INTERIM RESULTS 2018 (0975.HK) 15 AUGUST 2018 Gobi desert, South - - PowerPoint PPT Presentation

(0975.HK)

INTERIM RESULTS 2018

15 AUGUST 2018

Gobi desert, South Gobi, Mongolia UHG and BN mines are located in South Gobi province.

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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. All numbers in this presentation are approximate rounded values for particular items.

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OPERATING ENVIRONMENT BUSINESS REVIEW FINANCIAL REVIEW

Agenda

mmc.mn 221 221 210 210 212 212 227 227 206 206 237 237 70 140 210 280 1H2017 2H2017 1H2018 Production Consumption

Operating environment

Chinese steel industry robust performance

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COKE PRODUCTION AND CONSUMPTION COKING COAL IMPORT

Mt Mt

Source: Shanxi Fenwei Energy Information Services Co., Ltd (“Fenw nwei”), World Steel Association, National Bureau of Statistics of China, General Administration of Customs of China.

COKING COAL PRODUCTION AND CONSUMPTION CRUDE STEEL PRODUCTION AND CONSUMPTION

Mt Mt 220 220 225 225 214 214 259 259 255 255 247 247 80 160 240 320 1H2017 2H2017 1H2018 Production Consumption 425 425 406 406 451 451 384 384 378 378 411 411 130 260 390 520 1H2017 2H2017 1H2018 Production Consumption 36 36 34 34 29 29 10 20 30 40 1H2017 2H2017 1H2018

mmc.mn 600 1200 1800 2400 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 FOR Tangshan FOR Luilin #4 EXW Baotou EXW Jingtang (mid vol) 90 180 270 360 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 FOB Aus (low vol) FOB Aus (mid vol) CFR North China (low vol)

Operating environment

Coking coal price remained strong

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CHINA COKING COAL PRICES1 COKING COAL STOCKS AT CHINA END USERS

USD Mt

Source: Fenwei, Platts. Note: 1 VAT inclusive.

COKING COAL STOCKS AT CHINA PORTS SEABORNE COKING COAL PRICES

CNY Mt 2 4 6 8 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jingtang Rizhao Lianyungang Qingdao Fangcheng 4 8 12 16 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Coke plants Steel mills

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Operating environment

Regulatory updates

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There were a number of decisions issued and subsequent changes made in relation to the Tavan Tolgoi development (“TT TT”) and railway infrastructure in the past. An international bid was announced in 2010 inviting potential investors for the TT, where 6 bidders were shortlisted, but no final selection made. Renewed tender was announced in 2014, requiring at least 51% of domestic involvement. The Parliament also passed a Resolution No. 39 in July 2010 on issuing shares of Erdenes Tavan Tolgoi to Mongolian citizens and domestic legal entities (20%) and listing on domestic and international stock exchanges (30%). With regards to the railway project, initially the Group was granted right to build TT-GS Railway by the GoM in July 2008. The Parliament adopted the State Policy on Railway Transportation in June 2010, after which the Concession Agreement was signed with the Group in May 2012 and subsequently the Concession Agreement was terminated in May 2013 and project was transferred to MTZ SOE. As a recent update, on 29 June 2018, the Parliament issued Resolution No. 73 and directed the GoM to take required actions and present to the Parliament within this year the required preparation works related to the potential initial public offering (“IPO”) of the entity holding TT mining licenses by floating up to 30% of its shares at the international and local stock exchanges in line with the relevant clauses of the Resolution No. 39 adopted by the Parliament in 2010. In addition, the GoM was directed to accelerate infrastructure development projects, including, among

• thers, TT-GS Railway.

UPDATE ON TAVAN TOLGOI AND RELATED INFRASTRUCTURE DEVELOPMENT

On 29 May and 22 June 2018, revised versions of the General Taxation Law, the Law on Personal Income Tax, the Law on Corporate Income Tax and amendment to the Law on Value Added Tax, together with relevant changes under other laws were submitted to the Parliament. According to the proposed amendments, only transactions involving full or partial disposal of direct or indirect interest held by shareholders holding more than 30% stake in legal entities holding exploration and mining licenses and land possession rights will be subject to a 10% taxation (in lieu of the

• riginal 30% rate) imposed on “sale of rights” in Mongolia. Such taxation shall be withheld and paid by the subject holder of exploration and

mining licenses and land possession rights. It is expected that submitted drafts will be reviewed and considered by the Parliament during its coming autumn session.

PROPOSED TAXATION AMENDMENTS

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OPERATING ENVIRONMENT BUSINESS REVIEW FINANCIAL REVIEW

Agenda

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Business review

Sizeable coking coal resources and reserves base

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̶ The Company owns and operates two open-pit coking coal mines at Ukhaa Khudag (“UHG”) deposit located within the Tavan Tolgoi coal formation and the Baruun Naran (“BN BN”) deposit, both located in the South Gobi province of Mongolia. ̶ UHG mine is located ~540 km south of Ulaanbaatar, the capital city of Mongolia, and ~245 km from the Mongolia-China border crossing Gashuunsukhait-Ganqimaodu (“GS GS-GM GM”). BN mine is located ~30 km south-west of UHG mine. ̶ UHG mining license was granted in 2006 and BN mining license was granted in 2008. The Company performed exploration work during 2011-2012 at Tsaikhar Khudag (“THG”) area and was granted the THG mining license in June 2013. All licenses permit the Company to engage in coal mining activities for an initial period of 30-years, extendable twice by 20-years each. ̶ The latest UHG Coal Resources estimate was prepared as at 31 December 2016; BN and THG Coal Resources estimates were prepared as at 30 June 2015. Based on the latest estimates, pro-forma total Coal Resources are 1,080 Mt. ̶ The latest Coal Reserves statements for UHG and BN deposits were prepared as at 1 January 2018. The estimates were prepared based on

• pen cut, multi seam, truck and excavator mining methods. As a result
• f updated statements, pro-forma total run-of-mine (“ROM”) Coal

Reserves of UHG and BN deposits increased to 509 Mt.

JOR ORC (2012) State tement nt1 UHG UHG BN BN THG HG Pro-Form rma Total Total resourc urces2

2 (Mt)

Mt) 680 680 330 330 70 70 1,080

• Above 300m

462 232 54 748

• Below 300m

222 95 18 335 Total RO ROM M coal reserv rves3 333 333 176 176

• 509

509

• Coking

320 176

• 496
• Thermal

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• 13

Total ma marketa tabl ble reserv rves3 195 195 91 91

• 286

286

• Coking

156 71

• 227
• Middling

26 20

• 46
• Thermal

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Notes: 1 Due to rounding, discrepancy may exist between sub-totals and totals. Rounding rules refer to Clause 25 of the JORC Code (2012).

2 Includes Measured, Indicated and Inferred Resource category. 3 Includes Proved and Probable Reserve category.

mmc.mn 0.1 0.7 4.2 4.0 3.6 4.2 4.1 4.3 4.6 4.2 4.8 0.0 2.0 4.0 6.0 8.0 1H2017 2H2017 1H2018 Stripping ratio (bcm/ROMt) 0.8 1.0 0.9 2.0 2.1 2.0 2.8 3.1 2.9 51% 51% 50% 50% 51% 51% 0.0 1.5 3.0 4.5 6.0 1H2017 2H2017 1H2018 Primary yield Primary product Secondary product

Business review

Tailoring production output with export logistics conditions

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WASHED COAL PRODUCTION

Mt

Note: 1 Combined stripping ratio of UHG and BN mines.

2 Combined washing yield and product output of UHG and BN mines.

ROM COAL PRODUCTION

Mt

̶ In 1H2018, total CHPP ROM coal feed was 4.0 Mt, of which 3.5 Mt and 0.5 Mt were sourced from UHG and BN mines, respectively. ̶ The Company produced 0.8 Mt and 1.2 Mt of primary products in 1Q2018 and 2Q2018, respectively. ̶ The primary products include washed hard coking coal (“HCC CC”) and washed semi-soft coking coal (“SSCC SCC”).

UHG BN

̶ In 1H2018, prime overburden movement at UHG and BN mines were 15.0 million bank cubic metres (“bc bcm”) and 5.6 million bcm, respectively. ̶ BN mine production resumed from 4Q2017. ̶ Combined ROM coal production at UHG and BN mines for 1Q2018 and 2Q2018 were 1.8 Mt and 2.5 Mt, respectively.

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Business review

Continued inefficiencies at the border crossing

9 Trucks

Source: the Company data. Note: 1 Combined average throughput of all coal trucks crossing GM border per operating day.

GM BORDER CROSSING DAILY AVERAGE THROUGHPUT1

1,075 1,221 724 724 576 576 494 494 847 847 350 700 1,050 1,400 1Q2017 2Q2017 3Q2017 4Q2017 1Q2018 2Q2018

̶ Inefficiencies at GS-GM border crossing continued to impact export daily throughput, limiting number of trucks crossing the border. 1Q2018 GM border crossing average throughput was the lowest in the recent two years. While the situation has improved from May 2018, it remains uncertain whether the improvement can be sustainable. ̶ In July and August 2018, coal transportation was disrupted from time to time due temporary closure of roads from the mine area to GM caused by heavy rains and flooding. ̶ The Company increased it’s transportation capacity by 150 double trailer trucks bringing the total capacity to around 450. The first 100 trucks were delivered towards the end of 2017, while the remaining 50 trucks were delivered during 1H2018. ̶ In 1H2018, the Company shipped 2.4 Mt of coal products for export from Mongolia to PRC utilizing trans-shipment facility located at Tsagaan Khad (“TKH”), complying with the GoM Resolution No. 320 (dated 29 November 2017) to temporarily suspend customs clearance from mine sites in Tavan Tolgoi area and requiring exporters to utilise customs bonded yards located at TKH. ̶ On 20 June 2018, the GoM issued Resolution No. 185 lifting the ban imposed

• n coal customs clearance from mine sites in Tavan Tolgoi area.

̶ Starting from July 2018, the Company is performing coal export transportation using both direct UHG-GM route and two step UHG-TKH and TKH-GM route.

GS GS-GM GM

Existing border crossing Proposed border crossing Potential route

UHG HG TKH TKH

CHINA MONGOLIA

BN BN Khangi-Mandal Tsagaandel Uul-Ulzii

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Area A

Business review

Target market region

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China Railway Corporation railway China Shenhua railway UHG-GS paved road Customers UHG HG

MONGOLIA

Area C Area B

CHINA

BN BN GS-GM

MONGOLIAN COAL EXPORT

By declared volume at custom clearance1: By declared value at custom clearance1:

234.8 182.0 286.5 1,282.4 985.3 1,413.8 18% 18% 18% 18% 20% 20% 500 1,000 1,500 2,000 1H2017 2H2017 1H2018 MMC share USD mln Total MMC 10.9 6.3 8.5 19.1 14.3 18.3 13% 13% 13% 13% 13% 13% 8 16 24 32 1H2017 2H2017 1H2018 MMC share Mt

Source: National Statistical Office of Mongolia, the Company data Note: 1 Total declared export volume and value at all Mongolian border points are sourced from National Statistical Office of Mongolia.

Total via GS-GM

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OPERATING ENVIRONMENT BUSINESS REVIEW FINANCIAL REVIEW

Agenda

mmc.mn 0.4 0.4 0.4 1.9 1.7 1.7 2.3 2.1 2.1 127.7 133.1 146.1 1 2 3 4 1H2017 2H2017 1H2018 ASP of HCC (USD/t)

Financial review

Increasing revenue stream

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REVENUE ADJUSTED EBITDA3

Mt USD mln

Note: 1 ASP is a blended average of HCC.

2 Includes mainly SSCC and middlings. 3 Earnings before interest, taxes, depreciation and amortisation adjusted by share option expenses and other non-cash items.

PROFIT FROM OPERATIONS SALES VOLUME AND ASP1

USD mln USD mln HCC Others2 72.1 51.9 69.8 30 60 90 120 1H2017 2H2017 1H2018 97.4 79.7 99.5 30 60 90 120 1H2017 2H2017 1H2018 245.9 230.5 272.2 180 210 240 270 300 1H2017 2H2017 1H2018

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Financial review

Operating costs impacted by border crossing inefficiencies

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PROCESSING COST HCC OPERATING CASH COST AT GM2

USD\ROMt USD\t

Note: 1 Combined weighted average transportation cost from UHG to GM, including third party contractors.

2 Washed HCC operating cash cost delivered at GM including mining, processing, handling, transportation, logistics, royalties, fees and other costs.

TRANSPORTATION COST1 MINING COST

USD\ROMt USD\t 16.9 24.1 22.6 6 12 18 24 30 1H2017 2H2017 1H2018 49.8 58.5 63.8 6.8 6.0 7.0 56.6 64.5 70.8 20 40 60 80 100 1H2017 2H2017 1H2018 DAP GM cost Royalties 11.8 11.5 13.7 1.0 1.9 2.1 12.8 13.4 15.8 6 12 18 24 30 1H2017 2H2017 1H2018 Cash cost Non-cash cost 1.8 2.1 1.9 3.4 3.3 3.4 5.2 5.4 5.3 2 4 6 8 10 1H2017 2H2017 1H2018 Cash cost Non-cash cost

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Financial review

Solid financial metrics

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INVESTING CASH OUTFLOW TOTAL ASSETS AND GEARING RATIO

USD mln USD mln

Note: 1 Calculated from the face value of debts.

2 EBITDA is calculated on rolling 12 months basis.

EQUITY AND DEBT TO EQUITY RATIO1 DEBT AND DEBT TO EBITDA RATIO1

USD mln USD mln 443.7 443.7 443.7 3.7 2.5 2.5 250 500 750 1,000 30-Jun-17 31-Dec-17 30-Jun-18 Debt Debt to EBITDA ratio 1,642.0 1,631.4 1,683.7 28% 28% 29% 29% 28% 28% 500 1,000 1,500 2,000 1H2017 2H2017 1H2018 Total Asset Gearing ratio 784.2 770.9 794.5 0.6 0.6 0.6 250 500 750 1,000 30-Jun-17 31-Dec-17 30-Jun-18 Equity Debt to equity 32.9 30.8 29.5

1.6

17.6 5.1 34.5 48.4 34.6 15 30 45 60 1H2017 2H2017 1H2018 Capitalised stripping cost CAPEX, net

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Financial review

Finance costs breakdown

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1H 2018 NET FINANCE COSTS

USD mln

Note: 1 Tianjin Zhengcheng Import and Export Trade Co., Ltd and Inner Mongolia Fangcheng Trade Co., Ltd.

1H 2017 NET FINANCE COSTS

USD mln

̶ In accordance with IFRS, the principal amounts of USD412.5m Senior Notes and USD31.2m Senior Loan were initially recognized at fair values of USD378.0m and USD29.2m, respectively, on 4 May 2017. ̶ The difference between the face value and initially recognised fair value of Senior Notes and Senior Loan is amortised over the term of the facilities using the effective interest rate calculation. ̶ In addition, Senior Notes and Senior Loan are considered as hybrid financial instruments containing a derivative component of interest rate linked to benchmark coal price and cash sweep premium. Changes in fair values of the derivative components are reflected as gain/loss of derivatives in the Net Finance Cost section of the Profit and Loss Statement. ̶ In 1H2017, USD13.3m net foreign exchange gain was realised mainly due to MNT appreciation against USD during the reporting period. ̶ Starting from 2H2017 until 30 June 2018, MNT has been depreciating against USD. However, the Group was able to eliminate majority of the foreign exchange rate fluctuation impact by changing the functional currency of certain Mongolian subsidiary companies from MNT to USD effective from 1 January 2018. ̶ USD1.2m net foreign exchange loss for 1H2018, was mainly due to CNY denominated transactions, including accounting of entities incorporated in the PRC1.

17.4 0.7 1.0 1.3 13.3 0.3 4.8 8 16 24 32 Accrued interest Withholding tax Effective interest rate Fair value change of derivatives Foreign exchange gain, net Others Net finance costs 17.7 1.4 3.1 3.6 1.2 0.3 27.3 8 16 24 32 Accrued interest Withholding tax Effective interest rate Fair value change of derivatives Foreign exchange loss, net Others Net finance costs

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THANK YOU

Mo Mongolian Mi Mining Cor

• rporation

16F Central Towe

• wer

Su Sukhbaatar Di District Ulaanbaatar 14200 Mo Mongolia www.mmc. c.mn inv nvesto tor@mmc.mn