Fitch Ratings - Hong Kong - 24 Mar 2025: Fitch Ratings has assigned coal producer Mongolian Mining Corporation's (MMC) proposed US dollar notes a 'B+' rating with a Recovery Rating of 'RR4'. The proposed notes will be issued by MMC and its wholly owned subsidiary, Energy Resources LLC, and guaranteed by most of its operating subsidiaries. The notes will constitute senior unsecured obligations of MMC as they represent its unsecured and unsubordinated obligations.
Net proceeds from this issuance will be used to refinance its outstanding notes due September 2026 and for general corporate purposes.
MMC's IDR is constrained by its concentration of end customers, small scale and the high country-risk for the mining operations in Mongolia.
Key Rating Drivers
Limited by Scale and Concentration: MMC's small scale, and product and geographical concentration constrain its business profile. MMC's EBITDA is small compared with Fitch-rated coal miners globally. We expect annual EBITDA to be above USD400 million in 2025-2027 due to stable volumes and a lower coking coal selling price. Washed coking coal products contributed to 97% of total revenue in 2024, in line with historical levels.
We believe that MMC's main end-customer base is in northern China, even though the share of the top 10 customers decreased substantially in recent years. MMC's heavy reliance on Chinese customers makes it vulnerable to economic conditions and regulatory changes in China. Although MMC's mine gate cash cost is in the first quartile of the global coking-coal cost curve, its cost advantage is limited to northern China. We believe additional transportation costs beyond the region will put MMC in the higher quartiles of the global coking-coal cost curve.
Country Risk Remains High: MMC's mining assets are all in Mongolia and subject to local regulations. We believe the volatile mining regulations have a meaningful impact on MMC's financials. This was the case during the Covid-19 pandemic when the effective rate for the royalty reference price was raised to over 20%, from 5%-8%, increasing financial pressure on MMC. The reference price has fallen and stabilised after the pandemic and the mining product exchange has established a more transparent reference price from October 2023, but the record of stable regulation is short.
Robust Operations: Border throughput after the pandemic averaged about 900 trucks a day in 2023 and around 970 trucks a day in 2024, above the 600-700 before Covid-19. A new mining commodity trading platform also expanded its customer reach and accounted for 50% of 2024 revenue. As a result, MMC's run-of-mine coal output rose to 16.3 million tonnes (mt) in 2024 from 10mt in 2019. Washed coking coal product sales rose to 7.8mt in 2024 from the historical average of 4.5mt-5mt. The average selling price (ASP) per tonne of washed hard coking coal stayed strong at USD168 in 2024, against USD160 in 2023.
Strong Financial Profile: We expect the EBITDA margin to trend down in 2025-2027 as coking coal prices fall but will remain above 40%, supported by steady volume and a low-cost position. We forecast EBITDA net leverage to remain below 0.4x in 2025-2027.
Acquisitions Drive Diversification and Growth: MMC started diversifying into other metals through its recent acquisitions of 50% of gold and precious metal exploration company Erdene Mongol LLC and 50.5% of copper and other non-ferrous metals exploration company Universal Copper LLC.
However, the coal segment will remain its dominant revenue contributor in the short to medium term. We do not expect aggressive M&A in 2025-2027, as management has indicated a cautious approach to acquisitions. Still, we will evaluate any debt-funded investment larger than Fitch expects as an event-driven risk and assess the effects on MMC's financial flexibility and credit profile.
Peer Analysis
MMC is a single-product coal miner, similar to Indonesia-based miner peers PT Indika Energy Tbk (BB-/Stable) and PT Golden Energy Mines Tbk (GEMS, BB-/Stable). Its operational profile in terms of mine life is over 20 years, against GEMS's around 17 years and Indika's around 16 years. Still, MMC's concentrated customer base and Mongolia's volatile mining regulations compare unfavourably with that of rated peers.
Compared to Indika, MMC is slightly larger in terms of EBITDA due to a high EBITDA margin of above 40%, against Indika's margin in the low teens. MMC's EBITDA net leverage was lower than Indika's in 2023. Compared with GEMS, MMC is smaller in terms of EBITDA, but MMC's EBITDA margin is higher than GEMS' 25%. GEMS also has better leverage, with a net cash position at end-September 2024.

Published Date:2025-03-25