SouthGobi Resources Announces Select First Quarter 2014 Operating
Results
HONG KONG, CHINA--(Marketwired - Apr 21, 2014) - SouthGobi
Resources Ltd. (TSX:SGQ)(HKSE:1878) (the "Company" or "SouthGobi")
today announced select first quarter 2014 operating results. All
figures are in U.S. Dollars unless otherwise stated.
Select Operating
Results
The Company's select
operating results for the three months ended March 31, 2014,
including comparative periods, are summarized in the table
below:
|
Three months ended |
|
31-Mar |
31-Dec |
31-Mar |
|
2014 |
2013 |
2013 |
Raw coal production (millions of tonnes) |
0.64 |
1.73 |
0.02 |
|
|
|
|
Sales volumes (millions of tonnes) |
|
|
|
|
Premium semi-soft coking coal |
- |
0.21 |
0.08 |
|
Standard semi-soft coking coal |
0.29 |
1.40 |
- |
|
Thermal coal |
0.10 |
0.11 |
0.20 |
|
Total |
0.39 |
1.72 |
0.28 |
Consistent with the
coal sales and production guidance provided in January 2014, coal
sales and production decreased in the first quarter of 2014
compared to the fourth quarter of 2013. Sales volume is generally
lower in the first quarter of each year due to the seasonal
holidays of Mongolian Tsagaan Sar and Chinese New Year, which
result in border closures at the Shivee Khuren-Ceke crossing at the
Mongolia-China border ("Shivee Khuren Border Crossing") and a
general decrease in the level of economic activity at the Shivee
Khuren Border Crossing.
The Company resumed
operations at the Ovoot Tolgoi coal mine on March 22, 2013 after
having been fully curtailed since the end of the second quarter of
2012. This resulted in higher coal production in the first quarter
of 2014 compared to the first quarter of 2013.
Other
Information
Mongolian Royalty
Regime
The Company is
subject to a base royalty in Mongolia of 5% on all export coal
sales. In addition, effective January 1, 2011, the Company is
subject to an additional sliding scale royalty of up to 5%. For the
last three quarters of 2013 and the first quarter of 2014, the
royalty was calculated using a set reference price per tonne
published by the Government of Mongolia.
The Government of
Mongolia changed the royalty regime effective April 1, 2014. Under
the new "flexible tariff" royalty regime, the royalty per tonne for
export coal sales will be calculated based on the actual contracted
sales price per tonne, whereby the contracted sales price includes
the costs of transporting the coal to the Mongolia-China border. If
transportation costs are not included in the contracted sales price
between a buyer and seller, the following costs are required to be
included in the contracted sales price for purposes of calculating
the royalty per tonne: transportation costs and costs associated
with transportation such as customs documentation fees, insurance,
loading and unloading costs. In the event the actual contracted
sales price calculated as described above differs by more than 10%
from the contracted sales price of coal products with the same
classification and quality being exported by other legal entities
in Mongolia through the same border crossing, the calculated
contracted sales price shall be deemed non-market under Mongolian
tax law and the royalty per tonne will be calculated from a
reference price.
The Company
currently sells coal from the Ovoot Tolgoi coal mine at the
mine-gate and the coal is exported through the Shivee Khuren Border
Crossing. The Company expects that its royalty per tonne calculated
under the new "flexible tariff" royalty regime will decrease
compared to the prior reference price royalty regime.
Cash Position and
Liquidity
The Company's cash
position and liquidity as at March 31, 2014, including comparative
periods, is summarized in the table below. Amounts are presented in
millions of U.S. Dollars.
|
|
|
|
As at |
|
|
|
|
|
31-Mar |
|
31-Dec |
|
30-Sep |
|
31-Mar |
|
|
2014 |
|
2013 |
|
2013 |
|
2013 |
Cash |
$ |
9.9 |
$ |
21.8 |
$ |
16.1 |
$ |
24.8 |
The changes in the
Company's cash position in certain periods noted above are
inclusive of cash interest paid on the China Investment Corporation
("CIC") convertible debenture in the amount of $8.1 million in the
fourth quarter of 2013, $4.1 million in the third quarter of 2013
and $4.0 million in the first quarter of 2013. The next cash
interest payment on the CIC convertible is $7.9 million and is due
on May 19, 2014.
As at April 21,
2014, the Company had cash of $15.8 million. Included in the $15.8
million cash balance is an $8.0 million customer prepayment for
future coal deliveries.
The Company
continues to minimize uncommitted capital expenditures, exploration
and operational expenditures in order to preserve its financial
resources.
Outlook
Coal production in
the second quarter of 2014 will be paced to meet contracted sales
volumes.
The Company
anticipates that coal prices in China will remain under pressure in
2014, which will continue to impact the Company's margins and
liquidity. Based on its forecasts for the year ended December 31,
2014, the Company is unlikely to have sufficient capital resources
and does not expect to generate sufficient cash flows from mining
operations in order to satisfy its ongoing obligations and future
contractual commitments, including cash interest payments due on
the CIC convertible debenture. Therefore, the Company is actively
seeking additional sources of financing to continue operating and
meet its objectives.
While the Company is
actively seeking additional sources of financing to continue
operating and meet its objectives, there can be no assurance that
such financing will be available on terms acceptable to the
Company. If for any reason, the Company is unable to secure the
additional sources of financing and continue as a going concern,
then this could result in adjustments to the amounts and
classifications of assets and liabilities in the Company's
consolidated financial statements and such adjustments could be
material.
While the Company
intends to secure additional sources of financing as soon as
possible, a continued delay in securing additional financing could
ultimately result in an event of default of the $250.0 million CIC
convertible debenture, which if not cured within applicable cure
periods in accordance with the terms of such debenture, may result
in the principal amount owing and all accrued and unpaid interest
becoming immediately due and payable upon notice to the Company by
CIC.
About SouthGobi
SouthGobi is listed
on the Toronto and Hong Kong stock exchanges, in which Turquoise
Hill Resources Ltd. ("Turquoise Hill"), also publicly listed in
Toronto and New York, has a 56% shareholding. Turquoise Hill took
management control of SouthGobi in September 2012 and made changes
to the board and senior management. Rio Tinto has a majority
shareholding in Turquoise Hill.
SouthGobi is focused
on exploration and development of its metallurgical and thermal
coal deposits in Mongolia's South Gobi Region. It has a 100%
shareholding in SouthGobi Sands LLC, the Mongolian registered
company that holds the mining and exploration licenses in Mongolia
and operates the flagship Ovoot Tolgoi coal mine. Ovoot Tolgoi
produces and sells coal to customers in China.
Forward-Looking
Statements: This document includes forward-looking statements.
Forward-looking statements include, but are not limited to: the
Company's expectations of sufficient liquidity and capital
resources to meets its ongoing obligations and future contractual
commitments, including the Company's ability to secure additional
funding; the possibility of the CIC convertible debenture and all
accrued and unpaid interest becoming immediately due; the continued
pressure on the coal prices in China, and the related impact on the
Company's margins and liquidity; the Company's expectation that its
royalty per tonne calculated under the new "flexible tariff"
royalty regime will decrease compared to the prior reference price
royalty regime; and other statements that are not historical facts.
When used in this document, the words such as "plan", "estimate",
"expect", "intend", "may", and similar expressions are
forward-looking statements. Although SouthGobi believes that the
expectations reflected in these forward-looking statements are
reasonable, such statements involve risks and uncertainties and no
assurance can be given that actual results will be consistent with
these forward-looking statements. Important factors that could
cause actual results to differ from these forward-looking
statements are disclosed under the heading "Risk Factors" in
SouthGobi's Management's Discussion and Analysis for the year ended
December 31, 2013 which is available at www.sedar.com.
SouthGobi Resources Ltd. - Investor RelationsGalina
RogovaOffice: +852-2839-9208Email:
galina.rogova@southgobi.comSouthGobi Resources Ltd. - Media
RelationsAltanbagana BayarsaikhanOffice: +976 70070710Email:
altanbagana.bayarsaikhan@southgobi.comWebsite:
www.southgobi.com