Prospects of Mongolian coal and ETT valuation

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Sector update

Higher demand of Mongolian coal

Mongolian has emerged as the natural supplier of metallurgical and thermal coal to China after Chinese structural shift to net importer in 2009. Chinese demand for Mongolian is anticipated to remain high in future due to sustained growth of Chinese steel production and discounted price of Mongolian coal.

Decline in transportation cost and increased transportation capacity with the construction of new railroad

Government of Mongolia has approved the construction of new railroad with MMC. MMC is to invest 400mn USD on this project; this project will significantly lower transportation cost by USD 8 to USD 9 per ton, while increasing transportation capacity over 30mpta for ETT and MMC

Move toward selling washed product will create the room for margins

Both MMC and ETT aim at selling washed product in future. MMC has already started selling final product last year whereas ETT is expected to produce washed coal from 2014

Minimum coal production cost in Mongolia to offset the negative impacts of anticipated decline in ASP

Mongolian companies enjoy the lowest production cost due to thick coal bed and open pit mining. In addition, Mongolia supplies coal at a discounted price to China. Thus Mongolian coal will be least effected by decline in global coal prices.

What’s new in next 5-years plan?

New investment law will be in place soon regardless what party wins the election, therefore, resource nationalization will continue after election, however, the degree will be somewhat soften. New investment law aims to win the trust of the citizens not to scare investors; we believe investment environment will improve after the election

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