Hong Kong company reporting season

Mongolian Mining shares surge by a third as it ends five years of losses

The positive earnings forecast comes on the back of a successful debt restructuring and soaring sales of coking coal

PUBLISHED : Friday, 11 August, 2017, 1:50pm
UPDATED : Friday, 11 August, 2017, 10:22pm

Shares in Mongolian Mining surged as much as 34 per cent on Friday after it said it expects to report an interim profit for the first time in five years.

The positive earnings forecast comes on the back of a successful debt restructuring and soaring sales volume and prices of its mainstay product, coking coal.

The privately-controlled company, the largest producer of the steel smelting ingredient in the landlocked nation that heavily relies on China to buy its commodities, said it will post a net profit of between US$250 million and US$375 million for the six months.

That compares to a loss of US$61.7 million in the same period last year, and interim losses ranging from US$25.2 million to US$79.2 million the previous four years.

Its shares finally closed the day 14 per cent higher on Friday at 28.5 cents.

“Such profit is primarily attributable to improved coking coal market conditions [resulting in] increasing coal product tonnage sold and average selling price achieved,” Mongolian Mining said in a filing to Hong Kong’s bourse late on Thursday.

“The successful implementation and completion of the debt restructuring have resulted in an extraordinary gain,” it added without giving an estimate of the size.

Mongolian Mining’s shares settled back from their intraday high to trade 14 per cent higher at 28.5 cents at 1pm on Friday, bucking a 1.9 per cent fall in the Hang Seng Index.

The Ulaan Bator-based firm earlier this year reported that its first-half production volume surged 356 per cent year-on-year to 4.2 million tonnes from 0.92 million tonnes.

The nation’s coal production jumped 95 per cent to 24.8 million tonnes in the same period, of which export to China surged 80 per cent to 18.6 million tonnes or 75 per cent of output, Argonaut Securities analyst Helen Lau said.

“If you look at the first-half export value of Mongolia’s coal, it soared by 337 per cent year-on-year, reflecting the price jump thanks to improving demand-supply fundamentals of the steel and coal industries,” she said.

Beijing’s policy to curtail steel output in northern China during the winter months to reduce emission would cut production of the metal by 33 million to 59 million tonnes this year, amounting to 2.9 to 5.2 per cent of the entire industry’s output last year, Guangfa Securities’ analysts estimated in a report on Thursday.

Although reduced steel output would cut demand for coking coal, higher steel prices would lift those of the coal, since prices of the two commodities have historically been highly correlated, they noted.

Steel prices have risen an average of 5 per cent in the first seven months of the year, after surging 76.5 per cent in 2016, according to the China Iron and Steel Association.

Mongolian Mining said in early June it has emerged from “Chapter 15” bankruptcy protection proceedings in the United States and the joint provisional liquidators have been discharged from their duties.

In March last year the firm was close to defaulting on a US$93 million loan owed to ICBC and BNP Paribas, and another US$51.8 million owed to the European Bank for Reconstruction and Development and two Dutch and German lenders.

Its shares traded as low as 2.6 HK cents in late January last year, but had rebounded to 40.5 cents by October.