Moody's Investors Service has assigned a B1
corporate family rating to Mongolian Mining Corporation (MMC)(00975). At the same time,
Moody's has assigned a provisional (P)B1 rating to its proposed five-year senior notes.
The outlook for both ratings is stable. This is the first time that Moody's has assigned
ratings to MMC.
The bond proceeds will be used for capital investments, and general corporate purposes.
The provisional status of the notes will be removed once the issuance is completed.
"MMC's rating reflects its status as the largest integrated coking coal mining company
in Mongolia, its competitive cost position, and its first-mover advantage over its
domestic coal peers," said Simon Wong, a Moody's Vice President and Senior Analyst.
"Its low production costs, price advantages, and proximity to China, the largest
consumer and a net importer of coking coal, also gives it an edge over seaborne
competitors." he added.
The credit rating agency said prices of coking coal exported from Mongolia are lower
than the international market, giving MMC a competitive edge against the seaborne market.
Furthermore, its integrated operation -- including paved road access to the Chinese
border, its coal-fired power plant, and most importantly its position as the first company
in Mongolia to own and operate a coal handling and preparation plant (CHPP), with a coal
washing capacity of 10 million tonnes per annum -- allows it to sell hard coking coal
direct to end-users in China at higher prices and margins, Moody's added.
Moody's considers that MMC is well positioned to benefit from the strong outlook for
Mongolian coal exports. AME, an industry consultant, expects China's coking coal imports
to increase 4.7% in 2012 to 46.1 million tonnes, and grow at 7.1% CAGR between 2013 and
2016.
But, counterbalancing these credit strengths are a number of major credit challenges.
"MMC's operations are wholly exposed to the evolving regulatory environment and emerging
market risk of Mongolia (B1/stable). Furthermore, it has a total reliance on China as it
takes 100% of its products," Wong said.
"In addition, MMC has a short operating track record and strong reliance on key
contractors to achieve its production targets," he added.
For example, Leighton Asia, a subsidiary of Leighton Holdings (Baa2/Stable), is its sole
mining contractor. But, such risk is mitigated by Leighton's extensive mining experience,
as well as its strong on-site track record, including high productivity and a zero
fatality rate. Furthermore, the contract with Leighton is structured to incentivize for
outperformance, Moody's noted. (KL)