Owing to difficult market conditions in the coal industry SouthGobi Resources continues to position itself to meet its commitments under existing and expected new coal offtake contracts for its Mongolian coal operations.
Accordingly, during the September quarter the company produced 710,000 tonnes of coal compared to 170,000 tonnes during the corresponding period of 2014.
With prices for coal remaining weak in China throughout the quarter, SouthGobi sold 490,000 tonnes of its coal products during the period compared to just 190,000 tonnes in the September quarter of 2014.
The impact of these conditions on the company’s operations continues to be exacerbated given the company’s liquidity constraints.
The cash cost of product sold per tonne was US$20.27 for the third quarter of 2015, which has significantly increased compared to $9.68 per tonne for the third quarter of 2014. The reason for the increase is primarily related to less idle mine costs being allocated during the quarter. There was no idle cost in 2015 as compared to US$3.2 million for the third quarter of 2014 in which the company placed approximately half of its workforces on furlough.
Production in the first nine months of 2015 was comparable to the first nine months of 2014. The company paced the production with current demand for its coal product after the curtailment of mining operations through to March 30, 2015. During the first quarter of 2015 the company sold through its existing stockpiles to preserve its liquidity and therefore mining operations were curtailed. On March 30, 2015, SouthGobi resumed mining operations allowing it to position itself to meet its commitments under existing and expected new coal offtake contracts.
Total cash costs of product sold were $19.03 per tonne in the first nine months of 2015 compared to $11.12 per tonne in the first nine months of 2014. The reason for the increase is primarily related to the decrease in sales volumes over which the fixed and variable costs are allocated. At a gross level, the mine administration cash costs of product sold in the first nine months of 2015 was $3.3 million compared to $4.6 million in the first nine months of 2014.
SouthGobi is listed on the Toronto and Hong Kong stock exchanges, and 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 licences in Mongolia and operates the flagship Ovoot Tolgoi coal mine from which coal is produced and sold to customers in China.