AVG COAL PRICE HITS A HUNDRED BUCKS FOR THE FIRST TIME IN MONGOLIA'S HISTORY

National Statistics Office of Mongolia YTD external trade data(as of September 15,2011)
exports are up 64% yoy to 3.07B USD and consisted from (all compared yoy to same period of 2010):

Tier 1 commodities
• coal(MMC(975),MAK(private),TTL(MSE),SGQ(1878),etc) 12 722 000 tons of coal with customs price declaration of 1 274 829 000 USD
• copper concentrate(EMC,state-owned) 400K tons - 702M USD

Tier 2 commodities

• iron ore,concentrate(Iron Mining JV,Altai Khuder,Monzol(all private)etc)3.9M tns-287M USD
• crude (Donsheng,etc)1.6M barrels worth 162M USD
• greasy cashmere,2477 tons worth 117M USD
• zinc ore/concentrate(NFC JV) 88K tons worth 108M USD
• gold 2.1 tons worth 86M USD
others
• Mathematical average coal price jumped 3.45% in 15 days, compared to 0.92% mom in July and 4.87% mom in June 2011
• coal occupied 41.5% of total exports of Mongolia of exports of 3.07B USD

COAL METRICS:
• Value of Mongolian coal exports 2011YTD is 1.27B USD compared yoy to 517M USD, increase of 146.40% . Value of total coal exports in 2010 was 878.45M USD.
• Mathematical average customs price of Mongolian coal in 2011YTD is 100.20USD compared to 96.85USD per ton in August 15,2010 and compared to 95.89USD a month ago and compared yoy to 50.03 USD per ton yoy. Math average customs price for Mongolian coal for 2010 was 52.75USD, in crisis 2009 it was 43.05USD, in pre-crisis 2008 it was 44.29USD, in 2007 it was 35.55USD.
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• Volume in 2011YTD is 12 722 000 tons compared yoy to 10 340 000 tons, 23% increase yoy.
• Volume for 2010 was 16 635 100 tons, in crisis 2009 it was 7 113 200 tons, in pre-crisis 2008 it was 4 169 300 tons, in 2007 it was 3 269 000 tons.

According to MMC,

The Group sold to its customers in China 1.42 and 1.46 million tonnes of unwashed hard coking coal in the first half of 2011 and 2010 respectively.

As at 30 June 2011, the Company’s ASP for coking coal was approximately USD95.6 per tonne, compared to approximately USD59.9 per tonne in the first half of 2010, representing approximately 59.6% increase. With the Company starting to sell washed hard coking coal product, the Company achieved ASP of approximately USD155 per tonne for first batch shipped to its customer in China, providing approximately 62.1% increase from unwashed hard coking coal ASP.

For the six months ended 30 June 2011, the Group grew its revenue by approximately 55.3% to approximately USD136.2 million from USD87.7 million for the same period in the previous year. The increase was primarily attributable to the increase in average selling price (“ASP”) and the relation of points of sale from pre-dominantly mine-gate to the Mongolian-Chinese border, which allows the Group to expand its customer base, to sell directly to end-users and to prepare for washed hard coking coal export.

For Southgobi,

For the six months ended June 30, 2011, the Company sold approximately 1.5 million tonnes of coal at an average realized selling price of approximately $53 per tonne. This compares to 0.87 million tonnes of coal at an average realized selling price of approximately $39 per tonne for the six months ended June 30, 2010. The average realized selling price has increased due to increased prices of individual customer contracts in 2011. Direct cash costs of product sold were $24.39 per tonne for the six months ended June 30, 2011 compared to $21.81 per tonne for the same period in 2010. The increase in direct cash costs is due primarily to increased fuel costs, screening costs and the higher strip ratio in 2011. The Company began screening its higher-ash coal in the third quarter of 2010.

Frontier Securities conclusion

• The uptrend in coal price is in line with Frontier Securities forecast in early 2011 that this up trend will be supported throughout 2011.

We forecast the trend to continue . FRONTIER SECURITIES forecasts 2011F value at range of 2B USD.

• Most gain is coming from favourable price growth. Mongolia is on its way to become one of the price setters in the region

COAL EXPORTS MORE THAN DOUBLE YOY AND HIT A BILLION BUCKS FOR THE FIRST TIME IN MONGOLIA'S HISTORY

National Statistics Office of Mongolia( nso.mn) YTD external trade data(as of August 15,2011)
• MMC(975),MAK(private),TTL(MSE),SGQ(1878),etc coal exports - 10 450 900 tons
• with customs price declaration of 1 012 234 200 USD
• coal occupied 39.1% of total exports of Mongolia of exports of 2.59B USD

COAL METRICS:

• Value of Mongolian coal exports 2011YTD is 1B USD compared yoy to 434M USD, increase of 120.2% . Value of total coal exports in 2010 was 878.45M USD.

Value of coal exports in 2011YTD is 135M USD per month and 4.5M USD per day.

• Mathematical average customs price of Mongolian coal in 2011YTD is 96.85USD per ton compared to 95.89USD two weeks ago and compared to 95.01 USD month and half and compared to 90.59USD two months and a half ago and compared to 75.06 USD per ton as of 04/15/2011 and compared to 69.04USD four months and a half ago and 65.86 USD five months and half ago and 60.04USD six months and half ago and compared yoy to 49.93 USD per ton yoy. Math average customs price for Mongolian coal for 2010 was 52.75USD, in crisis 2009 it was 43.05USD, in pre-crisis 2008 it was 44.29USD, in 2007 it was 35.55USD.

• The trend is in line with Frontier Securities forecast in early 2011 that this up trend will be supported throughout 2011.
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• Volume in 2011YTD is 10 450 900 tons compared yoy to 8 694 000 tons, 20% increase yoy. Volume is 1.39M tons per month and 46448 tons per day.

• Volume for 2010 was 16 635 100 tons, in crisis 2009 it was 7 113 200 tons, in pre-crisis 2008 it was 4 169 300 tons, in 2007 it was 3 269 000 tons.

For Southgobi,

For the six months ended June 30, 2011 the Company produced 1.97 million tonnes of raw coal with a strip ratio of 4.03 compared to production of 0.84 million tonnes of raw coal with a strip ratio of 3.84 for the six months ended June 30, 2010. The increase in raw coal production for the six months ended June 30, 2011 primari ly resulted from the expansion of the Company’s mining fleet .

For the six months ended June 30, 2011, the Company sold approximately 1.5 million tonnes of coal at an average realized selling price of approximately $53 per tonne. This compares to 0.87 million tonnes of coal at an average realized selling price of approximately $39 per tonne for the six months ended June 30, 2010. The average realized selling price has increased due to increased prices of individual customer contracts in 2011. Direct cash costs of product sold were $24.39 per tonne for the six months ended June 30, 2011 compared to $21.81 per tonne for the same period in 2010. The increase in direct cash costs is due primarily to increased fuel costs, screening costs and the higher strip ratio in 2011. The Company began screening its higher-ash coal in the third quarter of 2010.

Frontier Securities conclusion

• Robust coal production ramp-up is in line with early Frontier Securities forecast of 20mtpa for this year as production and exports traditionally accelerate in second half of the year.
We forecast the trend to continue . FRONTIER SECURITIES forecasts 2011F volume at range of 20Mtpa , 2015F 35Mtpa, 2020F 55Mtpa
• Most gain is coming from favourable price growth. Mongolia is on its way to become one of the price setters in the region