ANNUAL%20REPORT%202015%20eng

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Directors’ Report During the year ended 31 December 2015, the total cost of revenue was USD165.6 million, compared to USD335.5 million in 2014. The cost of revenue of self-produced coal was reduced by 59.4% from USD326.6 million to USD132.7 million mainly as a result of lower sales volume. In effort to decrease operational costs, negotiation with mining and blasting contractors during the second half of 2015 has led to significant reductions in the forecasted cost of services going forward in respective contract extension periods. The contract revisions became effective in late 2015, during a period of reduced mining activity, and thus the positive impact resulting from these contract revisions on overall unit cost per bcm of material mined will be more pronounced from 2016 onward. For the year ended 31 December 2015, the basic loss per share and diluted loss per share was 2.03 cents, decreased by 65.9% compared to the basic loss per share and diluted loss per share of 5.95 cents for the year ended 31 December 2014. Environmental Policies and Performance We are committed to comply with Mongolian environmental laws, regulations and applicable international standards as part of our effort to minimize the adverse impact of our operations on the environment. Our integrated HSE MS helps achieve the targets set out in our HSE policy. These systems and processes provide our employees and contractors the necessary directions to practice safe work behaviours and make them accountable for the implementation of the HSE MS. Our environmental team continually upgrades the HSE MS and its accompanying elements and procedures and ensures that our activities in relevant fields comply with national legislations and international standards. The HSE MS has been developed to align with requirements under the international management system standards ISO 14001:2004 (Environmental management system standard) and OHSAS 18001:2007 (Occupational health and safety management system standard). We are required to comply with applicable national legislations including the Law on Environmental Protection (1995), Law on Environmental Impact Assessment (2012), Law on Natural Resources Use Fee (2012), Law on Water and Water Pollution Fee (2012), Law on Air (2012) and Law on Air Pollution Fee (2010), Law on Land (2002), Law on Soil Protection and Desertification Prevention (2012) and Law on Toxic and Hazardous Chemicals (2006). In line with these legislations, we submit an environmental management plan followed by an implementation report to the GoM on an annual basis. We get comprehensive inspections on environmental and occupational health activities by local, provincial and state inspection agencies on a regular basis and our compliance rate has been assessed to be satisfactory since the start of our mining operations. The details on our environmental management activities, compliance with relevant legislations and environmental impact mitigation measures can be found in the subsection headed “Health, Safety & Environment” set out in the Sustainability Report section on pages 58 to 69 of this annual report. Compliance with relevant Laws and Regulations Discussions on compliance with relevant laws and regulations which have a significant impact on the Group are set out in the subsection headed “OPERATING ENVIRONMENT - Legal Framework” under the Management Discussion and Analysis section on pages 19 to 21 of this annual report. Key Relationships with Stakeholders In relation to the Company’s key relationships with its employees, customers and suppliers, discussions on the Company’s policies on human resources management, community involvement and contribution in relation to environmental concerns and social responsibility are provided in Management Discussion and Analysis section on page 47 and the Sustainability Report section on pages 54 to 76 of this annual report. Annual Report 2015 89
Directors’ Report Risk Management, Key Risks and Uncertainties A description of possible risks and uncertainties that the Group may be facing is provided in the Management Discussion and Analysis section on pages 43 to 44 of this annual report. The Group’s management is responsible for establishing and maintaining an effective risk management system. The management team aims at efficient and effective operations, reliable financial reporting and compliance with regulations. The Group’s operations, financial condition and prospects may be affected by a number of risks and uncertainties. Key risks and uncertainties relating to our business and industry are categorized into (i) routine operational and technical risks; (ii) corporate risks; and (iii) external risks. Operational risks are risks arising within the organization, that are controllable and ought to be minimized with its consequences mitigated. Operational risks include, but not limited to, risks related to mining, processing, transportation activities; technical compliance risks; health, safety and environmental risks; project related risks; and procurement and contract management risks. The objective of our risk management is to avoid or minimize occurrence through a compliance based approach and active prevention by monitoring operational processes and guiding people’s behaviors and decisions toward desired norms. This is implemented via the establishment of standard operating procedures and internal controls, and extensive training of personnel. Corporate risks that arise within the organization mainly include legal compliance risks; financial compliance risks; financial risks such as liquidity, credit risks, financial planning and reporting risks; sales and trading related risks, such as customer, brand, reputation and supply chain risk; and public relations and communications risks. Our risk management’s objective is to reduce the likelihood and impact of such risks, through implementation of appropriate procedures and internal control processes that protect the Company from fraud, negligence, legal and other potential regulatory liabilities. Moreover, the management shall identify the major plausible risks inherent in the decision making process, and will endeavor to mitigate and manage those risks, with the subsequent continuous monitoring of the accepted risk exposures. External risks arising from events outside the Company and are beyond our influence and control, include, but not limited to, industry related risks; and macroeconomic risks, such as foreign currency exposure risks, inflation, economical shifts; political risks; natural disaster risks and others. These types of risks can be the most devastating should they occur and ought to be projected through risk assessment, stress testing and scenario planning tools. Corporate and external risks require distinct risk management processes that encourage the management to identify, openly discuss and find cost effective ways to reduce the likelihood of occurrence of such risk events and to mitigate the consequences should they occur. A notable achievement in 2015 is the stabilization of part of our taxation exposure. On 13 August 2015, the Stabilization Certificate was issued by the Investment Agency to ER. Consequently, ER now has four main taxes namely, corporate income tax, customs tax, VAT and royalty, stabilized for the period until 17 April 2033 in accordance with the Law on Investment. Furthermore, with the purpose of liquidity and balance sheet management in light of the current 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. 90 Annual Report 2015
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(Incorporated in the Cayman Islands
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Company Profile Mongolian Mining Co
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Corporate Information BOARD OF DIRE
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Management Discussion and Analysis
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