Investing.com -- Moody’s Ratings has revised the outlook of Mongolian Mining Corporation (MMC) from stable to positive, while affirming the company’s B3 corporate family rating and the B3 senior unsecured rating of the senior notes issued by MMC and its subsidiary Energy Resources LLC.
The change in outlook reflects MMC’s strengthening ability to maintain stable operating cash flow and sufficient liquidity to cover all funding needs over the next 18 months. This is also due to MMC’s adherence to a prudent financial policy, characterized by low financial leverage and effective liquidity management, according to Daniel Zhou, a Moody’s Ratings Assistant Vice President and Analyst. Zhou further anticipates that MMC’s stable operations and prudent financial management will continue in the next 6-12 months.
MMC’s B3 CFR is supported by the company’s integrated coking coal operations with long reserve lives, competitive cost position, stable operations, low debt leverage, and adequate liquidity. However, MMC’s rating is limited by its small scale with high concentration, emerging market risks, and its exposure to carbon transition risks.
MMC is expected to maintain steady production and sales volume due to the continued downstream demand from Chinese steel producers. Despite declining coking coal prices lowering MMC’s earnings and cash flow, MMC’s long-term contracts with customers act as a buffer against the pricing volatility, and its competitive cost position further softens the impact.
As of December 2024, MMC’s cash balance was estimated to have declined from USD279 million as of June 2024, mainly due to the redemption of perpetual securities in October. Nonetheless, this is offset by the expectation that MMC will continue to generate stable operating cash flow of around USD460 million over the next 18 months.
MMC is expected to adhere to a conservative financial management strategy with minimal reliance on external debt raising, which is facilitated by its ability to generate free cash flow under a moderate scale of capital spending. This strategy helps MMC in maintaining a capital structure with manageable near-term debt repayment needs, positive for its liquidity, and low financial leverage.
Specifically, MMC’s adjusted debt/EBITDA is projected to remain low at around 1.0x or below for the next 12-18 months. MMC’s liquidity is deemed adequate, with its cash and operating cash flow sufficiently covering its projected capital spending of around USD285 million over the next 18 months and USD220 million senior notes maturing in September 2026, based on Moody’s estimates.
MMC’s rating also takes into account the company’s exposure to environmental and social risks arising from its coal mining operations. MMC’s governance risk assessment highlights its financial management that has led to historically high leverage. As a public company, MMC also offers regular and timely financial disclosures.
The ratings could be upgraded if MMC maintains adequate liquidity despite pricing volatilities, continues to demonstrate prudent financial management and maintain sound capital structure. While a downgrade of MMC’s ratings is unlikely due to the positive outlook, the outlook could be revised to stable if the company’s liquidity worsens due to a more challenging market environment or larger funding needs.
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