Having struck a deal with the state-owned Erdenes-Tavan Tolgoi mining company in 2011 and parting with a $250 million advance payment, Chalco is concerned that ETT might break the agreement.

The news follows hot on the heels of ETT suspending coal shipments to Chalco after not being able to pay the delivery costs.

ETT CEO Batsuuri Yaichil said that the price paid by Chalco was lower than the cost of production and that ETT wanted to sell its coal to other customers at international prices. He said that ETT still wanted to do business with Chalco, but wanted to change the terms – especially the price mechanism.

Coal deliveries from ETT to Chalco came to a halt on January 11 this year following non-payment by Chalco to a logistical support company. ETT also wants to revise its Chalco contract because the prices were originally set at a specific level, which is no longer economical.

It is likely that the Development Bank of Mongolia will pledge a $355 million loan to ETT, which might be used to exit the Chalco contract.

Mongolian coal exports in 2012 stood at 20.9Mt, down from 21.3Mt in 2011. Last year, ETT exported 2.4Mt of coking coal to Chalco and is the largest exporter of coking coal to China.

Both companies have been in discussion and Chalco says that the fundamental terms of the contract should not be changed. ETT begs to differ.