Just grabbed a drink with a friend who had invested in MMC a few years back. His unvarnished thoughts below:
1. Loves the core asset of the open pit mine. Thinks it is worth up to $2 billion on its own under normal circumstances.
2. Pointed out that company management has a long track record of undue optimism. Says that any guidance they provide should be heavily discounted because they consistently failed to meet production targets.
3. Says CEO is a nice guy, but horrible at expense control. He cited an anecdote of the CEO and his entourage all traveling in first class on flights between HK and Ulaanbataar.
4. Says the primary shareholder (OJ) isn't necessarily aligned with other MMC shareholders because he makes a fortune selling equipment and supplies to MMC on the side through his other holding, MCS.
5. Pointed out that the Chinese and the Mongolians flat out hate each other. Not ideal if we are banking on a possible strategic agreement between the two parties. Also not ideal to have your one and only customer despise you, especially if they have alternative sources of coking coal supply.
6. Said biggest risk to coal prices is the uncertainty of Chinese demand. Primary use of steel in China is in housing-related investment. In recent years, China has been spending on housing investment at 3x the rate of household formation. If housing investment mean reverts, coking coal prices have a long way to fall.
7. Suggested looking at 1733.HK (E-Commodities, formerly Winsway) as a check on the business. That company provides some of the last mile coal transport from the Mongolian border into China. Interestingly enough, that stock got crushed in early April.
