming Ages and Characteristics in IMAR
1. Accumulative proven coal reserves reach 701.6
billion tonnes, ranking first in China. 2.
Similar coal forming ages with Mongolia 3. Few
Carboniferous-Permian coal resources, large
quantity of Jurassic and Craterous resources. 4..
Similar coal-forming environment with Mongolia
but thinner coal seams.
IMAR is located at the boundary of Siberia and
North China Plates. Marin environment lasted
rather long in most IMAR. It uplifted to land in
Triassic and marine environment gradually
subsides eastwardly. Therefore, Faulted Basin
Groups were formed in Tianshan-Yinshan structure
zone and middle, north and east parts where
Craterous and Triassic lignite dominated.
Southern IMAR is located at plateau section in
north of North China Plate. Carboniferous-Permian
is at the edge of North China Coal-Bearing
Region. During Jurassic, Ordos Basin was formed.
Therefore, this area was reserved with few
Carboniferous-Permian coal and rich Jurassic
steam coal.
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B. Coal Type, Quality and Characteristics in IMAR
1. IMAR is rich in coal resources but most of
them are steam coal. Rich lignite is beneficial
for coal gasification, liquefaction and
development of related industrial chain. However,
the shortage of coking coal resources will
influence the comprehensive competitiveness of
IMARs coal resources. 2. Coking coal is the
superimposed result of two factors plutonic
metamorphism and local structure. The typical
characteristic is the metamorphism degree becomes
lower as coal ages become newer. In Wuhai, the
ground stress of Helanshan Fault Zone transformed
to heat energy which caused high temperature and
high pressure locally, and caused the
metamorphism degree rising in surrounding areas
and formed JM and even anthracite. 3. Most coal
in IMAR is difficult to be washed and its content
of sulfur and phosphor are higher than that of
Mongolian coal.
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Coaltrans China Beijing
3. Mongolian Coal Resources Complement to IMAR
and Comparison
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A. Resources and Coal Types of Mongolia and IMAR
IMARs proven coal reserves rank first in China.
From the map below, we can see that Mongolian
coal resource is bigger than IMARs. Mongolia and
IMAR is one of the areas that are most abundant
with coal resources in the world. Meanwhile, we
can find that rich coking coal resources in
Mongolia greatly complement to IMARs coal
resource, which guarantee the strategic
development and competitiveness of IMARs coking
industry. It lays good foundation for IMAR and
Mongolia to become the coking coal supply for
China and even in the world.
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B. Complement of Mongolian Coal to IMAR and
Comparison

• 1. Mongolian premium coking coal complement to
  IMAR and greatly ascend value of IMARs coal.
• 2. Guarantee strategic development and
  competitiveness of coking chains in IMAR.
• Mongolia coking coal provide strategic support
  and guarantee to China and even world.
• Comparison of coking coal resources in Mongolia
  and IMAR

(billion tonnes) Coal Resources Of which Of which Of which Of which
(billion tonnes) Coal Resources Lignite Bituminous (Steam coal) Coking coal Anthracite
Mongolia 152 38 60.8 53.2
IMAR 701.6 104.2 577.8 17.5 2.1
Note Mongolian coal resources refer to those has
been conducted geological survey. The resources
by coal type are estimated based on coal-forming
ages. Just for reference. The coal resources of
IMAR are proven.
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B. Complement of Mongolian Coal to IMAR and
Comparison
5. Comparison of quality of main coking coal in
Mongolia and IMAR
Area Area Ash Volatile Matter Sulfur Washbility Make coke independently
IMAR Wuhai 10.9-37.4 28.9-37.6 0.4-4.1 Difficult to wash Generally hard to produce premium metallurgical coke above grade 1. Coke produced fail to satisfy modern large blast furnace.
IMAR Baotou 25 26-48 0.10.9 Difficult to wash Generally hard to produce premium metallurgical coke above grade 1. Coke produced fail to satisfy modern large blast furnace.
Mongolia Central South 11.220.4 24-38 0.40.7 Mostly easy to wash Can produce Grade 1 met coke or better coke or foundry coke. Coke produced can satisfy modern large blast furnace.
Mongolia West 10.922.6 15.423.4 0.30.6 Mostly easy to wash Can produce Grade 1 met coke or better coke or foundry coke. Coke produced can satisfy modern large blast furnace.
Available product by rational blending Available product by rational blending 8-10 18-28 lt0.6 Can produce Grade 1 met coke or better coke or foundry coke. Coke produced can satisfy modern large blast furnace.
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Coaltrans China Beijing
4. Interdependent Development of Mongolia and
IMAR, and Rise of IMAR Energy Base
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A. Politics and Economics

• China and Mongolia declared to develop
  good-neighbor trust partnership in 2003 and
  signed the Outline for Mid-Long Term Economic and
  Trading Cooperation between China and Mongolia in
  2008.
• China invested USD1181 million in Mongolia in
  2007, about 51.3 of total foreign investment in
  Mongolia and the largest investor in Mongolia.

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B. Logistics
1. Status Both road and railway infrastructures
are poor in Mongolia. Only one trunk railway and
four branch lines existing currently. Annual
cargo capacity of railway is about 20mt. 2.
Plan Mongolia intends to build a rail line from
Tavan Tolgoi to Ganqimaodao. China plans to build
more railways in IMAR.
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C. Interdependent Development Coal Industries in
IMAR and Mongolia
MONGOLIA
CHINA
Support coal mining Drive coal production
Technology Equipment Coking coal demand
With decades of coal development, China is at or
near the world level in coal mining, processing
and utilization. China is competitive enough on
aspects of technology, equipment, worker and
organization. Plus its advantages in location,
market and culture similarity, China will play an
important role in Mongolian coal development.
Without participation of China, Mongolian coal
development and western investors are hard to
obtain desired achievements.
Guarantee resource for IMAR
Premium coking coal resources
IMAR, as a channel for cooperation between China
and Mongolia, will be the biggest beneficiary.
The development of Mongolian coal industry will
further improve IMARs coal products, industrial
chain and competitiveness and greatly promote the
strategic position of IMAR in Chinese energy
development. Complementary resources and
interactive development between Mongolia and
Chinas IMAR provide sufficient and necessary
conditions for rise of IMAR energy base. In near
future, we will see that IMAR will surpass Shanxi
to become the most important energy base in
China.
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D. Adequate Conditions for Rise of IMAR Energy
Base
Complement of coal resources
Economic and politic promotion
Rise of IMAR Energy Base
Improvement of logistics
Interdependent development of coal industry and
industrial chains
Mongolians resources support Chinas growing
coal demand
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Coaltrans China Beijing
5. IMAR to Replace Shanxi to Become Largest
Energy Base in China
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Why compare IMAR with Shanxi?
1. Shanxi is Chinas traditional coal producing
base and exporting province. 2. Precondition for
rise of IMAR coal base is the shrink of Shanxi
coal base.

• Lets compare IMAR and Shanxi in following
  aspects
• Coal output and future trend
• Coke industrial chain and development trend
• Coal to oil industrial chain
• Comprehensive competiveness

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A. IMAR will Surpass Shanxi to Become Largest
Coal Producer
Comparison of coal production
IMAR
Shanxi
Rapid and Large-scale Mine Construction Newly
operated capacity is 30.9mt in 2009 newly built
capacity is 63.5mt in 2009. Total production
capacity of coal to reach 600mt in 2010.
Closing Mines and Limiting Output to Rise
Price Basic policy is closing or consolidating
local mines to reduce numbers. Actual coal output
to be 500mt in 2010.

• Quickly Improved Construction Requirements
• New mine gt1.2mtpa opencast gt3mtpa
• 30 of coal has to be transferred locally for new
  mines
• Not approve projects of heavy pollution and big
  water consumption

Heavy Historical Problems 50 coal production
from local mines. Governments consolidation
measures are facing challenges in technology,
law, and benefit conflicts.
Active Government, Open Policy Actively encourage
foreign or other provinces enterprises to take
part in coal development. Enterprises are
dominated by enterprises which is favorable for
improving management level and safety conditions.
Conservative Government and Policy Discourage
foreign or other provinces enterprises to be
involved in coal development in Shanxi.
Enterprises are dominated by government. Without
normal production order. Safety cant be ensured
in production.
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A. IMAR will Surpass Shanxi to Become Largest
Coal Producer
CAGR of Coal Productions (2002-2008) IMAR 20.4 re
ach 35 in recent years Shanxi 10.4
Projection of Coal Production (million
tonnes) 2010 2015 2020 IMAR 600 800 1,000 Shanxi
500 600 800
IMAR will surpass Shanxi on coal output this year
and on coal production capacity within three to
five years, and will become the largest coal
producer in China.
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B. Rapid Growth of Coke Capacity to Change
Chinas Coke Industrial Layout
Comparison of coke productions in IMAR and Shanxi
IMAR
Shanxi

• Increasing Coke Plants, Swiftly Expanding Coke
  Capacity
• Most coke enterprises are in Wuhai where 7 new
  coke plants about 1mtpa will come on line in
  2009.
• Coke production capacity has been increasing
  that will reach 20mt in 2009, up 53.8 over 2008

Output Limited and Market Share Reduced by
Limiting Output to Rise Price Policy The
percentage of Shanxi coke production reduced from
32 in 2004 to 25 in 2008. Shanxi coking coal
prices have been higher than that in surrounding
areas which has affected the competitiveness and
market share of Shanxi coke.
Output and Quality Improvement Relies on
Mongolias Coking Coal With few coking coal
resources and poor qualities, IMAR can rely on
Mongolian abundant and premium coking coal
resources to develop its coke industry and
improve coke quality.
Reducing coking coal supply Shanxi carries out
closing mines and limiting production to rise
price for years. Most coking coal supply is from
local mines in Shanxi. However, lots of mines in
such cities as Linfen have been closed in past
two years or are hard to produce normally in next
few years. It causes Shanxi coke enterprises hard
to produce and also affects coking coal supply to
other important coke base such as Hebei.
Therefore, Chinas coking coal import has been
increasing month by month this year.
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C. IMAR to be base for energy sources alternative
to oil

1. IMAR rich in lignite resources that is about
   77.6 of Chinas total lignite resources.
2. With shallow buried depth and thick coal seam,
   coal production cost much lower than that in
   other provinces
3. Reliable coal liquefaction technology and
   competitive in coal to oil
4. Industrial production of coal to oil started up
   Shenhua direct coal to oil (1mtpa) has tried
   production successfully Shenhua indirect coal to
   oil (0.18mtpa) to try production in 2010 Yitai
   indirect coal to oil (0.16mtpa) has tried
   production successfully.
5. IMAR expected to be the first to succeed
   technologically and economically and become
   producing base of oil alternative energy

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D. Comparison of Competitiveness of Shanxi and
IMAR Coal Industries
Item Shanxi IMAR 2008 2020
Resource Advantages in coal types Reserve ranks first in China Better Same
Capacity Big base, slow growth Small base, rapid growth Better Same
Output Basic guideline is limiting output to rise price Quick and large-scale mine construction Better Worse
Technology Strong background Develop rapidly Better Same
Water Comparatively adequate Comparatively short Better Better
Environment Harmoniousness Lot of problems Easy for high-level management Better Same
Industrial Chain High ratio of local transferring Grow swiftly with big potential Better Better
Product Excellent Has to coordinate with Mongolia Better Worse
Cost Low transport cost, high additional cost Low production cost, accelerated improvement of transportation Better Worse
Administration Official responsibility-ascertained system replaces professional management which causes accidents and high cost With strong motive to develop, the government widely absorb all kinds of resources to develop its coal industry Worse Worse
Comprehensive By 2020, IMAR will surpass Shanxi on the comprehensive competitiveness of coal industry. By 2020, IMAR will surpass Shanxi on the comprehensive competitiveness of coal industry. SXIMAR 10 1 SXIMAR 2 4
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