● MMC signed two MoUs with Shenhua Group, together with other two Mongolian coal companies, to collaborate on cross-border railway construction and coal trade for 1 bn tonnes in 20 years.

● Although there are no details confirmed by the MoUs, we view the cooperation to be positive on MMC's ASP in the long term by providing more stable procurement for Mongolian coal and cutting cross-border and logistic costs at the China end via rail facilities.

● However, the downside risk remains on MMC's 2013E earnings, as 9M13A HCC sales volume is 63% of our FY13E and that ASP continues to underperform benchmark prices in 2H13E due to lock-up sales. MMC will continue to struggle to breakeven under the current weak coal market. Our sensitivity test indicates net profit to increase by US$24 mn and US$48 mn in 2014E if HCC ASP is US$5/t and US$10/t ahead of our base case, respectively.

● After another 30% fall post half-year results, MMC's current valuation becomes fair compared to the potential upside on ASP in the long term. Upgrade to NEUTRAL from Underperform.

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