Reply was posted yesterday ...
I won't post the "responses" verbatim, but will do my best to summarize ...
1. The core asset of the open pit mine is excellent. This source thinks it is worth up to $2 billion on its own under normal circumstances.
Agree. Don't forget wash plant, which might not be easy to replicate.
2. 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.
Mongols are optimistic people, but MMC's 2017 targets seem reasonable.
3. CEO is a nice guy, but horrible at expense control. Cited an anecdote of the CEO and his entourage all traveling in first class on flights between HK and Ulaanbataar.
Creditor control post-reorg likely limits wastefulness. Cap ex should be minimal.
4. 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.
No big deal. It's Mongolia.
5. Chinese and the Mongolians 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.
Chinese are pragmatists, and there are examples of strategic deals between China and Mongolia (Petrochina owning Mongolian oil reserves and uranium asset). Also, ETT deal went right down to the wire with the DP in power.
6. 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.
This is a consensus view that overlooks China's diminishing subsidy to state-owned coal miners over the next 4 years.
