Mongolian Mining faces looming debt challenge

By Denise Wee

Hongkong-listed Mongolian Mining Corp, 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 $ 58.1 million in 2013 from $ 2.5 million in the previous attention to some of the debt repayments that the company has to make from next year.

In an interview with Finance Asia in Hongkong, Dr.Battsengel Gotov, chief executive officer of Mongolian Mining Corp (MMC), said 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," Gotiv told Finance Asia. "We don't need prices to double in order to be able to meet out debt obligations in 2015. We just need a slight recovery in pricing by maybe 15%," he said, additing that if rices rise to $ 100 per tonne the company will generate sufficient cash to meet all its debt obligations.
The average selling price of MC's coking coal is currently $ 85 per tonne.
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," Gotov said.
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 doesn't expect prices to rebound swiftly.

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

Looming debt challenge
The company managed to reduce its debt repayment due tin 2014 from $102 million to $ 34 million by refinancing a $ 130 million outstanding loan with BHP Paribas. The loan was previously extended by South Africa's Standard Bank but was transferred to BNP Paribas, when the latter took over Standard Bank's loan portfolio in Asia.
In March, MMC entered into a facilities agreement with BNP and Chinese bank  ICBC for  a $ 150 million loan, which refinanced the $ 130 million loan.Its new facility matures in December 2016.
According to Gotov, the reduction in debt repayment in 104 gives the company "breathing space." As of December 31, 2013, Mongolian  Mining had cash of $ 76.5 million



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