SOUTHGOBI Resources has entered into a loan agreement and supplementary loan agreement with Beijing Jin Rui Tian Chen Asset Management Co Ltd to finance the purchase of mining equipment. The company says the equipment will increase production capacity at its Ovoot Tolgoi Coal Project.

The principal of the combined equipment purchase loan is RMB 69 million with maturity 12 months from drawdown and the interest rate is 12% per annum.

The company shall repay the principal and accrued interests at maturity date, and will provide a corporate guarantee to cover the principal and interest owed, and provide mining equipment with value no less than RMB 69 million as security.

As a result of improved market conditions and prices for coal in China, the company’s operating results for the June quarter improved with an increase in the average selling price of coal as well as the volume of coal sales, as compared to the second quarter of 2016.

SouthGobi sold 1.48 million tonnes of coal product during the second quarter of 2017 from Ovoot Tolgoi compared to 0.82 million tonnes for the second quarter of 2016.

The average realised selling price increased from $13.65 per tonne for the second quarter of 2016 to $25.24 per tonne for the second quarter of 2017, which was mainly a result of improved market conditions as well as an improved product mix.

The company recorded a gross profit of $7.3 million during the quarter compared to a gross loss of $12.7 million in the second quarter of 2016. It recorded a $900,000 profit from operations during the quarter compared to a $13.8 million loss from operations in the second quarter of 2016. Revenue was $34.7 million compared to $10.4 million in the corresponding 2016 period.

SouthGobi has initiated a plan to change its product mix to higher value and higher margin outputs by washing certain grades of coal commencing in the second half of 2017 to produce more premium semi-soft coking coal. The plan will also initiate more processing of lower grades of coal to reduce the ash content and improve the selling price and margins on its thermal coal.

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