GEO Monitor Pre-IPO Report: Mongolian Mining Corp (Energy Resources LLC)

Mongolian Mining Corporation (MMC) is engaged in the mining of coking coal from the Ukhaa Khudag (UHG) deposit within the Tavan Tolgoi coal formation in South Gobi, Mongolia. MMC commenced mining at the UHG deposit in April 2009 and produced 1.8 mn tons (Mt) of coking coal in the year ending 2009. The UHG deposit contains 191 Mt of proven reserves and 95 Mt of probable reserves. All the coal produced by the company is transported to customers in China and accounted for 61.9% of the total coking coal exports from the country.

Given the limited coking coal resources in the country, China has to increasingly import its coking coal in order to meet its growing demand. According to Wood Mackenzie, total coking coal imports to China increased from 7 Mt in 2008 to 29 Mt in 2009, and are expected to increase by 23 Mt from 2010-2015. The increasing dependence of China on imported coking coal is expected to benefit Mongolian coal mining companies, such as MMC, due to the geographical proximity of Mongolia with China, in addition to lower prices relative to sea-borne coking coal imports. MMC has a large unexploited resource base which the company plans to exploit to increase its production from 1.8 Mt in FY 2010 to 14.7 Mt in FY 2013. Even at higher production levels of FY 2013, the company will have a mine life of approximately 20 years, thus ensuring sustained growth over the long term. Along with volume growth, the company intends to forward integrate its operations and thereby improve its profitability by constructing washing plants and transportation infrastructure.


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