THE COMPANY: Originally a state-owned company, Sharyn Gol was partially privatised and listed on the Mongolian Stock Exchange in 1995. It became 100% private in 2003. The firm has undergone complete restructuring since a New York-based company, Firebird Fund, acquired 61% of it. In January 2011 Sharyn Gol was named “most transparent joint stock company” at an event organised for the 20th anniversary of the Mongolian Stock Exchange. Sharyn Gol is a single-asset company. This asset, Sharyn Gol coal mine, is located in Northern Mongolia (215 km – or a drive of around three hours – from the capital Ulaanbaatar), and is close to the country’s third-largest city, Darkhan. Sharyn Gol coalfield was first explored in 1958, and production started in 1965. By 1975 the mine was producing 1.1m tonnes per annum (mtpa), and by 1980 it had a capacity of 2.5 mtpa. Following the withdrawal of Soviet support, however, production dwindled. In 2011 the firm produced 0.38m tonnes of coal. The company benefits from the fact that it sits next to the town of Sharyn Gol, providing basic amenities and potentially reducing administrative costs. It is also connected to the trans-Siberian railroad via a dedicated 65-km rail spur. This is an unusual advantage. The spur was constructed during the socialist period, and has a replacement value of around $100m. As a result, Sharyn Gol has a distinct transportation cost advantage and does not have the burden of managing trucks, road construction and maintenance that many other coal mines have. Sharyn Gol currently sells coal to the domestic market, with 80% of production delivered to the Darkhan and Erdenet thermal power plants. All coal is sold run-of-mine with no processing. Sharyn Gol produces thermal coal, and has 373.8m tonnes of Joint Ore Reserves Committee (JORC) resources (191m tonnes measured and 84m tonnes indicated). More than 90% of it lies less than 300 metres deep. Typical air-dried raw coal has calorific values of 4403-4428 kilocalories per kg. The exploration for determining JORC resources was conducted in two areas in the Sharyn Gol coalfield – the South-West Area and the Satellite Area – and excluded areas known to contain significant amounts of coal, so further exploration could add new JORC resources.

In 2011 Sharyn Gol issued 1.3m new shares to finance a drilling programme and buy equipment, and converted MNT5.5bn ($3.85m) in debt to common shares with the approval of the Financial Regulatory Commission. The firm’s revenue was MNT8.6bn ($6.02m) in 2009, and rose to MNT11.6bn ($8.12m) by 2011. During the first half of 2012 revenue was MNT4.7bn ($3.29m). Net income increased from MNT215m ($151,000) in 2010 to MNT421m ($295,000) in 2011. It grew to MNT1.5bn ($1.05m) in the first half of 2012, thanks to a non-operating income of MNT2.8bn ($1.96m) in this period.

DEVELOPMENT STRATEGY: Sharyn Gol aims to expand its resources with additional exploration drilling, targeting an additional 25m-40m tonnes. There are three exploration target areas, including the Southern Area where exploration was conducted during the Soviet era. However, the area needs an updated and more thorough exploration.

The company is currently redeveloping its mining operations, with the goal of improving its products and becoming a mid-tier coal producer. This includes improving drill and blast practices, consolidating the stripping fleet, improving the utilisation of the shovel fleet and modifying the crushing plant. The company plans to re-establish production to its original 2.5 mtpa capacity. It also has plans to investigate the feasibility of a washing plant, hiring a contract miner (to possibly reduce capital expenditure) and use the rail spur. Sharyn Gol is one of only a handful of companies that are listed on the Mongolian Stock Exchange and hire an internationally known auditor (Ernst & Young). Moreover, the company has hired a Mongolian law firm to conduct legal due diligence.