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ANNUAL RESULTS 2019
(09
75
.HK
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24 March 2020
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DISCLAIMER
FORWARD-LOOKING STATEMENTS
We have included in this presentation forward-looking statements. All statements that are not historical facts, includingstatements about our intentions, beliefs, expectations or predictions for the future, are forward-looking statements. Thereliance on any forward-looking statement involves risks and uncertainties, and although we believe the assumptions onwhich the forward-looking statements are based are reasonable, any or all of those assumptions could prove to beinaccurate and as a result, the forward-looking statements based on those assumptions could also be incorrect. Weundertake no obligation to publicly update or revise any forward-looking statements contained in this presentation,whether as a result of new information, future events or otherwise, except as required by applicable laws, rules andregulations. In light of these and other risks and uncertainties, the inclusion of forward-looking statements should not beregarded as representations by us that our plans and objectives will be achieved.
All numbers in this presentation are approximate rounded values for particular items.
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Business Overview
Financial Overview
Company Overview
Industry Overview
AgendaMMC | Annual Results 2019
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Overview: The Group owns and operates two open-pit coking coalmines, namely the Ukhaa Khudag (“UHG”) deposit located within theTavan Tolgoi coal formation and the Baruun Naran (“BN“) deposit,both of which are located in the South Gobi province of Mongolia.
Location: UHG mine is located ~540 km south of Ulaanbaatar, thecapital city of Mongolia, and ~240 km from the Mongolia-Chinaborder crossing Gashuunsukhait-Ganqimaodu (“GS-GM”). BN mine islocated ~30 km south-west of UHG mine.
Mining assets: UHG, BN, and Tsaikhar Khudag (“THG”) mining licenseswere granted in 2006, 2008 and 2013, respectively. The licensespermit the Group to engage in coal mining activities for an initialperiod of 30-years, extendable twice by 20-years each.
Integrated operations: The Group is the only fully integrated washedcoking coal exporter in Mongolia, comprising of mining, processing,transportation, and sales and marketing platforms.
International capital markets: Listed on the main board of the HongKong Stock Exchange since October 2010 (Stock code: 975).USD440mln guaranteed senior notes, issued in April 2019. TheCompany has “B”, outlook Stable rating from Fitch and “B-”, outlookStable rating from S&P.
JORC (2012) Statement 1 UHG BN THGPro-Forma
Total
Total resources 2 (Mt) 649 325 73 1,047
- Above 300m 428 230 54 712
- Below 300m 221 95 19 335
Total ROM coal reserves 3 313 174 - 487
- Coking 300 174 - 474
- Thermal 13 0 - 13
Total marketable reserves 3 184 90 - 274
- Coking 148 70 - 218
- Middling 23 20 - 43
- Thermal 13 0 - 13
1 Due to rounding, discrepancy may exist between sub-totals and totals. Rounding rules refer to Clause 25 of the JORC Code (2012). 2 Includes Measured, Indicated and Inferred Resource category as at 31 December 2019. 3 Includes Proved and Probable Reserve category as at 1 January 2020.
Company OverviewSizable coking coal resources and reserves base
Notes:
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Business Overview
Financial Overview
Company Overview
Industry Overview
AgendaMMC | Annual Results 2019
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800
1,200
1,600
2,000
Jan-18 Jun-18 Nov-18 Apr-19 Oct-19 Mar-20
CN
Y
China coking coal prices
EXW Jingtang (mid vol) FOR Tangshan FOR Luilin #4 EXW Baotou
Industry OverviewMarket environment
100
160
220
280
Jan-18 Jun-18 Nov-18 Apr-19 Oct-19 Mar-20
USD
Seaborne coking coal prices
FOB Aus (low vol) FOB Aus (mid vol) CFR North China (low vol)
0
4
8
12
Jan-18 Jun-18 Nov-18 Apr-19 Oct-19 Mar-20
Mt
Coking coal stocks at China ports
Jingtang Rizhao Lianyungang Qingdao Fangcheng
0
5
10
15
Jan-18 Jun-18 Nov-18 Apr-19 Oct-19 Mar-20
Mt
Coking coal stocks at China end-users
Coke plants Steel mills
Source: Shanxi Fenwei Energy Information Surfaces Co. Ltd (“Fenwei”), Platts.
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1,851 2,254 2,521
417 549
558 2,268 2,803
3,079
2017 2018 2019
USD
mln
Mongolian coal export by declared value
871 920 996777 867 939
2017 2018 2019
Mt
China crude steel productionand consumption
Production Consumption
431 438 471432482 454
2017 2018 2019
Mt
China coke production and consumption
Production Consumption
446 454 470515 520 547
2017 2018 2019
Mt
China coking coal production and consumption
Production Consumption
26.3 27.7 33.8
31.0 28.730.9
12.6 8.910.0
69.9 65.374.7
2017 2018 2019
Mt
China coking coal import
Mongolia Australia Others
Source: World Steel Association, Fenwei, National Bureau of Statistics of China, General Administration of Customs of China, National Statistics Office of Mongolia, Bloomberg, Company data.
17.2 18.2 20.6
16.2 18.1 16.0
33.4 36.3 36.6
51% 50% 56%
2017 2018 2019
Mt
Mongolian coal export by volume
GS-GM sharevia GS-GM Others MMC Others
1
Note 1: Imports from Mongolia include raw unprocessed, dry and wet processed coking coal.
2
2: Includes all types of coal, such as coking, thermal and others.
3
3: Declared value at customs clearance.
Industry OverviewIndustry performance
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Business Overview
Financial Overview
Company Overview
Industry Overview
AgendaMMC | Annual Results 2019
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8.2 9.5 9.7
1.4 1.08.3
10.9 10.7
4.4 5.0 5.7
2017 2018 2019
Mt
ROM coalproduction
Stripping ratio
4.1 4.8 4.6
1.82.2
0.9
5.97.0
5.5
50% 48% 50%
2017 2018 2019
Mt
Washed coalproduction
Primary yield
- At UHG mine, a total of 54.6 million bank cubic metres(“bcm”) of prime overburden was removed with anactual stripping ratio of 5.6 bcm per ROMt.
- At BN mine, a total of 6.9 million bcm of primeoverburden was removed with an actual stripping ratioof 7.2 bcm per ROM tonne.
- In 2019, total CHPP ROM coking coal feed was 9.2 Mt, ofwhich 8.3 Mt and 0.9 Mt were sourced from UHG andBN mines, respectively. 4.6 Mt primary product outputcomprised of 4.1 Mt of washed hard coking coal (“HCC”)and 0.5 Mt of washed semi-soft coking coal (“SSCC”), in2019.
- The tailings storage facility is under reclamation processby removing tailings for re-processing. The Groupoperates belt/filter press plants to treat waste waterdischarged from the CHPP.
- Reducing environmental footprint from our operationsshall remain as the main priority, including minimisingpower and water usage rates.
UHG BN Primary product
Note 1: Combined stripping ratio of UHG and BN mines.
1
2: Combined washing yield and product output of UHG and BN mines.
2
Business OverviewProduction output
Secondary product
1,601
2,152 1,974
199214 212
2017 2018 2019
Tho
usa
nd
m3
Waterextracted
Water usage rate (L/ROMt)Water extracted
118 128 116
8.2 8.0 8.0
2017 2018 2019
GW
h
Powergenerated
Power usage rate (kWh/ROMt)Power generated
3: Calculated as extracted groundwater volume divided by total processed ROM coal tonnage.
3
4: Calculated as internal power consumption divided by total processed ROM coal tonnage.
4
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34.0
90.2
123.4
5.133.57
2.64
2017 2018 2019
Tho
usa
nd
ho
urs
TRIFR
TRIFR
839 845 792
1,797 1,938 2,096
20.0% 20.0% 19.2%
2017 2018 2019
Employees
Female employeesUmnugobi employees
Note 1: Excludes transport and logistics operations.
1
2: Total sum of Fatalities, Lost Time Injuries, Restricted Work Injuries and Medical Treatment Injuries per million hours worked.
Business OverviewEmployees and workplace safety
Training man-hours
3.64.3
5.1
0.28 0.230.39
2017 2018 2019
Mln
ho
urs
LTIFR
LTIFRMan-hours worked
3: Excludes transport and logistics operations.
2
4: Lost Time Injury Frequency Rate, the number of lost time injuries occurring in a workplace per one million hours worked. Excludes transport and logistics operations.
4
- Female representation in mining and processing operationsaccounted for 19.2%, compared to industry average of 12.0%reported for Mongolia.
- The Group’s operations are subject to periodical inspections byauthorities for compliance, including environmental,occupational health and safety related regulations andstandards. The Company was consistently evaluated at “lowrisk” level for the last three years.
- The Company became the first Mongolian mining company tosuccessfully implement the Integrated Management Systemacross: (i) ISO 9001:2015 (Quality management); (ii) ISO14001:2015 (Environmental management); and (iii) OHSAS18001:2007 (Occupational health and safety management), in2018. Subsequently, the Group attested the certification basedon the periodical surveillance audit, in July 2019.
- The Company has continuously increased its emphasis ontraining and development with an aim to invest in a capableand effective workforce. In 2019, Total Recordable InjuryFrequency Rate (“TRIFR”) decreased by 26.1%, compared to2018.
- By placing safety of our personnel at highest priority, we striveto keep our LTIFR at minimum with 0.39 recorded in 2019,compared to 3.0 reported for surface coal mining operations inQueensland for FY2018-19.
3
16%
47%
31%
5%
Age demographic
18-25 26-35 36-50 51 and above
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Board committees:
- The Board of Directors (the “Board”) oversees the Group’s businesses and strategic decisions, consisting of eight Directors, comprising two Executive Directors, three Non-Executive Directors andthree independent Non-Executive Directors.
- The Board directly, and indirectly through its four committees (Audit Committee, ESG Committee, Nomination Committee, Remuneration Committee), leads and provides direction to themanagement by laying down strategies and overseeing their implementation, monitoring the Group’s operational and financial performance, and ensuring that sound internal control and riskmanagement systems are in place.
- The independent non-executive Directors are responsible for ensuring a high standard of regulatory reporting of the Company, providing a balanced decision making, effective independentjudgement, and taking the lead where potential conflicts of interests arise.
- In 2019, the Board redesignated the Corporate Governance Committee to a dedicated ESG Committee to improve reporting transparency and oversight. In order to promote the continuousintegration of international best practices into the corporate governance strategies of the Company, the committee offers advice and recommendations to the Board on sustainability issues andESG key targets and performances while enforcing ESG materiality assessment and reporting process.
Management committees:
- The executive management implements internal decision making process through designated committees such as, Executive Committee, Credit Committee, Risk Management Committee andDonation and Sponsorship Committee.
- To place additional emphasis on risk management, a Risk Management Committee was formed in 2019 comprising of the executive management and reports directly to the Audit Committee of theBoard. The committee oversees the Group’s overall risk management framework and assesses the effectiveness of risk controls and its mitigation tools.
Transparency:
- The Group voluntarily discloses its information with CDP Global and follows voluntary ISO 26000 and GRI standards in ESG reporting.
- The Group is also a part of and voluntary member of the Extractive Industries Transparency Initiative, IFC Water Management Codex and Mongolian National Mining Association’s ResponsibleMining Codex.
Business OverviewGovernance
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Community development:
- The Company has developed “Tsetsii” miners’ township, a 650 apartment complex, for its employees. In addition, “Dream” educational complex (school for 700 pupils, kindergarten for 144children and dormitory for 100 children) was built in 2013, with joint investment from the local administration.
- Through its supporting facilities, the Company provides a reliable supply of water and electricity to Tsogttsetsii soum, where it operates.
- In cooperation with the local administration, the Company has carried out education support program at two secondary schools of Tsogttsetsii soum since 2013.
- Education management project team lead by an experienced consultant;
- Provision of certified training instructors and high-skilled teachers in math and English;
- Online English and math training courses in addition to the state approved curriculum;
- Long-term Cooperation Agreements are signed with authorities of Umnugobi province for contribution in social and economic development areas. To ensure transparent and two-waycommunication with the host communities, public consultation events are held on an annual basis since 2008. Frequent meetings with the community development advisory councils representingmulti-stakeholders help to determine areas of focus.
- Based on socio-economic assessments, long-term community development projects are carried out in crucial areas such as local education, health and business development.
- In support of SMEs, with focus on female entrepreneurs, the Company together with a local bank provides interest free start-up funding for local Umungobi residents.
Social contribution:
- In 2019, 0.7 Mt of washed thermal coal was supplied free-of-charge to “Tavan Tolgoi Tulsh” LLC, a state-owned entity designated for manufacturing and distributing coal briquettes to residents inUlaanbaatar to reduce air pollution during winter heating season.
- Recent notable projects include:
(i) “Little Heart” project in cooperation with Red Cross Mongolia aimed at providing free-of-charge surgery and treatment for children born with heart defect;
(ii) “Magic Land 2” initiative for building and forming protection shelters and education centers for at-risk children and families; and
(iii) Medical equipment and vital resources donated to four provincial hospitals (Dundgobi, Dornogobi, Gobi-Sumber and Umnugobi) in partnership with “Save Infants” NGO focused on
j infant care; and
(iv) Support for the National 3x3 Basketball teams as an effort to promote healthy lifestyle and enhance opportunities for aspiring young athletes in Mongolia.
Business OverviewSocial development and community engagement
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Corporate income tax law:
- The revised Corporate Income Tax Law is effective from 1 January 2020;
- The taxable income threshold for 25% CIT bracket increased from MNT 3 billion to MNT 6 billion;
- 10% withholding tax will be applied on direct or indirect transfer of interests held by “ultimate holder” in Mongolian entities which hold oil and mining licenses and land rights. The threshold of30% or more direct or indirect interests was introduced to define the “ultimate holder” as an individual beneficial holder of interests in Mongolian entities, which will be subject to such taxation;
- 5% withholding tax will be applied on interests paid by Mongolian entities for listed and publicly traded securities. However, this excludes entities involved in the extractive industry, which remainssubject to the withholding tax at 10% rate applied on interests paid in Mongolia and 20% rate applied on interests paid outside of Mongolia, subject to existing double taxation arrangementsaccording to international bilateral treaties.
Value added tax law:
- The amended Value Added Tax Law has come into effect from 1 January 2020;
- The input VAT incurred on capital expenditure will be recovered over 10 years, for equipment, including mineral exploration costs over 5 years, and for other capital assets will be recovered in thesame year of the asset purchase.
Royalty:
- On 22 November 2019, the Parliament re-amended Article 47 of the Minerals Law of Mongolia related to the potentially double charging royalties from mining license holders and again fromentities, which do not hold mining licenses, but do purchase minerals from mining license holders and resells to third parties directly or upon processing. The latest amendment was approved to beeffective retrospectively from 30 October 2019, and it has no impact on royalty payments made by the Group, as no changes were made to royalty rates and procedures applied.
Other:
- On 26 November 2019, the GoM signed the Convention on Mutual Administrative Assistance in Tax Matters of the Organization for Economic Co-operation and Development. As a signatory to theconvention, Mongolia will become able to exchange tax related information with tax authorities in 130 countries, effective from 1 June 2020.
Business OverviewTaxation related legislation
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Business Overview
Financial Overview
Company Overview
Industry Overview
AgendaMMC | Annual Results 2019
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476.4
590.7626.6
2017 2018 2019
USD
mln
Revenue
3.6 3.9 4.0
0.8 0.8 1.14.4 4.7 5.1
$130.3 $139.7 $140.0
2017 2018 2019
Mt
Sales volume and ASP
ASP of HCC/t
47.3
82.496.7
2017 2018 2019
USD
mln
Net profit
Gain from debt restructuring
310.3177.1
218.3241.6
2017 2018 2019
USD
mln
Adjusted EBITDA
OthersHCC
Note 1: Includes mainly SSCC and washed thermal coal.
21
2: Blended average price of all delivery terms.
Financial OverviewRevenue and profitability
- Total sales volume of 5.1Mt in 2019, includes 4.0 Mt ofHCC, 0.6Mt of SSCC and 0.5 Mt of washed thermal coal.
- The ASP of HCC sales under FOT GM and C&F termswere USD136.4 per tonne and USD172.7 per tonne,respectively.
- The ASP of SSCC sales under FOT GM and C&F termswere USD96.2 per tonne and USD142.6 per tonne,respectively.
- 2019 revenue and adjusted EBITDA were record high atUSD626.6mln and USD241.6mln, respectively.
- The Group recorded a gross profit of USD252.1mln witha gross margin of 40%.
- Profit attributable to equity shareholders increased by17% to USD96.5mln and the basic and diluted earningsper share amounted to USD9.38 cents.
3: Earning before interest, taxes, depreciation and amortization adjusted by share option expenses, one-off items and other non-cash items.
3
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19.8 24.8 20.5
20.125.5
21.6
2017 2018 2019
USD
/t
Transportation cost
Cash cost Non-cash cost
54.4 62.7 61.8
6.46.8 6.9
60.869.5 68.7
2017 2018 2019
USD
/t
HCC operating cash costat DAP GM
DAP GM cost Royalties
1.9 2.1 2.1
3.4 2.5 2.7
5.34.6 4.8
2017 2018 2019
USD
/RO
Mt
Processing cost
Cash cost Non-cash cost
11.7 11.5 12.3
1.4 2.2 2.413.1 13.7 14.7
2017 2018 2019
USD
/RO
Mt
Mining cost
Cash cost Non-cash cost
Note 1: Combined average cost for UHG and BN mines.
3: Includes mining, processing, handling, transportation, logistics, royalties, fees and other costs.
1
2: Combined weighted average cost from UHG to GM, including third party contractors.
2
3
Financial OverviewOperating cost structure
- HCC operating cash cost at DAP GM was USD68.7 pertonne in 2019, compared to USD69.5 per tonne in2018. Although it increased to USD73.1 during the firsthalf of 2019, the Company mitigated cash cost increasesin the second half of the year and was able to reducethe full year costs below 2018 levels.
- Mining cash cost includes plant cost, contractor fees,blasting, fuel, staff cost and other support cost. Miningcash cost was USD12.3 per ROMt in 2019, whichincludes provisions utilised for major overhaulmaintenance performed on the mining fleet.
- Processing cash cost includes costs associated withoperations of the CHPP, including power generation andwater extraction costs. Processing cash cost was USD2.1per ROMt in 2019, remaining stable at levelscomparable with previous years.
- In 2019, 33% of coal export transportation to GM wascarried by utilising own double-trailer trucking fleetcompared to 22% in 2018. This effectively reduced thecombined average transportation cash cost from UHGto GM to USD20.5 per tonne in 2019, compared toUSD24.8 per tonne in 2018.
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770.9817.3
866.0
0.6 0.5 0.5
2017 2018 2019
USD
mln
Equity anddebt/equityratio
Debt to equityEquity
1,631.4 1,718.0 1,732.2
28.7% 27.8%25.9%
2017 2018 2019
USD
mln
Total assetsand gearingratio
Gearing ratioTotal assets
(87.8)
(55.8)
18.1
2017 2018 2019
USD
mln
Net currentassets/(liabilities)
Net current assets Net current liabilities
Financial OverviewBalance sheet
19.3 16.0 8.3
63.7 73.5 89.2
83.089.5
97.5
2017 2018 2019
USD
mln
CAPEX
CAPEX, net Capitalised stripping cost
- In 2019, the Group returned to the net current assetsposition of USD18.1mln, as compared to the net currentliabilities of USD55.8mln and USD87.8mln in 2018 and2017, respectively.
- In April 2019, the Group has successfully completed thedebt refinancing exercise and issued USD440mlnguaranteed senior notes due 2024. The proceeds wereused to redeem the principal amount of USD397.8mlnsenior secured senior notes due 2022 and to repurchasethe principal amount of USD24.0mln perpetual notes,for a total consideration of USD429.8mln.
- As a result of this refinancing, the Group was able torelease all security such as pledges over infrastructureassets, coal stockpiles, shares and certain bankaccounts, and return to standard high yield covenants.
- In addition, the Group fully prepaid the residualprincipal amount of USD16.2mln first ranking seniorsecured loan in April 2019. There are no outstandingshort-term debt.
MMC | Annual Results 2019
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THANK YOUMongolian Mining Corporation16F Central Tower, Sukhbaatar District Ulaanbaatar 14200 [email protected]
