30.04.2014 analysing the mongolian coal market how could mining companies best respond to the...
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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.
Note: All numbers in this presentation are approximate rounded values for particular items 2
Asia-Pacific region is a main market for steel making material suppliers
Asian five countries account for more than 2/3 of global crude steel production
3
Asia-Pacific coking coal market
71 31
52
8 China
Taiwan
Japan
South
Korea
USA
Canada
Australia
Indonesia
Russia
142
3
18
31
63
Source: www.worldcoal.org
19
Mongolia
Major coking coal exporting countries with
access to Asia-Pacific region in 2012E:
Australia 142 million tonnes
USA 63 million tonnes
Canada 31 million tonnes
Mongolia 19 million tonnes
Russia 18 million tonnes
Indonesia 3 million tonnes
Total 276 million tonnes
Major coking coal importing countries in
Asia-Pacific region in 2012E:
China 71 million tonnes
Japan 52 million tonnes
India 37 million tonnes
South Korea 31 million tonnes
Taiwan 8 million tonnes
Total 199 million tonnes
Stagnating steel sector in North America and
Europe drives key producers to redirect
supplies to Asian market, in particular to
China
37
India
34
47 45
54
75
7% 9% 8% 9%
12%
-
20
40
60
80
2009 2010 2011 2012 2013
0%
5%
10%
15%
20%
China coking coal imports % in China coking coal consumption
477 528
592 598 622
0
200
400
600
800
2009 2010 2011 2012 2013
Chinese coking coal demand
Crude steel production Coke production
Source: World Steel Association, China Coal Resources
(Mt)
4
(Mt)
Coking coal consumption Coking coal imports
(Mt) (Mt)
CAGR 2009-2013 : 7.8%
China’s coking coal imports will likely continue to grow
CAGR 2009-2013 : 6.9% CAGR 2009-2013: 21.6%
CAGR 2009-2013 : 7.6%
577
639
702 717
779
0
200
400
600
800
2009 2010 2011 2012 2013
355 383
421 443
476
0
200
400
600
2009 2010 2011 2012 2013
Others 68.5%
MMC export 31.5%
Source: Bloomberg
2011 : 45Mt
Note: Starting 2012 MMC is exporting washed coal, while all other exporters are selling raw coal.
In 2013, on raw coal basis MMC coal export would be 8.6Mt, which is over 47% of total Mongolian export ; Source: Company data, NSO
MMC export 23%
Others 77%
MMC export 27%
Others 73%
MMC strengthens position as leading Mongolian coal exporter
China’s growing demand for imported coal
Australia 40%
Canada 15%
Mongolia 20%
Russia 11%
USA 8%
Others 6%
Australia 22%
Canada 11%
Mongolia 37%
Russia 9%
USA 9%
Others 12%
Australia 24%
Canada 8%
Mongolia 48%
Russia 9%
USA 10%
Others 1%
2012 : 54 Mt 2013 : 75 Mt
2011 : 21 Mt 2012 : 21 Mt 2013 : 18 Mt
5
Mongolia is an important supplier of coking coal for China
Mongolian coking coal supply to China
Raw coal mining and selling at mine-gate by leaving entire remaining value-chain to Chinese traders
Unsustainable high-cost business model is economical only under high pricing market environment
6
Mongolian coking coal operations - I
Mine TKH
GM
CHPP
Jinquan Baotou Tangshan
End-user
MONGOLIA
CHINA
Raw Coal
(high-grade)
Raw Coal
(low-grade)
Trucking
Trucking Trucking
Mining
Processing
Railing
Mining Trader
Sales
Tru
ckin
g
Gravel road
HIGHGRADING
Washed Coal
Integrating value chain for raw coal mining, blending, processing and transportation in Mongolia
Improving competitive position by integrating entire coking coal manufacturing value-chain
7
Mongolian coking coal operations - II
Mine TKH
GM
CHPP
Tangshan
End-user
MONGOLIA
CHINA
Raw Coal
(high-grade)
Raw Coal
(low-grade)
Trucking Mining
Railing Agents
Blending
Tru
ckin
g
Sales
Paved road
Processing
Washed Coal
Expanding value-chain by establishing strategic joint ventures and cooperation arrangements
Direct access to end-user customers by integrating with Chinese railway network
8
Mongolian coking coal operations - III
Mine TKH
GM
CHPP
Tangshan
End-user
MONGOLIA
CHINA
Raw Coal
(high-grade)
Raw Coal
(low-grade)
Railing Mining
Railing
Blending
Railin
g
Sales
Railway
Processing
Washed Coal
1.6
3.9 5.3
0.4
1.6
2.3
2.5
7.4
10.7
-
2.0
4.0
6.0
8.0
10.0
12.0
14.0
2011 2012 2013
Washed coking coal Washed thermal coal ROM coal feed
7.1
9.4 9.7
-
2.0
4.0
6.0
8.0
10.0
12.0
14.0
2011 2012 2013
80.8 78.7
65.8
40.0
45.0
50.0
55.0
60.0
65.0
70.0
75.0
80.0
85.0
90.0
2011 2012 2013
ROM coal production Washed coal production
Coal sales
(Mt)
MMC has established itself as the largest coal mining company in Mongolia
9
(Mt)
MMC operational performance
(US$/t)
Total operating cash cost at GM1
1 Net washed HCC delivered cash cost at GM, includes mining, processing, handling, transportation, logistics, site administration, inventory losses, royalties and fees
1.5
3.4 4.3
3.3
2.2 1.4
4.8
5.6 5.7
-
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
2011 2012 2013
Washed HCC Other products
(Mt)
44.8%
11.6% 10.2%
3.5%
13.4%
8.4%
3.3% 3.3% 1.5%
0%
10%
20%
30%
40%
50%
Min
ing
Pro
ce
ssin
g &
Ha
ndlin
g
Tra
nspo
rt -
lo
ng h
aul
Lo
gis
tics
Tra
nspo
rt -
sh
ort
ha
ul
Ro
ya
ltie
s
Cu
sto
ms &
Air
po
llution f
ee
Site
adm
in
Inve
nto
ry lo
sses
MMC operating cash cost structure for washed HCC in 2013 (under DAP GM terms)
Continuous effort of cost management and operational efficiency are critical factors to our sustainable growth
10
1 Mining costs includes contractor fee, plant rate, fuel, blasting and explosives, other mining related costs and stripping activity asset depreciation 2 Logistics costs include logistics (0.6%), road (0.8%) and handling costs (2.1%) 3 The effective royalty rate for HCC was 5.9%
1
2
3
MMC cash cost structure
Product TM, % ar A, % ad VM, % daf TS, % ad CSN G Index Y Index
UHG <8.0% <10.5% <26.5% <0.7% >6 >80 >15
Transportation and logistics infrastructure development is a key driver to enhance market penetration
Cross border railway will potentially bring cost savings on short haul transportation starting from 2015
11
Infrastructure development initiatives
Washed HCC cash cost @ GM in 2013:
65.8 USD per tonne
Cross border transportation logistics cost by
trucks:
8.8 USD per tonne (13.4%)
Cross border railway with targeted
completion by end-2014 is expected to bring
cost savings up to 7-8 USD per tonne
MMC and other Mongolian coal producers
(ETT and TT) established JV to execute
cross border railway project connecting GS
and GM jointly with China Shenhua Group
By integrating with Chinese railway network,
the cost competitiveness of Mongolian coal
sourced from Taval Tolgoi area in the
Chinese market is expected to increase and
enhance the capability for geographical
market penetration of the Company’s
products in China.
UHG mine site aerial view
Thank You
Mongolian Mining Corporation
16F Central Tower
Sukhbaatar District
Ulaanbaatar 14200
Mongolia
www.mmc.mn [email protected]