Vital Role of Preparation Facilities in Enabling Mongolian Coal to Compete as an Export Product
Mongolian Mining Corporation (0975.HK)
Coaltrans Mongolia June 2013
Content
2
Company Brief Intro
Making Product Competitive by Processing
Value Chain Significance on Business Competitiveness
Conclusion
Mongolian Mining Corporation
Company Overview
3
Listed on the main board of the
Hong Kong Stock Exchange on October 2010
Operates two world-class coking coal mines in
Mongolia, Ukhaa Khudag (“UHG”) mine and
Baruun Naran (“BN”) mine
Best-in-class operational practices supported by
leading international operating partners (e.g.
Leighton, Sedgman)
Reserves: 460Mt (UHG-275Mt, BN-185Mt)*
Resources: 983Mt (UHG-701Mt, BN-282Mt)*
Quality of coking coal product is comparable to
leading international export brands
MMC OverviewMMC Mines and Markets
*: As of Dec 31 2012
-
48 49 22
119
30
135 165
115
2009 2010 2011 2012 Total
CHPP, Water and Power Supply
Paved Road & Border Expansion
Specification Raw Coal (UHG)Washed HCC
(UHG)
Ash (%,d) ≤ 20.0% ≤ 10.5%
Sulfur (%,d) ≤ 1.0 ≤ 0.7
Volatile Matter ( %,daf) ≤ 28.0% ≤ 26.0%
CSN ≥ 5.0 ≥ 6.0
G index (min) ≥ 70 ≥ 80
Total Moisture (%,ar) ≤ 5.0% ≤ 9.0%
4
30
Processing and Transportation Investment
(in million US$)
Coal Quality Specification on Contract
Raw vs Washed Products’ Price (US$)
183214
137
CHPP Capacity (ROM mt)
Making Product Competitive by Processing
Investment & Return
$60
$90
$120
$150
$180
May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr
2011 2012
Raw HCC HCC214
~$96
~$156
63%
5 5 5
5 5
5
0
5
10
15
2011 2012 2013
1st module 2nd module 3rd module
446
565
Company Brand TypeAsh
(%, ad)
VM
(%, daf)
Sulfur
(%, dry) CSN
Anglo Coal German Creek HCC 9 ~23 0.7 - 9
BM Alliance Goonyella HCC 8.9 ~24 0.5 - 8
MMC UHG # 3 HCC 10.0 ~24 0.6 80 8
Anglo Coal Moranbah North HCC 8.5 ~26 0.6 - 7-8
BM Alliance Blackwater HCC 8 ~28 0.5 - 6
County Location HCCAsh
(%, ad)
VM
(%, daf)
Sulfur
(%, dry) G index CSN
Luliang, Shanxi Liulin #9 9 19-24 2 80 -
MMC Ukhaa Khudag (#3) 10 23-25 0.6 80 8
Taiyuan, Shanxi Gujiao #8 8 16-22 1.3 70 -
Taiyuan, Shanxi Gujiao #2 10 16.5 0.6 73 -
Linfen, Shanxi Xiangning #2 10 16-20 0.5 60-70 -
160
200
240
280
Jan
Fe
b
Ma
r
Ap
r
Ma
y
Jun
Jul
Au
g
Se
p
Oct
Nov
Dec
Jan
Fe
b
Ma
r
Ap
r
Ma
y
Jun
2012 2013
Australian mid vol HCC at Tangshan
MMC mid vol HCC at Tangshan
Chinese mid vol HCC at Tangshan
5
Source: Platts, China Coal Resources, Company data
Making Product Competitive by Processing
Competitiveness in Quality and Price
Source: CLSA Asia Pacific Markets, China Coal Resource, Company data
Note: Australian brands VM specs. have been converted from ad to daf basis, and Sulfur specs. have been converted
from ad to dry basis by the company.
MMC HCC Price Comparison (US$) MMC HCC Quality Comparison
6
Producer Trader
Mine Tsagaan Khad Gantsmod Final Destination
End User2009
Raw HCC
CHPP
Washed HCC
Producer / Trader Trader
Mine Tsagaan Khad Gantsmod Final Destination
End User2010
CHPP
Producer / Logistics service provider Logistics Service Provider
Mine & CHPP Tsagaan Khad Gantsmod Final Destination
End User2011 Jun- Present
Mongolia China
Control over transportation, quality, costs, price, sales channels come along with processing
Value Chain Significance on Business Competitiveness
MMC Development
Raw HCC Washed HCC
Washed HCC
Progressive Royalty for
Raw coal
Progressive Royalty for
Washed coal
$0-$24 0.0% $0-$99 0.0%
$25-$50 1.0% $100-$130 1.0%
$50-$75 2.0% $130-$160 1.5%
$75-$100 3.0% $160-$190 2.0%
$100-125 4.0% $190-$210 2.5%
125< 5.0% $210< 3.0%
Base 5% for export, 2.5% for domestic sales
7
Miner / Seller BuyerRaw coal
Washed coal
Raw HCC 1000 t Raw HCC 1000 t
HCC + waste
High transport cost
Raw HCC 1000 t
CHPP
HCC 630 t (63% yield)
HCC
HCC 630 t
Low Transport costProcessing cost
Mining cost
VAT law article 12.1.7
Processed mineral products for export
Government decree #286
Washed and beneficiated coal
are exempted
Law on amendment on mineral law article 1
Value Chain Significance on Business Competitiveness
Coal Processing Advantages
Miner / Seller Buyer
Mining cost
Stable quality
Cost advantage
Royalty advantage
VAT Refund
8
Source: Statistics Bulletin, Mongolian National Statistics Commission, China Coal Resource
Mongolian Coal Export (million tonnes)Mongolian Coal in Total Export Amount
(billion USD$)
Although mining condition is favorable and cost is low, because of poor infrastructure which leads high transportation
cost we are losing our competitiveness in our major exporting market, despite that coal is an important factor in
our economy. Significant amount of thermal coal production is also an emerging issue.
China Coking Coal Consumption, Production
and Import (million tonnes)Mongolian Market Share in China Coking Coal Import
Value Chain Significance on Business Competitiveness
Coal Importance for Mongolia and Export Competitiveness in China
12%
32%45%
36%17%
66%37%
23%26%
41%
22%31% 32% 38% 42%
0%
20%
40%
60%
80%
100%
2009 2010 2011 2012 2013 Jan-Apr
Mongolia Australia Others
528 592 598
498 536 540
47 45 54
-
200
400
600
800
2010 2011 2012
Consumption Production Import
3% 3%6% 7%
10%
30%
47%
43%
28%
0%
10%
20%
30%
40%
50%
0
2
4
6
2005 2006 2007 2008 2009 2010 2011 2012 2013Jan-Apr
Coal Export Total Export Coal Export Share
4.2
9.1
16.6
21.1 20.9
6.3
118%83%
27%-1% -14%
-120%
-60%
0%
60%
120%
0
5
10
15
20
25
2008 2009 2010 2011 2012 2013Jan-May
Total Export YoY Change (%)
9
Source: 1 – CMX (June 14)
2 – LME (Converted from TOZ to tonne June 14)
3 – Platts CFR China mid vol HCC (June 14)
4 – Company assumption
5 – China Coal Resource, FOBT QHD (exclusive of VAT) 5500 (June 17)
Coal Transportation Cost from Ukhaa Khudag to China East Coast to Market Price Ratio
Transportation cost for bulk commodity is very high,
therefore, we should reduce costs by investing
in infrastructure and processing
Value Chain Significance on Business Competitiveness
Transportation Cost is Crucial
0% 1%
63%
97%100%
0%
20%
40%
60%
80%
100%
120%
Gold (999)¹ Copper concentrate(30%) ²
HCC (mid vol) ³ Raw HCC (mid vol ,65% yield) ⁴
Thermal Coal (5500 kcal/kg) ⁵
Price (USD/tonne)
Gold (999)¹ $44,465
Copper concentrate (30%) ² $7,050
HCC (mid vol) ³ $135
Raw HCC (mid vol ,65% yield) ⁴$87
Thermal Coal (5500 kcal/kg) ⁵$85
10
In order to be competitive in the global coal markets, it is
unavoidable to pay attention to:
Stable Quality (by washing)
Stable Supply (by improving infrastructure)
Cost Competitiveness (by reducing transportation and logistics costs)
Conclusion
Thank You
Mongolian Mining Corporation16F Central Tower
Sukhbaatar District
Ulaanbaatar 14200
Mongolia