Chinese companies are still in the running to operate the facility

ULAN BATOR/BEIJING - Mongolia said on Thursday that it has reduced the number of shortlisted bidders seeking to develop the prized Tavan Tolgoi coking coal mine to three and that Chinese and Russian groups are still in the running.

The results of the bid will be announced within days, the Mongolian government said in a statement.

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It did not give the names of the bidders who have been shortlisted. However, the Mongolian ambassador to China said in Beijing that the government would consider the interests of its two neighbors and that the groups, including Chinese and Russian companies, were still in the running.

The Tavan Tolgoi coal deposit, in Mongolia's south Gobi region, has estimated reserves of 6 billion metric ton of coal, including the world's largest untapped deposit of steelmaking coking coal, a raw material that is increasingly hard to find.

Mongolia, which has GDP of around $6 billion, is hoping to use Tavan Tolgoi to bankroll its long list of infrastructure investments around the country.

The landlocked nation relies heavily on China for its commodities exports, but is in talks to access Russia's railways and ports as it looks to build new trade ties with other countries in the region.

These geopolitical considerations mean the two consortia: Shenhua Energy Co Ltd along with Japan's Mitsui & Co, as well as the group comprising State-run Russian Railways, the Pohang Iron and Steel Company and others would probably be the final winners.

"There can't be too many fingers in the pudding. The Chinese and Russians will need to be involved in the project," said an analyst with a European investment bank, who asked not to be identified.

"The consortium with Russian Railways is also a good bet because South Korea is a good backup market should the Japanese be unable to take the coal."

The government has previously said more than one winner may be picked to develop the project.

ArcelorMittal SA, Vale SA, Xstrata PLC and Peabody Corp of the US are the remaining contenders.

The Mongolian government, led by Prime Minister Sukhbaatar Batbold, said the shortlisting came after 18 rounds of talks with all six bidders over issues such as pre-payment, mine management and environmental concerns.

Speaking at a news conference in Beijing, the Mongolian ambassador to China, Galsan Batsulch, said the government needs to first consider the closest market for its resources, as well as the huge investment needed to develop the mines.

"China is the closest market and the main consumer of our mine products. We cannot develop the mine if we don't take Chinese interests into account," Batsulch told reporters.

For most of the last century, Mongolia has enjoyed warm ties with Russia, which has built roads and raised the literacy levels of Mongolians during its communist era.

The government is also planning an IPO for Erdenes-Tavan Tolgoi LLC, the State-owned company in charge of the eastern block, which has been valued at up to $5 billion.

The Tavan Tolgoi coal deposit is located about 400 kilometers from the nearest railway line and lacks infrastructure and power, all of which has held up development and allowed only very limited production.

The three bidders shortlisted by the Mongolian government are vying to develop the west Tsankhi block of the field, which has 1.2 billion metric tons of coal reserves and could produce 15 million metric tons annually for more than 30 years.

Reuters