Prices still under pressure,Mongolian coal miner says

Coal exporter Mongolian Mining expects prices to remain under pressure for the rest of the year amid weak demand.

But it says its competitiveness means output is on track to reach its target of 10 to 11 million tonnes this year, up from 7.1 million last year.

'In terms of tonnage, we don't expect to have any issues, but we will see pressure on pricing as we follow market prices,' chief executive Battsengel Gotov said yesterday. 'Some analysts expect a rebound by [around September].'

Mongolian Coal is controlled by the MCS Group, one of Mongolia's largest conglomerates.

Gotov said the company's production and logistics costs ranked among the lowest 25 per cent of global coking coal miners, which meant even at times of low or negative demand, it could out-compete high-cost producers.

Mongolia is the world's largest supplier of coking coal to China, accounting for a third of the mainland's imports. China is the second-largest importer of coking coal, after Japan.

Mongolian Mining yesterday posted year-on-year net profit growth of 56.2 per cent to US$31 million for the first half of the year.

Revenue jumped 71.1 per cent to US$233 million on the back of a 71.4 per cent rise in coal sales to 2.4 million tonnes and a 34.4 per cent jump in the average price.

The higher price was due to the firm having produced mostly higher-value processed coal this year. Last year it produced only raw coal.

The average price of raw coal fell 7 per cent to US$88.90 a tonne in the first half, reflecting weak global demand and the poor purchasing power of Chinese steel mills, which suffered from lower steel prices.

Gotov expects Mongolian Mining's sales to reach 3 to 3.5 million tonnes in the second half.

The firm aims to raise output to 15 million tonnes next year, and its annual coal processing capacity to the same amount by the end of this year.

In May it signed an agreement to build and operate a 240 kilometre coal railway for 19 years with the Mongolian government, which will acquire 51 per cent of the asset at no cost when the term is up.

A study in 2009 estimated that an annual throughput capacity of 15 million tonnes would cost US$700 million to build.

Gotov said the railway would cut Mongolian Mining's logistics costs, which were US$21.60 a tonne in the first half of this year, by US$8 to US$10 a tonne. He said the company was in talks with miners in the same region to expand the railway's capacity to 30 million tonnes.

Mongolia Mining's share price rose up to 6.6 per cent before closing 4.4 per cent higher at HK$4.46 after the results were announced.