Fitch Ratings has assigned coal producer Mongolian Mining Corporation’s (MMC) proposed US dollar notes a ‘B’ rating with an expected Recovery Rating of ‘RR4′. The proposed notes will be issued by MMC and its wholly owned subsidiary Energy Resources LLC, and guaranteed by most of its operating subsidiaries.

The notes will constitute senior unsecured obligations of MMC as they represent its unsecured and unsubordinated obligations.

Net proceeds from this issuance will be used to fund a concurrent tender offer for liability management purposes and will be leverage neutral. We expect successful issuance of the notes to alleviate the company’s medium-term funding needs for its USD350 million 2024 notes redemption.

The new notes will be used to pay the tender price of any 2024 notes tendered in a concurrent tender and exchange offer. The tender offer has a maximum tender cap equal to the new notes issued.

MMC’s 2024 notes’ outstanding balance is USD350 million at 21 March 2023. The cash balance has increased to over USD200 million, from USD65 million at end-2022, based on Fitch’s Estimate, indicating strong cash generation in 1Q23. We expect around USD300 million EBITDA in the next 12 months.

MMC’s core coking-coal operation has normalised amid stabilisation in the border situation. The average daily throughput rose to over 900 trucks in March 2023, surpassing the pre-Covid level, from around 120 trucks in 1Q22. MMC ramped up processing volume to 3.1 million tonnes in 1Q23 from 0.9 million tonnes in 1H22. We expect the realised average selling prices (ASP) for washed hard coking coal to increase to over USD160/tonne in 2023, from the 2022 average of USD147/tonnes.

MMC is small by revenue compared with Fitch-rated coal miners globally. Hard coking coal accounted for over 95% of MMC’s total revenue in 2021. Its latest coal reserve statements show total marketable coal reserves of just under 400 million tonnes, or a reserve life of around 35 years.