My contact in Mongolia -- the guy who made me aware of this idea -- has shared the following thoughts with me:
1. Lingering stock price weakness may be the result of the street not liking the reported FY 2016 numbers. According to him, MMC didn't start producing until summer 2016, which led to the sloppy FY16 results.
2. He thought 2017 guidance was excellent and conservative: volumes of 4.5MT, costs of $60/ton, current prices at $120 = ~$270M in EBITDA.
3. He's spoken to the CFO who has indicated that MMC would be near 100% capacity (7.5 MT) in 2018. CFO also indicated that volumes in late March seemed to be running more like 400k/month, so he thinks they hit closer to 5MT in '17.
4. Earliest timing for ETT deal is summer/early fall. His line: "It's Mongolia, they're habitually late with everything."
5. Border is being changed from bilateral (8 hrs/day) to international (24 hrs/day), so big bottleneck opening, which will help with cash conversion.
6. He's still bullish and suggested buying on weakness.
MY TAKE:
1. It's odd that the stock price weakness would be associated with 2016 results. I always thought the markets to be forward-looking. Perhaps my contact is mistaken, and the Street is actually unhappy with FY17 guidance.
2. 4.5MT of annual guidance translates into 375kT per month, on average, over a full year. But maybe the 4.5MT will be back end loaded in the year as MMC continues to ramp production. That could explain why you were calculating a 710kT for Q1 (237kT per month). I'd personally guess that MMC had higher than 62% share of the 1.146MT of exported washed coal, but it'd just be a guess (1.146MT divided by 3 is only about 5% off from the 400kT per month that the CFO apparently indicated in late March).
3. Even 710kT @ $120 gets to a higher Q1 revenue number than $75M. Seems like revenues should be closer to $85M, at minimum.
4. I have no idea if the CFO is credible, or is an absolute fool or liar. I also have no idea what HK investors think of the CFO, either.
5. As of right now, I'm not sure if I'm in the camp of dumb money or smart money. If I saw a $75M print for the first quarter, I'd assume that I was in the former, and would probably be looking to exit the position. Also, $75M of revenues would represent 710kT @ $106, and would probably imply only $30M or so in EBITDA.
