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looks like an extract from their 1H 2019 results.
Now up over 100% in one and a bit sessions.
Is it going to be privatised? Its controlling shareholder should have the cash after its deal with Cerberus earlier this year?
Global Investment Firm Cerberus Acquires Stake in Certain MCS Group Companies
ULAANBAATAR, MONGOLIA and NEW YORK – 24 August 2020 – MCS Group (“MCS” or the “Company”), which consists of over 20 companies operating in various sectors such as energy, engineering, mining, real estate, telecommunications, and consumer goods, today announced that it has completed a transaction with an affiliate of Cerberus Capital Management, L.P. (“Cerberus”), a global leader in alternative investing. An affiliate of Cerberus has acquired approximately 20% indirect ownership or notes convertible into equity of seven MCS companies operating in the telecommunications and consumer goods sectors.[color=red][/color]
Interim Results:
Revenue up approx. 20% on increased sales and marginally higher ASP
Gross margin largely unchanged (+/-40%) and GP up close to 20%
One-off loss of $18m and related to long-term external mining contract/kit due to inability to ramp fully up and reflecting border bottlenecks i.e. why produce more if you cannot export and sell?
Refinancing gain of $21m
PBT $68m or $65m normalised after allowing for the 2 entries above
Question: what further potential provisions exist in mining contract if any?
Prices seem to have softened slightly of late but 2H traditionally the stronger period for volumes. So $100m NP should be expectation for full year
Current ratio getting closer to 1 after years in the doldrums suggesting liquidity reasonably healthy
i agree. it then has much greater flexibility. they don't want to pay up but lets hope they can buyback soon
neither rail or IPO is going to happen any time within the next 2 years minimum so no point in speculating. The politics are just too complicated however much it may make sense..
How can ETT realistically list with no audited accounts or feasibility study. Politicians can trumpet whatever they like but its not going to happen....
look at mmc announcements. they never reference rail as its not happening.
Agree with you. last year over $200m ebitda and profit after tax north of $80m.
Would like to think this year will be better. Next key date mid july and production/sales update. Operations are sound, prices are robust, and underlying performance will be dictated by border crossing efficiencies/interference and politics.
(i) Sales up 55% in the quarter yoy.
(ii) Bond refinanced removing security package, and importantly $75m cash sweep. This will hopefully allow them to show better working capital management and balance sheet - without worrying about lenders getting the benefit.
(iii) Potential extraordinary gain relating to the bond refi and previous derivative accounting?
(iv) demand and prices healthy
(v) border logistics continue to improve = greater exports and sales
Result - share price does nothing!
By Bloomberg News
(Bloomberg) -- China’s March imports of coking coal from
Mongolia +44% y/y to a record 3.26m tons, according to data from
General Administration of Customs.
* Imports from Australia +68% y/y to 2.23m tons
* Cargoes from Russia at 417,645 tons, more than double from
year ago
* NOTE: Increases are in line with +53% y/y in total inbound
shipments to 6.14m tons last month
** NOTE: China delayed customs clearance of some Australian coal
since January, leading to slump in February coking coal
shipments
Just to confirm EPS for H1 were 0.29 of a cent/share (not 29c) versus ADR of +/-2c. So price to annualised earnings around 3:1.
Tomorrow is the board meeting in HK meaning annual results maybe out after their close and ahead of Monday trading.
Looking at quarterly production statements, sales in 2018 were up about 20% yoy (despite a weak end to year as China closed the border).
Pricing was stronger 1H 2018 v 1H 2017. Not sure 2H 2018 materially different from 2H 2017.
In theory, FY EPS should be up 20%+, but not clear on margins as they now report "coking coal" sales rather than "hard coking coal" sales i.e. some semi soft coking coal will be included.
I am sure cash generation will remain weak as makes no sense to have excess cash that would be subject to a sweep mechanism in favour of bondholders under their debt financing (and which followed the debt restructuring in 2017).
Another great report:
I agree. Nadaam holidays in Q3 plus road disruption due to flash floods in Gobi suggested lower/flat sales qoq. Wash yield however pointing quite a bit lower and removed from commentary and must be a reason - mining lesser quality coal given favourable environment or washing to higher spec (and attracting better price)?
500kt per month sales seems sustainable providing no idiotic interference by government re transportation.....
https://seekingalpha.com/article/4197621-afc-special-report-mongolian-mining-corporation-one-best-ways-play-mongolian-economic-growth
Good article and agree with most aspects. Sense the margins maybe slightly overstated given border crossing import fees/taxes.
I believe current run up in price is in anticipation of interim results next Tuesday and maybe people waking up having chosen to ignore the operational update last month.
Great quote: "At today's share price, you don't need everything to go right; you just need nothing to go too badly wrong."
valuation = current market cap
my numbers are q2 performance versus 2017 actuals and assuming no material change?
Pre restructuring gains. FY 2017 they turned in a PBT of $74m, or approx. $20/ton HCC on 3.6Mt sold. Cash from Op activities was $177m (pre-finance costs (interest $18m cash out of $51m) and depreciation). That’s just shy of $50/t from Ops.
1H 2018 average prices have likely been better than 2H 2017.
So 1H 2018 and +/-2Mt sales indicates EBITDA $100m and PBT $40m minimum barring blow out in costs (can be transport only with a washing yield of 52%+ in Q2). Trucking volumes are increasing after a poor Q1. But repeat H1 performance and $200m EBITDA and $80m PBT. Repeat Q2 in Q3 and Q4 and add 600kt = $30m more EBITDA and $12m PBT i.e. 2018 performance of EBITDA $230m// PBT $92m.
Valuation $150m??
This is a political bottleneck. Who controls the rail, the tariffs, and the quotas of the South Gobi resource treasure trove? No-one wants to lose out so if you are not going to be party, make sure no-one else can take forward. So even if a consortium can deliver a fully financed platform supported by feasibility studies and tested models, this may exclude interests of others.
Trucking requires very burdensome processes. Interference and extraction of costs/fees/commissions is easier.
Hence government approval has proved impossible. Media reports indicate progress. Bids/studies to be submitted at year end and going into the start of the 2020 election cycle and 1 year lead up. It will be very complex and difficult.
no idea. I am as baffled as you.
I don't read anything into the AGM resolutions. These are renewal of previous terms so don't see anything untoward in this. Their cash position and working capital must be strengthening also on the back of decent market and increasing flows. Roll on the next operating update..... Maybe a chance to buy below 10c before then?
Don't believe either IPO or rail will be delivered, but the fact it is being discussed in Parliament does offer hope......
The IPO cannot happen without firm rail plans as 90% of the deposit will not be economic. I am sure the Government will have very unrealistic expectations and valuations.
Mongolian Parliament OKs plan to sell 30% of Tavan Tolgoi mine
29TH JUNE 2018
BY: BLOOMBERG
ULAANBAATAR – Mongolian lawmakers approved a plan to sell up to 30% of the troubled Tavan Tolgoi coal mine in the Gobi desert, the latest attempt to develop what’s anticipated to be massive coking and thermal coal deposits.
The north Asian country’s Parliament on Friday voted in favour of an initial public offering in State-owned Erdene Tavan Tolgoi. In a broadly written resolution running about 300 words, the legislation instructed Prime Minister Khurelsukh Ukhnaa to take "urgent measures" for the construction of a railway and roads related to the project.
A potential IPO is at least the third effort to develop the mine after international partnerships failed in 2011 and 2015. The latter included China Shenhua Energy, Japan’s Sumitomo, and Mongolian Mining investing $4-billion in the mine and a railway for sales to China.
"Based on the quality, a lot of commodity players will be interested," said Munkhjargal Otgon, deputy CEO of Ulaanbaatar-based Golomt Capital.
The Tavan Tolgoi deposit holds 1.8-billion tons of coking coal and 4.6-billion tons of high-quality thermal coal, according to an April 20 presentation by state resources company Erdenes Mongol.
Erdenes Tavan Tolgoi declined to comment.
In addition to the transportation routes, the resolution called for the construction of a power plant at the site, which had been part of Rio Tinto Group’s plans to develop the Oyu Tolgoi copper/gold mine.
Ganqimaodu May coal imports hit a new high since this yr
sxcoal.com ?2018-06-29 08:37:00
Ganqimaodu border crossing in northern China's Inner Mongolia registered a new high of coal imports from the neighboring....
Coal-rich Mongolia exported 14.31 million tonnes of coal over January-May, declining 5.12% from the previous year, showed data from the National Statistics Office of Mongolia.
During the same period, Mongolia produced 19.13 million tonnes of coal, down 6.97% year on year.
The country's coal output increased by 5.48% on the year to 4.36 million tonnes in May, showed the data.
Bloomberg reports 14.9Mt imported by China from Mongolia in the first 5 months of 2017. It reports 6.15Mt in Q1 2018 versus 8.15Mt in Q17. If 14.31Mt in 5 months that suggest over 8Mt in April and May combined. If that rate continues in June that is a 100% increase on Q1. If the border is efficient and MMC are using double trailer trucks their volume should be higher than a 100% up. That means 1.5Mt+ for the second quarter versus 650kt in Q1 is a possible/realistic/actual volume..
How do you feel about management?
As I think you highlighted, probably the most professional in Mongolia and what they have built in one of the harshest climates should not be under-estimated. No-one in the entire coking coal industry could generate cash or profits in the 2014-2016 downturn - just look at BHP Billiton divisional results and mines that are recognised as lowest cost in the world.
They have built a high class mining operation that cannot be considered world class because of a lack of rail. Most of the operational shortcoming lie mainly as a result of a corrupt and ineffective government. The biggest risk is government and the politicisation of the wider TT deposits - and as demonstrated by the logistics and border bottlenecks that existed for 9 months in a very buoyant market. The international market has talked of rail for 10 years now and it seems an impossible ask/delivery. For the last 5 or 6 years over 10Mt per annum must have been trucked and now probably up to 20Mt this year (through this border) - the commercial decision for a rail is a no brainer... ETT continues to high grade, destroy its deposit, rather than wash/blend etc. and the Chinese are the winners based on "commissions" they pay.
Cashflow/generation - share your frustration, but worthy of note:
At the start of 2017, this was a company to be restructured and a mine essentially on care and maintenance. They paid +/-$35m in restructuring fees that were a one off. Working capital increased $80m as they ramped up to 8-9Mt (?) ROM (=4Mt HCC product) from negligible amounts. This $80m also included the pay down of overdue payables to the mining contractor, which will hopefully be extinguished in 2018.
So the debt restructuring fees should not repeat. The working capital impact should be less. Overdue payables to be paid off this year?
$7.5m of debt due this year, $23m next year and then nothing for close to 3 years.
Hopefully 1H results released in August will back this up
Re oxidization of coal, this occurs after 3 to 6 months. For moisture, they are trucking this through the Gobi desert and lack of moisture is more of an issue – if you sell with 10% moisture you want them to pay for water rather than coal. I reckon they had a stockpile however far larger than 200kt at the end of Q1 as production was 400kt higher than sales last year based on their Operational Updates.
Q2 exports & sales to be a record high….
Less than 2 weeks of the quarter left. Based on trucks crossing the border it looks like it will be a record quarterly exporting volume for MMC. Prices remain favourable, outlook stable. I am at a total loss why the share price continues to plummet....
This is definitely not good news ... ETT has the ability to undercut MMC's coking coal price and crowd it out from a border transport perspective.
Actually this will be very good news. MMC (via its operating sub Energy Resources) can utilise its full washing capacity and get a commercial return on this. More importantly it has the potential to blend the high quality ETT coal with its lesser quality coal to produce a HCC that may have not been marketable otherwise. MMC is taking advantage of higher prices to blend less quality coal whereas the state owned ETT is high grading and destroying the massive wider deposit.
If MMC and ETT are producing a similar product it will hopefully coincide with a coordinated marketing approach. Demand remains healthy south of the border so if ETT decides to undercut the price it is likely due to politicians taking backhanders to deliver at such level.
Have a consistent and standardised Mongolian washed product will be a great step forward. The rail isn't going to happen so this and an improving border crossing (which stats suggest is happening) will be a major positive.
ETT and the listing - complete bs. Just empty promises for the public. Suspect the bs will grow a year from now and as the 12-month countdown starts to the elections and huge promises to the naiver voter.....
"Hopefully, these numbers mark a low in HCC sales. "
And hopefully the HCC yield is a one off low low and will rebound above 50%. 2% lower yield on 8Mt raw product = 160kt finished HCC product = USD20m sales.
Why no Q1 operational update so far? Its 1-2 weeks behind previous quarterly updates. Is there other [good?] news they are waiting to combine?
Current market cap on HK is $195m v 2017 EBITDA of $175m (excludes restructuring gains). Coal prices remain strong. How much worse can exports deteriorate given the border issues? Ignore the rail at this point, if they (Govt of Mongol) could just fix the border issues/relations, volumes could increase more than 50%. Suspect the PM visit to China will result in usual bunch of bs MOU's. Cannot see anyone committing TT/rail as political suicide - just look what is happening to those that allowed OT - economic benefits and progress are meaningless to politicians. Suspect Q1 operational numbers due out over the next week will not be great with ongoing border issues compounded with winter, CNY, Tsagaan Tsar etc. This could be a factor in price weakness. Its approaching a year since restructuring close - maybe some creditors held waiting for full year results and have now lost patience and running for the exit.
Only just read the Alpha article. Very well written. Remove the crypto recommendation and you have an accurate and informed summary of the operating environment. Can point fingers at management, but operationally they have/could have delivered. Political interference and corrupt personal interests outweigh economic interests. Outrageously, the super majority of 65 cannot deliver or enforce decisions and defeated by 1. What a screwed up country..... What do they do now, slap a further tax demand on Rio.
Maybe I am being a bit presumptuous on the stripping investment being a one off. It did seem high and a lack of clarity on this. I guess we wait for FY2017 results and a expanded cashflow statement and details of 2H investment.
2H operating performance should be out within 2 weeks. My money is on 1.7-1.8Mt export and sold. But the good news is prices have remained good.
I think we agree this should be a HKD1/share. With the wider commodity bull cycle lets hope they can take advantage. Unfortunately political greed and interference will continue to be a decisive factor....
Ponch73 / OMOLIVES
1H is typically slower than 2H - seasonality, Chinese New Year, Tagaan Tsar etc.
Very frustrating that transport capacity has capped exports to 300kt/m in 2H 17, but maybe not so much pressure in 1H 2018 on the border infrastructure and they can ramp everything up for mid-year.
Good news is production capacity and ramp up looks pretty reliable. Prices remain firm. Increased in house transport means logistics capacity can quickly be ramped up if border processing allows and can match.
1H 2017 included one off significant debt restructuring costs and stripping which chewed up cash that most expected to feed through into other working capital/overdue payables. My question to you is if we work on annualised exports of 3.6Mt and $65m/t ebitda margin and annualised ebitda of say $240m, what would you value MMC at?
"Why are the last 10 years relevant? MPP only truly returned to power in 2016. In 2008, they had to form a coalition government with the DP. In 2012, they lost to the DP. "
By the time spring comes it will be almost 2 years of the super majority that has made no decisions or rulings thus far on super deposits etc. TT is highly politicised and there are many competing interests - to the extent it is impossible for everyone to gain and therefore push something through. Remember MMC had a signed approved tender, consortium in place, funded project, agreement with GOM working committee. They all turned up on the approved signing date for a politician to scupper the whole thing given his and a few mates own agenda.
The rail is a no brainer, it even had a portion of the GOM bond proceeds allocated to it. But this is syphoned off by corrupt politicians. The TT deposit is a piggy bank and pension to these people through backhanders that will be a lot harder to extract if rail and transparency is introduced.
There is no suggestion of movement in the rail. This will take months to negotiate contracts and funding. They need to be ready for spring and the construction season in April. Everything points to no chance of this. They lose another season and the following year we will start to move into an new election cycle... The Government is slowly destroying the entire TT deposit through high grading and mining the top quality seams and not washing or blending. I hope I am wrong re the rail but if not hopefully MMC can play a role in washing and blending and extending the deposit life.
Decisions are not made on commercial values and instead driven by political and personal motives. One only has to look at Erdenet Copper to see that changes in ruling government has no impact on commercial and sensible decisions.
Mongolia in the last decade has made one major decision and that was to advance OT. This was done under a coalition government but notwithstanding this they tried to overturn, reverse and renege on decisions. If it had not been RT and one of the biggest mining companies they would have taken this project back. TT is a mongolian domestic super project and they are free to do what they like without worrying about the impact of the international community.
120km queue. Loading banned for a week and the queue reduces to 20km. Should make no difference to the exports on the basis loading will recommence and consistent for the 3 exports going through GS.
So MMC has been achieving 300kt per month and likely unchanged in Q4. double trailers means they are getting more across the border per truck.
If they had 2 wash plants running at 6Mt pa rate and 50% yield that means they can produce 500kt HCC per month. With 300kt border capacity it is no surprise they have mine stockpile and prudent to go down to 1 wash plant operating. HCC price at GS border now showing at over RMB1,100. Strengthening RMB and spot price hopefully north of $130. $65/t ebitda on 300kt per month implies annual ebitda of circa $240m.
HCC price continue to look firm. if they can sort the road and border, I am sure this company can produce and export 500kt pm HCC plus thermal coal bi-product. The rail has not moved for 10 years so forget that and hope the PRC border relations can be managed. Mongolia's president can obviously play havoc with this......
On the face of it positive i.e. consolidating power in the party and a force to take on Genco. I fear however, that it may have been schemed in conjunction with Genco. Wouldn’t the normal be to appoint a new Chairman and he then reorganise the cabinet including PM appointment. Instead we have seen the reverse…..Was this endorsed, supported, and undertaken in cooperation with the President???
no idea on the thermal coal price. But there is a lot of coal in Inner Mongolia, especially thermal.
I think the buyers of coking and thermal coal are separate and different. Some will be consistent but they need to market, take credit risks (payment terms) on a new customer base.
Due to the border issues and number of trucks on the road, transport trips increased significantly in time. As a result, MMC used all their capacity. Third party trucking contractors increased levies. So whilst MMC showed a cost of $16.9/t, most of this will have been in house and cost of securing third party trucking contractors likely over $20/t. They also mentioned that total border fees, taxes, loading/unloading cost add $10.
So MMC would rather prioritise trucks for HCC where margins approx $50 (and look like they will increase in H2). If a buyer comes in and offers to buy middling at mine gate, they avoid all the trucking headaches. So $13 is profit. If they sell into China they have say $25 trucking costs, $10 border fees, transportation charges on the PRC side (depending on delivery point), plus VAT. By my calcs thats getting towards a RMB400 all in price i.e. they need to generate more than this to improve on the $13 margin. It could also be at the expense of delivering HCC at $50 margin.
The good news in their announcements is that they have secured additional double trailer trucks and should have 500kt+ per month capacity available - and at costs they control.
2 washing plants can produce around 500kt HCC per month. If they can truck all this, and thermal coal prices rally sharply, then trucking capacity permitting, I am sure they would look to move the middling themselves.
where do you get the selling price of $30 and what is the point of sale. are you saying there are willing buyers who will buy at mine site for $30? they need to truck to border, sit in the queues, load/unload etc. It will cost $20-30 to get across the border from mine site.
Thought I would add another person to the board.
Re the middlings, the IR team are basically saying: its a bi-product where if they get $1 it is positive to cash flow. They would rather prioritise trucking fleets to HCC product where they are 100% focused and margin higher. If someone comes in and buys a product they would ordinarily not ship, at minegate, and handle all logistics, they will entertain. If thermal coal market went gangbusters I am sure they would spend more time focusing on the middling. But if they produce 4.5Mt HCC at 50% yield then maybe 2Mt middling at a 20% yield, which to date has oxidised and become valueless. So anything they get for this is outside the budget and a bonus.