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Mongolian Coal Resources Complement to China’s Inner

Mongolia &

Rise of Inner Mongolia Energy BaseYijun Chang

Chairman, Shanxi Fenwei Energy Consulting Co., Ltd.

April 20 2009

Coaltrans China Beijing

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Agenda

1. Coal Resources in Mongolia

2. Coal Resources in China’s Inner Mongolia

3. Mongolian Coal Resources Complement to China’s 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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1. Coal Resources in

Mongolia

Coaltrans China Beijing

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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.

Sketch of Tectonic Structure in Mongolia and China

A. Coal-Forming Ages and Characteristics in Mongolia

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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

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 IMAR’s coal.

Most coal seams are featured by

good washbility, low sulfur and low

phosphor.

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.

Distribution of Coal Type in Mongolia

Degree of Metamorphism Increasing

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2. Coal Resource in China’s

IMAR

Coaltrans China Beijing

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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.

A. Coal-Forming Ages and Characteristics in IMAR

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.

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.

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B. Coal Type, Quality and Characteristics in IMAR

Anthracite,0.3%

CokingCoal, 2.5%

ThermalCoal,97.3%

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 IMAR’s 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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3. Mongolian Coal Resources

Complement to IMAR and

Comparison

Coaltrans China Beijing

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What degree is that Mongolian premium coking coal to improve the using

value of IMAR’s coal?

Let’s see following comparison of coal quality

A. Resources and Coal Types of Mongolia and IMAR

IMAR’s proven coal reserves rank first in China. From the map below, we can see that Mongolian coal

resource is bigger than IMAR’s. 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 IMAR’s coal resource, which guarantee the strategic development and

competitiveness of IMAR’s 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 IMAR’s coal.

2. Guarantee strategic development and competitiveness of coking chains in IMAR.

3. Mongolia coking coal provide strategic support and guarantee to China and even world.

4. Comparison of coking coal resources in Mongolia and IMAR

(billion tonnes) Coal

Resources

Of which:

LigniteBituminous

(Steam coal) Coking coal Anthracite

Mongolia 152 38 60.8 53.2

IMAR 701.6 104.2 577.8 17.5 2.1Note: 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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Area Ash %Volatile

Matter %Sulfur % Washbility Make coke independently

IMAR

Wuhai 10.9-37.4 28.9-37.6 0.4-4.1Difficult to

washGenerally hard to produce premium metallurgical coke above grade 1.

Coke produced fail to satisfy modern large blast furnace.

Baotou 25 26-48 0.1~0.9Difficult to

wash

Mongolia

Central South

11.2~20.4 24-38 0.4~0.7Mostly easy

to washCan produce Grade 1 met coke or better coke or foundry coke.

Coke produced can satisfy modern large blast furnace.

West 10.9~22.6 15.4~23.4 0.3~0.6Mostly easy

to wash

Available product by rational blending

8-10 18-28 <0.6

5. Comparison of quality of main coking coal in Mongolia and IMAR

B. Complement of Mongolian Coal to IMAR and Comparison

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4. Interdependent

Development of Mongolia

and IMAR, and Rise of

IMAR Energy Base

Coaltrans China Beijing

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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.

A. Politics and Economics

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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.

B. Logistics

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Technology

Equipment

Coking coal

demand

Premium coking coal resources

CHINA MONGOLIA

Support coal mining

Drive coal production

Guarantee resource for IMAR

C. Interdependent Development Coal Industries in IMAR and Mongolia

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.

IMAR, as a channel for cooperation between China and Mongolia, will be the biggest beneficiary. The development of Mongolian coal industry will further improve IMAR’s 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 China’s 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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Complement of coal resources

Rise of IMAR Energy Base

D. Adequate Conditions for Rise of IMAR Energy Base

Economic and politic promotion

Improvement of logistics

Interdependent development of coal industry and industrial chains

Mongolian’s resources support China’s growing coal demand

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5. IMAR to Replace

Shanxi to Become

Largest Energy Base

in China

Coaltrans China Beijing

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1. Shanxi is China’s traditional coal producing base and exporting province.

2. Precondition for rise of IMAR coal base is the shrink of Shanxi coal base.

Why compare IMAR with Shanxi?

Let’s compare IMAR and Shanxi in following aspects:

1. Coal output and future trend

2. Coke industrial chain and development trend

3. Coal to oil industrial chain

4. Comprehensive competiveness

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Quickly Improved Construction Requirements• New mine >1.2mtpa; opencast >3mtpa• 30% of coal has to be transferred locally for new

mines• Not approve projects of heavy pollution and big

water consumption

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.

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.

IMAR

Heavy Historical Problems

50% coal production from local mines. Government’s

consolidation measures are facing challenges in

technology, law, and benefit conflicts.

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 can’t be ensured in production.

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.

Shanxi

Comparison of coal production

A. IMAR will Surpass Shanxi to Become Largest Coal Producer

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Source: 2002-2008 data from State Administration of Coal Mine Safety; 2009-2010 data projected by Fenwei.

0

200

400

600

800

1000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2015 2020

Million tonnes Inner Mongolia

Shanxi

Projection of Coal Production (million tonnes)2010 2015 2020

IMAR 600 800 1,000Shanxi 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.

A. IMAR will Surpass Shanxi to Become Largest Coal Producer

CAGR of Coal Productions (2002-2008)

IMAR 20.4% reach 35% in recent

years

Shanxi 10.4%

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Output and Quality Improvement Relies on Mo

ngolia’s Coking CoalWith few coking coal resources and poor qualities, IMA

R can rely on Mongolian abundant and premium coking

coal resources to develop its coke industry and improve

coke quality.

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

IMAR

Reducing coking coal supplyShanxi 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, China’s coking coal import has been increasing month by month this year.

Output Limited and Market Share Reduced by

“Limiting Output to Rise Price” PolicyThe 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.

Shanxi

B. Rapid Growth of Coke Capacity to Change China’s Coke Industrial Layout

Comparison of coke productions in IMAR and Shanxi

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1. IMAR rich in lignite resources that is about 77.6% of China’s 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

C. IMAR to be base for energy sources alternative to oil

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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

OutputBasic 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

CostLow 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.

SX:IMAR10 : 1

SX:IMAR2 : 4

D. Comparison of Competitiveness of Shanxi and IMAR Coal Industries

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Thank You

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with a high degree of expertise and experience

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ranges from field investigations, evaluations of

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