Fitch Ratings - Hong Kong/Tokyo - 28 Aug 2023: Fitch Ratings has placed Mongolian Mining Corporation's (MMC) 'B' Long-Term Foreign-Currency Issuer Default Rating (IDR) and the rating on its US-dollar bond due April 2024 on Rating Watch Negative (RWN). At the same time, Fitch has assigned a 'B(EXP)' expected rating to MMC's proposed US-dollar senior exchange notes and new issuance with a Recovery Rating of 'RR4'. The final rating is contingent upon the receipt of final documents conforming to information already received.

The proposed notes will mature on the third anniversary of the exchange settlement date and will be jointly and severally issued by MMC and its wholly owned subsidiary, Energy Resources LLC.

We do not consider the proposed debt exchange transaction as default avoidance, despite the maturity extension for MMC's existing USD350 million senior secured notes due April 2024, as we believe MMC is able to accumulate sufficient cash to repay the notes, even without the proposed issuance.

The RWN takes into consideration the low cash buffer that will be available after the repayment of the notes due 2024, should the exchange offer fail, to manage variances in the operating environment. The inherent volatility and lack of predictability of the post repayment cash position is more consistent with a rating level that is one notch lower. We will remove the RWN and affirm the rating with a Stable Outlook if the exchange is completed at the terms communicated.

KEY RATING DRIVERS

Exchange to Address Refinancing Risk: The exchange offer is at par value, using a combination of cash and new notes, subject to a minimum acceptance of 75% of outstanding principal. A successful transaction would reduce the funding requirements for MMC's 2024 notes and would be credit positive, as it would improve the company's maturity profile.

Sufficient Cash for Repayment: If the proposed exchange fails, we expect that MMC would have the capacity to repay its 2024 notes with cash generated from operations, taking into consideration our forecast of a lower average selling price (ASP) in 2H23 and 1Q24. The outstanding balance of MMC's 2024 notes was USD350 million at mid-August 2023. The company had a cash balance of over USD200 million at end-June 2023, up from USD65 million at end-2022.

We expect MMC could generate over USD250 million in EBITDA between June 2023 to 1Q24, which, after taking into consideration other cash flow uses, such as interest, taxes and capex, together with the USD50 million in an unused committed facility, would leave the company with sufficient cash for the bond repayment and continued operation.

Limited Cash Buffer Post Repayment: We expect MMC to have over USD350 million of cash available as of end 1Q24 without the exchange offer, with an additional USD50 million in an unutilised committed facility. We calculate that the company will have a cash buffer of around USD50 million after the USD350 million principal repayment after subtracting the minimum USD50 million of cash required to maintain its operation. However, the inherent variances of MMC's operating environment can result in the buffer varying widely, which is commensurate with a one-notch lower rating.

Robust Operational Improvements: MMC's coking-coal operation has normalised, with Covid-19 pandemic-related disruption at the border with China having eased in 1Q23. Average daily throughput rose to about 800 trucks in 1H23, surpassing pre-pandemic and the 1H22 level of around 240 trucks. MMC ramped up processing volume to 6.8 million tonnes in 1H23, from 0.9 million tonnes in 1H22, ahead of our expectations. Meanwhile, the realised ASP for hard coking coal exceeded USD160/tonne, from a 2022 average of USD147/tonne.

We expect the ASP to fall in 2H23, but for average ASP in 2023 to remain above 2022 levels. We also expect washed hard coking coal sales volume to reach 5.5 million tonnes, against our previous forecast of 5.0 million tonnes (2022: 3.5 million tonnes). As a result, the EBITDA margin should improve to over 40%, from around 24% in 2022, with greater free cash flow from the higher volume, stronger pricing assumptions and lower costs. We also forecast net leverage to drop to below 1.0x (2022: 3.0x), supported by a strong ASP and margin expansion.

Small Scale, Single Product: MMC is small by revenue compared with Fitch-rated coal miners globally. Washed hard coking coal accounted for over 95% of its total revenue in 2022. Its latest coal reserve statements show total marketable coal reserves of just under 400 million tonnes, or a reserve life of around 35 years. MMC's small scale and product concentration constrain its business profile to the 'b' category. MMC is looking to diversify away from coking coal, but we believe it will remain its dominant revenue contributor in the short to medium term.

Regional Cost Advantage: MMC's cash costs, including royalties, are in the second quartile of the global coking-coal cost curve, but its cost advantage is only in the northern part of China due to the proximity of its mines to steel mills in the area. Land transportation costs to Chinese customers averaged at about USD13/tonne in 1H23, limiting MMC's cost competitiveness and putting it in the higher quartile of the global cost curve. Delivery beyond northern China would raise costs, limiting its customer-base to mainly northern China.

DERIVATION SUMMARY

The RWN reflects the narrow buffer provided by MMC's Fitch-estimated cash balance after the principal repayment on the 2024 notes, which may not protect MMC from volatile market conditions should the exchange offer not proceed. MMC has a smaller revenue scale compared with rated peers, such as Guangyang Antai Holdings Limited (B/Stable), PT Indika Energy Tbk (BB-/Stable) and PT Golden Energy Mines Tbk (GEMS, BB-/Stable).

Guangyang Antai's revenue is more than 10x times that of MMC, while Indika's revenue scale is more than 7x larger and GEMS' 5x. However, MMC margin is much higher than that of Guangyang Antai and similar to that of Indika and GEM. MMC is a single-product coal miner, similar to the peers. Its operational profile in terms of mine life is similar to that of GEMS, whose mine life is over 25 years. Indika's mine life is shorter, at around 15 years.

MMC's leverage and financial flexibility profile is weaker than that of GEMS. GEMS has more stable free cash flow generation ability, much lower leverage and well-distributed amortising debt. Both MMC and Indika have had choppy free cash flow generation in the past few years and concentrated debt maturities. Nevertheless, Indika has better interest coverage and much lower leverage. We expect lower leverage at MMC compared with Guangyang Antai, but both companies have had weak FCF generation in the past few years.

KEY ASSUMPTIONS

Fitch's Key Assumptions within our Rating Case for the Issuer:

- No exchange offer is considered

- Hard coking coal ASP of USD150/tonne in 2023 and over USD140/tonne in 2024, consistent with Fitch's price deck assumptions

- Total sales volume over 8.5 million tonnes in 2023, dropping to just under 7.0 million tonnes from 2024

- EBITDA margin to average at slightly below 40% in 2023-2025, supported by higher volume, a strong ASP and normalised costs

- Capex at average at around 10% of revenue in 2023-2025

- No dividend payments in 2023-2025

RATING SENSITIVITIES

Factors that could, individually or collectively, lead to positive rating action/upgrade:

- We will remove the RWN and affirm the ratings with a Stable Outlook upon completion of the exchange offer at the terms communicated.

Factors that could, individually or collectively, lead to negative rating action/downgrade:

- Failure to complete the exchange offer or secure other means of funding to reduce refinancing risk by end-3Q23

BEST/WORST CASE RATING SCENARIO

International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579.

LIQUIDITY AND DEBT STRUCTURE

Adequate Liquidity: MMC had USD208 million of cash on hand and USD50 million in unutilised credit facilities at end June 2023. However, this is insufficient to repay the notes due in April 2024, which had a face value of USD350 million in mid-August 2023. Nevertheless, we expect that the company will be able to accumulate additional cash in 2H23 and 1Q24 to meet the principal repayment and retain a cash buffer to sustain its operation.

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 6.6 million tonnes of run-of-mine coal in 2022, which yielded around 3.0 million tonnes of washed coking coal as a primary product and 1.2 million tonnes of washed thermal coal 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.

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 http://www.fitchratings.com/topics/esg/products...

In his greetings following the recitation of the Angelus prayer on Sunday, Pope Francis spoke about his upcoming Apostolic Journey to Mongolia, which will take place from 31 August to 4 September.

The motto of the journey, "Hoping Together," aims to underscore the double meaning of the Holy Father's Apostolic Journey to Mongolia: that of a pastoral visit and of a state visit.

The Pope described it as a "much-desired visit" and an opportunity "to embrace a Church small in numbers but vibrant in faith and great in charity."

The Holy Father recalled Mongolia's rich "religious tradition," which he "will have the honor of getting to know especially in the context of an interreligious event."

"A brother to all"

Pope Francis expressed his happiness "to be among" the Mongolian people "as a brother for all."

The Pope concluded by thanking the civil authorities of Mongolia for the invitation and those "who with great commitment are preparing for my arrival."

"I ask all of you to accompany this visit with your prayers," he said.

Pope Francis’ next international trip will bring him to Mongolia, a democracy sandwiched between the authoritarian powers of Russia and China.

When Pope Francis lands in the capital city of Ulaanbaatar on Sept. 1, he will become the first pope in the history of the Catholic Church to visit Mongolia, but the trip could have geopolitical implications beyond the country’s small population of just 1,450 Catholics.

Mongolia is a post-Soviet democracy that continues to have strong ties with its geographic neighbors China and Russia as well as an important diplomatic relationship with the United States, which Mongolia calls its “third neighbor.”

In Pope Francis’ first speech at Mongolia’s State Palace, the pope will address not only Mongolia’s democratic leaders but also the local diplomatic corps, which includes embassy officials from Russia, China, and North Korea. This speech in particular presents an opportunity for the pope to send a message to Moscow and Beijing.

Russian state media has already signaled that it is paying close attention to the pope’s trip. The Kremlin-owned Tass news outlet even suggested the possibility of a papal plane layover in the Moscow airport as a “neutral” location for Pope Francis to meet Russian Orthodox Patriarch Kirill.

During Mongolia’s era of one-party Communist rule in the 20th century, its political and economic ties with the Soviet Union were very strong, and Russia continues to be an essential energy supplier for the Asian country.

The Soviets gave Mongolia’s capital its current name, Ulaanbaatar, meaning “Red Hero” in Russian, in 1924 in honor of communism. The Mongolian language has used a Cyrillic-based alphabet similar to Russian since the 1940s, although the government has announced plans to revert to the country’s traditional vertical script by 2025.

Today Mongolia imports 90% of its oil products from Russia and has abstained from U.N. votes that condemned the Russian invasion of Ukraine.

The war in Ukraine has come up in many of the pope’s speeches during his international trips in the past year, including in a speech to government leaders in post-Soviet Kazakhstan, where the pope called for an end to the “senseless and tragic war” in Ukraine.

Due to its unique role as a Eurasian democracy, Mongolia has been put forward as a site for potential peace negotiations between Ukraine and Russia. Pope Francis’ travel to Mongolia comes amid a Vatican peace mission led by Cardinal Matteo Zuppi, who has made diplomatic visits to Kyiv, Moscow, and Washington, and was also asked by the pope to continue the Vatican’s “peace offensive” in Beijing.

China

Mongolia shares a nearly 3,000-mile border with China, which is also Mongolia’s most significant economic partner. Historically, the Mongols conquered all of China during the 13th century and later Mongolia was a part of China’s Qing dynasty for more than two centuries, so one could argue that this is the closest the Catholic Church has ever come to a papal trip to China.

Chinese Cardinal-elect Stephen Chow of Hong Kong has said that he will travel to Mongolia for the pope’s trip with a delegation of about 30 Hong Kong Catholics. Earlier this year, Chow became the first Hong Kong bishop to make an official visit to Beijing in nearly 30 years.

While Pope Francis is in Mongolia, the Chinese Communist Party will implement new religious restrictions, titled “Regulations on the Management of Religious Activity Sites,” which come into force on Sept. 1. The restrictions ban the display of religious symbols outdoors, require preaching to “reflect core socialist values” and limit all religious activities to government-approved religious venues, according to China Aid.

The Chinese religious freedom restrictions will affect Christians and Buddhists alike, including in the regions of Tibet and Inner Mongolia, which could be a potential talking point for the Buddhist-Catholic interreligious dimension of Pope Francis’ Mongolia trip. The pope, who has previously received a delegation of Mongolian Buddhist leaders at the Vatican, is scheduled to take part in an interreligious meeting in Ulaanbaatar on Sept. 3.

Vatican-China relations have had a rocky year. Last month, the Vatican announced Pope Francis’ decision to approve the appointment of the bishop of Shanghai who was previously installed by Chinese authorities without the Holy See’s approval. It was the second unauthorized appointment by Beijing since November 2022.

China currently dominates Mongolia’s trade, with Mongolia sending 86% of its exports to China. Coal accounts for the majority of China’s imports from Mongolia. During the Mongolian prime minister’s six-day trip to China this summer, the prime minister spoke about taking China-Mongolian relations “to new heights” and signed a contract for the construction of a $1.8 billion railway connection to further expand trade and economic cooperation between the two countries, a boost to China’s future Mongolian coal imports.

Notably, Mongolia also agreed to deepen cooperation to mine rare earth metals with its “third neighbor,” the United States, during an official state visit by the prime minister to Washington earlier this month. The U.S. also signed an “Open Skies” agreement with Mongolia, paving the way for Mongolian Airlines to fly to the United States for the first time.

Pope Francis is set to travel to outer Mongolia over the upcoming Labor Day weekend. During the four-day trip, the pope is scheduled to meet with government leaders, engage in interreligious dialogue, and offer Mass for the country’s small Catholic population.

BY Courtney Mares

Courtney Mares is a Rome Correspondent for Catholic News Agency. A graduate of Harvard University, she has reported from news bureaus on three continents and was awarded the Gardner Fellowship for her work with North Korean refugees.

VATICAN CITY -- Pope Francis on Sunday described his visit later this week to Mongolia, the first-ever pilgrimage by a pontiff to the east Asian country, as a much-desired occasion to encounter a “noble, wise” people.

Speaking to the public in St. Peter’s Square, Francis said the trip would also be an opportunity to embrace the Catholic community there, describing the church in Mongolia as “small in numbers but lively in faith and great in charity.” The pilgrimage is also an opportunity "to meet up close with a noble, wise people,'' he said.

Francis departs on Thursday, returning to Rome four days later. There are fewer than 1,500 Catholics in Mongolia, where some 3.2 million people live in one of the world’s least densely populated countries.

The pope said Mongolia has a great religious tradition that “I will have the honor to know,” especially in the context of an inter-religious event during the trip on Sept. 3.

The largest percentage of Mongolia's people are Buddhist.

In his remarks, Francis said he wanted to address “you, brothers and sisters of Mongolia, telling you that I am happy to travel to be among you as a brother of all."

He also asked the faithful in the square to accompany him in prayer during his trip.

Upon discussion of the flight requests submitted by foreign and domestic air transporters, the Civil Aviation Authority of Mongolia (CAAM) approved the Winter Flight Schedule for the period from October, 2023 to March 30, 2024.

In accordance with the international schedule of take-off and landing flights, flights of 14 domestic and foreign air carriers to 19 destinations are planned for the winter season of 2023-2024. The total planned flights have increased by 35.5 percent compared to the pre-pandemic period of 2019 and by 61.5 percent compared to 2022. The number of flights of the MIAT state-owned JSC raised by 133.3 percent, and the number of flights of Aero Mongolia LLC increased by 13 percent compared to the previous year, reports the CAAM.

Compared to the last winter season, Krasavia and IrAero Airlines of Russia, Jeju Air of the Republic of Korea, and VietJet Air, the Vietnamese private company, have been added to the flight schedule for the winter season of 2023-2024. It is also planned to launch new flights to Vietnam's Nha Trang, and China's Manchuria and Hailar.

MIAT JSC plans to fly to a total of ten destinations, including Hong Kong, Beijing, Phuket, and Moscow, and Hunnu Air LLC is planning to fly to three destinations, in it Hailar and Manchuria.

As for the local destinations, the two air transporters will operate domestic flights. MIAT JSC is scheduled to fly to Dornod, Khovd, Gobi-Altai, Uvs, Zavkhan, Bayan-Ulgii, Khuvsgul, and Dalanzadgad in Umnugobi, and Aero Mongolia LLC is scheduled to fly in the directions of Bayan-Ulgii, Khovd and Khuvsgul.

As of the end of June of 2023, the bank savings reached MNT 14.4 trillion, increasing by MNT 435.5 billion (3.1 percent) from the previous month and by MNT 560.1 (4.1 percent) billion compared to the same period of the last year.

MNT 12.6 trillion (87.7 percent) of the tugrug savings are the deposits of citizens, and MNT 1.8 trillion (12.3 percent) are the deposits

of enterprises and organizations.

Foreign currency deposits reached MNT 5.2 trillion, decreasing by MNT 21.2 billion (0.4 percent) from the previous month, and increasing by MNT 669.5 billion (14.8 percent) from the same period of the last year, reports the National Statistics Office.

On August 24, the first flight of Japan Airlines (JAL) from Tokyo to Ulaanbaatar landed at Chinggis Khaan International Airport. 128 Japanese tourists arrived in Mongolia on the first flight.

Yoshiyuki Yamazawa, head of services at the Chinggis Khaan International Airport, said “Chinggis Khaan International Airport is a symbol of peace between Mongolia and Japan and a new airport created by the joint development of the two countries. A major Japanese airline operating flights to this airport is a big advantage, and we expect it to start expanding internationally”.

The next Tokyo-Ulaanbaatar flight will land on August 28. The works of increasing the number of flights, providing news and information to tourists from Japan will be organized, and the works of welcoming and farewell to arriving tourists with a positive impression will be organized.

The UK’s Serious Fraud Office quietly dropped two long-running investigations into mining firms Rio Tinto Plc and Eurasian Natural Resources Corp., in another setback for an agency that’s expended years prosecuting suspected corruption across the commodities industry.

The SFO said Thursday it had closed its 2017 Rio Tinto investigation into allegations of corruption in Guinea after an internal review found it was not in the public interest to continue, according to an update on its website. No charges against individuals had been made.

Separately, the agency also announced it had closed a decade-long criminal investigation into ENRC citing “insufficient admissible evidence to prosecute.” The probe, one of the prosecutor’s longest, has been mired in controversy and allegations of reckless investigations against the SFO. It had focused on suspected bribe payments to secure mining contracts in the Democratic Republic of Congo between 2009 and 2012.

The SFO, which both prosecutes and investigates the most serious white-collar crime in Britain, has a long list of recent missteps in the last few years. It has been accused of botching investigations, seen trials collapse, and a government-requested review that found the SFO’s failure in its Unaoil bribery case were caused by “cultural issues” in the agency.

Rio Tinto said in a statement after the announcement that it is “committed to conducting business to the highest standards of integrity.” The Australian Federal Police’s investigation into the case remains ongoing.

Since the SFO began its criminal investigation into ENRC, the Kazakhstan mining firm has initiated at least 16 legal proceedings in the US and UK against lawyers, investigators, contractors, journalists, a former SFO official and the SFO itself, according to anti-graft campaigner Spotlight on Corruption.

“ENRC is pleased that the SFO has finally closed its investigation and that the SFO is taking no further action in respect of this matter,” a spokesperson said.

(By Katharine Gemmell)

Far, far away from the madding crowds is Mongolia, a country that’s filled with biodiversity but not people. If you have never been, what with this country being off the beaten path for so long, it is definitely worth checking out—especially if you’re a bit of an introvert who values physical and mental space from other people. Mongolia is a hidden gem that offers the perfect blend of nature, culture and solo activities. If you need some more convincing, here are a few reasons why Mongolia is a must-visit destination for those who like to travel but hate crowds.

Animals outnumber people

As of the last count in 2021, there are around 67 million animals to nearly 3.5 million people in Mongolia, and the sparseness of people compared to animals is evident from the moment you step out of the Chinggis Khaan International Airport.

The airport is located nearly 50 kilometres away from the capital city of Ulaanbaatar, and throughout the journey from the airport to the city, you are more likely to encounter a motley crew of animals—including horses, camels, sheep, cows—grazing along the rolling steppes beside the road than a traffic jam.

Travellers can get an even better idea of the diverse fauna of Mongolia once they travel to its vast countrysides. To the north is the Altay-Sayan mountains, which are home to snow leopards, reindeers, Siberian musk deer and much more; while the Central Asian Gobi region boasts Gobi bears, Bactrian camels, donkeys and the once-extinct-in-the-wild Przewalski’s horse, a wild breed native to Mongolia.

To catch a glimpse of these horses, which are locally known as “takhi horses”, one must head to Hustai National Park in Central Mongolia, where nearly 400 of these horses still thrive after a handful of them were reintroduced in the area in the 1990s. Look out for the white underbelly that is distinctive of this breed, and don’t be surprised if they come very close to you—the lack of tourists has made them unafraid of humans.

Other parts of Mongolia are also rich in animals, even in the vast Gobi desert. In fact, if you travel to that area during spring, keep your eyes peeled for migratory birds such as the Siberian cranes that often make a pit stop in the desert’s oases on their route from Russia to China.

Avoid overcrowded hotels

Forget about hotels and embrace your inner nomad by staying in a ger, the traditional tents that many Mongolian people live in. Also known as yurts, these cosy homes are made of felt and canvas and offer a unique lodging experience. Mongolia’s climate may be rough in some seasons—snowy and terribly cold in winter, and windy and unpredictable in spring—but the tents’ circular shape, its construction materials and wooden latticed walls and roof are designed to help them hold their own against the elements.

Several modern camps also offer glamping experiences, which means you can revel in the traditional aesthetics of the yurts from the outside, but without missing out on modern amenities like heaters and toiletries once you’re inside.

But no matter where you’re staying, the best part for introverts is that you won’t have to worry about bumping into other guests or hotel staff—it’s just you and the great outdoors.

Nature at its best

Mongolia is home to some of the most breathtaking natural landscapes in the world—from the rolling hills in its centre to the towering peaks of the Altai Mountains in the north. But what makes it a veritable paradise for introverts is that you can take in these amazing vistas in tranquillity, without being surrounded by thousands of fellow tourists or risk being poked by selfie sticks. The vast empty spaces can evoke loneliness in people who love human company, but for those who appreciate solitude, they might relish the feeling of being one of the few people on earth.

Fewer people also mean much less pollution of any kind, and one of the beautiful ways this manifests itself is in the clear view of starry skies at night. Just imagine gazing up at the stars from the comfort of your ger (Mongolian tents have skylights) with nothing but the twinkling stars and sound of the wind to keep you company.

Solo activities in nature

While doing nothing and gazing at the stars might appeal to a more laid-back traveller, those looking for adventure will appreciate the range of solo activities in nature available in Mongolia. These include hiking, photography, camel riding, horseback riding, biking and off-roading.

The Gobi desert, for instance, is the perfect backdrop for an off-roading adventure. The fifth largest desert in the world, its rolling sand dunes are interspersed with small hillocks, rocky mountains, old canyons and oases, making it a diverse and challenging terrain for petrolheads. For a slower yet equally exciting adventure, one can also choose to ride on Bactrian camels, which are native to the steppes of Central Asia. They are double-humped, which has an unexpected benefit for the rider—you can hang on to the first hump for dear life if things get too bumpy.

Immerse yourself in art and culture

If you are not into adventure sports but would rather seek calm and culture in a quiet museum, Mongolia has you covered there as well. There are plenty of museums in Ulaanbaatar, as well as in other places, which give you a comprehensive insight into the country’s rich heritage and culture.

Moreover, many monasteries from the 16th and 17th century have survived and are strewn across the country—from the Erdene Zuu Monastery in central Mongolia’s Orkhon valley to the Gandan monastery in Ulaanbaatar. The best part? There are hardly any queues anywhere, so you can appreciate the intricate art and sculptures within the monasteries at your own pace and without feeling rushed. What more can an introverted traveller desire?

(source: tatler asia)