“The contribution of ETT to Mongolia’s economic growth and development to vastly increase’”

Mr B.Gankhuyag, Chief Executive Officer of state owned Erdenes Tavantolgoi, a joint stock company where every citizen of Mongolia is a shareholder and owns and operates the largest undeveloped coking coal mine in the world. Erdenes Tavantolgoi JSC alone controls over 7 billion tons of coal reserves located in the South Gobi province and the company alone constituted over 6 percent% of the state budget in 2018 through taxes and fees alone.

Mr B.Gankhuyag has personally been involved in the Tavantolgoi project since inception of Erdenes Mongol LLC in 2007 and held various positions most recent being Senior Vice President of mine operations at Erdenes Tavantolgoi JSC (ETT) and in 2018 he was appointed the CEO of the company to lead the company into its next stage of growth.

Under his management ETT has been able to fully pay off all long and short term debts within the last 2 years, grow sales revenue to almost 2 trillion tugriks per annum last year and achieve a net profit of 807.7 Billion tugriks.

– First of all, we would like to thank you for accepting our invititaiton for the interview. From your biography, you have been connected with the Tavantolgoi project from the beginning, can you briefly tell us about your involvement?

– In 2007 in accordance with the Minerals Law, a state owned company Erdenes Mongol LLC was incorporated with the purpose of managing and bringing deposits of strategic importance into development. Erdenes Mongol LLC started with a workforce of only 5 employees which included myself, during my time I was involved in the management and development of strategic deposits on behalf of the state and worked on projects including Erdenet copper, Oyu-Tolgoi, Tavantolgoi, Baganuur and others for the purpose of maximizing the benefits received from the development of the strategic deposits by the state and the citizens of Mongolia.

On a personal note, my career at Erdenes Mongol LLC and Erdenes Tavantolgoi JSC has taken me through various roles from specialist, department head to Vice President, Senior Vice President and most recently in my current role as CEO of Erdenes Tavantolgoi JSC. In terms of coal, up until a few years ago coal and in general global commodities market had been in a slump with steep price declines, however prices have seen a tremendous increase since 2016 and coking coal prices are expected to remain stable at current levels over the medium term, supported by favorable supply and demand dynamics.

I can say that our company has been able to capture this price increase efficiently, over the last few years we have fully paid of the initial prepayment amount received from Chinese state owned Chalco in the amount of $350 million, plus $200 million received from the Development Bank of Mongolia and millions of dollars more in loans from domestic commercial banks from our sales revenue and still remain with a very strong cash flow and balance sheet. In 2011, ETT only exported roughly about 280 thousand tons of coal but has now grown to finish 2018 with 13.1 million tons of coal exported, 2 trillion tugriks in revenue and finished the year with 807.7 billion tugriks in net profit. Furthermore, since the beginning of 2019 our company is still continuing to grow our production and increase our coal exports and as of May this year has reached over 6.5 million tons of coal exported and plan to finish the year with over 1 billion USD in sales revenue.

Our company is working very hard to develop ETT into a world class coking coal project. In recent years, we have been revising our corporate strategy, focusing on raising capital and development of special projects such CHPP, power plant, railroad and also internally focusing on improving our operations, efficiency, reducing our costs, opening new logistical routes, increasing our revenue and margins. Furthermore, in accordance with related parliamentary and GOM resolutions regarding the company, my team is working diligently to list ETT on international stock exchanges.

– What do you believe are the core assets of your company and how would you review the performance of ETT JSC been under your leadership?

Core asset of any company is not equipment, physical plant, technology or even intellectual property but the most valuable asset is the people who work there or the human capital. Any and all plans to move your company forward always begins with the people who work there. Therefore, I would have to say the core asset of ETT are the employees and the miners and their dedication to this company.

ETT has come a long way since its inception in 2011, the company was initially heavily burdened with debt but still survived through the difficult commodity price cycles and now has come out stronger than before. The company has been able to turn a net profit of 343 Billion MNT in 2017 and 807.7 Billion MNT in 2018, whereas all the previous years operated at a loss. The recent demand for coking coal has played a major role in the turnaround of the company but importantly the management team and employees of our company have sacrificed much through their relentless work efforts and their dedication to this company and have been able to capture this upswing.

I was grateful to see our teams and miners’ efforts, dedication and the performance of ETT being honored in 2018 as we won “Best Management” category from the “Bloomberg Awards”. It was a great honor to receive this award on behalf of our team as it highlighted the dedication, persistency of our employees and their efforts to see the Tavantolgoi project succeed and become the driving engine of economic growth for Mongolia. Chamber of Trade and Commerce has also recognized ETT for its corporate performance and management improvements in 2018 and placed our company as the top 2 corporate performers in the country alongside Erdenet Copper mining. In terms of various taxes and the contribution to the state budget ETT has been a top contributor within the last 2 years with 236 Billion MNT in 2017 and 479 Billion MNT in 2018.

I would contribute the performance improvements and the successes of the company to our valued employees and miners, over the years our workers have become much more efficient at their jobs with experience gained over the years. ETT has been through many tough times but has always been able to pull through and come ahead.

In May of this year ETT reached a milestone achievement of 50 million tons of coal produced and exported since beginning in 2011 but Tavantolgoi itself is the largest undeveloped coking coal deposit in the world with JORC compliant ROM resources of 7.4 billion tons. Therefore, you can imagine the potential of this project and the scale of operations that can be achieved in the future and I would see the company achieve production and exports of over 30 million tons per annum as per Feasibility studies within the coming years.

– It is the expectation of many people in Mongolia that ETT will directly benefit the people of the country, can you share with us your views and what the people can expect from ETT?

In the coming years I plan to increase production capacity and coal exports to over 35 million tons per annum from the current 15 million tons per annum. As the company currently prepares for the IPO to raise capital on international markets, ETT plans to use the funds to increase efficiency, improve logistics and to finance projects that add value and will maximize revenues. Under the guidance of the Ministry of Mining and Heavy Industries, our company for the past year has completed the preparation work for the listing and currently is in the process of putting the necessary team of domestic and international advisors and experts to complete the listing process.

I believe as ETT completes the IPO process, the company will come out much stronger and more efficient than before with international expertise and improved governance in place. As previously stated, the potential for the Tavantolgoi project is tremendous given the size of the resources and requires large scale investments in CHPP, water and energy supply and also infrastructure projects such as railroad that can not only vastly increase the amount of coal that can be exported but greatly reduce the cost of logistics and improve profit margins.

ETT is currently 85 percent owned by the Government of Mongolia and 15 percent owned by the citizens and domestic companies, as the value of the company increases so does the holding of the state and the people who own the shares. Therefore, ETT directly can contribute in two ways one being the value of shares increasing over time and the other is more directly through distribution of dividends to shareholders. However, ETT contributes indirectly as we employ over 10,000 people from subcontractors, suppliers, and truck drivers but also as one of the biggest contributes to the state budget in taxes and through funding of social projects such as Tavantolgoi Fuel to reduce smog and pollution in the city of Ulaanbaatar.

I believe that over the coming years the contribution of ETT to the economic growth and development of the country and the financial and social betterment of the citizens of Mongolia will vastly increase and that is what I am striving to achieve.

– Many citizens of Mongolia as shareholders in ETT were expecting dividend payment from the profits made in 2018 but your BOD made the decision not to distribute any dividends, can you explain your position on the matter?

In 2018 the company made a net profit of 807.7 Billion MNT, ETT has operated profitably in the last 2 years since its inception but in 2017 we paid off all short and long term debts to become a debt free company. As for 2018, myself and the other executive managers of ETT concluded that the company was in a financial position to distribute dividends and submitted our proposals to the BOD of the company and in accordance with the company law the BOD made its decision that it was more efficient to invest in infrastructure project, to finance the construction of the railroad and this decision was introduced at our annual shareholders meeting.

As expected this decision was a hot topic of discussion among the general public, with ETT, every citizen of Mongolia is a shareholder and there were lively debates on the necessity to distribute cash to citizens or to use the funds for investment purposes. The BOD has the right to make the final decision on this matter but my personal view has always been that ETT must contribute to the betterment of the citizens of Mongolia and the economic growth of the country and I have always viewed my duty is to lead ETT in reaching its fullest potential and become a world class operation.

– What is being done within the framework of informing public about the operations and activities of the company, in other words creating transparency?

I regularly have make media presentations and updates myself to inform the citizens of Mongolia on the performance of the company and have also opened in various locations “Information Center for 1072 shares” where the general public can come to receive any advice from opening brokerage accounts to information on their shares. Our information centers have been very well received by the general public.

Furthermore, we have formed advisory councils consisting of professionals in their respected fields to advise the management of the company on certain matters, the members of the advisory council were selected by the general public as well.

In terms of ETT, not only are job openings posted on our website like most companies but procurement tenders, coal purchase bids and addition information are publicly accessible. Therefore, I am leading ETT on the path to become the most transparent company in regards to its operations because I believe that being transparent is crucial for ETT as the citizens of Mongolia are shareholders in the company. However, it is quite unfortunate that some people will take advantage of this transparency approach and use it for personal or political gain but regardless our company and our employees will always strive to make ETT reach its full potential and become a world class operation.

– Thank you for your time for the inteview with us. We wish you and your company every success the future.

– Thank you and I wish you and your team the best.