ANNUAL%20REPORT%202015%20eng

Management Discussion and Analysis
Table 7. Mongolian HCC sales volume by terms (Note):
# Delivery terms Sales volume Volume share
(Mt) (%)
1 DAP 0.7 58.9%
2 FOT 0.3 28.5%
3 C&F 0.2 12.6%
TOTAL 1.2 100%
Note:
(i)
Due to rounding, discrepancy may exist between sub-totals, totals and volume shares.
OUTLOOK AND BUSINESS STRATEGIES IN 2016
The global coking coal markets continue to face persisting imbalance between supply and demand, which led to
the coking coal prices dropping to the lowest levels seen in a decade with benchmark prices in the fourth quarter
of 2015 to settled at the lowest since 2005. The industry report estimates that it may take at least two years for
coking prices to rise above current levels, provided that around 30 Mt of annual supply is required to be taken off
the seaborne market to offset receding Chinese demand and new supply from ongoing mine expansions.
The industry is experiencing severe competition between producers from various regions, which is expected in the
near future to result in an accelerated pace of mine closures among high-cost producers. Recently, the Chinese
government has revealed plans to tackle prolonged overcapacity in the coal sector by closing 4,300 small and
cutting inefficient coal mines and cutting annual production capacity by 700 Mt over the next three years.
The Company intends to pursue the following key strategies in order to maintain and enhance its competitive
position as a major washed coking coal producer in Mongolia: (i) adjusting the capital structure and its debt to
adequate and sustainable levels; (ii) maximizing assets utilization to lower unit fixed costs; (iii) supporting initiatives
to improve logistics infrastructure providing access to Chinese railway network to reach its customers in China
and beyond; (iv) exploring opportunities for expanding and diversifying its business operations through potential
strategic cooperation and joint ventures arrangements; and (v) maintaining its strong commitment to safety,
environment and socially responsible operations.
During the past several years, in order to improve the Company’s competitive position, the Company’s
management was able to achieve significant cost reductions by improving its operational efficiency and
productivity, but unfortunately this was insufficient to offset the continued sharp decline in product prices.
Therefore, the management has prioritized resolving financial issues with a focus on preserving liquidity and
balance sheet management.
In light of the adverse market conditions, and to better protect the interests of all the stakeholders of the
Company, the Company started a dialogue with its lenders, and the financial and legal advisors of the steering
committee of its noteholders about a possible restructuring arrangement in relation to its debt facilities. The
Company is committed to transparent communication with broader investment community with ultimate goal to
achieve outcomes acceptable and in the long term beneficial to all its stakeholders.
Annual Report 2015
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