ANNUAL%20REPORT%202015%20eng

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Management Discussion and Analysis The Group has proposed to enter forbearance agreements with both the Lenders and the steering committee of the holders of the Senior Notes (the “Steering Committee”). The Group is in discussion with and intends to continue dialogue with the Lenders and the Steering Committee and their respective advisers. Also, until the issuance of the consolidated financial statements, the Group had not obtained corresponding waivers from BNP Paribas Singapore Branch and Industrial and Commercial Bank of China Limited in respect of the financial covenants breach of the BNP and ICBC Facility. As such, an event of default under the BNP and ICBC Facility has taken place. The Group has initiated discussions with the Lenders for revised terms of the debt facility. Given the material amount of the BNP and ICBC Facility and also existing Intercreditor Agreement between Lenders and the holders of the Senior Notes in relation to the shared securities and guarantees, the discussions to revise the BNP and ICBC Facility are undertaken in connection with the debt restructuring in respect of the Senior Notes. The Group continues discussion with the Lenders regarding waivers on breach of certain security coverage ratio and financial covenants under the BNP and ICBC Facility. Until the issuance of the consolidated financial statements, the Group has not received any notice from any of the Lenders demanding immediate repayment of any outstanding amount under the BNP and ICBC Facility or any holder of the Senior Notes or any other creditors. Employees As at 31 December 2015, the number of employees of the Group was 1,797 compared with 1,950 employees as at 31 December 2014. The Group’s employees are remunerated with reference to the individual performance, experience, qualification and the prevailing salary trends in the local market, which is subject to review from time to time. With reference to the Group’s financial and operational performance, employees may also enjoy other benefits such as discretionary bonus and Share Options pursuant to the Company’s Share Option Scheme. The Group believes that the foundation of its progress is to build employee capabilities. Hence, having a sound training and development mechanism is an important part of developing its employee capabilities. Employees have the opportunity to further develop their skills and competencies through ongoing training and development based on business needs of the Company and job specifications. Training and development programs shall be designed for the interest and welfare of the Company and employees. An employee who has completed his/her training is expected to put the knowledge into practice, and share the newly gained experience with co-workers. The immediate management shall be responsible for the support and supervision of the process. During the year ended 31 December 2015, the Company focused on internally sourced trainings rather than trainings provided by external parties. As at 31 December 2015, a total of 231 employees attended different professional trainings, out of which 96 employees attended mining heavy equipment operator training, 91 employees attended mine maintenance training and 44 employees attended professional development training. For the year ended 31 December 2015, the amount of staff costs was USD26.6 million, compared to USD31.7 million in 2014. Annual Report 2015 47
Management Discussion and Analysis NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS The Company has entered into the following continuing connected transactions (the “CCTs”) in the ordinary course of its business with certain of its connected persons. Set out below is a summary of the CCTs entered by the Company in compliance with the Rules Governing the Listing of Securities on the Stock Exchange (the “Listing Rules”) recorded for the year ended 31 December 2015 and are required to be disclosed in the annual report of the Company pursuant to Chapter 14A of the Listing Rules. (1) Power System Operation and Maintenance Agreement Principal Terms On 30 December 2014, Energy Resources LLC, an indirect wholly-owned subsidiary of the Company, entered into an agreement with MCS International LLC, a subsidiary of MCS Holding LLC, whereby MCS International LLC agreed to provide services including: (i) UHG Power Plant and electricity distribution facilities operation and maintenance; (ii) heating facilities operation and maintenance; (iii) diesel generators operation and maintenance; and (iv) supply of electricity and heating to end customers and contractors of the Group and billing for the consumption to the Group. The agreement is for a term of three years commencing from 1 January 2015 to 31 December 2017. Connected Person As at the date of this annual report, MCS International LLC is a wholly-owned subsidiary of MCS Holding LLC which directly owns a 57.76% shareholding interest in MCS Mining Group Limited, a controlling shareholder of the Company. As such, MCS International LLC is a connected person of the Company. Consideration The total consideration payable under this agreement, which equals to the sum of the annual caps for the three years ending 31 December 2017, is MNT86,332,146,634 (then equivalent to approximately USD45,815,832) payable on a monthly basis within 60 days upon receipt of valid invoice from MCS International LLC. The annual caps were determined on an arm’s length basis between the Group and MCS International LLC after taking into account (i) the negotiated fixed and variable charges; (ii) negotiated energy tariff; (iii) anticipated electricity production volume after considering production and business expansion; (iv) scheduled major overhauls of the power plant equipment; (v) VAT and other taxes; and (vi) contingencies that would be applicable and payable for the services of MCS International LLC under the agreement. Annual cap for this agreement is MNT26,877,569,129 (then equivalent to approximately USD14,263,727) for the year ended 31 December 2015. Transactions (excluding VAT) in the total amount of MNT16,196,949,494 (equivalent to approximately USD8,222,720) was made by the Group for the year ended 31 December 2015 under this agreement. 48 Annual Report 2015
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