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Rating Action:

Moody's downgrades Mongolian Mining to Caa2; outlook negative

20 Nov 2013

Hong Kong, November 20, 2013 -- Moody's Investors Service has downgraded the corporate family and senior unsecured bond ratings of Mongolian Mining Corporation (MMC) to Caa2 from Caa1.

The ratings outlook is negative.

The rating action concludes the review initiated on 15 August 2013.

RATINGS RATIONALE

"The downgrade reflects MMC's inadequate liquidity profile against the backdrop of a difficult operating environment. Without a significant recovery in coking coal prices or a significant restructuring exercise, MMC's debt structure is unsustainable in view of large debt servicing requirements in the next 12-18 months," says Simon Wong, a Moody's Vice President and Senior Credit Officer.

MMC's operations is projected to run at a near break-even level in terms of cash flow over the next 12-18 months, based on Moody's assumption of a Queensland benchmark coking coal price of $150-$155 per tonne.

The company had cash on hand of $129 million at end-June 2013, and is expected to finalize the sale of its paved road to the Mongolian government shortly.

MMC has been focused on preserving liquidity since the downturn in coking coal prices. Asset divestments, such as the sale of its paved road, in addition to measures to conserve capital -- including deferments of debt payments, as well as the adoption of a careful approach to working capital management and production cost controls -- has prolonged the life of its liquidity buffer over the last 12 months.

However, its cash balance will be insufficient to address debt-servicing requirements in 2H 2013 and FY2014 of around $50 million and $277 million respectively.

And in FY2014, MMC faces the maturation of $105 million in promissory notes, with installments due in March and December; the amortization of $102 million in bank loans; and interest payments of approximately $70 million.

MMC is understood to be progressing its plans to defer portions of its near-term debt maturities. It will be in breach of its bank maintenance covenants as of 31 December 2013 and is negotiating for waivers and a relaxation of the covenants.

"There are some other possible avenues for MMC to enhance its liquidity position in the next 12 months, such as a significant asset divestment, or equity injection, particularly after the relaxation of foreign investment laws in Mongolia. However, these options may be limited by its low share price and weakened asset valuation," adds Simon Wong, also the lead analyst for MMC.

The negative outlook reflects ongoing pressure on MMC's financials and liquidity position from the restrained price outlook for coking coal.

A rating upgrade is unlikely in the near term, given the negative outlook. However, positive rating momentum could emerge if the benchmark coking coal price improves to $160-$170 per tonne on a sustained basis, and the company improves its liquidity profile through asset sales or equity injections.

Downgrade pressure could emerge if: (1) its liquidity risk rises due to an inability to raise funding or roll forward maturing debt on a timely basis, (2) restructure its debt in a manner that is deemed to be a distressed exchange, and (3) prices fall beyond our Queensland benchmark coking coal price assumption of $150 per tonne on a sustained basis.

The principal methodology used in this rating was the Global Mining Industry Methodology published in May 2009. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Mongolian Mining Corporation (MMC) is the largest privately owned coal mining company in Mongolia. Established in 2005, it listed on the Hong Kong Stock Exchange in October 2010. It has two producing mines located in the Gobi Desert. The Ukhaa Khudag mine, which produced 8.6 million tonnes of coking coal in 2012 and the Baruu Naran mine, which was acquired in 2011 and commenced production in February 2012.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

The first name below is the lead rating analyst for this Credit Rating and the last name below is the person primarily responsible for approving this Credit Rating.

Simon Wong
VP - Sr Credit Officer/Manager
Corporate Finance Group
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (65) 6398-8308

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 downgrades Mongolian Mining to Caa2; outlook negative
No Related Data.
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