The rail link from Tavan Tolgoi would have the capacity to deliver 30 million tonnes of coal a year to China, said Samdandovj Ashidmunkh, chief investment officer of the state firm running the project.

The link will be completed within two years of an overseas initial public offering of stock in Tavan Tolgoi scheduled for the first quarter of 2019, Ashidmunkh, of Erdenes-Tavan Tolgoi, said on the sidelines of a forum in Shanghai on China-Mongolia cooperation in mining.

Mongolia expects demand for high quality coking coal from China’s steel sector to increase, but many analysts in China believe steel production is nearing its peak and could start to fall.

Tavan Tolgoi is the world’s largest undeveloped coking coal mine with 7.4 billion tons of estimated reserves.

The project was originally set to host a thermal power plant that would supply Rio Tinto Ltd’s massive Oyu Tolgoi copper mine, which is currently being expanded.

But Mongolia’s inability to find funding has put the onus on Rio Tinto to build its own power facility.

Ashidmunkh said the government still planned to build a power plant at Tavan Tolgoi.

“It would be too much to have two power plants (in the region). Even if (Oyu Tolgoi) built its own power plant they will still need to purchase our coal,” he said.

Analysts attending the forum expressed scepticism about Mongolia’s ambitions, saying logistic costs still eroded the competitiveness of Mongolian coal and demand could soon begin to taper.

“China and Mongolia are greatly divided in the perception of coal resources at present,” said Chang Yijun, chief analyst with the consultancy Fenwei Energy.

Mongolian coal would only be competitive in southern China, where more imports were required, he said.

By David Stanway
Additional reporting by Beijing Monitoring Desk and John Ruwitch; editing by Richard Pullin