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SouthGobi Resources announces 4Q18 and full year results

Published by
World Coal,

SouthGobi Resources Ltd. has announced its financial and operating results for the quarter and the year ended 31 December 2018.

The company’s significant events and highlights for the year ended 31 December 2018 and the subsequent period to 31 March 2019 are as follows:

Operating results

With a higher proportion of sales made through Inner Mongolia SouthGobi Energy Co., Ltd. (IMSGE), a subsidiary of the company, in 2018, the company experienced an increase in the average selling price of coal from US$28.3/t in 2017 to US$37.1/t in 2018. The company sold 2.8 million t in 2018 as compared to 4.7 million t in 2017, which was mainly as a result of the delays in the custom clearance process at the Ceke border which the company has been experiencing since July 2017, as well as the decreased production level for 2018.

Financial results

The company recorded a gross profit of US$24 million in 2018 compared to US$15.1 million in 2017, while a US$10.5 million loss from operations was recorded in 2018 compared to a US$14.6 million loss from operations in 2017 (Restated). The improvement of overall financial results when compared to 2017 is as a result of the company experiencing a higher average selling price for coal in China during the year.

Wash plant

The construction of the wash plant at the Ovoot Tolgoi mine was completed, and commissioning at the wash plant commenced, in October 2018. The company sold 0.2 million t of washed coal in the fourth quarter of 2018. The company is in the process of making improvements to the wash plant in order to enhance the operational efficiency, as well as the output throughput. The company is currently in discussions with the wash plant operator concerning an agreement regarding the operation of the wash plant; however, there can be no assurance that a favorable outcome will be reached.

China Investment Corporation (CIC) convertible debenture

Pursuant to the terms of the deferral agreement dated 12 June 2017 (the June 2017 deferral agreement) with CIC in relation to a revised payment schedule on the US$22.3 million of cash interest and associated costs originally due under the CIC convertible debenture on 19 May 2017 (the May 2017 interest payable), the company was required to pay US$9.7 million of cash interest and associated costs to CIC on 19 November 2017 (the June 2017 deferral agreement payment). Pursuant to the terms of the CIC convertible debenture, the company was required to pay US$8.1 million, US$7.9 million and US$8.1 million of anniversary cash interest to CIC on 19 November 2017, 19 May 2018 and 19 November 2018, respectively (the anniversary interest payments, and together with the June 2017 deferral agreement payment, the outstanding cash interest payable’).

Pursuant to the CIC convertible debenture, the company was also obligated to issue to CIC US$4 million worth of payment in kind interest shares on 19 November 2017 and US$4 million worth of PIK interest shares on 19 November 2018.

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