MMC - Interim Report - 2013 - Eng PDF

(Incorporated in the Cayman Islands with limited liability) Stock Code: 975
interim report 2013
Contents
Company profile Corporate information Group structure Financial highlights Management discussion and analysis Corporate social responsibility Disclosure of information Change of information of directors Share option scheme Independent review report Consolidated statement of comprehensive income unaudited Consolidated balance sheet unaudited Consolidated statement of changes in equity unaudited Condensed consolidated cash flow statement unaudited Notes to the unaudited interim financial report Glossary and technical terms Appendix I 2 3 5 6 10 38 42 46 47 49 50 51 52 53 54 79 84
Company Profile
Mongolian Mining Corporation (MMC or the Company and together with its subsidiaries, the Group) (Stock Code: 975) is the largest producer and exporter of high-quality hard coking coal (HCC) in Mongolia. MMC owns and operates an open-pit coking coal mine at the Ukhaa Khudag (UHG) deposit located within the Tavan Tolgoi coal formation, and the Baruun Naran (BN) coking coal deposit, both located in South Gobi, Mongolia.
Corporate Information
BOARD OF DIRECTORS
Executive Directors Odjargal Jambaljamts (Chairman) Battsengel Gotov (Chief Executive Officer) Non-Executive Directors Oyungerel Janchiv Batsaikhan Purev Od Jambaljamts Enkhtuvshin Gombo Independent Non-Executive Directors Ochirbat Punsalmaa Unenbat Jigjid Chan Tze Ching, Ignatius
COMPANY SECRETARY
Ng Sin Yee, Clare
INDEPENDENT AUDITOR
KPMG 8th Floor, Princes Building 10 Chater Road Central, Hong Kong
AUTHORIZED REPRESENTATIVES
Battsengel Gotov Ng Sin Yee, Clare
COMPLIANCE ADVISER
Anglo Chinese Corporate Finance, Limited 40th Floor, Two Exchange Square 8 Connaught Place Central, Hong Kong
REGISTERED OFFICE
Cricket Square, Hutchins Drive PO Box 2681 Grand Cayman, KY1-1111 Cayman Islands
LEGAL ADVISERS
Davis Polk & Wardwell 18th Floor, The Hong Kong Club Building 3A Chater Road, Hong Kong Economic & Legal Consultancy LLC Suite 1003, Central Tower Sukhbaatar District Ulaanbaatar 14200 Mongolia Conyers Dill & Pearman 2901, One Exchange Square 8 Connaught Place Central, Hong Kong
PRINCIPAL PLACE OF BUSINESS IN HONG KONG

Level 28, Three Pacific Place 1 Queens Road East Hong Kong
HEADQUARTERS AND PRINCIPAL PLACE OF BUSINESS IN MONGOLIA

16th Floor, Central Tower Sukhbaatar District Ulaanbaatar 14200 Mongolia
mongolian mining corporation
interim report 2013
Corporate Information
PRINCIPAL SHARE REGISTRAR AND TRANSFER OFFICE

Royal Bank of Canada Trust Company (Cayman) Limited 4th Floor, Royal Bank House 24 Shedden Road, George Town Grand Cayman KY1-1110 Cayman Islands
COMPANY WEBSITE
www.mmc.mn
STOCK CODE
975
HONG KONG SHARE REGISTRAR

Computershare Hong Kong Investor Services Limited Shops 1712-1716, 17th Floor Hopewell Centre 183 Queens Road East Wanchai, Hong Kong
PRINCIPAL BANKERS
EBRD European Bank for Reconstruction and Development, London, United Kingdom FMO Nederlandse Financierings-Maatschappij Voor Ontwikkelingslanden N.V. (Entrepreneurial Development Bank of Netherlands) DEG Deutsche Investitions-und Entwicklungsgesellschaft mbH (The German Investment and Development Company) The Standard Bank of South Africa Ltd. Citibank, N.A., Hong Kong Branch The Bank of East Asia, Limited, Hong Kong Standard Chartered Bank (Hong Kong) Limited Golomt Bank of Mongolia Khan Bank of Mongolia Trade and Development Bank of Mongolia
interim report 2013
Group Structure
100%
Mongolian Coal Corporation Limited
100%
Mongolian Coal Corporation S.a.r.l.

100%
Baruun Naran S.a.r.l.

100%
Energy Resources Corporation LLC

100%
Khangad Exploration LLC

100%
Energy Resources LLC

100%
Energy Resources Rail LLC
Transgobi LLC
Energy Resources Road LLC
Gobi Road LLC
Tavan Tolgoi Airport LLC
Energy Resources Mining LLC
Enrestechnology LLC
Ukhaa Khudag Water Supply LLC
United Power LLC
100%
100%
100%
100%
100%
100%
100%
100%
100%
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Financial Highlights
Six months ended 30 June 2013 (USD000) FINANCIAL Revenue Cost of revenue Gross profit Gross profit margin (Loss)/profit attributable to the equity shareholders of the Company Net (loss)/profit margin Basic (loss)/earnings per share (25,229) -10.2% -0.68 cents At 30 June 2013 (USD000) Total non-current assets Total current assets Total current liabilities Total non-current liabilities Net assets Equity attributable to equity shareholders of the Company 1,548,566 502,744 345,234 1,010,663 695,413 695,413 30,978 13.3% 0.84 cents At 31 December 2012 (USD000) 1,594,751 582,526 418,035 1,007,229 752,013 752,013 Change -2.9% -13.7% -17.4% 0.3% -7.5% -7.5% -181.4% -23.5 ppt -1.52 cents 247,849 219,546 28,303 11.4% 233,033 170,880 62,153 26.7% 6.4% 28.5% -54.5% -15.3 ppt 2012 (USD000) Change
Six months ended 30 June 2013 (USD000) Net cash generated from/(used in) operating activities Net cash generated from/(used in) investing activities Net cash (used in)/generated from financing activities 31,619 60,312 (112,540) At 30 June 2013 Debt to total asset Debt to Equity 45.6% 134.4% 2012 (USD000) (84,731) (346,059) 444,746 At 31 December 2012 46.3% 134.1% Change -0.7 ppt +0.3 ppt Change -137.3% -117.4% -125.3%
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Six months ended 30 June 2013 Debt to Earnings before Interest, tax, depreciation and amortization (EBITDA)1 Interest coverage ratio (EBITDA /Finance cost)
1
2012 4.9x 7.8x
Change 16.4x -7.2x
21.3x 0.6x
Six months ended 30 June 2013 OPERATIONAL Production volume (000 tonnes) Strip ratio Sales volume Sales volume (000 tonnes, washed HCC) Sales volume (000 tonnes, semi-soft coking coal (SSCC)) Sales volume (000 tonnes, washed thermal coal (middlings)) Sales volume (000 tonnes, raw coal/run-of-mine (ROM) coal) Estimated share in Mongolias total coal export Average selling price (ASP) per tonne (United States Dollar (USD), blended) ASP per tonne (USD, HCC) ASP per tonne (USD, SSCC) ASP per tonne (USD, middlings) ASP per tonne (USD, ROM coal)
1
2012 4,134 6.3 2,377 1,262 32 797 286 23.3% 98.1 138.7 83.8 37.6 88.9
Change 1.2% -0.4 ppt 31.8% 73.7% 6.3% -0.8% -59.8% +18.7 ppt -19.4% -28.8% -15.0% -12.5% -70.8%
4,182 5.9 3,132 2,192 34 791 115 42.0% 79.1 98.7 71.2 32.9
2
26.0
EBITDA is calculated by adding income tax, share of losses of associates, finance costs, depreciation and amortisation and allowance for doubtful debts and subtracting share of profits of associates, finance income from profit attributable to the equity shareholders of the Company on the last 12 months rolling basis as calculated under IFRS.
Raw coal sold in the first half of 2013 represents raw thermal coal which is a non-caking coal mainly used in power generation, and it differs from raw HCC reported in the first half of 2012.
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ROM coal production (million tonnes ( Mt))
Processed coal production (Mt)
5 4 3 2 1 0
4.1
4.2
6.0 4.5
3.7 2.1 0.6 1.6 2.4 1H 2013 Secondary product 1.3
3.7
4.2
3.0 1.5
0.4 1H 2012 BN Mine 1H 2013 UHG Mine
0.0
1H 2012 Primary product
Coal sales volume (Mt)
ASP of washed HCC (USD/tonne)
6.0 4.5 3.0 1.5 0.0 2.4 1.1 1.4 1.3 1H 2012 Washed coking coal 3.1 0.9 2.2 1H 2013 Other coal
160 120 80 40 0 138.7 98.7
1H 2012
1H 2013
Sales revenue (million USD)
EBITDA (million USD)
280 210 140 70 0 233.0 247.8
80 60 40 20 0 67.2 47.1
1H 2012
1H 2013
1H 2012
1H 2013
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Mining cost per ROM tonne (USD/tonne)
Processing cost per ROM tonne (USD/tonne)
20 15 10 5 0 18.0 18.6
8 6 4 2 0
7.2 2.3 4.5 2.1 2.4 1H 2012 Cash cost 1H 2013 Non-cash cost
4.9
1H 2012
1H 2013
Transportation cost per tonne (USD/tonne)
Total operating cash cost at Ganqimaodu (GM) (USD/tonne)1
24 18 12 6 0
21.6 9.0 17.6 9.4
80 60 40 78.2 72.1
12.6 8.2 1H 2012 Long haul 1H 2013 Short haul
20 0
1H 2012
1H 2013
Coal inventory (million USD)
Current ratio
80 60 40 20 0
(1)
2.0 1.5 72.2 59.1 1.0 0.5 0.0 1.4x 1.5x
31 Dec 2012
30 Jun 2013
31 Dec 2012
30 Jun 2013
Net washed HCC delivered cash cost at GM, includes mining, processing, handling, transportation, logistics, site administration, inventory losses, royalties and fees
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Manag ement Discussion and Analysis

The first half of 2013 was marked by the Groups continued effort in consistently implementing previously communicated development strategy aiming to establish a fully integrated coking coal mining, processing, transportation and marketing platform. Doing this enables the Group to produce and sell washed coal products under its own brand name, further strengthening its position as a reliable supplier of high quality coking coal products whilst expanding its end-user customer base. This provides crucial competitive advantage of heightened value during challenging market conditions faced globally within the coking coal industry. The Group has further solidified its position as the largest coal producer and exporter of washed coking coal in Mongolia. According to the data issued by the National Statistical Office (NSO) of Mongolia, the Group exported 3.2 Mt of coal products in the first half of 2013, representing around 42% volume share in the total coal exports of Mongolia.
INDUSTRY OVERVIEW
Chinese steel sector performance According to the World Steel Association (WSA), Chinas crude steel production reached 389 Mt in the first half of 2013, which represented 9% year-on-year increase compared to 356 Mt reported in the first half of 2012 (Figure 1). Figure 1. Chinas crude steel production monthly volumes (in Mt): 70 68 66 64 62 60 58 56 54 52 50
66 64 62 57 62 61
66 61
67 65 60
56
Jan
Feb 1H 2012
Mar
Apr 1H 2013
May
Jun
Source: WSA
According to the China Iron and Steel Association (CISA), for the first half of 2013, Chinas output of pig iron, crude steel and steel products each expanded to 357.5 Mt, 389.9 Mt and 517.0 Mt, up by 5.7%, 7.4% and 10.2% year on year, respectively. As a reflection of the overall economic situation and market conditions in the Groups principal market, Chinas major steel companies continued to report facing challenges, impacted by weak demand amid an economic slowdown. CISA members saw their sales revenues reach about Renminbi (RMB) 1.8 trillion, up by 0.9% year-on-year basis. The profits of CISA members hit RMB2.27 billion with an average profit margin of 0.1%, the lowest among all industries, and 35 out of 86 CISA members have reported losses during this period. At the end of June 2013, the prices of steel products fell by 6.5% compared with the beginning of this year, and down by 14.7% year-on-year basis.
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Management Discussion and Analysis

As China has been pushing forward economic reforms, the CISA warned that the oversupply in the steel sector will continue amid the countrys economic slowdown. Moreover, Chinese steelmakers are facing increased pressure from the liquidity crunch and growing funding costs as government authorities intensify the campaign against overcapacity in the sector. The State Council ordered financial institutions to stop providing new credit lines to industries mired in oversupply, including the steel sector. The Chinese government has pledged to stabilize growth whilst pressing economic reform and paying closer attention to the transition of the economic growth model. The Chinese government policy is leaning toward relying more on economic transformation and upgrading, while coordinating the efforts of stabilizing economic growth, promoting restructuring and advancing reforms. Chinese coking coal imports and Mongolian coking coal exports dynamics As reported by the NSO, Mongolian coal exports (including lignite) declined by 27% year-on-year basis to 7.5 Mt in the first half of 2013 from 10.3 Mt reported for the same period in 2012, as shown in the graph below (Figure 2). The Group was the only coal exporter in Mongolia to report year-on-year increase in volume, by 32% according to NSO data, while all other Mongolian exporters have seen substantial decline of 45% in aggregate. Figure 2. Mongolian coal export monthly volumes (in thousand tonnes):
3,000 2,500 2,000 1,500 1,000 500 0 Jan 671 1,284 1,018 501 1,712 1,660 1,932 1,562 2,065 1,325
2,904
1,152
Feb 1H 2012
Mar
Apr 1H 2013
May
Jun
Source: NSO
Coking coal trade dynamics in the first half of 2013 were largely impacted by continuing decline in seaborne coking coal prices amid global oversupply. Falling seaborne coking coal prices have driven up the appetite of Chinese coking coal consumers for seaborne coking coal, resulting in increased import volumes. This is particularly the case of steel mills located in coastal areas, who were able to take advantage of weaker seaborne prices for coking coal, as well as comparatively cheaper logistics. According to Chinese customs clearance statistics, China imported around 35.3 Mt of coking coal in the first half of 2013 compared to 27.6 Mt in the first half of 2012. As such, Chinese coking coal imports increased by 28% yearon-year basis compared to the corresponding period in 2012, whereas conversely, first half coking coal import volumes from Mongolia have fallen by 36% from last years 9.3 Mt to 6.0 Mt (Table 1).
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Table 1. Chinas coking coal import volumes by country of origin (in Mt): Six months ended 30 June 2013 Total Mongolia Australia Canada Russia United States Others 35.3 6.0 13.3 5.7 4.3 3.6 2.6 2012 27.6 9.3 6.7 3.5 2.5 3.0 2.7 Change % 28% (36)% 99% 60% 72% 20% (7)%
Source: China Coal Resource, China Customs
OPERATING ENVIRONMENT
Legal framework The first half of the year was marked by continuing efforts by Mongolian regulators to improve the investment climate by adjusting existing legal and regulatory frameworks underpinning the business environment in Mongolia. As such, a number of laws and regulations were proposed, adopted and/or amended, which may have implication on the legal framework of the Groups operations. The Government of Mongolia (the GoM ) submitted to the Parliament of Mongolia (the Parliament ) an Amendment to the Law on Regulation of Foreign Investment Business Entities Operating in Sectors of Strategic Importance (the Strategic Entity Foreign Investment Law). This amendment was adopted by the Parliament on 19 April 2013 and as a consequence the previous requirement for Parliamentary hearing and approval for investments exceeding the threshold set at Mongolian National Togrog (MNT)100 billion for foreign persons/entities was eliminated. In addition, as part of its move to streamline implementation of the Strategic Entity Foreign Investment Law, the GoM passed Resolution No.75 on 2 March 2013, containing detailed procedures for approval procedures required under this law. The procedures seek to showcase the integrity of the countrys investment policy by providing clear details on the GoMs approval, screening and decision-making process required for strategic investments that fall within the scope of this law. It was reported that the Parliament will discuss the proposal submitted by the GoM to terminate Strategic Entity Foreign Investment Law and Foreign Investment Law and adopt instead an all-encompassing Law on Investment, which aims to provide to all investors unified legal and regulatory framework, including tax stabilization and investment protection. On 7 June 2013, the Parliament approved the Law on Custom Taxes Exemption and the Law on Value Added Tax (VAT) Exemption. Both of these laws aim to provide financial relief for businesses engaged in coal, oil and oil shale-derived petroleum production. The new laws provide tax exemptions for imported technological equipment, spare parts and specific construction materials required for such production. The laws shall remain effective until 31 December 2018.
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Following an introductory meeting held jointly by the GoM and the working group of the Extractive Industry Transparency Initiative, the GoM is intending to submit a draft Law on Extractive Industry Transparency to the Parliament. The proposed law aims to increase the transparency with regard to financial contributions made by extractive industry to the government and government-linked entities. Also, the Parliament has started hearings of the draft resolution on the State Policy in Mineral Sector. While affirming the importance of mining sector in the broader national economy, the document sets out guiding principles and directions for the mining industry growth. On 2 November 2012, the Parliament approved the Law on Termination of the Laws on Ratification of Intergovernmental Conventions for Avoidance for Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and Capital made with Luxembourg, the Netherlands, the United Arab Emirates and Kuwait. These laws will trigger termination clauses of these Conventions which could have a potential impact on taxation applied for dividends paid by Mongolian registered entities to their respective holding companies in the above mentioned jurisdictions starting from 1 January 2014. However, Mongolia and Luxembourg have agreed to negotiate a new tax treaty on the avoidance on double taxation. The Deputy Prime Minister and Minister for Foreign Affairs and Immigration of Luxembourg, Mr. Jean Asselborn, paid an official visit to Mongolia on 30 July 2013 for bilateral meetings with Mongolias Deputy Prime Minister, Mr. Terbishdagva Dendev, and Minister of Foreign Affairs, Mr. Bold Luvsanvandan. During this meeting, Mr. Jean Asselborn called for a new agreement on avoidance of double taxation between Luxembourg and Mongolia to allow better access of investment funds and other financial services from Luxembourg to Mongolia. In this context, the Mongolian officials agreed to open negotiations upon adopting the new Law on Investment by the Parliament. In order to put in place a more precise documentation for water utilization within the mining industry, on 16 May 2013, the Minister of Environment and Green Development issued an Order on Metering System of Water Utilization. In addition, on 2 July 2013, the Citizens Representatives Khural (Council) of Umnugobi aimag (province), resolved to stop water utilization by the mining industry from 1 January 2016, with an aim to preserve the water resources for potable and pastoral purposes. Accordingly, issue of permits and licenses to conduct exploration and drilling of wells for the purpose of water utilization by the mining industry is restricted commencing from 1 August 2013. Political framework The main political event in Mongolia in first half of the year was the Presidential elections held on 26 June 2013. The Democratic Party (DP) nominee, incumbent President Mr. Elbegdorj Tsakhia, was re-elected, defeating both Mongolian Peoples Party nominee Mr. Bat-Erdene Badmaanyambuu and Mongolian Peoples Revolutionary Party nominee Ms. Udval Natsag. The winner Mr. Elbegdorj won 50.2% of the popular votes, while candidate Mr. Bat-Erdene and Ms. Udval received 41.9% and 6.5% of the popular votes, respectively. Mr. Elbegdorjs re-election reaffirmed current dominance of the DP in Mongolian politics, with DP nominees taking the positions including President, Parliament Speaker and PrimeMinister.
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BUSINESS OVERVIEW
Coal resources and exploration activities Ukhaa Khudag (UHG) deposit
UHG coking coal mine
The Mining License MV-11952 (UHG Mining License) covering the UHG deposit has an area of approximately 2,960 hectares. Over the last four years (2009-2012), the Groups geological team has conducted extensive exploration activities at the UHG deposit. Approximately 166,385 metres of drilling was carried out during this period of exploration with 1,435 boreholes completed and geophysical logged. The laboratory test work was also carried out on a total 32,556 analytical coal samples collected. The Group collaborated with Velseis Processing Pty Ltd to interpret data collected from 71 km of high resolution 2D seismic in-field measurement program, which was carried out by Polaris Seismic International Ltd and used to identify coal seams continuity and structure, as well as to obtain new, valuable information on the potential of the deposits underground resources. Finally, a large-diameter, bulk-sample drilling program has been completed on the Seam 0 plies, and the samples gathered have been analyzed by ALS Laboratories in Mongolia for washability and metallurgical testing. The exploration data from the exploration activities was used to update the geological and coal quality model, and subsequently the UHG Mining License area JORC Coal Resource estimate as at 30 June 2012, based on an in situ density at an air-dry basis (Table 2). An independent peer audit was conducted by Mr. Todd Sercombe from GasCoal Pty Ltd which confirmed the compliance of the Groups work carried out to update the UHG geological model, thus JORC Coal Resource estimates for UHG Mining License area.
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Table 2. UHG Mining License area Coal Resource by depth and category as at 30 June 2012 (Note): Total Coal Resource Depth limit from topographic surface Subcrop to 100m From 100m to 200m From 200m to 300m From 300m to 400m Below 400m Sub-Total above 300m Sub-Total below 300m Total
Notes: (i) Technical information in the UHG coal resource estimation report has been compiled by Mr. Gary Ballantine, Executive General Manager for Exploration and Geology, Mongolian Mining Corporation. Mr. Ballantine is a member of the Australasian Institute of Mining and Metallurgy (Member #109105) and has over 23 years of experience relevant to the style and type of coal deposit under consideration and to the activity which is being undertaken to qualify as a Competent Person as defined by the Australasian Code for Reporting of Exploration Results, Minerals Resources and Ore Reserves, The JORC Code (2004 Edition). Mr. Ballantine consents to the inclusion in the release of the matters based on this technical information in the form and context in which it appears. The estimates of the Coal Resource presented in this report are considered to be a true reflection of the UHG coal resource as at 30 June 2012 and have been carried out in accordance with the principles and guidelines of the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves, The JORC Code (2004 Edition). (ii) Due to rounding, discrepancy may exist between sub-totals and totals.
Resource Category (Mt) Measured 114 94 80 50 42 288 92 379 Indicated 55 55 51 33 34 162 68 229 Inferred 26 26 17 11 12 69 24 92 Total (M+I) Total (M+I+I) 170 149 131 83 77 449 159 608 196 175 148 94 88 519 183 701
Baruun Naran (BN) deposit The Groups geological team completed an exploration program in 2011-2012 under exploration license 4326X covering Tsaihkar Khudag (THG) area. Approximately 10,092 metres of drilling was carried out during this period of exploration with 34 boreholes completed and geophysical logged. The laboratory test work was also carried out on a total 3,804 analytical coal samples collected. As a result, an application was submitted to the Mineral Resources Authority of Mongolia and Mining License MV017336 (THG Mining License) with 8,340 hectares area was granted to the Group on 24 June 2013 in addition to the existing Mining License 14493A (BN Mining License) with 4,482 hectares area, both covering Baruun Naran coking coal deposit area (BN Deposit), located in Khankhongor soum (county) of Umnugobi aimag (province).
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McElroy Bryan Geological Services Pty Ltd was commissioned to update the BN Mining License area JORC Coal Resources as at 30 June 2012. This was estimated to be 282 Mt of JORC Measured, Indicated and Inferred Coal Resources, based on an in situ density at an assumed 6% moisture content (Table 3). Table 3. BN Mining License area Coal Resource by depth and category as at 30 June 2012 (Note): Total Coal Resource Depth limit from topographic surface Subcrop to 100m From 100m to 200m From 200m to 300m From 300m to 400m Below 400m Sub-Total above 300m Sub-Total below 300m Total Measured 45 66 58 40 168 40 207 Indicated 9 15 19 30 43 30 73 Inferred 1 1 1 Total (M+I) Total (M+I+I) 54 81 77 70 212 70 281 54 81 77 70 212 70 282 Resource Category (Mt)
In addition, based on exploration results obtained from a drilling project completed during 2012, McElroy Bryan Geological Services Pty Ltd provided a JORC resources statement for the THG Mining License area as at 30 April 2013. The THG Mining License area was estimated to contain 55 Mt of Inferred Coal Resources, based on an in situ density at an assumed 6% moisture content (Table 4). Table 4. THG Mining License area JORC Coal Resource by depth and category as at 30 April 2013, (Note): Total Coal Resource Depth limit from topographic surface Subcrop to 100m From 100m to 200m From 200m to 300m From 300m to 400m Below 400m Sub-Total above 300m Sub-Total below 300m Total Measured Indicated Inferred 13 20 15 7 48 7 55 Total (M+I) Total (M+I+I) 13 20 15 7 48 7 55 Resource Category (Mt)
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Notes: (i) Technical information in the BN and THG Coal Resource estimation reports has been compiled by Mr. Paul Harrison, Senior Geologist, McElroy Bryan Geological Services Pty. Ltd. Mr. Harrison is a member of the Australasian Institute of Mining and Metallurgy (Member #110251) and has over 25 years of experience relevant to the style and type of coal deposit under consideration and to the activity which is being undertaken to qualify as a Competent Person as defined by the Australasian Code for Reporting of Exploration Results, Minerals Resources and Ore Reserves, The JORC Code (2004 Edition). Mr. Harrison consents to the inclusion in the release of the matters based on this technical information in the form and context in which it appears. The estimates of the Coal Resource presented in these reports are considered to be a true reflection of the BN Coal Resource as at 30 June 2012 and THG Coal Resource as at 30 April 2013; and have been carried out in accordance with the principles and guidelines of the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves, The JORC Code (2004 Edition). (ii) Due to rounding, discrepancy may exist between sub-totals and totals.
Open-cut coal reserves RungePincockMinarco Limited (RPM) was commissioned in late 2012 to update the Groups long-term mining schedules at UHG and BN by preparing an integrated life-of-mine (LOM) mining study and hence the preparation of updated JORC Coal Reserve estimations for the UHG and BN deposits. From an integrated reserve perspective, the total pro-forma combined ROM Coal Reserve under the Groups control has increased from 460 Mt as at 31 December 2011 to 480 Mt as at 31 December 2012, representing an increase of 20 Mt, excluding the depletion of reserves as consequence of mining ROM coal at the UHG and BN mines in 2012. Importantly, within ROM Coal Reserve quantity, the overall coking coal component has increased by 63 Mt, including mining depletion during 2012, with thermal coal reserve component decreasing correspondingly by 33 Mt. The Coal Reserve estimates have been based on the open cut, multi seam, truck and excavator mining methods currently used at the UHG and BN mines, with both ex-pit and/or in-pit dumping of waste as each pit schedule allowed. The categorization of seams by coking or thermal coal product was provided by Mr. John Trygstad from Norwest Corporation (Norwest) as part of the integrated LOM study completed by RPM. Through the application of estimated mining and metallurgical factors, the mineable in situ coal within the pit shell was converted to ROM and product coal quantities. Whittle pit optimization software was used to generate a series of nested pit shells corresponding to varying revenue factors, simulating a range of coal selling prices. This three dimensional approach provides a series of pit shells where each increment reflects different economic scenarios such as changes to depth, mining cost or coal price. From this, the mine schedules were able to be sequenced effectively to maximize value derived from open-pit mining operations. The practical pit designs including ramp accesses to coal were then created within the selected optimized pit shells, representative of the stated revenue assumptions with the study. The pit optimization algorithms used were limited to a vertical depth of 300 metres for the UHG deposit and 350 metres for the BN deposit, based upon current geotechnical knowledge regarding slope stability criteria of each deposit.
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The open-cut ROM Coal Reserve estimations for the UHG coal deposit were estimated as at 31 December 2012, based on an as received basis with 5% total moisture (Table 5). Table 5. UHG ROM Coal Reserve (Note): ROM Coal Reserve Coal Type Coking Thermal Total Reserve Category (Mt) Proved 155 64 218 Probable 81 16 97 Total 236 80 315
The UHG ROM Coal Reserve as previously reported by Norwest was estimated 275 Mt as at 31 December 2011. The reserves reported by RPM are estimated at 315 Mt as at 31 December 2012. Compared to previously reported reserves, including 9 Mt attributable to the coal mining depletion during the period between 31 December 2011 and 31 December 2012, an additional 49 Mt from coal resources identified on 30 June 2012 resource estimate were also determined as economically open-pit mineable. The open-cut ROM Coal Reserve for the BN coal deposit was estimated as at 31 December 2012, based on an as received basis with 6% total moisture (Table 6). The BN ROM Coal Reserve as previously reported by SRK Consulting (Australasia) Pty Ltd (SRK) was estimated at 185 Mt as at 31 March 2011. As an outcome of independent technical studies, it was confirmed that the final total reserve was approximately 189 Mt applying the same reserve calculation parameters, as it was defined and stipulated in the relevant Share Purchase Agreement. After the Acquisition in June 2011, the Group has begun to conduct its own studies and analyses for the future development of the BN mine in synergy with the UHG mining schedule. As such the Group has guided RPM to re-estimate the BN ROM Coal Reserve using modified reserve calculation parameters, including mine design, scheduling and cost estimation parameters based on the Groups actual operating experience at UHG mine. Also as part of this re-estimation, the BN coal quality was reviewed on the basis of integrating BN and UHG coal mining, blending and processing operations. Table 6. BN ROM Coal Reserve (Note): ROM Coal Reserve Coal Type Coking Thermal Total Reserve Category (Mt) Proved 118 23 141 Probable 22 2 24 Total 140 25 165
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The Coal Reserve estimate reported by RPM was 165 Mt as at 31 December 2012, and this estimate does not include any coal from the THG Mining License area, as estimated Coal Resource within this mining license area is only defined to inferred category at this stage. There is around 1 Mt attributable to the coal mining depletion during the period between 31 March 2011 and 31 December 2012, the resulting difference between the SRK and RPM estimations is an overall decrease of 19 Mt of BN ROM Coal Reserves, driven by changes to modified reserve calculation parameters. However, using this integrated mining, blending and processing approach, the estimated coking coal component of the reserve at BN has increased by 19 Mt, whilst quantity of thermal coal has decreased. As a result, the proportion of a coking coal in total BN ROM Coal Reserve has increased to almost 85%. Moreover, RPM has developed an integrated LOM mining study inclusive of complementary coal mining, blending and processing schedules for the UHG and BN mines, demonstrating the potential to conduct sustainable operations with up to 15.8 Mt per annum combined ROM coking coal output from the Groups UHG and BN mines for the period between 2013 and 2040, for mine life of 28 years. Also the thermal coal production volumes from the UHG and BN mines have been scheduled ramp up in 2016 to match expected construction completion for UHG-GS railway project.
Notes: (i) The estimate of Coal Reserve presented above has been carried out in accordance with the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (December, 2012 Edition). Technical information in the UHG and BN Coal Reserve estimation reports has been compiled by Mr. Greg Eisenmenger, who is a Member of the Australasian Institute of Mining and Metallurgy. He is a full time employee of RPM and has extensive experience in the mining industry, working for over 30 years with major mining companies, mining contractors and consultants. During this time, he has either managed or contributed significantly to numerous mining studies related to the estimation, assessment, evaluation and economic extraction of coal in Australia, New Zealand, Indonesia, Mozambique and Mongolia. He has sufficient experience which is relevant to the style of mineralization and type of deposit under consideration and to the activity he is undertaking to qualify him as a Competent Person as defined in the 2012 Edition of the JORC Code. Mr. Eisenmenger consents to the inclusion in the release of the matters based on this technical information in the form and context in which it appears. (ii) Due to rounding, discrepancy may exist between sub-totals and totals.
Production and transportation Coal mining and processing Coal mining During the first half of 2013, the Group has focused on minimizing actual cash costs and operational cash outflows. Consequently, management has continued the efforts to combine and streamline the operational activities related to site-based operations. The mining operations at UHG and BN mines were integrated under unified management, including mining, maintenance and technical services, as well as functional operational support such as administration, safety and environment. Total ROM coal production in the first half of 2013 was 4.2 Mt with actual stripping ratio 5.9 bank cubic metre (BCM)/tonne compared to 4.1 Mt with actual stripping ratio 6.3 bcm/tonne in the corresponding period in 2012 (Figure 3).
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Figure 3. The Groups historical semi-annual ROM coal production volumes (in thousand tonnes) and actual stripping ratio (in BCM per ROM coal tonne):
10000 10,000 9000 9,000 8000 8,000 7000 7,000 6000 6,000 5000 5,000 4000 4,000 3000 3,000 2000 2,000 1000 1,000 380 1,461 1,490 2,442 2,504 3.9 3.3 4,574 4,134 5.3 4.9 6.3 6.3 5.1 4.6 5,286 4,182 7.0 6.0 5.0 4.0 3.0 2.0 1.0 -
5.9
1H 2009
2H 2009
1H 2010
2H 2010
1H 2011
2H 2011
1H 2012
2H 2012
1H 2013
ROM coal (000 tonnes)
Stripping ratio (bcm/tonne)
The mining operations at the BN mine were temporarily reduced in the first half of the year, and the mining equipment and personnel from the BN mine were relocated to work at the UHG mine allowing demobilization of all rental equipment in use at the UHG mine. Additional synergies were realized immediately with reduced overhead staffing, as well as postponement of mining operations and maintenance staff hiring and training. These changes were made whilst being able to maintain previously forecast ROM coal production. The coal mining operation at the BN mine is scheduled to increase in the second half of the year, in an integrated approach with regard to planning, management and staffing, leveraging on the support base of the UHG mine with indirect staffing levels reduced as a consequence. Coal processing During the first half of 2013, the Group has processed 5.1 Mt of ROM coal, representing 70.0% and 15.9% increase in ROM coal feed volumes compared to the first half and the second half of 2012, respectively. This increase was primarily due to improved Coal Handling and Preparation Plant ( C H P P ) a v a i l a b i l i t y, w h i c h i s a notable achievement, considering that
CHPP with 3 modules completed
as effective from 1 January 2013, the Operational Management Contract with
Sedgman LLC was ended, and the Group has taken responsibility for direct management of all matters related to its CHPP operations.
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At the end of 2012, significant quantity of ROM coal inventories had accumulated on stockpiles, with a large portion of this coal being not of suitable qualities for standalone washing to produce coal products meeting customer requirements. As part of the efforts to reduce operational cash outflows, ROM coal mining volumes were adjusted while more ROM coal from existing inventories were directed to secure uninterrupted coal feed to CHPP for processing and further transportation and export sales. After detailed analysis of stockpiled ROM coal qualities, a controlled proportion of this lower grade ROM coal was blended to in-feed ROM coal while maintaining washed coking coal product specifications meeting contractual requirements. Certain reduction in primary product yield was expected, however this was offset by a reduction in the coal required to be uncovered and mined, as such reducing total operational cash outflow required to sustain continuous ROM coal feed to the CHPP in the first half of the year. In the first half of 2013, the total product yield was 72% and primary product yield was down to 46%, with the difference accounting for the increased in secondary product yield (Figure 4). However, the primary product yield is expected to return to normal levels above 50% in the second half of the year, with the majority of the lower grade ROM coal from stockpiles already processed, and typical higher grade ROM coal will be supplied from the mining operations as a feed coal for CHPP. Figure 4. The Groups historical semi-annual total and primary processed coal production volumes (in thousand tonnes):
4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 132 90 1H 2011 2H 2011 Primary Product ('000 tonnes) 1H 2012 2H 2012 1H 2013 2,354 1,530 1,545 2,353 1,852 2,104 3,435
3,653
Total Product ('000 tonnes)
The third module of the CHPP at the UHG mine was successfully commissioned by relevant authorities on 13 June 2013 for coal processing operations, and full production capacity is expected to be available from the second half of 2013. The third module of the CHPP has the capacity to process around 5.0 Mt of ROM coal per annum based on the design capacity feed rate of 850 tonnes of ROM coal per hour and minimum 6,000 operating hours per calendar year. Thus, the third module of the CHPP will enable the Company to boost its coal handling and processing capacity to at least 15.0 Mt per annum.
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Transportation and logistics In the first half of the year, the Group continued to focus on maximizing the utilization of its transport and logistics assets and infrastructure. The Group maintained sufficient handling and transportation capacity to move all coal products from the UHG and BN mines to the GM border port in China through the UHG-GS paved road and via custom bonded stockpile facility at Tsagaan Khad (TKH) on the Mongolian side of the border. The Groups strategy was to maximize
Coal hauling by double trailer trucks
the utilization of its own double trailer truck fleet for coal transportation on the
long-haul section between UHG and TKH, and maintain third party contractor fleet for its cross-border transportation on the short-haul section between TKH and GM. As a result, the Groups own fleet has transported virtually all of the 3.5 Mt of coal products moved in the first half of 2013 on the long-haul section between UHG and TKH. Furthermore, in the same period the Group was able to achieve almost 67% increase in double trailer truck fleet utilization by increasing the monthly average to 20 roundtrips per truck in this particular sector, compared to monthly average of 12 roundtrips per truck in the corresponding period in the previous year. UHG-GS Railway During the reporting period, the Group has negotiated with the GoM per Resolution 121 of the GoM, dated 3 November 2012, which is in relation to the consolidation of various railway projects in Mongolia into a unified railway project (the Project) to be managed and implemented under government authority. In this matter, the GoM was represented by the Ministry of Road and Transportation, State Property Committee and Mongolian Railway (MTZ) a state owned enterprise appointed by the GoM to execute the Project. In these negotiations, the Group was successful in reaching an understanding with regard to conditions of settlement, which are outlined in an agreement (the Agreement) signed and executed on 6 May 2013. Pursuant to the Agreement, the Parties agreed upon the terms and conditions according to which the Concession Agreement, entered by and between the GoM and the Group dated on 31 May 2012, is terminated. The major terms under the Agreement are as follows: The compensation amount for all the costs incurred by the Group in relation to the construction of the UHGGS Railway is confirmed and agreed to be MNT84,330,024,111 or about USD58.3 million based on the Bank of Mongolia official exchange rate as at 30 June 2013;
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The Parties will enter into negotiation regarding potential investment in the Project. Depending on the outcome of the negotiation, the above compensation amount could be converted into equity of a special purpose enterprise to be established by the GoM to implement the Project and/or reimbursed; The Group will be granted an access to 50% of the capacity of the UHG-GS Railway; and The existing contracts and obligations for the construction of the UHG-GS Railway will be reassigned to MTZ and/or its designated entity. The reimbursement amount is to be further decreased to MNT83,825,730,412 (equivalent to USD58.0 million based on the Bank of Mongolia official exchange rate as at 30 June 2013), as a result of: a. exclusion of withholding tax calculation amounting to MNT49,108,109 accrued to a contractor, due to the reason that the contractor is to receive the payment under the name of its Mongolian subsidiary; b. exclusion of assets kept by the Group with net book value of MNT455,185,590.
Following execution of the Agreement, the Group has entered into additional discussion and negotiation with the GoM on potential investment into the Project in which the Group has an option to convert its compensation amount into equity of the special purpose enterprise where the GoM invites potential international and domestic investors. In the meantime, related project documents and contracts along with some project personnel have been transferred from the Group to MTZ and its contractors. Occupational health and safety The Groups commitment to develop and implement world class occupational health and safety policies, plans and procedures continued in the first half of 2013. The Group has conducted 4,424 individual training sessions (a total of 17,592 manhours recorded) with its employees, contractors and visitors. During the reporting period, over 3.77 million man-hours of work were recorded across the Group operations, with only 3 Lost Time Injuries recorded in the period. The resultant Lost Time Injury Frequency Rate (LTIFR) of 1.06 compares favorably to industry statistics publicly reported in major coal producing jurisdictions such as Queensland and New South Wales, where both recorded LTIFR figures of greater than 2.86 for the most recent annual reporting periods released with regard to surface coal mining operations.
Company HSE team conducting dust monitoring at UHG mine-site
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Under the dry climatic conditions in the Southgobi desert, the dust generation is the most visible environmental impact on the Groups operations. The dust levels monitoring is conducted routinely at the UHG and BN mines and surrounding areas for both occupational health and environmental compliance matters. All monitoring results obtained during the first half of 2013 indicate that, as previously, operations are in compliance with the relevant Mongolian national standards. However, this does not stop the Groups pro-active work with regard to further minimizing dust generation. Marketing and sales As part of the Groups strategic objective to supply quality products to end-users, the Group continued to strengthen existing relations with its customers in China as well as initiate relations with new customers in order to further diversify its revenue sources. Additionally, the Group is actively looking at strategic long-term partnerships to expand its network and presence in China. The Group sold 3.1 Mt of coal products in the first half of 2013, representing an increase of around 31.8% over the 2.4 Mt of coal products sold in the corresponding period of the previous year. As the Group shifted towards washed coal production and sales, in the first half of 2013, the Group exported a total 2.2 Mt of washed coking coal products, representing around 72.1% increase compared to 1.3 Mt reported for the first half of 2012. According to data issued by NSO, the Group coal exports represented around 42% of total Mongolian coal exports in the first half of the year, compared to the Groups share of total Mongolian coal exports of 27% reported for the full year of the 2012. Moreover, compared to the total Chinese coking coal imports of around 35.3 Mt in the first half of 2013, it is estimated that the Group has supplied more than 6.3% of the total Chinese coking coal imports. Business outlook The recovery of the demand for coking coal in China and globally will remain highly uncertain in the second half of 2013. Although a stronger than expected rebound in Chinas exports in July signaled that the worlds second largest economy may be stabilizing after a slowdown in the first half of the year, that has prompted the government to support activity ensuring delivery of its official 7.5% growth target for 2013. Chinas steel purchasing managers index, a key lead indicator (calculated as a new orders less inventories), surged to a 40-month high of 52.5 in July up from 46.8 in May. This has occurred in parallel with the construction steel market experiencing strong destocking according to the published reports. The Group aims to further optimize its allocation of resources and through the synergy brought by the integration of mining, processing, logistics and transportation operations, the Group will strive to expand its business scale and improve its margins in efforts to return to profitability. The Group will continue to monitor and assess the market situation and to prioritize the focus on cost control, operational efficiency and productivity, expanding its market share, as such continue to enhance the Groups core competitiveness and strive to accomplish its production targets for the year.
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FINANCIAL REVIEW
Revenue The Group recorded a total revenue of USD247.8 million for the six months ended 30 June 2013, representing an increase of 6.4% as compared with USD233.0 million for the six months ended 30 June 2012. The revenue of USD216.4 million was generated from washed HCC sales, representing 87.3% of the total revenue for the six months ended 30 June 2013 (first half of 2012: USD175.0 million and 75.1%, respectively), and the remaining portion was from the sales of middlings, washed SSCC and small portion of raw thermal coal, which is a non-caking coal mainly used for power generation. For the sales of HCC, the Group successfully shifted to completely washed coal product base. The increase in the total revenue was mainly attributable to increase in sales volume, and the Groups sales volume for the six months ended 30 June 2013 reached approximately 3.1 Mt of coal products, representing an increase of around 0.7 Mt or 31.8% compared to 2.4 Mt of coal products sold for the six months ended 30 June 2012 (Table 7). The most significant sales volume growth at around 72.1% was achieved for washed coking coal products. For the six months ended 30 June 2013, the group exported approximately 2.2 Mt of washed HCC and 0.03 Mt of SSCC (first half of 2012: 1.3 Mt and 0.03 Mt, respectively). In addition, the Group exported its high calorific value thermal coal produced as a by-product of washing raw coal, and sold to its customers in China around 0.8 Mt of middlings for the six months ended 30 June 2013 (first half of 2012: 0.8 Mt); raw coal sales volume was approximately 0.1 Mt for the six months ended 30 June 2013 (first half of 2012: 0.3 Mt). Table 7. Sales volume, revenue and ASP: Six months ended 30 June 2013 2012 Sales volume (000 tonnes) Washed HCC Washed SSCC Middlings Raw coal (Note) Revenue (000 USD) Washed HCC Washed SSCC Middlings Raw coal (Note) ASP (USD/tonne) Washed HCC Washed SSCC Middlings Raw coal (Note) 3,131.6 2,191.7 34.4 790.8 114.7 247,849 216,387 2,452 26,025 2,985 79.1 98.7 71.2 32.9 26.0 2,376.6 1,261.9 31.7 796.9 286.1 233,033 174,984 2,658 29,965 25,426 98.1 138.7 83.8 37.6 88.9
Change 31.8% 73.7% 8.5% -0.8% -59.9% 6.4% 23.7% -7.8% -13.1% -88.3% -19.3% -28.8% -15.0% -12.5% -70.7%
Note: Raw coal sold in the first half of 2013, represents raw thermal coal, which is a non-caking coal mainly used in power generation, and it differs from raw HCC reported in the first half of 2012.
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During the period under review, the Groups pricing followed the negative trend apparent for all coking coal products in the global market. As a result, the ASP for the Groups washed HCC was approximately USD98.7 per tonne for the six months ended 30 June 2013, which is around 28.8% lower compared to USD138.7 per tonne in first half of 2012. For the six months ended 30 June 2013, the Group derived more than 10.0% of its revenue from four customers, with the purchase amounts of approximately USD77.5 million, USD47.4 million, USD42.2 million and USD41.1 million, respectively. In the first half of 2012, the Group derived more than 10.0% of its revenue from three customers, with the purchase amounts of approximately USD73.1 million, USD71.5 million and USD27.1 million, respectively. Cost of Revenue The Groups cost of revenue consists primarily of mining costs, processing and handling costs, transportation and logistics costs, and costs related to site administration, stockpile and transportation loss, and governmental royalties and fees. The increase in the Groups mining, processing, transportation and sales volumes resulted in increased cost of revenue from USD170.9 million in the first half of 2012 to approximately USD219.5 million in the first half of 2013. The mining cost consists of costs associated with overburden and topsoil removal and ROM coal extraction, including the costs related to mining staff and equipment together with base and performance fees paid to the mining contractor, drill and blasting contractor fees, and costs paid to fuel suppliers. For the six months ended 30 June 2013, the Groups mining costs were approximately USD91.9 million (first half of 2012: USD51.8 million). Mining unit cost was USD18.6 per ROM tonne for the six months ended 30 June 2013, compared to USD18.0 in the first half of 2012. For calculation of mining costs, new accounting standard IFRIC 20 was adopted effective from 1 January 2013, for accounting of the stripping activity in the production phase of a surface mine. IFRIC 20 requires that the costs of stripping activity which provides a benefit in the form of improved access to ore is recognized as a non-current stripping activity asset where the following criteria are met: i) it is probable that the future economic benefit (improved access to the ore body) associated with the stripping activity will flow to the entity; ii) iii) the entity can identify the component of the ore body for which access has been improved; and the costs relating to the stripping activity associated with that component can be measured reliably.
Therefore, with the adoption of IFRIC 20, the Group identified components of the mine in accordance with the mine plan, and started accounting mining unit costs based on the strip ratio applicable to each component of the mine. Average accounting strip ratio for components mined during the six months ended 30 June 2013 was 2.94 BCM per tonne, whereas prior to the adoption of IFRIC 20, average accounting strip ratio was 3.18 BCM per tonne.
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The mining cost is not only recorded in the income statement, but also the costs of pre-stripped overburden, which is associated with the coal to be mined, processed, transported and sold in the future, in excess of the average strip ratio, which is capitalized in the balance sheet as mining structure. The processing cost primarily includes the costs associated with the operations of CHPP including power and water costs. During the period of six months ended 30 June 2013, the Groups processing cost was approximately USD21.8 million (first half of 2012: USD18.6 million), and of which approximately USD10.2 million is related to the depreciation and amortization of the CHPP, USD3.4 million incurred in the UHG Power Plant for the power generation and distribution, and USD1.3 million incurred in the UHG Water Supply Facility for the water extraction and distribution related to the washed coal sold during the period. Unit processing cost calculated per ROM coal in-feed tonne decreased by USD2.7 or 37.5% from USD7.2 per ROM tonne in the first half of 2012 to USD4.5 per ROM tonne in the first half of 2013. The decrease was achieved due to the economy of scales and shift to owner operation of CHPP by eliminating the operation management previously performed by contractor (Table 8). Table 8. Total processing cost and unit processing cost per ROM coal tonne: Six months ended 30 June 2013 USD000 Total processing costs Consumables Maintenance and spares Power Water Staff Contractor fee Ancillary and support Depreciation and amortization 21,823 1,831 1,158 3,440 1,333 2,339 1,495 10,227 2012 USD000 18,594 1,232 942 3,774 1,128 1,188 2,976 1,430 5,924 2013 USD/ROM tonne 4.5 0.4 0.2 0.7 0.3 0.5 0.3 2.1 2012 USD/ROM tonne 7.2 0.5 0.4 1.4 0.4 0.5 1.1 0.6 2.3
The handling cost is related to feeding ROM coal from ROM coal stockpiles to the CHPP and also the removal of course reject (primarily rock and sediment separated from coal) after coal processing. During the period of six months ended 30 June 2013, the Groups handling cost was approximately USD7.2 million (first half of 2012: USD2.5 million). Unit handling cost increased by USD1.2 or 109.1% from USD1.1 per tonne in the first half of 2012 to USD2.3 per tonne in the first half of 2013. The management has been taking actions to reduce the overall stockpile volume and to improve the operating cash flows and to minimize payments by reducing mining volume in certain periods, hence higher volume of ROM coal stockpiles brought forward from last year was blended in processing with substitution of freshly mined ROM coal for producing washed coal products, and the Group was able to generate cash inflows by selling higher volume of washed coal products. Therefore, re-handling of stockpiled coal resulted in an increase of the handling costs during the period.
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Transportation costs include costs related to the transportation of ROM coal from the BN mine to the CHPP located at the UHG mine, the transportation of coal products from UHG to TKH, and the transportation of coal products to the selling point destinations as stipulated under sales contracts, including fees paid to third party transportation contractors. During the period of six months ended 30 June 2013, the Groups transportation costs were USD55.2 million (first half of 2012: USD59.2 million), of which USD0.1 million was related to the transportation of ROM coal from BN mine to CHPP, USD25.6 million was related to long-haul (UHG-TKH) transportation; USD29.5 million to short-haul (TKH-GM) cross-border transportation for coal products sold to China-based customers under delivery at place GM terms, which includes costs of transportation and logistics associated with the direct delivery of products from UHG to GM. The Group successfully decreased its overall transportation costs in the UHG-GM section by USD4.0 per tonne or 18.5% from USD21.6 per tonne in the first half of 2012, to USD17.6 per tonne in the first half of 2013. The management focused on maximising the utilisation of the Groups own transportation fleet and improving efficiency in its main long-haul transport (UHG-TKH) section. As a result, the transportation cost using its own fleet in the long-haul (UHG-TKH) section has been reduced from USD11.0 per tonne in the first half of 2012 to USD8.1 per tonne in the first half of 2013, which represents USD2.9 or 26.4% decrease per tonne period-on-period basis. The Groups own transport fleet carried the majority (99.3%) of its total coal products while the remaining small volume (0.7%) was transported by third party contractors, bringing the combined cost of transportation to USD8.2 per tonne in the first half of 2013, down by USD4.4 per tonne compared to USD12.6 per tonne in the first half of 2012. For the short-haul (TKH-GM) section, where the Group utilised a contracted fleet for the majority of its transportation, the Groups transportation costs were USD9.4 per tonne in the first half of 2013, compared to USD9.0 per tonne recorded in the first half of 2012, representing an increase of USD0.4 per tonne or 4.4%. The logistics cost is mainly related to costs for paved road operations, maintenance and amortization costs and also costs associated with operating product stockpiles at UHG and TKH. For the six months ended 30 June 2013, the Groups logistics cost was approximately USD10.7 million (first half of 2012: USD12.2 million), and of which approximately USD3.6 million related to the amortization of UHG-GS paved road. The paved road operations, maintenance and amortization costs are partially offset by toll fee revenue generated from third party cargo on commercial terms in accordance with conditions stipulated in the Build-Operate-Transfer agreement entered between GoM and the Group in May 2010. The site administration cost is primarily related to the site support facilities such as the airstrip operations, and also overall supervision and joint management of the Groups mining, processing, transportation and logistics operations at UHG and BN mines, both located in South Gobi province. For the six months ended 30 June 2013, the Groups site administration cost was approximately USD4.5 million, compared to USD1.6 million in the first half of 2012. The Group is implementing policies to shift the employees work place and to promote relocation to the site base for the purposes of increasing operational efficiency at site. This in turn resulted in an increase of the site administration cost, however on the other hand, it reduces general administrative expenses.
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The following table presents, for the periods indicated, the Groups total and individual costs of revenue in terms of amount and also unit costs of revenue calculated on a per total product sold basis (Table 9): Table 9. Total and individual costs of revenue: Six months ended 30 June 2013 USD000 Cost of revenue Mining cost Variable cost Fixed cost Depreciation and amortization Processing cost Variable cost Fixed cost Depreciation and amortization Handling cost Transportation cost Logistics cost Variable cost Fixed cost Depreciation and amortization Site administration cost Transportation and stockpile losses Royalty and fees Royalty Air pollution fee Custom fee 219,546 91,927 50,641 34,903 6,383 21,823 7,762 3,834 10,227 7,165 55,238 10,695 3,222 3,899 3,574 4,486 5,859 22,353 15,803 3,034 3,516 2012 USD000 170,880 51,848 20,917 30,027 904 18,594 7,076 5,594 5,924 2,529 59,198 12,161 4,154 4,577 3,430 1,593 1,261 23,696 18,652 2,129 2,915 2013 USD/tonne 70.1 29.4 16.2 11.2 2.0 7.0 2.5 1.2 3.3 2.3 17.6 3.4 1.0 1.3 1.1 1.4 1.9 7.1 5.0 1.0 1.1 2012 USD/tonne 71.9 21.8 8.8 12.6 0.4 7.8 3.0 2.3 2.5 1.1 24.9 5.1 1.8 1.9 1.4 0.7 0.5 10.0 7.9 0.9 1.2
For the six months ended 30 June 2013, the Group recorded transportation and stockpile net loss of USD5.9 million compared to net loss of USD1.3 million recorded in the first half of 2012, which were included in the mining, processing, transportation and other costs (Table 10).
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Table 10. Transportation and stockpile losses by amounts and volumes: Six months ended 30 June 2013 USD000 Transportation and stockpile losses Transportation loss Washed coal Raw coal Stockpile loss Washed coal Raw coal 5,859 288 283 5 5,571 2,804 2,767 2012 USD000 1,261 993 966 27 268 418 (150) 2013 tonne000 201.7 (5.2) (5.3) 0.1 206.9 52.9 154.0 2012 tonne000 28.0 23.7 22.9 0.8 4.3 8.0 (3.7)
For the six months ended 30 June 2013, total transportation loss was around USD0.3 million, compared to USD1.0 million in the first half of 2012. The inventory losses are assessed based on periodic survey measurements of the Groups ROM coal inventories of ROM coal stockpiles at the UHG and BN mines, and also coal products inventories of product stockpiles at UHG and TKH. For the six months ended 30 June 2013, the Group recorded unrealised inventory loss of USD2.8 million for ROM coal stockpile at UHG compared to unrealised gain of USD0.2 million recorded in the first half of 2012. The stockpile loss of washed coal was USD2.8 million for the six months ended 30 June 2013, compared to USD0.4 million in the first half 2012. The increase observed for stockpile loss in the first half of 2013 is primarily related to increased sales volume. Also to some extend the increases related to moisture loss due to the increase in the proportion of washed coal product sales and moisture losses. Governmental royalties and fees are related to royalties, air pollution fees and custom fees paid according to the applicable laws and regulations in Mongolia. The progressive royalty rate, in the range of 5-8% for processed coal products and 5-10% for raw coal, was based on the monthly reference price determined by the Ministry of Mineral Resources and Energy of Mongolia at the time. However, during the period between 1 January 2013 and 1 April 2013, the contract prices were used for calculating royalty rates based on the GoM issued Resolution No.74 dated 6 October 2012, which was temporarily suspending the use of the monthly reference price system. The Groups effective royalty rate for the six months ended 30 June 2013 was around 6.4% (first half of 2012: 8.0%). Gross Profit and Gross Profit Margin The Groups gross profit for the six months ended 30 June 2013 was approximately USD28.3 million, representing a decrease of approximately USD33.9 million or 54.5% from the gross profit of approximately USD62.2 million recorded for the six months ended 30 June 2012. For the six months ended 30 June 2013, the gross profit margin was approximately 11.4%, compared with approximately 26.7% for the six months ended 30 June 2012. The decrease of gross profit and gross profit margin was mainly driven by a decrease of ASP for coking coal products supplied by the Group due to challenging market conditions in China, as demand from steel mills and coke plants was affected by global economic conditions.
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General and Administrative Expenses The Groups general and administrative expenses relate primarily to staff costs, share option expenses, allowance for doubtful debts, consultancy and professional fees, depreciation and amortization of office equipment and other expenses. The following table presents, for the periods indicated, individual administrative expenses in terms of amount and as a percentage of the Groups total administrative expenses (Table 11): Table 11. Administrative expenses: Six months ended 30 June 2012 % USD000 26.4 10.2 7.1 12.8 11.9 31.6 100.0 5,197 2,409 1,746 3,633 6,083 19,068
2013 USD000 Staff costs Consultancy and professional fees Depreciation and amortization Allowance for doubtful debts Share option Others Total 4,698 1,805 1,255 2,275 2,121 5,610 17,764
% 27.3 12.6 9.2 19.1 31.8 100.0
For the six months ended 30 June 2013, the Groups administrative expenses decreased by approximately USD1.3 million or 6.8% from USD19.1 million for the six months ended 30 June 2012 to approximately USD17.8 million for the six months ended 30 June 2013. The Groups administrative expenses for the six months ended 30 June 2013 by each category have all decreased compared to the six months ended 30 June 2012, except for the allowance for doubtful debts, which is a provision for potential credit related circumstances due to challenging market conditions in China, as demand from steel mills and coke plants was affected by global economic conditions. Net Finance Cost Net finance cost for the six months ended 30 June 2013 was approximately USD38.6 million (30 June 2012: USD5.8 million). Net finance cost for the six months ended 30 June 2013 was primarily due to (i) interest expenses and net changes in fair value related to the Senior Notes and other credit facilities and (ii) less interest expenses capitalized during the first half of 2013 compared to the first half of 2012, since major part of the construction and development activities of the Group are completed. Income Tax Expenses The Groups income tax expenses decreased from USD8.9 million for the six months ended 30 June 2012 to approximately USD1.8 million for the six months ended 30 June 2013 due to lowered profitability of the Company during the period. Loss/Profit for the Period As a result of foregoing, the loss attributable to equity shareholders of the Company for the six months ended 30 June 2013 was approximately USD25.2 million (30 June 2012: profit USD31.0 million). Major contributing factors of the Groups net loss position are (i) a decrease of ASP of coking coal products and (ii) an increase in the Groups finance costs related to the Guaranteed Senior Notes and other facilities, total net finance cost is approximately USD38.6 million.
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Liquidity and Capital Resources For the six months ended 30 June 2013, the Companys cash needs had been primarily related to repayment of USD85 million Convertible Bond to QGX Holdings Ltd and costs associated with construction of CHPP module 3. The Companys cash resources were funded mainly by proceeds of USD600 million Guaranteed Senior Notes issued in 2012. The gearing ratio (calculated as total bank and other borrowings divided by total assets) of the Company as at 30 June 2013 was 45.6% (31 December 2012: 46.3%). All borrowings are in USD. Cash and cash equivalents are held in currencies of MNT, USD, RMB, EUR and Hong Kong Dollar (HKD). The Companys policy is to monitor regularly current end expected liquidity requirements and compliance with debt covenants to ensure that the Company maintains sufficient reserves of cash to meet its liquidity requirements in the short and long term. Indebtedness As of 30 June 2013, the Company had USD934.7 million of outstanding short-term and long-term borrowings, including indebtedness incurred under (i) USD600 million Guaranteed Senior Notes, (ii) Standard Bank Facility up to USD300 million, (iii) USD180 million facility agreements with European Bank for Reconstruction and Development, FMO Nederlandse Financierings-Maatschappij Voor Ontwikkelingslanden N.V. and DEG Deutsche Investitions-und Entwicklungsgesellschaft mbH (the EBRD, FMO and DEG Loan Agreements), (iv) USD20 million short term loan from Trade and Development Bank of Mongolia, and (v) USD20 million short term loan from Golomt Bank of Mongolia. The USD600 million Senior Notes, currently rated at Caa1 by Moodys Investor Service, Inc. and B by Standard and Poors Ratings Services, bear fixed interest rate of 8.875% per annum payable semi-annually. The Senior Notes will mature in March 2017, unless earlier redeemed. As of 30 June 2013, the outstanding principal amount was USD600 million. Upon occurrence of a sale, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or series of related transactions, of all or substantially all of the properties or assets of the Company to any person, other than one or more of the beneficial owners of less than 30% of the total voting power of the Company, the Company must make an offer to repurchase all the Senior Notes outstanding at a purchase price equal to 101% of their principal amount, plus accrued and unpaid interest, if any, to (but not including) the date of repurchase. The Standard Bank Facility was drawn down in the amount of USD200 million in March 2012 and the remaining available facility of USD100 million was cancelled by the Company. The loan bears an interest of LIBOR plus 5.25% margin per annum. The loan is repayable in 10 quarterly installments starting from December 2012 and ending in March 2015. As of 30 June 2013, the outstanding principal amount was USD170 million. Under the Standard Bank Facility, the Company shall not issue any shares if such issue results in (i) the creation of a new share class of the issued share capital of the Company and (ii) a change of control by controlling shareholder of the Company, ceasing to beneficially hold (directly or indirectly) at least 30% of the total issued share capital of the Company. The EBRD, FMO and DEG Loan Agreements bear interest semi-annually at the rate of six-month LIBOR plus 3.25%3.75% margin per annum. USD120 million principal amount of the loan is repayable in 11 semi-annual installments ending on 15 May 2016 and USD60 million principal amount of the loan is repayable in two equal installments on 15 May 2015 and 15 May 2016, respectively.
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As of 30 June 2013, the outstanding principal amount was USD136.4 million. Under the EBRD, FMO and DEG Loan Agreements, the controlling shareholder of the Company may not cease at any time to own directly or indirectly more shares of the Company than any other shareholder, or at least 30% plus one share of the issued and outstanding shares of the Company or the Company may not cease to be majority directly owned by the entities domiciled in Mongolia. The Trade and Development Bank of Mongolia loan is a short term loan maturing in December 2013. The loan bears interest of 9.0% per annum. As of 30 June 2013, the outstanding principal amount was USD20 million. The Golomt Bank of Mongolia loan is a short term loan maturing in September 2013. The loan bears interest of 9.0% per annum. As of 30 June 2013, the outstanding principal amount was USD20 million. Credit Risk The Group closely monitors the credit exposure. Credit risk is primarily attributable to cash at bank, trade and other receivables. Substantially all of the Groups cash at bank are deposited in the reputable banks, which management assessed the credit risk to be insignificant. For the six months ended 30 June 2013, the Group had approximately USD76.5 million in trade receivables, USD228.5 million in other receivables and USD7.9 million for allowance of doubtful debts. For the year ended 31 December 2012, the Group had USD35.8 million in trade receivables and USD178.0 million in other receivables and USD5.9 million for allowance of doubtful debts. The Company holds monthly Credit Committee meetings to review, assess and evaluate the Companys overall credit quality and the recoverable amount of each individual trade credit on an ongoing basis. Management continues to monitor the exposures, including but not limited to the current ability to pay, and take into account information specific to the customer as well as pertaining to the economic environment in which the customer operates, on an ongoing basis. With regard to other receivables of USD228.5 million, it is mainly related to USD78.1 million VAT and other tax receivables, USD58.0 million from GoM for railway project related reimbursement and other deposits and prepayments. For the VAT receivables, based on the Tax authority audit and approval of the VAT tax refund, the Group mainly offsets the VAT refund with its other tax payments. The remaining amounts are deposits, advances, prepayments and other receivables in the ordinary course of business. Management believes that there is no issue in collectability of such receivables. Foreign Exchange Risk During the six months ended 30 June 2013 and 2012, 100% of the revenue and approximately 65.5% and 40.5% of the purchases respectively were denominated in currencies other than MNT, the functional currency of the Groups Mongolian entities. Cash and cash equivalents denominated in the currency other than the functional currency of the entity to which they relate as of 30 June 2013 and 31 December 2012 amounted to approximately USD125.2 million and USD282.4 million, respectively. Total borrowings denominated in the currency other than the functional currency of the entity to which they relate as of 30 June 2013 and 31 December 2012 amounted to approximately USD176.4 million and USD147.3 million, respectively.
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For the six months ended 30 June 2013 and 2012, approximately 63.8% and 68.6% of the revenues were denominated in USD with the remaining denominated in RMB. For the six months ended 30 June 2013, approximately 12.8% and 78.0% of operating expenditures and capital expenditures, respectively, were denominated in USD, while 0.3% of capital expenditures were denominated in RMB, and 1.7% of capital expenditures were denominated in currencies other than USD, RMB and MNT, with the remaining denominated in MNT. For the six months ended 30 June 2012, approximately 14.6% and 35.8% of operating expenditures and capital expenditures were denominated in USD, with the remaining denominated in MNT. Although the majority of the Groups assets and operational expenses are denominated in MNT, a large portion of those, including fuel and capital expenditure, are import costs and thus linked to USD and RMB prices. Also, the majority of the Groups finance costs are denominated in USD. Therefore, the Group believes that there exists a natural hedge that partially offsets foreign exchange risk. The Group has not entered into any derivative instruments to manage foreign exchange fluctuations. However, the management monitors foreign exchange exposure and will consider hedging significant foreign currency exposure should the need arise. Pledge of Assets of the Group As at 30 June 2013, the Company pledged Energy Resources LLCs current accounts held with Trade and Development Bank of Mongolia, Khan Bank of Mongolia, Golomt Bank of Mongolia, its Debt Reserve Account with Standard Bank Plc for loan repayment, coal sales contract with Inner Mongolia Qinghua Group of China, coal mining agreement with Leighton LLC; engineering, procurement and construction management contract for the CHPP constructed at the UHG site with Sedgman LLC; CHPP modules 1 and 2; UHG Power Plant; water facilities for the EBRD, FMO and DEG Loan Agreements. The Company pledged its Collection and Cash Collateral accounts with Standard Bank Plc, coal sales contracts with Winsway Resources Holdings Private Limited, Shenhua Bayannaoer Energy Co., Ltd, Bayannur Conglin Mining Co., Ltd, Wulate Zhongqi Jingshun Da Color Steel Engineering Co., Ltd and Inner Mongolia Fuji Energy Co., Ltd, coal stockpile of Energy Resources LLC for a Standard Bank Facility. Share pledges of Mongolian Coal Corporation Limited and Mongolian Coal Corporation S.a.r.l. are shared among a Standard Bank Facility and the Senior Notes. The total amount of indebtedness covered with the above pledges is USD894.7 million. Contingent Liabilities a) As at 30 June 2013, the Company has a contingent liability in respect of the consideration adjustments for an acquisition of the entire issued share capital of Baruun Naran Limited (formerly named QGX Coal Limited), indirect wholly-owned subsidiary of the Company (the Acquisition ) pursuant to the Share Purchase Agreement, which may arise from the royalty provision. Under the royalty provision, an additional LOM payment of USD6 per tonne may be payable in the event that the actual amount of coal extracted from the BN mine exceeds a specified semi-annual production target fixed on the date of the determination of the total reserves in each semi-annual period after 1 June 2011 commencing on 1 January and ending on 30 June and commencing on 1 July and ending on 31 December.
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Under the royalty provision for excessive coal production at BN mine pursuant to the Share Purchase Agreement and the Settlement Agreement, the specified semi-annual ROM coal production has to exceed approximately 5.0 Mt. Therefore, the probability of royalty provision is considered to be very low. b) The Group received two decisions (the Decisions), dated 26 December 2012, made by the state customs inspectors of the General Customs Office of Mongolia regarding the results of the post-clearance audit made in relation to import activities for construction of CHPP module I and II. The Group was claimed for additional customs duties of USD1,370,000, VAT of USD2,877,000 and related penalty of USD1,274,000. The Group does not agree with the Decisions and commenced a defense action against the Decisions in the Capital Administrative Court of Mongolia. The first instance court decisions are anticipated to be available in the third quarter of 2013. The Group believes that it has legal grounds not to agree with the Decisions and will provide all reasonable arguments. However it is difficult to estimate the outcome of the litigation at this early stage. If the Group were to be found liable to the claim, based upon final courts decision, the under-paid customs duties and VAT would result in an increase in the cost of the Groups property, plant and equipment and the penalty would be charged to the Groups profit or loss. c) The Group received a claim of approximately USD36,120,000 on 28 March 2013, filed in a district court of Ulaanbaatar by the Lawyers Association for Environment (LAE) regarding allegations against the Group in relation to possible damages to the environment due to its coal hauling operation. The first instance court hearing was held on 8 August 2013 and the court ruled in favour of LAE. The Group does not agree with the decision and will file an appeal to the appeal court in due course and will defend vigorously. The Group believes that it has legal grounds to appeal to all instances of court and would provide all reasonable arguments for such appeal(s). However, it is difficult to predict the final outcome. If the Group were to be found liable to the claim, the claimed amount would be charged to the Groups profit or loss. Financial Instruments The Company has a share option scheme, which was adopted on 17 September 2010 (Share Option Scheme) whereby the Board is authorized, at its discretion, to grant to eligible participants options to subscribe for shares ( Share Options ) subject to the terms and conditions stipulated therein as incentives or rewards for their contributions to the Company. Under the Share Option Scheme, the Company granted two batches of Share Options to its directors and employees. On 12 October 2011, the Company granted 3,000,000 and 32,200,000 Share Options to directors and employees respectively with the exercise price of HKD6.66. On 28 November 2012, the Company granted 5,000,000 and 17,750,000 Share Options to directors and employees respectively with the exercise price of HKD3.92. The fair value of services received in return for Share Options granted is measured with reference to the fair value of Share Options granted. For the six months ended 30 June 2013, USD2.1 million was recognized in administrative expenses and capital reserves in relation to the equity-settled share-based transactions.
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The Senior Notes have been accounted for as a hybrid financial instrument containing both a derivative component and a liability component. The derivative component was initially recognized at its fair value of USD4.9 million, and the attributable transactions costs of USD0.11 million were charged to the profit or loss for the year ended 31 December 2012. The fair value of the derivative component as at 30 June 2013 was USD4.3 million which was presented as derivative financial instruments. The liability component was initially recognized at amortized cost of USD591.7 million, after taking into account USD13.2 million as attributable costs. Capital Commitments As at 30 June 2013, the capital commitments outstanding at the respective balance sheet dates were as follows (Table 12): Table 12. Capital commitments: As at 30 June 2013 USD000 Contracted for Authorized but not contracted for Total 31,297 68,763 100,060 As at 31 December 2012 USD000 35,409 69,427 104,836
Operating Lease Commitments As at 30 June 2013, the Company had contracted obligations consisting of operating leases which totaled approximately USD3.1 million with approximately USD2.1 million due within one year and approximately USD1.0 million due between two and five years. Lease terms range from 1 to 5 years, with fixed rentals. Significant Investment Held As at 30 June 2013, the Company did not hold any significant investment. Material Acquisitions and Disposals of Subsidiaries and Associated Companies For the six months ended 30 June 2013, the Company did not have any material acquisitions and disposals of subsidiaries and associated companies. Purchase, Sale or Redemption of the Companys Listed Securities For the six months ended 30 June 2013, the Company did not purchase, sell or redeem any of the Companys listed securities.
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Subsequent Event The GoM at its cabinet meeting held on 16 August 2013 resolved to implement certain measures to support coal exports from Mongolia. One of such measures was to purchase by the GoM (i) the UHG-GS paved road from Gobi Road LLC, an indirect wholly-owned subsidiary of the Company, and (ii) the infrastructure built by Energy Resources LLC, an indirect wholly-owned subsidiary of the Company, at GS border checkpoint of Mongolia with an aim to decrease transportation costs, an important factor for coal export support. As at the date of this announcement, the purchase amount payable to the Group by the GoM in respect of the above resolutions has not yet been discussed. Employees As at 30 June 2013, the number of employees of the Group was 2,376 compared with 2,425 employees as at 30 June 2012. The Groups 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 Groups financial and operational performance, employees may also enjoy other benefits such as discretionary bonuses and share options pursuant to the Companys share option scheme. Training Schemes The training scheme of the Company works as supportive part of the business function comprising of 3 training sections, general skill training, vocational training and professional development training depending on employees required skills and their position grade. After the skills and training demand has been determined, the line or functions management shall put the guidance onto the employees individual development plan. Each line managers and executives with Human Resources unit reviews employees skills and performance result collided with training. Each training application has to be reviewed by their line managers and executives. When employee is in long term and vocational training at the company request, a contract can be made for keeping his/her currently held position or restart date can be given after the completion of his/her studies. When employee is in training on his/her own request, an appropriate contract can be made between employee and the Company. As at 30 June 2013, there are 613 people, in total, have attended different types of training. 256 employees have attended vocational & professional training and 357 employees have attended corporate skills trainings. Dividend The Board does not recommend the payment of dividend for the six months ended 30 June 2013 (dividend for the six months ended 30 June 2012: nil). Review by Audit Committee The Audit Committee of the Company currently comprises one non-executive Director, Ms. Enkhtuvshin Gombo, and three independent non-executive Directors, namely Mr. Chan Tze Ching, Ignatius, Mr. Unenbat Jigjid, and Mr. Ochirbat Punsalmaa. Mr. Chan Tze Ching, Ignatius is the chairman of the Audit Committee. The Audit Committee has reviewed the interim results of the Company for the six months ended 30 June 2013.
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Corporate Social Responsibility

As a responsible mining company, Mongolian Mining Corporation is held accountable for social, economic and environmental impacts of its activities on the local community and the society as a whole. During the period under review, the Company reviewed and integrated its Health, Safety and Environment (HSE) policy and standards to enable better management of HSE issues. In addition, the Company continued to invest in local economic development through its various community development initiatives based on the needs and priorities of the Companys stakeholders. Stakeholders engagement Being transparent is a key to building strong relations with the community in which the Group operates. The Groups activities are open to local people and the Group encourages their participation, comments and suggestions at all times. To further increase transparency and trust, the Group has established a designated section on environmental monitoring and protection in its monthly Ukhaa Khudag bulletin, in which the Group publishes monthly reports on dust and water level measurements, which are the two main environmental concerns for the local community. In January 2013, the Group organized a human rights training for 21 staff members from the Companys Human Resources Department and security personnel. During the training, the Voluntary Principles on Security and Human Rights were introduced and discussed to ensure that the Groups security measures do not violate human rights. The security personnel were trained to deal with anti-harassment and equal opportunity issues on the proper use of force as well as on how to carry out personal searches, while implementing their duties. During the period under review, a total of 926 individuals including local residents, families of the Groups employees and environmental non-governmental organisations visited the Companys UHG project site and got acquainted with the Groups operation and plans for the future. In addition, the information boards at the UHG camp site and at the Companys Representative Office in Dalanzadgad were updated on a weekly basis to ensure that accurate and up-to-date information on the Company operations were available to stakeholders. In the reporting period, MMC conducted the following community engagement activities: Periodic visits to affected herder households and resettled families; Regular meetings with local administration; Monthly meetings with Community Development Advisory Councils established in each impacted soum to provide a better platform for dialogue between the Company and the local community; Ongoing operation of two information centers and a hotline.
Other sources of public information disclosure to the Groups stakeholders include the Groups annual and interim reports, the Ukhaa Khudag quarterly newspaper, monthly bulletins, brochures, and the Company website.
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Health, Safety and Environment Maintaining a high level of HSE standard is central to the continued success of the Groups operation. The Groups integrated HSE policy therefore seeks to ensure that the Group causes Zero harm to its people and to mitigate any adverse impact on the environment while delivering quality products to its customers. Accordingly, the Company is working to raise its HSE performance by implementing the HSE Management System that is consistent with OHSAS 18001:2007 (Health and Safety), ISO 14001:2004 (Environment) standards. The following are the Groups key achievements in the area of HSE for the period under review. All HSE management system documents, including 18 standards, 18 standard procedures, and 42 standard operating procedures were reviewed and approved by the Companys Chief Executive Officer and are being introduced company-wide to all employees through various awareness building trainings and seminars. The HSE management system consists of Policies, Standards, Procedures, Plans, Manuals, Guidelines, Forms, Checklists and Registers. These documents are arranged hierarchically. Policies, Standards, Plans and Standard operating procedures are mandatory and apply to all of MMCs business activities, including that of its contractors. It is also designed on the principle of continual improvement by adopting the methodology of Plan, Do, Check and Review system cycle. The UHG projects Detailed Environmental Impact Assessment and the Environmental Management Plans were revised in accordance with the amended Law on Environmental Impact Assessment and were approved by the Ministry of Nature and Green Development of Mongolia on 25 June 2013. The Company has established 2.5 hectares of nursery field in 2009 with the aim to determine the most suitable trees and plants for growing in the Gobi region which will be used in re-vegetation later in the project cycle. Currently, the nursery field contains 24 species of 60,000 shrubs, trees and perennial plants in total. Within the framework of activities organized on the National Tree Planting Day, the Companys environmental team prepared and donated a total of 21,050 shrubs, trees and perennial plants from the nursery field to be planted in the forest wind belt, waste rock dump rehabilitation, power plant and Muruudul educational complex landscaping.
Company employees working in the nursery field
Seabuckthorn growing in the nursery field
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On 25 May 2013, a solid waste clean-up was organized in the surrounding area of 3 natural springs and 15 herder wells located within 30 km radius of the UHG mine site. The Company employees also built a protective ring around a water-well located near Tsogttsetsii soum to prevent inappropriate use that may result in pollution of water source.
Company employees building a protective ring around herder well
The LTIFR, an injury frequency rate expressed as the number of injuries per million hours worked, was 1.06 for 3.77 million man hours recorded within the Companys coal mining, processing and transportation operations in the first half of 2013. Site safety inspections were carried out at more than 294 workplaces, and all identified hazards were investigated in order to discover and eliminate root causes. A total of 14 (not including 4,976 Job Safety and Environment Assessments) workplace safety risk assessments were conducted during the reporting period to minimize or eliminate work-related hazards and to enhance awareness of daily safety routines among the Groups employees.
Community development initiatives The Company is firmly committed to preserving both tangible and intangible cultural heritages of the community in which it operates. To promote and protect traditional way of life in the South Gobi region, which is indelibly linked to camel husbandry, and to spur interest in nomadic culture and the nomadic way of life among the younger generation, the Company sponsored a camel racing competition in Khanbogd soum, South Gobi province for the second year running.
Camel racing competition in Khanbogd soum
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During the period under review, MMC continued to fund For a Better Future, an annual scholarship program for undergraduate students in Ulaanbaatar and other Mongolian provinces. Merit-based scholarships were awarded to 17 candidates out of 330 applicants based on two-tier assessment and interviewing process. The awardees receive monthly stipend and are invited to pursue internship opportunities with the Company. Within the framework of the Good Neighborhood initiative, the Company provides various in-kind assistances to the communities in which it operates. During the period under review, the Company carried out the following in-kind assistances: Provided road signs for use on roads of Tsogttsetsii soum joining the local traffic police efforts to minimize road related accidents. Supplied 5308 seedlings, shrubs and trees free of charge to local administration and the local residents for use in various landscaping projects in Tsogttsetsii soum. Established two brand new deep water wells for use by herders in Tsagaan Ovoo bagh, Tsogttsetsii soum. Assisted 60 households from Tsogttsetsii soum to grow potatoes on the 3 hectares strips of land between the forest belts that was established by the Companys environmental team. Social infrastructure development The Company has built jointly with the local government an all-modern educational facility in Tsogttsetsii soum of Umnugobi aimag. The facility has opened its doors in January 2013 and it comprises of a secondary school for 700 students, a kindergarten for 144 children and a dormitory for 100 children. Built in line with MMCs integrated approach to socio-economic contribution, the new school/kindergarten complex is set to make a significant contribution in raising the educational level in rural Gobi region. About 56% of the total required financing of the new facility was provided by the Company. As part of its township development initiative and in line with its retention and relocation policy, MMC has also completed and commissioned new residential apartment blocks to provide comfortable living conditions for its employees settling in South Gobi. To date, around 280 families have moved into fully-furnished apartments built in Tsogtsetsii soum.
Dream school and kindergarten complex
Tsetsii township project
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Disclosure of Information
MODEL CODE FOR SECURITIES TRANSACTIONS
The Company has adopted the Model Code for Securities Transactions by Directors of Listed Issuers (the Model Code) as set out in Appendix 10 to the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited (Listing Rules). Specific enquiry has been made to all the Directors and all the Directors have confirmed that they have complied with the Model Code throughout the six months ended 30 June 2013. The Company has also established written guidelines on no less exacting terms than the Model Code for securities transactions by relevant employees (the Employee Written Guidelines ) who are likely to possess inside information of the Company. No incident of non-compliance with the Employees Written Guidelines by the employees was noted by the Company.
STATEMENT OF COMPLIANCE WITH CORPORATE GOVERNANCE CODE

The Company has adopted the code provisions set out in the Corporate Governance Code (the CG Code) contained in Appendix 14 to the Listing Rules as its code of corporate governance. CG Code provision E.1.2 stipulates that the chairman of the board should attend the annual general meeting (AGM) of the Company. Mr. Odjargal Jambaljamts, Chairman of the Board, appointed Mr. Chan Tze Ching, Ignatius, independent non-executive Director to attend and answer questions on his behalf at the 2013 AGM due to his coincided engagement in post negotiations on reimbursement matters with the GoM in relation to the decision of the GoM to take measure to terminate with the Group the Concession Agreement to build-operate-transfer the railway base infrastructure between UHG-GS Railway dated 31 May 2012. The Company has complied with all other applicable code provisions as set out in the CG code.
DIRECTORS AND CHIEF EXECUTIVES INTERESTS AND SHORT POSITIONS IN SHARES, UNDERLYING SHARES AND DEBENTURES OF THE COMPANY OR ITS ASSOCIATED CORPORATIONS
As at 30 June 2013, the interest and short positions of the Directors and chief executive of the Company in the shares and underlying shares or debentures of the Company or its associated corporations (within the meaning of Part XV of the Securities and Futures Ordinance (Cap. 571 of the Laws of Hong Kong) (SFO) which were required (i) to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they are taken or deemed to have under such provisions of the SFO), (ii) pursuant to section 352 of the SFO, to be entered in the register referred to therein, or (iii) pursuant to the Model Code, to be notified to the Company and the Stock Exchange were as follows:
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(a)
Table 13. Interests in Shares: Ordinary shares of USD0.01 each Approximate percentage of Total number of Name of Director Mr. Odjargal Jambaljamts (Note 1) Mr. Od Jambaljamts (Note 2) Dr. Oyungerel Janchiv (Note 3) Mr. Batsaikhan Purev (Note 4) Interest of controlled corporation Interest of controlled corporation Interest of controlled corporation Nature of interest Interest of controlled corporation Shares held 1,425,809,605(L) 1,143,017,636(S) 1,347,455,493(L) 1,129,017,636(S) 112,833,333(L) 183,000,000(L) total issued share capital 38.48% 30.85% 36.37% 30.47% 3.05% 4.94%
(L) long position (S) short position

Notes: (1) Mr. Odjargal Jambaljamts, through Novel Holdings Group Limited which is 100% owned by him, is interested in 49.84% of MCS (Mongolia) Limited. MCS (Mongolia) Limited holds the entire interest of MCS Mining Group Limited which in turn holds 1,241,150,586 shares and has a short position in 1,103,017,636 shares in MMC. Novel Holdings Group Limited also directly holds 184,659,019 shares and has a short position in 40,000,000 shares in MMC under its name. (2) Mr. Od Jambaljamts, through Trimunkh Limited which is 100% owned by him, is interested in 28.69% of MCS (Mongolia) Limited. MCS (Mongolia) Limited holds the entire interest of MCS Mining Group Limited which in turn holds 1,241,150,586 shares and has a short position in 1,103,017,636 shares in MMC. Trimunkh Limited also directly holds 106,304,907 shares and has a short position in 26,000,000 shares in MMC under its name. (3) Dr. Oyungerel Janchiv, through Lotus Amsa Limited which is 100% owned by her, holds 112,833,333 shares in MMC. (4) The shares were registered in the name of Shunkhlai Mining. Mr. Batsaikhan Purev is interested in 50% of Shunkhlai Group LLC which holds the entire interest of Shunkhlai Mining LLC which in turn holds the entire interest of Shunkhlai Mining.
(b)
Table 14. Interest in underlying Shares: Ordinary shares of USD0.01 each Total number of underlying Shares held pursuant to Share Options under the Share Name of Director Dr. Battsengel Gotov (L) long position Nature of interest Beneficial owner Option Scheme 8,000,000 (L) Approximate percentage of total issued share capital 0.22%
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Save as disclosed above, as at 30 June 2013, so far as was known to any Director or chief executive of the Company, neither the Directors nor the chief executive had any interests or short positions in any Shares, underlying Shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of SFO).
SUBSTANTIAL SHAREHOLDERS INTERESTS AND SHORT POSITIONS IN SHARES AND UNDERLYING SHARES
As at 30 June 2013, so far as was known to the Directors and chief executive of the Company, the following persons (other than a Director or chief executive of the Company whose interests are disclosed above) had interest or short position in the shares or underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or which were recorded in the register required to be kept by the Company under section 336 of the SFO: Table 15. Interests in the Shares and underlying Shares: Ordinary shares of USD0.01 each Approximate percentage of Total number of Name of substantial shareholder MCS Mining Group Limited (Note 1) MCS (Mongolia) Limited (Note 1) Novel Holdings Group Limited (Note 1) Trimunkh Limited (Note 1) Nature of interest Beneficial owner Interest of controlled corporation Interest of controlled corporation/ Beneficial owner 1,143,017,636(S) Interest of controlled corporation/ Beneficial owner 1,129,017,636(S) Ms. Batmunkh Dashdeleg (Note 1) Interest of spouse 1,425,809,605(L) 1,143,017,636(S) Ms. Munkhsuren Surenkhuu (Note 1) Interest of spouse Kerry Mining (UHG) Limited (KMUHG) (Note 2) Kerry Mining (Mongolia) Limited (KMM) (Note 2) Fexos Limited (Fexos) (Note 2) Kerry Holdings Limited (KHL) (Note 2) Kerry Group Limited (KGL) (Notes 2 and 3) Genesis Asset Managers, LLP Investment manager 222,167,638(L) 6.00% Interest of controlled corporations 412,172,352(L) 11.12% Interest of controlled corporations Interest of controlled corporations 302,363,529(L) 302,363,529(L) 8.16% 8.16% Interest of controlled corporation 300,000,000(L) 8.10% Beneficial owner 1,347,455,493(L) 1,129,017,636(S) 300,000,000(L) 30.47% 38.48% 30.85% 36.37% 30.47% 8.10% 1,347,455,493(L) 30.85% 36.37% Shares held 1,241,150,586(L) 1,103,017,636(S) 1,241,150,586(L) 1,103,017,636(S) 1,425,809,605(L) total issued share capital 33.50% 29.77% 33.50% 29.77% 38.48%
(L) long position (S) short position
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Notes: (1) The entire issued share capital of MCS Mining Group Limited is owned by MCS (Mongolia) Limited. MCS (Mongolia) Limited is owned as to approximately 49.84% by Novel Holdings Group Limited which in turn is wholly-owned by Mr. Odjargal Jambaljamts, and 28.69% by Trimunkh Limited which in turn is wholly-owned by Mr. Od Jambaljamts. MCS Mining Group Limited holds 1,241,150,586 shares and has a short position in 1,103,017,636 shares in MMC. Novel Holdings Group Limited and Trimunkh Limited each also directly holds 184,659,019 shares and 106,304,907 shares in MMC respectively, and has a short position in 40,000,000 shares and 26,000,000 shares respectively in MMC. Ms. Batmunkh Dashdeleg is the spouse of Mr. Odjargal Jambaljamts, and Ms. Munkhsuren Surenkhuu is the spouse of Mr. Od Jambaljamts. (2) (a) KMUHG is a direct wholly-owned subsidiary of KMM. Fexos controls more than one-third of the voting power of KMM. Fexos is a direct wholly-owned subsidiary of KHL which in turn is a direct wholly-owned subsidiary of KGL. Accordingly, KMM, Fexos, KHL and KGL are deemed to be interested in the 300,000,000 shares that KMUHG is interested. (b) Fexos controls more than one-third of the voting power of Kerry Asset Management Limited (KAM). Fexos, KHL and KGL are deemed to be interested in the 2,363,529 shares that KAM is interested. (3) Out of KGLs corporate interest in 412,172,352 shares of the Company, KGLs wholly-owned subsidiaries (other than KHL) are interested in 109,808,823 shares of the Company, KHL (through companies that it controls more than one-third of the voting power) is interested in 302,363,529 shares of the Company.
Save as disclosed above, as at 30 June 2013, the Company has not been notified by any person (other than the Directors or chief executive of the Company) who had interests or short position in the shares or underlying shares of the Company.
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Change of Information of Directors

Change of information of Directors since the date of the 2012 Annual Report is set out below: Mr. Unenbat Jigjid was appointed as an independent non-executive director of APU Company, a company listed on the Mongolian Stock Exchange, with effect from 26 April 2013. Ms. Enkhtuvshin Gombo was appointed as director of MCS Mining Group Limited and director of MCS (Mongolia) Limited. Mr. Chan Tze Ching, Ignatius was appointed as a member of the Hong Kong Tourism Board and Deputy Chairman of Council of Hong Kong Polytechnic University both with effect from 1 April 2013. Mr. Chan was also appointed as Board Adviser of Hong Kong New Territories General Chamber of Commerce with effect from 28 May 2013.
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Share Option Scheme

The Share Option Scheme was adopted by the Company on 17 September 2010, which became effective on the Listing Date on 13 October 2010 (the Adoption Date). Share Options could be granted within a period of 10 years from the Adoption Date. Therefore, as at 30 June 2013, the remaining life of the Share Option Scheme was approximately 7 years and 3 months. The purpose of the Share Option Scheme is to provide an opportunity for employees of the Group to acquire an equity participation in the Company and to encourage them to work towards enhancing the value of the Company for the benefit of the Company and its shareholders as a whole. Under the Share Option Scheme, the Company granted two batches of Share Options to its directors and employees. On 12 October 2011, the Company granted 3,000,000 and 32,200,000 Share Options to directors and employees respectively with the exercise price of HKD6.66. On 28 November 2012, the Company granted 5,000,000 and 17,750,000 Share Options to directors and employees respectively with the exercise price of HKD3.92. During the six months period ended 30 June 2013, no Share Option has been granted to any person under the Share Option Scheme. Details of the movements in the number of Share Options of the Company during the six months ended 30 June 2013 were as follows: Table 16. Director:
Number of Share Options Granted during the six months Exercise Name of Director Dr. Battsengel Gotov Date of grant 12 October 2011 28 November 2012 (Note 2) HKD3.92 5,000,000 5,000,000 Exercise period (Note 1) price per share HKD6.66 Balance as at 1 January 2013 3,000,000 ended 30 June 2013 Lapsed during the six months ended 30 June 2013 Cancelled during the six months ended 30 June 2013 Exercised during the six months ended 30 June 2013 Balance as at 30 June 2013 3,000,000
Table 17. Employees of the Group other than Directors:

Number of Share Options Lapsed during the Balance Exercise Exercise Date of grant 12 October 2011 28 November 2012 period (Note 1) (Note 2) price per share HKD6.66 HKD3.92 as at 1 January 2013 30,900,000 17,750,000 Granted during the six months ended 30 June 2013 six months ended 30 June 2013 4,050,000 Cancelled during the six months ended 30 June 2013 Exercised during the six months ended 30 June 2013 Balance as at 30 June 2013 26,850,000 17,750,000
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Share Option Scheme
Notes: 1. The Share Options are subject to vesting scale in four tranches of 25% each. The exercise periods are as follows: (1) (2) (3) (4) 2. first 25% of the Share Options granted 12 October 2012 to 12 October 2019 second 25% of the Share Options granted 12 October 2013 to 12 October 2019 third 25% of the Share Options granted 12 October 2014 to 12 October 2019 fourth 25% of the Share Options granted 12 October 2015 to 12 October 2019
The Share Options are subject to vesting scale in three tranches. The exercise periods are as follows: (1) (2) (3) first 25% of the Share Options granted 28 November 2013 to 28 November 2020 second 25% of the Share Options granted 28 November 2014 to 28 November 2020 third 50% of the Share Options granted 28 November 2015 to 28 November 2020
3.
4,050,000 Share Options lapsed in accordance with the terms of the Share Option Scheme during the six months ended 30 June 2013.
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Independent Review Report
Independent Review Report to the Board of Directors of Mongolian Mining Corporation (Incorporated in the Cayman Islands with limited liability)
INTRODUCTION
We have reviewed the interim financial report set out on pages 50 to 78 which comprises the consolidated balance sheet of Mongolian Mining Corporation (the Company) as of 30 June 2013 and the related consolidated statement of comprehensive income, the consolidated statement of changes in equity and condensed consolidated cash flow statement for the six months period then ended and explanatory notes. The Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited require the preparation of an interim financial report to be in compliance with the relevant provisions thereof and International Accounting Standard 34, Interim financial reporting, issued by the International Accounting Standards Board. The directors are responsible for the preparation and presentation of the interim financial report in accordance with International Accounting Standard 34. Our responsibility is to form a conclusion, based on our review, on the interim financial report and to report our conclusion solely to you, as a body, in accordance with our agreed terms of engagement, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report.
SCOPE OF REVIEW
We conducted our review in accordance with Hong Kong Standard on Review Engagements 2410, Review of interim financial information performed by the independent auditor of the entity, issued by the Hong Kong Institute of Certified Public Accountants. A review of the interim financial report consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Hong Kong Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
CONCLUSION
Based on our review, nothing has come to our attention that causes us to believe that the interim financial report as at 30 June 2013 is not prepared, in all material respects, in accordance with International Accounting Standard 34, Interim financial reporting. KPMG Certified Public Accountants 8th Floor, Princes Building 10 Chater Road Central, Hong Kong 27 August 2013
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Consolidated Statement of Comprehensive Income

for the six months ended 30 June 2013 unaudited
Six months ended 30 June 2013 Note Revenue Cost of revenue Gross profit Other revenue Other net income Administrative expenses Profit from operations Finance income Finance cost Net finance cost Share of losses of associates (Loss)/profit before taxation Income tax (Loss)/profit attributable to the equity shareholders of the Company for the period Other comprehensive income for the period Items that may be reclassified subsequently to profit or loss: Exchange differences on translation Total comprehensive income attributable to the equity shareholders of the Company for the period Basic and diluted (loss)/earnings per share 10 (58,721) (0.68) cents 50,463 0.84 cents 9 (33,492) 19,485 (25,229) 30,978 7 8 7(a) 7(a) 7(a) 5 6 USD000 247,849 (219,546) 28,303 201 4,725 (17,764) 15,465 8,186 (46,817) (38,631) (280) (23,446) (1,783) 2012 USD000 233,033 (170,880) 62,153 1,425 1,285 (19,068) 45,795 14,956 (20,707) (5,751) (120) 39,924 (8,946)
The notes on pages 54 to 78 form part of this interim financial report.
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Consolidated Balance Sheet

at 30 June 2013 unaudited
At 30 June 2013 Note Non-current assets Property, plant and equipment, net Construction in progress Lease prepayments Intangible assets Interest in associates Other non-current assets Deferred tax assets Total non-current assets Current assets Inventories Trade and other receivables Cash at bank and in hand Total current assets Current liabilities Short-term borrowings and current portion of long-term borrowings Trade and other payables Current taxation Convertible bond Obligations under finance leases Total current liabilities Net current assets Total assets less current liabilities Non-current liabilities Interest-bearing borrowings, less current portion Senior notes Provisions Deferred tax liabilities Obligations under finance leases Other non-current liabilities Total non-current liabilities NET ASSETS CAPITAL AND RESERVES Share capital Reserves TOTAL EQUITY 26 26 37,050 658,363 695,413 37,050 714,963 752,013 25 19 22 24 199,542 593,367 15,362 149,679 65 52,648 1,010,663 695,413 249,113 592,891 15,538 149,574 113 1,007,229 752,013 21 19 20 141,818 202,568 734 114 345,234 157,510 1,706,076 81,818 247,057 3,950 85,000 210 418,035 164,491 1,759,242 16 17 18 77,055 297,095 128,594 502,744 90,290 207,914 284,322 582,526 15 11 12 13 14 546,900 186,017 98 767,761 3,391 24,295 20,104 1,548,566 527,358 242,838 103 774,773 3,808 26,727 19,144 1,594,751 USD000 At 31 December 2012 USD000
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Consolidated Statement of Changes in Equity

Share capital USD000 Note At 1 January 2012 Changes in equity for the six months ended 30 June 2012: Profit for the period Other comprehensive income Total comprehensive income Equity-settled share-based transactions At 30 June 2012 Changes in equity for the six months ended 31 December 2012: Loss for the period Other comprehensive income Total comprehensive income Equity-settled share-based transactions At 31 December 2012 At 1 January 2013 Changes in equity for the six months ended 30 June 2013: Loss for the period Other comprehensive income Total comprehensive income Equity-settled share-based transactions At 30 June 2013 23 37,050 608,650 2,121 24,956 (33,492) (33,492) (127,449) (25,229) (25,229) 152,206 (25,229) (33,492) (58,721) 2,121 695,413 23 37,050 37,050 608,650 608,650 2,987 22,835 22,835 (40,414) (40,414) (93,957) (93,957) (33,520) (33,520) 177,435 177,435 (33,520) (40,414) (73,934) 2,987 752,013 752,013 23 37,050 608,650 3,633 19,848 19,485 19,485 (53,543) 30,978 30,978 210,955 30,978 19,485 50,463 3,633 822,960 (Note 26(b)) 37,050 Share premium USD000 (Note 26(c)) 608,650 Other reserve USD000 (Note 26(c)) 16,215 Exchange reserve USD000 (Note 26(c)) (73,028) 179,977 768,864 Retained earnings USD000 Total equity USD000
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Condensed Consolidated Cash Flow Statement

Six months ended 30 June 2013 Note Cash generated from/(used in) operations Tax paid Net cash generated from/(used in) operating activities Net cash generated from/(used in) investing activities Net cash (used in)/generated from financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at the beginning of the period Effect of foreign exchange rates changes Cash and cash equivalents at the end of the period 18 USD000 34,153 (2,534) 31,619 60,312 (112,540) (20,609) 44,322 (119) 23,594 2012 USD000 (68,147) (16,584) (84,731) (346,059) 444,746 13,956 41,006 1,209 56,171
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Notes to the Unaudited Interim Financial Report

1 CORPORATE INFORMATION
Mongolian Mining Corporation (the Company ) was incorporated in the Cayman Islands on 18 May 2010 as an exempted company with limited liability under the Companies Law, Cap 22 (Law 3 of 1961, as consolidated and revised) of the Cayman Islands. The Company and its subsidiaries (the Group) are principally engaged in the mining, processing, transportation and sale of coal. Pursuant to a group reorganisation completed on 17 September 2010 (the Reorganisation) to rationalise the group structure for the public listing of the Companys shares on the Main Board of The Stock Exchange of Hong Kong Limited (the Stock Exchange), the Companys shares were listed on the Stock Exchange on 13 October 2010. Details of the Reorganisation are set out in the prospectus of the Company dated 28 September 2010.
BASIS OF PREPARATION
This interim financial report has been prepared in accordance with the applicable disclosure provisions of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the Listing Rules), including compliance with International Accounting Standard 34, Interim financial reporting, (IAS 34) issued by the International Accounting Standards Board (IASB). It was authorised for issue on 27 August 2013. The interim financial report has been prepared in accordance with the same accounting policies adopted in the 2012 annual financial statements, except for the accounting policy changes that are expected to be reflected in the 2013 annual financial statements. Details of these changes in accounting policies are set out in Note 3. The preparation of an interim financial report in conformity with IAS 34 requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses on a year to date basis. Actual results may differ from these estimates. The interim financial report contains condensed consolidated financial statements and selected explanatory notes. The notes include an explanation of events and transactions that are significant to an understanding of the changes in financial position and performance of the Group since the 2012 annual financial statements. The condensed consolidated interim financial statements and notes thereon do not include all of the information required for full set of financial statements prepared in accordance with International Financial Reporting Standards (IFRSs). The interim financial report is unaudited, but has been reviewed by KPMG in accordance with Hong Kong Standard on Review Engagements 2410, Review of interim financial information performed by the independent auditor of the entity, issued by the Hong Kong Institute of Certified Public Accountants. KPMGs independent review report to the Board of Directors is included on page 49. The financial information relating to the financial year ended 31 December 2012 that is included in the interim financial report as being previously reported information does not constitute the Groups annual financial statements prepared under IFRSs for that financial year but is derived from those financial statements. The Groups annual financial statements for the year ended 31 December 2012 are available from the Companys registered office. The Companys auditors have expressed an unqualified opinion on those financial statements in their report dated 11 March 2013.
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CHANGES IN ACCOUNTING POLICIES

The IASB has issued a number of new IFRSs and amendments to IFRSs that are first effective for the current accounting period of the Group and the Company. Of these, the following developments are relevant to the Groups financial statements: Amendments to IAS 1, Presentation of financial statements-Presentation of items of other comprehensive income IFRS 12, Disclosure of interests in other entities IFRS 13, Fair value measurement IFRIC 20, Stripping costs in the production phase of a surface mine Amendments to IFRS 7, Financial instruments: Disclosures Offsetting financial assets and financial liabilities Annual Improvements to IFRSs 2009-2011 Cycle
The Group has not applied any new standard or interpretation that is not yet effective for the current accounting period. Amendments to IAS 1, Presentation of financial statements-Presentation of items of other comprehensive income The amendments to IAS 1 require entities to present the items of other comprehensive income that would be reclassified to profit or loss in the future if certain conditions are met separately from those that would never be reclassified to profit or loss. The Groups presentation of other comprehensive income in these financial statements has been modified accordingly. IFRS 12, Disclosure of interests in other entities IFRS 12 brings together into a single standard all the disclosure requirements relevant to an entitys interests in subsidiaries, joint arrangements, associates and unconsolidated structured entities. The disclosures required by IFRS 12 are generally more extensive than those previously required by the respective standards. Since those disclosure requirements only apply to a full set of financial statements, the Group has not made additional disclosures in this interim financial report as a result of adopting IFRS 12. IFRS 13, Fair value measurement IFRS 13 replaces existing guidance in individual IFRSs with a single source of fair value measurement guidance. IFRS 13 also contains extensive disclosure requirements about fair value measurements for both financial instruments and non-financial instruments. Some of the disclosures are specifically required for financial instruments in the interim financial reports. The Group has provided those disclosures in note 27. The adoption of IFRS 13 does not have any material impact on the fair value measurements of the Groups assets and liabilities.
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CHANGES IN ACCOUNTING POLICIES (continued)

IFRIC 20, Stripping costs in the production phase of a surface mine IFRIC 20 was issued in October 2011. It provides guidance on the accounting for the costs of stripping activity in the production phase of surface mining when one of the two benefits accrue to the entity from the stripping activity: useable ore that can be used to produce inventory or improved access to further quantities of material that will be mined in future periods. The Group has adopted IFRIC 20 effective 1 January 2013. Upon adoption of IFRIC 20, the Group assessed the stripping asset on the balance sheet as at 1 January 2012 and determined that there are identifiable components of the ore body with which this stripping asset can be associated. Accordingly, no opening consolidated balance sheet as at 1 January 2012 was presented as no opening balance adjustment was recorded. In addition, the Group assessed the effect of the adoption of IFRIC 20 and determined that the effects to the Groups net profit for the six months ended 30 June 2012 and the Groups financial position as at 31 December 2012 are not material and does not require any restatement of the comparative figures in the interim financial report. Amendments to IFRS 7, Financial instruments: Disclosures Offsetting financial assets and financial liabilities The amendments introduce new disclosures in respect of offsetting financial assets and financial liabilities. Those new disclosures are required for all recognised financial instruments that are set off in accordance with IAS 32, Financial instruments: Presentation (IAS32) and those that are subject to an enforceable master netting arrangement or similar agreement that covers similar financial instruments and transactions, irrespective of whether the financial instruments are set off in accordance with IAS 32. The adoption of the amendments does not have an impact on the Groups interim financial report because the Group has not offset financial instruments. Annual Improvements to IFRSs 2009-2011 Cycle This cycle of annual improvements contains amendments to five standards with consequential amendments to other standards and interpretations. Among them, IAS 34 has been amended to clarify that total assets for a particular reportable segment are required to be disclosed only if the amounts are regularly provided to the chief operating decision maker (CODM) and only if there has been a material change in the total assets for that segment from the amount disclosed in the last annual financial statements. The amendment also requires the disclosure of segment liabilities if the amounts are regularly provided to the CODM and there has been a material change in the amounts compared with the last annual financial statements. The amendment does not have any impact on the segment disclosure of the Group because the Group does not have any reportable segments with total assets or total liabilities materially different from the amounts reported in the last annual financial statements.
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SEGMENT REPORTING
The Group has one business segment, the mining, processing, transportation and sale of coal. The majority of its customers are located in China. Based on information reported to the CODM for the purpose of resource allocation and performance assessment, the Groups only operating segment is the mining, processing, transportation and sale of coal. Accordingly, no additional business and geographical segment information are presented.
5 REVENUE
The Group is principally engaged in the mining, processing, transportation and sale of coal. Revenue represents the sales value of goods sold to customers exclusive of value added or sales taxes and after deduction of any trade discounts and volume rebates. The amount of each significant category of revenue recognised during the six months ended 30 June 2013 is as follows: Six months ended 30 June 2013 USD000 Washed hard-coking coal (HCC) Washed semi-soft coking coal (SSCC) Washed thermal coal (middlings) Raw coal (ROM coal) 216,387 2,452 26,025 2,985 247,849 2012 USD000 174,984 2,658 29,965 25,426 233,033
COST OF REVENUE
Six months ended 30 June 2013 USD000 Mining costs Processing costs Transportation costs Others
#
2012 USD000 51,848 21,123 59,198 38,711 170,880
91,927 21,823 55,238 50,558 219,546
Others include USD15,803,000 (six months ended 30 June 2012: USD18,652,000) relating to the royalty tax on the coal sold.
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(LOSS)/PROFIT BEFORE TAXATION

(Loss)/profit before taxation is arrived at after charging/(crediting): (a) Net finance cost: Six months ended 30 June 2013 USD000 Interest income Net change in fair value of derivative component of convertible bond (Note 21) Net change in fair value of derivative component of senior notes (Notes 17 and 22) Foreign exchange gain, net Finance income Interest on bank and other borrowings Net change in fair value of derivative component of senior notes (Notes 17 and 22) Interest on liability component of convertible bond (Note 21) Interest on liability component of senior notes (Note 22) Transaction costs Unwinding interest on Other long-term payables Accrued reclamation obligations (Note 24) Less: Interest expense capitalised Net interest expense Foreign exchange loss, net Finance cost Net finance cost 25 396 (5,873) 42,971 3,846 46,817 38,631 49 280 (9,236) 20,707 20,707 5,751 8,120 1,034 27,101 1,288 3,178 13,747 2,261 (8,186) 10,880 (1,380) (4,029) (14,956) 10,428 (2,429) (8,186) 2012 USD000 (7,118)
Borrowing costs have been capitalised at a rate of 7.9% and 8.7% per annum for the six months ended 30 June 2013 and 2012, respectively.
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(LOSS)/PROFIT BEFORE TAXATION (continued)

(b) Staff costs: Six months ended 30 June 2013 USD000 Salaries, wages, bonuses and benefits Retirement scheme contributions Equity-settled share-based payment expenses (Note 23) 14,066 865 2,121 17,052 2012 USD000 14,730 1,771 3,633 20,134
Pursuant to the relevant labour rules and regulations in Mongolia, the Group participates in defined contribution retirement benefit schemes (the Schemes) organised by the Government of Mongolia (the GoM) whereby the Group is required to make contributions to the Schemes at a rate of 7% of the eligible employees salaries. Contributions to the Schemes vest immediately. The Group has no other material obligation for the payment of pension benefits beyond the annual contributions described above. (c) Other items: Six months ended 30 June 2013 USD000 Depreciation and amortisation Operating lease charges: minimum lease payments Costs of inventories 29,315 2,707 219,546 2012 USD000 23,702 2,358 170,880
INCOME TAX
(a) Income tax in the consolidated statement of comprehensive income represents: Six months ended 30 June 2013 USD000 Current tax Deferred taxation 3,344 (1,561) 1,783 2012 USD000 10,897 (1,951) 8,946
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INCOME TAX (continued)

(b) Reconciliation between tax expense and accounting (loss)/profit at applicable tax rates: Six months ended 30 June 2013 USD000 (Loss)/profit before income tax Notional tax on (loss)/profit before taxation Tax effect of non-deductible expense (Note (iii)) Tax effect of non-taxable income Tax losses not recognised Tax losses not recognised in previous years but utilised in current period Actual tax expenses (3,896) 1,783 8,946 (23,446) 3,139 2,775 (443) 208 2012 USD000 39,924 7,929 988 29
Notes: (i) Pursuant to the income tax rules and regulations of Mongolia, the Group is liable to Mongolian Enterprise Income Tax at a rate of 10% of first Mongolian National Togrog (MNT ) 3 billion taxable income and 25% of the remaining taxable income for the six months ended 30 June 2013 and 2012. (ii) Pursuant to the rules and regulations of the Cayman Islands, the Group is not subject to any income tax in the Cayman Islands. The Group is not subject to Hong Kong, Luxembourg and Gibraltar profits tax as it has no assessable income arising in or derived from Hong Kong, Luxembourg and Gibraltar during the six months ended 30 June 2013 and 2012. (iii) Non-deductible items mainly represent the non-deductible expenses and the unrealised exchange losses which are non-deductible pursuant to the income tax rules and regulations of Mongolia during the six months ended 30 June 2013 and 2012.
OTHER COMPREHENSIVE INCOME

Six months ended 30 June 2013 USD000 Exchange differences on translation of: financial statements of overseas subsidiaries net investment Reclassification adjustments for amounts transferred to profit or loss: disposal of net investment (5,522) 33,492 (19,485) 8,519 30,495 (9,057) (10,428) 2012 USD000
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10 (LOSS)/EARNINGS PER SHARE

(a) Basic (loss)/earnings per share The calculation of basic loss per share for the six months ended 30 June 2013 is based on the loss attributable to equity shareholders of the Company for the period of USD25,229,000 (six months ended 30 June 2012: profit attributable to equity shareholder of the Company of USD30,978,000) and the 3,705,036,500 ordinary shares (six months ended 30 June 2012: 3,705,036,500 shares) in issue during the six months ended 30 June 2013. (b) Diluted (loss)/earnings per share For the six months ended 30 June 2013 and 30 June 2012, basic and diluted (loss)/earnings per share are the same as the effect of the potential ordinary shares outstanding is anti-dilutive.
11 PROPERTY, PLANT AND EQUIPMENT

During the six months ended 30 June 2013, the additions of property, plant and equipment of the Group, representing mainly workshop and various mining structures, amounted to USD66,248,000 (six months ended 30 June 2012: USD188,126,000). Items of property, plant and equipment with net book value of USD502,000 were disposed of during the six months ended 30 June 2013 (six months ended 30 June 2012: USD204,000). As at 30 June 2013, certain of the Groups borrowings were secured by the Groups coal handling and preparation plant-modules I and II, power plant and water supply infrastructure assets-phase I with a net book value of USD148,347,000, USD41,454,000 and USD4,566,000, respectively (31 December 2012: USD172,320,000, USD46,351,000 and USD5,034,000, respectively) (see Note 19).
12 CONSTRUCTION IN PROGRESS
The construction in progress is mainly related to coal handling and preparation plant and other mining related machinery and equipment. Included in construction in progress as at 31 December 2012 was an amount of USD60 million relating to the railway base infrastructure between Ukhaa Khudag coking coal mine and Gashuun Sukhait border check point of Mongolia (the UHG-GS Railway ) under a Build-Operate-Transfer Concession Agreement (the Concession Agreement) with the GoM. On 6 May 2013, the GoM, represented by the Ministry of Road and Transportation (MRT), the State Property Committee (SPC), Mongolian Railway (MTZ), and the Group (together, the Parties) signed an agreement pursuant to which the Parties agreed upon the terms and conditions according to which the Concession Agreement is terminated, and the existing contracts and obligations for the construction of the UHG-GS Railway will be reassigned to MTZ and/or its designated entity. The compensation amount for all the costs incurred by the Group in relation to the construction of the UHG-GS Railway was confirmed and agreed to be MNT93,677,314,158, of which MNT9,347,290,047 related outstanding payables to the Engineering Procurement and Construction (EPC) contractor of the Project has been assumed by the GoM, after which the reimbursable amount totals to MNT84,330,024,111. This amount is to be further decreased to MNT83,825,730,412 (equivalent to USD57,964,000), as a result of: a. exclusion of withholding tax calculation amounting to MNT49,108,109 accrued to a contractor, due to the reason that the contractor is to receive the payment under the name of its Mongolian subsidiary;
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12 CONSTRUCTION IN PROGRESS (continued)

b. exclusion of assets kept by the Group with net book value of MNT455,185,590.
Upon the termination of the Concession Agreement, the construction in progress relating to the UHG-GS Railway with the net book value of USD57 million (see Note 17(c)) was derecognised resulting a gain of USD7 million credited to other net income in the consolidated statement of comprehensive income.
13 LEASE PREPAYMENTS
Lease prepayments comprise interests in leasehold land held for own use under operating leases located in Mongolia, with original lease period from 15 years to 60 years.
14 INTANGIBLE ASSETS
Intangible assets represent the acquired mining right and the operating right of paved road.
15 OTHER NON-CURRENT ASSETS

At 30 June 2013 USD000 Prepayments in connection with construction work, equipment purchases and others Others 24,295 24,295 23,442 3,285 26,727 At 31 December 2012 USD000
16 INVENTORIES
At 30 June 2013 USD000 Coal Materials and supplies 59,065 17,990 77,055 At 31 December 2012 USD000 72,150 18,140 90,290
As at 30 June 2013, certain of the Groups borrowings were secured by the Groups coal inventory of USD49,970,000 (31 December 2012: USD58,922,000) (see Note 19).
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17 TRADE AND OTHER RECEIVABLES

At 30 June 2013 USD000 Trade receivables (Note (a)) Other receivables (Note (c)) Less: allowance for doubtful debts (Note (b)) 76,523 228,501 305,024 (7,929) 297,095 (a) Ageing analysis Trade receivables (net of allowance for doubtful debts) are invoiced amounts due from the Groups customers which are due from the date of billing. As at 30 June 2013, all the trade receivables are aged within one year. (b) Impairment of trade receivables Impairment losses in respect of trade receivables are recorded using an allowance account unless the Group is satisfied that recovery of the amount is remote, in which case the impairment loss is written off against trade receivables directly. As at 30 June 2013, an allowance for doubtful debts amounts to USD7,929,000 (31 December 2012: USD5,929,000) which was made on a collective basis in respect of the Groups trade receivable balances outstanding at the balance sheet date. (c) Other receivables At 30 June 2013 USD000 Amounts due from related parties (Note (i)) Prepayments and deposits (Note (ii)) VAT and other tax receivables (Note (iii)) Derivative financial instruments (Note (iv)) Amounts due from GoM in relation to the termination of the Concession Agreement (Note 12 and (v)) Others (Note (vi)) 57,964 15,218 228,501 17,841 178,024 632 72,274 78,113 4,300 At 31 December 2012 USD000 94 64,598 83,071 12,420 At 31 December 2012 USD000 35,819 178,024 213,843 (5,929) 207,914
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17 TRADE AND OTHER RECEIVABLES (continued)

(c) Other receivables (continued)
Notes: (i) Amount due from related parties are unsecured, interest-free and have no fixed repayment terms (see Note 28(a)). (ii) At 30 June 2013, prepayments and deposits mainly represent the prepayments made to the Groups mining contractor and fuel supplier. (iii) Value added tax (VAT ) and other tax receivables include amounts that have been accumulated to date in certain subsidiaries and were due from the Tax Authority of Mongolia. Based on current available information the Group anticipates full recoverability of such amounts. (iv) (v) It represented the embedded derivative in the senior notes (see Note 22). It represented the compensation amount receivable from the GoM upon the termination of Concession Agreement of UHG-GS Railway, after taking into account of liabilities assumed by the GoM (see Note 12). The Group is negotiating with the GoM regarding the potential investment in a railway project of the GoM and the compensation amount could be converted into equity of a special purpose enterprise to be established by the GoM to implement the railway project and/or reimbursed. (vi) At 30 June 2013, this item mainly represents the reimbursement receivables due from Erdenes MGL LLC of USD3.5 million and the GoM of USD4.5 million for the construction costs in relation to the expansion project of the border crossing in Mongolian side at Gashuun Sukhait, which are interest-free. Based on current available information the Group anticipates full recoverability of such amounts.
All other receivables were expected to be recovered or expensed off within one year.
18 CASH AT BANK AND IN HAND

At 30 June 2013 USD000 Cash in hand Cash at bank Cash at bank and in hand Less: time deposits with original maturity over three months Cash and cash equivalents in the condensed consolidated cash flow statement 23,594 44,322 92 128,502 128,594 (105,000) At 31 December 2012 USD000 92 284,230 284,322 (240,000)
As at 30 June 2013, certain of the Groups borrowings were secured by the Groups cash at bank of USD19,344,000 (31 December 2012: USD9,690,000) (see Note 19).
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19 BORROWINGS
(a) The Groups long-term interest-bearing borrowings comprise: At 30 June 2013 USD000 Bank loan (secured) Less: Current portion Less: Unamortised transaction costs 306,364 (101,818) (5,004) 199,542 At 31 December 2012 USD000 337,273 (81,818) (6,342) 249,113
At 30 June 2013, the Groups long-term interest-bearing borrowings from European Bank for Reconstruction and Development, Nederlandse Financierings-Maatschappij Voor Ontwikkelingslanden N.V., and Deutsche Investitions-und Entwicklungsgesellschaft mbH of USD98,182,000 (31 December 2012: USD103,636,000), USD22,909,000 (31 December 2012: USD26,182,000) and USD15,273,000 (31 December 2012: USD17,455,000), respectively, bearing interest of 6 months LIBOR + 3.25%~3.75%, were secured by the Groups property, plant and equipment (see Note 11) and cash at bank (see Note 18). At 30 June 2013, the Groups long-term interest-bearing borrowings from Standard Bank of South Africa Ltd. of USD170,000,000 (31 December 2012: USD190,000,000), bearing interest of LIBOR + 5.25%, were secured by the Groups cash at bank (see Note 18) and inventory (see Note 16). The Groups long-term borrowings are repayable as follows: At 30 June 2013 USD000 Within 1 year or on demand After 1 year but within 2 years After 2 years but within 5 years 101,818 141,818 62,728 306,364 (b) The Groups short-term interest-bearing borrowings comprise: At 30 June 2013 USD000 Bank loans Unsecured Current portion of long-term borrowings (bank loans) 40,000 101,818 141,818 At 31 December 2012 USD000 81,818 81,818 At 31 December 2012 USD000 81,818 101,818 153,637 337,273
In the first half of 2013, the Group obtained USD20,000,000 short-term loan from Trade and Development Bank of Mongolia with interest rate of 9.0% per annum and USD20,000,000 short-term loan from Golomt Bank of Mongolia with interest rate of 9.0% per annum.
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20 TRADE AND OTHER PAYABLES

At 30 June 2013 USD000 Trade payables (Note (i)) Receipts in advance (Note (ii)) Amounts due to related parties (Note (iii)) Payables for purchase of equipment Interest payable Other taxes payables Promissory notes(Note (iv)) Others (Note (v)) 79,410 1,857 16,758 20,453 16,924 8,858 105,000 5,808 255,068 Less: Non-current portion of promissory notes (Note 25) 52,500 202,568 At 31 December 2012 USD000 45,718 1,745 14,109 38,706 15,271 4,152 105,000 22,356 247,057 247,057
Notes: (i) (ii) All trade payables are due and payable on presentation or within one month. Receipts in advance represent payments in advance made by third party customers in accordance with the terms set out in respective sales agreements. (iii) Amounts due to related parties represent payables for equipment, construction work and services provided, which are unsecured, interest-free and have no fixed terms of repayments (see Note 28(a)). (iv) On 27 November 2012, the Company issued two promissory notes to QGX Holdings Ltd., each in the amount of USD52,500,000, and shall bear interest at a rate of 3.0% per annum commencing on the issue date to the maturity date. The original maturity date was 22 November 2013. On 8 February 2013, an amendment agreement was signed by the Company and QGX Holdings Ltd. to extend the maturity date of two promissory notes from 22 November 2013 to 31 March 2014 and 31 December 2014, respectively. (v) Others represent accrued expenses, payables for staff related costs and other deposits.
All of the other payables and receipts in advance are expected to be settled or recognised in profit or loss within one year or are repayable on demand.
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21 CONVERTIBLE BOND
Liability component USD000 At 1 January 2012 Interest charged during the year Interest payable Fair value adjustment At 31 December 2012 At 1 January 2013 Interest charged during the period (Note 7(a)) Interest payable Principal repaid amount At 30 June 2013 81,079 6,766 (2,845) 85,000 85,000 1,034 (1,034) (85,000) Derivative component USD000 2,429 (2,429) Total USD000 83,508 6,766 (2,845) (2,429) 85,000 85,000 1,034 (1,034) (85,000)
On 1 June 2011, the Company issued the USD85,000,000 aggregate principal amount convertible bond (convertible bond) to QGX Holdings Ltd. (Bondholder), related to the acquisition of BN mine. The convertible bond bears interest at 2.0% per annum. If the Groups consolidated leverage ratio exceeds 5.5:1, the interest rate of the convertible bond shall increase to 4.0% per annum. The initial maturity date of the convertible bond is 1 December 2012 and shall be extended but no later than 21 months from 1 June 2011. The convertible bond has been accounted for as a hybrid financial instrument containing both a derivative component and a liability component. The convertible bond has been paid on 22 April 2013.
22 SENIOR NOTES
USD000 At 1 January 2012 Issuance of senior notes Transaction costs Interest charged during the year Interest payable At 31 December 2012 At 1 January 2013 Interest charged during the period (Note 7(a)) Interest payable At 30 June 2013 604,920 (13,213) 41,417 (40,233) 592,891 592,891 27,101 (26,625) 593,367
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22 SENIOR NOTES (continued)

On 29 March 2012, the Company issued guaranteed senior notes in the aggregate principal amount of USD600,000,000 and listed on the Singapore Exchange Securities Trading Limited. The senior notes bear interest at 8.875% per annum, payable semi-annually in arrears, and will be due in 2017. The senior notes may be redeemed at the option of the Company upon giving not less than 30 days or no more than 60 days notice to the holders. The Company has agreed, for the benefit of the holders of the senior notes, to pledge all of the capital stock of Mongolian Coal Corporation Limited owned by the Company and to cause Mongolian Coal Corporation Limited to pledge all of the capital stock of Mongolian Coal Corporation S.a.r.l. owned by Mongolian Coal Corporation Limited. The senior notes are guaranteed by some of the Companys subsidiaries, namely Mongolian Coal Corporation Limited, Mongolian Coal Corporation S.a.r.l., Energy Resources Corporation LLC, Energy Resources LLC, Energy Resources Mining LLC and Transgobi LLC. The senior notes have been accounted for as a hybrid financial instrument containing both a derivative component and a liability component. The derivative component was initially recognised at its fair value of USD4,920,000, and the attributable transaction cost of USD107,000 were charged to the profit or loss for the year ended 31 December 2012. The fair value of the derivative component as at 30 June 2013 was USD4,300,000 which was presented as derivative financial instruments (see Note 17(c)(iv)). The liability component was initially recognised at amortised cost of USD591,707,000, after taking into account of attributable transaction costs of USD13,213,000. Fair value of the derivative component was valued by the directors with the reference to a valuation report issued by an independent business valuer based on the Binomial model.
23 EQUITY-SETTLED SHARE-BASED PAYMENT TRANSACTIONS

The Company has a share option scheme (Share Option Scheme) which was adopted on 17 September 2010 whereby the board of directors of the Group are authorised, at their discretion, invites eligible participants to receive options to subscribe for shares subject to the terms and conditions stipulated therein as incentives or rewards for their contributions to the Group. Under the Share Option Scheme, the Company may grant options to employees and directors, suppliers, customers and professional advisers of the Group to subscribe for shares of the Company. The exercise price of the options is determined by the board of directors of the Company at the time of grant, and shall be the highest of the nominal value of the shares, the closing price of the shares at the date of grant and the average closing price of the shares for the five business days immediately preceding the date of grant. The Share Option Scheme remains in force for a period of 10 years commencing on its adoption date and will expire on 16 September 2020.
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23 EQUITY-SETTLED SHARE-BASED PAYMENT TRANSACTIONS (continued)

(i) The terms and conditions of the grants are as follows: Number of Grant Date 12 October 2011 options 000 8,800 12 October 2011 to 12 October 2012 12 October 2011 8,800 12 October 2011 to 12 October 2013 12 October 2011 8,800 12 October 2011 to 12 October 2014 12 October 2011 8,800 12 October 2011 to 12 October 2015 28 November 2012 5,688 28 November 2012 to 28 November 2013 28 November 2012 5,688 28 November 2012 to 28 November 2014 28 November 2012 Total share options (ii) 11,374 57,950 28 November 2012 to 28 November 2015 12 October 2011 to 12 October 2019 12 October 2011 to 12 October 2019 12 October 2011 to 12 October 2019 12 October 2011 to 12 October 2019 28 November 2012 to 28 November 2020 28 November 2012 to 28 November 2020 28 November 2012 to 28 November 2020 Vesting conditions Contractual life of options
The movement of the number and weighted average exercise price of share options are as follows: 2013 Exercise Price HKD Outstanding at 1 January Granted during the period/year Forfeited during the period/year Outstanding at 30 June/ 31 December Exercisable at 30 June/ 31 December 6.66 7,463 6.66 8,475 5.47 52,600 5.56 56,650 5.56 6.66 Number of options 000 56,650 (4,050) 2012 Exercise Price HKD 6.66 3.92 6.66 Number of options 000 34,900 22,750 (1,000)
The options outstanding at 30 June 2013 had an exercise price of HKD6.66 or HKD3.92 (2012: HKD6.66 or HKD3.92) per share and a weighted average remaining contractual life of 6.8 years (2012: 7.2 years).
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24 PROVISIONS
At 30 June 2013 USD000 Accrued reclamation obligations Others Less: Current portion 15,362 1,500 16,862 (1,500) 15,362 At 31 December 2012 USD000 15,538 1,500 17,038 (1,500) 15,538
The accrual for reclamation costs has been determined based on managements best estimates. The estimate of the associated costs may be subject to change in the near term when the reclamation on the land from current mining activities becomes apparent in future periods. At the balance sheet date, the Group reassessed the estimated costs and adjusted the accrued reclamation obligations, where necessary. The Groups management believes that the accrued reclamation obligations at 30 June 2013 are adequate and appropriate. The accrual is based on estimates and therefore, the ultimate liability may exceed or be less than such estimates. The movement of the accrued reclamation cost is as follows: 2013 USD000 At 1 January Adjustment of estimations Accretion expense (Note 7(a)) Exchange adjustments At 30 June/31 December 15,538 19 396 (591) 15,362 2012 USD000 11,110 3,430 1,070 (72) 15,538
25 OTHER NON-CURRENT LIABILITIES

It mainly represented the non-current portion of promissory notes with amount of USD52,500,000. Please refer to Note 20(iv).
26 CAPITAL, RESERVES AND DIVIDENDS

(a) Dividends The directors do not recommend declaration and payment of interim dividend in respect of the six months ended 30 June 2013 (six months ended 30 June 2012: nil).
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26 CAPITAL, RESERVES AND DIVIDENDS (continued)

(b) Share capital Authorised: At 30 June 2013 No. of shares 000 Ordinary shares Ordinary shares, issued and fully paid: At 30 June 2013 No. of shares 000 Ordinary shares (c) Reserves (i) Share premium Under the Companies Law of the Cayman Islands, the share premium account of the Company may be applied for payment of distributions or dividends to shareholders provided that immediately following the date on which the distribution or dividend is proposed to be paid, the Company is able to pay its debts as they fall due in the ordinary courses of business. (ii) Other reserve The other reserve comprises the following: the aggregate amount of share capital and other reserves of the companies now comprising the Group after elimination of the investments in subsidiaries; and the portion of the grant date fair value of unexercised share options granted to directors and employees of the Company that has been recognised in accordance with the accounting policy adopted for share-based payments. (iii) Exchange reserve The exchange reserve comprises foreign exchange adjustments arising from the translation of the MNT denominated financial statements of the the Group operations to the Groups presentation currency. 3,705,037 USD000 37,050 At 31 December 2012 No. of shares 000 3,705,037 USD000 37,050 6,000,000 USD000 60,000 At 31 December 2012 No. of shares 000 6,000,000 USD000 60,000
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27 FAIR VALUE MEASUREMENT OF FINANCIAL INSTRUMENTS

(a) Financial assets and liabilities measured at fair value (i) Fair value hierarchy Fair value measurements as at 30 June 2013 using Quoted Fair value at 30 June prices in active market for (Level 1) USD000 Recurring fair value measurement Financial assets: Derivative financial instruments: Redemption option embedded in senior notes 4,300 4,300 USD000 Significant other observable inputs (Level 2) USD000 Significant unobservable inputs (Level 3) USD000
2013 identical assets
Fair value measurements as at 31 December 2012 using Quoted Fair value at 31 December 2012 USD000 Recurring fair value measurement Financial assets: Derivative financial instruments: Redemption option embedded in senior notes Financial liabilities: Derivative financial instruments: Conversion option embedded in convertible bond 2,429 2,429 12,420 12,420 prices in active market for identical assets (Level 1) USD000 Significant other observable inputs (Level 2) USD000 Significant unobservable inputs (Level 3) USD000
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27 FAIR VALUE MEASUREMENT OF FINANCIAL INSTRUMENTS (continued)

(a) Financial assets and liabilities measured at fair value (continued) (ii) Information about Level 3 fair value measurements Range Valuation techniques Redemption option embedded in senior notes Binomial model Expected volatility 32% Significant unobservable inputs (weighted average)
The fair value of redemption option embedded in senior notes is determined using binomial model and the significant unobservable input used in the fair value measurement is expected volatility. The fair value measurement is positively correlated to the expected volatility. As at 30 June 2013, it is estimated that with all other variables held constant, an increase/decrease in the expected volatility by 1% would have decreased/increased the Groups loss by USD300,000. The movement during the period in the balance of Level 3 fair value measurements is as follows: At 30 June 2013 USD000 Redemption option embedded in senior notes: At 1 January Changes in fair value recognized in profit or loss during the period At 30 June/31 December (8,120) 4,300 At 30 June 2013 USD000 Conversion option embedded in convertible bond: At 1 January Changes in fair value recognized in profit or loss during the period At 30 June/31 December (2,429) 2,429 7,500 12,420 At 31 December 2012 USD000 12,420 4,920 At 31 December 2012 USD000
The changes in fair value arising from the remeasurement of the redemption option and conversion option embedded in senior notes and convertible bond are presented in finance cost/income in the consolidated statement of comprehensive income.
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27 FAIR VALUE MEASUREMENT OF FINANCIAL INSTRUMENTS (continued)

(b) Fair value of financial assets and liabilities carried at other than fair value In respect of cash and cash equivalents, trade and other receivables, and trade and other payables, the carrying amounts approximate fair value due to the relatively short term nature of these financial instruments. In respect of borrowings, the carrying amounts are not materially different from their fair values as at 30 June 2013. The fair values of borrowings are estimated as the present value of future cash flows, discounted at current market interest rates for similar financial instruments. The aggregate carrying values of other financial liabilities carried on the consolidated balance sheet are not materially different from their fair values as at 30 June 2013.
28 MATERIAL RELATED PARTY TRANSACTIONS

(a) Transactions with related parties Related parties refer to enterprises over which the Group is able to exercise significant influence or control during the six months ended 30 June 2013. During the six months ended 30 June 2013, the Group entered into transactions with the following related parties. Name of party MCS (Mongolia) Limited (MCS Mongolia) MCS Holding LLC (MCS) Uniservice Solution LLC (Uniservice Solution) MCS Property LLC (MCS Property) MCS Electronics LLC (MCS Electronics) MCS Energy LLC (MCS Energy) MCS International LLC (MCS International) Erchim Suljee LLC (Erchim Suljee) Relationship Shareholder Subsidiary of MCS Mongolia Subsidiary of MCS Mongolia Subsidiary of MCS Mongolia Subsidiary of MCS Mongolia Subsidiary of MCS Mongolia Subsidiary of MCS Mongolia Subsidiary of MCS Mongolia
Particulars of significant transactions between the Group and the above related parties during the six months ended 30 June 2013 are as follows: Six months ended 30 June 2013 USD000 Ancillary services (Note (i)) Lease of property, plant and equipment (Note (ii)) Purchase of equipment and construction work (Note (iii)) Finance leases of equipment (Note (iv)) Sales of property, plant and equipment (Note (v)) 12,011 575 3,041 21 643 2012 USD000 11,459 436 2,791 186
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28 MATERIAL RELATED PARTY TRANSACTIONS (continued)

(a) Transactions with related parties (continued) (i) Ancillary services represent expenditures for support services such as consultancy, cleaning and canteen expense paid to Uniservice Solution, MCS and its affiliates. The service charges are based on comparable or prevailing market rates, where applicable. (ii) Lease of property, plant and equipment represents rental paid or payable in respect of properties and office equipment leased from MCS Electronics, Shangri-La Ulaanbaatar LLC, MCS and its affiliates. The rental charges are based on comparable or prevailing market rates, where applicable. (iii) Purchase of equipment and construction work represents expenditure relating to equipment and construction service provided by MCS Electronics, MCS and its affiliates. The purchases are carried out at comparable or prevailing market rates, where applicable. (iv) Finance leases of equipment represent expenditure relating to the lease of equipment from MCS Electronics through finance lease. The rental charges are based on comparable or prevailing market rates, where applicable. (v) Sales of property, plant and equipment represent sale to MCS Energy. The sales are carried out at comparable or prevailing market rates, where applicable. The directors of the Company are of the opinion that the above transactions were conducted in the ordinary course of business, on normal commercial terms and in accordance with the agreements governing such transactions. Amounts due from/(to) related parties At 30 June 2013 USD000 Other receivables (Note 17) Other accruals and payables (Note 20) 632 (16,758) At 31 December 2012 USD000 94 (14,109)
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28 MATERIAL RELATED PARTY TRANSACTIONS (continued)

(b) Key management personnel remuneration Key management personnel are those persons holding positions with authority and responsibility for planning, directing and controlling the activities of the Group, directly or indirectly, including the Groups directors. Six months ended 30 June 2013 USD000 Salaries and other emoluments Discretionary bonus Retirement scheme contributions Equity-settled share-based payment expenses 881 587 83 2,567 4,118 Total remuneration is included in staff cost (see Note 7(b)). 2012 USD000 662 319 85 1,878 2,944
29 COMMITMENTS
(a) Capital commitments Capital commitments outstanding at respective balance sheet dates not provided for in the interim financial report were as follows: At 30 June 2013 USD000 Contracted for Authorised but not contracted for 31,297 68,763 100,060 (b) Operating lease commitments (i) At 30 June 2013, the total future minimum lease payments under non-cancellable operating leases are payable as follows: At 30 June 2013 USD000 Within 1 year After 1 year but within 5 years 2,113 986 3,099 At 31 December 2012 USD000 2,823 1,593 4,416 At 31 December 2012 USD000 35,409 69,427 104,836
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29 COMMITMENTS (continued)
(b) Operating lease commitments (continued) (ii) The Group leases certain buildings through operating leases. These operating leases do not contain provisions for contingent lease rentals. None of the agreements contain escalation provisions that may require higher future rental payments. (c) Environmental contingencies Historically, the Group has not incurred any significant expenditure for environmental remediation. Except for the accrued reclamation obligations as disclosed in Note 24, and amounts incurred pursuant to the environment compliance protection and precautionary measures in Mongolia, the Group has not incurred any other significant expenditure for environmental remediation, is currently not involved in any other environmental remediation, and has not accrued any other amounts for environmental remediation relating to its operations. Under existing applicable legislations, the directors believe that there are no probable liabilities that will have a material adverse effect on the financial position or operating results of the Group. Environmental liabilities are subject to considerable uncertainties which affect the Groups ability to estimate the ultimate cost of remediation efforts. The outcome of environmental liabilities under future environmental legislations cannot be estimated reasonably at present and which could be material. (d) Contingency in respect of tax dispute The Group received two decisions (the Decisions), dated 26 December 2012, made by the state customs inspectors of the General Customs Office of Mongolia regarding the results of the postclearance audit made in relation to import activities for construction of coal handling and preparation plant module I and II. The Group was claimed for additional customs duties of USD1,370,000, VAT of USD2,877,000 and related penalty of USD1,274,000. The Group does not agree with the Decisions and commenced a defense action against the Decisions in the Capital Administrative Court of Mongolia. The first instance court decisions are anticipated to be available in the third quarter of 2013. The Group believes that it has legal grounds not to agree with the Decisions and will provide all reasonable. However, it is difficult to estimate the outcome of the litigation at this early stage. If the Group were to found liable to the claim, based upon final courts decision, the under-paid customs duties and VAT would result in an increase in the cost of the Groups property, plant and equipment and the penalty would be charged to the Groups profit or loss.
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29 COMMITMENTS (continued)
(e) Contingency in respect a claim filed by the Lawyers Association for Environment The Group received a claim of approximately USD36,120,000 on 28 March 2013, filed in a district court of Ulaanbaatar by the Lawyers Association for Environment (LAE) regarding allegations against the Group in relation to possible damages to the environment due to its coal hauling operation. The first instance court hearing was held on 8 August 2013 and the court ruled in favour of LAE. The Group does not agree with the decision and will file an appeal to the appeal court in due course and will defend vigorously. The Group believes that it has legal grounds to appeal to all instances of court and would provide all reasonable arguments for such appeals. However, it is difficult to predict the final outcome. If the Group were to be found liable to the claim, the claimed amount would be charged to the Groups profit or loss.
30 MAJOR NON-CASH TRANSACTIONS

According to the relevant tax regulations in Mongolia, the income tax payable can be offset by the VAT receivables. During the six months ended 30 June 2013, the Group offset the VAT receivables of USD4,020,000 (six months ended 30 June 2012: USD4,488,000) and USD8,588,000 (six months ended 30 June 2012: USD9,073,000) with income tax payable and royalty tax payable, respectively. During the six months ended 30 June 2013, payables amounting to MNT9,347,290,047 has been transferred to the GoM in relation to the termination of Concession Agreement of UHG-GS Railway (see Note 12).
31 POST BALANCE SHEET EVENT

On 16 August 2013, the GoM has resolved to purchase the Ukhaa Khudag Gashuun Sukhait paved road (UHG-GS paved road) from the Group in its cabinet meeting. As at the date of this interim financial report, the Company has not yet received any notification letter from the GoM in relation to this resolution.
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Glossary and Technical Terms

Adoption date 13 October 2010, the date the Share Option Scheme was adopted and became effective AGM aimag Annual general meeting The highest level of Mongolian administrative subdivision (essentially equivalent to a province), of which there are 21 in Mongolia ASP bagh BCM BN BN deposit BN mine BN Mining License Board CG Code CHPP CISA CODM coke coking coal Average selling price The smallest administrative unit in rural districts of Mongolia Bank cubic metre Baruun Naran BN coal deposit located in Khankhongor soum, South Gobi aimag The area of the BN deposit that can be mined by open pit mining methods Mining License 14493A The Board of Directors of the Company The Corporate Governance Code Coal handling and preparation plant China Iron and Steel Association chief operating decision maker Bituminous coal from which the volatile components have been removed Coal used in the process of manufacturing steel. It is also known as metallurgical coal Company, our Company, Group, our Group, we, us, our or Mongolian Mining Corporation Mongolian Mining Corporation, a company incorporated in the Cayman Islands with limited liability on 18 May 2010 and except where the context indicates otherwise (i) our subsidiaries; and (ii) with respect to the period before our Company became the holding company of our present subsidiaries, the business operated by our present subsidiaries or (as the case may be) their predecessors Convertible Bond USD85,000,000 aggregate principal amount convertible bond issued by the Company to QGX Holdings Ltd.
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Director(s) DP EBITDA Employees Written Guidelines EPC Fexos Ganqimaodu or GM Gashuun Sukhait or GS GoM Group Guiding Principle
Director(s) of the Company Democratic Party Earnings before interest, tax, depreciation and amortisation The Model Code for securities transactions by relevant employees Engineering Procurement and Construction Fexos Limited The China side of the China-Mongolia border crossing The Mongolia side of the China-Mongolia border crossing Government of Mongolia The Company and its subsidiaries The Guiding Principles for Business and Human Rights endorsed by the United Nations
HCC HKD HSE IASs IASB IFRSs JORC
Hard coking coal Hong Kong Dollar Health, Safety and Environment International Accounting Standards International Accounting Standards Board International Financial Reporting Standards Joint Ore Reserves Committee of The Australian Institute of Mining and Metallurgy, Australian Institute of Geoscientists and Minerals Council of Australia
KAM KGL KHL km KMM
Kerry Asset Management Limited Kerry Group Limited Kerry Holdings Limited kilometre Kerry Mining (Mongolia) Limited
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KMUHG LAE Listing Rules
Kerry Mining (UHG) Limited The Lawyers Association for Environment The Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited life-of-mine Lost Time Injury Frequency Rate Washed thermal coal A concentration or occurrence of material of intrinsic economic interest in or on the earths crust in such form, quality and quantity that there are reasonable prospects for eventual economic extraction. The location, quantity, quality, geological characteristics and continuity of a mineral resource are known, estimated or interpreted from specific geological evidence and knowledge. Mineral resources are sub-divided, in order of increasing geological confidence, into inferred, indicated and measured categories Mongolian National Togrog The Model Code for Securities Transactions by Directors of Listed Issuers Ministry of Road and Transportation Million tonnes Mongolian Railway Norwest Corporation National Statistical Office The main type of mine designed to extract minerals close to the surface; also known as open cut
LOM LTIFR middlings mineral resource
MNT Model Code MRT Mt MTZ Norwest NSO open-pit
ore
A naturally occurring solid material from which a metal or valuable mineral can be extracted profitably
Parliament probable reserve
Parliament of Mongolia The economically mineable part of an indicated and, in some circumstances, a measured mineral resource demonstrated by at least a preliminary feasibility study. This study must include adequate information on mining, processing, metallurgical, economic and other relevant factors that demonstrate, at the time of reporting, that economic extraction can be justified
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raw coal RMB ROM
Generally means coal that has not been washed and processed Renminbi Run-of-mine, the as-mined material during room and pillar mining operations as it leaves the mine site (mined glauberite ore and out-of-seam dilution material)
RPM seam
RungePincockMinarco Limited A stratum or bed of coal or other mineral; generally applied to large deposits of coal
SEHK or Stock Exchange SFO share(s) Share Options
The Stock Exchange of Hong Kong Limited Securities and Futures Ordinance Ordinary share(s) of USD0.01 each in the share capital of the Company The share options which were granted under the Share Option Scheme to eligible participants to subscribe for Shares of the Company
Share Option Scheme
A share option scheme which was adopted by the Company on 17 September 2010
Share Purchase Agreement
Share purchase agreement entered by the Company and its subsidiary Mongolian Coal Corporation Limited with Quincunx (BVI) Ltd and Kerry Mining (Mongolia) Limited in relation to the acquisition of the entire issued share capital of QGX Coal Ltd
soum
The second level of Mongolian administrative subdivisions (essentially equivalent to a sub-province)
SPC SRK SSCC Standard Bank Facility
State Property Committee SRK Consulting (Australasia) Pty Ltd Semi-soft coking coal A facility agreement with Standard Bank of South Africa Ltd as the original lender, and Standard Bank Plc as the lead arranger
Strategic Entity Foreign Investment Law
Law on Regulation of Foreign Investment Business Entities Operating in Sectors of Strategic Importance
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strip ratio or stripping ratio
The ratio of the amount of waste removed (in bank cubic metres) to the amount of coal or minerals (in tonnes) extracted by open-pit mining methods
Tavan Tolgoi
The coal formation located in South Gobi, Mongolia which includes our UHG deposit
the Project the Schemes thermal coal
a unified railway project The Group participates in defined contribution retirement benefit schemes Also referred to as steam coal or steaming coal, thermal coal is used in combustion processes by power producers and industrial users to produce steam for power and heat. Thermal coal tends not to have the carbonisation properties possessed by coking coals and generally has lower heat value and higher volatility than coking coal
THG THG Mining License TKH tonne Tsogttsetsii UHG UHG deposit
Tsaihkar Khudag Mining License MV-017336 Tsagaan Khad Metric ton Tsogttsetsii soum is the location where Tavan Tolgoi sits Ukhaa Khudag Ukhaa Khudag deposit located in the Tavan Tolgoi coalfield which includes both aboveground (<300m) and underground (>300m) deposits
UHG-GS Railway
the railway base infrastructure between Ukhaa Khudag coking coal mine and Gashuun Sukhait border check point of Mongolia
UHG mine UHG Mining License USD VAT washed coal WSA
The aboveground (<300m) portion of our UHG deposit The Mining License MV-11952 United States Dollar Value added tax Coals that have been washed and processed to reduce its ash content World Steel Association
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Appendix I
SUMMARY
The UHG JORC reserve estimate as at 31 December 2012 is detailed by seam in Tables 1-1, 1-2 and 1-3. Table 1-1: Total Proved UHG Reserves Proved Seam 12 11 10B 10A 9B 9A 8C 8B 8A 7B 7A 6 5A 4C 4B 4A 3A 0CU 0CL 0CL2L1 0BU 0BL 0AU 0AL Total Total Coking (Mt) Total Thermal (Mt) Total Proved (Mt) ROM Coal (Mt) 0.2 0.6 0.9 1.9 9.5 2.4 0.1 0.7 10.6 3.3 5.2 2.3 4.3 18.9 9.8 18.5 19.8 38.8 1.2 9.2 6.2 24.9 28.6 0.7 218 Ash Calorific Value (%) 32.0 41.2 43.2 34.8 25.1 36.5 48.3 44.7 25.8 34.2 35.6 41.6 37.0 24.5 35.8 31.4 29.9 27.0 39.7 38.7 36.5 24.7 39.6 43.0 31.0 4,750 5,830 4,700 4,430 5,170 (kcal/kg) Total Sulphur (%) 0.9 0.8 0.8 1.2 1.4 1.4 1.1 1.1 1.3 1.3 1.2 1.0 1.0 0.9 1.0 1.0 1.1 1.1 1.2 1.0 1.0 1.0 0.9 0.9 1.1 155 64 218
(Note: Estimate has been rounded to reflect accuracy, ROM Coal and Qualities @ 5% total moisture)
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Appendix I
Table 1-2: Total Probable UHG Reserves Probable Seam 12 11 10B 10A 9B 9A 8C 8B 8A 7B 7A 6 5A 4C 4B 4A 3A 0CU 0CL 0CL2L1 0BU 0BL 0AU 0AL Total Total Coking (Mt) Total Thermal (Mt) Total Probable (Mt) ROM Coal (Mt) 0.8 2.9 1.5 1.8 1.1 1.0 0.0 0.2 6.2 1.2 4.2 2.8 2.2 17.5 8.7 14.9 13.6 7.7 0.7 1.3 2.1 1.1 3.5 0.1 97 Ash Calorific Value (%) 34.8 35.2 45.0 31.6 32.6 36.6 48.5 46.7 23.8 37.6 37.2 41.8 37.4 26.2 35.4 35.7 36.4 31.4 44.0 41.8 36.8 34.5 39.9 43.0 33.6 4,690 4,910 4,630 4,240 4,690 (kcal/kg) Total Sulphur (%) 0.8 0.9 1.3 1.4 1.4 1.2 1.1 1.2 1.1 1.2 1.0 1.0 1.1 0.8 1.0 1.0 1.0 1.0 1.2 1.0 0.8 0.9 0.8 0.8 1.0 81 16 97
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Appendix I
Table 1-3: Total UHG Reserves Total Open Cut Coal Reserve Seam 12 11 10B 10A 9B 9A 8C 8B 8A 7B 7A 6 5A 4C 4B 4A 3A 0CU 0CL 0CL2L1 0BU 0BL 0AU 0AL Total Total Coking (Mt) Total Thermal (Mt) Total Reserves (Mt) ROM Coal (Mt) 1.0 3.5 2.4 3.7 10.5 3.3 0.2 0.9 16.7 4.4 9.4 5.0 6.5 36.3 18.5 33.4 33.4 46.5 1.9 10.5 8.3 26.1 32.1 0.9 315 Ash Calorific Value (%) 34.1 36.3 44.3 33.3 25.9 36.6 48.3 45.1 25.1 35.1 36.3 41.7 37.1 25.3 35.6 33.3 32.6 27.7 41.3 39.1 36.5 25.1 39.7 43.0 31.8 4,730 5,790 4,700 4,400 5,120 (kcal/kg) Total Sulphur (%) 0.9 0.9 1.1 1.3 1.4 1.3 1.1 1.1 1.2 1.3 1.1 1.0 1.0 0.9 1.0 1.0 1.1 1.1 1.2 1.0 0.9 1.0 0.9 0.9 1.0 236 80 315
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Appendix I
The BN JORC reserve estimate as at 31 December 2012 is detailed by seam in Table 2-1, 2-2 and 2-3. Table 2-1: Total BN Proved Reserves Seam V U T R Q N K J I H G F Total Mt (@ 6% Mois) 0.0 8.1 22.1 2.0 2.0 15.3 9.4 11.2 9.7 30.3 23.3 7.4 141 Proved Coal Reserves Ash (% ad) 0.0 43.2 27.1 42.4 44.9 43.7 45.5 34.1 30.3 28.6 49.8 32.5 36.7 CSN (ad) 0.0 5.0 3.0 4.0 2.0 2.0 5.0 5.0 4.0 4.0 2.0 4.0 4.0 CV (kcal/kg ad) 0.0 5,820 6,730 6,250 5,710 5,370 5,810 6,270 6,430 6,690 5,490 6,280 6,150 Total Sulphur (% ad) 0.0 0.9 1.1 0.9 0.8 0.9 1.0 1.2 0.9 1.1 1.2 0.9 1.0 118 23 141
Total Coking (Mt) Total Thermal (Mt) Total Proved (Mt)

(Note: Estimate has been rounded to reflect accuracy, ROM Coal @ 6% total moisture)
Table 2-2: Total BN Probable Reserves Seam V U T R Q N K J I H G F Total Probable Coal Reserves Mt Ash (@ 6% Mois) (% ad) 2.6 1.0 0.0 6.6 1.3 1.3 2.7 3.5 0.5 2.3 1.7 0.5 24 43.6 47.7 18.2 41.6 46.3 43.8 43.5 42.0 31.4 29.0 50.8 26.9 41.7 CSN (ad) 4.0 4.0 3.0 4.0 2.0 3.0 5.0 5.0 4.0 4.0 2.0 4.0 4.0 CV (kcal/kg ad) 6,250 5,350 6,360 6,250 5,720 5,570 5,770 6,360 6.380 6,640 5,360 6,270 6,080 Total Sulphur (% ad) 1.0 0.8 1.4 1.0 0.9 0.8 1.0 1.0 0.9 1.2 1.0 0.8 1.0 22 2 24
Total Coking (Mt) Total Thermal (Mt) Total Proved (Mt)

(Note: Estimate has been rounded to reflect accuracy, ROM Coal @ 6% total moisture)
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Appendix I
Table 2-3: Total BN Reserves Total Coal Reserves Seam V U T R Q N K J I H G F Total Mt (@ 6% Mois) 2.7 9.0 22.1 8.6 3.3 16.6 12.1 14.7 10.2 32.6 25.5 7.9 165 Ash (% ad) 43.5 43.6 27.1 41.8 45.4 43.7 45.1 36.0 30.4 28.6 49.9 32.1 37.4 CSN (ad) 4.0 5.0 3.0 4.0 2.0 3.0 5.0 5.0 4.0 4.0 2.0 4.0 4.0 CV (kcal/kg ad) 6,250 5,770 6,730 6,250 5,720 5,380 5,800 6,290 6,430 6,690 5,480 6,280 6,140 Total Sulphur (% ad) 1.0 0.9 1.1 1.0 0.9 0.9 1.0 1.1 0.9 1.1 1.2 0.9 1.0 140 25 165
Total Coking (Mt) Total Thermal (Mt) Total Reserves (Mt)
(Note: Estimate has been rounded to reflect accuracy, Total Coal Reserves @ 6% total moisture)
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(Incorporated in the Cayman Islands with limited liability) Stock Code: 975

interim report 2013

PRINCIPAL PLACE OF BUSINESS IN HONG KONG

HEADQUARTERS AND PRINCIPAL PLACE OF BUSINESS IN MONGOLIA

mongolian mining corporation

interim report 2013

PRINCIPAL SHARE REGISTRAR AND TRANSFER OFFICE

HONG KONG SHARE REGISTRAR

mongolian mining corporation

interim report 2013

Mongolian Coal Corporation S.a.r.l.

Baruun Naran S.a.r.l.

Energy Resources Corporation LLC

Khangad Exploration LLC

Energy Resources LLC

Energy Resources Rail LLC

Energy Resources Road LLC

Gobi Road LLC

Tavan Tolgoi Airport LLC

Energy Resources Mining LLC

Ukhaa Khudag Water Supply LLC

United Power LLC

mongolian mining corporation

interim report 2013

mongolian mining corporation

interim report 2013

2012 4.9x 7.8x

Change 16.4x -7.2x

mongolian mining corporation

interim report 2013

ROM coal production (million tonnes ( Mt))

Processed coal production (Mt)

3.7 2.1 0.6 1.6 2.4 1H 2013 Secondary product 1.3

0.4 1H 2012 BN Mine 1H 2013 UHG Mine

1H 2012 Primary product

Coal sales volume (Mt)

ASP of washed HCC (USD/tonne)

160 120 80 40 0 138.7 98.7

Sales revenue (million USD)

EBITDA (million USD)

280 210 140 70 0 233.0 247.8

mongolian mining corporation

interim report 2013

Mining cost per ROM tonne (USD/tonne)

Processing cost per ROM tonne (USD/tonne)

Transportation cost per tonne (USD/tonne)

Total operating cash cost at Ganqimaodu (GM) (USD/tonne)1

21.6 9.0 17.6 9.4

12.6 8.2 1H 2012 Long haul 1H 2013 Short haul

Coal inventory (million USD)

2.0 1.5 72.2 59.1 1.0 0.5 0.0 1.4x 1.5x

interim report 2013

Manag ement Discussion and Analysis

mongolian mining corporation

interim report 2013

Management Discussion and Analysis

mongolian mining corporation