SouthGobi Resources Ltd. (TSX:SGQ) (HKSE:1878), (the "Company" or "SouthGobi")
today announced its financial and operating results for the three and nine
months ended September 30, 2013. All figures are in U.S. Dollars unless
otherwise stated.
SIGNIFICANT EVENTS
The Company's significant events for the quarter ended September 30, 2013 and
subsequent weeks are as follows:
-- On August 22, 2013, SouthGobi announced that it had withdrawn the Notice
of Investment Dispute on the Government of Mongolia in recognition of
the fact that the dispute was resolved following the grant of three pre-
mining agreements ("PMAs") on August 14, 2013 relating to the Zag Suuj
Deposit and certain areas associated with the Soumber Deposit, and the
earlier grant of a PMA on January 18, 2013 pertaining to the Soumber
Deposit;
-- On September 3, 2013, the Company announced the appointment of Bold
Baatar as a non- executive director of the Company;
-- On November 8, 2013, the Company announced a restatement to its
financial statements for 2011 and 2012, and consequently its comparative
consolidated interim financial statements for 2013 and the related MD&A.
The restatement follows a review by the Company of its prior revenue
recognition practices for its coal sales in the fourth quarter of 2010,
full year 2011 and in the first half of 2012;
-- Third quarter sales volumes and revenue improved to 0.94 million tonnes
and $15.7 million, respectively, in 2013 compared to 0.32 million tonnes
and $3.8 million in 2012.
FINANCIAL STATEMENT RESTATEMENT
On November 8, 2013, the Company's Board of Directors approved the decision to
restate the Company's financial statements for 2011 and 2012, and the related
Management's Discussion and Analysis ("MD&A") (collectively, the "Restated
Financials"). The restatement follows a review by the Company of its prior
revenue recognition practices for its coal sales contracts entered into in the
fourth quarter of 2010, full year 2011 and in the first half of 2012. The review
was conducted in consultation with PricewaterhouseCoopers LLP ("PwC"), the
Company's current auditors, and Deloitte LLP ("Deloitte"), the Company's
auditors during the 2010 and 2011 fiscal years.
As a result of this review, the Company determined that certain revenue
transactions were previously recognized in the Company's consolidated financial
statements prior to meeting relevant revenue recognition criteria. The
restatement is due to a change in the determination of when revenue should be
recognized from its sales of coal previously recognized in the fourth quarter of
2010, full year 2011 and in the first half of 2012. These transactions relate to
coal that had been delivered to the customer's stockpile in a stockyard located
within the SouthGobi Ovoot Tolgoi mining license area ("the Stockyard"), the
location at which title transferred, but from which the coal had not been
collected by the customers. The restatement of the Company's consolidated
financial statements reflects a correction in the point of revenue recognition
from: (A) the delivery of coal to the customer stockpiles within the Stockyard
to (B) the loading of coal onto the customer's trucks at the time of collection.
The Company adopted new terms in its sales contracts starting in the second half
of 2012 such that title transfers when coal is loaded onto the customer's trucks
which results in a later point of revenue recognition for all its sales starting
from the second half of 2012.
Summary of key impacts of restatement
(Unaudited)
(Expressed in thousands of U.S. Dollars unless otherwise stated)
Six months ended
---------------------------------------------
June 30, 2013
---------------------------------------------
As previously
reported Adjustment Restated
---------------------------------------------
Raw coal production (millions
of tonnes) 0.19 - 0.19
Coal sales (millions of tonnes) 0.12 0.48 0.60
Average realized selling price
(per tonne) $ 34.62 $ (9.92) $ 24.70
Revenue $ 3,633 $ 6,894 $ 10,527
Cost of sales (34,327) (4,457) (38,784)
Other operating expenses (15,260) (95) (15,355)
Net income/(loss) (58,564) 1,756 (56,808)
Basic income/(loss) per share $ (0.32) $ 0.01 $ (0.31)
June 30, 2013
---------------------------------------------
As previously
reported Adjustment Restated
---------------------------------------------
Trade and other receivables $ 7,947 $ (3,764) $ 4,183
Inventories 45,872 1,617 47,489
Deferred revenue - 7,932 7,932
Year ended
---------------------------------------------
December 31, 2012
---------------------------------------------
As previously
reported Adjustment Restated
---------------------------------------------
Raw coal production (millions
of tonnes) 1.33 - 1.33
Coal sales (millions of tonnes) 1.33 0.65 1.98
Average realized selling price
(per tonne) $ 47.76 $ (0.27) $ 47.49
Revenue $ 53,116 $ 24,945 $ 78,061
Cost of sales (97,118) (30,289) (127,407)
Other operating expenses (54,345) 12,700 (41,645)
Net income/(loss) (103,019) 5,517 (97,502)
Basic income/(loss) per share $ (0.57) $ 0.03 $ (0.54)
December 31, 2012
---------------------------------------------
As previously
reported Adjustment Restated
---------------------------------------------
Trade and other receivables $ 17,430 $ (14,138) $ 3,292
Inventories 53,661 6,074 59,735
Deferred revenue - 8,181 8,181
Year ended
---------------------------------------------
December 31, 2011
---------------------------------------------
As previously
reported Adjustment Restated
---------------------------------------------
Raw coal production (millions
of tonnes) 4.57 - 4.57
Coal sales (millions of tonnes) 4.02 (0.93) 3.09
Average realized selling price
(per tonne) $ 54.03 $ (3.39) $ 50.64
Revenue $ 179,049 $ (48,293) $ 130,756
Cost of sales (127,343) 35,165 (92,178)
Other operating expenses (29,189) 872 (28,317)
Net income/(loss) 57,745 (9,192) 48,553
Basic income/(loss) per share $ 0.32 $ (0.08) $ 0.24
December 31, 2011
---------------------------------------------
As previously
reported Adjustment Restated
---------------------------------------------
Trade and other receivables $ 80,285 $ (64,051) $ 16,234
Inventories 52,443 52,418 104,861
Deferred revenue - 17,653 17,653
Year ended
---------------------------------------------
December 31, 2010
---------------------------------------------
As previously
reported Adjustment Restated
---------------------------------------------
Raw coal production (millions
of tonnes) 2.79 - 2.79
Coal sales (millions of tonnes) 2.54 (0.81) 1.73
Average realized selling price
(per tonne) $ 34.61 $ 3.63 $ 38.24
Revenue $ 79,777 $ (19,365) $ 60,412
Cost of sales (69,904) 17,253 (52,651)
Other operating expenses (12,643) 218 (12,425)
Net income/(loss) (116,195) (1,421) (117,616)
Basic income/(loss) per share $ (0.66) $ (0.01) $ (0.67)
December 31, 2010
---------------------------------------------
As previously
reported Adjustment Restated
---------------------------------------------
Trade and other receivables $ 30,246 $ (10,911) $ 19,335
Inventories 26,160 17,253 43,413
Deferred revenue - 10,827 10,827
Following the correction in the point of revenue recognition, revenues from
affected coal sales contracts are recognized in later periods than previously
reported and some revenue remains to be reported in periods after September 30,
2013 as not all contracted coal has been collected by customers. This change
results in lower revenues and cost of sales in 2010 and 2011 followed by higher
revenues and cost of sales in 2012 and year to date September 30, 2013.
The adjustments to other operating expenses in each applicable period primarily
result from the reversal of provisions for doubtful trade and other receivables
in those periods.
The impact on the net income/(loss) for the restated periods follows from the
restated revenues, net of cost of sales and adjustments to other operating
expenses. The net loss for the year 2010 increases, the net income for the year
2011 decreases and the net loss for the year 2012 decreases. The net loss for
the six month period ending June 30, 2013 is also lower than previously
reported.
During the periods from 2010 to September 30, 2013, trade and other receivables
have been adjusted lower and deferred revenue recognized to reflect revenue
being recorded in later periods than previously reported. The inventory balance
increased over the same period to reflect higher coal inventory stockpile
balances. Prepaid expenses also increased, with a corresponding decrease in
trade and other payables, as coal sales royalty expenses were recognized in
later periods than previously reported.
Effects of the restatements on previously filed statements of cash flows
The restatements do not result in a change in cash at the end of any period. The
statement of cash flows as reported does not change except for the
reclassification of various items within operating activities. Financing
activities, investing activities, change in cash, cash at beginning of period
and cash at the end of period remain unchanged from previously filed financial
statements.
Timeline going forward
The Company is working expeditiously with PwC and Deloitte in order to file the
full set of audited restated consolidated financial statements and MD&A as at
and for the years ended December 31, 2012 and 2011 comprising the Restated
Financials. The Restated Financials are expected to be available on or before
December 13, 2013.
Notwithstanding the foregoing, if required, as a result of a delay in filing the
Restated Financials the Company will be applying to the British Columbia
Securities Commission (the "Principal Regulator") pursuant to Part 4 of National
Policy 12-203 ("NP 12-203") for a Management Cease Trade Order ("MCTO") in
connection with the Restated Financials. If issued, the MCTO will prohibit
trading in securities of the Company, whether direct or indirect, by the
Company's CEO, CFO and board of directors or other persons or companies who had,
or may have had, access directly or indirectly to any material fact or material
change with respect to the Company that has not been generally disclosed. There
can be no assurance that an MCTO will be issued.
If an MCTO is not issued, the Principal Regulator can impose a general cease
trade order ceasing all trading in securities of the Company for such period of
time as the Principal Regulator may deem appropriate.
While the Company intends to file the Restated Financials as soon as possible,
any delay in filing the Restated Financials could ultimately result in an event
of default of the Company's convertible debenture held by China Investment
Corporation ("CIC"), which if not cured within applicable cure periods in
accordance with the terms of such debenture, may result in the principal amount
owing and all accrued and unpaid interest becoming immediately due and payable
upon notice to the Company by CIC.
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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2013 2012 (i)
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30-Jun 31-Mar
QUARTER ENDED 30-Sep (i) (i) 31-Dec
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Raw coal production (millions of
tonnes) 1.13 0.17 0.02 -
Sales volumes and prices (ii)
SouthGobi premium semi-soft coking
coal
Coal sales (millions of tonnes) 0.04 0.21 0.08 0.03
Average realized selling price
(per tonne) (iii) $ 37.50 $ 32.46 $ 45.81 $ 47.86
SouthGobi standard semi-soft
coking coal
Coal sales (millions of tonnes) 0.87 -
Average realized selling price
(per tonne) (iii) $ 21.67 $ $ -
SouthGobi thermal coal
Coal sales (millions of tonnes) 0.03 0.11 0.20 -
Average realized selling price
(per tonne) (iii) $ 13.07 $ 13.98 $ 13.67 $ -
Total
Coal sales (millions of tonnes) 0.94 0.32 0.28 0.03
Average realized selling price
(per tonne) (iii) $ 22.05 $ 26.26 $ 22.75 $ 47.86
Costs
Direct cash costs of product sold
excluding idled mine asset costs
(per tonne) (iv) $ 9.41 $ 11.49 $ 10.22 $ 11.67
Total cash costs of product sold
excluding idled mine asset costs
(per tonne) (iv) $ 11.61 $ 18.63 $ 11.68 $ 16.75
Waste movement and stripping ratio
Production waste material moved
(millions of bank cubic meters) 1.57 2.71 0.40 -
Strip ratio (bank cubic meters of
waste material per tonne of
coalproduced) 1.39 15.55 26.21 -
Other operating capacity statistics
Capacity of key mining fleet
Number of mining
shovels/excavators available at
period end 5 5 5 5
Total combined stated mining
shovel/excavator capacity at
period end (cubic meters) 113 113 113 113
Number of haul trucks available at
period end 24 24 31 27
Total combined stated haul truck
capacity at period end (tonnes) 4,978 4,978 5,615 4,743
Employees and safety
Employees at period end 463 449 444 465
Lost time injury frequency rate
(v) - - - 0.1
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2012 (i) 2011 (i)
----------------------------------------------------------------------------
QUARTER ENDED 30-Sep 30-Jun 31-Mar 31-Dec
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Raw coal production (millions of
tonnes) - 0.27 1.07 1.34
Sales volumes and prices (ii)
SouthGobi premium semi-soft coking
coal
Coal sales (millions of tonnes) - 0.42 0.33 0.26
Average realized selling price
(per tonne) (iii) $ - $ 67.46 $ 67.58 $ 66.91
SouthGobi standard semi-soft
coking coal
Coal sales (millions of tonnes) 0.01 0.36 0.10 0.26
Average realized selling price
(per tonne) (iii) $ 49.91 $ 49.74 $ 49.43 $ 48.48
SouthGobi thermal coal
Coal sales (millions of tonnes) 0.31 0.28 0.15 0.37
Average realized selling price
(per tonne) (iii) $ 15.87 $ 34.10 $ 30.29 $ 29.92
Total
Coal sales (millions of tonnes) 0.32 1.06 0.58 0.89
Average realized selling price
(per tonne) (iii) $ 16.98 $ 52.86 $ 54.60 $ 46.18
Costs
Direct cash costs of product sold
excluding idled mine asset costs
(per tonne) (iv) $ 9.56 $ 16.52 $ 22.09 $ 24.70
Total cash costs of product sold
excluding idled mine asset costs
(per tonne) (iv) $ 13.31 $ 17.85 $ 28.25 $ 25.92
Waste movement and stripping ratio
Production waste material moved
(millions of bank cubic meters) - 1.16 2.20 4.58
Strip ratio (bank cubic meters of
waste material per tonne of
coalproduced) - 4.31 2.07 3.42
Other operating capacity statistics
Capacity of key mining fleet
Number of mining
shovels/excavators available at
period end 4 4 3 3
Total combined stated mining
shovel/excavator capacity at
period end (cubic meters) 98 98 64 64
Number of haul trucks available at
period end 27 27 27 25
Total combined stated haul truck
capacity at period end (tonnes) 4,743 4,743 4,743 4,561
Employees and safety
Employees at period end 644 693 720 720
Lost time injury frequency rate
(v) 0.2 0.2 0.3 0.2
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i. Restated, see Restated Financial Statements section
ii. The sales volumes previously disclosed as raw semi-soft coking coal,
raw medium-ash coal and raw higher-ash coal have now been reclassified
as SouthGobi premium semi-soft coking coal, SouthGobi standard semi-
soft coking coal and SouthGobi thermal coal, respectively, to reflect
the Company's new product strategy.
iii. Average realized selling price excludes royalties and selling fees
iv. A non-International Financial Reporting Standards ("IFRS") financial
measure, see Non-IFRS Financial Measures section
v. Per 200,000 man hours
On March 22, 2013, SouthGobi announced the resumption of operations at its Ovoot
Tolgoi Mine. In the second quarter of 2013, the Company primarily moved waste
material (overburden) and exposed coal in the pit. Sales volumes increased in
the third quarter of 2013 and, as planned, raw coal production increased to meet
contracted sales volumes.
The Company recognized revenue of $15.7 million in the third quarter of 2013
compared to $6.1 million in the second quarter of 2013 and $3.8 million in the
third quarter of 2012. China's economic growth has recently shown signs of
gradual improvement with increasing steel production and higher levels of
manufacturing activity. Coal prices for both coking and thermal coal stabilized
at near four year lows within the third quarter and have moved slightly higher
in recent weeks.
For the three months ended September 30, 2013
For the three months ended September 30, 2013, the Company produced 1.13 million
tonnes of raw coal with a strip ratio of 1.39. The lower strip ratio in the
third quarter of 2013 is primarily the result of the waste material (overburden)
activities undertaken in the second quarter of 2013.
For the three months ended September 30, 2013, SouthGobi recorded revenue of
$15.7 million compared to $3.8 million for the three months ended September 30,
2012. Revenue increased primarily due to increased sales volumes and a higher
average realized selling price. The Company sold 0.94 million tonnes of coal at
an average realized selling price of $22.05 per tonne in the third quarter of
2013 compared to sales of 0.32 million tonnes of coal at an average realized
selling price of $16.98 per tonne in the third quarter of 2012. Sales in the
third quarter of 2013 primarily consisted of Standard semi-soft coking coal
mined in 2013, whereas sales in the third quarter of 2012 primarily consisted of
thermal coal from the Company's stockpiles to satisfy existing sales contracts.
Direct cash costs of product sold excluding idled mine asset costs (a non-IFRS
financial measure, see Non- IFRS Measures section) were $9.42 per tonne for the
three months ended September 30, 2013 compared to $9.56per tonne for the three
months ended September 30, 2012.
Mine administration cash costs of product sold excluding idled mine asset costs
(a non-IFRS financial measure, see Non-IFRS Measures section) decreased to $2.20
per tonne for the three months ended September 30, 2013 from $3.75 per tonne for
the three months ended September 30, 2012 primarily due to mine administration
costs being allocated over higher sales volumes.
For the nine months ended September 30, 2013
For the nine months ended September 30, 2013, the Company produced 1.32 million
tonnes of raw coal with a strip ratio of 3.53 compared to production of 1.33
million tonnes of raw coal with a strip ratio of 2.52 for the nine months ended
September 30, 2012.
For the nine months ended September 30, 2013, SouthGobi recorded revenue of
$26.2 million compared to $76.9 million for the nine months ended September 30,
2012. The Company sold 1.54 million tonnes of coal at an average realized
selling price of $23.08 per tonne for the nine months ended September 30, 2013
compared to sales of 1.96 million tonnes of coal at an average realized selling
price of $47.48 per tonne for the nine months ended September 30, 2012. Revenue
decreased primarily due to decreased sales volumes and a lower average realized
selling price.
Direct cash costs of product sold excluding idled mine asset costs (a non-IFRS
financial measure, see Non- IFRS Measures section) were $9.96 per tonne for the
nine months ended September 30, 2013 compared to $17.01 per tonne for the nine
months ended September 30, 2012.
Mine administration cash costs of product sold excluding idled mine asset costs
(a non-IFRS financial measure, see Non-IFRS Measures section) increased to $3.19
per tonne for the nine months ended September 30, 2013 from $3.15 per tonne for
the nine months ended September 30, 2012.
REVIEW OF QUARTERLY FINANCIAL RESULTS
The Company's financial results for the previous eight quarters are summarized
in the table below:
($ in thousands, except for per share information, unless otherwise indicated)
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2013 2012 (i)
----------------------------------------------------------------------------
QUARTER ENDED 30-Jun 31-Mar
30-Sep (i) (i) 31-Dec
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Revenue $ 15,652 $ 6,129 $ 4,398 $ 1,186
Gross profit/(loss) excluding idled
mine asset costs (13,323) (5,593) (494) (12,601)
Gross profit/(loss) margin
excluding idled mine asset costs -85% -91% -11% -1063%
Gross profit/(loss) including idled
mine asset costs (17,834) (11,348) (16,908) (31,043)
Other operating expenses (1,003) (14,925) (431) (19,282)
Administration expenses (4,204) (4,024) (3,733) (6,080)
Evaluation and exploration expenses (186) (221) (273) (508)
Loss from operations (23,227) (30,518) (21,344) (56,913)
Net income/(loss) (41,928) (33,140) (23,666) (56,564)
Basic income/(loss) per share (0.23) (0.18) (0.13) (0.31)
Diluted income/(loss) per share (0.23) (0.18) (0.13) (0.31)
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2012 (i) 2011 (i)
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QUARTER ENDED 30-Sep 30-Jun 31-Mar 31-Dec
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Revenue $ 3,804 $ 46,575 $ 26,497 $ 33,626
Gross profit/(loss) excluding idled
mine asset costs (8,719) 20,277 4,657 4,639
Gross profit/(loss) margin
excluding idled mine asset costs -229% 44% 18% 14%
Gross profit/(loss) including idled
mine asset costs (27,650) 4,690 4,657 4,639
Other operating expenses (18,315) (1,344) (2,702) (24,426)
Administration expenses (5,178) (7,497) (5,882) (8,612)
Evaluation and exploration expenses (958) (2,099) (5,033) (14,513)
Loss from operations (52,101) (6,250) (8,961) (42,912)
Net income/(loss) (46,413) 15,955 (10,480) (27,732)
Basic income/(loss) per share (0.26) 0.09 (0.06) (0.16)
Diluted income/(loss) per share (0.26) (0.04) (0.06) (0.18)
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----------------------------------------
2013 2012 (i)
----------------------------------------------------------------------------
QUARTER ENDED 30-Jun 31-Mar
30-Sep (i) (i) 31-Dec
----------------------------------------
Net income/(loss) $(41,928) $(33,140) $(23,666) $(56,564)
Income/(loss) adjustments, net of
tax
Idled mine asset costs 3,383 4,316 12,312 14,474
Share-based compensation
expense/(recovery) 5 (21) 154 (1,144)
Net impairment loss on assets 10,531 18,146 581 25,375
Unrealized foreign exchange
losses/(gains) 564 60 10 906
Unrealized loss/(gain) on embedded
derivatives in CIC debenture (113) (3,343) (748) (662)
Realized loss/(gain) on disposal
of FVTPL investments (ii) 39 43 - 15
Unrealized loss/(gain) on FVTPL
investments 128 473 (5) 664
Adjusted net income/(loss) (iii) (27,391) (13,467) 11,363 (16,935)
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2012 (i) 2011 (i)
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QUARTER ENDED 30-Sep 30-Jun 31-Mar 31-Dec
----------------------------------------
Net income/(loss) $(46,413) $ 15,955 $(10,480) $(27,732)
Income/(loss) adjustments, net of
tax
Idled mine asset costs 13,572 10,966 - -
Share-based compensation
expense/(recovery) 1,490 4,383 3,799 4,050
Net impairment loss on assets 23,258 - - 23,818
Unrealized foreign exchange
losses/(gains) 335 (355) (794) (184)
Unrealized loss/(gain) on embedded
derivatives in CIC debenture (12,856) (26,770) 776 (10,790)
Realized loss/(gain) on disposal
of FVTPL investments (ii) - 46 (85) -
Unrealized loss/(gain) on FVTPL
investments 1,197 2,282 339 155
Adjusted net income/(loss) (iii) (19,418) 6,507 (6,446) (10,683)
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i. Restated, see Restated Financial Statements section
ii. FVTPL is defined as "fair value through profit or loss"
iii.A non-IFRS financial measure, see Non-IFRS Financial Measures section
For the three months ended September 30, 2013
The Company recorded a net loss of $41.9 million in the third quarter of 2013
compared to a net loss of $33.1 million in the second quarter of 2013 and a net
loss of $46.4 million in the third quarter of 2012.
Gross Profit/(Loss):
The Company recorded a gross loss of $17.8 million in the third quarter of 2013,
$11.3 million in the second quarter of 2013 and $27.6 million in the third
quarter of 2012. SouthGobi's gross loss in these periods was negatively impacted
by idled mine asset costs. The Company recorded a gross loss excluding idled
mine asset costs of $13.3 million in the third quarter of 2013, $5.6 million in
the second quarter of 2013 and $8.7 million in the third quarter of 2012. Gross
profit will vary by quarter depending on sales volumes, sales prices and unit
costs.
The Company recognized revenue of $15.7 million in the third quarter of 2013
compared to $6.1 million in the second quarter of 2013 and $3.8 million in the
third quarter of 2012.
SouthGobi's effective royalty rate in the third quarter of 2013 was 23%.
Effective October 1, 2012 (for a six month trial period) the royalty was
determined using the contracted sales price per tonne, not the reference price
per tonne published by the Government of Mongolia. Despite SouthGobi, together
with other Mongolian mining companies, engaging the appropriate Government of
Mongolia authorities, the six month trial period was not extended and effective
April 1, 2013, the royalty on all coal sales exported out of Mongolia was once
again based on a set reference price per tonne published monthly by the
Government of Mongolia. Although discussions have not been successful to date,
SouthGobi, together with other Mongolian mining companies, continue the dialog
with the appropriate Government of Mongolia authorities with the goal of moving
to a more equitable process for setting reference prices.
Cost of sales was $33.5 million in the third quarter of 2013 compared to $17.5
million in the second quarter of 2013 and $31.5 million in the third quarter of
2012. Cost of sales comprise the direct cash costs of product sold, mine
administration cash costs of product sold, idled mine asset costs, inventory
impairments, equipment depreciation, depletion of mineral properties and
share-based compensation expense. Of the $33.5 million, $17.5 million and $31.5
million recorded as cost of sales in the third quarter of 2013, the second
quarter of 2013 and the third quarter of 2012, $29.0 million, $11.7 million and
$12.5 million related to mine operations and $4.5 million, $5.8 million and
$18.9 million related to idled mine asset costs, respectively. Cost of sales
from mine operations in the third quarter of 2013, the second quarter of 2013
and the third quarter of 2012 included coal stockpile impairments of $10.8
million, $3.9 million and $7.2 million, respectively, to reduce the carrying
value of the coal stockpiles to their estimated net realizable values. Cost of
sales from mine operations, exclusive of impairments, increased in the third
quarter of 2013 compared to the third quarter of 2012 primarily due to higher
sales volumes.
Cost of sales from idled mine asset costs decreased in the third quarter of 2013
compared to the third quarter of 2012 due to the recommencement of mining
operations at the Ovoot Tolgoi Mine on March 22, 2013. However, the 2013
production plan does not fully utilize the Company's existing mining fleet,
therefore, idled mine asset costs will continue to be incurred moving forward.
Other Operating Expenses:
Other operating expenses in the third quarter of 2013 were $1.0 million compared
to $14.9 million in the second quarter of 2013 and $18.3 million in the third
quarter of 2012. In the third quarter of 2013, other operating expenses
primarily related to a $0.6 million foreign exchange loss. In the second quarter
of 2013, other operating expenses primarily related to an impairment loss of
$3.1 million related to the Company's investment in Aspire, an impairment loss
of $6.9 million related to surplus materials and supplies and $4.3 million of
impairment charges to reduce various items of property, plant and equipment to
their recoverable amounts. In the third quarter of 2012, other operating
expenses primarily related to a $16.1 million an impairment loss related to the
Company's investment in Aspire.
Administration Expenses:
Administration expenses in the third quarter of 2013 were $4.2 million compared
to $4.0 million in the second quarter of 2013 and $5.2 million in the third
quarter of 2012. The increase in administration expenses in the third quarter of
2013 compared to the second quarter of 2013 primarily related to increased legal
and professional fees due to the ongoing governmental, regulatory and internal
investigations and slightly higher salaries and benefits expenses. The decrease
in administration expenses in the third quarter of 2013 compared to the third
quarter of 2012 primarily related to decreased salaries and benefits and
share-based compensation expenses.
Evaluation and Exploration Expenses:
Exploration expenses in the third quarter of 2013 were $0.2 million compared to
$0.2 million in the second quarter of 2013 and $1.0 million in the third quarter
of 2012. Exploration expenses will vary from quarter to quarter depending on the
number of projects and the related seasonality of the exploration programs. The
Company continues to minimize exploration expenditures to preserve the Company's
financial resources.
Finance Income & Finance Costs:
Finance costs in the third quarter of 2013 were $5.4 million compared to $5.2
million in the third quarter of 2012. Finance costs in the third quarter of 2013
primarily consisted of $5.2 million of interest expense on the CIC convertible
debenture; whereas, finance costs in the third quarter of 2012 consisted of $3.9
million of interest expense on the CIC convertible debenture and a $1.2 million
unrealized loss on FVTPL investments.
Finance income in the third quarter of 2013 was $0.1 million compared to $12.9
million in the third quarter of 2012. In the third quarter of 2013 and 2012,
finance income primarily consisted of a $0.1 million and $12.9 million
unrealized gain on the fair value change of the embedded derivatives in the CIC
convertible debenture, respectively. The fair value of the embedded derivatives
in the CIC convertible debenture is driven by many factors including: the
Company's share price, foreign exchange rates and share price volatility.
Taxes:
In the third quarter of 2013, the Company recorded $nil current income tax
expense related to its Mongolian operations compared to a current income tax
recovery of $0.9 million in the third quarter of 2012. The Company has recorded
a deferred income tax expense related to deductible temporary differences and
loss carry-forwards of $13.4 million in the third quarter of 2013 compared to a
deferred income tax expense related to deductible temporary differences of $3.2
million in the third quarter of 2012.
For the nine months ended September 30, 2013
The Company recorded a net loss of $98.7 million for the nine months ended
September 30, 2013 compared to net loss of $40.9 million for the nine months
ended September 30, 2012.
Gross Profit/(Loss):
The Company recorded a gross loss of $46.1 million for the nine months ended
September 30, 2013 compared to a gross loss of $18.3 million for the nine months
ended September 30, 2012. SouthGobi's gross loss in these periods was negatively
impacted by idled mine asset costs. The Company recorded a gross loss excluding
idled mine asset costs of $19.4 million for the nine months ended September 30,
2013 compared to a gross profit excluding idled mine asset costs of $16.2
million for the nine months ended September 30, 2012. Gross profit will vary by
quarter depending on sales volumes, sales prices and unit costs.
For the nine months ended September 30, 2013, SouthGobi recorded revenue of
$26.2 million compared to $76.9 million for the nine months ended September 30,
2012. The Company sold 1.54 million tonnes of coal at an average realized
selling price of $23.08 per tonne for the nine months ended September 30, 2013
compared to sales of 1.96 million tonnes of coal at an average realized selling
price of $47.48 per tonne for the nine months ended September 30, 2012. Revenue
decreased primarily due to decreased sales volumes and a lower average realized
selling price.
Revenues are presented net of royalties and selling fees. Based on the reference
prices for the nine months ended September 30, 2013, the Company was subject to
an average 7% royalty based on a weighted average reference price of $69.16 per
tonne. The Company's effective royalty rate for the nine months ended September
30, 2013, based on the Company's average realized selling price of $23.08 per
tonne, was 24% or $5.62 per tonne compared to $7.21 per tonne for the nine
months ended September 30, 2012.
Cost of sales was $72.3 million for the nine months ended September 30, 2013
compared to $95.2 million for the nine months ended September 30, 2012. Cost of
sales comprise the direct cash costs of product sold, mine administration cash
costs of product sold, idled mine asset costs, inventory impairments, equipment
depreciation, depletion of mineral properties and share-based compensation
expense. Of the $72.3 million (2012: $95.2 million) recorded as cost of sales
for the nine months ended September 30, 2013, $45.6 million (2012: $60.7
million) related to mine operations and $26.7 million (2012: $34.5 million)
related to idled mine asset costs. In the nine months ended September 30, 2013,
cost of sales included coal stockpile impairments of $15.8 million (2012: $7.2
million) to reduce the carrying value of the Company's coal stockpile to its net
realizable value. Cost of sales related to mine operations, exclusive of
impairments, decreased for the nine months ended September 30, 2013 compared to
the nine months ended September 30, 2012 primarily due to lower sales volumes.
Cost of sales related to idled mine asset costs primarily consist of period
costs, which are expensed as incurred and primarily include depreciation
expense. The depreciation expense relates to the Company's idled plant and
equipment.
Other Operating Expenses:
Other operating expenses for the nine months ended September 30, 2013 were $16.4
million compared to $22.4 million for the nine months ended September 30, 2012.
For the nine months ended September 30, 2013, other operating expenses primarily
related to the following:
-- Available-for-sale financial asset - the Company recognized an
impairment loss of $3.1 million related to its investment in Aspire.
-- Materials and supplies inventory - the Company recognized an impairment
loss of $6.9 million related to surplus materials and supplies
inventories not expected to be utilized with the Company's existing
mining fleet.
-- Property, plant and equipment - the Company recorded $4.3 million of
impairment charges to reduce various items of property, plant and
equipment to their recoverable amounts. The impairments relate to
surplus capital spares not expected to be utilized with the
Company's existing mining fleet.
For the nine months ended September 30, 2012, other operating expenses primarily
related to a $16.1 million an impairment loss related to its investment in
Aspire.
Administration Expenses:
Administration expenses for the nine months ended September 30, 2013 were $12.0
million compared to $18.6 million for the nine months ended September 30, 2012.
The decrease in administration expenses primarily relates to decreased corporate
administration, salaries and benefits and share-based compensation expenses,
partially offset by increased legal and professional fees due to the ongoing
governmental, regulatory and internal investigations.
Evaluation and Exploration Expenses:
Exploration expenses for the nine months ended September 30, 2013 were $0.7
million compared to $8.1 million for the nine months ended September 30, 2012.
Exploration expenses will vary from period to period depending on the number of
projects and the related seasonality of the exploration programs. The Company
continues to minimize exploration expenditures to preserve the Company's
financial resources.
Finance Income & Finance Costs:
Finance costs for the nine months ended September 30, 2013 were $16.0 million
compared to $9.8 million for the nine months ended September 30, 2012. Finance
costs for the nine months ended September 30, 2013 primarily consisted of $15.2
million of interest expense on the CIC convertible debenture; whereas, finance
costs for the nine months ended September 30, 2012 consisted of $5.7 million
interest expense on the CIC convertible debenture and $3.8 million unrealized
loss on FVTPL investments.
Finance income for the nine months ended September 30, 2013 was $4.3 million
compared to $39.2 million for the nine months ended September 30, 2012. For the
nine months ended September 30, 2013 and September 30, 2012, finance income
primarily consisted of a $4.2 million and $38.9 million unrealized gain on the
fair value change of the embedded derivatives in the CIC convertible debenture,
respectively. The fair value of the embedded derivatives in the CIC convertible
debenture is driven by many factors including: the Company's share price,
foreign exchange rates and share price volatility.
Taxes:
For the nine months ended September 30, 2013, the Company recorded a $1 thousand
current income tax expense related to its Mongolian operations compared to a
current income tax expense of $0.3 million for the nine months ended September
30, 2012. The Company has recorded a deferred income tax expense related to
deductible temporary differences and loss carry-forwards of $11.9 million for
the nine months ended September 30, 2013 compared to a deferred income tax
expense related to deductible temporary differences of $3.2 million for the nine
months ended September 30, 2012.
FINANCIAL POSITION AND LIQUIDITY
Cash Position and Liquidity
As at September 30, 2013, the Company had cash of $16.1 million compared to cash
of $19.7 million and short term money market investments of $15.0 million for a
total of $34.7 million in cash and money market investments as at December 31,
2012. Working capital (excess current assets over current liabilities) was $67.8
million as at September 30, 2013 compared to $120.4 million as at December 31,
2012.
The Company expects to have sufficient liquidity and capital resources to meet
its ongoing obligations and future contractual commitments, including interest
payments due on the CIC convertible debenture, for at least twelve months from
the end of the September 30, 2013 reporting period. The Company expects its
liquidity to remain sufficient based on existing capital resources and estimated
cash flows from mining operations. Estimated cash flows from mining operations
are subject to a number of external market factors including supply and demand
and pricing in the coal industry. The Company continues to minimize uncommitted
capital expenditures and exploration expenditures in order to preserve the
Company's financial resources.
CIC Convertible Debenture
During the second quarter of 2013, the Company and the CIC mutually agreed upon
a three month deferral of the convertible debenture semi-annual $7.9 million
cash interest payment due on May 19, 2013. The Company and the CIC subsequently
agreed to an additional deferral of one month, and the cash interest payment
became due on September 19, 2013.
On September 19, 2013, the Company settled the $7.9 million amount, plus
additional accrued interest of $0.2 million, as follows:
-- The Company issued 1.8 million shares to the CIC for the November 19,
2012 1.6% share interest payment, where the number of common shares was
based on the 50-day volume-weighted average share price on November 19,
2012 of $2.16Cdn;
-- In consideration of the common share issue, the CIC applied the $4.0
million in cash already paid by the Company in the first quarter of 2013
for the November 19, 2012 share interest payment against the amount due
on September 19, 2013; and
-- The Company paid the remaining $4.1 million balance in cash.
The mutually agreed upon deferral of the cash interest payment, and subsequent
settlement in cash and common shares of the Company, did not trigger an event of
default and all other terms of the convertible debenture remain unchanged.
Mongolian IAAC Investigation
In the first quarter of 2013, the Company was subject to orders imposed by the
IAAC which placed restrictions on certain of the Company's Mongolian assets. The
orders were imposed on the Company in connection with the IAAC's investigation
of the Company. The SIA also continues to enforce the orders on the Company.
The orders placing restrictions on certain of the Company's Mongolian assets
could ultimately result in an event of default of the Company's CIC convertible
debenture. This matter remains under review by the Company and its advisers but
to date, it is the Company's view that this would not result in an event of
default as defined under the CIC convertible debenture terms. However, in the
event that the orders result in an event of default of the Company's CIC
convertible debenture that remains uncured for ten business days, the principal
amount owing and all accrued and unpaid interest will become immediately due and
payable upon notice to the Company by CIC.
The orders relate to certain items of operating equipment and infrastructure and
the Company's Mongolian bank accounts. The orders related to the operating
equipment and infrastructure restricts the sale of these items; however, the
orders do not restrict the use of these items in the Company's mining
activities. The orders related to the Company's Mongolian bank accounts restrict
the use of in-country funds. While the orders restrict the use of in-country
funds pending outcome of the investigation, they are not expected to have any
material impact on the Company's activities.
Impairment Analysis
Unchanged from the assessment made as at June 30, 2013, the Company determined
that an indicator of impairment existed for its Ovoot Tolgoi Mine cash
generating unit as at September 30, 2013. The impairment indicator was the
continued weakness in the Company's share price during the third quarter of 2013
and the fact that the market capitalization of the Company, as at September 30,
2013, was less than the carrying value of its net assets.
Therefore, the Company conducted an impairment test whereby the carrying value
of the Company's Ovoot Tolgoi Mine cash generating unit was compared to its
"value-in-use" using a discounted future cash flow valuation model. The
Company's Ovoot Tolgoi Mine cash generating unit carrying value was $517.5
million as at September 30, 2013.
Key estimates and assumptions incorporated in the valuation model included the
following:
-- Inland Chinese coking coal market coal prices;
-- Life-of-mine coal production and operating costs; and
-- A discount rate based on an analysis of market, country and company
specific factors.
The impairment analysis did not result in the identification of an impairment
loss and no charge was required as at September 30, 2013. The Company believes
that the estimates and assumptions incorporated in the impairment analysis are
reasonable; however, the estimates and assumptions are subject to significant
uncertainties and judgments.
PROCESSING INFRASTRUCTURE
On February 13, 2012, the Company announced the successful commissioning of the
dry coal handling facility ("DCHF") at the Ovoot Tolgoi Mine. The DCHF has
capacity to process nine million tonnes of run-of- mine ("ROM") coal per year.
The DCHF includes a 300-tonne-capacity dump hopper, which receives ROM coal from
the Ovoot Tolgoi Mine and feeds a coal rotary breaker that sizes coal to a
maximum of 50mm and rejects oversize ash. The objective of the DCHF is to reduce
screening costs and improve yield recoveries.
The Company has received all permits to operate the DCHF. The 2013 mine plan
considered limited utilization of the DCHF at the latter end of 2013, however
there is now no plan to use the DCHF in 2013 due to higher quality coals being
mined that likely will not require processing through the DCHF. The Company has
delayed construction to upgrade the DCHF to include dry air separation modules
and covered load out conveyors with fan stackers to take processed coals to
stockpiles and enable more efficient blending. Uncommitted capital expenditures
have been minimized to preserve the Company's financial resources.
A review of the DCHF, including the upgrade to the DCHF, and its future
contribution to the Company's product strategy is ongoing. The total
construction capital investment to date is $85.0 million. An impairment loss on
the DCHF may be required depending on the outcome of the review.
To further enhance product value, in 2011, the Company entered into an agreement
with Ejinaqi Jinda Coal Industry Co. Ltd ("Ejin Jinda"), a subsidiary of China
Mongolia Coal Co. Ltd to toll-wash coals from the Ovoot Tolgoi Mine. The
agreement has a duration of five years from commencement and provides for an
annual wet washing capacity of approximately 3.5 million tonnes of input coal.
Pursuant to the terms of the agreement, the Company prepaid $33.6 million of
toll washing fees.
Ejin Jinda's wet washing facility is located approximately 10km inside China
from the Shivee Khuren Border Crossing, approximately 50km from the Ovoot Tolgoi
Mine. Primarily, medium and higher-ash coals with only basic processing through
Ovoot Tolgoi's on-site DCHF will be transported from the Ovoot Tolgoi Mine to
Ejin Jinda's wet washing facility under a separate transportation agreement.
Ejin Jinda will charge the Company a single toll washing fee which will cover
their expenses, capital recovery and profit.
Based on preliminary studies, the Company expected coals processed through Ovoot
Tolgoi's on-site DCHF to then be washed to produce coals with ash in the range
of 8% to 11% at a yield of 85% to 90% that generally meet semi-soft coking coal
specifications. However, the Company is currently reassessing these preliminary
studies and is currently cooperating with Ejin Jinda in studying the utilization
of the wet washing facility.
Construction of Ejin Jinda's wet washing facility is now complete and it has
been connected to utility supply. As at September 30, 2013, the delay in
commencing wet washing coals has had no impact on the carrying value of the
Company's prepaid toll washing fees of $33.6 million.
TRANSPORTATION INFRASTRUCTURE
On August 2, 2011, the State Property Committee of Mongolia awarded the tender
to construct a paved highway from the Ovoot Tolgoi Complex to the Shivee Khuren
Border Crossing to consortium partners NTB LLC and SouthGobi Sands LLC (together
referred to as "RDCC"). SouthGobi Sands LLC holds a 40% interest in RDCC. On
October 26, 2011, RDCC signed a concession agreement with the State Property
Committee of Mongolia. RDCC has the right to conclude a 17 year build, operate
and transfer agreement under the Mongolian Law on Concessions. Construction on
the paved highway re-commenced in the second quarter of 2013 and remains
ongoing. During the third quarter of 2013, a sub-contractor employee was fatally
injured by a vehicle at the construction site. Following the fatality,
additional safety training was carried out by RDCC and it sub-contractors in
order to reinforce compliance with safety protocols.
Construction of the paved highway is expected to be substantially complete by
the end of 2013. The remaining construction work and commissioning of the paved
highway is expected to be completed by the end of the first half of 2014.
The paved highway will have an intended carrying capacity upon completion in
excess of 20 million tonnes of coal per year.
A north-south railway line currently connects Ceke with Jiayuguan City in Gansu
Province and with the interior of China. Another east-west railway line connects
Ceke to Linhe, an industrial city in eastern Inner Mongolia. This line has a
stated initial transportation capacity of approximately 15 million tonnes per
year, with a planned increase to 25 million tonnes per year.
REGULATORY ISSUES
Governmental, Regulatory and Internal Investigations
The Company is subject to investigations by Mongolia's Independent Authority
against Corruption ("the IAAC") and the Mongolian State Investigation Office
(the "SIA") regarding allegations against SouthGobi and some of its former
employees. The IAAC investigation concerns possible breaches of Mongolia's
anti-corruption laws, while the SIA investigation concerns possible breaches of
Mongolia's money laundering and taxation laws.
While the IAAC investigation into allegations of possible breaches of Mongolian
anti-corruption laws has been suspended, the Company has not received notice
that the IAAC investigation is complete. To date, four former SouthGobi
employees have been named as suspects in the IAAC investigation and are subject
to a continuing travel ban imposed by the IAAC. The IAAC has not formally
accused any current or former SouthGobi employees of breach of Mongolia's
anti-corruption laws.
The SIA has not accused any current or former SouthGobi employees of money
laundering. However, three former SouthGobi employees have been informed that
they have each been designated as "accused" in connection with the allegations
of tax evasion, and are subject to a travel ban. The Company has been designated
as a "civil defendant" in connection with the tax evasion allegations, and it
may potentially be held financially liable for the criminal misconduct of its
former employees under Mongolian Law. The Company has shown full cooperation
with the investigation by providing relevant information. The relevant
authorities are yet to conclude on this information. Accordingly, the likelihood
or consequences for the Company of a judgment against its former employees is
unclear at this time.
The SIA also continues to enforce administrative restrictions, which were
initially imposed by the IAAC investigation, on certain of the Company's
Mongolian assets, including local bank accounts, in connection with its
continuing investigation of these allegations. While the orders restrict the use
of in-country funds pending the outcome of the investigation, they are not
expected to have a material impact on the Company's activities in the short
term, although they could create potential difficulties for the Company in the
medium to long term. SouthGobi will continue to take all appropriate steps to
protect its ability to conduct its business activities in the ordinary course.
Certain of the allegations raised by the SIA and IAAC against SouthGobi
(concerning allegations of bribery, money laundering and tax evasion) have been
the subject of public statements and Mongolian media reports, both prior to and
in connection with the recent trial, conviction, and unsuccessful appeal of the
former Chairman and the former director of the Geology, Mining and Cadastral
Department of the MRAM, and others. SouthGobi was not a party to this case. The
Company understands that the court process is now concluded following the
decision of the Supreme Court of Mongolia to uphold the convictions. As far as
the Company is aware from publicly available information, the court concluded
that the transfer of one of SouthGobi Sands LLC's licenses (5261X) involved
government officials and violated applicable Mongolian anti-corruption laws.
License 5261X was transferred to an entity nominated by MRAM, after the license
had been reinstated by MRAM for this purpose, in exchange for MRAM renewing
certain SouthGobi Sands LLC licenses (5259X, 5277X, 12388X and 9442X) that were
due to expire. As a result the court invalidated the transfer of 5261X and
cancelled the other licenses. At that time only one of the licenses at issue
(9442X) was held by SouthGobi Sands LLC, with the other licenses having earlier
been allowed to lapse when they were determined not to be prospective. The
Company considers that it was entitled under applicable law to the renewal of
the relevant licenses and that it received reasonable payment for the transfer
of license 5261X.
Through its Audit Committee (comprised solely of independent directors),
SouthGobi is conducting an internal investigation into possible breaches of law,
internal corporate policies and codes of conduct arising from the allegations
which have been raised. The Audit Committee has the assistance of independent
legal counsel in connection with its investigation.
The Chair of the Audit Committee is also participating in a tripartite
committee, comprised of the Audit Committee Chairs of the Company and Turquoise
Hill and a representative of Rio Tinto, which is focused on the investigation of
a number of those allegations, including possible violations of anti-corruption
laws. Independent legal counsel and forensic accountants have been engaged by
this committee to assist it with its investigation. The tripartite committee
substantially completed the investigative phase of its activities during the
third quarter of 2013. The Company continues to cooperate with the IAAC, SIA and
with Canadian and United States government and regulatory authorities that are
monitoring the Mongolian investigations. It is possible that these authorities
may subsequently conduct their own review or investigation or seek further
information from the Company and until all such reviews or investigations are
complete the Audit Committee's and the tripartite committee's work may be
considered ongoing.
The investigations referred to above could result in one or more Mongolian,
Canadian, United States or other governmental or regulatory agencies taking
civil or criminal action against the Company, its affiliates or its current or
former employees. The likelihood or consequences of such an outcome are unclear
at this time but could include financial or other penalties, which could be
material, and which could have a material adverse effect on the Company. Refer
to the Company's MD&A for the year ended December 31, 2012, which is available
at www.sedar.com, Section 13, Risk Factors, "the Company is subject to
continuing governmental, regulatory and internal investigations, the outcome of
which is unclear at this time but could have a material adverse effect on the
Company."
The Company, through its Board of Directors and new management, has taken a
number of steps to address issues noted during the investigations and to focus
ongoing compliance by employees with all applicable laws, internal corporate
policies and codes of conduct, and with the Company's disclosure controls and
procedures and internal controls over financial reporting.
WITHDRAWAL OF NOTICE OF INVESTMENT DISPUTE
On July 11, 2012, SouthGobi announced that SGQ Coal Investment Pte. Ltd., a
wholly-owned subsidiary of SouthGobi Resources Ltd. that owns 100% of the
Company's Mongolian operating subsidiary SouthGobi Sands LLC, filed a Notice of
Investment Dispute on the Government of Mongolia pursuant to the Bilateral
Investment Treaty between Singapore and Mongolia. The Company filed the Notice
of Investment Dispute following a determination by management that they had
exhausted all other possible means to resolve an ongoing investment dispute
between SouthGobi Sands LLC and the Mongolian authorities.
The Notice of Investment Dispute principally concerned the failure by MRAM to
execute the PMAs associated with certain exploration licenses of the Company
pursuant to which valid PMA applications had been lodged in 2011. The areas
covered by the valid PMA applications included the Zag Suuj Deposit and certain
areas associated with the Soumber Deposit outside the existing mining license.
On August 22, 2013, SouthGobi announced that it had withdrawn the Notice of
Investment Dispute in recognition of the fact that the dispute was resolved
following the grant of three PMAs on August 14, 2013 relating to the Zag Suuj
Deposit and certain areas associated with the Soumber Deposit, and the earlier
grant of a PMA on January 18, 2013 pertaining to the Soumber Deposit. Each of
the PMAs was granted and executed by MRAM in accordance with Mongolian law.
INTERNAL CONTROLS OVER FINANCIAL REPORTING
In conjunction with the matter described above, the Company's management has
identified a material weakness in the Company's internal controls over financial
reporting as of December 31, 2012, and at September 30, 2013, resulting in the
failure to properly account for revenues in complex transactions. Specifically,
the Company did not ensure that all aspects of sales arrangements were
considered in the determination of the appropriate accounting for contracts in
which the specified location of transfer of title in the contracts is the
customer's stockpile in a stockyard located within the SouthGobi Ovoot Tolgoi
mining license area. As a result of the material weakness, the Company's Chief
Executive Officer and Chief Financial Officer have concluded that internal
controls over financial reporting were not effective as of December 31, 2012,
and at September 30, 2013.
Management has been enhancing controls by developing a more thorough review
process in evaluating complex sales arrangements in each reporting period. The
material weakness cannot be considered remediated until the applicable remedial
controls operate for a sufficient period of time and management has concluded,
through testing, that these controls are operating. Management expects to
remediate this material weakness by December 31, 2013.
OUTLOOK
China's economic growth has recently shown signs of gradual improvement with
increasing steel production and higher levels of manufacturing activity. Coal
prices for both coking and thermal coal stabilized at near four year lows within
the third quarter and have moved slightly higher in recent weeks. Mongolian coal
exports to China increased by 6.1% during the third quarter compared to the
second quarter with 11.1 million tonnes of coal exported in the year to date.
Current market sentiment still remains uncertain and prices are not expected to
rise dramatically for the remainder of the year and in to the first quarter of
2014. The longer term outlook is more positive; but remains dependent on the
Chinese economy.
The Company resumed operations at the Ovoot Tolgoi Mine on March 22, 2013 after
having been fully curtailed since the end of the second quarter of 2012. In the
second quarter of 2013, the Company primarily moved waste material (overburden)
and exposed coal in the pit. Sales volumes increased in the third quarter of
2013 and, as planned, raw coal production increased to meet contracted sales
volumes. The rate of production in the fourth quarter of 2013 is expected to
increase compared to the third quarter of 2013 as the Company provides
contractual tonnages under current coal supply agreements and makes further
sales. The Company expects total coal sales in excess of 1.50 million tonnes in
the fourth quarter of 2013 subject to customer performance under the current
coal supply agreements. As a result, the Company expects 2013 annual raw coal
production of approximately 3.0 million tonnes.
Whilst SouthGobi has a predominantly two product strategy of a Premium and
Standard semi-soft coking coal product from the Ovoot Tolgoi Mine, the
capability to begin supplying a washed semi-soft coking coal product is an
important step in improving both SouthGobi's market position and access to end
customers. The Company is currently cooperating with Ejin Jinda in studying the
utilization of the wet washing facility. SouthGobi has, however, commenced
mining and selling some Premium semi-soft coking coal product as a raw coal in
2013.
The Company has been minimizing uncommitted capital expenditures, exploration
and operational expenditures in order to preserve its financial resources. For
at least twelve months from the end of the September 30, 2013 reporting period,
the Company expects its liquidity to remain sufficient based on existing capital
resources and estimated cash flows from mining operations. Estimated cash flows
from mining operations are subject to a number of external market factors
including supply and demand and pricing in the coal industry.
Longer term, SouthGobi remains well positioned, with a number of key competitive
strengths, including:
-- Strategic location - SouthGobi is the closest major coking coal producer
in the world to China. The Ovoot Tolgoi Mine is approximately 40km from
China, which is approximately 190km closer than Tavan Tolgoi coal
producers in Mongolia and 7,000 to 10,000km closer than Australian and
North American coking coal producers. The Company has an infrastructure
advantage, being approximately 50km from existing railway
infrastructure, which is approximately one tenth the distance to rail of
Tavan Tolgoi coal producers in Mongolia.
-- Premium quality coals - Most of the Company's coal resources have coking
properties, including a mixture of semi-soft coking coals and hard
coking coals.
-- Favorable cost structure - The long-term cost structure of SouthGobi
provides a strong base for sustainable growth when access to end-user
markets is obtained.
-- Substantial resource base - The Company's aggregate coal resources
(including reserves) include measured and indicated resources of 533
million tonnes and inferred resources of 302 million tonnes.
Objectives
The Company's objectives for 2013 are as follows:
-- Resume production at the Ovoot Tolgoi Mine - The Company reviewed the
overall structure of its workforce and market conditions and recommenced
mining activities at the Ovoot Tolgoi Mine in March 2013. The focus has
been to recommence mining activities in a safe manner that provides a
sustainable long-term operating base.
-- Continue to develop regional infrastructure - The Company's priority was
to complete the construction of the paved highway from the Ovoot Tolgoi
Mine to the Shivee Khuren Border Crossing as part of the existing
consortium that was awarded the tender by the end of 2013. Construction
of the paved highway is expected to be substantially complete by the end
of 2013. The remaining construction work and commissioning of the paved
highway is expected to be completed by the end of the first half of
2014.
-- Advance the Soumber Deposit - The Company intends to substantially
advance the feasibility, planning and physical preparation of the
Soumber Deposit in order to commence small-scale mining activities in
2014.
-- Value-adding/upgrading coal - Implement an effective and profitable
utilization of the wet washing facility contracted with Ejin Jinda to
toll-wash coal from the Ovoot Tolgoi Mine and further develop the
Company's marketing plans on product mix and seek to expand the
Company's customer base. The Company is currently cooperating with Ejin
Jinda in studying the utilization of the wet washing facility.
-- Re-establish the Company's reputation - The Company's vision is to be a
respected and profitable Mongolian coal company. This will require re-
establishing good working relationships with all our external
stakeholders.
-- Operations - Continuing to focus on production safety, environmental
protection, operational excellence and community relations.
NON-IFRS FINANCIAL MEASURES
Cash Costs:
The Company uses cash costs to describe its cash production costs. 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,
inventory impairments, depreciation and depletion of 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.
The cash costs of product sold presented below may differ from cash costs of
product produced depending on the timing of stockpile inventory turnover.
Adjusted Net Income/(Loss):
Adjusted net income/(loss) excludes idled mine asset costs, share-based
compensation expense/(recovery), net impairment loss/(recovery) on assets,
unrealized foreign exchange losses/(gains), unrealized loss/(gain) on the fair
value change of the embedded derivatives in the CIC convertible debenture,
realized losses/(gains) on the disposal of FVTPL investments and unrealized
losses/(gains) on FVTPL investments. The Company excludes these items from net
income/(loss) to provide a measure which allows the Company and investors to
evaluate the results of the underlying core operations of the Company and its
profitability from operations. The items excluded from the computation of
adjusted net income/(loss), which are otherwise included in the determination of
net income/(loss) prepared in accordance with IFRS, are items that the Company
does not consider to be meaningful in evaluating the Company's past financial
performance or the future prospects and may hinder a comparison of its period-
to-period results.
FINANCIAL STATEMENT INFORMATION
Condensed Consolidated Interim Statements 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,
----------------------------------------
2013 2012 2013 2012
----------------------------------------
(Restated) (Restated)
Revenue $ 15,652 $ 3,804 $ 26,179 $ 76,875
Cost of sales (33,486) (31,454) (72,268) (95,178)
----------------------------------------------------------------------------
Gross loss (17,834) (27,650) (46,089) (18,303)
Other operating expenses (1,003) (18,315) (16,358) (22,362)
Administration expenses (4,204) (5,178) (11,958) (18,556)
Evaluation and exploration expenses (186) (958) (680) (8,090)
----------------------------------------------------------------------------
Loss from operations (23,227) (52,101) (75,085) (67,311)
Finance costs (5,382) (5,164) (15,991) (9,846)
Finance income 124 12,947 4,259 39,236
Share of earnings of joint venture (66) 288 (39) 492
----------------------------------------------------------------------------
Loss before tax (28,551) (44,030) (86,856) (37,429)
Current income tax
recovery/(expense) - 859 (1) (268)
Deferred income tax expense (13,377) (3,242) (11,876) (3,241)
----------------------------------------------------------------------------
Net loss attributable to equity
holders of the Company (41,928) (46,413) (98,733) (40,938)
----------------------------------------------------------------------------
OTHER COMPREHENSIVE LOSS
Items that may be reclassified to
profit or loss:
Gain/(loss) on available-for-sale
financial assets, net of tax 1,261 8,950 1,261 (16,559)
----------------------------------------------------------------------------
Net comprehensive loss attributable
to equity holders of the Company $(40,667) $(37,463) $(97,472) $(57,497)
----------------------------------------------------------------------------
BASIC LOSS PER SHARE $ (0.23) $ (0.26) $ (0.54) $ (0.23)
DILUTED LOSS PER SHARE $ (0.23) $ (0.26) $ (0.54) $ (0.35)
Condensed Consolidated Interim Statements of Financial Position
(Unaudited)
(Expressed in thousands of U.S. Dollars)
As at
---------------------------------------------
September 30, December 31, January 1,
2013 2012 2012
---------------------------------------------
ASSETS
(Restated) (Restated)
Current assets
Cash $ 16,070 $ 19,674 $ 123,567
Trade and other receivables 7,683 3,292 16,234
Short term investments - 15,000 -
Inventories 48,540 59,735 104,861
Prepaid expenses and deposits 32,194 47,432 44,760
----------------------------------------------------------------------------
Total current assets 104,487 145,133 289,422
Non-current assets
Prepaid expenses and deposits 16,778 16,778 8,389
Property, plant and equipment 485,676 521,473 498,533
Long term investments 27,203 24,084 99,238
Deferred income tax assets 13,107 24,984 23,098
----------------------------------------------------------------------------
Total non-current assets 542,764 587,319 629,258
----------------------------------------------------------------------------
Total assets $ 647,251 $ 732,452 $ 918,680
----------------------------------------------------------------------------
----------------------------------------------------------------------------
EQUITY AND LIABILITIES
Current liabilities
Trade and other payables $ 18,938 $ 10,216 $ 43,552
Deferred revenue 8,395 8,181 17,653
Current portion of convertible
debenture 9,326 6,301 6,301
----------------------------------------------------------------------------
Total current liabilities 36,659 24,698 67,506
Non-current liabilities
Convertible debenture 95,548 99,667 139,085
Deferred income tax liabilities - - 2,366
Decommissioning liability 4,284 4,104 4,156
----------------------------------------------------------------------------
Total non-current liabilities 99,832 103,771 145,607
----------------------------------------------------------------------------
Total liabilities 136,491 128,469 213,113
Equity
Common shares 1,063,821 1,059,710 1,054,298
Share option reserve 51,441 51,303 44,143
Investment revaluation reserve 1,261 - 16,559
Accumulated deficit (605,763) (507,030) (409,433)
----------------------------------------------------------------------------
Total equity 510,760 603,983 705,567
----------------------------------------------------------------------------
Total equity and liabilities $ 647,251 $ 732,452 $ 918,680
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net current assets $ 67,828 $ 120,435 $ 221,916
Total assets less current
liabilities $ 610,592 $ 707,754 $ 851,174
Selected information on third quarter and year to date September 2013 and
the effects of the restatements on previously filed statement of
comprehensive income
(Unaudited)
(Expressed in thousands of U.S. Dollars, except for share and per share
amounts)
Three months ended
---------------------------------------------
September 30, 2012
---------------------------------------------
As
previously
reported Adjustment Restated
---------------------------------------------
Raw coal production (millions
of tonnes) - - -
Coal sales (millions of tonnes) 0.31 0.01 0.32
Revenue $ 3,337 $ 467 $ 3,804
Cost of sales (30,869) (585) (31,454)
---------------------------------------------
Gross profit/(loss) (27,532) (118) (27,650)
Other operating expenses (29,301) 10,986 (18,315)
Administration expenses (5,178) - (5,178)
Evaluation and exploration
expenses (958) - (958)
---------------------------------------------
Loss from operations (62,969) 10,868 (52,101)
Finance costs (5,164) - (5,164)
Finance income 12,947 - 12,947
Share of earnings/(loss) of
joint venture 288 - 288
---------------------------------------------
Income/ (loss) before tax (54,898) 10,868 (44,030)
Current income tax expense 859 - 859
Deferred income tax
recovery/(expense) (525) (2,717) (3,242)
---------------------------------------------
Net income/(loss) attributable
to equityholders of the
Company (54,564) 8,151 (46,413)
Other comprehensive
income/(loss) 8,950 - 8,950
---------------------------------------------
Net comprehensive income/(loss)
attributableto equity holders
of the Company $ (45,614) $ 8,151 $ (37,463)
Basic income/(loss) per share $ (0.30) $ 0.04 $ (0.26)
Diluted income/(loss) per share $ (0.30) $ 0.04 $ (0.26)
Nine months ended
---------------------------------------------
September 30, 2012
---------------------------------------------
As
previously
reported Adjustment Restated
---------------------------------------------
Raw coal production (millions
of tonnes) 1.33 - 1.33
Coal sales (millions of tonnes) 1.31 0.65 1.96
Revenue $ 51,902 $ 24,973 $ 76,875
Cost of sales (70,569) (24,609) (95,178)
---------------------------------------------
Gross profit/(loss) (18,667) 364 (18,303)
Other operating expenses (35,682) 13,320 (22,362)
Administration expenses (18,557) - (18,557)
Evaluation and exploration
expenses (8,090) - (8,090)
---------------------------------------------
Loss from operations (80,996) 13,684 (67,312)
Finance costs (9,846) - (9,846)
Finance income 39,236 - 39,236
Share of earnings/(loss) of
joint venture 492 - 492
---------------------------------------------
Income/ (loss) before tax (51,113) 13,684 (37,429)
Current income tax expense (268) - (268)
Deferred income tax
recovery/(expense) 180 (3,421) (3,241)
---------------------------------------------
Net income/(loss) attributable
to equityholders of the -
Company (51,201) 10,263 (40,938)
Other comprehensive
income/(loss) (16,559) - (16,559)
---------------------------------------------
Net comprehensive income/(loss)
attributableto equity holders
of the Company $ (67,760) $ 10,263 $ (57,497)
Basic income/(loss) per share $ (0.28) $ 0.05 $ (0.23)
Diluted income/(loss) per share $ (0.40) $ 0.05 $ (0.35)
Three months ended
---------------------------------------------
June 30, 2013
---------------------------------------------
As
previously
reported Adjustment Restated
---------------------------------------------
Raw coal production (millions
of tonnes) 0.17 - 0.17
Coal sales (millions of tonnes) 0.04 0.29 0.33
Revenue $ 374 $ 5,755 $ 6,129
Cost of sales (12,466) (5,011) (17,477)
---------------------------------------------
Gross profit/(loss) (12,092) 744 (11,348)
Other operating expenses (14,877) (48) (14,925)
Administration expenses (4,024) - (4,024)
Evaluation and exploration
expenses (221) - (221)
---------------------------------------------
Loss from operations (31,214) 696 (30,518)
Finance costs (5,617) - (5,617)
Finance income 3,366 - 3,366
Share of earnings/(loss) of
joint venture 44 - 44
---------------------------------------------
Income/ (loss) before tax (33,421) 696 (32,725)
Current income tax expense - - -
Deferred income tax
recovery/(expense) (241) (174) (415)
---------------------------------------------
Net income/(loss) attributable
to equityholders of the
Company (33,662) 522 (33,140)
Other comprehensive
income/(loss) (930) - (930)
---------------------------------------------
Net comprehensive income/(loss)
attributableto equity holders
of the Company $ (34,592) $ 522 $ (34,070)
Basic income/(loss) per share $ (0.18) $ - $ (0.18)
Diluted income/(loss) per share $ (0.18) $ - $ (0.18)
Six months ended
---------------------------------------------
June 30, 2013
---------------------------------------------
As
previously
reported Adjustment Restated
---------------------------------------------
Raw coal production (millions
of tonnes) 0.19 - 0.19
Coal sales (millions of tonnes) 0.12 0.48 0.60
Revenue $ 3,633 $ 6,894 $ 10,527
Cost of sales (34,327) (4,457) (38,784)
---------------------------------------------
Gross profit/(loss) (30,694) 2,437 (28,257)
Other operating expenses (15,260) (95) (15,355)
Administration expenses (7,757) - (7,757)
Evaluation and exploration
expenses (494) - (494)
---------------------------------------------
Loss from operations (54,205) 2,342 (51,863)
Finance costs (10,608) - (10,608)
Finance income 4,136 - 4,136
Share of earnings/(loss) of
joint venture 27 - 27
---------------------------------------------
Income/ (loss) before tax (60,650) 2,342 (58,308)
Current income tax expense (1) - (1)
Deferred income tax
recovery/(expense) 2,087 (586) 1,501
---------------------------------------------
Net income/(loss) attributable
to equityholders of the
Company (58,564) 1,756 (56,808)
Other comprehensive
income/(loss) - - -
---------------------------------------------
Net comprehensive income/(loss)
attributableto equity holders
of the Company $ (58,564) $ 1,756 $ (56,808)
Basic income/(loss) per share $ (0.32) $ 0.01 $ (0.31)
Diluted income/(loss) per share $ (0.32) $ 0.01 $ (0.31)
Year ended
---------------------------------------------
December 31, 2012
---------------------------------------------
As
previously
reported Adjustment Restated
---------------------------------------------
Raw coal production (millions
of tonnes) 1.33 - 1.33
Coal sales (millions of tonnes) 1.33 0.65 1.98
Revenue $ 53,116 $ 24,945 $ 78,061
Cost of sales (97,118) (30,289) (127,407)
---------------------------------------------
Gross profit/(loss) (44,002) (5,344) (49,346)
Other operating expenses (54,345) 12,700 (41,645)
Administration expenses (24,637) - (24,637)
Evaluation and exploration
expenses (8,598) - (8,598)
---------------------------------------------
Loss from operations (131,582) 7,356 (124,226)
Finance costs (15,385) - (15,385)
Finance income 39,942 - 39,942
Share of earnings/(loss) of
joint venture 635 - 635
---------------------------------------------
Income/ (loss) before tax (106,390) 7,356 (99,034)
Current income tax expense (354) - (354)
Deferred income tax
recovery/(expense) 3,725 (1,839) 1,886
---------------------------------------------
Net income/(loss) attributable
to equityholders of the
Company (103,019) 5,517 (97,502)
Other comprehensive
income/(loss) (16,559) - (16,559)
---------------------------------------------
Net comprehensive income/(loss)
attributableto equity holders
of the Company $ (119,578) $ 5,517 $ (114,061)
Basic income/(loss) per share $ (0.57) $ 0.03 $ (0.54)
Diluted income/(loss) per share $ (0.63) $ 0.03 $ (0.60)
Year ended
---------------------------------------------
December 31, 2011
---------------------------------------------
As
previously
reported Adjustment Restated
---------------------------------------------
Raw coal production (millions
of tonnes) 4.57 - 4.57
Coal sales (millions of tonnes) 4.02 (0.93) 3.09
Revenue $ 179,049 $ (48,293) $ 130,756
Cost of sales (127,343) 35,165 (92,178)
---------------------------------------------
Gross profit/(loss) 51,706 (13,128) 38,578
Other operating expenses (29,189) 872 (28,317)
Administration expenses (28,749) - (28,749)
Evaluation and exploration
expenses (31,768) - (31,768)
---------------------------------------------
Loss from operations (38,000) (12,256) (50,256)
Finance costs (12,765) - (12,765)
Finance income 107,732 - 107,732
Share of earnings/(loss) of
joint venture - - -
---------------------------------------------
Income/ (loss) before tax 56,967 (12,256) 44,711
Current income tax expense (7,340) - (7,340)
Deferred income tax
recovery/(expense) 8,118 3,064 11,182
---------------------------------------------
Net income/(loss) attributable
to equityholders of the
Company 57,745 (9,192) 48,553
Other comprehensive
income/(loss) (11,202) - (11,202)
---------------------------------------------
Net comprehensive income/(loss)
attributableto equity holders
of the Company $ 46,543 $ (9,192) $ 37,351
Basic income/(loss) per share $ 0.32 $ (0.08) $ 0.24
Diluted income/(loss) per share $ (0.19) $ (0.07) $ (0.26)
Year ended
---------------------------------------------
December 31, 2010
---------------------------------------------
As
previously
reported Adjustment Restated
---------------------------------------------
Raw coal production (millions
of tonnes) 2.79 - 2.79
Coal sales (millions of tonnes) 2.54 (0.81) 1.73
Revenue $ 79,777 $ (19,365) $ 60,412
Cost of sales (69,904) 17,253 (52,651)
---------------------------------------------
Gross profit/(loss) 9,873 (2,112) 7,761
Other operating expenses (12,643) 218 (12,425)
Administration expenses (25,438) - (25,438)
Evaluation and exploration
expenses (18,769) - (18,769)
---------------------------------------------
Loss from operations (46,977) (1,894) (48,871)
Finance costs (175,855) - (175,855)
Finance income 103,948 - 103,948
Share of earnings/(loss) of
joint venture - - -
---------------------------------------------
Income/ (loss) before tax (118,884) (1,894) (120,778)
Current income tax expense (1,806) - (1,806)
Deferred income tax
recovery/(expense) 4,495 473 4,968
---------------------------------------------
Net income/(loss) attributable
to equityholders of the
Company (116,195) (1,421) (117,616)
Other comprehensive
income/(loss) 27,761 - 27,761
---------------------------------------------
Net comprehensive income/(loss)
attributableto equity holders
of the Company $ (88,434) $ (1,421) $ (89,855)
Basic income/(loss) per share $ (0.66) $ (0.01) $ (0.67)
Diluted income/(loss) per share $ (0.66) $ (0.01) $ (0.67)
Selected information on the effects of the restatements on previously filed
statement of financial position
(Unaudited)
(Expressed in thousands of U.S. Dollars)
As at
---------------------------------------------
June 30, 2013
---------------------------------------------
As
previously
reported Adjustment Restated
---------------------------------------------
ASSETS
Current assets
Trade and other receivables $ 7,947 $ (3,764) $ 4,183
Inventories 45,872 1,617 47,489
Prepaid expenses and deposits 33,467 5,431 38,898
Total current assets 106,457 3,285 109,742
Non-current assets
Deferred income tax assets 25,372 1,113 26,485
Total non-current assets 572,711 1,173 573,884
Total assets $ 679,228 $ 4,398 $ 683,626
EQUITY AND LIABILITIES
Current liabilities
Trade and other payables $ 16,184 $ (194) $ 15,990
Deferred revenue - 7,932 7,932
Total current liabilities 28,462 7,737 36,199
Total non-current liabilities 100,037 - 100,037
Total liabilities 128,499 7,737 136,236
Equity
Accumulated deficit (560,498) (3,339) (563,837)
Total equity 550,729 (3,339) 547,390
Total equity and liabilities $ 679,228 $ 4,398 $ 683,626
Net current assets $ 77,995 $ (4,452) $ 73,543
Total assets less current
liabilities $ 650,766 $ (3,339) $ 647,427
As at
---------------------------------------------
December 31, 2012
---------------------------------------------
As
previously
reported Adjustment Restated
---------------------------------------------
ASSETS
Current assets
Trade and other receivables $ 17,430 $ (14,138) $ 3,292
Inventories 53,661 6,074 59,735
Prepaid expenses and deposits 37,982 9,450 47,432
Total current assets 143,747 1,387 145,134
Non-current assets
Deferred income tax assets 23,285 1,699 24,984
Total non-current assets 585,620 1,699 587,319
Total assets $ 729,367 $ 3,085 $ 732,452
EQUITY AND LIABILITIES
Current liabilities
Trade and other payables $ 10,216 $ - $ 10,216
Deferred revenue - 8,181 8,181
Total current liabilities 16,517 8,181 24,698
Total non-current liabilities 103,771 - 103,771
Total liabilities 120,288 8,181 128,469
Equity
Accumulated deficit (501,934) (5,096) (507,030)
Total equity 609,079 (5,096) 603,983
Total equity and liabilities $ 729,367 $ 3,085 $ 732,452
Net current assets $ 127,230 $ (6,794) $ 120,436
Total assets less current
liabilities $ 712,850 $ (5,096) $ 707,754
As at
---------------------------------------------
December 31, 2011
---------------------------------------------
As
previously
reported Adjustment Restated
---------------------------------------------
ASSETS
Current assets
Trade and other receivables $ 80,285 $ (64,051) $ 16,234
Inventories 52,443 52,418 104,861
Prepaid expenses and deposits 38,308 6,453 44,761
Total current assets 294,603 (5,181) 289,422
Non-current assets
Deferred income tax assets 19,560 3,538 23,098
Total non-current assets 625,720 3,538 629,258
Total assets $ 920,323 $ (1,643) $ 918,680
EQUITY AND LIABILITIES
Current liabilities
Trade and other payables $ 52,235 $ (8,683) $ 43,552
Deferred revenue - 17,653 17,653
Total current liabilities 58,536 8,970 67,506
Total non-current liabilities 145,607 - 145,607
Total liabilities 204,143 8,970 213,113
Equity
Accumulated deficit (398,820) (10,613) (409,433)
Total equity 716,180 (10,613) 705,567
Total equity and liabilities $ 920,323 $ (1,643) $ 918,680
Net current assets $ 236,067 $ (14,151) $ 221,916
Total assets less current
liabilities $ 861,787 $ (10,613) $ 851,174
As at
---------------------------------------------
December 31, 2010
---------------------------------------------
As
previously
reported Adjustment Restated
---------------------------------------------
ASSETS
Current assets
Trade and other receivables $ 30,246 $ (10,911) $ 19,335
Inventories 26,160 17,253 43,413
Prepaid expenses and deposits 10,264 - 10,264
Total current assets 576,237 6,342 582,579
Non-current assets
Deferred income tax assets 11,442 473 11,915
Total non-current assets 385,867 473 386,340
Total assets $ 961,866 $ 6,816 $ 968,682
EQUITY AND LIABILITIES
Current liabilities
Trade and other payables $ 24,137 $ (2,591) $ 21,546
Deferred revenue - 10,827 10,827
Total current liabilities 30,449 8,236 38,685
Total non-current liabilities 252,527 - 252,527
Total liabilities 282,976 8,236 291,212
Equity
Accumulated deficit (442,791) (1,420) (444,211)
Total equity 678,890 (1,420) 677,470
Total equity and liabilities $ 961,866 $ 6,816 $ 968,682
Net current assets $ 545,788 $ (1,894) $ 543,894
Total assets less current
liabilities $ 931,417 $ (1,420) $ 929,997
REVIEW OF INTERIM RESULTS
The condensed consolidated interim financial statements for the Company for the
nine months ended September 30, 2013 and nine months ended September 30, 2012
(restated) were reviewed by the Audit Committee of the Company.
SouthGobi's results for the quarter ended September 30, 2013 are contained in
the unaudited Consolidated Interim Financial Statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations
("MD&A"), available on the SEDAR website at www.sedar.com and SouthGobi
Resources' website at www.southgobi.com.
ABOUT SOUTHGOBI RESOURCES
SouthGobi Resources is listed on the Toronto and Hong Kong stock exchanges, in
which Turquoise Hill Resources Ltd., also publicly listed in Toronto and New
York, has a 57% shareholding. Turquoise Hill took management control of
SouthGobi in September 2012 and made changes to the board and senior management.
Rio Tinto has a majority shareholding in Turquoise Hill.
SouthGobi Resources is focused on exploration and development of its
metallurgical and thermal coal deposits in Mongolia's South Gobi Region. It has
a 100% shareholding in SouthGobi Sands LLC, the Mongolian registered company
that holds the mining and exploration licenses in Mongolia and operates the
flagship Ovoot Tolgoi coal mine. Ovoot Tolgoi produces and sells coal to
customers in China.
Disclosure of a scientific or technical nature in this release and the Company's
MD&A with respect to the Company's Mongolian Coal Division was prepared by, or
under the supervision of, RungePincockMinarco ("RPM"). The professionals at RPM
meet the definition of a "qualified person" for the purposes of National
Instrument 43-101 of the Canadian Securities Administrators.
Forward-Looking Statements: This document includes forward-looking statements.
Forward-looking statements include, but are not limited to: the ability to file
the restated financial statements for the affected periods in a timely manner;
the full impact of the revised revenue recognition approach on the previously
filed financial statements subject to restatement; whether an MCTO will be
granted by the Principal Regulator; the conclusions of the Company in respect of
any material weaknesses in the Company's controls and procedures; the Company's
expectations of sufficient liquidity and capital resources to meets its ongoing
obligations and future contractual commitments; the estimates and assumptions
included in the Company's impairment analysis; the outcome of the government
regulatory and internal investigations; implications of financial statement
restatements, or delays in filing thereof with respect to the Company's existing
contractual covenants; the outcome of a review of the DCHF to the Company's
product strategy; the statement that gross profit will vary by year depending on
sales volume, sales price and unit costs; statements relating to the
determination of the royalty rate on coal sales exported out of Mongolia;
statements regarding future variances in exploration expenses; the statement
that the Company expects to have sufficient liquidity and capital resources to
meet its ongoing obligations and future contractual commitments for at least
twelve months from the end of the September 30, 2013 reporting period; the
statement that the Company expects its liquidity to remain sufficient based on
existing capital resources and estimated cash flows from mining operations;
statements regarding the estimates and assumptions incorporated into the
impairment analysis on the carrying values of certain assets related to the
Ovoot Tolgoi Mine; the statement that completion of the paved highway is
expected by the end of the first half of 2014; the statement that the capacity
of the paved highway is in excess of 20 million tonnes of coal per year;
statements regarding the outlook for 2013; statements regarding the supply and
demand of the coking coal market; statements regarding the Company's objectives
for 2013 (including the production of the Ovoot Tolgoi Mine, plans to continue
to develop regional infrastructure from Ovoot Tolgoi to the Shivee Khuren Border
Crossing, plans regarding the implementation of the wet washing facility to
toll-wash coal from the Ovoot Tolgoi Mine, plans to re-establish the Company's
reputation and plans regarding operations); 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 MD&A for the year
ended December 31, 2012 and the three months ended September 30, 2013 which are
available at www.sedar.com.
FOR FURTHER INFORMATION PLEASE CONTACT:
SouthGobi Resources - Investors Relations:
Galina Rogova
Office: +852-2839-9208
galina.rogova@southgobi.com
SouthGobi Resources - Media Relations:
Altanbagana Bayarsaikhan
Office: +976 70070710
altanbagana.bayarsaikhan@southgobi.com
www.southgobi.com
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