June 18 (Bloomberg) -- Mongolia is seeking investors for a $10 billion desert industrial complex that will meet rising Asian demand for coal and copper from some of the world's largest untapped mineral resources.
A copper smelter, oil refinery, power plants and chemical coking facilities are planned at Sainshand in the Gobi desert to do value-added processing for the Tavan Tolgoi coking coal deposit and Oyu Tolgoi copper mine, said Ganbat Chuluunkhuu, a government adviser and former Wall Street financier with Commerzbank AG.
The Mongolian government wants investors to fund as much as 40 percent of the project that will build 1,000-kilometers (650 miles) of railroads through south Gobi and eastern Mongolia, connecting Tavan Tolgoi to China and Russia, Chuluunkhuu said in an interview in the capital city Ulan Bator.
"Mongolia can become the Kuwait of central Asia," Chuluunkhuu said yesterday. "All the resources are there, and all the buyers are there. The only missing part is to get everybody organized, prepare all the documentation that meets international practice. It's doable."
Tavan Tolgoi holds about 6 billion metric tons of coal in the deserts of southern Mongolia, making it one of the world's largest unexploited reserves of the fuel.
Rio Tinto Group and Ivanhoe Mines Ltd. are developing Oyu Tolgoi, which London-based Rio has called the world's largest copper resource. It may operate for as long as 30 years and generate between $30 billion and $50 billion in revenue, Mongolian President Tsakhia Elbegdorj said in September.
Mongolia, a landlocked country sandwiched between China and Russia, is seeking investors as part of a national development strategy that aims to grow its economy by 14 percent between 2007 and 2015, bringing gross domestic product per capita for the nation's 2.7 million people to $5,000 from the current $1,900.
That would raise GDP per capita to above the level of countries including Thailand, Maldives, and China, assuming the same growth rate for other Asian nations, according to Chuluunkhuu, adviser to the Ministry of Road, Transportation, Construction and Urban Development of Mongolia.
Mongolia targets another 12 percent economic growth from 2016 to 2021, and GDP per capita of $12,000, surpassing Malaysia, and putting it in the same league as South Korea and Taiwan, Chuluunkhuu said.
The World Bank estimated the value of Mongolia's GDP in 2008 was just $5.3 billion. Mongolia is rated B1 by Moody's Investors Service, four levels below investment grade and on par with Fiji and Papua New Guinea. Standard & Poor's rates the nation BB-, the third-highest non-investment ranking.
Mongolia plans to fund 60 percent to 70 percent of the project through debt financing, and seeks foreign and local equity sponsors, including private equity, pension funds and institutional investors for the remaining 30 percent to 40 percent, according to Chuluunkhuu.
About 40 percent of the funds will finance the infrastructure part of the plan, and the rest will be used for industrial facilities.
Five railways will be built. One will connect Tavan Tolgoi, Sainshand, to an existing railroad to Russia, while another four will run through China.
"If we don't get international investors, the project can't start off," Chuluunkhuu said.
Hong Kong Exchanges & Clearing Ltd. Chief Marketing Officer Lawrence Fok, who was in Ulan Bator for a forum on corporate capital raising this week, says Mongolia can be attractive to investors.
Mongolia has "the story about China's economic growth and its increasing demand for resources," Fok said in an interview. "Mongolia and other resource-rich countries share the same characteristics of having a small population and massive resources, which would benefit from China's economic growth and its rising demand for resources.
Mongolia is seeking bids from engineering and construction companies to do "master planning" for the industrial complex and railroads as the project's management consultants, he said. A tender notice will be published by June 25, and final proposals are due by July 30. Selection of the project manager will be completed by Aug. 20.
If the project's master plan, expected to be completed by April 2011, proves to be economically viable, the government wants to start construction in the second half of next year, Chuluunkhuu said. Building will take two to three years, with production estimated to begin in 2014, starting to generate economic benefits from 2017, he said.
Chuluunkhuu, a Mongolian native who was invited by the government to return to his country for the project from Wall Street in July 2009, worked for six years in structured commodity and project financing with Commerzbank AG in New York.
Mongolia is trying to reduce its reliance on mining, which now accounts for about 65 percent of its GDP. Without industrialization, it is estimated mining will make up 95 percent of the nation's economy by 2021, as compared with 63 percent if the expansion plan goes ahead, the adviser to the minister said.
Apart from saving the Mongolian economy from the risk of being overly dependent on mining and subject to fluctuations in commodity prices, the industrialization also will create about 78,000 jobs between 2010 and 2021, according to Chuluunkhuu. Foreign workers will be needed at the initial stage.