Miner unearths potential

Mandy Lo

Odjargal Jambaljamts, CEO of MCS Holding and board chairman of Mongolian Mining Corporation
Monday, September 27, 2010

Mongolian Mining Corp, which is seeking a Hong Kong listing, aims to boost its profit margin by expanding production and completing infrastructure projects.

The firm, which owns the largest private coking coal mine in Mongolia, is likely to be the first firm based there to float shares in Hong Kong.

It is investing about US$1.3 billion (HK$10.14 billion) to raise production capacity four-fold to 15 million tonnes by the end of 2013.

It is expected to produce 3.8 million tonnes of coking coal this year and seven million tonnes next year.

MMC's key asset is the UHG mine deposit in South Gobi. The mine in the Tavan Tolgoi coal formation had an estimated 286 million tonnes of reserves at the end of May.

"Production started last year and we have already made a profit," chairman Odjargal Jambaljamts told The Standard.

MMC's profit in the year to December 31 was US$10.27 million, while in the four months to April it was US$5.01 million.

The mine produced 1.8 million tonnes of coking coal last year.

But the profit margin fell to 35.8 percent as of April 30 from 42.3 percent last year, as seasonal factors led to a drop in first-quarter sales.

"We expect margin to improve on capacity expansion and higher prices for washed coking coal," Jambaljamts said.

It will start delivering washed coking coal in the first quarter next year. Unwashed coking coal is sold at a discount of about 35 percent to washed coking coal.

The weighted average selling price of MMCs coking coal is US$76.64 per tonne. MMC also plans to expand into other metals including coal, iron ore and other metals.

"We will focus on expansion by acquisitions in Mongolia first. The country is very rich in resources. We are looking to buy the best assets near China," the chairman said.

The firm plans to sell 719.4 million shares priced between HK$6.29 and HK$7.34 in the Hong Kong bourse to raise up to HK$5.28 billion.

Half the proceeds will be invested in mining infrastructure, including roads and railways, power plants and water supply facilities.

Forty percent of the proceeds will be earmarked for acquisitions.

MMC exports all its coking coal to mainland steel makers including Baosteel Group Corp and Jiangsu Shagang Group, as well as coal seller Winsway Coking Coal which is also aiming to raise funds in Hong Kong.

"We have established a customer base for long-term agreement of five to 10 years," Jambaljamts said.

Buyers have agreed to purchase the coal produced until 2012, but the price will be set according to the market benchmark during delivery.

"The demand is there and we are able to meet this demand," said chief executive Battsengel Gotov.

"The market price always depends on demand and supply. In the next five to 10 years we will see steel production continue to grow in China. So we are optimistic about the price outlook."

As for competition in Mongolia, Gotov said MMCs strength is the location of its mine.

"We are very close to China, next to the world's biggest coking coal consumer."

"We will consider tapping Japan, Korea and India in the future, but China will be the most important market," he added.



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