Fitch Ratings - Seoul/Taipei - 25 Aug 2025: Fitch Ratings has affirmed coal producer Mongolian Mining Corporation's (MMC) Long-Term Foreign-Currency Issuer Default Rating (IDR) at 'B+'. The Outlook is Stable. Fitch has also affirmed MMC's senior unsecured notes due 2030 at 'B+' with a Recovery Rating of 'RR4'. The notes are jointly and severally issued by MMC and its wholly owned subsidiary, Energy Resources LLC.
MMC's IDR is constrained by its concentrated end-customer base, small scale and the high country risk for mining operations in Mongolia. We expect earnings to deteriorate substantially in 2025, largely due to lower coal prices. However, we believe its rating headroom remains substantial with net leverage remaining below 0.5x over the next two to three years, well below the negative sensitivity of 3.0x. We believe the rating is further supported by the company's ability to generate positive FCF despite challenging market conditions.
Key Rating Drivers
Limited by Scale and Concentration: MMC's small scale, and product and geographical concentration constrain its business profile. The company's EBITDA is low compared with Fitch-rated coal miners globally. We expect annual EBITDA to remain below USD400 million over the next two to three years as we forecast lower coking coal selling prices. 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 located there has decreased substantially in recent years. The heavy reliance on Chinese customers makes it vulnerable to economic conditions and regulatory changes in China. MMC's mine gate cash cost is in the first quartile of the global coking-coal cost curve, but its cost advantage is limited to northern China. We believe additional transportation costs beyond the region would put MMC in the higher quartiles of the cost curve.
Country Risk Remains High: We believe MMC's financials are significantly affected by the volatility of Mongolia's mining regulations. The company's mining assets are all in Mongolia and subject to local regulations. The effective rate for the royalty reference price was raised to over 20% during the Covid-19 pandemic, from 5%-8%, increasing MMC's financial pressure. The reference price has fallen and stabilised and the mining product exchange established a more transparent reference price from October 2023, but the record of stable regulation is short.
Lower Prices Affect Earnings: We expect revenue and EBITDA to deteriorate substantially yoy in 2025, largely due to lower metallurgical coal prices, especially in 1H25, and sales volume. Earnings should improve in 2H25 with product mix improvements, slightly higher average selling prices and gold production targeted to start in late August. Overall, we expect the EBITDA margin to fall to around 36% in 2025 (2024: 47%) and remain below 40% in 2026-2027 amid a limited recovery in coking coal prices, steady coal sales and ramped up gold mining operations.
Financial Profile Remain Robust: We forecast EBITDA net leverage to increase slightly in 2025 to 0.4x (2024: 0.2x) on expectations of lower earnings in 2025, but to improve from 2026 with higher EBITDA and continued positive FCF generation. We expect FCF to stay positive but reduce significantly in 2025 to close to neutral levels due to the EBITDA decline and higher capex, but we believe FCF generation will improve from 2026 as capex normalises and earnings improve.
Acquisitions Drive Diversification and Growth: MMC has started diversifying into other metals through its recent acquisitions of 50% of Erdene Mongol LLC, a gold and precious metals exploration company, and 50.5% of Universal Copper LLC, a copper and other non-ferrous metals exploration company. However, the coal segment will remain its dominant revenue contributor in the short to medium term. We do not expect aggressive M&A in the next two to three years, 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 (B+/Stable), PT Golden Energy Mines Tbk (GEMS, BB-/Stable) and Golden Energy and Resources Pte. Ltd. (GEAR, B+/Negative) in Australia. Its operational profile in terms of mine life is over 20 years, similar to GEAR's 23 and higher than GEMS's around 20 years and Indika's around 14 years. Still, MMC's concentrated customer base and Mongolia's volatile mining regulations compare unfavourably with that of rated peers.
MMC is slightly larger than Indika in terms of EBITDA despite its smaller scale, as MMC has a much higher EBITDA margin due to its low cost position in the first quartile of the global cost curve. MMC's EBITDA net leverage is also lower than that of Indika. GEAR, like MMC, is focused on metallurgical coal, but MMC has a stronger financial profile with higher margins and lower leverage.
MMC is smaller than GEMS in terms of production scale but has a much higher EBITDA margin. However, GEMS also has a more conservative financial profile with a net cash position at end-December 2024.
Key Assumptions
- Total annual coal sales volume slightly below 8 million tonnes (mt) on average in 2025-2027
- Revenue to fall by 20% in 2025, grow by 21% in 2026 and decline by 3% in 2027
- EBITDA margin of 36% in 2025, 39% in 2026 and 38% in 2027
- Capex of USD236 million in 2025, USD225 million in 2026 and USD183 million in 2027
- No dividend payment in 2025-2027
Recovery Analysis
- The recovery analysis assumes that Mongolian Mining would be reorganised as a going concern in bankruptcy rather than liquidated.
- We have assumed a 10% administrative claim.
- An enterprise value/EBITDA multiple of 4x is applied to the going-concern EBITDA to calculate a post-reorganisation enterprise value
- MMC's going-concern EBITDA is based on the average EBITDA we expect between 2025-2028
- In the distribution waterfall, we have assumed all secured debt to be prior ranking debt.
- Using these assumptions in the recovery calculation, as specified in Fitch's Corporates Recovery Ratings and Instrument Ratings Criteria, Fitch estimates MMC's US dollar bonds will have a 100% recovery rate. The criteria also stipulates an 'RR3' cap on second lien and unsecured instruments for 'B+' rated instruments (except where these instruments are issued by structurally senior operating subsidiaries in a multitier corporate structure). The company's business location in Mongolia further caps MMC's recovery rating at 'RR4'.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade:
- EBITDA net leverage above 3.0x for a sustained period;
- Adverse changes in mining regulations in Mongolia.
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade:
- Positive rating action is not envisaged in light of MMC's limited diversification in end customers and high country risk.
Liquidity and Debt Structure
MMC's liquidity was adequate with readily available cash on hand of USD141 million at end-December 2024 and no short-term maturities within the next 12 months. Total debt was USD240 million, consisting of USD220 million of senior notes due 2026 and a USD20 million loan at Erdene Mongol. In March 2025, the company successfully refinanced its USD220 million bonds due 2026 by issuing a USD350 million bond due 2030, improving its liquidity and extending its debt maturity profile significantly.
Issuer Profile
MMC is the largest producer and exporter of high-quality hard coking coal in Mongolia. It owns and operates the Ukhaa Khudag and Baruun Naran open-pit coking coal mines in South Gobi province. MMC processed 15.4mt of run-of-mine coal in 2024, which yielded around 8.4mt of washed coking coal as a primary product and 0.7mt of middlings as a secondary product.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
MACROECONOMIC ASSUMPTIONS AND SECTOR FORECASTS
Click here to access Fitch's latest quarterly Global Corporates Macro and Sector Forecasts data file which aggregates key data points used in our credit analysis. Fitch's macroeconomic forecasts, commodity price assumptions, default rate forecasts, sector key performance indicators and sector-level forecasts are among the data items included.
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products....

Published Date:2025-08-26