Baganuur coal mine expansionOpportunities for investors

Ulaanbaatar

Content

• Introduction

• Resources and reserves

• Coal production

• Market outlook

• Mine expansion plan

• Research and development

• Investment issues

Introduction

• ESTABLISHED IN1978.

• SE 130 KM FROM ULAANBAATAR.

CONNECTED TO PAVED ROAD AND

RAILWAY NETWORK.

• GOVERNMENT OWNS 75%, OTHERS 25%

OF SHARES RESPECTIVELY.

• EMPLOYEES 1100

• EXTRACTS 50% OF COAL CONSUMPTION

FOR PRODUCING ENERGY OF

MONGOLIA, 60% FOR CENTRAL REGION.

Coal quality standartMNS 3818-2001

Type of coal

size

Ash

content /%/

<Aã

Moisture

/%/

<Wã

Sulfur

content

/%/ Sdt

Volatile

matter

/%/V

Calorific value

<Qãt

Kkal/kg KJ/kg

Brown coal

type -B217.5 37.5 0.5 45 3360 13.0

Main consumers

# Thermal power plants

Annual supply

/thous.tn/Shares to total

consumption

1 TPP-4 1600.0 60%

2 TPP-3 1100.0 100%

3 TPP-2 210.0 100%

4 Darkhan TPP 250.0 60%

5 Erdenet TPP 120.0 50%

Resource and reserve

Proved in 1978 with 600.0 million tons.

Updated in 1998 with 708.2 million tons as a result of detailed survey.

In total, 88.4 million tons of coal has been extracted since 1978.

Norvest migrated the reserve model of 1978 into Minex in 3D.

2,00

2,50

3,00

3,50

4,00

4,50

5,00

-

100

200

300

400

500

600

700

800

900 0,2

0,3

0,4

0,5

0,6

0,7

0,8

0,9 1

1,1

1,2

1,3

1,4

1,5

1,6

1,7

1,8

1,9 2

Кхх, м

3/т

н

Millio

ns

Minimum thicknesses of coal seam, m

2-р давхарга

2a-р давхарга

3-р давхарга

Хязгаарласан хөрс хуулалтын итгэлцүүр, м3/тн

Resource and reserve

Reserve can be elevated up to 700 million tones depending on the availability of minable coal seam

thicknesses.

Seam 2

Seam 2a

Seam 3

Limiting strip ratio m3/ton

Quality of survey results

Laboratory analysis:

In total samples from drilled boreholes

Ash analysis 47%

Caloric value analysis 24%

Sulphur content analysis 47%

Volatile analysis 29%

Core recovery – (60-70%)

Insufficient

quality of survey

to prepare a

Feasilibility

study for a bank

Requires detailed survey to choose proper mine technology for the mine.

Potentiality of resource increase up to 1.0 billion tones by conducting

additional geological survey in accordance with international standards.

-

2,00

4,00

6,00

8,00

10,00

12,00

14,00

16,00

0

500

1000

1500

2000

2500

3000

3500

4000

4500

19

78

19

79

19

80

19

81

19

82

19

83

19

84

19

85

19

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

Нүүрс олборлолт, м.тн Кхх, м3/тнCoal production, thous.tons

COAL PRODUCTION

Increase in earth moving.

Current situation

CHALLENGES

• Overdue overburden

• Water drainage issues

• Higher unit production cost than selling price

• Coal price set by government

• Outdated equipments and facilities - 90%, requires technical

renovation.

• Movement in internal stock piling

• Unreachable reserves due to geological conditions

• Increase in transport distance

• HR risks- lower salary

• Financial issues

Requires technical renovation and decrease in production cost

PROJECTED COAL CONSUMPTION

IN CENTRAL REGION

5,2 5,3 5,9 7,1

10,6 11,7 13,0 15,0

6,5 6,8 7,5 8,8

12,5 13,7

15,7

18,1

-

2,0

4,0

6,0

8,0

10,0

12,0

14,0

16,0

18,0

20,0

Mill

ion

to

ne

s

ТЭХС-ийн хэрэглээ Тєвийн бүсийн нийт хэрэглээ

2012 20172016201520142013 2018 2025

Central energy system’s consumption

Total consumption in central region

Coal consumption of central region projected to be 6.5 million tones in 2012

while it will reach 15.7 million tones in 2018, 18.1 million tones in 2025 respectively.

Regarding the consumption projection, Baganuur mine needs to expand the mine

capacity.

Capacity expansion

3,30 3,57 3,52 4,30

5,51 5,51 5,51 5,64 6,05 6,00 6,13 5,2 5,3

5,9

7,1

10,6 11,7

12,2 12,5 13,0

13,5 14,0

-

2,00

4,00

6,00

8,00

10,00

12,00

14,00

16,00

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Багануурын нийлүүлэлт

ТЭХС-ийн эрэлтDemand from CES

30% of coal consumption to TPP-5 which will be built with 820 MW capacity in 2012-2016.

100% of coal consumption to Baganuur power plant which will be built with 270MW in 2013-2016.

projected coal production of the mine is 6 million tons by 2020.

Supply from Baganuur

Technological developments

To entry Surface mining technology for Coal production

and overburden

To build conveyor systems for both coal and waste

transport

To start using underground mine technologies in some

coal seams.

To reduce overburden volume and optimize mine earth

movements

COAL PRICE AND MINEABLE RESERVEs

140 186 392

683 717 731 749

1,98 2,16

2,43

2,72 2,74 2,75 2,80

1,00

1,20

1,40

1,60

1,80

2,00

2,20

2,40

2,60

2,80

3,00

-

500

1 000

1 500

2 000

2 500

3 000

0,7 0,8 0,9 1 1,1 1,2 1,3

Mill

ion

s

Хөрс, м3

Нүүрс, тн

Кхх, м3/тн

Main option- Coal price 20500 tugriks/ton

Technology: Surface mining + Conveyor systems

Mineable reserve can be elevated to 749

million tones if selling price increased by

30% after technological renovation.

Minimum coal thickness seam-

0.4 m

Waste, m3

Coal, ton

Strip ratio, m3/t

74 84 123 148 150 152 152

45 65

167

298 310 315 325

22 37

102

238 258 264 272

-

100

200

300

400

500

600

700

800

0,7 0,8 0,9 1 1,1 1,2 1,3

Mill

ion

s

Factor impacting selling price

2-р давхарга

2a-р давхарга

3-р давхарга

Minimum thickness of coal

seam- 0.4 m

Main option- Coal price 20500 tugriks/ton

COAL PRICE AND MINEABLE RESERVE

Technology: Surface mining+ conveyor system

Seam 2

Seam 2a

Seam 3

MINE PLAN 2012-2022

4,10

3,51 3,19

2,69

2,05 2,34

2,14 2,22 2,30 2,24 2,07

-

0,50

1,00

1,50

2,00

2,50

3,00

3,50

4,00

4,50

-

5

10

15

20

25 2

01

2 о

н

20

13

он

20

14

он

20

15

он

20

16

он

20

17

он

20

18

он

20

19

он

20

20

он

20

21

он

20

22

он

Stri

p r

atio

m3

/t

Mill

ion

Хөрс хуулалт, м3

Нийт нүүрс, тн

Хөрс хуулалтын итгэлцүүр, м3/тн

Substantial decline in the

volume of vesting

waste, m3

Coal, ton

Strip ratio, m3/t

PROJECTED COST

AFTER TECHNOLOGICAL RENOVATION

23,121,7

20,3

17,7

14,615,5 15,3 15,4 15,1 14,8

13,9

4,25,2 5,2 5,3 5,3 5,1 5,4 5,3 5,0 5,0 5,0

-

0,5

1,0

1,5

2,0

2,5

3,0

3,5

4,0

4,5

5,0

0,0

5,0

10,0

15,0

20,0

25,0

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Stri

p r

atio

, m3

/t

Tho

us.

tu

grik

s

1 тн нүүрсний бүрэн өөрийн өртөг 1 м3 Уулын цулд ноогдох зардал КххUnit cost/ton coal Unit cost/ m3 rock mass Strip ratio

Preparation to stock exchange (2012)

- Geophysical survey

- Detailed survey drilling

- Geotechnical survey

- Drainage survey

- Resource report in accordance with JORC

- Have the resource report in accordance with Mongolian standard approved by

Mineral Resource Authority.

- Have the feasibility study in accordance with Mongolian standard approved by

Mineral Resource Authority.

- Feasibility study for a bank

- Prepare documents for stock exchange

- Баяжуулах үйлдвэрийн туршилт судалгаа ТЭЗҮ боловсруулахAdditional shares to be sold at domestic stock exchange to raise the

necessary fund while keeping state owned shares at 51% in 2012.

Investment plan

14

71,6

1,5 4,1

11,1

3,9 2,9

9,4

2,9 1,5

7,1

1,5

(10)

-

10

20

30

40

50

60

70

80

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Хөрөнгийн биржд гарах бэлтгэл ажлын зардал

Уурхайн тоног төхөөрөмж

Preparation cost to stock exchange

Mine equipments and facilities

(/in accordance with Feasibility study done by Glogex LLC)

Total investment of 131.4 million USD required between 2012 and 2022

ECONOMIC PARAMETERS

• Investment– Facilities

• CAPEX 2012: USD85.5 million

• OPEX (2013-2015): USD16.7 million

• OPEX (2016-2022): USD29.2 million

• Total: USD117.5 million

– Preparation cost to stock exchange USD 13.9 million

– Total USD131.4 million

• Coal price/ton: 20500 tugriks in 2012, 22500 tugriks in 2013-2022

• Unit cost/ ton of coal– in 2012: 23100 tugriks

– in 2014: 20300 tugriks

– in 2018: 15300 tugriks

– in 2022: 13900 tugriks

• Net present value (when NPV @ 10%): 35.6 billion tugriks

• Internal rate of return (IRR) - 13.4 %,

• Payback period – 7.91years or in 2018.

Thank you for your attention

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