HONG KONG -- The Mongolian government appears to be leaning toward a mining contract or production-sharing arrangement over the sale of a stake in the huge, undeveloped Tavan Tolgoi coal deposit, according to people familiar with the situation.

At least one bank mandated to advise on the stake sale has been dropped, according to one person familiar with the situation.

J.P. Morgan Chase & Co. and Deutsche Bank AG were advising on the sale of a 49% stake in Tavan Tolgoi. The sale was expected to raise billions of dollars.

Spokeswomen from both banks declined to comment.

Meanwhile, Mongolian officials are still in talks about how to structure the development of the mining deposit.

"There is no decision on what will happen with this mine. Negotiations are still going on," Purevjav Gansukh, the Mongolian ambassador in Singapore, said Friday.

Write to Ellen Sheng at ellen.sheng@dowjones.com