Pitchbook US template - Investor Relations - TodayIR.com · 2014-08-19 · Do not refresh this file...
Transcript of Pitchbook US template - Investor Relations - TodayIR.com · 2014-08-19 · Do not refresh this file...
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1 9 AU G U S T 2 0 1 4
Interim Results 2014
(0975.HK)
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Disclaimer
Forward-looking statements
We have included in this presentation forward-looking statements. All statements that are not historical facts, including statements about
our intentions, beliefs, expectations or predictions for the future, are forward-looking statements. The reliance on any forward-looking
statement involves risks and uncertainties, and although we believe the assumptions on which the forward-looking statements are based
are reasonable, any or all of those assumptions could prove to be inaccurate and as a result, the forward-looking statements based on
those assumptions could also be incorrect.
We undertake no obligation to publicly update or revise any forward-looking statements contained in this presentation, whether as a result
of new information, future events or otherwise, except as required by applicable laws, rules and regulations. In light of these and other
risks and uncertainties, the inclusion of forward-looking statements should not be regarded as representations by us that our plans and
objectives will be achieved.
Note: All numbers in this presentation are approximate rounded values for particular items
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Agenda
Operating environment
Business review
Financial review
Outlook
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193 210 224
237 234
197 207 216 230 232
1H2010 1H2011 1H2012 1H2013 1H2014
Coke production Coke consumption
Witnessing market corrections towards adjusting supply and demand imbalances
234 253 268 269 274 265 280 291
309 309
1H2010 1H2011 1H2012 1H2013 1H2014
Coking coal production Coking coal consumption
323 351 357
390 412
307 335 338
365 375
1H2010 1H2011 1H2012 1H2013 1H2014
Crude steel production Crude steel consumption
Source: World Steel Association, China Coal Resources, National Bureau of Statistics of China
(Mt) (Mt)
(Mt)
22.4 19.2 27.6
35.3 30.9
8.4% 6.8%
9.5% 11.4%
10.0%
1H2010 1H2011 1H2012 1H2013 1H2014
Coking coal imports % of coking coal consumption
Crude steel production and consumption Coking coal production and consumption
Coke production and consumption Coking coal imports
(Mt)
Operating environment
Chinese coking coal supply and demand dynamics
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MMC strengthened its position as a leading Mongolian coal exporter
Australia 40%
Mongolia 20%
Others 40%
Australia 49%
Mongolia 24%
Others 27%
MMC exports ~31%
Others 69%
MMC exports ~34%
Others 66%
Source: Company data, China Coal Resource
Source: The World Bank, National Statistical Office of Mongolia (“NSO”), Bank of Mongolia, Bloomberg Note: 1 2011 GDP splits by sector at current price levels; GDP computed by dividing MNT amount by average USD:MNT exchange rate of each year from Bloomberg; 2 2011FY GDP is a preliminary estimation provided by
the NSO as at January 2012; 3 Total assets, loans and deposits in US$ computed by diving MNT amount by average USD:MNT exchange rate of each year from Bloomberg
FY2013 1H2014
FY2013 1H2014
MMC remains the only major washed coking coal producer and exporter from Mongolia
Coking coal imports to China are dominated by Australia and Mongolia
Operating environment
Increasing coking coal import competition to China
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Amendment to the Law on Minerals was approved by
Parliament 01 Jul 2014, with major impact being
lifting the three and a half year moratorium on new
exploration licenses in Mongolia
Resumption of exploration activities in Mongolia is
expected to assist restoration of foreign and domestic
investor confidence, increasing foreign direct investment to
the benefit of Mongolia’s economy
Introduced regulation to set processes of applying,
negotiating and executing an IA, and provide
provisions on monitoring after execution. The GoM
may enter into an IA with investors seeking to invest
more than MNT500 billion
Stability for investors through stabilization of their
operational and tax environment
New law was approved by Parliament 01 Jul 2014 A major step in upgrading the business and investment
climate of the country’s petroleum industry, with potential to
positively impact fuel supplies in medium to long term
GoM adopted new regulation to calculate coal export
royalties, based upon individual contract price per
tonne, instead of set reference price
Effective from 01 Apr 2014, and expected to make a
realistic contribution to relieving the tax burdens for coal
exporters until 01 Jan 2015
MNS 6456:2014 and MNS 6457:2014 standards with
regard to “Coal classification” and “Coal and coal
product classification” were approved and added to
the national registry of Mongolia in Jun 2014
Adoption of these standards will improve the
competitiveness of Mongolian coal products and streamline
the flow of coal exports
Investors involved in large-scale development
projects incl. construction of plants are entitled to
apply for partial payment conditions or extension of
its VAT and/or customs duty payments for a period of
2 years
Improvement to the overall investment climate, by
decreasing tax burden especially during the capital
intensive construction phase of major projects
Key measures
Law on Minerals
Investment Agreement
(IA)
Law on Petroleum
Change of royalty
calculation method
Coal classification
standards
Amendment to the Law
on Custom Tariff and
Duty
Description Impact
Operating environment
Mongolian Government taking supportive measures
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Operating environment
Business review
Financial review
Outlook
Agenda
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ROM coal production
3.3 Mt of ROM coal was mined, down 21% YoY compared to 1H2013
Production output adjusted downward to minimize total cash cost, whilst
utilizing available inventories to meet forecast sales volumes
21.3 Mbcm overburden moved at stripping ratio of 6.5, but 2014 full year
stripping ratio of 5.5 still expected
Overburden was dumped at shortest possible distance from the mining faces,
to constrain total mining costs, with short dump volume identified not
considered in LOM plan remaining to be used in second half of 2014
Lost Time Injury Frequency Rate (“LTIFR”) of 0.7 YTD signifies improvement
compared to 2013 where the full year statistic equated to 1.2
3.7 4.9
4.2 5.0
3.3
0.4
0.4 0.5 4.1
5.3
4.2
5.5
3.3
6.3 5.1
5.9 5.4 6.5
1H2012 2H2012 1H2013 2H2013 1H2014
UHG Coal BN Coal Strip Ratio
(Mt)
1.5
2.4 2.4 2.9
1.8
0.6
1.0 1.3
1.0
0.6 2.1
3.4 3.7
3.9
2.4
1H2012 2H2012 1H2013 2H2013 1H2014
Primary product Secondary product
Processed product
Culminated medium term capital expenditure plan with regard to processing
capacity with the completion of Module III
Achieved total yield of 70%, (primary yield 51%, secondary yield 19%), per
forecast strategy of inventory utilization
Installed capacity allowed for major planned maintenance events to be
performed in parallel to operation
Trialed contract washing on a fee-for-service basis in limited volumes to take
advantage of installed capacity available
The Belt Filter Press (“BFP”), commissioned in 4Q2013, has operated according
to plan providing for improved recycling of water used in fine coal processing
circuits compared to tailings dam reclamation methods
(Mt)
Deliberate adjustment to meet committed sales volumes whilst maximizing use of inventories
Business review
Tailoring production output in line with cost control and liquidity management
(BCM/ROMt)
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Focus on transportation cost reduction aligned with the production and export plans
Transportation Volume
Improved alignment of long haul transportation with contracted sales
volume for better overall inventory management
Optimized inventory level at TKH stockpiles near the border by hauling
2.9Mt of coal products from UHG to TKH stockpiles in 1H2014, compared
to 3.2Mt exports
Continued involvement in the operation and maintenance of the UHG-GS
Paved Road, and maintained full access to the road and border crossing
facilities after the transfer of these facilities to GoM in February 2014
Completed 100% of domestic coal haulage using the Group’s owned fleet
of double trailer heavy haul trucks
Transportation Cost
Maintained high level of utilization of the Group’s own truck fleet while
further reducing the fixed cost base of the long-haul section by 18% to
US$6.7/t in 1H2014
Continued to decrease short-haul transportation to US$7.9/t, a 16%
reduction from 1H2013, through renegotiation with third-party contractors
Significant cost savings in the short-haul section is expected to be achieved
in 2015 after the completion of the Cross-Border Railway
(Mt)
Business review
Continuing to improve transportation efficiency
2.1
3.7 3.5
3.3
2.9
2.3
3.3 3.1
2.6
3.2
1H2012 2H2012 1H2013 2H2013 1H2014
Long Haul (UHG-TKH) Short Haul (TKH-GM)
(US$/t)
12.6 11.4 8.2 8.0 6.7
9.0 10.6
9.4 8.0
7.9
21.6 22.0
17.6 16.0
14.6
1H2012 2H2012 1H2013 2H2013 1H2014
Long Haul (UHG-TKH) Short Haul (TKH-GM)
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Establishing sales and distribution network in China Developing cross border railway infrastructure
Entered into a joint venture with Risun Group for joint
transportation, sales and distribution of coal products
Initiated development of own sales and distribution
channels in China
Group has started to maintain product inventory at GM
Sold 0.3 Mt of HCC under FOT terms by arranging load
out to customers’ arranged transportation
Sold 0.3 Mt of HCC under C&F terms delivering products
from GM to end-user locations
Introduced shipments via agents to customers in
Shandong, Jilin, Ningxia markets in order to diversify
customer base
Procured third party coal and arranged imports to China
under our extensive sales and distribution arrangement
network
Development of our integrated coal trading platform will
enable the selling and marketing of not only our own, but
also coal from neighboring mines in Mongolia, leveraging our
capacity and advanced position to process and transport
coal in Mongolia
Formed JV with Shenhua and other Mongolian coal
producers from Tavan Tolgoi area
Expected to facilitate export of up to 27 Mtpa, with MMC
having unrestricted access on a non-discriminatory and
equal treatment basis
Cross-Border Railway is expected to be a significant step in
facilitating Mongolian coal exports to the Chinese market,
with reduced transportation costs and improved
efficiency
Improved access to transportation infrastructure
interconnecting Mongolia and China will bring direct reach
to the Chinese market and end customers via an
increasingly integrated coal delivery chain
Infrastructure improvements to further facilitate MMC’s coal exports to China
Business review
Strategic initiatives focused on strengthening access to target markets
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Target market region
Business review
Sales and distribution network in China
Mongolia China
Inner Mongolia
Ningxia
Hebei
Shandong
Tianjin
UHG-GS paved road
Customers supplied under C&F terms via agent
Customers supplied under C&F terms via joint marketing with Risun
China Railway Corporation railway
China Shenhua railway
Customer location and utilized infrastructure
Note: DAP = Delivery-at-Place; FOT = Free-on-Transport; C&F = Cost-and-Freight
Increase market penetration and enhance brand reputation in target markets
Delivery terms HCC ASP (USD/t) Volume(‘000 t) % of Total Volume
DAP GM 72.7 1,248 65.5%
FOT 99.1 322 16.9%
C&F 124.1 336 17.6%
Total/ Average 86.2 1,906 100.0%
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Agenda
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Business review
Financial review
Outlook
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216.4 176.1 164.3
31.4
13.4 28.3
247.8
189.5 192.6
0
100
200
300
1H2013 2H2013 1H2014
HCC Others
Delivering steady volumes under challenging market conditions
2.2 2.1 1.9
0.9 0.5
1.3
3.1
2.6
3.2
98.7 85.1 86.2
0.0
1.5
3.0
4.5
1H2013 2H2013 1H2014
HCC Other ASP of HCC
(Mt) (Mt)
72.7 US$/t 99.1 US$/t 124.1 US$/t
(US$/t)
ASP for each sales terms
(US$ mm) (US$ mm)
1
1 For 1H2014, ASP is a blended average of DAP/FOT/C&F, while 1H2013 and 2H2013 ASP was DAP only
Sales volume and ASP (US$/t)
Revenue by product type Revenue by sales terms
HCC sales volume and ASP by sales terms (1H2014)
Financial review
Key revenue metrics
1.3
0.3 0.3
0.0
0.5
1.0
1.5
2.0
DAP GM FOT C&F
119.1
73.5
247.8
189.5 192.6
0
100
200
300
1H2013 2H2013 1H2014
DAP GM FOT and C&F
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8.2 6.7
9.4
7.9
17.6
14.6
0
5
10
15
20
Long haul (UHG-TKH) Short haul (TKH-GM)
1H2013
1H2013 1H2013
5.0 5.4
4.4 4.7
9.4 10.1
0
4
8
12
Cash cost Non-cash cost
72.1
68.5
60
65
70
75
1H2013 1H2014
38.2
36.6
30
32
34
36
38
40
(US$/t)
(US$/t)
(US$/t)
1 Net washed HCC delivered cash cost at GM, includes mining, processing, handling, transportation, logistics, site administration, inventory losses, royalties and fees
(US$/t)
Transportation cost Total operating cash cost at GM¹
Maintaining effective cost control whilst focusing on operational productivity
Mining cost Processing cost
Financial review
Key cost metrics (per HCC product sold)
1H2014 1H2014
1H2014
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1H2013
47.1
11.4
US$m
Tax and fee
decrease
6.5 Processing cost
increase
(0.9)
Other cost
decrease
2.5
Mining cost
decrease
4.6
Price
decrease
(56.1)
Transportation &
Logistic cost
decrease
7.7
Challenging coking coal pricing environment over-weighing EBITDA performance
1 Earnings before interest, taxes, depreciation, amortization, allowance for doubtful debts and share option expenses
Weak coking coal pricing environment (ASP down by approx. 26% YoY) adversely affected EBITDA by US$ 56.1m
Compared to 1H2013, in 1H2014 higher primary product yield (51% in1H2014 vs 46% in 1H2013) contributed to decrease in mining cost and positively
affecting EBTIDA by US$ 4.6m
Processing cost slightly increased due to deliberate capacity adjustment based on sales volume, which were matched with strategy to utilize inventory
Transportation and logistics cost decreased by 18% and 33% YoY respectively, benefitting the EBITDA by US$7.7m. This was achieved through by
maintaining transportation operational efficiency
As a result of GoM’s supporting measures towards coal industry, starting 1 April 2014 royalty tax is calculated based on coal contract price per tonne
instead of set reference price, hence royalty tax decreased. Effective royalty rate was 5% in 1H2014 vs 6% in 1H2013
Depreciating local currency benefitted such expenses as air pollution and customs fees (down by 0.5 US$/t)
Adjusted EBITDA1
Financial review
EBITDA bridge analysis
(US$ mm)
1H2014
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15
Object title
Conclusion
R0.G0.B102
Table column
heading shading
R234.G234.B234
color 1
1st level bullet
R255.G102.B0
color 2
R0228.G172.B105
color 3
R168.G174.B203
color 4
R90.G106.B154
color 5
R0.G0.B102
color 6
R215.G212.B206
color 8
R0.G0.B0
Highlight
R153.G0.B0
ObjectFoundation
White
R255.G255.B255
2nd, 3rd & 4th
level Bullet
Lt. divider line
R192.G192.B192
Text
R0.G0.B0
Connector lines
Dk. divider line
128.G128.B128
Table highlight
R244.G225.B206
color 7
R171.G161.B149
13.6
80.2
142.3
87.1
15.3
16.2
54.8
23.2
28.3
14.4
27.7
19.9
73.9
50.6
12.2
47.9
49.5
21.6
- 5.5
7.3
24.9
63.0
204.9
296.2
212.5
41.9
9.3
0
50
100
150
200
250
300
2009 2010 2011 2012 2013 1H2014
CHPP Water and Power Others Road Railway
(US$ mm)
Note: Others include workers’ camp, township, airport, trucks, workshops, main office building, warehouse and other PPE
With established production capacity, MMC is well positioned to benefit from market recovery
Capital expenditure profile
Financial review
Development capital expenditure plan has been accomplished
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16
Object title
Conclusion
R0.G0.B102
Table column
heading shading
R234.G234.B234
color 1
1st level bullet
R255.G102.B0
color 2
R0228.G172.B105
color 3
R168.G174.B203
color 4
R90.G106.B154
color 5
R0.G0.B102
color 6
R215.G212.B206
color 8
R0.G0.B0
Highlight
R153.G0.B0
ObjectFoundation
White
R255.G255.B255
2nd, 3rd & 4th
level Bullet
Lt. divider line
R192.G192.B192
Text
R0.G0.B0
Connector lines
Dk. divider line
128.G128.B128
Table highlight
R244.G225.B206
color 7
R171.G161.B149
Operating environment
Business review
Financial review
Outlook
Agenda
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17
Object title
Conclusion
R0.G0.B102
Table column
heading shading
R234.G234.B234
color 1
1st level bullet
R255.G102.B0
color 2
R0228.G172.B105
color 3
R168.G174.B203
color 4
R90.G106.B154
color 5
R0.G0.B102
color 6
R215.G212.B206
color 8
R0.G0.B0
Highlight
R153.G0.B0
ObjectFoundation
White
R255.G255.B255
2nd, 3rd & 4th
level Bullet
Lt. divider line
R192.G192.B192
Text
R0.G0.B0
Connector lines
Dk. divider line
128.G128.B128
Table highlight
R244.G225.B206
color 7
R171.G161.B149
Recovery trajectory for the pricing of coking coal in China and globally remains uncertain in 2H2014
Sizeable reduction in forecast coal output for 2H2014 was announced in August 2014 by some of the largest coal producers in
China, signaling that other Chinese coal producers may follow suit
The Group will aim to expand its sales and distribution channels reaching its end-user customers located in the main steel
producing regions in China. As such, it is expected to sell up to 40% of washed HCC volumes through its sales and distribution
network whilst focusing on improving efficiency of inland logistics arrangements
Group’s full year sales volume target 4.5-5.0 Mt washed HCC and 1.8-2.0 Mt middlings, subject to market conditions
The Group will continue to monitor and assess the market situation whilst prioritizing its focus on liquidity, working capital
management, cost control, operational efficiency and productivity, while, continuing to enhance the Group’s core
competitiveness, allowing it to maintain its market share and sales volumes in 2014
ROM coal mining and processing volumes to be adjusted to actual sales volumes
Overall management strategy is to reduce product coal inventory levels, with production costs expected to be controlled for the
remainder of the year
The Group, together with its joint-venture partners, will remain fully committed to support the successful execution of Cross-
Border Railway project
Once complete, the Cross-Border Railway is expected to facilitate export from Mongolia to China, with the Group having
unrestricted access on a non-discriminatory and equal treatment basis
The Cross-Border Railway is expected to significantly improve logistics efficiency and further reduce transportation costs
Market conditions
Cost control and
liquidity
management
Cross-Border
Railway project
Outlook
Outlook
To continue focus on optimizing the allocation of resources & driving efficiency
THANK YOU
Mongolian Mining Corporation
16F Central Tower
Sukhbaatar District
Ulaanbaatar 14200
Mongolia
www.mmc.mn