Wednesday, April 2, 2014

Mongolian Mining faces looming debt challenge

Hong Kong listed Mongolian Mining Corporation which operates two coal mines in Ukhaa Khudag and Baruun Naran, both located in the Southern Gobi province of Mongolia is faced with a looming debt challenge amid a slump in coking coal prices.

Coking coal prices in its main market China have fallen about 25% in the last two years, increasing MMC's net loss to USD 58.1 million in 2013 from USD 2.5 million in the previous year and drawing attention to some of the debt repayments that the company has to make from next year.

Dr Battsengel Gotov CEO of Mongolian Mining Corporation said that “The company has no major capital expenditure plans and that any rebound in coking coal prices will help MMC generate enough cash to pay down its debt. Without any expected cash outflow we have confidence to settle out debt obligations.”

Mr Gotov said that “We don’t need prices to double in order to be able meet our debt obligations in 2015. We just need a slight recovery in pricing by maybe 15%. If prices rise to USD 100 per tonne the company will generate sufficient cash to meet all its debt obligations. The average selling price of MMC's coking coal is currently USD 85 per tonne.”

Mr Gotov said that “Coking coal is used in steel-making and many of China's steel makers are struggling amid a cyclical downturn in the industry, exacerbating a glut in the supply of coking coal. The supply and demand equilibrium is out of order. This is why we see the sharp fall in prices which started in early 2012 and still continues.”

Mr Gotov expects the oversupply of coking coal to ease this year, as major miners globally are cutting back coal production. Last week, Glencore Xstrata closed its Ravensworth coal mine in Australia and other major names such as BHP Billiton have also cut back. However, he does not expect prices to rebound swiftly.

He said that “Short term for 2014, we expect we will still see depressed pricing for coking coal. We don’t expect any meaningful price improvements until the demand supply equilibrium is restored but we believe this will be restored.”

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