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Announcement:

Moody's: Mongolian Mining Corporation's credit profile weakened in 2014 amid challenging market conditions

25 Mar 2015

Hong Kong, March 25, 2015 -- Moody's Investors Service says that flat coking coal prices, continued debt servicing and higher operating costs weakened Mongolian Mining Corporation's (MMC, Caa2 negative) credit profile in 2014, and will continue to exert pressure in 2015.

"Both MMC's revenue and sales volumes declined in 2014, as the average selling price of hard coking fell and the company lowered production. In addition, the company's cost base has increased as it gradually takes on coal delivery to end-customers in inland China," says Dylan Yeo, a Moody's Analyst.

"Despite its higher cash balance, MMC could deplete cash-on-hand by end-2015 due to a higher rate of cash burn. The rights issue last year and divestments of most of its non-core assets also left it with limited alternative sources of liquidity," adds Yeo.

Yeo was speaking on the release of a new Moody's report on MMC, titled "Challenging Market Conditions Weakened Credit Profile in 2014 ."

MMC recorded an adjusted EBITDA loss of $46 million in 2014, as its EBIT margin dropped sharply to -29% from 6% in 2013. Revenue also declined by 25% to $328 million, as the average selling price of hard coking coal fell 9%, in line with the industry trend.

The reduced production and lower total costs in turn weighed on the company's margin, due to higher idling costs and because its spreading of fixed costs across lower production volumes increased its unit production cash costs. In addition, MMC incurred higher transportation costs for its coal delivery to end-customers in inland China.

Further, although MMC's cash balance rose to $253 million in 2014 from $77 million in 2013, Moody's expects the company will deplete its cash balance in the next 12 months. In addition to expected negative operating cash flow of $35-$45 million and maintenance capex of $5-$10 million, the company faces considerable debt servicing requirements, including $115 million of short-term debt and $70-80 million of interest expense.

Moody's further says that the credit impact of the Tavan Tolgoi coalfield project -- if it goes ahead -- remains uncertain.

Although the consortium of MMC, China Shenhua Energy Co., Ltd. (Aa3 stable) and Sumitomo Corporation (A2 negative) is in formal negotiation with the Government of Mongolia (B2 negative) to obtain mining concession rights for the project, there is little clarity on the timing, costs, ownership and other key terms.

Subscribers can access the full report by Moody's at:

https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1004066

The principal methodology used in this rating was Global Mining Industry published in August 2014. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Mongolian Mining Corporation is the largest privately owned coking coal mining company in Mongolia.

Established in 2005, it listed on the Hong Kong Exchange in October 2010.

The company has two producing mines located in the Gobi Desert. The Ukhaa Khudag mine and the Baruu Naran mine, which was acquired in 2011. The two mines produced 4.7 million tonnes of raw coal in 2014.

NOTE TO JOURNALISTS ONLY: For more information, please call one of our global press information hotlines: New York +1-212-553-0376, London +44-20-7772-5456, Tokyo +813-5408-4110, Hong Kong +852-3758-1350, Sydney +61-2-9270-8141, Mexico City 001-888-779-5833, São Paulo 0800-891-2518, or Buenos Aires 0800-666-3506. You can also email us at mediarelations@moodys.com or visit our web site at www.moodys.com.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.

Dylan Yeo
Analyst
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Gary Lau
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Releasing Office:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Moody's: Mongolian Mining Corporation's credit profile weakened in 2014 amid challenging market conditions
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