Mongolia has chosen U.S. mining giant Peabody Energy, China's Shenhua Group and a Russian-Mongolian consortium to jointly develop the keenly sought Tavan Tolgoi coking coal deposit in the Gobi Desert.
A government statement says the companies agreed to build a 600 megawatt power station, coal-to-liquid fuel and coking fuel plants as well as north and southbound railways for the project. The decision was made at a special cabinet meeting on Monday.
Shenhua will hold the largest stake in the project at 40 percent, with Peabody taking 24 percent and the consortium 36 percent, it said.
Tavan Tolgoi is estimated to hold 6 billion metric tons of steelmaking coal. It is one of several big projects Mongolia has been debating as it strives to ensure local interests are protected while tapping foreign expertise needed to develop the resources.
The government said investors in the project will pay $500 million as a "direct payment" and another $500 million as an "advance payment" as well as taxes and fees.
The coal will be subject to a 5 percent royalty fee due to Erdenes Tavan Tolgoi, a state-owned company licenced to run the mine.
It was unclear which companies would be joining the Russian-Mongolian consortium, though the statement said each side would hold half of its total 36 percent stake.
The plan is due to be submitted to Mongolia's National Security Council and its legislature on Wednesday.
Tavan Tolgoi had attracted interest from nearly a dozen international mining companies, including Japan's Mitsui & Co., a Russian consortium led by state-owned Russian Railways, and Australia's BHP Billiton.
Development of Tavan Tolgoi, which is 270 kilometers (165 miles) from the Chinese border in the southern Gobi desert, has been delayed for years.
It was discovered in the 1950s, when Mongolia was a Soviet satellite. The country made a peaceful transition to democracy in the early 1990s.
BHP earlier held rights to the project but judged the deposit too expensive to develop.
In recent years, the construction of transport links with China and surging prices for coking coal have combined to make it potentially attractive.
Business writer Elaine Kurtenbach in Shanghai contributed.