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 six months ended June 30, 2021.
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 June 30, 2021 and the subsequent period
up to August 13, 2021 are as follows:
- Operating Results
– In response to the increase in Coronavirus Disease 2019
(“COVID-19”) case numbers in Mongolia in the second quarter of
2021, the Chinese authorities has been restricting the number of
trucks permitted to cross the Ceke port of entry, and such
restriction has severely impacted the sales volume of the Company
in the second quarter of 2021. As a result, the Company’s sales
volume decreased from 0.5 million tonnes in the second quarter of
2020 to 0.1 million tonnes in the second quarter of 2021.In
response to the restrictions on the number of trucks crossing the
Mongolian border into China, the Company temporarily suspended its
major mining operations (including coal mining) in the second
quarter of 2021 in order to control the inventory level and
preserve the Company’s working capital. Such suspension remains in
effect as of the date of this press release. Management expects
that mining operations (including coal mining) will resume in the
third quarter of 2021.The Company experienced an increase in the
average selling price of coal from $31.7 per tonne in the second
quarter of 2020 to $47.9 per tonne in the second quarter of 2021,
as a result of improved market conditions in China and an
improvement of the overall product mix.
- Financial Results
– The Company recorded a $1.0 million loss from operations in the
second quarter of 2021 compared to a $1.9 million loss from
operations in the second quarter of 2020. The financial results for
the second quarter of 2021 were impacted by the decreased sales
resulting from the export volume limitations and a provision for
commercial arbitration of $4.6 million recorded for the second
quarter of 2020 in connection with the settlement agreement entered
into with First Concept Industrial Group Limited (“First
Concept”).
- Impact of
the COVID-19 Pandemic – Since the onset of the COVID-19
pandemic in early 2020, the Mongolian local authorities have taken
certain precautionary steps to minimize further transmission of
COVID-19 in Mongolia and announced several lockdown measures in
Ulaanbaatar. During the second quarter of 2021, additional
precautionary measures were imposed by the Chinese authorities at
the Ceke port of entry in response to the increase of COVID-19 case
numbers in Mongolia, which included restricting the number of
trucks crossing the Mongolian border into China. These restrictions
on trucking volume have had an adverse impact on the Company’s
ability to import its coal products into China in the second
quarter of 2021. In response, the Company has temporarily suspended
its major mining operations (including coal mining) in the second
quarter of 2021 in order to control the inventory level and
preserve the Company’s working capital. Such suspension remains in
effect as of the date of this press release. Although the export of
coal from Mongolia to China continues as of the date
hereof, there can be no guarantee that the Company will be
able to continue exporting coal to China, or that the border
crossings would not be the subject of closures as a result of
COVID-19 or any variants thereof in the future. The Company
will continue to closely monitor the development of the COVID-19
pandemic and the impact it has on coal exports to China and will
react promptly to preserve the working capital of the Company and
mitigate any negative impacts on the business and operations of the
Company.In the event that the Company’s ability to export coal into
the Chinese market becomes restricted or limited again as a result
of any future restrictions which may be implemented at the
Mongolia-China border crossing, this is expected to have a material
adverse effect on the business and operations of the Company and
may negatively affect the price and volatility of the Common Shares
and any investment in such shares could suffer a significant
decline or total loss in value.
- China Investment
Corporation (“CIC”) Convertible Debenture (“CIC Convertible
Debenture”) – On July 30, 2021, the Company and CIC
entered into an agreement (the “2021 July Deferral Agreement”)
pursuant to which CIC agreed to grant the Company a deferral of:
(i) semi-annual cash interest payments of $8.1 million payable to
CIC on November 19, 2021; and (ii) $4.0 million worth of payment in
kind interest (“PIK Interest”) shares (collectively, the “2021
Deferral Amounts”) issuable to CIC on November 19, 2021 under the
CIC Convertible Debenture.The principal terms of the 2021 July
Deferral Agreement are as follows:
- Payment of the 2021 Deferral Amounts will be deferred until
August 31, 2023.
- As consideration for the deferral of the 2021 Deferral Amounts,
the Company agreed to pay CIC a deferral fee equal to 6.4% per
annum on the 2021 Deferral Amounts payable under the CIC
Convertible Debenture, commencing on November 19, 2021.
- Going Concern –
Several adverse conditions and material uncertainties relating to
the Company cast significant doubt upon the going concern
assumption which includes the deficiencies in assets and working
capital.See section “Liquidity and Capital Resources” of this press
release for details.
OVERVIEW OF OPERATIONAL DATA AND FINANCIAL
RESULTS
Summary of Operational
Data
| |
|
|
|
|
|
|
|
| |
Three months
ended |
|
Six months
ended |
| |
June 30, |
|
June 30, |
|
|
2021 |
|
2020 |
|
2021 |
|
2020 |
|
Sales Volumes, Prices and Costs |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| Premium
semi-soft coking coal |
|
|
|
|
|
|
|
|
Coal sales (millions of tonnes) |
|
0.08 |
|
|
|
0.21 |
|
|
|
0.48 |
|
|
|
0.28 |
|
|
Average realized selling price (per tonne) |
$ |
52.11 |
|
|
$ |
28.69 |
|
|
$ |
48.56 |
|
|
$ |
28.63 |
|
| Standard
semi-soft coking coal/ premium thermal coal |
|
|
|
|
|
|
|
|
Coal sales (millions of tonnes) |
|
0.03 |
|
|
|
0.26 |
|
|
|
0.26 |
|
|
|
0.39 |
|
|
Average realized selling price (per tonne) |
$ |
36.71 |
|
|
$ |
33.12 |
|
|
$ |
35.35 |
|
|
$ |
32.98 |
|
| Standard
thermal coal |
|
|
|
|
|
|
|
|
Coal sales (millions of tonnes) |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Average realized selling price (per tonne) |
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
| Washed
coal |
|
|
|
|
|
|
|
|
Coal sales (millions of tonnes) |
|
- |
|
|
|
0.02 |
|
|
|
0.01 |
|
|
|
0.02 |
|
|
Average realized selling price (per tonne) |
$ |
- |
|
|
$ |
43.26 |
|
|
$ |
49.75 |
|
|
$ |
43.26 |
|
| Total |
|
|
|
|
|
|
|
|
Coal sales (millions of tonnes) |
|
0.11 |
|
|
|
0.49 |
|
|
|
0.75 |
|
|
|
0.69 |
|
|
Average realized selling price (per tonne) |
$ |
47.93 |
|
|
$ |
31.66 |
|
|
$ |
44.10 |
|
|
$ |
31.52 |
|
| |
|
|
|
|
|
|
|
| Raw coal
production (millions of tonnes) |
|
- |
|
|
|
- |
|
|
|
1.04 |
|
|
|
0.01 |
|
| |
|
|
|
|
|
|
|
| Cost of
sales of product sold (per tonne) |
$ |
41.38 |
|
|
$ |
21.16 |
|
|
$ |
30.53 |
|
|
$ |
23.82 |
|
| Direct cash
costs of product sold (per tonne) (i) |
$ |
16.39 |
|
|
$ |
9.90 |
|
|
$ |
17.89 |
|
|
$ |
10.42 |
|
| Mine
administration cash costs of product sold (per tonne) (i) |
$ |
4.26 |
|
|
$ |
1.70 |
|
|
$ |
1.51 |
|
|
$ |
1.93 |
|
| Total cash
costs of product sold (per tonne) (i) |
$ |
20.65 |
|
|
$ |
11.60 |
|
|
$ |
19.40 |
|
|
$ |
12.35 |
|
| |
|
|
|
|
|
|
|
|
Other Operational Data |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
| Production
waste material moved (millions of bank cubic |
|
- |
|
|
|
- |
|
|
|
5.04 |
|
|
|
0.57 |
|
|
meters) |
|
|
|
|
|
|
|
| Strip ratio
(bank cubic meters of waste material per tonne of |
|
- |
|
|
|
- |
|
|
|
4.83 |
|
|
|
85.08 |
|
|
coal produced) |
|
|
|
|
|
|
|
| Lost time
injury frequency rate (ii) |
|
0.00 |
|
|
|
0.04 |
|
|
|
0.00 |
|
|
|
0.06 |
|
| |
|
|
|
|
|
|
|
(i) A Non-International Financial
Reporting Standards (“non-IFRS”) financial measure. Refer to
“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 June 30, 2021
The Company experienced an increase in the
average selling price of coal from $31.7 per tonne in the second
quarter of 2020 to $47.9 per tonne in the second quarter of 2021,
as a result of improved market conditions in China and an
improvement of the overall product mix. The product mix for the
second quarter of 2021 consisted of approximately 73% premium
semi-soft coking coal and 27% semi-soft coking coal/premium thermal
coal compared to approximately 43% premium semi-soft coking coal,
53% semi-soft coking coal/premium thermal coal and 4% washed coal
in the second quarter of 2020.
In response to the increase in COVID-19 case
numbers in Mongolia in the second quarter of 2021, the Chinese
authorities has been restricting the number of trucks permitted to
cross the Ceke port of entry, and such restriction has severely
impacted the sales volume of the Company in the second quarter of
2021. As a result, the Company’s sales volume decreased from 0.5
million tonnes in the second quarter of 2020 to 0.1 million tonnes
in the second quarter of 2021.
In response to the restrictions on the number of
trucks crossing the Mongolian border into China, the Company
temporarily suspended its major mining operations (including coal
mining) in the second quarter of 2021 in order to control the
inventory level and preserve the Company’s working capital. Such
suspension remains in effect as of the date of this press release.
Management expects that mining operations (including coal mining)
will resume in the third quarter of 2021.
The Company’s unit cost of sales of product sold
increased from $21.2 per tonne in the second quarter of 2020 to
$41.4 per tonne in the second quarter of 2021. The increase was
mainly driven by the diseconomies of scale due to decreased sales
as well as the increase in the effective royalty rate.
For the six months ended June 30, 2021
The Company sold 0.8 million tonnes for the
first six months of 2021 as compared to 0.7 million tonnes for the
first six months of 2020. The average selling price increased from
$31.5 per tonne for the first six months of 2020 to $44.1 per tonne
for the first six months of 2021, as a result of improved market
conditions in China and an improvement of the overall product
mix.
The Company’s production in the first six months
of 2021 was higher than the first six months of 2020 as a result of
the temporary suspension of the Company’s major mining operations
(including coal mining) which took effect in 2020 for the purpose
of mitigating the financial impact of the border closures and
preserving the Company’s working capital.
The Company’s unit cost of sales of product sold
increased from $23.8 per tonne for the first six months of 2020 to
$30.5 per tonne in the first six months of 2021. The increase was
mainly driven by the increase in the effective royalty rate.
Summary of Financial
Results
| |
|
|
|
|
|
|
|
| |
Three months
ended |
|
Six months
ended |
| |
June 30, |
|
June 30, |
| $ in
thousands, except per share information |
2021 |
|
2020 |
|
2021 |
|
2020 |
| |
|
|
|
|
|
|
|
| Revenue
(i) |
$ |
5,191 |
|
|
$ |
14,975 |
|
|
$ |
33,255 |
|
|
$ |
21,112 |
|
| Cost of
sales (i) |
|
(4,552 |
) |
|
|
(10,366 |
) |
|
|
(22,899 |
) |
|
|
(16,437 |
) |
| Gross profit
excluding idled mine asset costs |
|
1,565 |
|
|
|
6,286 |
|
|
|
11,793 |
|
|
|
7,748 |
|
| Gross
profit |
|
639 |
|
|
|
4,609 |
|
|
|
10,356 |
|
|
|
4,675 |
|
| |
|
|
|
|
|
|
|
| Other
operating expenses |
|
(113 |
) |
|
|
(5,150 |
) |
|
|
(448 |
) |
|
|
(4,680 |
) |
|
Administration expenses |
|
(1,484 |
) |
|
|
(1,291 |
) |
|
|
(3,266 |
) |
|
|
(3,062 |
) |
| Evaluation
and exploration expenses |
|
(47 |
) |
|
|
(52 |
) |
|
|
(112 |
) |
|
|
(108 |
) |
|
Profit/(loss) from operations |
|
(1,005 |
) |
|
|
(1,884 |
) |
|
|
6,530 |
|
|
|
(3,175 |
) |
| |
|
|
|
|
|
|
|
| Finance
costs |
|
(8,870 |
) |
|
|
(7,258 |
) |
|
|
(21,027 |
) |
|
|
(14,365 |
) |
| Finance
income |
|
2,494 |
|
|
|
2 |
|
|
|
21,015 |
|
|
|
17 |
|
| Share of
earnings/(loss) of a joint venture |
|
(35 |
) |
|
|
268 |
|
|
|
239 |
|
|
|
222 |
|
| Current
income tax credit/(expense) |
|
139 |
|
|
|
(900 |
) |
|
|
(981 |
) |
|
|
(1,632 |
) |
| |
|
|
|
|
|
|
|
| Net
profit/(loss) attributable to equity holders of the Company |
|
(7,277 |
) |
|
|
(9,772 |
) |
|
|
5,776 |
|
|
|
(18,933 |
) |
| Basic
earnings/(loss) per share |
$ |
(0.03 |
) |
|
$ |
(0.04 |
) |
|
$ |
0.02 |
|
|
$ |
(0.07 |
) |
| Diluted
earnings/(loss) per share |
$ |
(0.03 |
) |
|
$ |
(0.04 |
) |
|
$ |
0.01 |
|
|
$ |
(0.07 |
) |
| |
|
|
|
|
|
|
|
(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
interim financial statements for further analysis regarding the
Company’s reportable operating segments.
Overview of Financial
Results
For the three months ended June 30, 2021
The Company recorded a $1.0 million loss from
operations in the second quarter of 2021 compared to a $1.9 million
loss from operations in the second quarter of 2020. The financial
results for the second quarter of 2021 were impacted by the
decreased sales resulting from the export volume limitations and a
provision for commercial arbitration of $4.6 million recorded for
the second quarter of 2020 in connection with the settlement
agreement entered into with First Concept.
Revenue was $5.2 million in the second quarter
of 2021 compared to $15.0 million in the second quarter of 2020.
The Company’s effective royalty rate for the second quarter of
2021, based on the Company’s average realized selling price of
$47.9 per tonne, was 21.9% or $10.5 per tonne, compared to 11.1% or
$3.5 per tonne in the second quarter of 2020 (based on the average
realized selling price of $31.7 per tonne).
Royalty regime in Mongolia
The royalty regime in Mongolia is evolving and
has been subject to change since 2012.
On September 4, 2019, the Government of Mongolia
issued a further 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 $4.6 million in the second
quarter of 2021 compared to $10.4 million in the second quarter of
2020. The decrease in cost of sales was mainly due to the decreased
sales during the quarter. Cost of sales consists of operating
expenses, share-based compensation expense, equipment depreciation,
depletion of mineral properties, royalties 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 endedJune 30, |
| $ in
thousands |
2021 |
|
2020 |
| |
|
|
|
|
Operating expenses |
$ |
2,271 |
|
|
$ |
5,684 |
|
| Share-based
compensation expense |
|
1 |
|
|
|
17 |
|
| Depreciation
and depletion |
|
219 |
|
|
|
1,288 |
|
|
Royalties |
|
1,135 |
|
|
|
1,700 |
|
| Cost of
sales from mine operations |
|
3,626 |
|
|
|
8,689 |
|
|
Cost of sales related to idled mine assets |
|
926 |
|
|
|
1,677 |
|
|
Cost of sales |
$ |
4,552 |
|
|
$ |
10,366 |
|
| |
|
|
|
Operating expenses in cost of sales were $2.3
million in the second quarter of 2021 compared to $5.7 million in
the second quarter of 2020. The overall decrease in operating
expenses was primarily due to the decreased sales volume from 0.5
million tonnes in the second quarter of 2020 to 0.1 million tonnes
in the second quarter of 2021.
Cost of sales related to idled mine assets in
the second quarter of 2021 included $0.9 million related to
depreciation expenses for idled equipment (second quarter of 2020:
$1.7 million).
Other operating expenses were $0.1 million in
the second quarter of 2021 (second quarter of 2020: $5.2 million).
A provision for commercial arbitration of $4.6 million recorded for
the second quarter of 2020 in connection with the settlement
agreement entered into with First Concept.
| |
|
|
|
| |
Three months endedJune 30, |
| $ in
thousands |
2021 |
|
2020 |
| |
|
|
|
|
CIC management fee |
$ |
120 |
|
|
$ |
413 |
|
| Provision
for doubtful trade and other receivables |
|
29 |
|
|
|
144 |
|
| Foreign
exchange loss, net |
|
189 |
|
|
|
20 |
|
| Discount on
settlement of trade payables |
|
(225 |
) |
|
|
- |
|
| Loss on
disposal of items of property, plant and equipment, net |
|
- |
|
|
|
20 |
|
| Provision
for commercial arbitration |
|
- |
|
|
|
4,553 |
|
|
Other operating expenses |
$ |
113 |
|
|
$ |
5,150 |
|
| |
|
|
|
Administration expenses were $1.5 million in the
second quarter of 2021 compared to $1.3 million in the second
quarter of 2020 as follows:
| |
|
|
|
| |
Three months endedJune 30, |
| $ in
thousands |
2021 |
|
2020 |
| |
|
|
|
|
Corporate administration |
$ |
533 |
|
|
$ |
143 |
|
| Legal and
professional fees |
|
16 |
|
|
|
162 |
|
| Salaries and
benefits |
|
765 |
|
|
|
757 |
|
| Share-based
compensation expense |
|
2 |
|
|
|
57 |
|
|
Depreciation |
|
168 |
|
|
|
172 |
|
|
Administration expenses |
$ |
1,484 |
|
|
$ |
1,291 |
|
| |
|
|
|
The Company continued to minimize evaluation and
exploration expenditures in the second quarter of 2021 in order to
preserve the Company’s financial resources. Evaluation and
exploration activities and expenditures in the second quarter of
2021 were limited to ensuring that the Company met the Mongolian
Minerals Law requirements in respect of its mining licenses.
Finance costs were $8.9 million and $7.3 million
in the second quarter of 2021 and 2020 respectively, which
primarily consisted of interest expense on the $250.0 million CIC
Convertible Debenture.
For the six months ended June 30, 2021
The Company recorded a $6.5 million profit from
operations in the first six months of 2021 compared to a $3.2
million loss from operations in the first six months of 2020. The
financial results were impacted by (i) the higher selling price
achieved by the Company; and (ii) a provision for commercial
arbitration of $4.6 million recorded for the first six months of
2020 in connection with the settlement agreement entered into with
First Concept.
Revenue was $33.3 million in the first six
months of 2021 compared to $21.1 million in the first six months of
2020. The Company’s effective royalty rate for the first six months
of 2021, based on the Company’s average realized selling price of
$44.1 per tonne, was 16.0% or $7.1 per tonne, compared to 13.7% or
$4.3 per tonne in the first six months of 2020 (based on the
average realized selling price of $31.5 per tonne).
Cost of sales were $22.9 million in the first
six months of 2021 compared to $16.4 million in the first six
months of 2020 as follows:
| |
|
|
|
| |
Six months endedJune 30, |
|
$ in thousands |
|
2021 |
|
|
|
2020 |
|
| |
|
|
|
| Operating
expenses |
$ |
14,551 |
|
|
$ |
8,522 |
|
| Share-based
compensation expense/(recovery) |
|
(1 |
) |
|
|
19 |
|
| Depreciation
and depletion |
|
1,577 |
|
|
|
1,866 |
|
|
Royalties |
|
5,335 |
|
|
|
2,957 |
|
| Cost of
sales from mine operations |
|
21,462 |
|
|
|
13,364 |
|
| Cost of
sales related to idled mine assets |
|
1,437 |
|
|
|
3,073 |
|
|
Cost of sales |
$ |
22,899 |
|
|
$ |
16,437 |
|
| |
|
|
|
Operating expenses in cost of sales were $14.6
million in the first six months of 2021 compared to $8.5 million in
the first six months of 2020. The overall increase in operating
expenses was primarily due to the increased sales volume.
Cost of sales related to idled mine assets in
the first six months of 2021 included $1.4 million related to
depreciation expenses for idled equipment (first six months of
2020: $3.1 million).
Other operating expenses were $0.4 million in
the first six months of 2021 (first six months of 2020: $4.7
million). A provision for commercial arbitration of $4.6 million
recorded for the first six months of 2020 in connection with the
settlement agreement entered into with First Concept.
| |
|
| |
Six months endedJune 30, |
| $ in
thousands |
2021 |
|
2020 |
| |
|
|
|
|
CIC management fee |
$ |
733 |
|
|
$ |
535 |
|
| Provision
for doubtful trade and other receivables |
|
220 |
|
|
|
282 |
|
| Foreign
exchange loss/(gain), net |
|
171 |
|
|
|
(752 |
) |
| Gain on
disposal of items of property, plant and equipment, net |
|
(270 |
) |
|
|
(19 |
) |
| Discount on
settlement of trade payables |
|
(381 |
) |
|
|
- |
|
| Reversal of
impairment on materials and supplies inventories |
|
(25 |
) |
|
|
- |
|
| Provision
for commercial arbitration |
|
- |
|
|
|
4,634 |
|
|
Other operating expenses |
$ |
448 |
|
|
$ |
4,680 |
|
| |
|
|
|
Administration expenses were $3.3 million in the
first six months of 2021 compared to $3.1 million in the first six
months of 2020, as follows:
| |
|
| |
Six months endedJune 30, |
| $ in
thousands |
2021 |
|
2020 |
| |
|
|
|
|
Corporate administration |
$ |
949 |
|
|
$ |
448 |
|
| Legal and
professional fees |
|
559 |
|
|
|
549 |
|
| Salaries and
benefits |
|
1,398 |
|
|
|
1,667 |
|
| Share-based
compensation expense/(recovery) |
|
(4 |
) |
|
|
69 |
|
|
Depreciation |
|
364 |
|
|
|
329 |
|
|
Administration expenses |
$ |
3,266 |
|
|
$ |
3,062 |
|
| |
|
|
|
The Company continued to minimize evaluation and
exploration expenditures in the first six months of 2021 in order
to preserve the Company’s financial resources. Evaluation and
exploration activities and expenditures in the first six months of
2021 were limited to ensuring that the Company met the Mongolian
Minerals Law requirements in respect of its mining licenses.
Finance costs were $21.0 million and $14.4
million in the first six months of 2021 and 2020 respectively,
which primarily consisted of interest expense on the $250.0 million
CIC Convertible Debenture. The increase was mainly due to the
associated increase in interest expenses following the recording of
a gain on extinguishment of the CIC Convertible Debenture.
Summary of Quarterly Operational
Data
| |
|
|
|
|
|
|
|
|
|
|
|
| |
|
2021 |
|
2020 |
|
2019 |
|
Quarter Ended |
30-Jun |
31-Mar |
|
31-Dec |
30-Sep |
30-Jun |
31-Mar |
|
31-Dec |
30-Sep |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales Volumes, Prices and Costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premium semi-soft coking coal |
|
|
|
|
|
|
|
|
|
|
|
Coal sales (millions of tonnes) |
|
0.08 |
|
|
0.40 |
|
|
|
0.38 |
|
|
0.35 |
|
|
0.21 |
|
|
0.07 |
|
|
|
0.39 |
|
|
0.05 |
|
|
Average realized selling price (per tonne) |
$ |
52.11 |
|
$ |
47.88 |
|
|
$ |
39.34 |
|
$ |
30.17 |
|
$ |
28.69 |
|
$ |
28.46 |
|
|
$ |
29.18 |
|
$ |
31.49 |
|
|
Standard semi-soft coking coal/ premium thermal coal |
|
|
|
|
|
|
|
|
|
|
|
Coal sales (millions of tonnes) |
|
0.03 |
|
|
0.23 |
|
|
|
0.50 |
|
|
0.54 |
|
|
0.26 |
|
|
0.13 |
|
|
|
0.40 |
|
|
0.51 |
|
|
Average realized selling price (per tonne) |
$ |
36.71 |
|
$ |
35.17 |
|
|
$ |
31.66 |
|
$ |
30.80 |
|
$ |
33.12 |
|
$ |
32.71 |
|
|
$ |
31.88 |
|
$ |
31.67 |
|
|
Standard thermal coal |
|
|
|
|
|
|
|
|
|
|
|
Coal sales (millions of tonnes) |
|
- |
|
|
- |
|
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
|
- |
|
|
- |
|
|
Average realized selling price (per tonne) |
$ |
- |
|
$ |
- |
|
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
|
$ |
- |
|
$ |
- |
|
|
Washed coal |
|
|
|
|
|
|
|
|
|
|
|
Coal sales (millions of tonnes) |
|
- |
|
|
0.01 |
|
|
|
0.07 |
|
|
0.10 |
|
|
0.02 |
|
|
- |
|
|
|
0.20 |
|
|
0.25 |
|
|
Average realized selling price (per tonne) |
$ |
- |
|
$ |
49.62 |
|
|
$ |
42.51 |
|
$ |
41.30 |
|
$ |
43.26 |
|
$ |
- |
|
|
$ |
42.95 |
|
$ |
42.37 |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
Coal sales (millions of tonnes) |
|
0.11 |
|
|
0.64 |
|
|
|
0.95 |
|
|
0.99 |
|
|
0.49 |
|
|
0.20 |
|
|
|
0.99 |
|
|
0.81 |
|
|
Average realized selling price (per tonne) |
$ |
47.93 |
|
$ |
43.46 |
|
|
$ |
35.53 |
|
$ |
31.63 |
|
$ |
31.66 |
|
$ |
31.18 |
|
|
$ |
33.04 |
|
$ |
34.98 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Raw coal production (millions of tonnes) |
|
- |
|
|
1.04 |
|
|
|
0.96 |
|
|
0.52 |
|
|
- |
|
|
0.01 |
|
|
|
1.48 |
|
|
1.21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales of product sold (per tonne) |
$ |
41.38 |
|
$ |
28.67 |
|
|
$ |
23.36 |
|
$ |
20.23 |
|
$ |
21.16 |
|
$ |
30.36 |
|
|
$ |
23.68 |
|
$ |
19.16 |
|
|
Direct cash costs of product sold (per tonne) (i) |
$ |
16.39 |
|
$ |
18.15 |
|
|
$ |
14.78 |
|
$ |
12.38 |
|
$ |
9.90 |
|
$ |
11.69 |
|
|
$ |
13.61 |
|
$ |
18.03 |
|
|
Mine administration cash costs of product sold (per tonne) (i) |
$ |
4.26 |
|
$ |
1.04 |
|
|
$ |
1.07 |
|
$ |
1.15 |
|
$ |
1.70 |
|
$ |
2.50 |
|
|
$ |
1.29 |
|
$ |
1.09 |
|
|
Total cash costs of product sold (per tonne) (i) |
$ |
20.65 |
|
$ |
19.19 |
|
|
$ |
15.85 |
|
$ |
13.53 |
|
$ |
11.60 |
|
$ |
14.19 |
|
|
$ |
14.90 |
|
$ |
19.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Operational Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production waste material moved (millions of bank |
|
- |
|
|
5.04 |
|
|
|
3.10 |
|
|
1.67 |
|
|
- |
|
|
0.57 |
|
|
|
3.61 |
|
|
4.36 |
|
|
cubic meters) |
|
|
|
|
|
|
|
|
|
|
|
Strip ratio (bank cubic meters of waste material per tonne of |
|
- |
|
|
4.83 |
|
|
|
3.24 |
|
|
3.20 |
|
|
- |
|
|
85.08 |
|
|
|
2.44 |
|
|
3.61 |
|
|
coal produced) |
|
|
|
|
|
|
|
|
|
|
|
Lost time injury frequency rate (ii) |
|
0.00 |
|
|
0.00 |
|
|
|
0.00 |
|
|
0.00 |
|
|
0.04 |
|
|
0.09 |
|
|
|
0.08 |
|
|
0.08 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
(i) A Non-IFRS financial measure.
Refer to “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 consolidated 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
consolidated financial statements, of quarterly results for the
past eight quarters:
| |
|
|
|
|
|
|
|
|
|
|
| $ in
thousands, except per share information |
2021 |
|
2020 |
|
2019 |
|
Quarter Ended |
30-Jun |
31-Mar |
|
31-Dec |
30-Sep |
30-Jun |
31-Mar |
|
31-Dec |
30-Sep |
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Results |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue (i) |
$ |
5,191 |
|
$ |
28,064 |
|
|
$ |
33,879 |
|
$ |
30,960 |
|
$ |
14,975 |
|
$ |
6,137 |
|
|
$ |
32,113 |
|
$ |
28,309 |
|
|
Cost of sales (i) |
|
(4,552 |
) |
|
(18,347 |
) |
|
|
(22,193 |
) |
|
(20,027 |
) |
|
(10,366 |
) |
|
(6,071 |
) |
|
|
(23,446 |
) |
|
(15,518 |
) |
|
Gross profit excluding idled mine asset costs |
|
1,565 |
|
|
10,228 |
|
|
|
12,610 |
|
|
11,789 |
|
|
6,286 |
|
|
1,462 |
|
|
|
9,971 |
|
|
13,664 |
|
|
Gross profit including idled mine asset costs |
|
639 |
|
|
9,717 |
|
|
|
11,686 |
|
|
10,933 |
|
|
4,609 |
|
|
66 |
|
|
|
8,667 |
|
|
12,791 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other operating income/(expenses) |
|
(113 |
) |
|
(335 |
) |
|
|
434 |
|
|
(575 |
) |
|
(5,150 |
) |
|
470 |
|
|
|
(1,589 |
) |
|
(1,245 |
) |
|
Administration expenses |
|
(1,484 |
) |
|
(1,781 |
) |
|
|
(2,120 |
) |
|
(1,789 |
) |
|
(1,291 |
) |
|
(1,771 |
) |
|
|
(1,386 |
) |
|
(2,074 |
) |
|
Evaluation and exploration expenses |
|
(47 |
) |
|
(65 |
) |
|
|
(55 |
) |
|
(63 |
) |
|
(52 |
) |
|
(56 |
) |
|
|
(382 |
) |
|
(22 |
) |
|
Profit/(loss) from operations |
|
(1,005 |
) |
|
7,536 |
|
|
|
9,945 |
|
|
8,506 |
|
|
(1,884 |
) |
|
(1,291 |
) |
|
|
5,310 |
|
|
9,450 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance costs |
|
(8,870 |
) |
|
(14,637 |
) |
|
|
(7,442 |
) |
|
(9,885 |
) |
|
(7,258 |
) |
|
(7,135 |
) |
|
|
(7,095 |
) |
|
(7,184 |
) |
|
Finance income |
|
2,494 |
|
|
21,001 |
|
|
|
13 |
|
|
2,583 |
|
|
2 |
|
|
43 |
|
|
|
36 |
|
|
68 |
|
|
Share of earnings/(loss) of a joint venture |
|
(35 |
) |
|
274 |
|
|
|
431 |
|
|
660 |
|
|
268 |
|
|
(46 |
) |
|
|
225 |
|
|
277 |
|
|
Current income tax credit/(expense) |
|
139 |
|
|
(1,120 |
) |
|
|
(5,174 |
) |
|
(793 |
) |
|
(900 |
) |
|
(732 |
) |
|
|
(659 |
) |
|
(468 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net profit/(loss) |
|
(7,277 |
) |
|
13,054 |
|
|
|
(2,227 |
) |
|
1,071 |
|
|
(9,772 |
) |
|
(9,161 |
) |
|
|
(2,183 |
) |
|
2,143 |
|
|
Basic earnings/(loss) per share |
$ |
(0.03 |
) |
$ |
0.05 |
|
|
$ |
(0.01 |
) |
$ |
- |
|
$ |
(0.04 |
) |
$ |
(0.03 |
) |
|
$ |
(0.01 |
) |
$ |
0.01 |
|
|
Diluted earnings/(loss) per share |
$ |
(0.03 |
) |
$ |
0.02 |
|
|
$ |
(0.01 |
) |
$ |
- |
|
$ |
(0.04 |
) |
$ |
(0.03 |
) |
|
$ |
(0.01 |
) |
$ |
0.01 |
|
| |
|
|
|
|
|
|
|
|
|
|
(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
interim financial statements for further analysis regarding the
Company’s reportable operating segments.
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.
Costs reimbursable to Turquoise Hill
Resources Limited (“Turquoise Hill”)
Prior to the completion of a 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 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 December 31, 2020, 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 trade and other payables).
On January 20, 2021, the Company and Turquoise
Hill entered into a settlement agreement, whereby Turquoise Hill
agreed to a repayment schedule in settlement of certain secondment
costs in the amount of $2.8 million (representing a portion of the
TRQ Reimbursable Amount) pursuant to which the Company agreed to
make monthly payments to Turquoise Hill in the amount of $0.1
million per month from January 2021 to June 2022. The Company is
contesting the validity of the remaining balance of the TRQ
Reimbursable Amount claimed by Turquoise Hill.
Going concern
considerations
The Company’s condensed consolidated interim
financial statements have been prepared on a going concern basis
which assumes that the Company will continue operating until at
least June 30, 2022 and will be able to realize its assets and
discharge its liabilities in the normal course of operations as
they come due. However, in order to continue as a going concern,
the Company must generate sufficient operating cash flow, secure
additional capital or otherwise pursue a strategic restructuring,
refinancing or other transactions to provide it with additional
liquidity.
Several adverse conditions and material
uncertainties cast significant doubt upon the Company’s ability to
continue as a going concern and the going concern assumption used
in the preparation of the Company’s condensed consolidated interim
financial statements. The Company had a deficiency in assets of
$70.6 million as at June 30, 2021 as compared to a deficiency in
assets of $76.2 million as at December 31, 2020 while the working
capital deficiency (excess current liabilities over current assets)
was $35.3 million as at June 30, 2021 compared to a working capital
deficiency of $217.6 million as at December 31, 2020.
Included in the working capital deficiency as at
June 30, 2021 are significant obligations, mainly comprising of
trade and other payables of $68.8 million, which includes the
unpaid taxes of $24.1 million that are repayable on demand to the
Mongolian Tax Authority (“MTA”).
The Company may not be able to settle all trade
and other payables on a timely basis, while continuing postponement
in settling certain trade payables owed to suppliers and creditors
may impact the mining operations of the Company and may result in
potential lawsuits and/or bankruptcy proceedings being filed
against the Company. Except as disclosed elsewhere in this press
release, no such lawsuits or proceedings are pending as at August
13, 2021. However, there can be no assurance that no such lawsuits
or proceedings will be filed by the Company’s creditors in the
future and the Company’s suppliers and contractors will continue to
supply and provide services to the Company uninterrupted.
There are significant uncertainties as to the
outcomes of the above events or conditions that may cast
significant doubt on the Company’s ability to continue as a going
concern and, therefore, the Company may be unable to realize its
assets and discharge its liabilities in the normal course of
business. Should the use of the going concern basis in preparation
of the condensed consolidated interim financial statements be
determined to be not appropriate, adjustments would have to be made
to write down the carrying amounts of the Company’s assets to their
realizable values, to provide for any further liabilities which
might arise and to reclassify non-current assets and non-current
liabilities as current assets and current liabilities,
respectively. The effects of these adjustments have not been
reflected in the condensed consolidated interim financial
statements. If the Company is unable to continue as a going
concern, it may be forced to seek relief under applicable
bankruptcy and insolvency legislation.
Management of the Company has prepared a cash
flow projection covering a period of 12 months from June 30, 2021.
The cash flow projection has considered the anticipated cash flows
to be generated from the Company’s business during the period under
projection including cost saving measures. In particular, the
Company has taken into account the following measures for
improvement of the Company’s liquidity and financial position,
which include: (1) entering into two deferral agreements with CIC
on November 19, 2020 (the “2020 November Deferral Agreement”) for a
deferral of (i) deferred cash interest and deferral fees of
approximately $75.2 million which were due and payable to CIC on or
before September 14, 2020, under the deferral agreement signed on
June 19, 2020 (the “2020 June Deferral Agreement”); (ii)
semi-annual cash interest payments in the aggregate amount of $16.0
million payable to CIC on November 19, 2020 and May 19, 2021; (iii)
$4.0 million worth of PIK Interest shares issuable to CIC on
November 19, 2020 under the CIC Convertible Debenture; and (iv) the
management fee that were due and payable to CIC on November 14,
2020 and February 14, 2021, and that will be due and payable to CIC
on May 15, 2021, August 14, 2021 and November 14, 2021 under the
amended and restated mutual cooperation agreement signed on
November 19, 2009 (“Amended and Restated Cooperation Agreement”)
(collectively, the “2020 November Deferral Amounts”) and the 2021
July Deferral Agreement for a deferral of the 2021 Deferral Amounts
respectively until August 31, 2023; (2) agreeing to deferral
arrangements and improved payment terms with certain vendors; (3)
reducing the outstanding tax payable by making monthly payments to
the MTA beginning as of June 2020; and (4) reducing the inventory
of low quality coal by wet washing. After considering the above,
the directors of the Company believe that there will be sufficient
financial resources to continue its operations and to meet its
financial obligations as and when they fall due in the next 12
months from June 30, 2021 and therefore are satisfied that it is
appropriate to prepare the condensed consolidated interim financial
statements on a going concern basis.
Factors that impact the Company’s liquidity are
being closely monitored and include, but are not limited to, impact
of the COVID-19 pandemic, restrictions on the Company’s ability to
import its coal products for sale in China, China’s economic
growth, market prices of coal, production levels, operating cash
costs, capital costs, exchange rates of currencies of countries
where the Company operates and exploration and discretionary
expenditures.
As at June 30, 2021 and December 31, 2020, the
Company was not subject to any externally imposed capital
requirements.
Impact of the COVID-19
Pandemic
Since the onset of the COVID-19 pandemic in
early 2020, the Mongolian local authorities have taken certain
precautionary steps to minimize further transmission of COVID-19 in
Mongolia and announced several lockdown measures in Ulaanbaatar.
During the second quarter of 2021, additional precautionary
measures were imposed by the Chinese authorities at the Ceke port
of entry in response to the increase of COVID-19 case numbers in
Mongolia, which included restricting the number of trucks crossing
the Mongolian border into China. These restrictions on trucking
volume have had an adverse impact on the Company’s ability to
import its coal products into China in the second quarter of 2021.
In response, the Company temporarily suspended its major mining
operations (including coal mining) in the second quarter of 2021 in
order to control the inventory level and preserve the Company’s
working capital. Such suspension remains in effect as of the date
of this press release. Although the export of coal from Mongolia to
China continues as of the date hereof, there can be no
guarantee that the Company will be able to continue exporting coal
to China, or that the border crossings would not be the subject of
closures as a result of COVID-19 or any variants thereof in the
future. The Company will continue to closely monitor the
development of the COVID-19 pandemic and the impact it has on coal
exports to China and will react promptly to preserve the working
capital of the Company and mitigate any negative impacts on the
business and operations of the Company.
CIC Convertible Debenture
In November 2009, the Company entered into a
financing agreement with CIC for $500 million in the form of a
secured, convertible debenture bearing interest at 8.0% (6.4%
payable semi-annually in cash and 1.6% payable annually in the
Company’s shares) with a maximum term of 30 years. The CIC
Convertible Debenture is secured by a first ranking charge over the
Company’s assets and certain subsidiaries. The financing was used
primarily to support the accelerated investment program in Mongolia
and for working capital, repayment of debts, general and
administrative expenses and other general corporate purposes.
On March 29, 2010, the Company exercised its
right to call for the conversion of up to $250.0 million of the CIC
Convertible Debenture into approximately 21.5 million shares at a
conversion price of $11.64 (CAD$11.88). As at June 30, 2021, CIC
owned approximately 23.7% of the issued and outstanding Common
Shares of the Company.
On November 19, 2020, the Company and CIC
entered into the 2020 November Deferral Agreement pursuant to which
CIC agreed to grant the Company a deferral of the 2020 November
Deferral Amounts. The 2020 November Deferral Agreement became
effective on January 21, 2021, being the date on which the 2020
November Deferral Agreement was approved by shareholders at the
Company’s annual and special meeting of shareholders.
The principal terms of the 2020 November
Deferral Agreement are as follows:
- Payment of the 2020 November
Deferral Amounts will be deferred until August 31, 2023.
- CIC agreed to waive its rights
arising from any default or event of default under the CIC
Convertible Debenture as a result of trading in the Common Shares
being halted on the TSX beginning as of June 19, 2020 and suspended
on the HKEX beginning as of August 17, 2020, in each case for a
period of more than five trading days.
- As consideration for the deferral
of the 2020 November Deferral Amounts, the Company agreed to pay
CIC: (i) a deferral fee equal to 6.4% per annum on the 2020
November Deferral Amounts payable under the CIC Convertible
Debenture and the 2020 June Deferral Agreement, commencing on the
date on which each such 2020 November Deferral Amounts would
otherwise have been due and payable under the CIC Convertible
Debenture or the 2020 June Deferral Agreement, as applicable; and
(ii) a deferral fee equal to 2.5% per annum on the 2020 November
Deferral Amounts payable under the Amended and Restated Cooperation
Agreement, commencing on the date on which the management fee would
otherwise have been due and payable under the Amended and Restated
Cooperation Agreement.
- The 2020 November Deferral
Agreement does not contemplate a fixed repayment schedule for the
2020 November Deferral Amounts and related deferral fees. Instead,
the Company and CIC would agree to assess in good faith the
Company’s financial condition and working capital position on a
monthly basis and determine the amount, if any, of the 2020
November Deferral Amounts and related deferral fees that the
Company is able to repay under the CIC Convertible Debenture, the
2020 June Deferral Agreement or the Amended and Restated
Cooperation Agreement, having regard to the working capital
requirements of the Company’s operations and business at such time
and with the view of ensuring that the Company’s operations and
business would not be materially prejudiced as a result of any
repayment.
- Commencing as of November 19, 2020
and until such time as the November 2020 PIK Interest is fully
repaid, CIC reserves the right to require the Company to pay and
satisfy the amount of the November 2020 PIK Interest, either in
full or in part, by way of issuing and delivering PIK Interest
shares in accordance with the CIC Convertible Debenture provided
that, on the date of issuance of such shares, the Common Shares are
listed and trading on at least one stock exchange.
- If at any time before the 2020
November Deferral Amounts and related deferral fees are fully
repaid, the Company proposes to appoint, replace or terminate one
or more of its Chief Executive Officer, its Chief Financial Officer
or any other senior executive(s) in charge of its principal
business function or its principal subsidiary, then the Company
must first consult with, and obtain written consent from CIC prior
to effecting such appointment, replacement or termination.
On July 30, 2021, the Company and CIC entered
into the 2021 July Deferral Agreement pursuant to which CIC agreed
to grant the Company a deferral of: (i) semi-annual cash interest
payments of $8.1 million payable to CIC on November 19, 2021; and
(ii) $4.0 million worth of PIK Interest issuable to CIC on November
19, 2021 under the CIC Convertible Debenture. The effectiveness of
the 2021 July Deferral Agreement and the respective covenants,
agreements and obligations of each party under the 2021 July
Deferral Agreement are subject to the Company obtaining the
requisite approval of the 2021 July Deferral Agreement from the TSX
in accordance with applicable TSX rules.
The principal terms of the 2021 July Deferral
Agreement are as follows:
- Payment of the 2021 Deferral
Amounts will be deferred until August 31, 2023.
- As consideration for the deferral
of the 2021 Deferral Amounts, the Company agreed to pay CIC a
deferral fee equal to 6.4% per annum on the 2021 Deferral Amounts
payable under the CIC Convertible Debenture, commencing on November
19, 2021.
REGULATORY ISSUES AND
CONTINGENCIES
Class Action Lawsuit
In January 2014, Siskinds LLP, a Canadian law
firm, filed a class action (the “Class Action”) against the
Company, certain of its former senior officers and directors, and
its former auditors (the “Former Auditors”), in the Ontario Court
in relation to the Company’s restatement of certain financial
statements previously disclosed in the Company’s public fillings
(the “Restatement”).
To commence and proceed with the Class Action,
the plaintiff was required to seek leave of the Court under the
Ontario Securities Act (“Leave Motion”) and certify the action as a
class proceeding under the Ontario Class Proceedings Act. The
Ontario Court rendered its decision on the Leave Motion on November
5, 2015, dismissing the action against the former senior
officers and directors and allowing the action to proceed against
the Company in respect of alleged misrepresentation affecting
trades in the secondary market for the Company’s securities arising
from the Restatement. The action against the Former Auditors was
settled by the plaintiff on the eve of the Leave Motion.
Both the plaintiff and the Company appealed the
Leave Motion decision to the Ontario Court of Appeal. On September
18, 2017, the Ontario Court of Appeal dismissed the Company’s
appeal of the Leave Motion to permit the plaintiff to commence and
proceed with the Class Action. Concurrently, the Ontario Court of
Appeal granted leave for the plaintiff to proceed with their action
against the former senior officers and directors in relation to the
Restatement.
The Company filed an application for leave to
appeal to the Supreme Court of Canada in November 2017, but the
leave to appeal to the Supreme Court of Canada was dismissed in
June 2018.
In December 2018, the parties agreed to a
consent Certification Order, whereby the action against the former
senior officers and directors was withdrawn and the Class Action
would only proceed against the Company.
Counsel for the plaintiff and defence have
agreed on and the case management judge has ordered a trial to
commence in December 2022 (subject to Court availability). To
accomplish all steps necessary for trial preparation, counsels have
agreed to the following proposed schedule under the case management
of the judge: (i) document production and pleading amendments by
October 31, 2021; (ii) oral examinations for discovery ending by
December 31, 2022; (iii) expert reports of plaintiff by March 31,
2022 and by defendants July 31, 2022; and (iv) pre-trial filings
and motions by August 31, 2022. The Company has urged a trial as
early as possible.
The Company firmly believes that it has a strong
defense on the merits and will continue to vigorously defend itself
against the Class Action through independent Canadian litigation
counsel retained by the Company for this purpose. Due to the
inherent uncertainties of litigation, it is not possible to predict
the final outcome of the Class Action or determine the amount of
potential losses, if any. However, the Company has determined
that a provision for this matter as at June 30, 2021 was not
required.
Toll Wash Plant Agreement with Ejin
Jinda
In 2011, the Company entered into an agreement
with Ejin Jinda, a subsidiary of China Mongolia Coal Co. Ltd., to
toll-wash coal from the Ovoot Tolgoi Mine. The agreement had a
duration of five years from the commencement of the contract and
provided for an annual washing capacity of approximately 3.5
million tonnes of input coal.
Under the agreement with Ejin Jinda, which
required the commercial operation of the wet washing facility to
commence on October 1, 2011, the additional fees payable by the
Company under the wet washing contract would have been $18.5
million. At each reporting date, the Company assesses the agreement
with Ejin Jinda and has determined it is not probable that this
$18.5 million will be required to be paid. Accordingly, the Company
has determined that a provision for this matter as at June 30, 2021
was not required.
Special Needs Territory in
Umnugobi
On February 13, 2015, the Soumber mining
licenses (MV-016869, MV-020436 and MV-020451) (the “License Areas”)
were included into a special protected area (to be further referred
as Special Needs Territory, the “SNT”) newly set up by the Umnugobi
Aimag’s Civil Representatives Khural (the “CRKh”) to establish a
strict regime on the protection of natural environment and prohibit
mining activities in the territory of the SNT.
On July 8, 2015, SouthGobi Sands LLC (“SGS”) and
the chairman of the CRKh, in his capacity as the respondent’s
representative, reached an agreement (the “Amicable Resolution
Agreement”) to exclude the License Areas from the territory of the
SNT in full, subject to confirmation of the Amicable Resolution
Agreement by the session of the CRKh. The parties formally
submitted the Amicable Resolution Agreement to the appointed judge
of the Administrative Court for her approval and requested a
dismissal of the case in accordance with the Law of Mongolia on
Administrative Court Procedure. On July 10, 2015, the judge issued
her order approving the Amicable Resolution Agreement and
dismissing the case, while reaffirming the obligation of CRKh to
take necessary actions at its next session to exclude the License
Areas from the SNT and register the new map of the SNT with the
relevant authorities. Mining activities at the Soumber property
cannot proceed unless and until the Company obtains a court order
restoring the Soumber mining licenses and until the License Areas
are removed from the SNT.
On July 24, 2021, SGS was notified by the
Implementing Agency of Mongolian Government that the license areas
covered by two mining licenses (MV-016869 and MV-020451) are no
longer overlapping with the SNT. The Company will continue to work
with the Mongolian authorities regarding the license area covered
by the mining license (MV-020436).
Mongolian Royalties
On September 4, 2019, the Government of Mongolia
issued a further 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.
Importing F-Grade Coal into
China
As a result of import coal quality standards
established by Chinese authorities, the Company has not been able
to export its F-grade coal products into China since December 15,
2018 as the F-grade coal products do not meet the quality
requirement.
TRANSPORTATION INFRASTRUCTURE
On August 2, 2011, the State Property Committee
of Mongolia awarded the tender to construct a paved highway from
the Ovoot Tolgoi Mine to the Shivee Khuren Border Crossing (the
“Paved Highway”) to consortium partners NTB LLC and SGS (together
referred to as “RDCC LLC”) with an exclusive right of ownership of
the Paved Highway for 30 years. The Company has an indirect 40%
interest in RDCC LLC through its Mongolian subsidiary SGS. The toll
rate is MNT 1,500 per tonne.
The Paved Highway has a carrying capacity in
excess of 20 million tonnes of coal per year.
For the three and six months ended June 30,
2021, RDCC LLC recognized toll fee revenue of $1.3 million (2020:
$1.2 million) and $1.6 million (2020: $1.6 million),
respectively.
PLEDGE OF ASSETS
There was no pledge of assets as at June 30,
2021 ($0.1 million of the Company’s property, plant and equipment
were pledged as security for a bank loan granted to the Company as
at December 31, 2020).
PURCHASE, SALE OR REDEMPTION OF LISTED
SECURITIES OF THE COMPANY
The Company did not redeem its listed
securities, nor did the Company or any of its subsidiaries purchase
or sell such securities during the six months ended June 30,
2021.
COMPLIANCE WITH CORPORATE
GOVERNANCE
The Company has, throughout the six months ended
June 30, 2021, applied the principles and complied with the
requirements of its corporate governance practices as defined by
the board of directors (“Board”) and all applicable statutory,
regulatory and stock exchange listings standards, which include the
code provisions set out in the Corporate Governance Code (the
“Corporate Governance Code”) contained in Appendix 14 to the Rules
Governing the Listing of Securities on the HKEX (the “Hong Kong
Listing Rules”), except for the following:Pursuant to code
provision A.2.7 of the Corporate Governance Code, the chairman of
the Board (“Chairman”) should at least annually hold meetings with
the non-executive directors (including independent non-executive
directors) without the executive directors present. The Company has
not had a Chairman since the conclusion of the annual general
meeting held on June 30, 2017. During the period of January 1, 2021
to June 30, 2021 there was one meeting between the Independent Lead
Director, who is fulfilling the duties of the Chairman, and the
non-executive directors without the presence of the executive
director. The opportunity for such communication channel is offered
at the end of each Board meeting.
SECURITIES TRANSACTIONS BY
DIRECTORS
The Company has adopted policies regarding
directors’ securities transactions in its Corporate Disclosure,
Confidentiality and Securities Trading Policy that have terms that
are no less exacting than those set out in the Model Code for
Securities Transactions by Directors of Listed Issuers contained in
Appendix 10 to the Hong Kong Listing Rules (“Model Code”).
In response to a specific enquiry made by the
Company on each of the directors, all directors confirmed that they
had complied with the required standards as set out in the Model
Code and the Company’s Corporate Disclosure, Confidentiality and
Securities Trading Policy throughout the six months ended June 30,
2021.
OUTLOOK
The COVID-19 pandemic has caused unprecedented
challenges around the world and adversely impacted the global
economy. The Company has adopted and will continue to implement
strict COVID-19 precautionary measures at the mine site as well as
in all of its offices in order to maintain operations in the normal
course, while also complying with the advice or orders of local
public health authorities.
As a result of the restrictions on trucking
volume crossing the Mongolian border into China imposed by Chinese
authorities at the Ceke port of entry, the Company anticipates that
it will continue to be negatively impacted by the COVID-19 pandemic
for the foreseeable future, which will have an adverse effect on
the Company’s sales, production, logistics and financials. In
particular, the restriction of the number of trucks for crossing
the Mongolian border into China by the Chinese authorities will
limit the Company’s ability to increase revenue despite the
improved market conditions in China. The Company will continue to
closely monitor the development of the COVID-19 pandemic and the
impact it has on coal exports to China and will react promptly to
preserve the working capital of the Company and mitigate any
negative impacts on the business and operations of the Company.
The Company remains cautiously optimistic
regarding the Chinese coal market, as coal is still considered to
be the primary energy source which China will continue to rely on
in the foreseeable future. Coal supply and coal import in China are
expected to be limited due to increasingly stringent requirements
relating to environmental protection and safety production, which
may result in volatile coal prices in China. The Company will
continue to monitor and react proactively to the dynamic
market.
In the medium term, the Company will continue to
adopt various strategies to enhance its product mix in order to
maximize revenue, expand its customer base and sales network,
improve logistics, optimize its operational cost structure and,
most importantly, operate in a safe and socially responsible
manner.
The Company’s objectives for the medium term are
as follows:
- Enhance product
mix – The Company will focus on improving the product mix
and increasing the production of higher quality coal by: (i)
improving mining operations; (ii) washing lower quality coal in the
Company’s coal wash plant and partnering with other nearby coal
wash plant(s); (iii) resuming the construction and operation of the
Company’s dry coal processing plant; and (iv) trading and blending
different types of coal to produce blended coal products that are
economical to the Company.
- Expand customer
base – The Company will endeavour to increase sales volume
and sales price by: (i) expanding its sales network and
diversifying its customer base; (ii) increasing its coal logistics
capacity to resolve the bottleneck in the distribution channel; and
(iii) setting and adjusting the sales price based on a more
market-oriented approach in order to maximize profit while
maintaining sustainable long-term business relationships with
customers.
- Optimize cost
structure – The Company will aim to reduce its production
costs and optimize its cost structure through engaging third party
contract mining companies to enhance its operation efficiency,
strengthening procurement management, ongoing training and
productivity enhancement.
- Operate in a safe and
socially responsible manner – The Company will continue to
maintain the highest standards in health, safety and environmental
performance and operate in a corporate socially responsible manner,
and continue to strictly implement its COVID-19 precautionary
measures at the mine site and across all offices.
In the long term, the Company will continue to
focus on creating and maximizing shareholders value by leveraging
its key competitive strengths, including:
- Strategic location
– The Ovoot Tolgoi Mine is located approximately 40km from China,
which represents the Company’s main coal market. The Company has an
infrastructure advantage, being approximately 50km from a major
Chinese coal distribution terminal with rail connections to key
coal markets in China.
- A large reserves
base – The Ovoot Tolgoi Deposit has mineral reserves of
more than 100 million tonnes. The Company also has several
development options in its Zag Suuj coal deposit and Soumber coal
deposit.
- Bridge
between Mongolia and China – The Company is
well-positioned to capture the resulting business opportunities
between China and Mongolia under the Belt and Road Initiative. The
Company will seek potential strategic support from its two largest
shareholders, which are both state-owned-enterprises in China, and
its strong operational record for the past decade in Mongolia,
being one of the largest enterprises and taxpayers in
Mongolia.
NON-IFRS FINANCIAL MEASURES
Cash Costs
The Company uses cash costs to describe its cash
production and associated cash costs incurred in bringing the
inventories to their present locations and conditions. Cash costs
incorporate all production costs, which include direct and indirect
costs of production, with the exception of idled mine asset costs
and non-cash expenses which are excluded. Non-cash expenses include
share-based compensation expense, impairment of coal stockpile
inventories, depreciation and depletion of property, plant and
equipment and mineral properties. The Company uses this performance
measure to monitor its operating cash costs internally and believes
this measure provides investors and analysts with useful
information about the Company’s underlying cash costs of
operations. The Company believes that conventional measures of
performance prepared in accordance with IFRS do not fully
illustrate the ability of its mining operations to generate cash
flows. The Company reports cash costs on a sales basis. This
performance measure is commonly utilized in the mining
industry.
Summarized Comprehensive Income
Information (Expressed in thousands of USD, except for
share and per share amounts)
| |
|
|
|
|
|
|
|
| |
Three months
ended |
|
Six months
ended |
| |
June 30, |
|
June 30, |
| |
2021 |
|
|
2020 |
|
2021 |
|
2020 |
| |
|
|
|
|
|
|
|
|
Revenue |
$ |
5,191 |
|
|
$ |
14,975 |
|
|
$ |
33,255 |
|
|
$ |
21,112 |
|
|
Cost of sales |
|
(4,552 |
) |
|
|
(10,366 |
) |
|
|
(22,899 |
) |
|
|
(16,437 |
) |
|
Gross profit |
|
639 |
|
|
|
4,609 |
|
|
|
10,356 |
|
|
|
4,675 |
|
| |
|
|
|
|
|
|
|
| Other
operating expenses |
|
(113 |
) |
|
|
(5,150 |
) |
|
|
(448 |
) |
|
|
(4,680 |
) |
|
Administration expenses |
|
(1,484 |
) |
|
|
(1,291 |
) |
|
|
(3,266 |
) |
|
|
(3,062 |
) |
|
Evaluation and exploration expenses |
|
(47 |
) |
|
|
(52 |
) |
|
|
(112 |
) |
|
|
(108 |
) |
|
Profit/(loss) from operations |
|
(1,005 |
) |
|
|
(1,884 |
) |
|
|
6,530 |
|
|
|
(3,175 |
) |
| |
|
|
|
|
|
|
|
| Finance
costs |
|
(8,870 |
) |
|
|
(7,258 |
) |
|
|
(21,027 |
) |
|
|
(14,365 |
) |
| Finance
income |
|
2,494 |
|
|
|
2 |
|
|
|
21,015 |
|
|
|
17 |
|
| Share of
earnings/(loss) of a joint venture |
|
(35 |
) |
|
|
268 |
|
|
|
239 |
|
|
|
222 |
|
|
Profit/(loss) before tax |
|
(7,416 |
) |
|
|
(8,872 |
) |
|
|
6,757 |
|
|
|
(17,301 |
) |
|
Current income tax credit/(expenses) |
|
139 |
|
|
|
(900 |
) |
|
|
(981 |
) |
|
|
(1,632 |
) |
|
Net profit/(loss) attributable to equity holders of the
Company |
|
(7,277 |
) |
|
|
(9,772 |
) |
|
|
5,776 |
|
|
|
(18,933 |
) |
| |
|
|
|
|
|
|
|
|
Other comprehensive income/(loss) to be reclassified
to |
|
|
|
|
|
|
|
|
profit or loss in subsequent periods |
|
|
|
|
|
|
|
| Exchange
difference on translation of foreign operation |
|
94 |
|
|
|
(2,352 |
) |
|
|
(224 |
) |
|
|
(4,789 |
) |
|
Net comprehensive income/(loss) attributable to equity
holders of the Company |
$ |
(7,183 |
) |
|
$ |
(12,124 |
) |
|
$ |
5,552 |
|
|
$ |
(23,722 |
) |
| |
|
|
|
|
|
|
|
|
Basic earnings/(loss) per share |
$ |
(0.03 |
) |
|
$ |
(0.04 |
) |
|
$ |
0.02 |
|
|
$ |
(0.07 |
) |
| |
|
|
|
|
|
|
|
|
Diluted earnings/(loss) per share |
$ |
(0.03 |
) |
|
$ |
(0.04 |
) |
|
$ |
0.01 |
|
|
$ |
(0.07 |
) |
| |
|
|
|
|
|
|
|
Summarized Financial Position
Information(Expressed in thousands of USD)
| |
|
|
|
| |
As at |
| |
June
30, |
|
December
31, |
| |
2021 |
|
2020 |
|
Assets |
|
|
|
| |
|
|
|
|
Current assets |
|
|
|
|
Cash and cash equivalents |
$ |
6,725 |
|
|
$ |
20,121 |
|
| Restricted
cash |
|
1,239 |
|
|
|
918 |
|
| Trade and
other receivables |
|
237 |
|
|
|
1,305 |
|
|
Inventories |
|
48,426 |
|
|
|
42,383 |
|
| Prepaid
expenses |
|
2,121 |
|
|
|
1,666 |
|
|
Total current assets |
|
58,748 |
|
|
|
66,393 |
|
| |
|
|
|
|
Non-current assets |
|
|
|
| Property,
plant and equipment |
|
135,049 |
|
|
|
131,425 |
|
|
Inventories |
|
136 |
|
|
|
680 |
|
| Investment
in a joint venture |
|
15,969 |
|
|
|
16,134 |
|
|
Total non-current assets |
|
151,154 |
|
|
|
148,239 |
|
| |
|
|
|
|
Total assets |
$ |
209,902 |
|
|
$ |
214,632 |
|
| |
|
|
|
|
Equity and liabilities |
|
|
|
| |
|
|
|
|
Current liabilities |
|
|
|
| Trade and
other payables |
$ |
68,791 |
|
|
$ |
74,365 |
|
| Deferred
revenue |
|
19,997 |
|
|
|
20,831 |
|
|
Interest-bearing borrowing |
|
- |
|
|
|
2,826 |
|
| Lease
liabilities |
|
249 |
|
|
|
202 |
|
| Income tax
payable |
|
5,049 |
|
|
|
4,365 |
|
| Current
portion of convertible debenture |
|
- |
|
|
|
181,411 |
|
|
Total current liabilities |
|
94,086 |
|
|
|
284,000 |
|
| |
|
|
|
|
Non-current liabilities |
|
|
|
| Lease
liabilities |
|
689 |
|
|
|
424 |
|
| Convertible
debenture |
|
179,070 |
|
|
|
- |
|
|
Decommissioning liability |
|
6,649 |
|
|
|
6,445 |
|
|
Total non-current liabilities |
|
186,408 |
|
|
|
6,869 |
|
| |
|
|
|
|
Total liabilities |
|
280,494 |
|
|
|
290,869 |
|
| |
|
|
|
|
Equity |
|
|
|
| Common
shares |
|
1,098,760 |
|
|
|
1,098,634 |
|
| Share option
reserve |
|
52,669 |
|
|
|
52,702 |
|
| Capital
reserve |
|
396 |
|
|
|
396 |
|
| Exchange
reserve |
|
(30,495 |
) |
|
|
(30,271 |
) |
| Accumulated
deficit |
|
(1,191,922 |
) |
|
|
(1,197,698 |
) |
|
Total deficiency in assets |
|
(70,592 |
) |
|
|
(76,237 |
) |
| |
|
|
|
|
Total equity and liabilities |
$ |
209,902 |
|
|
$ |
214,632 |
|
| |
|
|
|
| Net
current liabilities |
$ |
(35,338 |
) |
. |
$ |
(217,607 |
) |
|
Total assets less current liabilities |
$ |
115,816 |
|
|
$ |
(69,368 |
) |
| |
|
|
|
SELECTED INFORMATION FROM THE NOTES TO
THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Additional information required by the HKEX and
not disclosed elsewhere in this press release is as follows. All
amounts are expressed in thousands of USD and shares in thousands,
unless otherwise indicated.
1. BASIS OF PREPARATION
1.1 Corporate
information and going concern
The Company’s condensed consolidated interim
financial statements have been prepared on a going concern basis
which assumes that the Company will continue operating until at
least June 30, 2022 and will be able to realize its assets and
discharge its liabilities in the normal course of operations as
they come due. However, in order to continue as a going concern,
the Company must generate sufficient operating cash flows, secure
additional capital or otherwise pursue a strategic restructuring,
refinancing or other transactions to provide it with additional
liquidity.
Several adverse conditions and material
uncertainties cast significant doubt upon the Company’s ability to
continue as a going concern and the going concern assumption used
in the preparation of the Company’s condensed interim consolidated
financial statements. The Company had a deficiency in assets of
$70,592 as at June 30, 2021 as compared to a deficiency in assets
of $76,237 as at December 31, 2020 while the working capital
deficiency (excess current liabilities over current assets) was
$35,338 as at June 30, 2021 as compared to a working capital
deficiency of $217,607 as at December 31, 2020.
Included in the working capital deficiency as at
June 30, 2021 are significant obligations, mainly comprising of
trade and other payables of $68,791, which includes the unpaid
taxes of $24,069 that are repayable on demand to the MTA.
The Company may not be able to settle all trade
and other payables on a timely basis, and as a result, any
continuing postponement in settling certain trade and other
payables owed to suppliers and creditors may impact the mining
operations of the Company and may result in potential lawsuits
and/or bankruptcy proceedings being filed against the Company.
Except as disclosed elsewhere in these condensed consolidated
interim financial statements, no such lawsuits or proceedings were
pending as at August 13, 2021.
There are significant uncertainties as to the
outcomes of the above events or conditions that may cast
significant doubt on the Company’s ability to continue as a going
concern and, therefore, the Company may be unable to realize its
assets and discharge its liabilities in the normal course of
business. Should the use of the going concern basis in preparation
of the condensed consolidated interim financial statements be
determined to be not appropriate, adjustments would have to be made
to write down the carrying amounts of the Company’s assets to their
realizable values, to provide for any further liabilities which
might arise and to reclassify non-current assets and non-current
liabilities as current assets and current liabilities,
respectively. The effects of these adjustments have not been
reflected in the condensed consolidated interim financial
statements. If the Company is unable to continue as a going
concern, it may be forced to seek relief under applicable
bankruptcy and insolvency legislation.Management of the Company has
prepared a cash flow projection covering a period of 12 months from
June 30, 2021. The cash flow projection has considered the
anticipated cash flows to be generated from the Company’s business
during the period under projection including cost saving measures.
In particular, the Company has taken into account the following
measures for improvement of the Company’s liquidity and financial
position, which include: (i) entering into the 2020 November
Deferral Agreement and the 2021 July Deferral Agreement with CIC
for a deferral of the 2020 November Deferral Amounts and the 2021
Deferral Amounts until August 31, 2023; (ii) agreeing to deferral
arrangements and improved payment terms with certain vendors; (iii)
reducing the outstanding tax payable by making monthly payments to
MTA beginning as of June 2020; and (iv) reducing the inventory of
low quality coal by wet washing. After considering the above, the
directors of the Company believe that there will be sufficient
financial resources to continue its operations and to meet its
financial obligations as and when they fall due in the next 12
months from June 30, 2021 and therefore are satisfied that it is
appropriate to prepare the condensed consolidated interim financial
statements on a going concern basis.
Factors that impact the Company’s liquidity are
being closely monitored and include, but are not limited to, impact
of the COVID-19 pandemic, restrictions on the Company’s ability to
import its coal products for sale in China, China’s economic
growth, market prices of coal, production levels, operating cash
costs, capital costs, exchange rates of currencies of countries
where the Company operates and exploration and discretionary
expenditures.
As at June 30, 2021 and December 31, 2020, the
Company was not subject to any externally imposed capital
requirements.
1.2 Statement
of compliance
These condensed consolidated interim financial
statements, including comparatives, have been prepared in
accordance with IAS 34 - “Interim Financial Reporting” using
accounting policies in compliance with the IFRS issued by the IASB
and Interpretations of the IFRS Interpretations Committee
(“IFRIC”).
The condensed consolidated interim financial
statements of the Company for the six months ended June 30, 2021
were approved and authorized for issue by the Board on August 13,
2021.
1.3
Basis
of presentation
These condensed consolidated interim financial
statements have been prepared using accounting policies and methods
of computation consistent with those applied in the Company’s
December 31, 2020 consolidated annual financial statements, except
as disclosed below. These condensed consolidated interim financial
statements do not include all the information and note disclosures
required by IFRS for annual financial statements and therefore
should be read in conjunction with the Company’s annual
consolidated financial statements for the year ended December 31,
2020.
1.4 Adoption
of new and revised standards and interpretations
There have been no other new IFRSs or IFRIC
interpretations that are not yet effective that would be expected
to have a material impact on the Company, except those disclosed in
the Company’s annual consolidated financial statements for the year
ended December 31, 2020.2. SEGMENTED
INFORMATION
The Chief Executive Officer (chief operating
decision maker) of the Company reviews the financial information in
order to make decisions about resources to be allocated to the
segment and to assess its performance. No operating segment
identified by the Board has been aggregated in arriving at the
reporting segments of the Company. For management’s purpose, the
Company has only one reportable operating segment, which is the
coal division. The division is principally engaged in coal mining,
development and exploration in Mongolia, and logistics and trading
of coal in Mongolia and China for the six months ended June 30,
2021 and 2020.
The Company’s resources are integrated and as a
result, no discrete operating segment financial information is
available. Since this is the only reportable and operating segment
of the Company, no further analysis thereof is presented. All the
revenue of the Company is generated from trading of coal for the
six months ended June 30, 2021 and 2020.
2.1 Information
about major customers
During the six months ended June 30, 2021, the
Coal Division had twenty active customers. Two customers with
respective revenues contributed over 10% of the total revenue
during the six months ended June 30, 2021, with the largest
customer accounting for 38% of revenues and the second largest
customer accounting for 17% of revenues. Five customers with
respective revenues contributed over 10% of the total revenue
during the six months ended June 30, 2020, with the largest
customer accounting for 25% of revenues, the second largest
customer accounting for 23% of revenues, the third largest customer
accounting for 16% of revenues, the fourth largest customer
accounting for 13% of revenues and the fifth largest customer
accounting for 11% of revenues.
2.2 Geographical
information
The operations of the Company are primarily
located in Mongolia, Hong Kong and China.
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| |
Mongolia |
|
Hong Kong |
|
China |
|
ConsolidatedTotal |
|
Revenue (i) |
|
|
|
|
|
|
|
|
For the three months ended June 30, 2021 |
$ |
- |
|
$ |
- |
|
$ |
5,191 |
|
$ |
5,191 |
|
For the three months ended June 30, 2020 |
|
- |
|
|
- |
|
|
14,975 |
|
|
14,975 |
|
For the six months ended June 30, 2021 |
$ |
- |
|
$ |
- |
|
$ |
33,255 |
|
$ |
33,255 |
|
For the six months ended June 30, 2020 |
|
- |
|
|
- |
|
|
21,112 |
|
|
21,112 |
| |
|
|
|
|
|
|
|
|
Non-current assets |
|
|
|
|
|
|
|
|
As at June 30, 2021 |
$ |
150,322 |
|
$ |
466 |
$ |
- |
$ |
366 |
|
$ |
151,154 |
|
As at December 31, 2020 |
|
147,675 |
|
|
84 |
|
|
480 |
|
|
148,239 |
| |
|
|
|
|
|
|
|
(i) The revenue information above is based
on the locations of the customers.
3. REVENUE
Revenue represents the net invoiced value of
goods sold which arises from the trading of coal. The Company
recognizes all revenue from the trading of coal at a point in time
when the customer obtains control of the goods or services.
4. EXPENSES BY NATURE
The Company’s expenses by nature are summarized as
follows:
| |
|
|
|
|
|
|
|
| |
Three months
ended |
|
Six months
ended |
| |
June 30, |
|
June 30, |
| |
2021 |
|
2020 |
|
2021 |
|
2020 |
| |
|
|
|
|
|
|
|
|
Depreciation |
$ |
1,499 |
|
|
$ |
3,137 |
|
$ |
3,378 |
|
|
$ |
5,268 |
|
| Auditors'
remuneration |
|
148 |
|
|
|
138 |
|
|
307 |
|
|
|
383 |
|
| |
|
|
|
|
|
|
|
| Employee
benefit expense (including Directors' remuneration) |
|
|
|
|
|
|
|
|
Wages and salaries |
$ |
1,332 |
|
|
$ |
1,612 |
|
$ |
2,921 |
|
|
$ |
3,904 |
|
|
Equity-settled share option expense |
|
3 |
|
|
|
73 |
|
|
(5 |
) |
|
|
88 |
|
|
Pension scheme contributions |
|
127 |
|
|
|
75 |
|
|
351 |
|
|
|
323 |
|
| |
$ |
1,462 |
|
|
$ |
1,760 |
|
$ |
3,267 |
|
|
$ |
4,315 |
|
| |
|
|
|
|
|
|
|
| Lease
payments under operating leases |
$ |
48 |
|
|
$ |
17 |
|
$ |
69 |
|
|
$ |
42 |
|
| Foreign
exchange loss/(gain), net |
|
189 |
|
|
|
20 |
|
|
171 |
|
|
|
(752 |
) |
| CIC
management fee |
|
120 |
|
|
|
413 |
|
|
733 |
|
|
|
535 |
|
|
Royalties |
|
1,135 |
|
|
|
1,700 |
|
|
5,335 |
|
|
|
2,957 |
|
| Provision
for doubtful trade and and other receivables |
|
29 |
|
|
|
144 |
|
|
220 |
|
|
|
282 |
|
| Loss/(gain)
on disposal of items of property, plant and equipment, net |
|
- |
|
|
|
20 |
|
|
(270 |
) |
|
|
(19 |
) |
| Provision
for commercial arbitration |
|
- |
|
|
|
4,553 |
|
|
- |
|
|
|
4,634 |
|
| Discount on
settlement of trade payables |
|
(225 |
) |
|
|
- |
|
|
(381 |
) |
|
|
- |
|
| Reversal of
impairment on materials and supplies inventories |
|
- |
|
|
|
- |
|
|
(25 |
) |
|
|
- |
|
|
Mine operating costs and others |
|
1,791 |
|
|
|
4,957 |
|
|
13,921 |
|
|
|
6,642 |
|
|
Total operating expenses |
$ |
6,196 |
|
|
$ |
16,859 |
|
$ |
26,725 |
|
|
$ |
24,287 |
|
| |
|
|
|
|
|
|
|
5. COST OF SALES
The Company’s cost of sales consists of the
following amounts:
| |
|
|
|
|
|
|
|
| |
Three months
ended |
|
Six months
ended |
| |
June 30, |
|
June 30, |
| |
2021 |
|
2020 |
|
2021 |
|
2020 |
| |
|
|
|
|
|
|
|
|
Operating expenses |
$ |
2,271 |
|
$ |
5,684 |
|
$ |
14,551 |
|
|
$ |
8,522 |
| Share-based
compensation expense/(recovery) |
|
1 |
|
|
17 |
|
|
(1 |
) |
|
|
19 |
| Depreciation
and depletion |
|
219 |
|
|
1,288 |
|
|
1,577 |
|
|
|
1,866 |
|
Royalties |
|
1,135 |
|
|
1,700 |
|
|
5,335 |
|
|
|
2,957 |
| Cost of
sales from mine operations |
|
3,626 |
|
|
8,689 |
|
|
21,462 |
|
|
|
13,364 |
|
Cost of sales related to idled mine assets (i) |
|
926 |
|
|
1,677 |
|
|
1,437 |
|
|
|
3,073 |
|
Cost of sales |
$ |
4,552 |
|
$ |
10,366 |
|
$ |
22,899 |
|
|
$ |
16,437 |
| |
|
|
|
|
|
|
|
(i) Cost of sales related to idled mine
assets were all related to the depreciation expense for the
Company’s idled plant and equipment.
Cost of inventories recognized as expense in
cost of sales for the three months ended June 30, 2021 totaled
$1,951 (2020: $7,228). Cost of inventories recognized as expense in
cost of sales for the six months ended June 30, 2021 totaled
$13,751 (2020: $9,822).
6. OTHER OPERATING EXPENSES
The Company’s other operating expenses consist
of the following amounts:
| |
|
|
|
|
|
|
|
| |
Three months
ended |
|
Six months
ended |
| |
June 30, |
|
June 30, |
| |
2021 |
|
2020 |
|
2021 |
|
2020 |
| |
|
|
|
|
|
|
|
|
Provision for doubtful trade and other receivables |
$ |
29 |
|
|
$ |
144 |
|
$ |
220 |
|
|
$ |
282 |
|
| Foreign
exchange loss/(gain), net |
|
189 |
|
|
|
20 |
|
|
171 |
|
|
|
(752 |
) |
| CIC
management fee |
|
120 |
|
|
|
413 |
|
|
733 |
|
|
|
535 |
|
| Provision
for commercial arbitration |
|
- |
|
|
|
4,553 |
|
|
- |
|
|
|
4,634 |
|
| Reversal of
impairment on materials and supplies inventories |
|
- |
|
|
|
- |
|
|
(25 |
) |
|
|
- |
|
| Discount on
settlement of trade payables |
|
(225 |
) |
|
|
- |
|
|
(381 |
) |
|
|
- |
|
| Loss/(gain)
on disposal of items of property, plant and equipment, net |
|
- |
|
|
|
20 |
|
|
(270 |
) |
|
|
(19 |
) |
|
Other operating expenses |
$ |
113 |
|
|
$ |
5,150 |
|
$ |
448 |
|
|
$ |
4,680 |
|
| |
|
|
|
|
|
|
|
7. FINANCE COSTS AND INCOME
| The
Company’s finance costs consist of the following amounts: |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| |
Three months
ended, |
|
Six months
ended, |
| |
June 30, |
|
June 30, |
| |
2021 |
|
2020 |
|
2021 |
|
2020 |
| |
|
|
|
|
|
|
|
|
Interest expense on convertible debenture |
$ |
8,342 |
|
$ |
6,228 |
|
$ |
18,803 |
|
$ |
12,357 |
| Fair value
loss on embedded derivatives in convertible debenture |
|
- |
|
|
28 |
|
|
826 |
|
|
- |
| Value added
tax on interest from intercompany loan |
|
430 |
|
|
719 |
|
|
1,132 |
|
|
1,437 |
| Interest
expense on borrowing |
|
- |
|
|
93 |
|
|
61 |
|
|
198 |
| Interest
elements on leased assets |
|
11 |
|
|
13 |
|
|
34 |
|
|
32 |
| Accretion of
decommissioning liability |
|
87 |
|
|
177 |
|
|
171 |
|
|
341 |
|
Finance costs |
$ |
8,870 |
|
$ |
7,258 |
|
$ |
21,027 |
|
$ |
14,365 |
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| The
Company’s finance income consists of the following
amounts: |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| |
Three months
ended, |
|
Six months
ended, |
| |
June 30, |
|
June 30, |
| |
2021 |
|
2020 |
|
2021 |
|
2020 |
| |
|
|
|
|
|
|
|
| Fair value
gain on embedded derivatives in convertible debenture |
$ |
2,479 |
|
$ |
- |
|
$ |
- |
|
$ |
9 |
| Gain on
extinguishment of convertible debenture |
|
- |
|
|
- |
|
|
20,970 |
|
|
- |
| Interest
income |
|
15 |
|
|
2 |
|
|
45 |
|
|
8 |
|
Finance income |
$ |
2,494 |
|
$ |
2 |
|
$ |
21,015 |
|
$ |
17 |
| |
|
|
|
|
|
|
|
8. TAXES
The Canadian statutory tax rate was 27% (2020:
27%) on the estimated assessable profits arising in Canada during
the period. Taxes on profits assessable elsewhere have been
calculated at the rates of tax prevailing in the
countries/jurisdictions in which the Company operates.
| |
|
|
|
|
|
|
|
| |
Three months
ended, |
|
Six months
ended, |
| |
June 30, |
|
June 30, |
| |
2021 |
|
2020 |
|
2021 |
|
2020 |
| |
|
|
|
|
|
|
|
| Current -
Canada |
|
|
|
|
|
|
|
|
Charge for the period |
$ |
- |
|
|
$ |
- |
|
$ |
- |
|
$ |
- |
| Current -
elsewhere |
|
|
|
|
|
|
|
|
Charge for the period |
|
- |
|
|
|
736 |
|
|
981 |
|
|
1,468 |
|
Underprovision/(overprovision) in prior periods |
|
(139 |
) |
|
|
164 |
|
|
- |
|
|
164 |
|
Total tax (credit)/charge for the period |
$ |
(139 |
) |
|
$ |
900 |
|
$ |
981 |
|
$ |
1,632 |
| |
|
|
|
|
|
|
|
9. EARNINGS/(LOSS) PER SHARE
The calculation of basic and diluted
earnings/(loss) per share is based on the following data:
| |
|
|
|
|
|
|
|
| |
Three months
ended |
|
Six months
ended |
| |
June 30, |
|
June 30, |
| |
2021 |
|
2020 |
|
2021 |
|
2020 |
| |
|
|
|
|
|
|
|
|
Net profit/(loss) |
$ |
(7,277 |
) |
|
$ |
(9,772 |
) |
|
$ |
5,776 |
|
|
$ |
(18,933 |
) |
| Weighted
average number of shares |
|
273,289 |
|
|
|
272,703 |
|
|
|
273,289 |
|
|
|
272,703 |
|
|
Basic earnings/(loss) per share |
$ |
(0.03 |
) |
|
$ |
(0.04 |
) |
|
$ |
0.02 |
|
|
$ |
(0.07 |
) |
| |
|
|
|
|
|
|
|
|
Earnings/(loss) |
|
|
|
|
|
|
|
|
Profit/(loss) for the purposes of basic earnings/(loss) per
share |
$ |
(7,277 |
) |
|
$ |
(9,772 |
) |
|
$ |
5,776 |
|
|
$ |
(18,933 |
) |
| |
|
|
|
|
|
|
|
| Effect of
dilutive potential ordinary shares: |
|
|
|
|
|
|
|
| -
Interest expenses on convertible debenture |
|
- |
|
|
|
- |
|
|
|
18,803 |
|
|
|
- |
|
| -
Fair value loss on embedded derivatives in convertible
debenture |
|
- |
|
|
|
- |
|
|
|
826 |
|
|
|
- |
|
| -
Gain on extinguishment of convertible debenture |
|
- |
|
|
|
- |
|
|
|
(20,970 |
) |
|
|
- |
|
|
Profit/(loss) for the purposes of diluted earnings/(loss) per
share |
$ |
(7,277 |
) |
|
$ |
(9,772 |
) |
|
$ |
4,435 |
|
|
$ |
(18,933 |
) |
| |
|
|
|
|
|
|
|
|
Number of shares |
|
|
|
|
|
|
|
| Weighted
average number of shares for the purposes of basic earnings/(loss)
per share |
|
273,289 |
|
|
|
272,703 |
|
|
|
273,289 |
|
|
|
272,703 |
|
| |
|
|
|
|
|
|
|
| Effect of
dilutive potential ordinary shares: |
|
|
|
|
|
|
|
| -
Convertible debenture |
|
- |
|
|
|
- |
|
|
|
34,893 |
|
|
|
- |
|
|
- Share options |
|
- |
|
|
|
- |
|
|
|
6,974 |
|
|
|
- |
|
| Weighted
average number of ordinary shares for the purposes |
|
|
|
|
|
|
|
|
of diluted earnings/(loss) per share |
|
273,289 |
|
|
|
272,703 |
|
|
|
315,156 |
|
|
|
272,703 |
|
| |
|
|
|
|
|
|
|
|
Diluted earnings/(loss) per share |
$ |
(0.03 |
) |
|
$ |
(0.04 |
) |
|
$ |
0.01 |
|
|
$ |
(0.07 |
) |
10. TRADE AND OTHER
RECEIVABLES
The Company’s trade and other receivables
consist of the following amounts:
| |
|
| |
As at |
| |
June
30, |
|
December
31, |
| |
2021 |
|
2020 |
| |
|
|
|
|
Trade receivables |
$ |
- |
|
$ |
995 |
| Other
receivables |
|
237 |
|
|
310 |
|
Total trade and other receivables |
$ |
237 |
|
$ |
1,305 |
| |
|
|
|
| |
|
|
|
| The aging of the Company’s trade and other receivables is as
follows: |
|
|
|
| |
As at |
| |
June
30, |
|
December
31, |
| |
2021 |
|
2020 |
| |
|
|
|
| Less than 1
month |
$ |
48 |
|
$ |
1,260 |
| 1 to 3
months |
|
60 |
|
|
20 |
| 3 to 6
months |
|
129 |
|
|
25 |
| Over 6
months |
|
- |
|
|
- |
|
Total trade and other receivables |
$ |
237 |
|
$ |
1,305 |
| |
|
|
|
Overdue balances are reviewed regularly by
senior management. The Company does not hold any collateral or
other credit enhancements over its trade and other receivable
balances.
The Company has determined that the loss
allowance on its trade and other receivables was $23,740 as at June
30, 2021 (December 31, 2020: $23,055), based upon an expected loss
rate of 10% for trade and other receivables 90 days past due and
100% for trade and other receivables 180 days past due. The closing
allowances for trade and other receivables as at June 30, 2021
reconcile to the opening loss allowances as follows:
|
Loss allowance for trade and other
receivables |
|
|
Opening loss allowance as at January 1, 2021 |
$ |
23,055 |
|
|
|
Increase in loss allowance recognised in profit or loss during the
period |
|
220 |
|
| |
Exchange
realignment |
|
465 |
|
|
Loss allowance as at June 30, 2021 |
$ |
23,740 |
|
| |
|
|
|
Opening loss allowance as at January 1, 2020 |
$ |
21,976 |
|
| |
Increase in
loan allowance recognised in profit or loss during the period |
|
282 |
|
| |
Exchange
realignment |
|
(325 |
) |
|
Loss allowance as at June 30, 2020 |
$ |
21,933 |
|
11. TRADE AND OTHER
PAYABLES
Trade and other payables of the Company
primarily consists of amounts outstanding for trade purchases
relating to coal mining, development and exploration activities and
mining royalties payable. The usual credit period taken for trade
purchases is between 30 to 90 days.
The aging of the Company’s trade and other
payables, based on the invoice date, is as follows:
| |
|
|
|
| |
As at |
| |
June
30, |
|
December
31, |
| |
2021 |
|
2020 |
| |
|
|
|
|
Less than 1 month |
$ |
14,082 |
|
$ |
22,803 |
| 1 to 3
months |
|
2,550 |
|
|
4,935 |
| 3 to 6
months |
|
18,518 |
|
|
6,365 |
| Over 6
months |
|
33,641 |
|
|
40,262 |
|
Total trade and other payables |
$ |
68,791 |
|
$ |
74,365 |
| |
|
|
|
12. ACCUMULATED DEFICIT AND
DIVIDENDS
At June 30, 2021, the Company has accumulated a
deficit of $1,191,922 (December 31, 2020: $1,197,698). No dividends
have been paid or declared by the Company since
inception.REVIEW OF INTERIM RESULTS
The condensed consolidated interim financial
statements of the Company for the three and six months ended June
30, 2021, which are unaudited but have been reviewed by the
Company’s independent auditor and the Audit Committee and they have
been prepared in compliance with the IFRS, the Hong Kong Listing
Rules, TSX Company Manual and other applicable legal
requirements.
The Company’s results for the three and six
months ended June 30, 2021 are contained in the unaudited condensed
consolidated interim financial statements and Management Discussion
and Analysis of Financial Condition and Results of Operations,
available on the SEDAR website at www.sedar.com and the Company’s
website at www.southgobi.com.
ABOUT SOUTHGOBI
SouthGobi, listed on the Toronto and Hong Kong
stock exchanges, owns and operates its flagship Ovoot Tolgoi coal
mine in Mongolia. It also holds the mining licences of its other
metallurgical and thermal coal deposits in South Gobi Region of
Mongolia. SouthGobi produces and sells coal to customers in
China.
Contact:
Investor Relations
| Office: |
+852 2156 1438 (Hong
Kong) |
| |
+1 604 762
6783 (Canada) |
| Email: info@southgobi.com |
| Website: www.southgobi.com |
Except for statements of fact relating to the
Company, certain information contained herein constitutes
forward-looking statements. Forward-looking statements are
frequently characterized by words such as “plan”, “expect”,
“project”, “intend”, “believe”, “anticipate”, "could", "should",
"seek", "likely", "estimate" and other similar words or statements
that certain events or conditions “may” or “will” occur.
Forward-looking statements relate to management’s future outlook
and anticipated events or results and are based on the opinions and
estimates of management at the time the statements are made.
Forward-looking statements in this press release include, but are
not limited to, statements regarding:
- the Company continuing as a going
concern and its ability to realize its assets and discharge its
liabilities in the normal course of operations as they become
due;
- adjustments to the amounts and
classifications of assets and liabilities in the Company's
condensed consolidated interim financial statements and the impact
thereof;
- the Company’s expectations of
sufficient liquidity and capital resources to meet its ongoing
obligations and future contractual commitments, including the
Company’s ability to settle its trade payables, to secure
additional funding and to meet its obligations under each of the
CIC Convertible Debenture, the 2020 November Deferral Agreement,
the Amended and Restated Cooperation Agreement and the 2021 July
Deferral Agreement, as the same become due;
- the Company's anticipated financing
needs, development plans and future production levels;
- the Company entering into
discussions with CIC regarding a potential debt restructuring plan
with respect to the amounts owing to CIC;
- the results and impact of the
Ontario class action (as described under section “Regulatory Issues
and Contingencies” of this press release under the heading entitled
"Class Action Lawsuit");
- the estimates and assumptions
included in the Company’s impairment analysis and the possible
impact of changes thereof;
- the agreement with Ejin Jinda and
the payments thereunder (as described under section “Regulatory
Issues and Contingencies” of this press release under the heading
entitled "Toll Wash Plant Agreement with Ejin Jinda”);
- the ability of the Company to
enhance the operational efficiency and output throughput of the
washing facilities at Ovoot Tolgoi;
- the ability to enhance the product
value by conducting coal processing and coal washing;
- the impact of the Company’s
activities on the environment and actions taken for the purpose of
mitigation of potential environmental impacts and planned focus on
health, safety and environmental performance;
- the impact of the restrictions on
the number of trucks crossing the border at the Ceke port of entry
and the import coal quality standards established by Chinese
authorities on the Company’s operations;
- management’s expectation that
mining operations (including coal mining) will resume in the third
quarter of 2021;
- the impact of the COVID-19 pandemic
and the potential closure of Mongolia’s southern border with China
on the Company’s business, financial condition and operations;
- the future demand for coal in
China;
- future trends in the Chinese coal
industry;
- the Company’s outlook and
objectives for 2021 and beyond (as more particularly described
under section “Outlook” of this press release); and
- other statements that are not
historical facts.
Forward-looking information is based on certain
factors and assumptions described below and elsewhere in this press
release, including, among other things: the current mine plan for
the Ovoot Tolgoi mine; mining, production, construction and
exploration activities at the Company’s mineral properties; the
costs relating to anticipated capital expenditures; the capacity
and future toll rate of the Paved Highway; plans for the progress
of mining license application processes; mining methods; the
Company's anticipated business activities, planned expenditures and
corporate strategies; management’s business outlook, including the
outlook for 2021 and beyond; currency exchange rates; operating,
labour and fuel costs; the ability of the Company to raise
additional financing; the anticipated royalties payable under
Mongolia’s royalty regime; the future coal market conditions in
China and the related impact on the Company’s margins and
liquidity; the anticipated impact of the COVID-19 pandemic; the
assumption that the border crossings with China will remain open
for coal exports; the anticipated demand for the Company’s coal
products; future coal prices, and the level of worldwide coal
production. While the Company considers these assumptions to be
reasonable based on the information currently available to it, they
may prove to be incorrect. Forward-looking statements are subject
to a variety of risks and uncertainties and other factors that
could cause actual events or results to differ materially from
those projected in the forward-looking statements. These risks and
uncertainties include, among other things: the uncertain nature of
mining activities, actual capital and operating costs exceeding
management’s estimates; variations in mineral resource and mineral
reserve estimates; failure of plant, equipment or processes to
operate as anticipated; the possible impacts of changes in mine
life, useful life or depreciation rates on depreciation expenses;
risks associated with, or changes to regulatory requirements
(including environmental regulations) and the ability to obtain all
necessary regulatory approvals; the potential expansion of the list
of licenses published by the Government of Mongolia covering areas
in which exploration and mining are purportedly prohibited on
certain of the Company's mining licenses; the Government of
Mongolia designating any one or more of the Company’s mineral
projects in Mongolia as a Mineral Deposit of Strategic Importance;
the risk of continued restrictions on the number of trucks crossing
the border at the Ceke port of entry; the risk of continued import
coal quality standards established by Chines authorities; the risk
that Mongolia’s southern borders with China will be subject of
closure; the negative impact of the COVID-19 pandemic on the demand
for coal and the economy generally in China; the risk that the
COVID-19 pandemic is not effectively controlled in China and
Mongolia; the risk that the Company’s existing coal inventories are
unable to sufficiently satisfy expected sales demand; the possible
impact of changes to the inputs to the valuation model used to
value the embedded derivatives in the CIC Convertible Debenture;
the risk of the Company failing to successfully negotiate favorable
repayment terms on the TRQ Reimbursable Amount (as described under
section “Liquidity and Capital Resources” of this press release
under the heading entitled “Liquidity and Capital Management –
Costs Reimbursable to Turquoise Hill”); the risk of the Company or
its subsidiaries defaulting under its existing debt obligations,
including the CIC Convertible Debenture, the 2020 November Deferral
Agreement, the Amended and Restated Cooperation Agreement and the
2021 July Deferral Agreement; the impact of amendments to, or the
application of, the laws of Mongolia, China and other countries in
which the Company carries on business; modifications to existing
practices so as to comply with any future permit conditions that
may be imposed by regulators; delays in obtaining approvals and
lease renewals; the risk of fluctuations in coal prices and changes
in China and world economic conditions; the outcome of the Class
Action (as described under section “Regulatory Issues and
Contingencies” of this press release under the heading entitled
"Class Action Lawsuit") and any damages payable by the Company as a
result; the risk that the Company is unable to successfully
negotiate a debt restructuring plan with respect to the amounts
owing to CIC; the risk that the calculated sales price determined
by the Company for the purposes of determining the amount of
royalties payable to the Mongolian Government is deemed as being
“non-market” under Mongolian tax law; customer credit risk; cash
flow and liquidity risks; risks relating to the Company’s decision
to suspend activities relating to the development of the Ceke
Logistics Park project, including the risk that its investment
partner may initiate legal action against the Company for failing
to comply with the underlying agreements governing project
development; risks relating to the ability of the Company to
enhance the operational efficiency and the output throughput of the
washing facilities at Ovoot Tolgoi; the risk that the Company is
unable to successfully negotiate an extension of the agreement with
the third party contractor relating to the operation of the wash
plant at the Ovoot Tolgoi mine site and risks relating to the
Company’s ability to raise additional financing and to continue as
a going concern. This list is not exhaustive of the factors that
may affect any of the Company’s forward-looking statements.
Due to assumptions, risks and uncertainties,
including the assumptions, risks and uncertainties identified above
and elsewhere in this press release, actual events may differ
materially from current expectations. The Company uses
forward-looking statements because it believes that such statements
provide useful information with respect to the currently expected
future operations and financial performance of the Company, and
cautions readers that the information may not be appropriate for
other purposes. Except as required by law, the Company undertakes
no obligation to update forward-looking statements if circumstances
or management’s estimates or opinions should change. The reader is
cautioned not to place undue reliance on the forward-looking
statements, which speak only as of the date of this press release;
they should not rely upon this information as of any other
date.
The English text of this press release shall
prevail over the Chinese text in case of inconsistencies.
SouthGobi Resources (TSX:SGQ)
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