SouthGobi Resources Ltd. (
Toronto Stock Exchange (“TSX”):
SGQ, Hong Kong Stock Exchange (“HKEX”): 1878) (the
"Company" or “SouthGobi”) today announces its financial and
operating results for the three and nine months ended September 30,
2020. All figures are in U.S. dollars (“USD”) unless otherwise
stated.
Significant Events and
Highlights
The Company’s significant events and highlights for
the three months ended September 30, 2020 and the subsequent period
up to January 4, 2021 are as follows:
- Operating Results
– The Company increased sales volume to 1.0 million tonnes for the
third quarter of 2020 from 0.8 million tonnes for the third quarter
of 2019. The average selling price of coal decreased from $35.0 per
tonne in the third quarter of 2019 to $31.6 per tonne in the third
quarter of 2020 as a result of a higher portion of sales made at
the mine gate instead of transporting the coal to the Company’s
Inner Mongolia subsidiary and selling to third party customers
within China.
- Financial Results
– The Company recorded a gross profit of $10.9 million in the third
quarter of 2020 compared to $12.8 million in the third quarter of
2019 while a $1.1 million net profit was recorded in the third
quarter of 2020 compared to $2.1 million in the third quarter of
2019. The financial results were impacted by the reduced gross
profit as a result of a lower average selling price achieved during
the quarter.
- Impact of
the Coronavirus Disease 2019 (“COVID-19”) Pandemic – The
Company was informed that effective as of February 11, 2020, the
Mongolian State Emergency Commission closed Mongolia’s southern
border with China in order to prevent the spread of COVID-19.
Accordingly, the Company suspended coal exports to China beginning
as of February 11, 2020 as a result of the border closure.On March
28, 2020, the Mongolian-Chinese border was re-opened for coal
export on a trial basis, with a limit imposed on the total volume
of coal that was permitted to be exported during this trial period.
The Company has experienced a continuous improvement in the volume
of coal exported to China since March 28, 2020. During the period
between April to December 2020, an aggregate of 2.4 million tonnes
of coal was exported by the Company from Mongolia to China, as
compared to an aggregate of 2.6 million tonnes of coal during the
same period in the 2019 calendar year.The border closure had an
adverse impact on the Company’s sales and cash flows in the first
and second quarter of 2020. In order to mitigate the financial
impact of the border closures and preserve its working capital, the
Company temporarily ceased major mining operations (including coal
mining), reduced production to only coal-blending activities and
placed approximately half of its workforce on furlough from
February 2020. Since August 2, 2020, the Company has resumed its
mining operations, which includes mining, blending and washing of
coal. As at December 31, 2020, SGS employed 237 employees at the
Ovoot Tolgoi Mine site (December 31, 2019: 383 employees). The
Company produced 1.5 million tonnes from August to December 2020,
as compared to 2.3 million tonnes from August to December 2019.
There were a few COVID-19 cases reported in Ulaanbaatar (being the
capital city of Mongolia) on November 11, 2020. As a result, the
Mongolian local authorities have taken certain precautionary steps
to minimize further transmission and announced a lockdown of
Ulaanbaatar effective as of November 12, 2020. Although the
Company’s mining operations and 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 the border crossings would not be the subject of
additional closures as a result of COVID-19 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.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
Mongolian-Chinese 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 April 23, 2019, the Company executed a
deferral agreement (the “2019 Deferral Agreement”) with CIC in
relation to a deferral and revised repayment schedule in respect of
(i) $41.8 million of outstanding cash and payment in kind interest
(“PIK Interest”) and associated costs due and payable to CIC on
November 19, 2018 (the “Outstanding Interest Payable”) under the
CIC Convertible Debenture and a deferral agreement executed with
CIC on June 12, 2017 (the “June 2017 Deferral Agreement”); and (ii)
$27.9 million of cash and PIK Interest payments payable to CIC
under the CIC Convertible Debenture from April 23, 2019 to and
including May 19, 2020 (the “Deferral”). Pursuant to Section 501(c)
of the TSX Company Manual, the 2019 Deferral Agreement was approved
at the Company’s adjourned annual and special meeting of
shareholders on June 13, 2019.The key repayment terms of the 2019
Deferral Agreement are: (i) the Company agreed to pay a total of
$14.3 million over eight instalments from November 2019 to June
2020; (ii) the Company agreed to pay the PIK Interest covered by
the Deferral by way of cash payments, rather than the issuance of
Common Shares; and (iii) the Company agreed to pay the remaining
balance of $62.6 million on June 20, 2020. The Company agreed to
pay a deferral fee at a rate of 6.4% per annum in consideration of
the deferred amounts.As a condition to agreeing to the Deferral,
CIC required that the mutual co-operation agreement (the
“Cooperation Agreement”) dated November 19, 2009 between SGS and
CIC, be amended and restated (the “Amended and Restated Cooperation
Agreement”) to clarify the manner in which the service fee (the
“Management Fee”) payable to CIC under the Cooperation Agreement is
calculated, with effect as of January 1, 2017. Specifically, the
Management Fee under the Amended and Restated Cooperation Agreement
is determined based on the net revenues realized by the Company and
all of its subsidiaries derived from sales into China (rather than
the net revenues realized by the Company and its Mongolian
subsidiaries as currently contemplated under the Cooperation
Agreement). As consideration for deferring payment of the
additional Management Fee payable to CIC as a result of the Amended
and Restated Cooperation Agreement, the Company agreed to pay to
CIC a deferral fee at the rate of 2.5% on the outstanding
Management Fee. Pursuant to the Amended and Restated Cooperation
Agreement, the Company agreed to pay CIC the total outstanding
Management Fee and related accrued deferral fee of $4.2 million
over six instalments from June 2019 to November 2019. The Company
executed the Amended and Restated Cooperation Agreement with CIC on
April 23, 2019.Pursuant to their terms, both the 2019 Deferral
Agreement and the Amended and Restated Cooperation Agreement became
effective on June 13, 2019, being the date on which the 2019
Deferral Agreement was approved by shareholders at the Company’s
adjourned annual and special meeting of shareholders.In connection
with the 2019 Deferral Agreement, the Company also announced that
it intends to discuss a potential debt restructuring plan with
respect to amounts owing to CIC which is mutually beneficial to the
Company and CIC; and to form a special committee comprised of
independent directors to ensure that the interests of its minority
shareholders are fairly considered in the negotiation and
review of any such restructuring; however, there can be no
assurance that a favorable outcome will be reached. As of the date
hereof, there has not been any significant progress in relations to
the restructuring plan.On February 19, 2020, the Company and CIC
entered into an agreement (the “2020 February Deferral Agreement”)
pursuant to which CIC agreed to grant the Company a deferral of:
(i) deferred cash interest and deferral fees of $1.3 million and
$2.0 million (collectively, the “2020 February Deferral Amounts”)
which were due and payable to CIC on January 19, 2020 and February
19, 2020, respectively, under the 2019 Deferral Agreement; and (ii)
approximately $0.7 million of the Management Fee which was due and
payable on February 14, 2020 to CIC under the Amended and Restated
Cooperation Agreement. The 2020 February Deferral Agreement became
effective on March 10, 2020, being the date on which the Company
obtained the requisite acceptance of the 2020 February Deferral
Agreement from the TSX as required under applicable TSX rules.The
principal terms of the 2020 February Deferral Agreement are as
follows:
- Payment of the 2020 February
Deferral Amounts will be deferred until June 20, 2020, while the
Management Fee will be deferred until they are repaid by the
Company.
- As consideration for the deferral
of these amounts, the Company agreed to pay CIC: (i) a deferral fee
equal to 6.4% per annum on the 2020 February Deferral Amounts,
commencing on the date on which each such 2020 February Deferral
Amounts would otherwise have been due and payable under the 2019
Deferral Agreement; and (ii) a deferral fee equal to 2.5% per annum
on the Management Fee, commencing on the date on which the
Management Fee would otherwise have been due and payable under the
Amended and Restated Cooperation Agreement.
- The Company agreed to provide CIC
with monthly updates regarding its operational and financial
affairs.
- As the Company anticipated prior to
agreeing to the 2020 February Deferral Agreement that a deferral
was likely required in respect of the monthly payments due and
payable in the period between April 2020 and June 2020 under the
2019 Deferral Agreement and Amended and Restated Cooperation
Agreement, the Company and CIC agreed to discuss in good faith a
deferral of these payments on a monthly basis as they become
due.
- The Company agreed to comply with
all of its obligations under the 2019 Deferral Agreement and the
Amended and Restated Cooperation Agreement, as amended by the 2020
February Deferral Agreement.
- The Company and CIC agreed that
nothing in the 2020 February Deferral Agreement prejudices CIC’s
rights to pursue any of its remedies at any time pursuant to the
2019 Deferral Agreement and Amended and Restated Cooperation
Agreement, respectively.On March 10, 2020, the Company agreed with
CIC (the “2020 March Deferral Agreement”) that the $2.0 million of
deferred cash interest and deferral fees which were due and payable
to CIC on March 19, 2020 under the 2019 Deferral Agreement (the
“2020 March Deferral Amount”) will be deferred until June 20, 2020.
The terms of the 2020 March Deferral Agreement are substantially
the same as the terms of the 2020 February Deferral Agreement,
including that the Company agreed to pay CIC a deferral fee equal
to 6.4% per annum on the 2020 March Deferral Amount, commencing on
March 19, 2020. The 2020 March Deferral Agreement became effective
on March 25, 2020, being the date on which the Company obtained the
requisite acceptance of the 2020 March Deferral Agreement from the
TSX as required under applicable TSX rules.On April 10, 2020, the
Company agreed with CIC (the “2020 April Deferral Agreement”) that
the $2.0 million of deferred cash interest and deferral fees which
were due and payable to CIC on April 19, 2020 under the 2019
Deferral Agreement (the “2020 April Deferral Amount”) will be
deferred until June 20, 2020. The terms of the 2020 April Deferral
Agreement are substantially the same as the terms of the 2020
February Deferral Agreement, including that the Company agreed to
pay CIC a deferral fee equal to 6.4% per annum on the 2020 April
Deferral Amount, commencing on April 19, 2020. The 2020 April
Deferral Agreement became effective on April 29, 2020, being the
date on which the Company obtained the requisite acceptance of the
2020 April Deferral Agreement from the TSX as required under
applicable TSX rules.On May 8, 2020, the Company agreed with CIC
(the “2020 May Deferral Agreement”) that the deferred cash interest
and deferral fees of $2.0 million which were due and payable to CIC
on May 19, 2020 under the 2019 Deferral Agreement; and
approximately $0.2 million of Management Fees which were due and
payable on May 15, 2020 to CIC under the Amended and Restated
Cooperation Agreement (collectively, the “2020 May Deferral
Amount”) will be deferred until June 20, 2020. The terms of the
2020 May Deferral Agreement are substantially the same as the terms
of the 2020 February Deferral Agreement, including that the Company
agreed to pay CIC a deferral fee equal to 6.4% per annum on the
deferred cash interest and deferral fees commencing on May 19, 2020
and a deferral fee equal to 2.5% per annum on the deferred
Management Fees commencing on May 15, 2020. The 2020 May Deferral
Agreement became effective on June 8, 2020, being the date on which
the Company obtained the requisite acceptance of the 2020 May
Deferral Agreement from the TSX as required under applicable TSX
rules.On June 19, 2020, the Company agreed with CIC (the “2020 June
Deferral Agreement”) that the deferred cash interest and deferral
fees in the aggregate amount of approximately $74.0 million (the
“2020 June Deferral Amount”) which were due and payable to CIC on
June 19, 2020 under the 2019 Deferral Agreement and the prior
deferral agreements entered into during the period between February
to May 2020 will be deferred until September 14, 2020. The terms of
the 2020 June Deferral Agreement are substantially the same as the
terms of the 2020 February Deferral Agreement, including that the
Company agreed to pay CIC a deferral fee equal to 6.4% per annum on
the 2020 June Deferral Amount commencing on June 19, 2020. The 2020
June Deferral Agreement became effective on July 17, 2020, being
the date on which the Company obtained the requisite acceptance of
the 2020 June Deferral Agreement from the TSX as required under
applicable TSX rules.On November 19, 2020, the Company and CIC
entered into an agreement (the “2020 November Deferral Agreement”)
pursuant to which CIC agreed to grant the Company 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 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 (“2020 November PIK Interest”)
issuable to CIC on November 19, 2020 under the CIC Convertible
Debenture; and (iv) the Management Fee which payable to CIC on
November 14, 2020, February 14, 2021, May 15, 2021, August 14, 2021
and November 14, 2021 under the Amended and Restated Cooperation
Agreement (collectively, the “2020 November Deferral Amounts”). The
effectiveness of the 2020 November Deferral Agreement and the
respective covenants, agreements and obligations of each party
under the 2020 November Deferral Agreement are subject to the
Company obtaining the requisite approval of the 2020 November
Deferral Agreement from the Company’s shareholders in accordance
with applicable TSX rules. On October 29, 2020, the Company
obtained an order from the British Columbia Securities Commission
(“BCSC”), the Company’s principal securities regulator in Canada,
which partially revoked the CTO (as defined below) to, amongst
other things, permit the Company to execute the 2020 November
Deferral Agreement.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 Amount 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.Until
such time as the 2020 November Deferral Agreement is approved by
the Company’s shareholders and the deferral and waiver thereunder
in favour of the Company become effective, the Company remains in
default under the CIC Convertible Debenture and 2020 June Deferral
Agreement and CIC may declare the amounts owing thereunder
immediately due and payable, and may take steps to enforce payment
thereof, which would have a material adverse effect on the business
and operations of the Company and could 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.
- Cease Trade Order and Halt
Trading on TSX – On June 19, 2020, the BCSC issued a
general “failure to file” cease trade order (“CTO”), to prohibit
the trading by any person of any securities of the Company in
Canada. Trading in the Common Shares on the TSX was halted as a
result of the CTO. The CTO was issued as of result of the Company’s
failure to file: (i) its annual consolidated financial statements
for the year ended December 31, 2019 and the accompanying
Management’s Discussion & Analysis of Financial Condition and
Results of Operations (“MD&A”); (ii) its Annual Information
Form for the year ended December 31, 2019; and (iii) its condensed
consolidated interim financial statements for the three-month
period ended March 31, 2020 and accompanying Management’s
Discussion & Analysis, in each case prior to the filing
deadline of June 15, 2020.The CTO will remain in effect until such
time as the Company makes a successful application to the BCSC to
have the CTO revoked. While the Company is taking such actions as
it considers necessary in order to remedy its filing defaults as
soon as possible, there can be no assurance that the Company will
have the CTO lifted in a timely manner or at all. For so long as
the CTO remains in effect, it will have a significant adverse
impact on the liquidity of the Common Shares and shareholders may
suffer a significant decline or total loss in value of its
investment in the Common Shares as a result.
- Suspension of Trading on
HKEX – At the request of the Company, trading in the
shares of the Company on the HKEX was suspended with effect as of
August 17, 2020 pending the publication of the audited annual
results of the Company for the year ended December 31, 2019.On
September 2, 2020, the Company received a letter from the HKEX
setting out the following resumption guidance for the resumption of
trading in the Common Shares on the HKEX (the “Resumption
Guidance”): (i) publish all outstanding financial results and
address any audit modifications; (ii) inform the market of all
material information for the Company’s shareholders and investors
to appraise its position; and (iii) announce quarterly updates on
the Company’s developments under Rules 13.24A of the HKEX’s Listing
Rules, including, amongst other relevant matters, its business
operations, its resumption plan and the progress of
implementation.On September 30, 2020, the Company was notified by
the HKEX of the following additional condition which must be
satisfied in order for trading in the Common Shares on the HKEX to
resume: resolve issues arising from the CTO and/or the TSX
Delisting Review (as defined below), or take steps to the
satisfaction of the HKEX that the Company will be eligible for a
primary listing on the HKEX.On December 8, 2020, the Company was
notified by the HKEX of the following additional condition which
must be satisfied in order for trading in the Common Shares on the
HKEX to resume: demonstrate compliance with Rule 13.24 of the HKEX
listing rules which requires that an issuer carry out a business
with a sufficient level of operations and assets of sufficient
value to support its operations to warrant the continued listing of
the issuer's securities.If the Company fails to remedy the issues
causing its trading suspension, fully comply with the Listing Rules
to the HKEX’s satisfaction and resume trading in its shares on the
HKEX by February 16, 2022, the HKEX’s Listing Division will
recommend to the HKEX’s Listing Committee that it proceed with the
cancellation of the Company’s HKEX listing. Under Rules 6.01 and
6.10 of the Listing Rules, the HKEX also has the right to impose a
shorter specific remedial period, where appropriate.
- TSX Delisting
Review – On September 11, 2020, the TSX notified the
Company that it is reviewing the eligibility for continued listing
of the Common Shares on the TSX pursuant to the TSX’s Remedial
Review Process (“TSX Delisting Review”). On December 16, 2020, the
TSX accepted the Company’s request for a 60 day extension of the
TSX Delisting Review process and the Company has been granted until
February 16, 2021 to remedy the following delisting criteria, as
well as any other delisting criteria that become applicable during
the Remedial Review Process: (i) financial condition and/or
operating results; (ii) adequate working capital and appropriate
capital structure; and (iii) disclosure issues (collectively, the
“Delisting Criteria”).The TSX Continued Listing Committee has
scheduled a meeting to be held on February 11, 2021 to consider
whether or not to suspend trading in and delist the Common Shares
on the TSX. If the Company fails to demonstrate to the TSX that it
has remedied the Delisting Criteria on or before February 16, 2021,
the Common Shares will be delisted from the TSX 30 days from such
date.
- Changes in Directors Mr. Xiaoxiao
Li: Mr. Li resigned as a non-executive director on
November 13, 2020.Ms. Ka Lee Ku: Ms. Ku was
appointed as a non-executive director on December 9, 2020.
- 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
| |
|
|
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Three months
ended |
|
Nine months
ended |
| |
|
|
|
September 30, |
|
September 30, |
|
|
|
|
|
|
2020 |
|
|
|
2019 |
|
|
|
2020 |
|
|
|
2019 |
|
|
Sales Volumes, Prices and Costs |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Premium semi-soft coking coal |
|
|
|
|
|
|
|
|
Coal sales (millions of tonnes) |
|
0.35 |
|
|
|
0.05 |
|
|
|
0.63 |
|
|
|
0.28 |
|
|
Average realized selling price (per tonne) |
$ |
30.17 |
|
|
$ |
31.49 |
|
|
$ |
29.48 |
|
|
$ |
38.27 |
|
|
Standard semi-soft coking coal/ premium thermal coal |
|
|
|
|
|
|
|
|
Coal sales (millions of tonnes) |
|
0.54 |
|
|
|
0.51 |
|
|
|
0.93 |
|
|
|
1.95 |
|
|
Average realized selling price (per tonne) |
$ |
30.80 |
|
|
$ |
31.67 |
|
|
$ |
31.71 |
|
|
$ |
33.87 |
|
|
Standard thermal coal |
|
|
|
|
|
|
|
|
Coal sales (millions of tonnes) |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
0.09 |
|
|
Average realized selling price (per tonne) |
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
29.43 |
|
|
Washed coal |
|
|
|
|
|
|
|
|
Coal sales (millions of tonnes) |
|
0.10 |
|
|
|
0.25 |
|
|
|
0.12 |
|
|
|
0.43 |
|
|
Average realized selling price (per tonne) |
$ |
41.30 |
|
|
$ |
42.37 |
|
|
$ |
41.64 |
|
|
$ |
43.10 |
|
|
Total |
|
|
|
|
|
|
|
|
Coal sales (millions of tonnes) |
|
0.99 |
|
|
|
0.81 |
|
|
|
1.68 |
|
|
|
2.75 |
|
|
Average realized selling price (per tonne) |
$ |
31.63 |
|
|
$ |
34.98 |
|
|
$ |
31.58 |
|
|
$ |
35.54 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Raw coal production (millions of tonnes) |
|
0.52 |
|
|
|
1.21 |
|
|
|
0.53 |
|
|
|
3.57 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Cost of sales of product sold (per tonne) |
$ |
20.23 |
|
|
$ |
19.16 |
|
|
$ |
21.70 |
|
|
$ |
22.17 |
|
|
Direct cash costs of product sold (per tonne) (i) |
$ |
12.38 |
|
|
$ |
18.03 |
|
|
$ |
11.57 |
|
|
$ |
15.03 |
|
|
Mine administration cash costs of product sold (per tonne) (i) |
$ |
1.15 |
|
|
$ |
1.09 |
|
|
$ |
1.47 |
|
|
$ |
1.26 |
|
|
Total cash costs of product sold (per tonne) (i) |
$ |
13.53 |
|
|
$ |
19.12 |
|
|
$ |
13.04 |
|
|
$ |
16.29 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Other Operational Data |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Production waste material moved (millions of bank
cubic meters) |
|
1.67 |
|
|
|
4.36 |
|
|
|
2.24 |
|
|
|
14.61 |
|
|
Strip ratio (bank cubic meters of waste material per tonne
of coal produced) |
|
3.20 |
|
|
|
3.61 |
|
|
|
4.24 |
|
|
|
4.09 |
|
|
Lost time injury frequency rate (ii) |
|
- |
|
|
|
0.08 |
|
|
|
0.04 |
|
|
|
0.05 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
(i) |
|
A Non-International Financial Reporting Standards (“IFRS”)
financial measure, which does not have a standardized meaning
according to IFRS. See “Non-IFRS Financial Measures” section. Cash
costs of product sold exclude idled mine asset cash costs. |
|
|
(ii) |
|
Per 200,000 man hours and calculated based on a rolling 12 month
average. |
|
|
|
|
|
Overview of Operational Data
For the three months ended September 30,
2020
The Company ended the third quarter of 2020
without a lost time injury. For the three months ended September
30, 2019, the Company had a lost time injury frequency rate of 0.08
per 200,000 man hours.
The average selling price of coal decreased from
$35.0 per tonne in the third quarter of 2019 to $31.6 per tonne in
the third quarter of 2020 as a result of a higher portion of sales
made at the mine gate instead of transporting the coal to the
Company’s Inner Mongolia subsidiary and selling to third party
customers within China.
The product mix for the third quarter of 2020
consisted of approximately 35% of premium semi-soft coking coal,
55% of standard semi-soft coking coal/premium thermal coal and 10%
of washed coal compared to approximately 6% of premium semi-soft
coking coal, 63% of standard semi-soft coking coal/premium thermal
coal and 31% of washed coal in the third quarter of 2019.
The Company sold 1.0 million tonnes for the
third quarter of 2020 as compared to 0.8 million tonnes for the
third quarter of 2019.
The Company’s production in the third quarter of
2020 was lower than the third quarter of 2019 as a result of the
temporary cessation of the Company’s major mining operations
(including coal mining) which took effect in February 2020 for the
purpose of mitigating the financial impact of the border closures
and preserving the Company’s working capital, yielding 0.5 million
tonnes for the third quarter of 2020 as compared to 1.2 million
tonnes for the third quarter of 2019.
The Company’s unit cost of sales of product sold
for the third quarter of 2020 was $20.2 per tonne, which is similar
to $ 19.2 per tonne for the third quarter of 2019.
For the nine months ended September 30, 2020
The Company sold 1.7 million tonnes for the
first nine months of 2020 as compared to 2.8 million tonnes for the
first nine months of 2019 due to suspension of coal exports to
China beginning as of February 11, 2020 as a result of the closure
of Mongolia’s southern border with China in order to prevent of the
spread of COVID-19 and the subsequent export volume limitation
imposed following the reopening of the Mongolian-Chinese border on
a trial basis on March 28, 2020. The average selling price
decreased from $35.5 per tonne for the first nine months of 2019 to
$31.6 per tonne for the first nine months of 2020. The decrease was
mainly driven by a higher portion of sales made at the mine gate
instead of transporting the coal to the Company’s Inner Mongolia
subsidiary and selling to third party customers within China during
the first nine months of 2020.
The Company’s production in the first nine
months of 2020 was much lower than the first nine months of 2019 as
a result of the temporary cessation of the Company’s major mining
operations (including coal mining) which took effect in February
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
for the first nine months of 2020 was $21.7 per tonne, which is
similar to the first nine months of 2019.
Summary of Financial Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Three months
ended |
|
Nine months
ended |
| |
|
|
|
September 30, |
|
September 30, |
|
$ in thousands, except per share information |
|
2020 |
|
|
|
2019 |
|
|
|
2020 |
|
|
|
2019 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Revenue (i) |
$ |
30,960 |
|
|
$ |
28,309 |
|
|
$ |
52,072 |
|
|
$ |
97,599 |
|
|
Cost of sales (i) |
|
(20,027 |
) |
|
|
(15,518 |
) |
|
|
(36,464 |
) |
|
|
(60,954 |
) |
|
Gross profit excluding idled mine asset costs (ii) |
|
11,789 |
|
|
|
13,664 |
|
|
|
19,537 |
|
|
|
39,339 |
|
|
Gross profit |
|
10,933 |
|
|
|
12,791 |
|
|
|
15,608 |
|
|
|
36,645 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Other operating expenses |
|
(575 |
) |
|
|
(1,245 |
) |
|
|
(5,255 |
) |
|
|
(3,992 |
) |
|
Administration expenses |
|
(1,789 |
) |
|
|
(2,074 |
) |
|
|
(4,851 |
) |
|
|
(8,061 |
) |
|
Evaluation and exploration expenses |
|
(63 |
) |
|
|
(22 |
) |
|
|
(171 |
) |
|
|
(70 |
) |
|
Profit from operations |
|
8,506 |
|
|
|
9,450 |
|
|
|
5,331 |
|
|
|
24,522 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance costs |
|
(9,885 |
) |
|
|
(7,184 |
) |
|
|
(24,250 |
) |
|
|
(20,915 |
) |
|
Finance income |
|
2,583 |
|
|
|
68 |
|
|
|
2,600 |
|
|
|
4,381 |
|
|
Share of earnings of a joint venture |
|
660 |
|
|
|
277 |
|
|
|
882 |
|
|
|
1,104 |
|
|
Income tax expense |
|
(793 |
) |
|
|
(468 |
) |
|
|
(2,425 |
) |
|
|
(2,708 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net profit/(loss) attributable to equity holders of the
Company |
|
1,071 |
|
|
|
2,143 |
|
|
|
(17,862 |
) |
|
|
6,384 |
|
|
Basic and diluted earnings/(loss) per share |
$ |
- |
|
|
$ |
0.01 |
|
|
$ |
(0.07 |
) |
|
$ |
0.02 |
|
| |
|
|
|
|
|
|
|
|
|
|
| |
(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. Royalties
have been reclassified from revenue to cost of sales. |
| |
(ii) |
|
A non-IFRS financial
measure, idled mine asset costs represents the depreciation expense
relates to the Company’s idled plant and equipment. |
| |
|
|
|
|
Overview of Financial
Results
For the three months ended September 30,
2020
The Company recorded a gross profit of $10.9
million in the third quarter of 2020 compared to $12.8 million in
the third quarter of 2019 while a $1.1 million net profit was
recorded in the third quarter of 2020 compared to $2.1 million in
the third quarter of 2019. The financial results were impacted by
the reduced gross profit as a result of a lower average selling
price achieved during the quarter.
Revenue was $31.0 million in the third quarter
of 2020 compared to $28.3 million in the third quarter of 2019. The
Company’s effective royalty rate for the third quarter of 2020,
based on the Company’s average realized selling price of $31.6 per
tonne, was 11.1% or $3.5 per tonne, compared to 8.2% or $2.9 per
tonne in the third quarter of 2019 (based on the average realized
selling price of $35.0 per tonne in the third quarter of 2019).
Royalty regime in Mongolia
The royalty regime in Mongolia is evolving and
has been subject to change since 2012.
On February 1, 2016, the Government of Mongolia
issued a resolution in connection with the royalty regime. From
February 1, 2016 onwards, royalties are to be calculated based on
the actual contract price including transportation costs to the
Mongolia border. If such transportation costs have not been
included in the contract, the relevant transportation costs,
customs documentation fees, insurance and loading costs should be
estimated for the calculation of royalties. In the event that the
calculated sales price as described above differs from the contract
sales price of other entities in Mongolia (same quality of coal and
same border crossing) by more than 10%, the calculated sales price
will be deemed to be “non-market” under Mongolian tax law and the
royalty will then be calculated based on a reference price as
determined by the Government of Mongolia.
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. See the section entitled
“Risk Factors – Risk Relating to the Company’s Projects in
Mongolia” in the Company’s MD&A for the year ended December 31,
2019, a copy of which is available under the Company’s profile on
SEDAR at www.sedar.com.
Cost of sales was $20.0 million in the third
quarter of 2020 compared to $15.5 million in the third quarter of
2019. The increase in cost of sales was mainly due to the increased
sales during the quarter as well as the reversal of impairment of
coal stockpile inventories of $5.3 million for the third quarter of
2019. Cost of sales consists of operating expenses, share-based
compensation expense, equipment depreciation, depletion of mineral
properties, royalties, coal stockpile inventory impairment 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 endedSeptember 30, |
|
$ in thousands |
|
|
2020 |
|
2019 |
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
$ |
13,390 |
|
$ |
15,485 |
|
Share-based compensation expense |
|
|
4 |
|
2 |
|
Depreciation and depletion |
|
|
2,297 |
|
2,121 |
|
Royalties |
|
|
3,480 |
|
2,326 |
|
Reversal of impairment of coal stockpile inventories |
|
|
- |
|
(5,289) |
|
Cost of sales from mine operations |
|
|
19,171 |
|
14,645 |
|
Cost of sales related to idled mine assets |
|
|
856 |
|
873 |
|
Cost of sales |
|
|
$ |
20,027 |
|
$ |
15,518 |
Operating expenses in cost of sales were $13.4
million in the third quarter of 2020 compared to $15.5 million in
the third quarter of 2019. The overall decrease in operating
expenses was primarily due to the net effect of: (i) increased
sales volume from 0.8 million tonnes in the third quarter of 2019
to 1.0 million tonnes in the third quarter of 2020; (ii) lower
inventory carrying costs given less deferred stripping cost was
capitalized for the third quarter of 2020; and (iii) the Company’s
product mix changing in the third quarter of 2020 (as compared to
the third quarter of 2019) to be comprised of inventory with lower
carrying cost.
Cost of sales in the third quarter of 2019
included a reversal of impairment of coal stockpile inventories of
$5.3 million, to increase the carrying value of the Company’s coal
stockpiles to the lower of the cost and the net realizable value.
The reversal of impairment of coal stockpile inventories recorded
in the third quarter of 2019 reflected the enhancement in the wash
plant capacity and its continuous operation at the expected
level.
Cost of sales related to idled mine assets in
the third quarter of 2020 included $0.9 million related to
depreciation expenses for idled equipment (third quarter of 2019:
$0.9 million).
Other operating expenses was $0.6 million in the
third quarter of 2020 (third quarter of 2019: $1.2 million). Other
operating expenses in the third quarter of 2020 included a reversal
of a provision for doubtful trade and other receivables of $0.5
million, which represents subsequent collection of the trade
receivables which has been provided for in previous quarters.
| |
|
|
|
Three months endedSeptember 30, |
|
$ in thousands |
|
|
2020 |
|
2019 |
|
|
|
|
|
|
|
|
CIC management fee |
|
|
$ |
(864) |
|
$ |
(1,175) |
|
Reversal of provision/(provision) for doubtful trade and other
receivables |
|
482 |
|
(344) |
|
Foreign exchange gain/(loss) |
|
|
(113) |
|
477 |
|
Loss on disposal of property, plant and equipment |
|
|
(80) |
|
- |
|
Provision for commercial arbitration |
|
|
- |
|
(180) |
|
Loss on disposal of properties for resale |
|
|
- |
|
(23) |
|
Other operating expenses |
|
|
$ |
(575) |
|
$ |
(1,245) |
Administration expenses were $1.8 million in the
third quarter of 2020 as compared to $2.1 million in the third
quarter of 2019, as follows:
| $ in
thousands |
|
|
|
Three months
endedSeptember 30, |
| |
|
|
|
2020 |
|
2019 |
|
Corporate administration |
|
|
$ |
394 |
|
$ |
457 |
|
Professional fees |
|
|
395 |
|
365 |
|
Salaries and benefits |
|
|
781 |
|
1,084 |
|
Share-based compensation expense |
|
|
15 |
|
7 |
|
Depreciation |
|
|
204 |
|
161 |
|
Administration expenses |
|
|
$ |
1,789 |
|
$ |
2,074 |
The decrease was mainly due to the decrease in
salaries and benefits incurred during the third quarter of
2020.
The Company continued to minimize evaluation and
exploration expenditures in the third quarter of 2020 in order to
preserve the Company’s financial resources. Evaluation and
exploration activities and expenditures in the third quarter of
2020 were limited to ensuring that the Company met the Mongolian
Minerals Law requirements in respect of its mining licenses.
Finance costs were $9.9 million and $7.2 million
in the third quarter of 2020 and 2019 respectively, which primarily
consisted of interest expense on the $250.0 million CIC Convertible
Debenture.
For the nine months ended September 30, 2020
The Company recorded a $5.3 million profit from
operations in the first nine months of 2020 compared to $24.5
million in the first nine months of 2019. The financial results
were impacted by (i) the decreased sales resulting from the
suspension of coal exports to China beginning as of February 11,
2020 as a result of the closure of Mongolia’s southern border with
China in order to prevent of the spread of COVID-19 and the
subsequent export volume limitation imposed following the
re-opening of the Mongolian-Chinese border on a trial basis on
March 28, 2020.; and (ii) the provision for commercial arbitration
of $4.6 million recorded in connection with the Company the
entering into a settlement agreement with First Concept Industrial
Group Limited (“First Concept”) on June 7, 2020.
Revenue was $52.1 million in the first nine
months of 2020 compared to $97.6 million in the first nine months
of 2019. The Company’s effective royalty rate for the first nine
months of 2020, based on the Company’s average realized selling
price of $31.6 per tonne, was 12.2% or $3.9 per tonne, compared to
7.1% or $2.5 per tonne in the first nine months of 2019 (based on
the average realized selling price of $35.5 per tonne for the first
nine months of 2019).
Cost of sales was $36.5 million in the first
nine months of 2020 compared to $61.0 million in the first nine
months of 2019 as follows:
| |
|
|
|
Nine months endedSeptember 30, |
|
$ in thousands |
|
|
2020 |
|
2019 |
| |
|
|
|
|
|
|
|
Operating expenses |
|
|
$ |
21,912 |
|
$ |
44,794 |
|
Share-based compensation expense |
|
|
23 |
|
7 |
|
Depreciation and depletion |
|
|
4,163 |
|
8,379 |
|
Royalties |
|
|
6,437 |
|
6,903 |
|
Reversal of impairment of coal stockpile inventories |
|
|
- |
|
(1,823) |
|
Cost of sales from mine operations |
|
|
32,535 |
|
58,260 |
|
Cost of sales related to idled mine assets |
|
|
3,929 |
|
2,694 |
|
Cost of sales |
|
|
$ |
36,464 |
|
$ |
60,954 |
Operating expenses in cost of sales were $21.9
million in the first nine months of 2020 compared to $44.8 million
in the first nine months of 2019. The overall decrease in operating
expenses was primarily due to the decreased sales volume from 2.8
million tonnes in the first nine months of 2019 to 1.7 million
tonnes in the first nine months of 2020.
Cost of sales related to idled mine assets in
the first nine months of 2020 included $3.9 million related to
depreciation expenses for idled equipment (first nine months of
2019: $2.7 million).
Cost of sales in the first nine months of 2019
included a reversal of impairment of coal stockpile inventories of
$1.8 million. The reversal of impairment of coal stockpile
inventories reflected the enhancement in the wash plant capacity
and its continuous operation at the expected level.
Other operating expenses was $5.3 million in the
first nine months of 2020 (first nine months of 2019: $4.0
million). The increase was mainly due to the net effect of (i)
provision for commercial arbitration of $4.6 million upon the
entering of settlement agreement with First Concept; and (ii)
decrease in CIC management fee as a result of reduced sales
volume.
| |
|
|
|
Nine months endedSeptember 30, |
|
$ in thousands |
|
|
2020 |
|
2019 |
| |
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
| |
|
|
|
|
| |
|
|
|
|
|
| |
|
|
|
|
|
| |
|
|
|
|
|
| |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
| |
|
|
|
|
| |
|
|
|
|
|
| |
|
|
|
|
|
| |
|
|
|
|
|
| |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Provision for commercial arbitration |
|
|
$ |
(4,634) |
|
$ |
(406) |
| |
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
| |
|
|
|
|
| |
|
|
|
|
|
| |
|
|
|
|
|
| |
|
|
|
|
|
| |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
CIC management fee |
|
|
(1,399) |
|
(3,355) |
| |
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
| |
|
|
|
|
| |
|
|
|
|
|
| |
|
|
|
|
|
| |
|
|
|
|
|
| |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Reversal of provision/(provision) for doubtful trade and other
receivables |
|
200 |
|
(441) |
| |
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
| |
|
|
|
|
| |
|
|
|
|
|
| |
|
|
|
|
|
| |
|
|
|
|
|
| |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Foreign exchange gain |
|
|
639 |
|
478 |
| |
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
| |
|
|
|
|
| |
|
|
|
|
|
| |
|
|
|
|
|
| |
|
|
|
|
|
| |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Gain/(loss) on disposal of property, plant and equipment |
|
|
(61) |
|
29 |
| |
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
| |
|
|
|
|
| |
|
|
|
|
|
| |
|
|
|
|
|
| |
|
|
|
|
|
| |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Provision for prepaid expenses and deposits |
|
|
- |
|
(260) |
| |
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
| |
|
|
|
|
| |
|
|
|
|
|
| |
|
|
|
|
|
| |
|
|
|
|
|
| |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Loss on disposal of properties for resale |
|
|
- |
|
(37) |
| |
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
| |
|
|
|
|
| |
|
|
|
|
|
| |
|
|
|
|
|
| |
|
|
|
|
|
| |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Other operating expenses |
|
|
$ |
(5,255) |
|
$ |
(3,992) |
Administration expenses were $4.9 million in
the first nine months of 2020 compared to $8.1 million in the first
nine months of 2019 as follows:
| |
|
|
|
Nine months endedSeptember 30, |
|
$ in thousands |
|
|
2020 |
|
2019 |
| |
|
|
|
|
|
|
|
Corporate administration |
|
|
$ |
842 |
|
$ |
1,555 |
|
Professional fees |
|
|
944 |
|
2,668 |
|
Salaries and benefits |
|
|
2,448 |
|
3,315 |
|
Share-based compensation expense |
|
|
84 |
|
30 |
|
Depreciation |
|
|
533 |
|
493 |
|
Administration expenses |
|
|
$ |
4,851 |
|
$ |
8,061 |
| |
|
|
|
|
|
|
Administration expenses were lower for the first
nine months of 2020 compared to the first nine months of 2019
primarily due to decrease in professional fees incurred.
The Company continued to minimize evaluation and
exploration expenditures in the first nine months of 2020 in order
to preserve the Company’s financial resources. Evaluation and
exploration activities and expenditures in the first nine months of
2020 were limited to ensuring that the Company met the Mongolian
Minerals Law requirements in respect of its mining licenses.
Finance costs were $24.3 million and $20.9
million in the first nine months of 2020 and 2019 respectively,
which primarily consisted of interest expense on the $250.0 million
CIC Convertible Debenture.
Summary of Quarterly Operational
Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
2020 |
|
|
|
2019 |
|
|
|
2018 |
|
|
Quarter Ended |
30-Sep |
30-Jun |
31-Mar |
|
31-Dec |
30-Sep |
30-Jun |
31-Mar |
|
31-Dec |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales Volumes, Prices and Costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premium semi-soft coking coal |
|
|
|
|
|
|
|
|
|
|
|
Coal sales (millions of tonnes) |
|
0.35 |
|
|
0.21 |
|
|
0.07 |
|
|
|
0.39 |
|
|
0.05 |
|
|
0.12 |
|
|
0.11 |
|
|
|
0.24 |
|
|
Average realized selling price (per tonne) |
$ |
30.17 |
|
$ |
28.69 |
|
$ |
28.46 |
|
|
$ |
29.18 |
|
$ |
31.49 |
|
$ |
32.72 |
|
$ |
47.34 |
|
|
$ |
47.37 |
|
|
Standard semi-soft coking coal/ premium thermal coal |
|
|
|
|
|
|
|
|
|
|
|
Coal sales (millions of tonnes) |
|
0.54 |
|
|
0.26 |
|
|
0.13 |
|
|
|
0.40 |
|
|
0.51 |
|
|
0.59 |
|
|
0.85 |
|
|
|
0.40 |
|
|
Average realized selling price (per tonne) |
$ |
30.80 |
|
$ |
33.12 |
|
$ |
32.71 |
|
|
$ |
31.88 |
|
$ |
31.67 |
|
$ |
35.67 |
|
$ |
33.34 |
|
|
$ |
32.60 |
|
|
Standard thermal coal |
|
|
|
|
|
|
|
|
|
|
|
Coal sales (millions of tonnes) |
|
- |
|
|
- |
|
|
- |
|
|
|
- |
|
|
- |
|
|
- |
|
|
0.09 |
|
|
|
0.12 |
|
|
Average realized selling price (per tonne) |
$ |
- |
|
$ |
- |
|
$ |
- |
|
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
34.88 |
|
|
$ |
24.26 |
|
|
Washed coal |
|
|
|
|
|
|
|
|
|
|
|
Coal sales (millions of tonnes) |
|
0.10 |
|
|
0.02 |
|
|
- |
|
|
|
0.20 |
|
|
0.25 |
|
|
0.17 |
|
|
0.01 |
|
|
|
0.15 |
|
|
Average realized selling price (per tonne) |
$ |
41.30 |
|
$ |
43.26 |
|
$ |
- |
|
|
$ |
42.95 |
|
$ |
42.37 |
|
$ |
44.20 |
|
$ |
45.07 |
|
|
$ |
44.02 |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
Coal sales (millions of tonnes) |
|
0.99 |
|
|
0.49 |
|
|
0.20 |
|
|
|
0.99 |
|
|
0.81 |
|
|
0.88 |
|
|
1.06 |
|
|
|
0.91 |
|
|
Average realized selling price (per tonne) |
$ |
31.63 |
|
$ |
31.66 |
|
$ |
31.18 |
|
|
$ |
33.04 |
|
$ |
34.98 |
|
$ |
36.80 |
|
$ |
34.91 |
|
|
$ |
37.32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Raw coal production (millions of tonnes) |
|
0.52 |
|
|
- |
|
|
0.01 |
|
|
|
1.48 |
|
|
1.21 |
|
|
1.33 |
|
|
1.03 |
|
|
|
1.87 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales of product sold (per tonne) |
$ |
20.23 |
|
$ |
21.16 |
|
$ |
30.36 |
|
|
$ |
23.68 |
|
$ |
19.16 |
|
$ |
25.04 |
|
$ |
22.08 |
|
|
$ |
30.80 |
|
|
Direct cash costs of product sold (per tonne) (i) |
$ |
12.38 |
|
$ |
9.90 |
|
$ |
11.69 |
|
|
$ |
13.61 |
|
$ |
18.03 |
|
$ |
17.18 |
|
$ |
10.82 |
|
|
$ |
14.41 |
|
|
Mine administration cash costs of product sold (per tonne) (i) |
$ |
1.15 |
|
$ |
1.70 |
|
$ |
2.50 |
|
|
$ |
1.29 |
|
$ |
1.09 |
|
$ |
1.39 |
|
$ |
1.41 |
|
|
$ |
2.19 |
|
|
Total cash costs of product sold (per tonne) (i) |
$ |
13.53 |
|
$ |
11.60 |
|
$ |
14.19 |
|
|
$ |
14.90 |
|
$ |
19.12 |
|
$ |
18.57 |
|
$ |
12.23 |
|
|
$ |
16.60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Operational Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production waste material moved (millions of bank cubic
meters) |
|
1.67 |
|
|
- |
|
|
0.57 |
|
|
|
3.61 |
|
|
4.36 |
|
|
5.34 |
|
|
4.91 |
|
|
|
5.54 |
|
|
Strip ratio (bank cubic meters of waste material per tonne
of coal produced) |
|
3.20 |
|
|
- |
|
|
85.08 |
|
|
|
2.44 |
|
|
3.61 |
|
|
4.01 |
|
|
4.76 |
|
|
|
2.97 |
|
|
Lost time injury frequency rate (ii) |
|
- |
|
|
0.04 |
|
|
0.09 |
|
|
|
0.08 |
|
|
0.08 |
|
|
0.06 |
|
|
0.00 |
|
|
|
0.00 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
(i) |
|
A Non-IFRS financial
measure. See “Non-IFRS Financial Measures” section. Cash costs of
product sold exclude idled mine asset cash
costs. |
| |
(ii) |
|
Per 200,000 man hours
and calculated based on a rolling 12 month average. |
| |
|
|
|
Summary of Quarterly Financial
Results
The Company’s 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 |
|
2020 |
|
|
|
2019 |
|
|
|
2018 |
|
|
Quarter Ended |
30-Sep |
30-Jun |
31-Mar |
|
31-Dec |
30-Sep |
30-Jun |
31-Mar |
|
31-Dec |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Results |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue (i) |
$ |
30,960 |
|
$ |
14,975 |
|
$ |
6,137 |
|
|
$ |
32,113 |
|
$ |
28,309 |
|
$ |
32,479 |
|
$ |
36,811 |
|
|
$ |
33,814 |
|
|
Cost of sales (i) |
|
(20,027 |
) |
|
(10,366 |
) |
|
(6,071 |
) |
|
|
(23,446 |
) |
|
(15,518 |
) |
|
(22,031 |
) |
|
(23,405 |
) |
|
|
(28,027 |
) |
|
Gross profit excluding idled mine asset costs |
|
11,789 |
|
|
6,286 |
|
|
1,462 |
|
|
|
9,971 |
|
|
13,664 |
|
|
11,318 |
|
|
14,357 |
|
|
|
7,305 |
|
|
Gross profit including idled mine asset costs |
|
10,933 |
|
|
4,609 |
|
|
66 |
|
|
|
8,667 |
|
|
12,791 |
|
|
10,448 |
|
|
13,406 |
|
|
|
5,787 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other operating income/(expenses) |
|
(575 |
) |
|
(5,150 |
) |
|
470 |
|
|
|
(1,589 |
) |
|
(1,245 |
) |
|
(2,333 |
) |
|
(414 |
) |
|
|
(2,921 |
) |
|
Administration expenses |
|
(1,789 |
) |
|
(1,291 |
) |
|
(1,771 |
) |
|
|
(1,386 |
) |
|
(2,074 |
) |
|
(2,878 |
) |
|
(3,109 |
) |
|
|
(1,583 |
) |
|
Evaluation and exploration expenses |
|
(63 |
) |
|
(52 |
) |
|
(56 |
) |
|
|
(382 |
) |
|
(22 |
) |
|
(23 |
) |
|
(25 |
) |
|
|
(36 |
) |
|
Profit/(loss) from operations |
|
8,506 |
|
|
(1,884 |
) |
|
(1,291 |
) |
|
|
5,310 |
|
|
9,450 |
|
|
5,214 |
|
|
9,858 |
|
|
|
1,247 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance costs |
|
(9,885 |
) |
|
(7,258 |
) |
|
(7,135 |
) |
|
|
(7,095 |
) |
|
(7,184 |
) |
|
(7,001 |
) |
|
(6,739 |
) |
|
|
(10,899 |
) |
|
Finance income |
|
2,583 |
|
|
2 |
|
|
43 |
|
|
|
36 |
|
|
68 |
|
|
4,305 |
|
|
17 |
|
|
|
13 |
|
|
Share of earnings/(loss) of a joint venture |
|
660 |
|
|
268 |
|
|
(46 |
) |
|
|
225 |
|
|
277 |
|
|
375 |
|
|
452 |
|
|
|
416 |
|
|
Income tax expense |
|
(793 |
) |
|
(900 |
) |
|
(732 |
) |
|
|
(659 |
) |
|
(468 |
) |
|
(801 |
) |
|
(1,439 |
) |
|
|
(1,023 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net profit/(loss) |
|
1,071 |
|
|
(9,772 |
) |
|
(9,161 |
) |
|
|
(2,183 |
) |
|
2,143 |
|
|
2,092 |
|
|
2,149 |
|
|
|
(10,246 |
) |
|
Basic and diluted earnings/(loss) per share |
$ |
- |
|
$ |
(0.04 |
) |
$ |
(0.03 |
) |
|
$ |
(0.01 |
) |
$ |
0.01 |
|
$ |
0.01 |
|
$ |
0.01 |
|
|
$ |
(0.04 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(i) |
|
Revenue and cost of sales relate to the Company’s Ovoot Tolgoi Mine
within the Coal Division operating segment. Refer to note 3 of the
condensed consolidated interim financial statements for further
analysis regarding the Company’s reportable operating segments.
Royalties have been reclassified from revenue to cost of
sales. |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
LIQUIDITY AND CAPITAL
RESOURCES
Liquidity and Capital
Management
The Company has in place a planning, budgeting
and forecasting process to help determine the funds required to
support the Company’s normal operations on an ongoing basis and its
expansionary plans.
Bank Loan
On May 15, 2018, SGS obtained a bank loan (the
“2018 Bank Loan”) in the principal amount of $2.8 million from a
Mongolian bank (the “Bank”) with the key commercial terms as
follows:
- Maturity date set at 24 months from
drawdown (subsequently extended for 12 months on May 18,
2020);
- Interest rate of 15% per annum and
interest is payable monthly; and
- Certain items of property, plant
and equipment were pledged as security for the 2018 Bank Loan. As
at September 30, 2020, the net carrying amount of the pledged items
of property, plant and equipment was $0.1 million (December 31,
2019: $0.4 million).
As at September 30, 2020, the outstanding
principal balance of the 2018 Bank Loan was $2.8 million (December
31, 2019: $2.8 million) and the accrued interest owed by the
Company was negligible (December 31, 2019: negligible).
Costs reimbursable to Turquoise Hill
Resources Ltd (“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 September 30, 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 October 12, 2016, the
Company received a letter from Turquoise Hill, which proposed an
arrangement for regular payments of the outstanding TRQ
Reimbursable Amount. On November 12, 2020, the Company received
communication from Turquoise Hill advising that Turquoise Hill
wishes to re-engage in discussions with the Company regarding a
repayment plan for the outstanding TRQ Reimbursable Amount. No
agreement on repayment has been reached between the Company and
Turquoise Hill as of the date of this press release.
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 September 30, 2021 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
$73.3 million as at September 30, 2020 compared to a deficiency in
assets of $49.2 million as at December 31, 2019 while the working
capital deficiency (excess current liabilities over current assets)
reached $217.0 million as at September 30, 2020 compared to a
working capital deficiency of $114.7 million as at December 31,
2019.
Included in the working capital deficiency as at
September 30, 2020 are significant obligations, which include the
interest amounting to $84.8 million in relation to the 2019
Deferral Agreement, the 2020 February Deferral Agreement, the 2020
March Deferral Agreement, the 2020 April Deferral Agreement, the
2020 May Deferral Agreement, the 2020 June Deferral Agreement and
the 2020 November Deferral Agreement.
In addition, the Common Shares have been
suspended from trading since June 19, 2020 on the TSX and August
17, 2020 on the HKEX. As of the date hereof, certain conditions of
the Resumption Guidance, including but not limited to the issuance
of the audited financial statements for the year ended December 31,
2019, have been fulfilled. However, if the Common Shares become
delisted from either the TSX or the HKEX, this would be an event of
default under the CIC Convertible Debenture, which could result in
the automatic termination of the deferral periods under the 2020
November Deferral Agreement and the acceleration of all principal,
interest and other amounts owing under the CIC Convertible
Debenture and the 2020 November Deferral Agreement becoming
immediately due and payable, in each case without the necessity of
any demand upon or notice to the Company by CIC.
The Company also has other current liabilities,
including trade and other payables of $77.6 million and interest
payable under the CIC Convertible Debenture of $84.8 million as at
September 30, 2020. Out of trade and other payables, which require
settlement in the short-term, are unpaid taxes of $32.7 million
that are repayable on demand by SGS to the Mongolian Tax Authority
(“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 payables owed to
suppliers and creditors may impact the mining operations of the
Company and 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 January 4, 2021.
Further, the Company was informed that effective
as of February 11, 2020, the Mongolian State Emergency Commission
closed Mongolia’s southern border with China in order to prevent
the spread of COVID-19. Accordingly, the Company had suspended coal
exports to China since February 11, 2020 as a result of the border
closure and the closure remained in effect until March 27,
2020.
On March 28, 2020, the Mongolian-Chinese border
was re-opened for coal export on a trial basis, with a limit
imposed on the total volume of coal that was permitted to be
exported during this trial period. The Company has experienced a
continuous improvement in the volume of coal exported to China
since March 28, 2020. During the period between April to December
2020, an aggregate of 2.4 million tonnes of coal was exported by
the Company from Mongolia to China, as compared to an aggregate of
2.6 million tonnes of coal during the same period in the 2019
calendar year.
The border closure had an adverse impact on the
Company’s sales and cash flows in the first and second quarter of
2020. In order to mitigate the financial impact of the border
closures and preserve its working capital, the Company temporarily
ceased major mining operations (including coal mining), reduced
production to only coal-blending activities and placed
approximately half of its workforce on furlough from February 2020.
Since August 2, 2020, the Company has resumed its mining
operations, which includes mining, blending and washing of coal. As
at December 31, 2020, SGS employed 237 employees at the Ovoot
Tolgoi Mine site (December 31, 2019: 383 employees). The Company
produced 1.5 million tonnes from August to December 2020, as
compared to 2.3 million tonnes from August to December 2019. There
were a few COVID-19 cases reported in Ulaanbaatar (being the
capital city of Mongolia) on November 11, 2020. As a result, the
Mongolian local authorities have taken certain precautionary steps
to minimize further transmissions and announced a lockdown of
Ulaanbaatar effective as of November 12, 2020. Although the
Company’s mining operations and 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 the border crossings would not be the subject of
additional closures as a result of COVID-19 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.
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 September 30,
2020. The cash flow projection has taken into account the
anticipated cash flow 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 with CIC for a deferral of the 2020 November
Deferral Amounts until August 31, 2023, subject to conditions
precedent therein; (ii) agreeing to deferral arrangements and
improved payment terms with certain vendors; (iii) SGS planned to
reduce the outstanding tax payable by monthly payments to MTA
starting from June 2020; (iv) reducing the inventory of low quality
coal by wet washing and coal blending; and (v) resuming coal mining
activities beginning as of August 2020 to enhance coal supply. In
addition, management of the Company assessed that the Company would
be able to issue all outstanding financial results, being one of
the conditions of the Resumption Guidance which must be satisfied
in order to avoid a delisting of the Common Shares from the HKEX,
which is in turn an event of default under the CIC Convertible
Debenture. After considering the above measures, and given the
re-opening of the Mongolian-Chinese border since March 28, 2020,
the Directors 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
September 30, 2020 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, Chinese 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 September 30, 2020 and December 31, 2019,
the Company was not subject to any externally imposed capital
requirements.
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 debt, 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, 2020, CIC
owned approximately 23.8% of the issued and outstanding Common
Shares of the Company.
On June 12, 2017, the Company executed the June
2017 Deferral Agreement with CIC for a revised repayment schedule
on the $22.3 million of cash interest and associated costs
originally due under the CIC Convertible Debenture on May 19, 2017.
The key repayment terms of the June 2017 Deferral Agreement are:
(i) the Company was required to repay on average $2.2 million of
the cash interest and associated costs monthly during the period
from May 2017 to October 2017; and (ii) the Company was required to
repay $9.7 million of cash interest and associated costs on
November 19, 2017.
On April 23, 2019, the Company executed the 2019
Deferral Agreement with CIC in relation to a deferral and revised
repayment schedule in respect of (i) $41.8 million of outstanding
cash and PIK Interest and associated costs due and payable to CIC
on November 19, 2018 under the CIC Convertible Debenture and the
June 2017 Deferral Agreement; and (ii) $27.9 million of cash and
PIK Interest payments payable to CIC under the CIC Convertible
Debenture from April 23, 2019 to and including May 19, 2020.
Pursuant to Section 501(c) of the TSX Company Manual, the 2019
Deferral Agreement was approved at the Company’s adjourned annual
and special meeting of shareholders on June 13, 2019.
The key repayment terms of the 2019 Deferral
Agreement are: (i) the Company agreed to pay a total of $14.3
million over eight instalments from November 2019 to June 2020;
(ii) the Company agreed to pay the PIK Interest covered by the
Deferral by way of cash payments, rather than the issuance of
Common Shares; and (iii) the Company agreed to pay the remaining
balance of $62.6 million on June 20, 2020. The Company agreed to
pay a deferral fee at a rate of 6.4% per annum in consideration of
the Deferral.
At any time before the payment under the terms
of the 2019 Deferral Agreement is fully repaid, the Company is
required to consult with and obtain written consent from CIC prior
to effecting a replacement or termination of either or both of its
Chief Executive Officer and its Chief Financial Officer, otherwise
this will constitute an event of default under the CIC Convertible
Debenture, but CIC shall not withhold its consent if the Board of
Directors (the “Board”) proposes to replace either or both such
officers with nominees selected by the Board, provided that the
Board acted honestly and in good faith with a view to the best
interests of the Company in the selection of the applicable
replacements.
As a condition to agreeing to the Deferral, CIC
required that the Cooperation Agreement dated November 19, 2009
between SGS and CIC, be amended and restated to clarify the manner
in which the service fee payable to CIC under the Cooperation
Agreement is calculated, with effect as of January 1, 2017.
Specifically, the Management Fee under the Amended and Restated
Cooperation Agreement is determined based on the net revenues
realized by the Company and all of its subsidiaries derived from
sales into China (rather than the net revenues realized by the
Company and its Mongolian subsidiaries as currently contemplated
under the Cooperation Agreement). As consideration for deferring
payment of the additional Management Fee payable to CIC as a result
of the Amended and Restated Cooperation Agreement, the Company
agreed to pay to CIC a deferral fee at the rate of 2.5% on the
outstanding Management Fee. Pursuant to the Amended and Restated
Cooperation Agreement, the Company agreed to pay CIC the total
outstanding Management Fee and related accrued deferral fee of $4.2
million over six instalments from June 2019 to November 2019. The
Company executed the Amended and Restated Cooperation Agreement
with CIC on April 23, 2019.Pursuant to their terms, both the 2019
Deferral Agreement and the Amended and Restated Cooperation
Agreement became effective on June 13, 2019, being the date on
which the 2019 Deferral Agreement was approved by shareholders at
the Company’s adjourned annual and special meeting of
shareholders.
In connection with the 2019 Deferral Agreement,
the Company also announced that it intends to discuss a potential
debt restructuring plan with respect to amounts owing to CIC which
is mutually beneficial to the Company and CIC; and to form a
special committee comprised of independent directors to ensure that
the interests of its minority shareholders are fairly
considered in the negotiation and review of any such restructuring;
however, there can be no assurance that a favorable outcome will be
reached. As of the date hereof, there has not been any significant
progress in relations to the restructuring plan.
On February 19, 2020, the Company and CIC
entered into the 2020 February Deferral Agreement pursuant to which
CIC agreed to grant the Company a deferral of: (i) the 2020
February Deferral Amounts; and (ii) approximately $0.7 million of
the Management Fee which was due and payable on February 14, 2020
to CIC under the Amended and Restated Cooperation Agreement. The
2020 February Deferral Agreement became effective on March 10,
2020, being the date on which the Company obtained the requisite
acceptance of the 2020 February Deferral Agreement from the TSX as
required under applicable TSX rules.
The principal terms of the 2020 February Deferral
Agreement are as follows:
- Payment of the 2020 February
Deferral Amounts will be deferred until June 20, 2020, while the
Management Fee will be deferred until they are repaid by the
Company.
- As consideration for the deferral
of these amounts, the Company agreed to pay CIC: (i) a deferral fee
equal to 6.4% per annum on the 2020 February Deferral Amounts,
commencing on the date on which each such 2020 February Deferral
Amount would otherwise have been due and payable under the 2019
Deferral Agreement; and (ii) a deferral fee equal to 2.5% per annum
on the Management Fee, commencing on the date on which the
Management Fee would otherwise have been due and payable under the
Amended and Restated Cooperation Agreement.
- The Company agreed to provide CIC
with monthly updates regarding its operational and financial
affairs.
- As the Company anticipated prior to
agreeing to the 2020 February Deferral Agreement that a deferral
was likely required in respect of the monthly payments due and
payable in the period between April 2020 and June 2020 under the
2019 Deferral Agreement and Amended and Restated Cooperation
Agreement, the Company and CIC have agreed to discuss in good faith
a deferral of these payments on a monthly basis as they become due.
There can be no assurance, however, that a favorable outcome will
be reached either at all or on favorable terms.
- The Company agreed to comply with
all of its obligations under the 2019 Deferral Agreement and the
Amended and Restated Cooperation Agreement, as amended by the 2020
February Deferral Agreement.
- The Company and CIC agreed that
nothing in the 2020 February Deferral Agreement prejudices CIC’s
rights to pursue any of its remedies at any time pursuant to the
2019 Deferral Agreement and Amended and Restated Cooperation
Agreement, respectively.
On March 10, 2020, the Company agreed with CIC
that the 2020 March Deferral Amount which were due and payable to
CIC on March 19, 2020 under the 2019 Deferral Agreement will be
deferred until June 20, 2020. The terms of the 2020 March Deferral
Agreement are substantially the same as the terms of the 2020
February Deferral Agreement, including that the Company agreed to
pay CIC a deferral fee equal to 6.4% per annum on the 2020 March
Deferral Amount, commencing on March 19, 2020. The 2020 March
Deferral Agreement became effective on March 25, 2020, being the
date on which the Company obtained the requisite acceptance of the
2020 March Deferral Agreement from the TSX as required under
applicable TSX rules.
On April 10, 2020, the Company agreed with CIC
that the 2020 April Deferral Amount which was due and payable to
CIC on April 19, 2020 under the 2019 Deferral Agreement will be
deferred until June 20, 2020. The terms of the 2020 April Deferral
Agreement are substantially the same as the terms of the 2020
February Deferral Agreement, including that the Company agreed to
pay CIC a deferral fee equal to 6.4% per annum on the 2020 April
Deferral Amount, commencing on April 19, 2020. The 2020 April
Deferral Agreement became effective on April 29, 2020, being the
date on which the Company obtained the requisite acceptance of the
2020 April Deferral Agreement from the TSX as required under
applicable TSX rules.
On May 8, 2020, the Company agreed with CIC that
the 2020 May Deferral Amount which was due and payable to CIC on
May 19, 2020 and May 15, 2020 under the 2019 Deferral Agreement and
the Amended and Restated Cooperation Agreement, respectively, will
be deferred until June 20, 2020. The terms of the 2020 May Deferral
Agreement are substantially the same as the terms of the 2020
February Deferral Agreement, including that the Company agreed to
pay CIC a deferral fee equal to 6.4% per annum on the deferred cash
interest and deferral fees commencing on May 19, 2020 and a
deferral fee equal to 2.5% per annum on the deferred Management
Fees commencing on May 15, 2020. The 2020 May Deferral Agreement
became effective on June 8, 2020, being the date on which the
Company obtained the requisite acceptance of the 2020 May Deferral
Agreement from the TSX as required under applicable TSX rules.
On June 19, 2020, the Company agreed with CIC
that the 2020 June Deferral Amount which was due and payable to CIC
on June 19, 2020 under the 2019 Deferral Agreement and the prior
deferral agreements entered into during the period between February
to May 2020 will be deferred until September 14, 2020. The terms of
the 2020 June Deferral Agreement are substantially the same as the
terms of the 2020 February Deferral Agreement, including that the
Company agreed to pay CIC a deferral fee equal to 6.4% per annum on
the 2020 June Deferral Amount commencing on June 19, 2020. The 2020
June Deferral Agreement became effective on July 17, 2020, being
the date on which the Company obtained the requisite acceptance of
the 2020 June Deferral Agreement from the TSX as required under
applicable TSX rules.
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 effectiveness of the 2020 November Deferral
Agreement and the respective covenants, agreements and obligations
of each party under the 2020 November Deferral Agreement are
subject to the Company obtaining the requisite approval of the 2020
November Deferral Agreement from the Company’s shareholders in
accordance with applicable TSX rules. On October 29, 2020, the
Company obtained an order from the BCSC which partially revoked the
CTO to, amongst other things, permit the Company to execute the
2020 November Deferral Agreement.
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 Amount 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.
Until such time as the 2020 November Deferral
Agreement is approved by the Company’s shareholders and the
deferral and waiver thereunder in favour of the Company become
effective, the Company remains in default under the CIC Convertible
Debenture and 2020 June Deferral Agreement and CIC may declare the
amounts owing thereunder immediately due and payable, and may take
steps to enforce payment thereof, which would have a material
adverse effect on the business and operations of the Company and
could 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.
A deferral of the 2020 June Deferral Amount was
not in effect as at September 30, 2020. Furthermore, the trading in
the Common Shares on the TSX was halted for a period of more than
five trading days since June 19, 2020, which represents another
event of default under the CIC Convertible Debenture. Subsequently,
pursuant to the 2020 November Deferral Agreement, CIC agreed to (i)
a deferral of the 2020 June Deferral Amount; and (ii) 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. However, the effectiveness
of the deferral and waiver under the 2020 November Deferral
Agreement is subject to the Company obtaining the requisite
approval of the 2020 November Deferral Agreement from the Company’s
shareholders in accordance with applicable TSX rules.
Accordingly, the Company remains default under the CIC Convertible
Debenture and 2020 June Deferral Agreement as of the date hereof.
IAS 1 requires the Company to classify the entire balance of the
CIC Convertible Debenture as a current liability as at September
30, 2020.
Commercial Arbitration in Hong
Kong
On June 24, 2015, First Concept served a notice
of arbitration (the “Notice”) on SGS in respect of a coal supply
agreement dated May 19, 2014 as amended on June 27, 2014 (the "Coal
Supply Agreement") for a total consideration of $11.5 million.
On January 10, 2018, the Company received a
confidential partial ruling (final except as to costs) with respect
to the commercial arbitration (the “Arbitration Award”). Pursuant
to the Arbitration Award, SGS was ordered to repay the sum of $11.5
million (which SGS had received as a prepayment for the purchase of
coal) to First Concept, together with accrued interest at a simple
interest rate of 6% per annum from the date which the prepayment
was made until the date of the Arbitration Award, and then at a
simple interest rate of 8% per annum until full payment. The
Arbitration Award is final, except as to costs which were reserved
for a future award.
On November 14, 2018, the Company executed the
Settlement Deed with First Concept in respect of the Arbitration
Award. The Settlement Deed provides for the full and final
satisfaction of the Arbitration Award as well as the settlement of
the issue of costs relating to the Arbitration and any other
disputes arising out of the Coal Supply Agreement. Pursuant to the
Settlement Deed, which provides for the full and final satisfaction
of the Arbitration Award as well as the settlement of the issue of
costs relating to the Arbitration and any other disputes arising
out of the Coal Supply Agreement, SGS agreed to pay to First
Concept the sum of $13.9 million, together with simple interest
thereon at the rate of 6% per annum from November 1, 2018 until
full payment, in 12 monthly instalments commencing in November
2018. Provided that SGS complies with the terms of the Settlement
Deed, First Concept agreed to waive its costs in connection with
the Arbitration and Arbitration Award and interest for the period
from January 4, 2018 to October 31, 2018 (the “Waived Costs”).
On October 16, 2019, SGS received a notice from
First Concept claiming that the Company is default under the
Settlement Deed and demanding payment of the full amount of the
Outstanding Settlement Deed Payments due under the Settlement Deed,
otherwise First Concept intends to commence legal action against
SGS pursuant to the Settlement Deed.
On February 7, 2020, SGS was informed by its
Mongolian banks that they received a request from the Court
Decision Implementing Agency of Mongolia (the “CDIA”) to freeze the
respective bank accounts of SGS in Mongolia in relation to the
enforcement of the Arbitration Award. Approximately $0.8 million in
cash has been frozen by the banks as at February 7, 2020 and such
amount was subsequently transferred to the CDIA on March 6,
2020.
On June 7, 2020, SGS entered into a settlement
agreement with First Concept, pursuant to which SGS agreed to pay
to First Concept the Full Settlement Sum of $8.0 million in full.
The Full Settlement Sum was fully satisfied by the Company in June
2020 and the outstanding payable to First Concept as of the date
hereof is $nil.
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
(“Certification Motion”). 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 plaintiffs 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.
Since December 2018, counsels for the parties
have proceeded with the action as follows: (1) two case
conferences before the motions judge; (2) production of certain
documents by the Company to the plaintiffs; (3) review of those
documents by plaintiffs’ counsel from May 2020 to November 2020;
and (4) setting down examinations for discovery for February and
March 2021. The Company is urging an early trial.
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 judged a
provision for this matter as at September 30, 2020 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 commencement of the contract and
provided for an annual wet washing capacity of approximately 3.5
million tonnes of input coal.
Under the original 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 a provision for this matter at September 30, 2020 is
not required.
Special Needs Territory in
Umnugobi
On February 13, 2015, the entire Soumber mining
license and a portion of SGS’ exploration license 9443X (9443X was
converted to mining license MV-020436 in January 2016) (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, 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 Licenses (as defined
below) and until the License Areas are removed from the SNT.
On June 29, 2016, the Mongolian Parliament and
CRKh election was held. As a result, the Company was aware that
additional action may be taken in respect of the SNT; however, the
Company has not yet received any indication on the timing of the
next session of the CRKh.
Termination of Soumber Deposit Mining
Licenses
On August 26, 2019, SGS received the Notice
Letter from Mineral Resources and Petroleum Authority of Mongolia
(“MRAM”) notifying that the Company’s three mining licenses
(MV-016869, MV-020436 and MV-020451) (the “Soumber Licenses”) for
the Soumber Deposit have been terminated by the Head of Cadastre
Division of MRAM effective as of August 21, 2019.
According to the Notice Letter, the Soumber
Licenses have been terminated pursuant to Clause 56.1.5 of Article
56 of the Minerals Law, Clauses 4.2.1 and 4.2.5 of Article 4 and
Clause 28.1.1 of Article 28 of the General Administrative Law and a
decision order of a working group established under an order of the
Minister of Environment and Tourism (Mongolia). According to this
decision order, the working group determined that SGS had violated
its environmental reclamation obligations with respect to the
Soumber Deposit. The Soumber Deposit is an undeveloped coal deposit
covering approximately 22,263 hectares located approximately 20
kilometers east of the Company’s Ovoot Tolgoi coal mine in
Mongolia. The Company owned a 100% interest in the Soumber
Deposit.
The Company believes the cancellation of the
Soumber Licenses is without merit. The Company is not aware of any
failure on its part to fulfill its environmental reclamation duties
as they relate to the Soumber Deposit. On October 4, 2019, SGS
filed a claim against MRAM and the Ministry of Environment and
Tourism of Mongolia in the Administration Court seeking an order to
restore the Soumber Licenses. The Appeal Court issued the ruling in
October 2020 and made an order to accept SGS’s claim and restore
the Soumber Licenses. The case was transferred to the High Court of
the Capital City’s (the “High Court”) for final ruling. The Company
anticipates that the High Court will issue its ruling before the
end of the first quarter of 2021. The Company will take all such
actions, including additional legal actions, as it considers
necessary to reinstate the Soumber Licenses. However, there can be
no assurance that a favorable outcome will be reached. The
termination of the Soumber Licenses does not have any impact on the
Company’s current mining operations at the Ovoot Tolgoi mine
site.
Mongolian Royalties
During 2017, the Company was ordered by the
Mongolian tax authority to apply the “reference price” determined
by the Government of Mongolia, as opposed to calculated sales price
that is derived based on the actual contract price, in calculating
the royalties payable to the Government of Mongolia. Although no
official letter has been received by the Company in respect of this
matter as of the date hereof, there can be no assurance that the
Government of Mongolia will not disagree with the methodology
employed by the Company in determining the calculated sales price
and deem such price “non-market” under Mongolian tax law.
Management believes that its interpretation of the relevant
legislation is appropriate and the Company’s positions related to
the royalty will be sustained.
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.
Restrictions on Importing F-Grade Coal
into China
As a result of import restrictions established
by Chinese authorities at the Ceke border, the Company has been
barred from transporting its F-grade coal products into China for
sale since December 15, 2018. The Company, together with other
Mongolian coal companies, have been in discussions with Chinese
authorities regarding a potential amendment or withdrawal of these
import restrictions to allow for the importation of F-grade coal
into China; however, there can be no assurance that a favorable
outcome will be reached.
OUTLOOK
Looking forward, market conditions in China are
expected to be challenging for coal companies, as there are a
number prevailing uncertainties, including the risk that the
COVID-19 pandemic and its negative impact on the Chinese economy,
becomes protracted, the possibility that the border crossings
between Mongolia and China become the subject of additional
closures and the continued restrictions on importing F-grade coal
into China. The Company will continue to closely monitor these
developments and the resulting impacts they have on coal exports to
China and will take all necessary actions to mitigate the potential
operational and financial impacts on the Company.
In the long run, the Company remains cautiously
optimistic regarding the Chinese coal market as coal is still
considered to be the primary energy source which China will rely on
in the foreseeable future. The expected benefit from the reducing
supply of low quality coal is anticipated to be offset by the
uncertain circumstances of the Chinese macroeconomic
environment.
The Company’s objectives for the medium term are as
follows:
- Enhance product
mix – The Company will focus on improving the product mix
and increase production of higher quality coal by: (i) improving
mining operations and employing enhanced mining techniques and
equipment; (ii) washing lower quality coal in the Company’s coal
wash plant; (iii) blending lower quality coal with higher quality
coal; and (iv) adopting other processing options available to the
Company.
- Expand customer
base – The Company will endeavor to increase sales volume,
expand its sales network and diversify its customer base so as to
enhance the pricing competency of the Company.
- Optimize cost
structure – The Company will aim to reduce its production
costs and optimize its cost structure through innovation, ongoing
training, productivity enhancement and engaging third party
contract mining companies.
- Operate in a socially
responsible manner – The Company will continue to maintain
the highest standards in health, safety and environmental
performance in a corporate socially responsible manner.
Going forward, the Company will continue to
focus on creating 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 resources and
reserves base – The Ovoot Tolgoi Deposit has mineral
reserves of 114.1 million tonnes, while the aggregate coal
resources include measured and indicated mineral resources of 194.6
million tonnes and inferred resources of 32.1 million tonnes.
- 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 (i.e., CIC and Cinda), which are both
state-owned-enterprises in China, and its strong operational record
for the past twelve years 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, impairments 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 |
|
Nine months
ended |
| |
|
|
September 30, |
|
September 30, |
|
|
|
|
|
2020 |
|
|
|
2019 |
|
|
|
2020 |
|
|
|
2019 |
|
| |
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
30,960 |
|
|
$ |
28,309 |
|
|
$ |
52,072 |
|
|
$ |
97,599 |
|
|
Cost of sales |
|
|
(20,027 |
) |
|
|
(15,518 |
) |
|
|
(36,464 |
) |
|
|
(60,954 |
) |
|
Gross profit |
|
|
10,933 |
|
|
|
12,791 |
|
|
|
15,608 |
|
|
|
36,645 |
|
| |
|
|
|
|
|
|
|
|
|
|
Other operating expenses |
|
|
(575 |
) |
|
|
(1,245 |
) |
|
|
(5,255 |
) |
|
|
(3,992 |
) |
|
Administration expenses |
|
|
(1,789 |
) |
|
|
(2,074 |
) |
|
|
(4,851 |
) |
|
|
(8,061 |
) |
|
Evaluation and exploration expenses |
|
|
(63 |
) |
|
|
(22 |
) |
|
|
(171 |
) |
|
|
(70 |
) |
|
Profit from operations |
|
|
8,506 |
|
|
|
9,450 |
|
|
|
5,331 |
|
|
|
24,522 |
|
| |
|
|
|
|
|
|
|
|
|
|
Finance costs |
|
|
(9,885 |
) |
|
|
(7,184 |
) |
|
|
(24,250 |
) |
|
|
(20,915 |
) |
|
Finance income |
|
|
2,583 |
|
|
|
68 |
|
|
|
2,600 |
|
|
|
4,381 |
|
|
Share of earnings of a joint venture |
|
|
660 |
|
|
|
277 |
|
|
|
882 |
|
|
|
1,104 |
|
|
Profit/(loss) before tax |
|
|
(1,864 |
) |
|
|
2,611 |
|
|
|
(15,437 |
) |
|
|
9,092 |
|
|
Current income tax expense |
|
|
(793 |
) |
|
|
(468 |
) |
|
|
(2,425 |
) |
|
|
(2,708 |
) |
|
Net profit/(loss) attributable to equity holders of the
Company |
|
|
|
(1,071 |
) |
|
|
2,143 |
|
|
|
(17,862 |
) |
|
|
6,384 |
|
| |
|
|
|
|
|
|
|
|
|
|
Other comprehensive income to be reclassified
to profit or loss in subsequent periods |
|
|
|
|
|
|
|
|
Exchange difference on translation of foreign operation |
|
(1,576 |
) |
|
|
(695 |
) |
|
|
(6,365 |
) |
|
|
(1,474 |
) |
|
Net comprehensive income/(loss) attributable to equity
holders of the Company |
|
$ |
(505 |
) |
|
$ |
1,448 |
|
|
$ |
(24,227 |
) |
|
$ |
4,910 |
|
| |
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings/(loss) per share |
|
$ |
- |
|
|
$ |
0.01 |
|
|
$ |
(0.07 |
) |
|
$ |
0.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Summarized Financial Position
Information(Expressed in thousands of USD)
| |
|
|
As at |
| |
|
|
September
30, |
December
31, |
|
|
|
|
|
2020 |
|
|
|
2019 |
|
|
Assets |
|
|
|
|
|
| |
|
|
|
|
|
|
Current assets |
|
|
|
|
|
| Cash and
cash equivalents |
|
|
$ |
3,590 |
|
|
$ |
7,164 |
|
| Restricted
cash |
|
|
|
885 |
|
|
|
862 |
|
| Trade and
other receivables |
|
|
|
841 |
|
|
|
1,778 |
|
|
Inventories |
|
|
|
39,953 |
|
|
|
52,237 |
|
| Prepaid
expenses and deposits |
|
|
|
1,443 |
|
|
|
2,312 |
|
|
Total current assets |
|
|
|
46,712 |
|
|
|
64,353 |
|
| |
|
|
|
|
|
|
Non-current assets |
|
|
|
|
|
| Property,
plant and equipment |
|
|
$ |
131,958 |
|
|
$ |
137,221 |
|
|
Inventories |
|
|
|
2,613 |
|
|
|
9,332 |
|
| Investments
in a joint venture |
|
|
|
16,620 |
|
|
|
17,521 |
|
|
Total non-current assets |
|
|
|
151,191 |
|
|
|
164,074 |
|
| |
|
|
|
|
|
|
Total assets |
|
|
$ |
197,903 |
|
|
$ |
228,427 |
|
| |
|
|
|
|
|
|
Equity and liabilities |
|
|
|
|
|
| |
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
| Trade and
other payables |
|
|
$ |
77,597 |
|
|
$ |
87,013 |
|
|
Provision for commercial arbitration |
|
|
- |
|
|
|
5,593 |
|
| Deferred
revenue |
|
|
|
8,109 |
|
|
|
16,057 |
|
|
Interest-bearing borrowings |
|
|
|
2,837 |
|
|
|
2,835 |
|
| Lease
liabilities |
|
|
|
211 |
|
|
|
460 |
|
|
Current portion of convertible debenture |
|
174,977 |
|
|
|
67,106 |
|
|
Total current liabilities |
|
|
|
263,731 |
|
|
|
179,064 |
|
| |
|
|
|
|
|
|
Non-current liabilities |
|
|
|
|
|
| Lease
liabilities |
|
|
|
- |
|
|
|
108 |
|
| Convertible
debenture |
|
|
|
- |
|
|
|
89,868 |
|
|
Decommissioning liability |
|
|
|
7,510 |
|
|
|
8,605 |
|
|
Total non-current liabilities |
|
|
|
7,510 |
|
|
|
98,581 |
|
| |
|
|
|
|
|
|
Total liabilities |
|
|
|
271,241 |
|
|
|
277,645 |
|
| |
|
|
|
|
|
|
Equity |
|
|
|
|
|
| Common
shares |
|
|
|
1,098,634 |
|
|
|
1,098,634 |
|
| Share option
reserve |
|
|
|
52,696 |
|
|
|
52,589 |
|
| Capital
reserve |
|
|
|
396 |
|
|
|
396 |
|
| Exchange
reserve |
|
|
|
(29,593 |
) |
|
|
(23,228 |
) |
| Accumulated
deficit |
|
|
|
(1,195,471 |
) |
|
|
(1,177,609 |
) |
|
Total deficiency in assets |
|
|
|
(73,338 |
) |
|
|
(49,218 |
) |
| |
|
|
|
|
|
|
Total equity and liabilities |
|
|
$ |
197,903 |
|
|
$ |
228,427 |
|
| |
|
|
|
|
|
| Net
current liabilities |
|
|
$ |
(217,019 |
) |
. |
$ |
(114,711 |
) |
|
Total assets less current liabilities |
|
$ |
(65,828 |
) |
|
$ |
49,363 |
|
|
|
|
|
|
|
|
|
|
|
REVIEW OF INTERIM RESULTS
The condensed consolidated interim financial
statements of the Company for the three and nine months ended
September 30, 2020, which are unaudited but have been reviewed by
the Company’s independent auditor and the Audit Committee of the
Company 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 nine
months ended September 30, 2020 are contained in the unaudited
condensed consolidated interim financial statements and MD&A,
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 |
| Kino Fu |
| Office: |
|
+852 2156 7030
(Hong Kong) |
| |
|
+1 604 762 6783 (Canada) |
| Email: |
|
kino.fu@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 June Deferral Agreement, the
2020 May Deferral Agreement, the 2020 April Deferral Agreement, the
2020 March Deferral Agreement, the 2020 February Deferral
Agreement, the 2020 November Deferral Agreement, the 2019 Deferral
Agreement, the Amended and Restated Cooperation Agreement and the
2018 Bank Loan, as the same become due;
- the Company's anticipated financing
needs, development plans and future production levels;
- the ability of the Company to
successfully apply for a revocation of the CTO;
- the resumption of trading in the
Common Shares on the TSX or HKEX;
- 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
successfully recover the balance of its doubtful trade and notes
receivables;
- 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 delays in the
custom clearance process at the Ceke border on the Company’s
operations and the restrictions established by Chinese authorities
on the import of F-grade coal into China;
- the impact of the COVID-19 pandemic
and closure of Mongolia’s southern border with China on the
Company’s business, financial condition and operations;
- the ability of the Company to
successfully appeal the decision of MRAM to terminate the Soumber
Licenses and the anticipated timing of the High Court ruling on the
appeal;
- the ability of the Company 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;
- the ability of the Company to
successfully reinstate the Soumber Licenses;
- the future demand for coal in
China;
- future trends in the Chinese coal
industry;
- the Company’s outlook and
objectives for 2020 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 2020 and beyond; currency exchange rates; operating,
labour and fuel costs; the ability of the Company to successfully
apply for a revocation of the CTO; the ability to remedy the
Delisting Criteria of the TSX and to satisfy the Resumption
Guidance of the HKEX; 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 that the Company is unable to successfully apply for a
revocation of the CTO; the risk that the Company is unable to
remedy the Delisting Criteria within the deadline established by
the TSX and the Common Shares becoming delisted from the TSX; the
risk that the Company is unable to fulfill the conditions of the
Resumption Guidance and the Common Shares becoming delisted from
the HKEX; the risk of continued delays in the custom clearance
process at the Ceke border; the restrictions established by Chinese
authorities on the import of F-grade coal into China; the risk that
Mongolia’s southern borders with China will be the subject of
further closures; 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 Management” of
this press release under the heading entitled “Costs Reimbursable
to Turquoise Hill Resources Ltd”); the risk of CIC accelerating all
amounts outstanding under the CIC Convertible Debenture and
enforcing payment thereof; the risk of the Company or its
subsidiaries defaulting under its existing debt obligations,
including the 2020 June Deferral Agreement, the 2020 May Deferral
Agreement, the 2020 April Deferral Agreement, the 2020 March
Deferral Agreement, the 2020 February Deferral Agreement, the 2020
November Deferral Agreement, the 2019 Deferral Agreement, the
Amended and Restated Cooperation Agreement and the 2018 Bank Loan;
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 impact of the internal
investigation conducted by the Special Committee; 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; risks
relating to the Company’s ability to successfully appeal MRAM’s
decision to terminate the Soumber Licenses and delays in receiving
the High Court’s ruling on the appeal; 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 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)
Gráfica de Acción Histórica
De Ene 2025 a Feb 2025
SouthGobi Resources (TSX:SGQ)
Gráfica de Acción Histórica
De Feb 2024 a Feb 2025
