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TerraCom has agreed a 5.5 year offtake agreement for hard coking coal (HCC) from the BNU coal mine in South Gobi, Mongolia, with Kingho Group, one the largest private companies in China.

The agreement covers 7.5 million t of the period. Pricing is linked to a “commercially in confidence minegate pricing structure,” TerraCom said, that reflects the recently improved metallurgical coal prices. A definitive sale agreement will be developed shortly to reflect the binding commercial terms.

“This is a significant milestone for TerraCom Mongolian Business Unit on a number of fronts and it reflective of the broader upward price trend for HCC,” said TerraCom Chairman, Cameron McRae.

Inner Mongolia, Kingho Group, a subsidiary of China Kingho Group, has imported more than 26 million t of raw coal from Mongolia since 2000 and has the capacity to wash 8 million tpy of coal, produce 4 million tpy of coke, as well as methanol and coal ash bricks.

Significantly, the point of sale of the coal will be at mine gate, removing the responsibility for coal transportation from TerraCom. “This allows TerraCom to focus on its core competency of mining, whilst its partner, Kingho, which is one of the largest transporters and users of coal in northern China, focuses on delivery to customer,” McRae added.

The agreement “essentially underwrites a profitable Mongolian business unit delivering cash margins […] and establishes a platform from which further expansion and growth can occur,” concluded McRae.