ANNUAL RESULTS 2017 (0975.HK) 23 MARCH 2018
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. 1 mmc.mn
Agenda OPERATING ENVIRONMENT BUSINESS REVIEW FINANCIAL REVIEW 2 mmc.mn
Operating environment China’s coking coal appetite remained high CRUDE STEEL PRODUCTION AND CONSUMPTION COKE PRODUCTION AND CONSUMPTION 800 1000 832 832 799 799 787 787 762 762 690 690 687 687 600 750 448 448 449 449 441 441 442 442 431 431 432 432 Mt Mt 400 500 250 200 0 0 2015 2016 2017 2015 2016 2017 Production Consumption Production Consumption COKING COAL PRODUCTION AND CONSUMPTION COKING COAL IMPORT 800 80 70 70 59 59 534 534 13 13 528 528 515 515 600 60 496 496 48 48 444 444 446 446 9 9 Mt Mt 9 9 31 31 400 40 27 27 26 26 200 20 26 26 23 23 13 13 0 0 2015 2016 2017 2015 2016 2017 Production Consumption Mongolia Australia Others Source: Shanxi Fenwei Energy Information Services Co., Ltd (“ Fenw nwei ”), World Steel Association, National Bureau of Statistics of China (“ NBS ”), General Administration of Customs of China. 3 mmc.mn
Operating environment Stabilized coking coal market environment CHINA COKING COAL PRICES 1 SEABORNE COKING COAL PRICES 2,800 360 2,100 270 1,400 USD 180 CNY 90 700 0 0 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-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 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jingtang Rizhao Lianyungang Qingdao Fangcheng Coke plants Steel mills Source: Fenwei, Platts. Note: 1 17% VAT inclusive. 4 mmc.mn
Operating environment Regulatory updates TAXATION REGULATION In November 2017, the Parliament of Mongolia amended the General Taxation Law, the Law on Corporate Income Tax, the Law on Personal Income Tax, the Law on State Registration of Legal Entity, the Minerals Law and the Law on Land which came into effect from 1 January 2018. Under these amendments a new concept of “ultimate owner” is introduced meaning a person who exercises control over management and assets of a legal entity, directly or indirectly, through one or more layer of ownership chain of the legal entities based on its highest number of shares or highest percentage of participation or highest number of voting rights. If such ultimate owner sells its shares held directly or indirectly in legal entity holding exploration or mining licenses and land possession rights, it shall be treated as a “sale of rights” related to exploration or mining licenses and land possession rights, which shall be subject to a 30% withholding tax in Mongolia. Accordingly, legal entities holding exploration and mineral licenses and land rights are obliged to register the name, number of shares held, percentage of participation and voting rights of their ultimate holders to the Legal Entity Registration Office and respective tax departments before 1 June 2018. In February 2018, The Ministry of Finance proposed draft amendments to several taxation laws, such as the General Taxation Law, the Law on Corporate Income tax, the Law on Personal Income Tax and the Value Added Tax Law. Ministry of finance is conducting public consultation for a period of 30 days and the draft amendments are expected to be discussed and passed during the 2018 spring session of the Parliament. On 18 July 2017, the Minister of Finance issued Order No. 49 approving the regulation on setting and changing the accounting functional currency and FUNCTIONAL CURRENCY translation of financial statements. The regulation was issued in accordance with the Accounting Law of Mongolia allowing legal entities to record SELECTION transactions in foreign currency upon agreeing with the related authorities. The regulation sets the requirements and approval procedures for changing the functional currency of the legal entities. In 2017, the rate of excise duty for diesel imported through Sukhbaatar, Zamiin Uud and Altanbulag border ports were revised twice by Government GASOLINE AND DIESEL Resolutions No. 207 and No. 309, on 18 July 2017 from MNT 70,000 to MNT 180,000 and on 15 November 2017 from MNT 180,000 to MNT 280,000 FUEL IMPORT TAX per tonne. On 24 January 2018, under the Government Resolution No. 26, the rate of excise duty for imported petroleum products were revised, but no change was made with regards to diesel. Therefore, rate of excise duty for diesel imported through Sukhbaatar, Zamiin Uud and Altanbulag border ports remain MNT 280,000 per tonne. SOCIAL INSURANCE Starting from 1 January 2018, the cost of social insurance contribution amount to be paid by the Group increased by 1% and became 12% of the monthly salary of the employee due to the amendment made to the Law on Social Insurance on 4 July 2017. Under the amendment, the rate of CONTRIBUTION pension purpose sub-component of the social insurance contribution payable by each employee and employer is increased from 7.0% to 9.5% of the salary income. 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 (“ TT TT ”) 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, capital city of Mongolia, and ~245 km from 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 JORC Coal Reserve Statement 1 by RPM as at 01 January 2013 by Glogex as at 01 January 2018 was granted in 2008. The Company performed exploration work during 2011-2012 at Tsaikhar Khudag (“ THG ”) area and was Deposit UHG BN Total UHG BN Total granted the THG mining license in June 2013. All licenses permit Total ROM coal reserve 315 165 480 333 176 509 the Company to engage in coal mining activities for an initial period of 30-years, which can be extended twice by 20-years each. - Coking 236 140 376 320 176 496 - Thermal 80 25 105 13 0 13 The latest Coal Reserve statements for UHG and BN deposits were prepared by Glogex Consulting LLC as at 1 January 2018. The Total marketable reserve 198 86 284 195 91 286 estimates were prepared based on open cut, multi seam, truck - Coking 121 60 181 156 71 227 and excavator mining methods. As a result of updated statements, - Middlings 15 9 24 26 20 46 total combined run-of-mine (“ ROM ”) coal reserve of UHG and BN deposits increased to 509 million tonnes (“ Mt Mt ”) . - Thermal 62 17 79 13 0 13 Note: 1 UHG mining license JORC (2012) Coal Reserve estimate, as at 1 January 2018; BN mining license JORC (2012) Coal Reserve estimate, as at 1 January 2018. Due to rounding, discrepancy may exist between sub-totals and totals. 7 mmc.mn
̶ ̶ ̶ ̶ ̶ Business review Substantial increase in production ROM COAL PRODUCTION 1 4.6 4.5 4.4 12 At UHG mine the Company recorded 35.0 million bank cubic metres (“ bc bcm ”) of prime overburden movement during 2017, 8.3 9 compared to 13.3 million bcm prime overburden movement in 0.1 Mt 2016. 6 3.0 2.7 8.2 3 UHG mine ROM coal mining output reached 8.2 Mt, representing 2.7 3.0 an increase of 175% compared to 2016. 0 2015 2016 2017 BN mine’s operation resumed during 4Q2017 and recorded 1.7 UHG coal BN coal Stripping ratio (bcm/ROMt) million bcm prime overburden movement, with ROM coal mining output of 0.1 Mt. WASHED COAL PRODUCTION Combined stripping ratio of UHG mine and BN mine was 4.4 bcm 51% 51% 53% 53% 50% 50% 9 per ROM tonne. 5.9 6 A total of 8.0 Mt ROM coal was processed in 2017, resulting in the 1.8 Mt production of 4.1 Mt of washed coking coal primary products at 2.3 3 2.0 50.3% yield, and 1.8 Mt of middlings as a secondary product at 4.1 0.7 0.7 yield of 22.6%. 1.6 1.3 0 2 2015 2016 2017 Primary products Secondary product Primary yield Note: 1 Combined stripping ratio of UHG mine and BN mine. 2 Combined washing yield and product output of UHG mine and BN mine. 8 mmc.mn
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