INTERIM RESULTS 2019 (0975.HK) 23 AUGUST | HONG KONG UHG mine, - - PowerPoint PPT Presentation

INTERIM RESULTS 2019

23 AUGUST | HONG KONG

UHG mine, Tsogttsetsii soum, Umnugobi province.

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

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OPERATING ENVIRONMENT BUSINESS REVIEW FINANCIAL REVIEW

Agenda

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Operating environment

Chinese steel industry continues to deliver 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 212 212 226 226 234 234 237 237 245 245 227 227 70 140 210 280 1H2018 2H2018 1H2019 Production Consumption 30 30 35 35 36 36 12 24 36 48 1H2018 2H2018 1H2019 448 448 480 480 492 492 418 418 449 449 461 461 140 280 420 560 1H2018 2H2018 1H2019 Production Consumption 222 222 232 232 228 228 248 248 272 272 272 272 80 160 240 320 1H2018 2H2018 1H2019 Production Consumption

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Operating environment

Coking coal prices in China remained stable

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CHINA COKING COAL PRICES1 COKING COAL STOCKS AT CHINA END USERS

Mt

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

COKING COAL STOCKS AT CHINA PORTS SEABORNE COKING COAL PRICES

Mt 2 4 6 8 10 Jan-18 Apr-18 Jul-18 Oct-18 Jan-19 Apr-19 Jul-19 Jingtang Rizhao Lianyungang Qingdao Fangcheng 4 8 12 16 Jan-18 Apr-18 Jul-18 Oct-18 Jan-19 Apr-19 Jul-19 Coke plants Steel mills 150 180 210 240 270 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) 900 1,125 1,350 1,575 1,800 Jan-18 Apr-18 Jul-18 Oct-18 Jan-19 Apr-19 Jul-19 EXW Jingtang (mid vol) FOR Tangshan FOR Luilin #4 EXW Baotou USD CNY

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Operating environment

Regulatory updates

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• On 22 March 2019, the Parliament revised the Corporate Income Tax Law to become effective from 1 January 2020;
• The taxable income threshold for 25% CIT bracket increased from MNT 3 billion to MNT 6 billion;
• 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;
• 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.

VALUE ADDED TAX LAW CORPORATE INCOME TAX LAW MINERALS LAW

• On 22 March 2019, the Minerals Law was amended effective from 1 January 2020 to allow tax authorities to pledge mineral licenses for the

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
• n 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.

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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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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.

JOR ORC (2012) State tement nt1 UHG UHG BN BN THG HG Pro-Form rma Total Total resources2 (Mt) 663 326 73 1,062

• Above 300m

442 231 54 727

• Below 300m

221 95 19 335 Total ROM coal reserves3 324 175

• 499
• Coking

311 175

• 486
• Thermal

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• 13

Total marketable reserves3 191 91

• 282
• Coking

153 71

• 224
• Middling

25 20

• 45
• Thermal

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̶ 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 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 ̶ Resources: The latest UHG, BN and THG Coal Resources statements were prepared as at 31 December 2018. Based on the latest estimates, pro- forma total Coal Resources are 1,062 Mt ̶ Reserves: The latest Coal Reserves statements for UHG and BN deposits were prepared as at 1 January 2019. The estimates were prepared based

• n open cut, multi seam, truck and excavator mining methods. Based on

the updated statements, pro-forma total run-of-mine (“ROM”) Coal Reserves of UHG and BN deposits are 499 Mt

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0.7 0.4

3.6 4.0 4.3 4.4 4.8 6.6 0.0 2.0 4.0 6.0 8.0 1H 2018 1H 2019 Stripping ratio (bcm/ROMt)

Business review

Production output tied with export logistics conditions

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WASHED COAL PRODUCTION

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

̶ In 1H2019, total CHPP ROM coking coal feed was 3.5 Mt, of which 3.1 Mt and 0.4 Mt were sourced from UHG and BN mines, respectively. ̶ Starting from the end of 2018, the Company adjusted contractual specifications for washed hard coking coal product (“HCC CC”) by lowering indicative ash content at dry basis from 11.0% to 10.5% based on higher quality coal products requested from its customers. ̶ In 1H2019, primary product yield was 51%. Primary products include HCC and washed semi-soft coking coal product (“SSCC CC”). ̶ At UHG mine a total of 26.3 million bank cubic metres (“bcm”) of prime

• verburden was removed and 4.0 Mt of ROM coal was mined with an

actual stripping ratio of 6.6 bcm per ROMt. ̶ Higher stripping ratio at UHG mine is mainly due to deliberate adjustments to the mining schedule in order to smoothen mid and long-term production profiles. ̶ At BN mine a total of 2.7 million bcm of prime overburden was removed and 0.4 Mt of ROM coal was mined with an actual stripping ratio of 6.7 bcm per ROM tonne.

UHG mine

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BN mine Mt Primary product Secondary product

2

Mt

0.9 0.4

2.0 1.8 2.9 2.2 51% 51% 51% 51% 0.0 1.5 3.0 4.5 6.0 1H 2018 1H 2019 Primary yield

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Business review

Coal export linked with border crossing throughput

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Note: 1 Total coal export volume of MMC.

2 Combined average throughput of all coal trucks crossing GM border per operating day.

494 494 847 847 936 936 639 639 537 537 802 802 300 600 900 1,200 1Q2018 2Q2018 3Q2018 4Q2018 1Q2019 2Q2019

COAL EXPORT TRANSPORTATION1 GM BORDER CROSSING DAILY AVERAGE THROUGHPUT2

Trucks

̶ Transportation from UHG to Ganqimaodu (“GM GM”), the Chinese side of the Sino-Mongolian border, is performed in two steps. The first step is the long-haul section (~240km) from UHG to Tsagaan Khad (“TK TKH”), the trans- shipment facility located on the Mongolian side of the border. The second step is the short-haul cross border transportation (~20km) from TKH to GM. ̶ On long-haul UHG-TKH section, transportation is performed 100% by our

• wn double-trailer trucks with cost of USD7.4 per tonne.

̶ In 1H 2019, 2.1 Mt of coal products was transported from UHG to TKH. ̶ On short-haul TKH-GM section, transportation is undertaken by combination of our own trucks and third party contractors.

• 2.3 Mt of coal products was shipped on short-haul in 1H2019. From which

31.5% was transported by own trucks with cost of USD4.7 per tonne, compared to contractor cost of USD24.5 per tonne impacted by continued border crossing inefficiencies. ̶ By focusing on maximizing own fleet utilization, the combined average transportation cost from UHG to GM was reduced to USD 25.6 per tonne in 1H2019, compared to USD 26.1 in 2H2018.

0.8 1.6 1.5 0.8 1.0 1.3 0.0 0.5 1.0 1.5 2.0 1Q2018 2Q2018 3Q2018 4Q2018 1Q2019 2Q2019 Mt

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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

Mt

China coking coal import:

Total via GS-GM

Mongolian coal export by declared volume1:

Source: Fenwei, National Statistics Office of Mongolia, the Company data Note: 1 Total declared export volume at all Mongolian border points by custom clearance are sourced from National Statistics Office of Mongolia.

29.6 36.3 43% 43% 46% 46% 10 20 30 40 50 1H2018 1H2019 Total Mongolian share Mt 8.5 9.7 18.3 18.1 13% 13% 13% 13% 6 12 18 24 30 1H2018 1H2019 MMC share

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OPERATING ENVIRONMENT BUSINESS REVIEW FINANCIAL REVIEW

Agenda

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Financial review

Increasing revenue stream

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REVENUE NET PROFIT

Note: 1 Includes mainly SSCC and middlings. 2 ASP is a blended average of HCC. 3 Excluding USD 17.7 mln one-off expense related with the mining fleet demobilization. 4 Including one-off items, such as: (i) USD 21.1 mln gain from debt refinancing, and (ii) USD 17.7mln expense related with the mining fleet demobilization.

PROFIT FROM OPERATIONS SALES VOLUME AND ASP

Mt HCC Others 1

2

272.2 325.6 90 180 270 360 1H 2018 1H 2019 USD mln 29.9 47.1 15 30 45 60 1H 2018 1H 2019 USD mln 69.8 88.6 25 50 75 100 1H 2018 1H 2019 USD mln

3 4

0.4 0.5 1.7 2.0 2.1 2.5 146.1 147.0 1 2 3 4 1H 2018 1H 2019 ASP of HCC/t

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Financial review

Cost structure

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PROCESSING COST HCC OPERATING CASH COST AT GM3

Note: 1 Combined average mining cost for UHG and BN mines.

2 Combined weighted average transportation cost from UHG to GM, including third party contractors.

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

TRANSPORTATION COST2 MINING COST1

13.7 12.7 2.1 2.3 15.8 15.0 5 10 15 20 1H 2018 1H 2019 Cash cost Non-cash cost USD/ROMt 1.9 2.3 3.4 3.2 5.3 5.5 2 4 6 8 1H 2018 1H 2019 Cash cost Non-cash cost USD/ROMt USD/t USD/t 22.6 25.6 6 12 18 24 30 1H 2018 1H 2019 62.2 64.5 8.6 8.6 70.8 73.1 16 32 48 64 80 1H 2018 1H 2019 DAP GM cost Royalties and fees

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Financial review

Solid financial metrics

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CAPEX TOTAL ASSETS AND GEARING RATIO

Note: 1 Earnings before interest, taxes, depreciation and amortisation adjusted by share option expenses, one-off items and other non-cash items. 2 Calculated based on the face value of debts (excluding perpetual notes) and rolling 12 months EBITDA

EQUITY AND DEBT TO EQUITY RATIO EBITDA AND DEBT TO EBITDA RATIO

USD mln USD mln USD mln 99.5 117.7 2.5 1.9 50 100 150 200 1H 2018 1H 2019 Adj.EBITDA Debt to EBITDA ratio USD mln

1 2

5.1 4.9 29.5 42.1 34.6 47.0 15 30 45 60 1H 2018 1H 2019 Capex, net Capitalised stripping cost 817 817 850 850 0.5 0.5 350 700 1,050 1,400 31-Dec-18 30-Jun-19 Equity Debt to equity 1,718 1,691 28% 28% 26% 26% 700 1,400 2,100 2,800 31-Dec-18 30-Jun-19 Total assets Gearing ratio

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Financial review

Debt refinancing transaction summary

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BEFORE REFINANCING (as of 31 Dec 2018) AFTER REFINANCING (as of 30 Jun 2019)

Senior

• r Loan

Senior

• r No

Notes es due due 2022 22 Perp erpet etual No Notes es Senior

• r No

Notes es due due 2022 22 Senior

• r No

Notes es due due 2024 24 Perp erpet etual No Notes es

Energy Resources LLC USD 412 412.5mln ln 30 September 2022 PIK 0-5%, Cash 0-8%, varying based on coking coal price Fixed assets, share pledges, debt reserve account Cash Sweep Premium of up to USD75m embedded Issuer: Amount: Maturity: Interest: Security: Covenants: Energy Resources LLC USD 14. 14.6m 6mln 30 September 2022 PIK 0-5%, Cash 0-8%, varying based on coking coal price Released all pledges and securities Cash Sweep Premium of up to USD2.7m embedded Issuer: Amount: Maturity: Interest: Security: Covenants: MMC (0975.HK)/Energy Resources LLC USD 440. 440.0mln ln 15 April 2024 9.25% None Standard high-yield covenant package Issuer: Amount: Maturity: Interest: Security: Covenants: Energy Resources LLC USD 23. 23.7m 7mln 30 September 2019 PIK 0-5%, Cash 0-8%, varying based on coking coal price Borrower: Amount: Maturity: Interest: MMC (0975 HK) USD 195. 195.0mln ln None 0% stepping up to 15%, based on certain triggers Issuer: Amount: Maturity: Interest: MMC (0975 HK) USD 171. 171.1mln ln None 0% stepping up to 15%, based on certain triggers Issuer: Amount: Maturity: Interest:

Senior

• r Loan

Fu Fully ly pr prepaid id on

• n 12

12 Apr pr 2019 2019 Amount:

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THANK YOU

Mo Mongolian Mi Mining Cor

• rporation

16F Central Towe

• wer,

r, Suk ukhbaatar Dis District ct Ulaanbaatar 14 14200 Mo Mongolia www.mmc. c.mn inv nvesto tor@mmc.mn