SouthGobi Resources: SouthGobi Announces Third Quarter 2024 Unaudited Financial and Operating Results

In This Article: HONG KONG, CHINA / ACCESSWIRE / November 14, 2024 / SouthGobi Resources Ltd. ( Hong Kong Stock Exchange ("HKEX"): 1878, TSX Venture Exchange ("TSX-V"):SGQ ) (the "Company" or "SouthGobi") today announces its financial and operating results for the three and nine months ended September 30, 2024. All figures are in U.S. dollars ("USD") unless otherwise stated. Significant Events and Highlights The Company's significant events and highlights for the three months ended September 30, 2024 and the subsequent period to November 14, 2024 are as follows: Financial Results - The Company recorded a $27.7 million profit from operations for the third quarter of 2024 compared to $46.3 million profit from operations for the third quarter of 2023. The decrease was mainly due to changes in the Company's product mix and decreased pricing for processed coal. Additional Tax and Tax Penalty Imposed by the Mongolian Tax Authority ("MTA") - On July 18, 2023, SGS received an official notice (the "Notice") issued by the MTA stating that the MTA had completed a periodic tax audit (the "Audit") on the financial information of SGS for the tax assessment years between 2017 and 2020, including transfer pricing, royalty, air-pollution fee and unpaid tax payables. As a result of the Audit, the MTA notified SGS that it is imposing a tax penalty against SGS in the amount of approximately $75.0 million. The penalty mainly relates to the different view on the interpretation of tax law between the Company and the MTA. Under Mongolian law, the Company had a period of 30 days from the date of receipt of the Notice to file an appeal in relation to the Audit. Subsequently the Company engaged an independent tax consultant in Mongolia to provide tax advice and support to the Company and filed an appeal letter in relation to the Audit with the MTA in accordance with Mongolian laws on August 17, 2023. On February 8, 2024, SGS received notice from the Tax Dispute Resolution Council ("TDRC") which stated that, after the TDRC's review, the TDRC issued a decision in relation to SGS' appeal of the Audit, and ordered that the audit assessments set forth in the Notice of July 18, 2023 be sent back to the MTA for review and re-assessment. On February 22, 2024, SGS received another notice from the MTA stating that the MTA anticipated commencing the re-assessment process on or about March 7, 2024 and the duration of such process will be approximately 45 working days. On May 15, 2024, SGS received a notice (the "Revised Notice") from the MTA regarding the re-assessment result on the Audit. The re-assessed amount of the tax penalty is approximately $80.0 million (the "Re-assessment Result"). In accordance with applicable Mongolian laws, SGS is entitled to file an appeal to the TDRC regarding the Re-assessment Result within a 30-day period from the date of receiving the Revised Notice. On June 12, 2024, following consultation with its independent tax consultant in Mongolia, SGS submitted an appeal letter to the TDRC regarding the Re-assessment Result on the Audit, in accordance with applicable Mongolian laws. As at September 30, 2024, the Company recorded an additional tax and tax penalty in the amount of $85.1 million, which consists of a tax penalty payable of $75.0 million and a provision of additional late tax penalty of $10.1 million. To date, the Company has paid the MTA an aggregate of $1.7 million in relation to the aforementioned tax penalty. According to Mongolian tax law, the MTA has the legal authority to demand payment from the Company irrespective of any potential appeal process that may change the aforesaid tax penalty. Based on the advice from tax professionals and the best estimate of Company management, in the event that the Company's appeal is successful in future, it is probable that the Company may recover approximately $46.0 million which represents a portion of the tax penalty payable to the MTA. However, there are inherent uncertainties surrounding the development and outcome of the appeal. The Company cannot determine with any virtual certainty the recoverability or exact recoverable amount of the tax penalty paid in future. If any subsequent event occurs that may impact the amount of the additional tax and tax penalty, an adjustment would be recognised in profit or loss and the carrying amount of the tax liabilities shall be adjusted. Going Concern - Several adverse conditions and material uncertainties relating to the Company cast significant doubt upon the going concern assumption which includes the deficiencies in assets and working capital. See section "Liquidity and Capital Resources" of this press release for details. OVERVIEW OF OPERATIONAL DATA AND FINANCIAL RESULTS Summary of Operational Data A Non-International Financial Reporting Standards ("non-IFRS") financial measure. Refer to "Non-IFRS Financial Measures" section. Cash costs of product sold exclude idled mine asset cash costs. Per 200,000 man hours and calculated based on a rolling 12 month average. Overview of Operational Data For the three months ended September 30, 2024 The Company recorded an average realised selling price of $67.8 per tonne in the third quarter of 2024 compared to $85.6 per tonne in the third quarter of 2023, the decrease was mainly due to changes in the Company's product mix and decreased pricing for processed coal. The product mix for the third quarter of 2024 consisted of approximately 5% of premium semi-soft coking coal, 51% of standard semi-soft coking coal/premium thermal coal, 12% of standard thermal coal and 32% of processed coal compared to approximately 56% of premium semi-soft coking coal, 15% of standard semi-soft coking coal/premium thermal coal and 29% of processed coal in the third quarter of 2023. The Company's unit cost of sales of product sold was $52.8 per tonne in the third quarter of 2024 compared to $42.2 per tonne in the third quarter of 2023. The increase was due to the Company expanding into certain categories of processed coal with higher production costs. For the nine months ended September 30, 2024 The Company sold 4.4 million tonnes for the first nine months of 2024 as compared to 2.6 million tonnes for the first nine months of 2023. The Company recorded an average realised selling price of $73.3 per tonne for the first nine months of 2024 compared to $93.1 per tonne for the first nine months of 2023, the decrease was mainly due to changes in the Company's product mix and decreased pricing for processed coal. The Company's unit cost of sales of product sold was $52.9 per tonne for the first nine months of 2024 compared to $46.2 per tonne for the first nine months of 2023. The increase was due to the Company expanding into certain categories of processed coal with higher production costs. For the nine months ended September 30, 2024, the Company had a lost time injury frequency rate of 0.07. Summary of Financial Results Revenue and cost of sales related to the Company's Ovoot Tolgoi Mine within the Coal Division operating segment. Refer to note 3 of the condensed consolidated interim financial statements for further analysis regarding the Company's reportable operating segments. A non-IFRS financial measure, idled mine asset costs represents the depreciation expense relates to the Company's idled plant and equipment. Overview of Financial Results For the three months ended September 30, 2024 The Company recorded a $27.7 million profit from operations for the third quarter of 2024 compared to $46.3 million profit from operations for the third quarter of 2023. The decrease was mainly due to changes in the Company's product mix and decreased pricing for processed coal. Revenue was $143.7 million for the third quarter of 2024 compared to $98.0 million for the third quarter of 2023. The financial results were impacted by increased sales volume, as a result of expansion of its sales network, diversification of its customer baseand expansion of the categories of coal products in its portfolio. Cost of sales was $111.4 million for the third quarter of 2024 compared to $48.6 million for the third quarter of 2023. The increase in cost of sales was mainly due to increased sales and the Company expanding into certain categories of processed coal with higher production costs. Cost of sales consists of operating expenses, share-based compensation expense, equipment depreciation, depletion of mineral properties, royalties and idled mine asset costs. Operating expenses in cost of sales reflect the total cash costs of product sold (a Non-IFRS financial measure, refer to "Non-IFRS Financial Measures" section of this press release for further analysis) during the quarter. Operating expenses in cost of sales were $90.0 million for the third quarter of 2024 compared to $38.0 million for the third quarter of 2023. The overall increase in operating expenses was due to the increased sales and the Company expanding into certain categories of processed coal with higher production costs. Cost of sales related to idled mine assets for the third quarter of 2024 included $0.2 million related to depreciation expenses for idled equipment (third quarter of 2023: less than $0.1 million). Other operating expenses were $0.3 million for the third quarter of 2024 (third quarter of 2023: $0.4 million). Administration expenses were $3.4 million for the third quarter of 2024 (third quarter of 2023: $1.8 million). The change was mainly due to higher daily administration fees and increased salaries and benefits as a result of expansion of operations. The Company continued to minimise evaluation and exploration expenditures in the third quarter of 2024 in order to preserve the Company's financial resources. Evaluation and exploration activities and expenditures in the third quarter of 2024 were limited to ensuring that the Company met the Mongolian Minerals Law requirements in respect of its mining licenses. Finance costs were $10.7 million and $13.3 mi