Nov. 13, 2019, 7:23 a.m. EST

SouthGobi Resources announces third quarter 2019 financial and operating results

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HONG KONG, Nov 13, 2019 (GLOBE NEWSWIRE via COMTEX) -- SouthGobi Resources Ltd. (Toronto Stock Exchange ("TSX"): SGQ, Hong Kong Stock Exchange ("HKEX"): 1878) (the "Company" or "SouthGobi") today announces its financial and operating results for the three and nine months ended September 30, 2019. All figures are in U.S. dollars ("USD") unless otherwise stated.

Significant Events and Highlights

The Company's significant events and highlights for the three months ended September 30, 2019 and the subsequent period up to November 13, 2019 are as follows:

According to the Notice Letter, the Soumber Licenses have been terminated pursuant to Clause 56.1.5 of Article 56 of the Minerals Law, Clauses 4.2.1 and 4.2.5 of Article 4 and Clause 28.1.1 of Article 28 of the General Administrative Law and a decision order of a working group established under an order of the Minister of Environment and Tourism (Mongolia). According to this decision order, the working group determined that SGS had violated its environmental reclamation obligations with respect to the Soumber Deposit. The Soumber Deposit is an undeveloped coal deposit covering approximately 22,263 hectares located approximately 20 kilometers east of the Company's Ovoot Tolgoi coal mine in Mongolia. The Company owned a 100% interest in the Soumber Deposit.

The Company believes the cancelation of the Soumber Licenses is without merit. The Company is not aware of any failure on its part to fulfill its environmental reclamation duties as they relate to the Soumber Deposit. On October 4, 2019, SGS filed a claim against MRAM and the Ministry of Environment and Tourism of Mongolia in the Administration Court of the Capital City (the "Administration Court") seeking an order to restore the Soumber Licenses. The Company anticipates that the Administration Court will issue its ruling before the end of the 2019 calendar year. The Company will take all such actions, including additional legal actions, as it considers necessary to reinstate the Soumber Licenses. However, there can be no assurance that a favorable outcome will be reached. The termination of the Soumber Licenses does not have any impact on its current mining operations at the Ovoot Tolgoi mine site.

On March 30, 2019, the Company announced that the Special Committee concluded the Formal Investigation and delivered a final report summarizing its key findings to the Board, which was adopted and approved at a meeting held on March 30, 2019. Please refer to the Company's Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") for the three months ended March 31, 2019 for a summary of the key findings of the Formal Investigation, a copy of which is available under the Company's profile on SEDAR at www.sedar.com .

Based on the key findings of and information obtained from the Formal Investigation, the Company considered the resulting financial impact on its prior financial statements and restated certain items in the Company's financial statements for the years ended December 31, 2016 and December 31, 2017 (the "Prior Restatement"), as disclosed in the Company's audited annual consolidated financial statements and related management's discussion and analysis for the year ended December 31, 2018, copies of which are available under the Company's profile on SEDAR at www.sedar.com . The Prior Restatement reflects the impact of the misappropriation of assets as well as the reclassification of certain balances of assets in the prior years. With respect to the three and nine months period ended September 30, 2018, the net effect of the Prior Restatement was a decrease in the net comprehensive loss of $1.3 million and $3.3 million for the respective periods. A summary of the requisite adjustments on the financial statements for the three and nine months period ended September 30, 2018 is set forth in the table below:







        
                                                                                Three months ended                       Three months ended
        $ in thousands                                                          September 30, 2018        Loss decrease/ September 30, 2018
        Statement of comprehensive income extract                               (As previously reported)  (increase)     (Restated)
        Other operating expenses                                                         (4,721   )           1,304             (3,417  )
        Net loss attributable to equity holders of the Company                  $        (3,990   )       $   1,304      $      (2,686  )
        Other comprehensive loss for the period                                          (7,247   )           (16   )           (7,263  )
        Net comprehensive loss attributable to equity holders of the Company    $        (11,237  )       $   1,288      $      (9,949  )
                                                                                Nine months ended                        Nine months ended
        $ in thousands                                                          September 30, 2018        Loss decrease/ September 30, 2018
        Statement of comprehensive income extract                               (As previously reported)  (increase)     (Restated)
        Other operating expenses                                                $        (24,150  )       $   3,464      $      (20,686 )
        Finance income                                                                   472                  (290  )           182
        Net loss attributable to equity holders of the Company                  $        (34,053  )       $   3,174      $      (30,879 )
        Other comprehensive loss for the period                                          (9,677   )           119               (9,558  )
        Net comprehensive loss attributable to equity holders of the Company    $        (43,730  )       $   3,293      $      (40,437 )
        


The current operation plan contemplates significantly higher volumes of production in order to achieve the Company's revenue and cash flow targets. Such plans will require a significant level of capital expenditure in waste rock stripping in 2019 and 2020. Such expenditures and other working capital requirements may require the Company to seek additional financing. There is no guarantee that the Company will be able to successfully execute the programs mentioned above and to secure other sources of financing. In addition, the current import restrictions on F-grade coal by Chinese authorities will further affect the short term cash inflow and may in turn undermine the execution of the operation plan. If the import restrictions on F-grade coal continue for an indefinite period, or if the Company fails to execute the aforementioned programs, or is unable to secure additional capital financing, or otherwise restructure or refinance its business in order to address its cash requirements through September 30, 2020, then the Company is unlikely to have sufficient cash flows from mining operations in order to satisfy its current ongoing obligations and future contractual commitments. This could result in adjustments to the amounts and classifications of assets and liabilities in the Company's consolidated financial statements and such adjustments could be material.

Unless the Company acquires additional sources of financing and/or funding in the short term, the ability of the Company to continue as a going concern is threatened. If the Company is unable to continue as a going concern, it may be forced to seek relief under applicable bankruptcy and insolvency legislation. See section "Liquidity and Capital Resources" of this press release for details. As at November 13, 2019, the Company had $2.6 million of cash.

OVERVIEW OF OPERATIONAL DATA AND FINANCIAL RESULTS

Summary of Operational Data







        
                                                                       Three months ended    Nine months ended
                                                                       September 30,         September 30,
                                                                          2019       2018       2019       2018
        Sales Volumes, Prices and Costs
        Premium semi-soft coking coal
        Coal sales (millions of tonnes)                                   0.05       0.25       0.28       0.35
        Average realized selling price (per tonne)                     $  31.49   $  48.15   $  38.27   $  52.36
        Standard semi-soft coking coal/ premium thermal coal
        Coal sales (millions of tonnes)                                   0.51       0.26       1.95       0.86
        Average realized selling price (per tonne)                     $  31.67   $  34.40   $  33.87   $  39.93
        Standard thermal coal
        Coal sales (millions of tonnes)                                   -          0.22       0.09       0.66
        Average realized selling price (per tonne)                     $  -       $  23.49   $  29.43   $  25.21
        Washed coal
        Coal sales (millions of tonnes)                                   0.25       -          0.43       -
        Average realized selling price (per tonne)                     $  42.37   $  -       $  43.10   $  -
        Total
        Coal sales (millions of tonnes)                                   0.81       0.73       2.75       1.87
        Average realized selling price (per tonne)                     $  34.98   $  35.77   $  35.54   $  37.03
        Raw coal production (millions of tonnes)                          1.21       1.11       3.57       2.47
        Cost of sales of product sold (per tonne)                      $  19.16   $  23.44   $  22.17   $  27.70
        Direct cash costs of product sold (per tonne) (i)              $  18.03   $  7.41    $  15.03   $  11.08
        Mine administration cash costs of product sold (per tonne) (i) $  1.09    $  1.24    $  1.26    $  1.16
        Total cash costs of product sold (per tonne) (i)               $  19.12   $  8.65    $  16.29   $  12.24
        Other Operational Data
        Production waste material moved (millions of bank cubic           4.36       4.56       14.61      12.62
        meters)
        Strip ratio (bank cubic meters of waste material per tonne of     3.61       4.11       4.09       5.08
        coal produced)
        Lost time injury frequency rate (ii)                              0.08       0.00       0.05       0.06
        


(i) A Non-International Financial Reporting Standards ("IFRS") financial measure, which does not have a standardized meaning according to IFRS. See "Non-IFRS Financial Measures" section. Cash costs of product sold exclude idled mine asset cash costs.

(ii) Per 200,000 man hours and calculated based on a rolling 12 month average.

Overview of Operational Data

For the three months ended September 30, 2019

For the three months ended September 30, 2019, the Company had a lost time injury frequency rate of 0.08 per 200,000 man hours based on a rolling 12 month average.

The average realized selling price is $35.0 per tonne for the third quarter of 2019, which is similar to $35.8 per tonne for the third quarter of 2018.

The product mix for the third quarter of 2019 consisted of approximately 6% of premium semi-soft coking coal, 63% of standard semi-soft coking coal/premium thermal coal and 31% of washed coal compared to approximately 34% of premium semi-soft coking coal, 36% of standard semi-soft coking coal/premium thermal coal and 30% of standard thermal coal in the third quarter of 2018.

The Company sold 0.8 million tonnes for the third quarter of 2019 as compared to 0.7 million tonnes for the third quarter of 2018.

The Company's production in the third quarter of 2019 was higher than the third quarter of 2018 as a result of pacing production to meet the expected sales as well as a lower strip ratio achieved for the quarter, yielding 1.2 million tonnes for the third quarter of 2019 as compared to 1.1 million tonnes for the third quarter of 2018.

The Company's unit cost of sales of product sold decreased to $19.2 per tonne in the third quarter of 2019 from $23.4 per tonne in the third quarter of 2018. The decrease was mainly driven by (i) increased sales and the related economies of scale; and (ii) the reversal of impairment of coal stockpile inventories of $5.3 million during the quarter (nil for the third quarter of 2018).

For the nine months ended September 30, 2019

The Company sold 2.8 million tonnes for the first nine months of 2019 as compared to 1.9 million tonnes for the first nine months of 2018. The average selling price decreased from $37.0 per tonne for the first nine months of 2018 to $35.5 per tonne for the first nine months of 2019.

The Company's production in the first nine months of 2019 was higher than the first nine months of 2018 as a result of pacing the production to meet the expected sales, yielding 3.6 million tonnes for the nine months of 2019 as compared to 2.5 million tonnes for the first nine months of 2018.

The Company's unit cost of sales of product sold decreased to $22.2 per tonne in the first nine months of 2019 from $27.7 per tonne in the first nine months of 2018. The decrease was mainly driven by increased sales and the related economies of scale.

Summary of Financial Results







        
                                                           Three months ended              Nine months ended
                                                           September 30,                   September 30,
                                                              2019        2018                2019        2018
        $ in thousands, except per share information                      (Restated)                      (Restated)
        Revenue (i)                                        $  28,309      $   26,277       $  97,599      $   69,990
        Cost of sales (i)                                     (15,518 )       (17,110 )       (60,954 )       (51,808 )
        Gross profit excluding idled mine asset costs (ii)    13,664          13,195          39,339          29,524
        Gross profit                                          12,791          9,167           36,645          18,182
        Other operating expenses                              (1,245  )       (3,417  )       (3,992  )       (20,686 )
        Administration expenses                               (2,074  )       (2,724  )       (8,061  )       (8,957  )
        Evaluation and exploration expenses                   (22     )       (40     )       (70     )       (320    )
        Profit/(loss) from operations                         9,450           2,986           24,522          (11,781 )
                                                              -               -                               -
        Finance costs                                         (7,184  )       (5,758  )       (20,915 )       (17,690 )
        Finance income                                        68              106             4,381           182
        Share of earnings of a joint venture                  277             247             1,104           1,215
        Income tax expense                                    (468    )       (267    )       (2,708  )       (2,805  )
                                                              -               -                               -
        Net profit/(loss)                                     2,143           (2,686  )       6,384           (30,879 )
        Basic and diluted earning (loss) per share         $  0.01        $   (0.01   )    $  0.02        $   (0.11   )
        


(i) Revenue and cost of sales relate to the Company's Ovoot Tolgoi Mine within the Coal Division operating segment. Refer to note 3 of the condensed consolidated financial statements for further analysis regarding the Company's reportable operating segments. Royalties have been reclassified from revenue to cost of sales.

(ii) A non-IFRS financial measure, idled mine asset costs represents the depreciation expense relates to the Company's idled plant and equipment.

(iii) The financial results for the three and nine months ended September 30, 2018 were restated. Refer to section "Significant events and highlights" of this press release under the heading entitled "Key Findings of Formal Investigation" for details.

Overview of Financial Results

For the three months ended September 30, 2019

The Company recorded a $9.5 million profit from operations in the third quarter of 2019 compared to a $3.0 million in the third quarter of 2018 (restated). The improvement in profit from operations was principally attributable to (i) the lower provision for doubtful trade and other receivables being made during the quarter ($0.3 million and $3.9 million for the third quarter of 2019 and third quarter of 2018, respectively); and (ii) the reversal of the impairment of coal stockpile inventories of $5.3 million (nil for the third quarter of 2018).

Revenue was $28.3 million in the third quarter of 2019 compared to $26.3 million in the third quarter of 2018. The Company's effective royalty rate for the third quarter of 2019, based on the Company's average realized selling price of $35.0 per tonne, was 8.2% or $2.9 per tonne, compared to 6.8% or $2.4 per tonne in the third quarter of 2018 (based on the average realized selling price of $35.8 per tonne in the third quarter of 2018).

Royalty regime in Mongolia

The royalty regime in Mongolia is evolving and has been subject to change since 2012.

On February 1, 2016, the Government of Mongolia issued a resolution in connection with the royalty regime. From February 1, 2016 onwards, royalties are to be calculated based on the actual contract price including transportation costs to the Mongolia border. If such transportation costs have not been included in the contract, the relevant transportation costs, customs documentation fees, insurance and loading costs should be estimated for the calculation of royalties. In the event that the calculated sales price as described above differs from the contract sales price of other entities in Mongolia (same quality of coal and same border crossing) by more than 10%, the calculated sales price will be deemed to be "non-market" under Mongolian tax law and the royalty will then be calculated based on a reference price as determined by the Government of Mongolia. See the section entitled "Risk Factors - Company's Projects in Mongolia" in the Company's most recently filed Annual Information Form for the year ended December 31, 2018, a copy of which is available under the Company's profile on SEDAR at www.sedar.com .

On September 4, 2019, the Government of Mongolia issued a resolution in connection with the royalty regime. From September 1, 2019 onwards, in the event that the contract sales price is less than the reference price as determined by the Government of Mongolia by more than 30%, then the royalty payable will be calculated based on the Mongolian government's reference price instead of the contract sales price.

Cost of sales was $15.5 million in the third quarter of 2019 compared to $17.1 million in the third quarter of 2018. The decrease in cost of sales was mainly due to the reversal of impairment of coal stockpile inventories of $5.3 million during the quarter. Cost of sales consists of operating expenses and royalties, share-based compensation expense, equipment depreciation, depletion of mineral properties and idled mine asset costs. Operating expenses in cost of sales reflect the total cash costs of product sold (a Non-IFRS financial measure, see section "Non-IFRS financial measure" for further analysis) during the quarter.







        
                                                               Three months ended
                                                               September 30,
        $ in thousands                                             2019         2018
        Operating expenses                                     $   15,485   $   6,318
        Share-based compensation expense                           2            1
        Depreciation and depletion                                 2,121        4,973
        Royalties                                                  2,326        1,790
        Reversal of impairment of coal stockpile inventories       (5,289)      -
        Cost of sales from mine operations                         14,645       13,082
        Cost of sales related to idled mine assets                 873          4,028
        Cost of sales                                          $   15,518   $   17,110
        


Operating expenses in cost of sales were $15.5 million in the third quarter of 2019 compared to $6.3 million in the third quarter of 2018. The overall increase in operating expenses was primarily due to the effect of: (i) increased sales volume from 0.7 million tonnes in the third quarter of 2018 to 0.8 million tonnes in the third quarter of 2019; (ii) higher inventory carrying costs given less deferred stripping cost was capitalized for the third quarter of 2019; and (iii) no impairment of coal stockpile inventories was recorded for 2018.

Cost of sales in the third quarter of 2019 included a reversal of impairment of coal stockpile inventories of $5.3 million, to increase the carrying value of the Company's coal stockpiles to the lower of the cost and the net realizable value. The reversal of impairment of coal stockpile inventories recorded in the third quarter of 2019 reflected the enhancement in the wash plant capacity and its continuous operation at the expected level.

Cost of sales related to idled mine assets in the third quarter of 2019 included $0.9 million related to depreciation expenses for idled equipment (third quarter of 2018:$4.0 million).

Other operating expenses was $1.2 million in the third quarter of 2019 (third quarter of 2018 (restated): $3.4 million).







        
                                                             Three months ended
                                                             September 30,
                                                                 2019         2018
        $ in thousands                                                        (Restated)
        CIC service fee                                      $   (1,175)  $   (358)
        Provision for doubtful trade and other receivables       (344)        (3,947)
        Provision for commercial arbitration                     (180)        (232)
        Loss on disposal of properties for resale                (23)         -
        Foreign exchange gain                                    477          693
        Gain on settlement of trade payables                     -            2,956
        Loss on disposal of property, plant and equipment        -            (1,145)
        Impairment of properties for resale                      -            (1,372)
        Other                                                    -            (12)
        Other operating expenses                             $   (1,245)  $   (3,417)
        


During the third quarter of 2019, the Company made a provision for doubtful trade and other receivables of $0.3 million (third quarter of 2018:$3.9 million) for certain long aged receivables based on expected credit loss model.

Administration expenses were $2.1 million in the third quarter of 2019 as compared to $2.7 million in the third quarter of 2018, as follows:







        
                                           Three months ended
                                           September 30,
        $ in thousands                         2019       2018
        Corporate administration           $   457    $   616
        Professional fees                      365        713
        Salaries and benefits                  1,084      1,342
        Share-based compensation expense       7          10
        Depreciation                           161        43
        Administration expenses            $   2,074  $   2,724
        


The decrease was mainly due to the decrease in professional fees incurred during the third quarter of 2019.

The Company continued to minimize evaluation and exploration expenditures in the third quarter of 2019 in order to preserve the Company's financial resources. Evaluation and exploration activities and expenditures in the third quarter of 2019 were limited to ensuring that the Company met the Mongolian Minerals Law requirements in respect of its mining licenses.

Finance costs were $7.2 million and $5.8 million in the third quarter of 2019 and 2018 respectively, which primarily consisted of interest expense on the $250.0 million China Investment Corporation ("CIC") convertible debenture ("CIC Convertible Debenture").

For the nine months ended September 30, 2019

The Company recorded a $24.5 million profit from operations in the first nine months of 2019 compared to an $11.8 million loss from operations in the first nine months of 2018 (restated). The improvement of overall financial results was principally attributable to lower unit cost of sales of products sold during the first nine months of 2019 and the provision for doubtful trade and other receivables of $19.3 million during the first nine months of 2018.

Revenue was $97.6 million in the first nine months of 2019 compared to $70.0 million in the first nine months of 2018. The Company sold 2.8 million tonnes of coal at an average realized selling price of $35.5 per tonne in the first nine months of 2019 compared to sales of 1.9 million tonnes at an average realized selling price of $37.0 per tonne in the first nine months of 2018.

The Company's effective royalty rate for the first nine months of 2019, based on the Company's average realized selling price of $35.5 per tonne, was 7.1% or $2.5 per tonne compared to 7.0% or $2.6 per tonne based on the average realized selling price of $37.0 per tonne in the first nine months of 2018.

Cost of sales was $61.0 million in the first nine months of 2019 compared to $51.8 million in the first nine months of 2018 as follows:







        
                                                               Nine months ended
                                                               September 30,
        $ in thousands                                             2019         2018
        Operating expenses                                     $   44,794   $   22,895
        Share-based compensation expense                           7            1
        Depreciation and depletion                                 8,379        12,667
        Royalties                                                  6,903        4,903
        Reversal of impairment of coal stockpile inventories       (1,823)      -
        Cost of sales from mine operations                         58,260       40,466
        Cost of sales related to idled mine assets                 2,694        11,342
        Cost of sales                                          $   60,954   $   51,808
        


Operating expenses in cost of sales were $44.8 million in the first nine months of 2019 compared to $22.9 million in the first nine months of 2018. The increase in operating expenses was primarily due to the effect of: (i) increase in sales volume from 1.9 million tonnes in the first nine months of 2018 to 2.8 million tonnes in the first nine months of 2019; (ii) higher inventory carrying costs given less deferred stripping cost was capitalized for the first nine months of 2019; and (iii) no impairment of coal stockpile inventories was recorded for 2018.

Cost of sales in the first nine months of 2019 included a reversal of impairment of coal stockpile inventories of $1.8 million. The reversal of impairment of coal stockpile inventories reflected the enhancement in the wash plant capacity and its continuous operation at the expected level.

Cost of sales related to idled mine asset costs primarily consisted of period costs, which were expensed as incurred and primarily included depreciation expense. Cost of sales related to idled mine assets in the first nine months of 2019 included $2.7 million related to depreciation expenses for idled equipment (first nine months of 2018:$11.3 million).

Other operating expenses were $4.0 million in the first nine months of 2019 compared to $20.7 million in the first nine months of 2018 (restated) as follows:







        
                                                                   Nine months ended
                                                                   September 30,
                                                                       2019         2018
        $ in thousands                                                              (Restated)
        CIC service fee                                            $   (3,355)  $   (1,336)
        Provision for doubtful trade and other receivables             (441)        (19,303)
        Provision for commercial arbitration                           (406)        (686)
        Provision for prepaid expenses and deposits                    478          -
        Loss on disposal of properties for resale                      (260)        -
        Foreign exchange gain                                          (37)         730
        Gain/(loss) on disposal of property, plant and equipment       29           (1,173)
        Impairment of properties for resale                            -            (1,372)
        Penalty on late settlement of trade payables                   -            (427)
        Gain on settlement of trade payables                           -            2,956
        Other                                                          -            (75)
        Other operating expenses                                   $   (3,992)  $   (20,686)
        


During the first nine months of 2019, the Company made a provision for doubtful trade and other receivables of $0.4 million (first nine months of 2018:$19.3 million) for certain long aged receivables based on expected credit loss model.

Administration expenses were $8.1 million in the first nine months of 2019 compared to $9.0 million in the first nine months of 2018 as follows:







        
                                           Nine months ended
                                           September 30,
        $ in thousands                         2019       2018
        Corporate administration           $   1,555  $   1,988
        Professional fees                      2,668      2,976
        Salaries and benefits                  3,315      3,820
        Share-based compensation expense       30         47
        Depreciation                           493        126
        Administration expenses            $   8,061  $   8,957
        


The Company continued to minimize evaluation and exploration expenditures in the first nine months of 2019 in order to preserve the Company's financial resources. Evaluation and exploration activities and expenditures in the first nine months of 2019 were limited to ensuring that the Company met the Mongolian Minerals Law requirements in respect of its mining licenses.

Finance costs were $20.9 million and $17.7 million in the first nine months of 2019 and 2018 respectively. This primarily consisted of interest expense on the CIC Convertible Debenture.

Finance income was $4.4 million for the first nine months of 2019 (first nine months of 2018 (restated): $0.2 million), which primarily related to the modification of the terms of the CIC Convertible Debenture as a result of signing the deferral agreement with CIC dated April 23, 2019 ("2019 Deferral Agreement").

Summary of Quarterly Operational Data







        
                                                                          2019                           2018                                     2017
        Quarter Ended                                                  30-Sep    30-Jun    31-Mar     31-Dec    30-Sep    30-Jun    31-Mar     31-Dec
        Sales Volumes, Prices and Costs
        Premium semi-soft coking coal
        Coal sales (millions of tonnes)                                   0.05      0.12      0.11       0.24      0.25      0.07      0.03       0.37
        Average realized selling price (per tonne)                     $  31.49  $  32.72  $  47.34   $  47.37  $  48.15  $  59.98  $  67.94   $  50.47
        Standard semi-soft coking coal/ premium thermal coal
        Coal sales (millions of tonnes)                                   0.51      0.59      0.85       0.40      0.26      0.19      0.41       0.60
        Average realized selling price (per tonne)                     $  31.67  $  35.67  $  33.34   $  32.60  $  34.40  $  33.80  $  46.34   $  37.49
        Standard thermal coal
        Coal sales (millions of tonnes)                                   -         -         0.09       0.12      0.22      0.32      0.12       0.29
        Average realized selling price (per tonne)                     $  -      $  -      $  34.88   $  24.26  $  23.49  $  26.32  $  25.40   $  16.98
        Washed coal
        Coal sales (millions of tonnes)                                   0.25      0.17      0.01       0.15      -         -         -          -
        Average realized selling price (per tonne)                     $  42.37  $  44.20  $  45.07   $  44.02  $  -      $  -      $  -       $  -
        Total
        Coal sales (millions of tonnes)                                   0.81      0.88      1.06       0.91      0.73      0.58      0.56       1.26
        Average realized selling price (per tonne)                     $  34.98  $  36.80  $  34.91   $  37.32  $  35.77  $  32.81  $  43.02   $  36.54
        Raw coal production (millions of tonnes)                          1.21      1.33      1.03       1.87      1.11      0.98      0.38       0.51
        Cost of sales of product sold (per tonne)                      $  19.16  $  25.04  $  22.08   $  30.80  $  23.44  $  29.27  $  31.64   $  23.54
        Direct cash costs of product sold (per tonne) (i)              $  18.03  $  17.18  $  10.82   $  8.73   $  7.41   $  10.12  $  16.86   $  9.91
        Mine administration cash costs of product sold (per tonne) (i) $  1.09   $  1.39   $  1.41    $  2.19   $  1.24   $  1.00   $  1.23    $  4.92
        Total cash costs of product sold (per tonne) (i)               $  19.12  $  18.57  $  12.23   $  10.92  $  8.65   $  11.12  $  18.09   $  14.83
        Other Operational Data
        Production waste material moved (millions of bank                 4.36      5.34      4.91       5.54      4.56      5.18      2.88       4.36
        cubic meters)
        Strip ratio (bank cubic meters of waste material per tonne of     3.61      4.01      4.76       2.97      4.11      5.26      7.55       8.59
        coal produced)
        Lost time injury frequency rate (ii)                              0.08      0.06      0.00       0.00      0.00      0.06      0.13       0.20
        


(i) A Non-IFRS financial measure. See "Non-IFRS Financial Measures" section. Cash costs of product sold exclude idled mine asset cash costs.

(ii) Per 200,000 man hours and calculated based on a rolling 12 month average.

Summary of Quarterly Financial Results

The Company's annual financial statements are reported under IFRS issued by the International Accounting Standards Board (the "IASB"). The following table provides highlights, extracted from the Company's annual and interim financial statements, of quarterly results for the past eight quarters:







        
        $ in thousands, except per share information    2019                                       2018                                                            2017
                                                     30-Sep        30-Jun        31-Mar         31-Dec        30-Sep          30-Jun          31-Mar           31-Dec
        Quarter Ended                                                                                         (Restated)      (Restated)      (Restated)       (Restated)
        Financial Results
        Revenue (i)                                  $  28,309     $  32,479     $  36,811      $  33,814     $   26,277      $   19,278      $   24,435       $   41,698
        Cost of sales (i)                               (15,518 )     (22,031 )     (23,405 )      (28,027 )      (17,110 )       (16,979 )       (17,719 )        (29,665 )
        Gross profit excluding idled mine asset costs   13,664        11,318        14,357         7,305          13,195          6,079           10,250           15,682
        Gross profit including idled mine asset costs   12,791        10,448        13,406         5,787          9,167           2,299           6,716            12,033
        Other operating expenses                        (1,245  )     (2,333  )     (414    )      (2,921  )      (3,417  )       (16,512 )       (757    )        (4,971  )
        Administration expenses                         (2,074  )     (2,878  )     (3,109  )      (1,583  )      (2,724  )       (3,856  )       (2,377  )        (2,111  )
        Evaluation and exploration expenses             (22     )     (23     )     (25     )      (36     )      (40     )       (156    )       (124    )        (52     )
        Impairment of property, plant and equipment     -             -             -              -              -               -               -                (11,171 )
        Profit/(loss) from operations                   9,450         5,214         9,858          1,247          2,986           (18,225 )       3,458            (6,272  )
        Finance costs                                   (7,184  )     (7,001  )     (6,739  )      (10,899 )      (5,758  )       (5,958  )       (6,006  )        (5,960  )
        Finance income                                  68            4,305         17             13             106             8               100              143
        Share of earnings of a joint venture            277           375           452            416            247             628             340              368
        Income tax credit/(expense)                     (468    )     (801    )     (1,439  )      (1,023  )      (267    )       (1,609  )       (929    )        781
        Net profit/(loss)                               2,143         2,092         2,149          (10,246 )      (2,686  )       (25,156 )       (3,037  )        (10,940 )
        Basic and diluted earnings/(loss) per share  $  0.01       $  0.01       $  0.01        $  (0.04   )  $   (0.01   )   $   (0.09   )   $   (0.01   )    $   (0.04   )
        


(i) Revenue and cost of sales relate to the Company's Ovoot Tolgoi Mine within the Coal Division operating segment. Refer to note 3 of the condensed consolidated financial statements for further analysis regarding the Company's reportable operating segments. Royalties have been reclassified from revenue to cost of sales.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity and Capital Management

The Company has in place a planning, budgeting and forecasting process to help determine the funds required to support the Company's normal operations on an ongoing basis and its expansionary plans.

Bank Loan

On May 15, 2018, SGS obtained a bank loan (the "2018 Bank Loan") in the principal amount of $2.8 million from a Mongolian bank (the "Bank") with the key commercial terms as follows:

-- Principal amount of $2.8 million;

-- Maturity date set at 24 months from drawdown;

-- Interest rate of 15% per annum and interest is payable monthly; and

As at September 30, 2019, the outstanding principal balance of the 2018 Bank Loan was $2.8 million (December 31, 2018: $2.8 million) and the accrued interest owed by the Company was negligible (December 31, 2018: negligible).

Costs reimbursable to Turquoise Hill Resources Ltd. ("Turquoise Hill")

Prior to the completion of the private placement with Novel Sunrise Investments Limited ("Novel Sunrise") on April 23, 2015, Rio Tinto plc ("Rio Tinto") was the Company's ultimate parent company. In the past, Rio Tinto has sought reimbursement from the Company for the salaries and benefits of certain Rio Tinto employees who were assigned by Rio Tinto to work for the Company, as well as certain legal and professional fees incurred by Rio Tinto in relation to the Company's prior internal investigation and Rio Tinto's participation in the tripartite committee. Subsequently Rio Tinto transferred and assigned to Turquoise Hill its right to seek reimbursement for these costs and fees from the Company.

As at September 30, 2019, the amount of reimbursable costs and fees claimed by Turquoise Hill (the "TRQ Reimbursable Amount") amounted to $8.1 million (such amount is included in the aging profile of trade and other payables set out below). On October 12, 2016, the Company received a letter from Turquoise Hill, which proposed an arrangement for regular payments of the outstanding TRQ Reimbursable Amount. On September 26, 2019, the Company received communication from Turquoise Hill advising that Turquoise Hill wishes to re-engage in discussions with the Company regarding a repayment plan for the outstanding TRQ Reimbursable Amount. No agreement on repayment has been reached between the Company and Turquoise Hill as of the date of this press release.

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