SouthGobi Resources Ltd. (TSX:SGQ)(SEHK:1878) (the "Company" or "SouthGobi")
today announced its financial results for the nine months ended September 30,
2011. All figures are in US dollars unless otherwise stated.
HIGHLIGHTS
The Company's highlights for the quarter ended September 30, 2011 and subsequent
weeks are as follows:
-- Total sales of approximately 1.37 million tonnes and revenue of $60.5
million for the quarter ended September 30, 2011, with both figures
representing a record for any given third quarter and the revenue also
being the highest quarterly revenue since the commencement of mining
operations;
-- Average realized selling price for the third quarter of 2011 was $54 per
tonne, an increase of 45% compared to the third quarter of 2010;
-- Income from mining operations of $20.6 million for the third quarter of
2011, which represents a quarterly record since the commencement of
mining operations;
-- Entered into an agreement with Ejinaqi Jinda Coal Industry Co. Ltd
("Ejin Jinda") to toll wash coal from the Ovoot Tolgoi Mine;
-- Received a mining license pertaining to the Soumber Deposit; and
-- Awarded the tender to construct a paved highway from Ovoot Tolgoi to
Mongolia-China border with consortium partner NTB LLC.
REVIEW OF QUARTERLY OPERATING RESULTS
The Company's operating results for the previous eight quarters are summarized
in the table below:
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2011 2010 2009
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QUARTER ENDED 30-Sep 30-Jun 31-Mar 31-Dec 30-Sep 30-Jun 31-Mar 31-Dec
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Volumes and prices
Raw semi-soft
coking coal
Raw coal
production
(millions of
tonnes) 0.55 0.52 0.48 0.41 0.18 0.39 0.21 0.16
Coal sales
(millions of
tonnes) 0.66 0.60 0.34 0.35 0.11 0.42 0.40 0.36
Average realized
sales price
(per tonne) $66.83 $65.96 $56.50 $47.08 $46.04 $44.10 $36.62 $29.55
Raw medium-ash
coal
Raw coal
production
(millions of
tonnes) 0.20 - - - - - - -
Coal sales
(millions of
tonnes) 0.20 - - - - - - -
Average realized
sales price
(per tonne) $48.17 $ - $ - $ - $ - $ - $ - $ -
Raw higher-ash
coal
Raw coal
production
(millions of
tonnes) 0.50 0.35 0.63 0.97 0.39 0.23 0.01 -
Coal sales
(millions of
tonnes) 0.51 0.45 0.11 1.12 0.08 0.03 0.03 -
Average realized
sales price
(per tonne) $39.74 $38.32 $31.68 $26.75 $25.34 $18.82 $21.24 $ -
Total
Raw coal
production
(millions of
tonnes) 1.25 0.87 1.11 1.38 0.57 0.62 0.22 0.16
Coal sales
(millions of
tonnes) 1.37 1.05 0.45 1.47 0.19 0.45 0.43 0.36
Average realized
sales price
(per tonne) $54.01 $54.06 $50.29 $31.56 $37.15 $42.63 $35.52 $29.55
Costs
Direct cash costs
of product sold
(per tonne) $22.64 $26.77 $18.91 $18.53 $18.59 $21.37 $22.25 $16.97
Total cash costs
of product sold
(per tonne) $23.17 $27.61 $20.61 $19.25 $22.04 $22.30 $23.32 $18.29
Waste movement and
stripping ratio
Production waste
material moved
(millions of bank
cubic meters) 4.10 4.08 3.85 3.56 2.90 1.73 1.50 0.87
Strip ratio (bank
cubic meters of
waste rock per
tonne of coal
produced) 3.28 4.74 3.47 2.58 5.09 2.79 6.79 5.38
Pre-production
waste material
moved (millions
of bank cubic
meters) 0.39 0.80 0.49 0.73 0.43 0.02 - -
Other operating
capacity statistics
Capacity
Number of mining
shovels/excavator
s available at
period end (i) 3 4 3 3 2 2 2 1
Total combined
stated mining
shovel/excavator
capacity at
period end (cubic
meters) 64 98 83 82 48 48 48 14
Number of haul
trucks available
at period end 16 16 16 15 12 11 9 7
Total combined
stated haul truck
capacity at
period end
(tonnes) 2,599 2,599 2,599 2,254 1,727 1,509 1,073 637
Employees and
safety
Employees at
period end 695 658 600 544 472 421 388 334
Lost time injury
frequency rate
(per 100,000 man n/a
hours) 1.4 1.2 0.9 0.8 0.9 1.0 0.6 (ii)
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i. The second R9250 hydraulic excavator commissioned in the second quarter
of 2011 is currently being used to supplement the capacity of the
Company's existing fleets.
ii. Lost time injury frequency data for 2009 is not available.
For the three months ended September 30, 2011
For the three months ended September 30, 2011, the Company produced 1.25 million
tonnes of raw coal with a strip ratio of 3.28 compared to production of 0.87
million tonnes of raw coal with a strip ratio of 4.74 for the three months ended
June 30, 2011 and production of 0.57 million tonnes of raw coal with a strip
ratio of 5.09 for the three months ended September 30, 2010. Mining capacity
increased in the third quarter of 2011 compared to the third quarter of 2010 due
to the commissioning of additional mining equipment. Mining activities also
commenced in the Sunrise Pit during the third quarter of 2011.
For the three months ended September 30, 2011, the Company sold 1.37 million
tonnes of coal at an average realized selling price of approximately $54 per
tonne. This compares to 1.05 million tonnes of coal sold for the three months
ended June 30, 2011 at an average realized selling price of approximately $54
per tonne and 0.19 million tonnes of coal sold for the three months ended
September 30, 2010 at an average realized selling price of approximately $37 per
tonne.
Direct cash costs of product sold were $22.64 per tonne in the three months
ended September 30, 2011 compared to $18.59 per tonne in the three months ended
September 30, 2010. Direct cash costs have increased due to increased screening
by the Company of its raw higher-ash coals and due to general economic factors
including the strengthening of the Mongolian tugrik and the rate of inflation in
Mongolia.
On September 27, 2011, a fire occurred on one Liebherr 996 hydraulic shovel that
was commissioned at the Ovoot Tolgoi Mine in December 2009 and previously
included in the mining fleet. Safety protocols were followed and no injuries
resulted. However, following subsequent inspection and third-party reports the
Company has de-commissioned the machine and currently believes it is unlikely it
will be repairable. Site inspections have been completed by the insurance
underwriter and the Company has been advised that the damage will be covered by
its insurance policy. As a result, the Company has de-recognized the full
carrying amount of the machine and recognized a receivable in the third quarter
of 2011 equal to the amount of the estimated net insurance proceeds.
For the nine months ended September 30, 2011
For the nine months ended September 30, 2011, the Company produced 3.22 million
tonnes of raw coal with a strip ratio of 3.74 compared to production of 1.41
million tonnes of raw coal with a strip ratio of 4.35 for the nine months ended
September 30, 2010. The increase in raw coal production for the nine months
ended September 30, 2011 primarily resulted from the expansion of the Company's
mining fleet and commencement of mining operations at the Sunset Pit in the
third quarter of 2011.
For the nine months ended September 30, 2011, the Company sold approximately
2.87 million tonnes of coal at an average realized selling price of
approximately $53 per tonne. This compares to 1.07 million tonnes of coal at an
average realized selling price of approximately $39 per tonne for the nine
months ended September 30, 2010. The average realized selling price has
increased due to increased prices of individual customer contracts in 2011.
Direct cash costs of product sold were $23.55 per tonne for the nine months
ended September 30, 2011 compared to $21.22 per tonne for the same period in
2010. The increase in direct cash costs is due primarily to increased screening
activities by the Company of its raw higher-ash coals and higher diesel prices
in the second quarter of 2011.
REVIEW OF QUARTERLY FINANCIAL RESULTS
The Company's financial results for the previous eight quarters are summarized
in the table below:
($ in thousands, except for per share information, unless otherwise indicated)
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2011
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QUARTER ENDED 30-Sep 30-Jun 31-Mar
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Revenue $ 60,491 $ 47,336 $ 20,158
Income/(loss) from mine
operations 20,560 9,744 7,690
Margin on revenue 34% 21% 38%
Evaluation and
exploration expenses (10,908) (4,356) (1,991)
Operating loss from
continuing operations (1,404) (4,444) (1,020)
Net interest expense (1,364) (2,023) (4,251)
Net income/(loss) 55,921 67,323 (46,602)
Basic income/(loss) per
share 0.31 0.37 (0.25)
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2010 2009
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QUARTER ENDED 31-Dec 30-Sep 30-Jun 31-Mar 31-Dec
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Revenue $ 41,595 $ 6,597 $ 17,668 $ 13,917 $ 9,960
Income/(loss) from mine
operations 3,376 (6,674) 4,400 1,187 1,524
Margin on revenue 8% 101% 25% 9% 15%
Evaluation and
exploration expenses (4,144) (6,314) (6,659) (1,651) (739)
Operating loss from
continuing operations (8,914) (20,969) (10,595) (6,498) (6,948)
Net interest expense (4,191) (4,385) (4,384) (9,024) (8,243)
Net income/(loss) (28,720) 27,495 53,301 (168,271) (69,153)
Basic income/(loss) per
share (0.16) 0.15 0.29 (1.09) (0.52)
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2011
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QUARTER ENDED 30-Sep 30-Jun 31-Mar
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Net income/(loss) $ 55,921 $ 67,323 $ (46,602)
Excluding
Gain/(loss) on value
change of embedded
derivatives in CIC
debenture 62,058 70,422 (36,780)
Loss on partial
conversion of CIC
debenture - - -
Mark to market
gain/(loss) in value
of investment in
Kangaroo (2,375) 3,453 (3,762)
Income from
discontinued
operations - -
Net loss excluding
specified items (3,762) (6,552) (6,060)
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2010 2009
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QUARTER ENDED 31-Dec 30-Sep 30-Jun 31-Mar 31-Dec
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Net income/(loss) $(28,720) $ 27,495 $ 53,301 $(168,271) $(69,153)
Excluding
Gain/(loss) on value
change of embedded
derivatives in CIC
debenture (19,995) 49,772 72,232 (1,372) (44,980)
Loss on partial
conversion of CIC
debenture - - - (151,353) -
Mark to market
gain/(loss) in value
of investment in
Kangaroo 4,209 1,363 (4,509) (703) 1,099
Income from
discontinued
operations - - - - 1,034
Net loss excluding
specified items (12,934) (23,640) (14,422) (14,843) (26,306)
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For the three months ended September 30, 2011
The Company recorded net income for the three months ended September 30, 2011 of
$55.9 million compared to net income of $67.3 million for the three months ended
June 30, 2011 and net income of $27.5 million for the three months ended
September 30, 2010. The net income in the third quarter of 2011 is due primarily
to the $62.1 million gain on the fair value change of the embedded derivatives
in the China Investment Corporation ("CIC") convertible debenture. This compares
to a gain of $70.4 million in the second quarter of 2011 and a gain of $49.8
million in the third quarter of 2010 on the fair value change of the embedded
derivatives in the CIC convertible debenture.
The Company incurred an operating loss for the three months ended September 30,
2011 of $1.4 million compared to a $4.4 million loss for the three months ended
June 30, 2011 and a $21.0 million loss for the three months ended September 30,
2010. The changes in the operating loss are due to the factors discussed below:
Income from Mine Operations:
The Company's income from mine operations is composed of revenue and cost of
sales and relates solely to the Mongolian Coal Division. Income from mine
operations increased to a record level of $20.6 million in the third quarter of
2011. This compares to income from mine operations of $9.7 million in the second
quarter of 2011 and a loss from mine operations of $6.7 million in the third
quarter of 2010.
Revenue was $60.5 million for the three months ended September 30, 2011, which
represented record quarterly revenue since the commencement of mining
operations. This compares to $47.3 million for the three months ended June 30,
2011 and $6.6 million for the three months ended September 30, 2010. The
increase in revenue for the third quarter of 2011 as compared to the second
quarter of 2011 was due to a 30% increase in the sales volume. The increase in
revenue for the third quarter of 2011 as compared to the third quarter of 2010
relates to increased sales volumes and increased average selling prices with
increases of 621% and 45%, respectively. Revenue was negatively impacted by an
increase in the average proportional royalty payable due to the methodology
being applied to royalties basing fees on benchmark price levels set arbitrarily
by the Mongolian government. The effective royalty for the three months ended
September 30, 2011 was 16% compared to 14% for the three months ended June 30,
2011 and 5% for three months ended September 30, 2010.
Cost of sales was $39.9 million for the three months ended September 30, 2011
compared to $37.6 million for the three months ended June 30, 2011 and $13.3
million for the three months ended September 30, 2010. Cost of sales has
increased in the third quarter of 2011 compared to the second quarter of 2011
due to higher sales volumes, partially offset by lower unit costs and a net
recovery on the de-recognition of property, plant and equipment. Cost of sales
has increased in the third quarter of 2011 compared to the third quarter of 2010
due to higher sales volumes and higher unit costs. Cost of sales comprise the
direct cash cost of products sold, mine administration costs, equipment
depreciation, depletion of stripping costs, and share-based compensation.
Administration Expenses:
Administration expenses for the three months ended September 30, 2011, were $3.1
million higher compared to the three months ended September 30, 2010. This
increase is related primarily to the following three items. Public
infrastructure costs were $1.4 million higher for the three months ended
September 30, 2011 as compared to the same period in 2010. These costs relate to
maintenance and upgrading of public transportation infrastructure used to
transport coal from the Ovoot Tolgoi Mine to the Chinese border and also to work
completed on the Mongolian side of the border to facilitate the future opening
of the dedicated coal border crossing channels. Salaries and benefits were $0.7
million higher for the three months ended September 30, 2011 as compared to the
same period in 2010, due primarily to additional staff and an increase in
share-based compensation expense. Finally, foreign exchange losses were $1.1
million higher for the three months ended September 30, 2011 compared to 2010.
Foreign exchange gains/losses are primarily the result of changes of the U.S. to
Canadian dollar ("Cdn$") and the U.S. dollar to Mongolian Tugrik exchange rates.
Evaluation and Exploration Expenses:
Exploration expenses for the three months ended September 30, 2011 were $10.9
million compared to $6.3 million for the three months ended September 30, 2010.
Exploration was still in the process of mobilization during the second quarter
of 2011 due to delays in receiving required government approvals, resulting in a
higher proportion of costs being incurred in the third quarter of 2011. In
addition, the 2011 exploration program included a more active water exploration
program.
Finance Income & Finance Costs:
The Company incurred finance costs for the three months ended September 30, 2011
of $4.1 million compared to $5.0 million for the three months ended September
30, 2010. The finance costs in the third quarter of 2011 relate primarily to a
mark to market loss of $2.4 million on investments and $1.5 million of interest
expense on the CIC convertible debenture.
The Company recorded finance income for the three months ended September 30,
2011 of $62.3 million compared to $52.1 million for the three months ended
September 30, 2010. The increase primarily relates to a $62.1 million gain on
the fair value change of the embedded derivatives in the CIC convertible
debenture for the three months ended September 30, 2011 compared to a $49.8
million gain for the three months ended September 30, 2010.
The Company's investment in Aspire Mining Limited ("Aspire") continues to be
classified as an available-for-sale financial instrument and for the three
months ended September 30, 2011, the Company recorded an after-tax mark to
market loss of $15.9 million related to Aspire that has been recorded in other
comprehensive income.
For the nine months ended September 30, 2011
The Company recorded net income for the nine months ended September 30, 2011 of
$76.6 million compared to a net loss of $87.5 million for the nine months ended
September 30, 2010. The net income for the nine months ended September 30, 2011
is primarily due to a $95.7 million gain on the fair value change of the
embedded derivatives in the CIC convertible debenture. For the nine months ended
September 30, 2010, a $151.4 million loss on partial conversion of the CIC
convertible debenture was recorded.
The Company incurred an operating loss for the nine months ended September 30,
2011 of $6.9 million compared to $38.1 million for the same period in 2010. The
decrease in the operating loss is due to the factors discussed below:
Income from Mine Operations:
The Company's income from mine operations is composed of revenue and cost of
sales and relates solely to the Mongolian Coal Division. For the nine months
ended September 30, 2011, the Company had income from mine operations of $38.0
million. This compares to a loss from mine operations of $1.1 million for the
nine months ended September 30, 2010.
Revenue was $128.0 million for the nine months ended September 30, 2011,
compared to $38.2 million for the nine months ended September 30, 2010. Revenue
has increased due to both higher sales volumes and higher average realized sales
prices which have increased by 168% and 38%, respectively.
Cost of sales was $90.0 million for the nine months ended September 30, 2011,
which includes the direct cash cost of products sold, mine administration costs,
equipment depreciation, depletion of stripping costs and share-based
compensation. Cost of sales was $39.3 million for the nine months ended
September 30, 2010. The increase in cost of sales for the nine months ended
September 30, 2011 is due to the higher sales volumes and higher unit costs.
Administration Expenses:
Administration expenses for the nine months ended September 30, 2011, were $5.3
million higher compared to the nine months ended September 30, 2010. This
increase is related primarily to the following two items. Public infrastructure
costs were $3.2 million higher for the nine months ended September 30, 2011 as
compared to the same period in 2010. These costs relate to the upgrading of
transportation infrastructure from the Ovoot Tolgoi Mine to the Chinese border.
Salaries and benefits were $0.9 million higher for the nine months ended
September 30, 2011 as compared to the same period in 2010, due primarily to
additional staff and an increase in share-based compensation expense.
Evaluation and Exploration Expenses:
Evaluation and exploration expenses for the nine months ended September 30,
2011, were $2.7 million higher than the nine months ended September 30, 2010 due
primarily to water exploration conducted in 2011.
Finance Income & Finance Costs:
The Company incurred finance costs for the nine months ended September 30, 2011
of $11.6 million compared to $174.5 million for the nine months ended September
30, 2010. The finance costs for the nine months ended September 30, 2011 relate
primarily to $8.2 million of interest expense on the CIC convertible debenture
and a mark to market loss of $2.9 million on investments. For the nine months
ended September 30, 2010, finance costs include a $151.4 million non-cash loss
on the partial conversion of the CIC convertible debenture, $19.5 million of
interest expense on the CIC convertible debenture and a mark to market loss of
$3.5 million on investments.
The Company recorded finance income for the nine months ended September 30, 2011
of $96.7 million compared to $122.4 million for the nine months ended September
30, 2010. The decrease primarily relates to a $95.7 million gain on the fair
value change of embedded derivatives in the CIC convertible debenture for the
nine months ended September 30, 2011 compared to a $120.6 million gain for the
nine months ended September 30, 2010.
The Company's investment in Aspire continues to be classified as an
available-for-sale financial instrument and for the nine months ended September
30, 2011, the Company recorded an after-tax mark to market loss of $4.7 million
related to Aspire that has been recorded in other comprehensive income.
FINANCIAL POSITION AND LIQUIDITY
The Company's total assets at September 30, 2011 were $954.9 million compared
with $961.9 million at December 31, 2010.
At September 30, 2011, the Company had $205.8 million in cash and cash
equivalents and $55.0 million in money market investments for a total liquidity
of $260.8 million compared with $492.0 million in cash and cash equivalents and
$62.7 million in money market investments for a total liquidity of $554.7
million at December 31, 2010.
The Company's non-current liabilities at September 30, 2011 were $157.2 million
compared with $252.5 million at December 31, 2010. The decrease in non-current
liabilities primarily relates to the decrease in the fair value of the CIC
convertible debenture.
TOLL WASHING AGREEMENT
On July 5, 2011, the Company entered into an agreement with Ejin Jinda, a
subsidiary of China Mongolia Coal Co. Ltd. ("CMC"), to toll wash coal from the
Ovoot Tolgoi Mine. The agreement has a duration of 5-years from commencement
(expected in early 2012) and provides for an annual wet washing capacity of
approximately 3.5 million tonnes of input raw coal. Raw higher-ash and
medium-ash coals from the Ovoot Tolgoi Mine will be washed at this facility.
Washed coal will generally meet semi-soft coking coal specifications.
Ejin Jinda's wet washing facility is located approximately 10 kilometers inside
China from the Mongolia-China border crossing at Shivee Khuren-Ceke (i.e.,
approximately 50 kilometers from the Ovoot Tolgoi Mine). Raw higher-ash and
medium-ash coals with only basic processing through Ovoot Tolgoi's on-site dry
coal handling facility will be transported from the Ovoot Tolgoi Mine to the
facility under a separate transport agreement. Based on preliminary samples, the
Company expects these coals can then be washed to produce coals with ash in the
range of 8% to 11% at a yield of 85% to 90%. Ejin Jinda will charge the Company
a single toll washing fee which will cover their expenses, capital recovery and
profit.
SOUMBER MINING LICENSE
On June 3, 2011, the Company announced it had successfully registered the
resource associated with the Soumber Deposit with the Mineral Resource Authority
of Mongolia ("MRAM"). Further, on July 6, 2011, the Company announced that MRAM
had issued the Company a mining license pertaining to the Soumber Deposit. The
new 10,993 hectare mining license was granted for an initial term of 30 years
with an option for two 20 year extensions.
REGIONAL INFRASTRUCTURE
The Ovoot Tolgoi Mine's proximity to the Shivee Khuren-Ceke border crossing
allows the Company's coal to be transported by truck on an unpaved road from the
mine site to China. On August 2, 2011, the State Property Committee of Mongolia
awarded the tender to construct a paved highway from Ovoot Tolgoi to the
Mongolia-China border to consortium partners NTB LLC and the Company's Mongolian
operating subsidiary, SouthGobi Sands LLC ("NTB-SGS"). NTB-SGS now has the right
to conclude a 15-year build, operate and transfer ("BOT") agreement under the
Mongolian Law on Concessions. NTB-SGS intend to complete the design of the road
in 2011 and to commence construction in early 2012. The paved highway will have
an intended carrying capacity upon completion in excess of 20 million tonnes of
coal per year. On October 26, 2011, NTB-SGS signed the concession agreement with
the State Property Committee of Mongolia.
COMMON SHARE REPURCHASE PROGRAM
On June 8, 2010, the Company announced that its Board of Directors authorized a
share repurchase program to purchase up to 2.5 million common shares of the
Company on each or either of the Toronto Stock Exchange and the Hong Kong Stock
Exchange, in aggregate representing up to 5.0 million common shares of the
Company. On June 8, 2011, the Company announced the renewal of its share
repurchase program. The share repurchase program will remain in effect until
June 14, 2012, or until the purchases are complete or the program is terminated
by the Company. As of November 9, 2011, the Company had repurchased 1.3 million
shares on the Hong Kong Stock Exchange and 2.4 million shares on the Toronto
Stock Exchange for a total of 3.7 million common shares. The Company cancels all
shares after they are repurchased.
OUTLOOK
SouthGobi substantially proliferated its customer base during the nine months
ended September 30, 2011 and raised prices for individual products.
The Company views market conditions for the fourth quarter of 2011 as similar to
those in the third quarter and has contracted coal at similar or moderately
higher prices for the period. However, it is more difficult to forecast volumes
for the period. Introduction of coal handling through the rotary breaker at the
Ovoot Tolgoi Mine and wet toll washing at the Ejin Jinda plant at Ceke represent
the most significant improvements to operations since mining commenced at Ovoot
Tolgoi. Having both plants being commissioned in the near future means volumes
may be reduced during the fourth quarter and deferred for three reasons: (a) the
processing chain will require inventories of coal; (b) some customers are
exhibiting a preference to take more coal on a washed basis in lieu of taking
coal during the fourth quarter; and (c) it may improve value to hold back a
manageable amount of coal to be sold later at higher margins once coal handling
commences.
The success to date and potential for future growth can be attributed to a
combination of the Company's competitive strengths, including the following:
-- Projects are strategically located close to China;
-- Substantial resources and reserves;
-- Produce premium quality coals;
-- Low cost structure due to favorable geographic and geological
conditions;
-- Strong financial profile after the financings in late 2009 and early
2010;
-- Established production with strong growth potential through future
expansion of existing mine capacity and development of the Company's
priority assets; and
-- Experienced management team with strong skills in mining, exploration
and marketing.
Overview and Objectives
The Company continues to focus its efforts on mining, development and
exploration of coking and coal products in Mongolia for supply of quality
products to customers in China. As the Company looks forward through the
remainder of 2011 and into 2012, the Company is encouraged by the overall long
term demand for its products. The Company is making progress with its sales and
marketing efforts, continuing to focus on efficiency and prudent financial
management and intends to manage production levels to meet anticipated demand
for the Company's products.
The Company's objectives for 2011 remain unchanged from the year ended December
31, 2010 and are as follows:
-- Grow Ovoot Tolgoi Mine - The additional capacity of the new mining
fleets should support growth in coal availability and sales for 2012
over 2011.
-- Continue to develop regional infrastructure - The Company's immediate
priority centers on improving roads in the area around the Ovoot Tolgoi
Mine. SouthGobi is part of a consortium awarded the tender to construct
a paved highway from Ovoot Tolgoi to the Mongolia-China border. The
consortium intends to imminently commence construction of the highway
that is expected upon completion to have a carrying capacity in excess
of 20 million tonnes of coal per year.
-- Advancing the Soumber Deposit - SouthGobi intends to further define the
deposit with continued exploration work while also substantially
advancing the feasibility and planning for a mine at Soumber.
-- Value-adding/upgrading coal - The Company is close to commissioning a
dry coal-handling facility at the Ovoot Tolgoi Mine and has contracted
Ejin Jinda to undertake wet washing for some coals close to the
Mongolia-China border.
-- Exploration - Exploration will take place to further define the
Company's existing deposits.
-- Operations - Continuing to focus on production safety, environmental
protection, operational excellence and community relations.
CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidated Interim Statement of Comprehensive Income
(Unaudited)
(Expressed in thousands of U.S. Dollars, except for share and per share
amounts)
Three months ended Nine months ended
September 30, September 30,
-----------------------------------------
2011 2010 2011 2010
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Revenue $ 60,491 $ 6,597 $127,985 $ 38,182
Cost of sales (39,931) (13,271) (89,991) (39,269)
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Income/(loss) from mine operations 20,560 (6,674) 37,994 (1,087)
Administration expenses (11,056) (7,981) (27,607) (22,351)
Evaluation and exploration expenses (10,908) (6,314) (17,255) (14,625)
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Loss from operations (1,404) (20,969) (6,868) (38,063)
Finance costs (4,078) (5,012) (11,620) (174,501)
Finance income 62,323 52,134 96,746 122,484
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Income/(loss) before tax 56,841 26,153 78,258 (90,080)
Current income tax expense (4,253) (670) (7,728) (1,048)
Deferred income tax recovery 3,333 2,012 6,112 3,655
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Net income/(loss) for the period
attributable to equity holders of
the Company 55,921 27,495 76,642 (87,473)
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OTHER COMPREHENSIVE INCOME
Loss on available-for-sale assets,
net of tax (15,859) - (4,684) -
Net comprehensive income/(loss)
attributable to equity holders of
the Company $ 40,062 $ 27,495 $ 71,958 $ (87,473)
----------------------------------------------------------------------------
BASIC INCOME/(LOSS) PER SHARE $ 0.31 $ 0.15 $ 0.42 $ (0.50)
DILUTED LOSS PER SHARE $ (0.02) $ (0.08) $ (0.05) $ (0.50)
Condensed Consolidated Interim Statement of Financial Position
(Unaudited)
(Expressed in thousands of U.S. Dollars)
As at
------------------------------------
September 30, December 31,
2011 2010
------------------------------------
ASSETS
Current assets
Cash and cash equivalents $ 205,815 $ 492,038
Trade and other receivables 82,428 30,246
Short term investments 9,998 17,529
Inventories 49,067 26,160
Prepaid expenses and deposits 47,101 10,026
----------------------------------------------------------------------------
Total current assets 394,409 575,999
Noncurrent assets
Property, plant and equipment 441,715 266,771
Deferred income tax assets 17,554 11,442
Long term investments 100,960 107,416
Other receivables 238 238
----------------------------------------------------------------------------
Total noncurrent assets 560,467 385,867
----------------------------------------------------------------------------
Total assets $ 954,876 $ 961,866
----------------------------------------------------------------------------
EQUITY AND LIABILITIES
Current liabilities
Trade and other payables $ 47,007 $ 24,137
Current portion of convertible debenture 9,326 6,312
----------------------------------------------------------------------------
Total current liabilities 56,333 30,449
Noncurrent liabilities
Convertible debenture 149,854 245,498
Deferred income tax liabilities 3,299 3,966
Decommissioning liability 4,095 3,063
----------------------------------------------------------------------------
Total noncurrent liabilities 157,248 252,527
----------------------------------------------------------------------------
Total liabilities 213,581 282,976
Shareholders' equity
Common shares 1,057,474 1,061,560
Share option reserve 40,305 32,360
Investment revaluation reserve 23,077 27,761
Accumulated deficit (379,561) (442,791)
----------------------------------------------------------------------------
Total shareholders' equity 741,295 678,890
----------------------------------------------------------------------------
Total shareholders' equity and
liabilities $ 954,876 $ 961,866
----------------------------------------------------------------------------
Net current assets $ 338,076 $ 545,550
Total assets less current liabilities $ 898,543 $ 931,417
REVIEW OF INTERIM RESULTS
The condensed consolidated financial statements for the Company for the nine
months ended September 30, 2011, were reviewed by the Audit Committee of the
Company.
SouthGobi's results for the quarter ended September 30, 2011 are contained in
the unaudited Condensed Consolidated Interim Financial Statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations, available on the SEDAR website at www.sedar.com and SouthGobi
Resources website at www.southgobi.com.
ABOUT SOUTHGOBI RESOURCES
SouthGobi Resources is focused on exploration and development of its Permian-age
metallurgical and thermal coal deposits in Mongolia's South Gobi Region. The
Company's flagship coal mine, Ovoot Tolgoi, is producing and selling coal to
customers in China. The Company plans to supply a wide range of coal products to
markets in Asia.
Disclosure of a scientific or technical nature in this release and the Company's
MD&A with respect to the Company's Coal Division was prepared by, or under the
supervision of Dave Bartel, P.Eng., the Company's Senior Engineer. Mr. Bartel is
a "qualified person" for the purposes of National Instrument 43-101 of the
Canadian Administrators ("NI 43-101").
Forward-Looking Statements: This document includes forward-looking statements.
Forward-looking statements include, but are not limited to: pricing for coal at
similar or moderately higher prices as those achieved in the third quarter of
2011; commissioning of Ejin Jinda plant and rotary breaker to be commissioned in
the near future; possible volume reductions during the fourth quarter due to
processing chain requirements, customer preferences and hold backs for possible
higher margins in the future; long-term demand for SouthGobi's products;
intentions to manage production levels to meet anticipated demands; and other
statements that are not historical facts. When used in this document, the words
such as "plan", "estimate", "expect", "intend", "may", and similar expressions
are forward-looking statements. Although SouthGobi believes that the
expectations reflected in these forward-looking statements are reasonable, such
statements involve risks and uncertainties and no assurance can be given that
actual results will be consistent with these forward-looking statements.
Important factors that could cause actual results to differ from these
forward-looking statements are disclosed under the heading "Risk Factors" in
SouthGobi's Management Discussion and Analysis of Financial Condition and
Results of Operations for the year ended December 31, 2010 and quarter ended
September 30, 2011, which are available at www.sedar.com.
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