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Mongolian Mining Corp. struggles with slump in coal prices

World Coal,

Mongolian Mining Corp. is looking to extend the maturity of a promissory note issued to QGX Holdings Ltd that is due 31 March, as expanding supplies of metallurgical coal push prices to record lows.

“It’s still not finalised but definitely we will not be paying on the current maturity date,” chief executive, Battsengel Gotov, said. “[QGX Holdings] understand our position and we’re telling them that ‘okay, one day we’ll pay but maybe not today.”

The Ulaanbaatar-based miner has already amended the maturity of its US$ 52.5 million promissory note once, according to the company’s annual results. Gotov declined to comment on the length of the latest extension, saying it was still being discussed.  Last year, the company rescheduled payment of a second US$ 52.5 million promissory note until December 2014, the earnings announcement shows.

Coal producers are struggling, as an oversupply of the raw material used to make steel weighs on prices. While miners, including Glencore Xstrata Plc, scale back output at some mines, Australian shipments are still set to increase this year, extending the overhang. SouthGobi Resources Ltd, which also mines coal in Mongolia, said last week it was seeking additional financing to avoid a default on US$ 250 million of debt.

Mongolian Mining Corp.’s selling price averaged about US$ 80/t – US$ 85/t this year, falling from US$ 92.1/t in 2013 and US$ 108.4/t 2012, according to Gotov. Mongolia accounted for 20% of China’s metallurgical coal imports in 2013, down from 45% in 2011 and trailing Australia, according to presentation slides provided by the company.

Rail project

The company plans to begin construction of a 15 km railway project across the Chinese border in May, in order to reduce transportation costs, Gotov said. The company agreed in Octobor to work with Shenhua Group Corp., Erdenes Tavan Tolgoi LLC and Tavan Tolgoi JSC on the project, according to a company press release.

“I believe any meaningful cost savings really will come from infrastructure,” he said. “We will continue to put an accent on improving efficiencies and maintaining our competitive cost structure.”

The rail link will cut the cost of transporting coal, which is now trucked into China, to US$ 1/t – US$ 2/t from US$ 8.8/t last year. The consortium plans to finalise its agreement next month, said Gotov, declining to provide an estimate of the project’s expense because feasibility studies are under way.

Mongolian miners “have cheap coal but the high transportation cost to get them to buyers ultimately makes them unattractive,” said Amit Jain, a credit analyst in Bangalore at SJS Markets Ltd, after upgrading Mongolian Mining Corp.’s bonds to buy from neutral earlier this month. “Mongolian Mining Corp. has made good efforts to reduce their operating costs, and I expect to see improvement in their credit metrics.”

Edited from various sources by Sam Dodson

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