INTERIM RESULTS 2019 (0975.HK) 23 AUGUST | HONG KONG UHG mine, Tsogttsetsii soum, Umnugobi 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 continues to deliver robust performance CRUDE STEEL PRODUCTION AND CONSUMPTION COKE PRODUCTION AND CONSUMPTION 560 280 492 492 245 245 480 480 237 237 234 234 461 461 448 448 449 449 226 226 227 227 212 212 418 418 420 210 Mt Mt 280 140 140 70 0 0 1H2018 2H2018 1H2019 1H2018 2H2018 1H2019 Production Consumption Production Consumption COKING COAL PRODUCTION AND CONSUMPTION COKING COAL IMPORT 320 48 272 272 272 272 248 248 36 36 35 35 232 232 228 228 222 222 36 240 30 30 Mt Mt 160 24 80 12 0 0 1H2018 2H2018 1H2019 1H2018 2H2018 1H2019 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 prices in China remained stable SEABORNE COKING COAL PRICES CHINA COKING COAL PRICES 1 270 1,800 240 1,575 USD CNY 210 1,350 180 1,125 150 900 Jan-18 Apr-18 Jul-18 Oct-18 Jan-19 Apr-19 Jul-19 Jan-18 Apr-18 Jul-18 Oct-18 Jan-19 Apr-19 Jul-19 FOB Aus (low vol) FOB Aus (mid vol) CFR North China (low vol) EXW Jingtang (mid vol) FOR Tangshan FOR Luilin #4 EXW Baotou COKING COAL STOCKS AT CHINA PORTS COKING COAL STOCKS AT CHINA END USERS 10 16 8 12 6 Mt Mt 8 4 4 2 0 0 Jan-18 Apr-18 Jul-18 Oct-18 Jan-19 Apr-19 Jul-19 Jan-18 Apr-18 Jul-18 Oct-18 Jan-19 Apr-19 Jul-19 Jingtang Rizhao Lianyungang Qingdao Fangcheng Coke plants Steel mills Source: Fenwei, Platts. Note: 1 VAT inclusive. 4 mmc.mn
Operating environment Regulatory updates CORPORATE - On 22 March 2019, the Parliament revised the Corporate Income Tax Law to become effective from 1 January 2020; INCOME TAX - The taxable income threshold for 25% CIT bracket increased from MNT 3 billion to MNT 6 billion; LAW - 10% withholding tax will be applied on direct or indirect transfer of interests held by “ ultimate holder ” in Mongolian entities which hold oil and mining licenses and land rights. The threshold of 30% or more direct or indirect interests was introduced to define the “ultimate holder” as an individual beneficial holder of interests in Mongolian entities, which will be subject to such taxation; - 5% withholding tax will be applied on interests paid by Mongolian entities for listed and publicly traded securities. However, this excludes entities involved in the extractive industry, which remains subject to the withholding tax at 10% rate applied on interests paid in Mongolia and 20% rate applied on interests paid outside of Mongolia, subject to existing double taxation arrangements according to international bilateral treaties; - A new term of “foreign entity managed from Mongolia” was introduced, according to which if directly or indirectly 50% or more of a foreign entity is held by a Mongolian tax payer, such entity shall be subject to Mongolian CIT and reporting obligations. - On 22 March 2019, the Parliament revised the Value Added Tax Law to become effective from 1 January 2020; VALUE ADDED TAX LAW - The input VAT incurred on capital expenditure will be recovered over 10 years, for equipment, including mineral exploration costs over 5 years, and for other capital assets will be recovered in the same year of the asset purchase. - On 22 March 2019, the Minerals Law was amended effective from 1 January 2020 to allow tax authorities to pledge mineral licenses for the MINERALS LAW purpose of collecting tax debts; - On 26 March 2019, the Parliament of Mongolia amended Article 47 of the Minerals Law related to royalty payments, which came into effect on 17 June 2019 and the obligation for royalty payments was extended from mining license holders to include any entity which sells mineral products. The Constitutional Court of Mongolia has suspended the effectiveness of the Amendment and a final ruling is expected to decide the matter. 5 mmc.mn
Agenda OPERATING ENVIRONMENT BUSINESS REVIEW FINANCIAL REVIEW 6 mmc.mn
̶ ̶ ̶ ̶ ̶ Business review Sizeable coking coal resources and reserves base Overview : The Company owns and operates two open-pit coking coal mines, namely the UHG deposit located within the Tavan Tolgoi coal formation and the BN deposit, both of which are located in the South Gobi province of Mongolia Location : UHG mine is located ~540 km south of Ulaanbaatar, the capital city of Mongolia, and ~240 km from the Mongolia-China border crossing Gashuunsukhait-Ganqimaodu (“ GS-GM ”) . BN mine is located ~30 km south-west of UHG mine License : UHG mining license was granted in 2006 and BN mining license was granted in 2008. The Company performed exploration work during Pro-Form rma JOR ORC (2012) State tement nt 1 UHG UHG BN BN THG HG Total 2011-2012 at Tsaikhar Khudag (“ THG ”) area and was granted the THG Total resources 2 (Mt) 663 326 73 1,062 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 - Above 300m 442 231 54 727 20-years each - Below 300m 221 95 19 335 Total ROM coal reserves 3 Resources : The latest UHG, BN and THG Coal Resources statements were 324 175 - 499 prepared as at 31 December 2018. Based on the latest estimates, pro- - Coking 311 175 - 486 forma total Coal Resources are 1,062 Mt - Thermal 13 0 - 13 Reserves : The latest Coal Reserves statements for UHG and BN deposits Total marketable reserves 3 191 91 - 282 were prepared as at 1 January 2019. The estimates were prepared based - Coking 153 71 - 224 on open cut, multi seam, truck and excavator mining methods. Based on - Middling 25 20 - 45 the updated statements, pro-forma total run-of-mine (“ ROM ”) Coal - Thermal 13 0 - 13 Reserves of UHG and BN deposits are 499 Mt Note: 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 Production output tied with export logistics conditions ROM COAL PRODUCTION WASHED COAL PRODUCTION 8.0 6.0 6.6 51% 51% 51% 51% 4.8 6.0 4.5 4.4 4.3 2.9 Mt Mt 4.0 3.0 2.2 2.0 3.6 4.0 2.0 1.5 1.8 0.9 0.7 0.4 0.4 0.0 0.0 1H 2018 1H 2019 1H 2018 1H 2019 2 1 UHG mine BN mine Primary product Secondary product Stripping ratio (bcm/ROMt) Primary yield At UHG mine a total of 26.3 million bank cubic metres (“ bcm ”) of prime In 1H2019, total CHPP ROM coking coal feed was 3.5 Mt, of which 3.1 Mt overburden was removed and 4.0 Mt of ROM coal was mined with an and 0.4 Mt were sourced from UHG and BN mines, respectively. actual stripping ratio of 6.6 bcm per ROMt. Starting from the end of 2018, the Company adjusted contractual Higher stripping ratio at UHG mine is mainly due to deliberate adjustments specifications for washed hard coking coal product (“ HCC CC ”) by lowering to the mining schedule in order to smoothen mid and long-term indicative ash content at dry basis from 11.0% to 10.5% based on higher production profiles. quality coal products requested from its customers. At BN mine a total of 2.7 million bcm of prime overburden was removed In 1H2019, primary product yield was 51%. Primary products include HCC and 0.4 Mt of ROM coal was mined with an actual stripping ratio of 6.7 and washed semi-soft coking coal product (“ SSCC CC ”) . bcm per ROM tonne. 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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