November 10, 2011 – 14:57 GMT Location: London

Commodities trader Trafigura and Beijing-based private equity firm Origo have joined forces to explore coking coal and iron ore opportunities in Mongolia

Commodities trader Trafigura and Beijing-based private equity firm Origo joined forces on November 7 to explore coking coal and iron ore opportunities in Mongolia.

It’s an unusual tie-up. Commodity traders like Trafigura, the second largest in the world, are better known for starting up their own investment vehicles than for entering into joint ventures with them.

But Origo, one of the largest private equity investors in Mongolia with a history of developing lucrative coking coal projects in both the land-locked central-Asian nation and China, is an attractive prospect.

Origo talked to five of the world’s largest commodity traders when searching for a potential partner for its operations in Mongolia.

It chose Trafigura – powerful and well-connected, but relatively new to the coal market – for its regional know-how and financial prowess.

“We had some loose discussions with a number of different parties,” Origo ceo Chris Rynning told MB. “Trafigura were very knowledgeable about the sectors and the territories, and were willing to put capital behind the joint venture.”

Origo has partnered with Trafigura to minimise operational risk and to tap into the trader’s global marketing potential. The new venture, Trafigura Origo Mongolia, aims to export several million tonnes of iron ore and coking coal in the next twelve to eighteen months.

The tie-up with Trafigura will enhance the firm’s position in Mongolia and the wider region, Rynning said.

“We have partnered with Trafigura to deal with the challenge of taking our product to market. [Origo] has made several investments in iron ore and coking coal. We have been in Mongolia for about four years and have had a technical team on the ground from the beginning,” Rynning said.

The two companies will take equal shares in the joint venture and have pledged to invest in a number of identified iron ore and coal exploration projects in Mongolia.

Both Origo and Trafigura also have separate projects of their own that could potentially be incorporated in the joint venture.

The joint venture could then expand its activities to include a wider range of commodities in Russia and Kazakhstan.

Significant budget

As yet, neither Trafigura or Origo have put a figure on the number of projects, term length and budget of the joint venture.

But while a definitive figure has not been given for the project’s budget, it will be significant, according to Trafigura head of CIS and Mongolia Mikhail Zeldovich, who will be running the joint venture from the trading house’s side.

“There is no set limit to what we nmight spend on this jv, we are taking a long-term view on this. We are not committing amounts but are looking for the right projects,” Zeldovich said. “We see Mongolia as a country that is beginning its natural resources boom.”

Mining majors looking to secure low-cost, long-term resource supplies and attracted by the Mongolian government’s investor-friendly legal framework are increasingly willing to pay huge sums to benefit from the boom.

In July, Chinese coal miner Shenhua won a hotly contested bid to develop the Tavan Tolgoi coking coal deposit, one of the largest in the world, beating Brazilian miner Vale, Swiss miner Xstrata and steelmaker ArcelorMittal.