Mongolian coal producers are “burning cash” and face pressure in the next 12 months because low prices and weak demand from China will persist, according to Moody’s Investors Service.
Coking coal at Queensland has declined 17 percent this year to $112.80 per metric ton on Oct. 16, extending annual losses since 2010, according to Energy Publishing Inc. At that level, producers may just break even until prices recover to about $125 to $140 from the second half of next year, according to senior credit officer Simon Wong.
“At current levels, many operators are not generating enough cash flow to service their debt and capex,” Hong Kong-based Wong said by phone on Oct. 24. “They are burning cash. Liquidity will continue to be under pressure for these companies and they will need to conserve cash for the next 12 months.”
Mongolia’s economic growth is set to cool to 6.3 percent this year versus 11.7 percent in 2013, according to World Bank forecasts. The Asian nation is becoming more dependent on volatile mining revenues amid rising government debt and foreign-currency borrowing, Moody’s said in a report on Oct. 24.
The 2017 notes of Mongolian Mining Corp., an Ulaanbaatar-based miner listed in Hong Kong, have lost 11.5 percent this year, according to Bloomberg-compiled prices. The company had a $28 million net loss in the six months through June 30, following losses in 2013 and 2012.
Junk Debt
Moody’s rates the securities Caa2 (975), or eight levels below investment grade. Standard & Poor’s ranks the debt CCC+, or the seventh-highest junk rating.
Other Hong Kong-listed companies with coal operations in Mongolia have shown signs of financial stress.
SouthGobi Resources Ltd. said in September it was seeking more funding because it may run out of money by December to remain a going concern. Mongolia Energy Corp. said on Oct. 24 it’s seeking to extend HK$3.45 billion ($444.8 million) of debt by five years under a restructuring to be voted by shareholders on Nov. 12.
Hidili Industry International Development Ltd. bought back some of its dollar-denominated notes this month, while Winsway Enterprises Holdings Ltd. sold its stake in a Canadian coal unit to cut debt.
Apart from weak selling prices, land-locked Mongolia presents more challenges because in-land producers are geared toward selling to the Chinese market, compared with other seaborne producers that can ship to more countries, Moody’s Wong said.
To contact the reporter on this story: David Yong in Singapore at dyong@bloomberg.net
To contact the editors responsible for this story: Katrina Nicholas at knicholas2@bloomberg.netAndrew Monahan, Ken McCallum
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