Monday, March 31, 2014

Mongolian Mining seeks debt extension amid record low coal price

Mongolian Mining Corporation is looking to extend the maturity of a note due today as expanding supplies of coking coal push prices to record lows.

Mr Battsengel Gotov CEO of Mongolian Mining said that “It’s still not finalized but definitely we will not be paying on the current maturity date. They understand our position and we’re telling them that OK one day we’ll pay but maybe not today.”

The Ulaanbaatar-based miner has already amended the maturity of its USD 52.5 million promissory note once before, postponing repayment from November 22nd 2013, until today.

Mr Gotov said that it was still being discussed. MMC last year rescheduled payment of a second USD 52.5 million promissory note until December 2014, the earnings announcement shows.

Coal producers are struggling as an oversupply of the raw material used to make steel weighs on prices. While miners including Glencore Xstrata Plc scale back output at some mines, Australian shipments are still set to increase this year, extending the overhang.

SouthGobi Resources Limited which also mines coal in Mongolia, said last week it is seeking additional financing to avoid a default on USD 250 million of debt.

Mr Gotov said that MMC’s selling price averaged about USD 80 per tonne to USD 85 per tonne this year, falling from USD 92.1 per tonne in 2013 and USD 108.4 in 2012.

Mongolia accounted for 20% of China’s coking coal imports in 2013, down from 45% in 2011 and trailing Australia. Prices may start to rebound toward the end of the year or in early 2015 as miners globally pull back production.

He said that the company paid the latest coupon on USD 600 million of 8.875% dollar denominated bonds last week. The debt’s interest rate is still more attractive than on loans from domestic banks adding that I’m still very confident that this bond issue was not the first and last for us.

Mr Gotov said that MMC plans to start building a 15 kilometer railway across the Chinese border in May to reduce its transportation costs. The miner agreed in October to work with Shenhua Group Corporation. Erdenes Tavan Tolgoi LLC and Tavan Tolgoi JSC on the project.

He said that “I believe that any meaningful cost savings really will come from infrastructure. We will continue to put an accent on improving efficiencies and maintaining our competitive cost structure.”

Source – Bloomberg

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