INTERIM RESULTS 2018 (0975.HK) 15 AUGUST 2018 Gobi desert, South Gobi, Mongolia UHG and BN mines are located in South Gobi province.
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. 1 mmc.mn
Agenda OPERATING ENVIRONMENT BUSINESS REVIEW FINANCIAL REVIEW 2 mmc.mn
Operating environment Chinese steel industry robust performance CRUDE STEEL PRODUCTION AND CONSUMPTION COKE PRODUCTION AND CONSUMPTION 520 280 451 451 237 237 425 425 227 227 411 411 221 221 406 406 210 210 212 212 384 384 206 206 378 378 390 210 Mt Mt 140 260 70 130 0 0 1H2017 2H2017 1H2018 1H2017 2H2017 1H2018 Production Consumption Production Consumption COKING COAL PRODUCTION AND CONSUMPTION COKING COAL IMPORT 40 320 36 36 259 259 34 34 255 255 247 247 225 225 29 29 220 220 214 214 240 30 Mt Mt 160 20 80 10 0 0 1H2017 2H2017 1H2018 1H2017 2H2017 1H2018 Production Consumption 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. 3 mmc.mn
Operating environment Coking coal price remained strong SEABORNE COKING COAL PRICES CHINA COKING COAL PRICES 1 360 2400 270 1800 USD CNY 180 1200 90 600 0 0 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 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) FOR Tangshan FOR Luilin #4 EXW Baotou EXW Jingtang (mid vol) COKING COAL STOCKS AT CHINA PORTS COKING COAL STOCKS AT CHINA END USERS 8 16 6 12 Mt Mt 4 8 2 4 0 0 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jingtang Rizhao Lianyungang Qingdao Fangcheng Coke plants Steel mills Source: Fenwei, Platts. Note: 1 VAT inclusive. 4 mmc.mn
Operating environment Regulatory updates PROPOSED 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 TAXATION to the proposed amendments, only transactions involving full or partial disposal of direct or indirect interest held by shareholders holding more AMENDMENTS 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 original 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. UPDATE ON 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, TAVAN TOLGOI but no final selection made. Renewed tender was announced in 2014, requiring at least 51% of domestic involvement. The Parliament also passed AND RELATED 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 INFRASTRUCTURE domestic and international stock exchanges (30%). DEVELOPMENT 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 others, TT-GS Railway. 5 mmc.mn
Agenda OPERATING ENVIRONMENT BUSINESS REVIEW FINANCIAL REVIEW 6 mmc.mn
̶ ̶ ̶ ̶ ̶ Business review Sizeable coking coal resources and reserves base 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 Pro-Form rma JOR ORC (2012) State tement nt 1 UHG UHG BN BN THG HG Total mining license in June 2013. All licenses permit the Company to urces 2 2 (Mt) Total resourc Mt) 680 680 330 330 70 70 1,080 engage in coal mining activities for an initial period of 30-years, extendable twice by 20-years each. - Above 300m 462 232 54 748 - Below 300m 222 95 18 335 The latest UHG Coal Resources estimate was prepared as at 31 Total RO ROM M coal reserv rves 3 333 333 176 176 - 509 509 December 2016; BN and THG Coal Resources estimates were prepared as at 30 June 2015. Based on the latest estimates, pro-forma total Coal - Coking 320 176 - 496 Resources are 1,080 Mt. - Thermal 13 0 - 13 The latest Coal Reserves statements for UHG and BN deposits were rves 3 Total ma marketa tabl ble reserv 195 195 91 91 - 286 286 prepared as at 1 January 2018. The estimates were prepared based on - Coking 156 71 - 227 open cut, multi seam, truck and excavator mining methods. As a result - Middling 26 20 - 46 of updated statements, pro-forma total run-of-mine (“ ROM ”) Coal - Thermal 13 0 - 13 Reserves of UHG and BN deposits increased to 509 Mt. 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. 7 mmc.mn
̶ ̶ ̶ ̶ ̶ ̶ Business review Tailoring production output with export logistics conditions ROM COAL PRODUCTION WASHED COAL PRODUCTION 8.0 6.0 4.8 51% 51% 4.6 51% 51% 4.2 50% 50% 6.0 4.5 4.3 4.2 4.1 3.1 Mt Mt 2.9 2.8 4.0 3.0 2.1 3.6 2.0 2.0 4.2 4.0 2.0 1.5 1.0 0.8 0.9 0.1 0.7 0.0 0.0 1H2017 2H2017 1H2018 1H2017 2H2017 1H2018 Stripping ratio (bcm/ROMt) Primary yield UHG BN Primary product Secondary product In 1H2018, prime overburden movement at UHG and BN mines were In 1H2018, total CHPP ROM coal feed was 4.0 Mt, of which 3.5 Mt and 15.0 million bank cubic metres (“ bc bcm ”) and 5.6 million bcm, 0.5 Mt were sourced from UHG and BN mines, respectively. respectively. The Company produced 0.8 Mt and 1.2 Mt of primary products in BN mine production resumed from 4Q2017. 1Q2018 and 2Q2018, respectively. Combined ROM coal production at UHG and BN mines for 1Q2018 and The primary products include washed hard coking coal (“ HCC CC ”) and 2Q2018 were 1.8 Mt and 2.5 Mt, respectively. washed semi-soft coking coal (“ SSCC SCC ”) . Note: 1 Combined stripping ratio of UHG and BN mines. 2 Combined washing yield and product output of UHG and BN mines. 8 mmc.mn
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