SouthGobi Resources announces third quarter 2020 financial and operating results
HONG KONG, Jan. 05, 2021 (GLOBE NEWSWIRE) -- SouthGobi Resources Ltd. (*Toronto Stock Exchange (“TSX”): SGQ, Hong Kong Stock Exchange (“HKEX”): 1878*) (the "Company" or “SouthGobi”) today announces its financial and operating results for the three and nine months ended September 30, 2020. 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, 2020 and the subsequent period up to January 4, 2021 are as follows:
· *Operating Results* – The Company increased sales volume to 1.0 million tonnes for the third quarter of 2020 from 0.8 million tonnes for the third quarter of 2019. The average selling price of coal decreased from $35.0 per tonne in the third quarter of 2019 to $31.6 per tonne in the third quarter of 2020 as a result of a higher portion of sales made at the mine gate instead of transporting the coal to the Company’s Inner Mongolia subsidiary and selling to third party customers within China.· *Financial Results* – The Company recorded a gross profit of $10.9 million in the third quarter of 2020 compared to $12.8 million in the third quarter of 2019 while a $1.1 million net profit was recorded in the third quarter of 2020 compared to $2.1 million in the third quarter of 2019. The financial results were impacted by the reduced gross profit as a result of a lower average selling price achieved during the quarter.· *Impact* *of the Coronavirus Disease 2019 (“COVID-19”) Pandemic* – The Company was informed that effective as of February 11, 2020, the Mongolian State Emergency Commission closed Mongolia’s southern border with China in order to prevent the spread of COVID-19. Accordingly, the Company suspended coal exports to China beginning as of February 11, 2020 as a result of the border closure.
On March 28, 2020, the Mongolian-Chinese border was re-opened for coal export on a trial basis, with a limit imposed on the total volume of coal that was permitted to be exported during this trial period. The Company has experienced a continuous improvement in the volume of coal exported to China since March 28, 2020. During the period between April to December 2020, an aggregate of 2.4 million tonnes of coal was exported by the Company from Mongolia to China, as compared to an aggregate of 2.6 million tonnes of coal during the same period in the 2019 calendar year.
The border closure had an adverse impact on the Company’s sales and cash flows in the first and second quarter of 2020. In order to mitigate the financial impact of the border closures and preserve its working capital, the Company temporarily ceased major mining operations (including coal mining), reduced production to only coal-blending activities and placed approximately half of its workforce on furlough from February 2020. Since August 2, 2020, the Company has resumed its mining operations, which includes mining, blending and washing of coal. As at December 31, 2020, SGS employed 237 employees at the Ovoot Tolgoi Mine site (December 31, 2019: 383 employees). The Company produced 1.5 million tonnes from August to December 2020, as compared to 2.3 million tonnes from August to December 2019. There were a few COVID-19 cases reported in Ulaanbaatar (being the capital city of Mongolia) on November 11, 2020. As a result, the Mongolian local authorities have taken certain precautionary steps to minimize further transmission and announced a lockdown of Ulaanbaatar effective as of November 12, 2020. Although the Company’s mining operations and the export of coal from Mongolia to China continues as of the date hereof, there can be no guarantee that the Company will be able to continue exporting coal to China, or the border crossings would not be the subject of additional closures as a result of COVID-19 in the future. The Company will continue to closely monitor the development of the COVID-19 pandemic and the impact it has on coal exports to China and will react promptly to preserve the working capital of the Company.
In the event that the Company’s ability to export coal into the Chinese market becomes restricted or limited again as a result of any future restrictions which may be implemented at the Mongolian-Chinese border crossing, this is expected to have a material adverse effect on the business and operations of the Company and may negatively affect the price and volatility of the Common Shares and any investment in such shares could suffer a significant decline or total loss in value.· *China Investment Corporation (“CIC”) Convertible Debenture (“CIC Convertible Debenture”)* – On April 23, 2019, the Company executed a deferral agreement (the “2019 Deferral Agreement”) with CIC in relation to a deferral and revised repayment schedule in respect of (i) $41.8 million of outstanding cash and payment in kind interest (“PIK Interest”) and associated costs due and payable to CIC on November 19, 2018 (the “Outstanding Interest Payable”) under the CIC Convertible Debenture and a deferral agreement executed with CIC on June 12, 2017 (the “June 2017 Deferral Agreement”); and (ii) $27.9 million of cash and PIK Interest payments payable to CIC under the CIC Convertible Debenture from April 23, 2019 to and including May 19, 2020 (the “Deferral”). Pursuant to Section 501(c) of the TSX Company Manual, the 2019 Deferral Agreement was approved at the Company’s adjourned annual and special meeting of shareholders on June 13, 2019.
The key repayment terms of the 2019 Deferral Agreement are: (i) the Company agreed to pay a total of $14.3 million over eight instalments from November 2019 to June 2020; (ii) the Company agreed to pay the PIK Interest covered by the Deferral by way of cash payments, rather than the issuance of Common Shares; and (iii) the Company agreed to pay the remaining balance of $62.6 million on June 20, 2020. The Company agreed to pay a deferral fee at a rate of 6.4% per annum in consideration of the deferred amounts.
As a condition to agreeing to the Deferral, CIC required that the mutual co-operation agreement (the “Cooperation Agreement”) dated November 19, 2009 between SGS and CIC, be amended and restated (the “Amended and Restated Cooperation Agreement”) to clarify the manner in which the service fee (the “Management Fee”) payable to CIC under the Cooperation Agreement is calculated, with effect as of January 1, 2017. Specifically, the Management Fee under the Amended and Restated Cooperation Agreement is determined based on the net revenues realized by the Company and all of its subsidiaries derived from sales into China (rather than the net revenues realized by the Company and its Mongolian subsidiaries as currently contemplated under the Cooperation Agreement). As consideration for deferring payment of the additional Management Fee payable to CIC as a result of the Amended and Restated Cooperation Agreement, the Company agreed to pay to CIC a deferral fee at the rate of 2.5% on the outstanding Management Fee. Pursuant to the Amended and Restated Cooperation Agreement, the Company agreed to pay CIC the total outstanding Management Fee and related accrued deferral fee of $4.2 million over six instalments from June 2019 to November 2019. The Company executed the Amended and Restated Cooperation Agreement with CIC on April 23, 2019.
Pursuant to their terms, both the 2019 Deferral Agreement and the Amended and Restated Cooperation Agreement became effective on June 13, 2019, being the date on which the 2019 Deferral Agreement was approved by shareholders at the Company’s adjourned annual and special meeting of shareholders.
In connection with the 2019 Deferral Agreement, the Company also announced that it intends to discuss a potential debt restructuring plan with respect to amounts owing to CIC which is mutually beneficial to the Company and CIC; and to form a special committee comprised of independent directors to ensure that the interests of its minority shareholders are fairly considered in the negotiation and review of any such restructuring; however, there can be no assurance that a favorable outcome will be reached. As of the date hereof, there has not been any significant progress in relations to the restructuring plan.
On February 19, 2020, the Company and CIC entered into an agreement (the “2020 February Deferral Agreement”) pursuant to which CIC agreed to grant the Company a deferral of: (i) deferred cash interest and deferral fees of $1.3 million and $2.0 million (collectively, the “2020 February Deferral Amounts”) which were due and payable to CIC on January 19, 2020 and February 19, 2020, respectively, under the 2019 Deferral Agreement; and (ii) approximately $0.7 million of the Management Fee which was due and payable on February 14, 2020 to CIC under the Amended and Restated Cooperation Agreement. The 2020 February Deferral Agreement became effective on March 10, 2020, being the date on which the Company obtained the requisite acceptance of the 2020 February Deferral Agreement from the TSX as required under applicable TSX rules.
The principal terms of the 2020 February Deferral Agreement are as follows:· Payment of the 2020 February Deferral Amounts will be deferred until June 20, 2020, while the Management Fee will be deferred until they are repaid by the Company.
· As consideration for the deferral of these amounts, the Company agreed to pay CIC: (i) a deferral fee equal to 6.4% per annum on the 2020 February Deferral Amounts, commencing on the date on which each such 2020 February Deferral Amounts would otherwise have been due and payable under the 2019 Deferral Agreement; and (ii) a deferral fee equal to 2.5% per annum on the Management Fee, commencing on the date on which the Management Fee would otherwise have been due and payable under the Amended and Restated Cooperation Agreement.
· The Company agreed to provide CIC with monthly updates regarding its operational and financial affairs.
· As the Company anticipated prior to agreeing to the 2020 February Deferral Agreement that a deferral was likely required in respect of the monthly payments due and payable in the period between April 2020 and June 2020 under the 2019 Deferral Agreement and Amended and Restated Cooperation Agreement, the Company and CIC agreed to discuss in good faith a deferral of these payments on a monthly basis as they become due.
· The Company agreed to comply with all of its obligations under the 2019 Deferral Agreement and the Amended and Restated Cooperation Agreement, as amended by the 2020 February Deferral Agreement.
· The Company and CIC agreed that nothing in the 2020 February Deferral Agreement prejudices CIC’s rights to pursue any of its remedies at any time pursuant to the 2019 Deferral Agreement and Amended and Restated Cooperation Agreement, respectively.
On March 10, 2020, the Company agreed with CIC (the “2020 March Deferral Agreement”) that the $2.0 million of deferred cash interest and deferral fees which were due and payable to CIC on March 19, 2020 under the 2019 Deferral Agreement (the “2020 March Deferral Amount”) will be deferred until June 20, 2020. The terms of the 2020 March Deferral Agreement are substantially the same as the terms of the 2020 February Deferral Agreement, including that the Company agreed to pay CIC a deferral fee equal to 6.4% per annum on the 2020 March Deferral Amount, commencing on March 19, 2020. The 2020 March Deferral Agreement became effective on March 25, 2020, being the date on which the Company obtained the requisite acceptance of the 2020 March Deferral Agreement from the TSX as required under applicable TSX rules.
On April 10, 2020, the Company agreed with CIC (the “2020 April Deferral Agreement”) that the $2.0 million of deferred cash interest and deferral fees which were due and payable to CIC on April 19, 2020 under the 2019 Deferral Agreement (the “2020 April Deferral Amount”) will be deferred until June 20, 2020. The terms of the 2020 April Deferral Agreement are substantially the same as the terms of the 2020 February Deferral Agreement, including that the Company agreed to pay CIC a deferral fee equal to 6.4% per annum on the 2020 April Deferral Amount, commencing on April 19, 2020. The 2020 April Deferral Agreement became effective on April 29, 2020, being the date on which the Company obtained the requisite acceptance of the 2020 April Deferral Agreement from the TSX as required under applicable TSX rules.
On May 8, 2020, the Company agreed with CIC (the “2020 May Deferral Agreement”) that the deferred cash interest and deferral fees of $2.0 million which were due and payable to CIC on May 19, 2020 under the 2019 Deferral Agreement; and approximately $0.2 million of Management Fees which were due and payable on May 15, 2020 to CIC under the Amended and Restated Cooperation Agreement (collectively, the “2020 May Deferral Amount”) will be deferred until June 20, 2020. The terms of the 2020 May Deferral Agreement are substantially the same as the terms of the 2020 February Deferral Agreement, including that the Company agreed to pay CIC a deferral fee equal to 6.4% per annum on the deferred cash interest and deferral fees commencing on May 19, 2020 and a deferral fee equal to 2.5% per annum on the deferred Management Fees commencing on May 15, 2020. The 2020 May Deferral Agreement became effective on June 8, 2020, being the date on which the Company obtained the requisite acceptance of the 2020 May Deferral Agreement from the TSX as required under applicable TSX rules.
On June 19, 2020, the Company agreed with CIC (the “2020 June Deferral Agreement”) that the deferred cash interest and deferral fees in the aggregate amount of approximately $74.0 million (the “2020 June Deferral Amount”) which were due and payable to CIC on June 19, 2020 under the 2019 Deferral Agreement and the prior deferral agreements entered into during the period between February to May 2020 will be deferred until September 14, 2020. The terms of the 2020 June Deferral Agreement are substantially the same as the terms of the 2020 February Deferral Agreement, including that the Company agreed to pay CIC a deferral fee equal to 6.4% per annum on the 2020 June Deferral Amount commencing on June 19, 2020. The 2020 June Deferral Agreement became effective on July 17, 2020, being the date on which the Company obtained the requisite acceptance of the 2020 June Deferral Agreement from the TSX as required under applicable TSX rules.
On November 19, 2020, the Company and CIC entered into an agreement (the “2020 November Deferral Agreement”) pursuant to which CIC agreed to grant the Company a deferral of: (i) deferred cash interest and deferral fees of approximately $75.2 million which were due and payable to CIC on or before September 14, 2020, under the 2020 June Deferral Agreement; (ii) semi-annual cash interest payments in the aggregate amount of $16.0 million payable to CIC on November 19, 2020 and May 19, 2021; (iii) $4.0 million worth of PIK Interest shares (“2020 November PIK Interest”) issuable to CIC on November 19, 2020 under the CIC Convertible Debenture; and (iv) the Management Fee which payable to CIC on November 14, 2020, February 14, 2021, May 15, 2021, August 14, 2021 and November 14, 2021 under the Amended and Restated Cooperation Agreement (collectively, the “2020 November Deferral Amounts”). The effectiveness of the 2020 November Deferral Agreement and the respective covenants, agreements and obligations of each party under the 2020 November Deferral Agreement are subject to the Company obtaining the requisite approval of the 2020 November Deferral Agreement from the Company’s shareholders in accordance with applicable TSX rules. On October 29, 2020, the Company obtained an order from the British Columbia Securities Commission (“BCSC”), the Company’s principal securities regulator in Canada, which partially revoked the CTO (as defined below) to, amongst other things, permit the Company to execute the 2020 November Deferral Agreement.
The principal terms of the 2020 November Deferral Agreement are as follows:· Payment of the 2020 November Deferral Amounts will be deferred until August 31, 2023.
· CIC agreed to waive its rights arising from any default or event of default under the CIC Convertible Debenture as a result of trading in the Common Shares being halted on the TSX beginning as of June 19, 2020 and suspended on the HKEX beginning as of August 17, 2020, in each case for a period of more than five trading days.
· As consideration for the deferral of the 2020 November Deferral Amounts, the Company agreed to pay CIC: (i) a deferral fee equal to 6.4% per annum on the 2020 November Deferral Amounts payable under the CIC Convertible Debenture and the 2020 June Deferral Agreement, commencing on the date on which each such 2020 November Deferral Amount would otherwise have been due and payable under the CIC Convertible Debenture or the 2020 June Deferral Agreement, as applicable; and (ii) a deferral fee equal to 2.5% per annum on the 2020 November Deferral Amounts payable under the Amended and Restated Cooperation Agreement, commencing on the date on which the Management Fee would otherwise have been due and payable under the Amended and Restated Cooperation Agreement.
· The 2020 November Deferral Agreement does not contemplate a fixed repayment schedule for the 2020 November Deferral Amounts and related deferral fees. Instead, the Company and CIC would agree to assess in good faith the Company’s financial condition and working capital position on a monthly basis and determine the amount, if any, of the 2020 November Deferral Amounts and related deferral fees that the Company is able to repay under the CIC Convertible Debenture, the 2020 June Deferral Agreement or the Amended and Restated Cooperation Agreement, having regard to the working capital requirements of the Company’s operations and business at such time and with the view of ensuring that the Company’s operations and business would not be materially prejudiced as a result of any repayment.
· Commencing as of November 19, 2020 and until such time as the November 2020 PIK Interest is fully repaid, CIC reserves the right to require the Company to pay and satisfy the amount of the November 2020 PIK Interest, either in full or in part, by way of issuing and delivering PIK interest shares in accordance with the CIC Convertible Debenture provided that, on the date of issuance of such shares, the Common Shares are listed and trading on at least one stock exchange.
· If at any time before the 2020 November Deferral Amounts and related deferral fees are fully repaid, the Company proposes to appoint, replace or terminate one or more of its Chief Executive Officer, its Chief Financial Officer or any other senior executive(s) in charge of its principal business function or its principal subsidiary, then the Company must first consult with, and obtain written consent from CIC prior to effecting such appointment, replacement or termination.
Until such time as the 2020 November Deferral Agreement is approved by the Company’s shareholders and the deferral and waiver thereunder in favour of the Company become effective, the Company remains in default under the CIC Convertible Debenture and 2020 June Deferral Agreement and CIC may declare the amounts owing thereunder immediately due and payable, and may take steps to enforce payment thereof, which would have a material adverse effect on the business and operations of the Company and could negatively affect the price and volatility of the Common Shares and any investment in such shares could suffer a significant decline or total loss in value.
· *Cease Trade Order and Halt Trading on TSX *– On June 19, 2020, the BCSC issued a general “failure to file” cease trade order (“CTO”), to prohibit the trading by any person of any securities of the Company in Canada. Trading in the Common Shares on the TSX was halted as a result of the CTO. The CTO was issued as of result of the Company’s failure to file: (i) its annual consolidated financial statements for the year ended December 31, 2019 and the accompanying Management’s Discussion & Analysis of Financial Condition and Results of Operations (“MD&A”); (ii) its Annual Information Form for the year ended December 31, 2019; and (iii) its condensed consolidated interim financial statements for the three-month period ended March 31, 2020 and accompanying Management’s Discussion & Analysis, in each case prior to the filing deadline of June 15, 2020.
The CTO will remain in effect until such time as the Company makes a successful application to the BCSC to have the CTO revoked. While the Company is taking such actions as it considers necessary in order to remedy its filing defaults as soon as possible, there can be no assurance that the Company will have the CTO lifted in a timely manner or at all. For so long as the CTO remains in effect, it will have a significant adverse impact on the liquidity of the Common Shares and shareholders may suffer a significant decline or total loss in value of its investment in the Common Shares as a result*.*
· *Suspension of Trading on HKEX *– At the request of the Company, trading in the shares of the Company on the HKEX was suspended with effect as of August 17, 2020 pending the publication of the audited annual results of the Company for the year ended December 31, 2019.
On September 2, 2020, the Company received a letter from the HKEX setting out the following resumption guidance for the resumption of trading in the Common Shares on the HKEX (the “Resumption Guidance”): (i) publish all outstanding financial results and address any audit modifications; (ii) inform the market of all material information for the Company’s shareholders and investors to appraise its position; and (iii) announce quarterly updates on the Company’s developments under Rules 13.24A of the HKEX’s Listing Rules, including, amongst other relevant matters, its business operations, its resumption plan and the progress of implementation.
On September 30, 2020, the Company was notified by the HKEX of the following additional condition which must be satisfied in order for trading in the Common Shares on the HKEX to resume: resolve issues arising from the CTO and/or the TSX Delisting Review (as defined below), or take steps to the satisfaction of the HKEX that the Company will be eligible for a primary listing on the HKEX.
On December 8, 2020, the Company was notified by the HKEX of the following additional condition which must be satisfied in order for trading in the Common Shares on the HKEX to resume: demonstrate compliance with Rule 13.24 of the HKEX listing rules which requires that an issuer carry out a business with a sufficient level of operations and assets of sufficient value to support its operations to warrant the continued listing of the issuer's securities.
If the Company fails to remedy the issues causing its trading suspension, fully comply with the Listing Rules to the HKEX’s satisfaction and resume trading in its shares on the HKEX by February 16, 2022, the HKEX’s Listing Division will recommend to the HKEX’s Listing Committee that it proceed with the cancellation of the Company’s HKEX listing. Under Rules 6.01 and 6.10 of the Listing Rules, the HKEX also has the right to impose a shorter specific remedial period, where appropriate.
· *TSX Delisting Review *– On September 11, 2020, the TSX notified the Company that it is reviewing the eligibility for continued listing of the Common Shares on the TSX pursuant to the TSX’s Remedial Review Process (“TSX Delisting Review”). On December 16, 2020, the TSX accepted the Company’s request for a 60 day extension of the TSX Delisting Review process and the Company has been granted until February 16, 2021 to remedy the following delisting criteria, as well as any other delisting criteria that become applicable during the Remedial Review Process: (i) financial condition and/or operating results; (ii) adequate working capital and appropriate capital structure; and (iii) disclosure issues (collectively, the “Delisting Criteria”).
The TSX Continued Listing Committee has scheduled a meeting to be held on February 11, 2021 to consider whether or not to suspend trading in and delist the Common Shares on the TSX. If the Company fails to demonstrate to the TSX that it has remedied the Delisting Criteria on or before February 16, 2021, the Common Shares will be delisted from the TSX 30 days from such date.
· *Changes in Directors*
*Mr. Xiaoxiao Li*: Mr. Li resigned as a non-executive director on November 13, 2020.
*Ms. Ka Lee Ku*: Ms. Ku was appointed as a non-executive director on December 9, 2020.
· *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*
*Three months ended* *Nine months ended* *September 30, * *September 30, * *2020* *2019* *2020* *2019*
*Sales Volumes, Prices and Costs*
Premium semi-soft coking coal
Coal sales (millions of tonnes) *0.35* 0.05 *0.63* 0.28
Average realized selling price (per tonne) *$* * 30.17* $ 31.49 *$* * 29.48* $ 38.27
Standard semi-soft coking coal/ premium thermal coal
Coal sales (millions of tonnes) *0.54* 0.51 *0.93* 1.95
Average realized selling price (per tonne) *$* * 30.80* $ 31.67 *$* * 31.71* $ 33.87
Standard thermal coal
Coal sales (millions of tonnes) *-* - *-* 0.09
Average realized selling price (per tonne) *$* * -* $ - *$* * -* $ 29.43
Washed coal
Coal sales (millions of tonnes) *0.10* 0.25 *0.12* 0.43
Average realized selling price (per tonne) *$* * 41.30* $ 42.37 *$* * 41.64* $ 43.10
Total
Coal sales (millions of tonnes) *0.99* 0.81 *1.68* 2.75
Average realized selling price (per tonne) *$* * 31.63* $ 34.98 *$* * 31.58* $ 35.54
Raw coal production (millions of tonnes) *0.52* 1.21 *0.53* 3.57
Cost of sales of product sold (per tonne) *$* * 20.23* $ 19.16 *$* * 21.70* $ 22.17
Direct cash costs of product sold (per tonne) ^(i) *$* * 12.38* $ 18.03 *$* * 11.57* $ 15.03
Mine administration cash costs of product sold (per tonne) ^(i) *$* * 1.15* $ 1.09 *$* * 1.47* $ 1.26
Total cash costs of product sold (per tonne) ^(i) *$* * 13.53* $ 19.12 *$* * 13.04* $ 16.29
*Other Operational Data*
Production waste material moved (millions of bank cubic meters) *1.67* 4.36 *2.24* 14.61
Strip ratio (bank cubic meters of waste material per tonne of coal produced) *3.20* 3.61 *4.24* 4.09
Lost time injury frequency rate ^(ii) *-* 0.08 *0.04* 0.05 (i) A Non-International Financial Reporting Standards (“IFRS”) financial measure, which does not have a standardized meaning according to IFRS. See “Non-IFRS Financial Measures” section. Cash costs of product sold exclude idled mine asset cash costs. (ii) 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, 2020
The Company ended the third quarter of 2020 without a lost time injury. For the three months ended September 30, 2019, the Company had a lost time injury frequency rate of 0.08 per 200,000 man hours.
The average selling price of coal decreased from $35.0 per tonne in the third quarter of 2019 to $31.6 per tonne in the third quarter of 2020 as a result of a higher portion of sales made at the mine gate instead of transporting the coal to the Company’s Inner Mongolia subsidiary and selling to third party customers within China.
The product mix for the third quarter of 2020 consisted of approximately 35% of premium semi-soft coking coal, 55% of standard semi-soft coking coal/premium thermal coal and 10% of washed coal compared to approximately 6% of premium semi-soft coking coal, 63% of standard semi-soft coking coal/premium thermal coal and 31% of washed coal in the third quarter of 2019.
The Company sold 1.0 million tonnes for the third quarter of 2020 as compared to 0.8 million tonnes for the third quarter of 2019.
The Company’s production in the third quarter of 2020 was lower than the third quarter of 2019 as a result of the temporary cessation of the Company’s major mining operations (including coal mining) which took effect in February 2020 for the purpose of mitigating the financial impact of the border closures and preserving the Company’s working capital, yielding 0.5 million tonnes for the third quarter of 2020 as compared to 1.2 million tonnes for the third quarter of 2019.
The Company’s unit cost of sales of product sold for the third quarter of 2020 was $20.2 per tonne, which is similar to $ 19.2 per tonne for the third quarter of 2019.
For the nine months ended September 30, 2020
The Company sold 1.7 million tonnes for the first nine months of 2020 as compared to 2.8 million tonnes for the first nine months of 2019 due to suspension of coal exports to China beginning as of February 11, 2020 as a result of the closure of Mongolia’s southern border with China in order to prevent of the spread of COVID-19 and the subsequent export volume limitation imposed following the reopening of the Mongolian-Chinese border on a trial basis on March 28, 2020. The average selling price decreased from $35.5 per tonne for the first nine months of 2019 to $31.6 per tonne for the first nine months of 2020. The decrease was mainly driven by a higher portion of sales made at the mine gate instead of transporting the coal to the Company’s Inner Mongolia subsidiary and selling to third party customers within China during the first nine months of 2020.
The Company’s production in the first nine months of 2020 was much lower than the first nine months of 2019 as a result of the temporary cessation of the Company’s major mining operations (including coal mining) which took effect in February 2020 for the purpose of mitigating the financial impact of the border closures and preserving the Company’s working capital.
The Company’s unit cost of sales of product sold for the first nine months of 2020 was $21.7 per tonne, which is similar to the first nine months of 2019.
*Summary of Financial Results*
*Three months ended* *Nine months ended* *September 30, * *September 30, *
$ in thousands, except per share information *2020* *2019* *2020* *2019*
Revenue ^(i) *$* * 30,960* $ 28,309 *$* * 52,072* $ 97,599
Cost of sales ^(i) *(20,027* *)* (15,518 ) *(36,464* *)* (60,954 )
Gross profit excluding idled mine asset costs ^(ii) *11,789* 13,664 *19,537* 39,339
Gross profit *10,933* 12,791 *15,608* 36,645
Other operating expenses *(575* *)* (1,245 ) *(5,255* *)* (3,992 )
Administration expenses *(1,789* *)* (2,074 ) *(4,851* *)* (8,061 )
Evaluation and exploration expenses *(63* *)* (22 ) *(171* *)* (70 )
Profit from operations *8,506* 9,450 *5,331* 24,522
Finance costs *(9,885* *)* (7,184 ) *(24,250* *)* (20,915 )
Finance income *2,583* 68 *2,600*
4,381
Share of earnings of a joint venture *660* 277 *882* 1,104
Income tax expense *(793* *)* (468 ) *(2,425* *)* (2,708 )
Net profit/(loss) attributable to equity holders of the Company *1,071* 2,143 *(17,862* *)* 6,384
Basic and diluted earnings/(loss) per share *$* * -* $ 0.01 *$* * (0.07* *)* $ 0.02 (i) Revenue and cost of sales relate 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. Royalties have been reclassified from revenue to cost of sales.
(ii) 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, 2020
The Company recorded a gross profit of $10.9 million in the third quarter of 2020 compared to $12.8 million in the third quarter of 2019 while a $1.1 million net profit was recorded in the third quarter of 2020 compared to $2.1 million in the third quarter of 2019. The financial results were impacted by the reduced gross profit as a result of a lower average selling price achieved during the quarter.
Revenue was $31.0 million in the third quarter of 2020 compared to $28.3 million in the third quarter of 2019. The Company’s effective royalty rate for the third quarter of 2020, based on the Company’s average realized selling price of $31.6 per tonne, was 11.1% or $3.5 per tonne, compared to 8.2% or $2.9 per tonne in the third quarter of 2019 (based on the average realized selling price of $35.0 per tonne in the third quarter of 2019).
Royalty regime in Mongolia
The royalty regime in Mongolia is evolving and has been subject to change since 2012.
On February 1, 2016, the Government of Mongolia issued a resolution in connection with the royalty regime. From February 1, 2016 onwards, royalties are to be calculated based on the actual contract price including transportation costs to the Mongolia border. If such transportation costs have not been included in the contract, the relevant transportation costs, customs documentation fees, insurance and loading costs should be estimated for the calculation of royalties. In the event that the calculated sales price as described above differs from the contract sales price of other entities in Mongolia (same quality of coal and same border crossing) by more than 10%, the calculated sales price will be deemed to be “non-market” under Mongolian tax law and the royalty will then be calculated based on a reference price as determined by the Government of Mongolia.
On September 4, 2019, the Government of Mongolia issued a further resolution in connection with the royalty regime. From September 1, 2019 onwards, in the event that the contract sales price is less than the reference price as determined by the Government of Mongolia by more than 30%, then the royalty payable will be calculated based on the Mongolian government’s reference price instead of the contract sales price. See the section entitled “Risk Factors – Risk Relating to the Company’s Projects in Mongolia” in the Company’s MD&A for the year ended December 31, 2019, a copy of which is available under the Company’s profile on SEDAR at www.sedar.com.
Cost of sales was $20.0 million in the third quarter of 2020 compared to $15.5 million in the third quarter of 2019. The increase in cost of sales was mainly due to the increased sales during the quarter as well as the reversal of impairment of coal stockpile inventories of $5.3 million for the third quarter of 2019. Cost of sales consists of operating expenses, share-based compensation expense, equipment depreciation, depletion of mineral properties, royalties, coal stockpile inventory impairment and idled mine asset costs. Operating expenses in cost of sales reflect the total cash costs of product sold (a Non-IFRS financial measure, see section “Non-IFRS financial measure” for further analysis) during the quarter.
*Three months ended
September 30,**
*
$ in thousands *2020* *2019*
Operating expenses *$* * 13,390* $ 15,485
Share-based compensation expense *4* 2
Depreciation and depletion *2,297* 2,121
Royalties *3,480* 2,326
Reversal of impairment of coal stockpile inventories *-* (5,289)
Cost of sales from mine operations *19,171* 14,645
Cost of sales related to idled mine assets *856* 873
Cost of sales *$* * 20,027* $ 15,518
Operating expenses in cost of sales were $13.4 million in the third quarter of 2020 compared to $15.5 million in the third quarter of 2019. The overall decrease in operating expenses was primarily due to the net effect of: (i) increased sales volume from 0.8 million tonnes in the third quarter of 2019 to 1.0 million tonnes in the third quarter of 2020; (ii) lower inventory carrying costs given less deferred stripping cost was capitalized for the third quarter of 2020; and (iii) the Company’s product mix changing in the third quarter of 2020 (as compared to the third quarter of 2019) to be comprised of inventory with lower carrying cost.
Cost of sales in the third quarter of 2019 included a reversal of impairment of coal stockpile inventories of $5.3 million, to increase the carrying value of the Company’s coal stockpiles to the lower of the cost and the net realizable value. The reversal of impairment of coal stockpile inventories recorded in the third quarter of 2019 reflected the enhancement in the wash plant capacity and its continuous operation at the expected level.
Cost of sales related to idled mine assets in the third quarter of 2020 included $0.9 million related to depreciation expenses for idled equipment (third quarter of 2019: $0.9 million).
Other operating expenses was $0.6 million in the third quarter of 2020 (third quarter of 2019: $1.2 million). Other operating expenses in the third quarter of 2020 included a reversal of a provision for doubtful trade and other receivables of $0.5 million, which represents subsequent collection of the trade receivables which has been provided for in previous quarters.
*Three months ended
September 30,*
$ in thousands *2020* *2019*
CIC management fee *$* * (864)* $ (1,175)
Reversal of provision/(provision) for doubtful trade and other receivables *482* (344)
Foreign exchange gain/(loss) *(113)* 477
Loss on disposal of property, plant and equipment *(80)* -
Provision for commercial arbitration *-* (180)
Loss on disposal of properties for resale *-* (23)
Other operating expenses *$* * (575)* $ (1,245)
Administration expenses were $1.8 million in the third quarter of 2020 as compared to $2.1 million in the third quarter of 2019, as follows:
$ in thousands *Three months ended
September 30,* * 2020* * * * 2019*
Corporate administration *$* * 394* $ 457
Professional fees *395* 365
Salaries and benefits *781* 1,084
Share-based compensation expense *15* 7
Depreciation *204* 161
Administration expenses *$* * 1,789* $ 2,074
The decrease was mainly due to the decrease in salaries and benefits incurred during the third quarter of 2020.The Company continued to minimize evaluation and exploration expenditures in the third quarter of 2020 in order to preserve the Company’s financial resources. Evaluation and exploration activities and expenditures in the third quarter of 2020 were limited to ensuring that the Company met the Mongolian Minerals Law requirements in respect of its mining licenses.
Finance costs were $9.9 million and $7.2 million in the third quarter of 2020 and 2019 respectively, which primarily consisted of interest expense on the $250.0 million CIC Convertible Debenture.
For the nine months ended September 30, 2020
The Company recorded a $5.3 million profit from operations in the first nine months of 2020 compared to $24.5 million in the first nine months of 2019. The financial results were impacted by (i) the decreased sales resulting from the suspension of coal exports to China beginning as of February 11, 2020 as a result of the closure of Mongolia’s southern border with China in order to prevent of the spread of COVID-19 and the subsequent export volume limitation imposed following the re-opening of the Mongolian-Chinese border on a trial basis on March 28, 2020.; and (ii) the provision for commercial arbitration of $4.6 million recorded in connection with the Company the entering into a settlement agreement with First Concept Industrial Group Limited (“First Concept”) on June 7, 2020.
Revenue was $52.1 million in the first nine months of 2020 compared to $97.6 million in the first nine months of 2019. The Company’s effective royalty rate for the first nine months of 2020, based on the Company’s average realized selling price of $31.6 per tonne, was 12.2% or $3.9 per tonne, compared to 7.1% or $2.5 per tonne in the first nine months of 2019 (based on the average realized selling price of $35.5 per tonne for the first nine months of 2019).
Cost of sales was $36.5 million in the first nine months of 2020 compared to $61.0 million in the first nine months of 2019 as follows:
*Nine months ended
September 30,*
$ in thousands *2020* *2019*
Operating expenses *$* * 21,912* $ 44,794
Share-based compensation expense *23* 7
Depreciation and depletion *4,163* 8,379
Royalties *6,437* 6,903
Reversal of impairment of coal stockpile inventories *-* (1,823)
Cost of sales from mine operations *32,535* 58,260
Cost of sales related to idled mine assets *3,929* 2,694
Cost of sales *$* * 36,464* $ 60,954
Operating expenses in cost of sales were $21.9 million in the first nine months of 2020 compared to $44.8 million in the first nine months of 2019. The overall decrease in operating expenses was primarily due to the decreased sales volume from 2.8 million tonnes in the first nine months of 2019 to 1.7 million tonnes in the first nine months of 2020.
Cost of sales related to idled mine assets in the first nine months of 2020 included $3.9 million related to depreciation expenses for idled equipment (first nine months of 2019: $2.7 million).
Cost of sales in the first nine months of 2019 included a reversal of impairment of coal stockpile inventories of $1.8 million. The reversal of impairment of coal stockpile inventories reflected the enhancement in the wash plant capacity and its continuous operation at the expected level.
Other operating expenses was $5.3 million in the first nine months of 2020 (first nine months of 2019: $4.0 million). The increase was mainly due to the net effect of (i) provision for commercial arbitration of $4.6 million upon the entering of settlement agreement with First Concept; and (ii) decrease in CIC management fee as a result of reduced sales volume.
*Nine months ended
September 30,*
$ in thousands *2020* *2019*
Provision for commercial arbitration *$* * (4,634)* $ (406)
CIC management fee *(1,399)* (3,355)
Reversal of provision/(provision) for doubtful trade and other receivables *200* (441)
Foreign exchange gain *639* 478
Gain/(loss) on disposal of property, plant and equipment *(61)* 29
Provision for prepaid expenses and deposits *-* (260)
Loss on disposal of properties for resale *-* (37)
Other operating expenses *$* * (5,255)* $ (3,992)
Administration expenses were $4.9 million in the first nine months of 2020 compared to $8.1 million in the first nine months of 2019 as follows:
*Nine months ended
September 30,*
$ in thousands *2020* *2019*
Corporate administration *$* * 842* $ 1,555
Professional fees *944* 2,668
Salaries and benefits *2,448* 3,315
Share-based compensation expense *84* 30
Depreciation *533* 493
Administration expenses *$* * 4,851* $ 8,061
Administration expenses were lower for the first nine months of 2020 compared to the first nine months of 2019 primarily due to decrease in professional fees incurred.The Company continued to minimize evaluation and exploration expenditures in the first nine months of 2020 in order to preserve the Company’s financial resources. Evaluation and exploration activities and expenditures in the first nine months of 2020 were limited to ensuring that the Company met the Mongolian Minerals Law requirements in respect of its mining licenses.
Finance costs were $24.3 million and $20.9 million in the first nine months of 2020 and 2019 respectively, which primarily consisted of interest expense on the $250.0 million CIC Convertible Debenture.
*Summary of Quarterly Operational Data*
*2020* 2019 2018
*Quarter Ended* *30-Sep* 30-Jun 31-Mar 31-Dec 30-Sep 30-Jun 31-Mar 31-Dec
*Sales Volumes, Prices and Costs*
Premium semi-soft coking coal
Coal sales (millions of tonnes) *0.35* 0.21 0.07 0.39 0.05 0.12 0.11 0.24
Average realized selling price (per tonne) *$* * 30.17* $ 28.69 $ 28.46 $ 29.18 $ 31.49 $ 32.72 $ 47.34 $ 47.37
Standard semi-soft coking coal/ premium thermal coal
Coal sales (millions of tonnes) *0.54* 0.26 0.13 0.40 0.51 0.59 0.85 0.40
Average realized selling price (per tonne) *$* * 30.80* $ 33.12 $ 32.71 $ 31.88 $ 31.67 $ 35.67 $ 33.34 $ 32.60
Standard thermal coal
Coal sales (millions of tonnes) *-* - - - - - 0.09 0.12
Average realized selling price (per tonne) *$* * -* $ - $ - $ - $ - $ - $ 34.88 $ 24.26
Washed coal
Coal sales (millions of tonnes) *0.10* 0.02 - 0.20 0.25 0.17 0.01 0.15
Average realized selling price (per tonne) *$* * 41.30* $ 43.26 $ - $ 42.95 $ 42.37 $ 44.20 $ 45.07 $ 44.02
Total
Coal sales (millions of tonnes) *0.99* 0.49 0.20 0.99 0.81 0.88 1.06 0.91
Average realized selling price (per tonne) *$* * 31.63* $ 31.66 $ 31.18 $ 33.04 $ 34.98 $ 36.80 $ 34.91 $ 37.32
Raw coal production (millions of tonnes) *0.52* - 0.01 1.48 1.21 1.33 1.03 1.87
Cost of sales of product sold (per tonne) *$* * 20.23* $ 21.16 $ 30.36 $ 23.68 $ 19.16 $ 25.04 $ 22.08 $ 30.80
Direct cash costs of product sold (per tonne) ^(i) *$* * 12.38* $ 9.90 $ 11.69 $ 13.61 $ 18.03 $ 17.18 $ 10.82 $ 14.41
Mine administration cash costs of product sold (per tonne) ^(i) *$* * 1.15* $ 1.70 $ 2.50 $ 1.29 $ 1.09 $ 1.39 $ 1.41 $ 2.19
Total cash costs of product sold (per tonne) ^(i) *$* * 13.53* $ 11.60 $ 14.19 $ 14.90 $ 19.12 $ 18.57 $ 12.23 $ 16.60
*Other Operational Data*
Production waste material moved (millions of bank cubic meters) *1.67* - 0.57 3.61 4.36 5.34 4.91 5.54
Strip ratio (bank cubic meters of waste material per tonne of coal produced) *3.20* - 85.08 2.44 3.61 4.01 4.76 2.97
Lost time injury frequency rate ^(ii) *-* 0.04 0.09 0.08 0.08 0.06 0.00 0.00 (i) A Non-IFRS financial measure. See “Non-IFRS Financial Measures” section. Cash costs of product sold exclude idled mine asset cash costs. (ii) Per 200,000 man hours and calculated based on a rolling 12 month average.
*Summary of Quarterly Financial Results*The Company’s consolidated financial statements are reported under IFRS issued by the International Accounting Standards Board (the “IASB”). The following table provides highlights, extracted from the Company’s annual and interim consolidated financial statements, of quarterly results for the past eight quarters:
$ in thousands, except per share information *2020* 2019 2018
*Quarter Ended* *30-Sep* 30-Jun 31-Mar 31-Dec 30-Sep 30-Jun 31-Mar 31-Dec
*Financial Results*
Revenue ^(i) *$* * 30,960* $ 14,975 $ 6,137 $ 32,113 $ 28,309 $ 32,479 $ 36,811 $ 33,814
Cost of sales ^(i) *(20,027* *)* (10,366 ) (6,071 ) (23,446 ) (15,518 ) (22,031 ) (23,405 ) (28,027 )
Gross profit excluding idled mine asset costs *11,789* 6,286 1,462 9,971 13,664 11,318 14,357 7,305
Gross profit including idled mine asset costs *10,933* 4,609 66 8,667 12,791 10,448 13,406 5,787
Other operating income/(expenses) *(575* *)* (5,150 ) 470 (1,589 ) (1,245 ) (2,333 ) (414 ) (2,921 )
Administration expenses *(1,789* *)* (1,291 ) (1,771 ) (1,386 ) (2,074 ) (2,878 ) (3,109 ) (1,583 )
Evaluation and exploration expenses *(63* *)* (52 ) (56 ) (382 ) (22 ) (23 ) (25 ) (36 )
Profit/(loss) from operations *8,506* (1,884 ) (1,291 ) 5,310 9,450 5,214 9,858 1,247
Finance costs *(9,885* *)* (7,258 ) (7,135 ) (7,095 ) (7,184 ) (7,001 ) (6,739 ) (10,899 )
Finance income *2,583* 2 43 36 68 4,305 17 13
Share of earnings/(loss) of a joint venture *660* 268 (46 ) 225 277 375 452 416
Income tax expense *(793* *)* (900 ) (732 ) (659 ) (468 ) (801 ) (1,439 ) (1,023 )
Net profit/(loss) *1,071* (9,772 ) (9,161 ) (2,183 ) 2,143 2,092 2,149 (10,246 )
Basic and diluted earnings/(loss) per share *$* * -* $ (0.04 ) $ (0.03 ) $ (0.01 ) $ 0.01 $ 0.01 $ 0.01 $ (0.04 ) (i) Revenue and cost of sales relate 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. Royalties have been reclassified from revenue to cost of sales.
*LIQUIDITY AND CAPITAL RESOURCES**Liquidity and Capital Management*
The Company has in place a planning, budgeting and forecasting process to help determine the funds required to support the Company’s normal operations on an ongoing basis and its expansionary plans.
*Bank Loan*
On May 15, 2018, SGS obtained a bank loan (the “2018 Bank Loan”) in the principal amount of $2.8 million from a Mongolian bank (the “Bank”) with the key commercial terms as follows:
· Maturity date set at 24 months from drawdown (subsequently extended for 12 months on May 18, 2020);· Interest rate of 15% per annum and interest is payable monthly; and· Certain items of property, plant and equipment were pledged as security for the 2018 Bank Loan. As at September 30, 2020, the net carrying amount of the pledged items of property, plant and equipment was $0.1 million (December 31, 2019: $0.4 million).As at September 30, 2020, the outstanding principal balance of the 2018 Bank Loan was $2.8 million (December 31, 2019: $2.8 million) and the accrued interest owed by the Company was negligible (December 31, 2019: negligible).
*Costs reimbursable to Turquoise Hill Resources Ltd (“Turquoise Hill”)*
Prior to the completion of a private placement with Novel Sunrise Investments Limited (“Novel Sunrise”) on April 23, 2015, Rio Tinto plc (“Rio Tinto”) was the Company’s ultimate parent company. In the past, Rio Tinto sought reimbursement from the Company for the salaries and benefits of certain Rio Tinto employees who were assigned by Rio Tinto to work for the Company, as well as certain legal and professional fees incurred by Rio Tinto in relation to the Company’s prior internal investigation and Rio Tinto’s participation in the tripartite committee. Subsequently Rio Tinto transferred and assigned to Turquoise Hill its right to seek reimbursement for these costs and fees from the Company.
As at September 30, 2020, the amount of reimbursable costs and fees claimed by Turquoise Hill (the “TRQ Reimbursable Amount”) amounted to $8.1 million (such amount is included in the trade and other payables). On October 12, 2016, the Company received a letter from Turquoise Hill, which proposed an arrangement for regular payments of the outstanding TRQ Reimbursable Amount. On November 12, 2020, the Company received communication from Turquoise Hill advising that Turquoise Hill wishes to re-engage in discussions with the Company regarding a repayment plan for the outstanding TRQ Reimbursable Amount. No agreement on repayment has been reached between the Company and Turquoise Hill as of the date of this press release.
*Going concern considerations*
The Company’s condensed consolidated interim financial statements have been prepared on a going concern basis which assumes that the Company will continue operating until at least September 30, 2021 and will be able to realize its assets and discharge its liabilities in the normal course of operations as they come due. However, in order to continue as a going concern, the Company must generate sufficient operating cash flow, secure additional capital or otherwise pursue a strategic restructuring, refinancing or other transactions to provide it with additional liquidity.
Several adverse conditions and material uncertainties cast significant doubt upon the Company’s ability to continue as a going concern and the going concern assumption used in the preparation of the Company’s condensed consolidated interim financial statements. The Company had a deficiency in assets of $73.3 million as at September 30, 2020 compared to a deficiency in assets of $49.2 million as at December 31, 2019 while the working capital deficiency (excess current liabilities over current assets) reached $217.0 million as at September 30, 2020 compared to a working capital deficiency of $114.7 million as at December 31, 2019.
Included in the working capital deficiency as at September 30, 2020 are significant obligations, which include the interest amounting to $84.8 million in relation to the 2019 Deferral Agreement, the 2020 February Deferral Agreement, the 2020 March Deferral Agreement, the 2020 April Deferral Agreement, the 2020 May Deferral Agreement, the 2020 June Deferral Agreement and the 2020 November Deferral Agreement.
In addition, the Common Shares have been suspended from trading since June 19, 2020 on the TSX and August 17, 2020 on the HKEX. As of the date hereof, certain conditions of the Resumption Guidance, including but not limited to the issuance of the audited financial statements for the year ended December 31, 2019, have been fulfilled. However, if the Common Shares become delisted from either the TSX or the HKEX, this would be an event of default under the CIC Convertible Debenture, which could result in the automatic termination of the deferral periods under the 2020 November Deferral Agreement and the acceleration of all principal, interest and other amounts owing under the CIC Convertible Debenture and the 2020 November Deferral Agreement becoming immediately due and payable, in each case without the necessity of any demand upon or notice to the Company by CIC.
The Company also has other current liabilities, including trade and other payables of $77.6 million and interest payable under the CIC Convertible Debenture of $84.8 million as at September 30, 2020. Out of trade and other payables, which require settlement in the short-term, are unpaid taxes of $32.7 million that are repayable on demand by SGS to the Mongolian Tax Authority (“MTA”).
The Company may not be able to settle all trade and other payables on a timely basis, and as a result any continuing postponement in settling certain trade payables owed to suppliers and creditors may impact the mining operations of the Company and result in potential lawsuits and/or bankruptcy proceedings being filed against the Company. Except as disclosed elsewhere in this press release, no such lawsuits or proceedings are pending as at January 4, 2021.
Further, the Company was informed that effective as of February 11, 2020, the Mongolian State Emergency Commission closed Mongolia’s southern border with China in order to prevent the spread of COVID-19. Accordingly, the Company had suspended coal exports to China since February 11, 2020 as a result of the border closure and the closure remained in effect until March 27, 2020.
On March 28, 2020, the Mongolian-Chinese border was re-opened for coal export on a trial basis, with a limit imposed on the total volume of coal that was permitted to be exported during this trial period. The Company has experienced a continuous improvement in the volume of coal exported to China since March 28, 2020. During the period between April to December 2020, an aggregate of 2.4 million tonnes of coal was exported by the Company from Mongolia to China, as compared to an aggregate of 2.6 million tonnes of coal during the same period in the 2019 calendar year.
The border closure had an adverse impact on the Company’s sales and cash flows in the first and second quarter of 2020. In order to mitigate the financial impact of the border closures and preserve its working capital, the Company temporarily ceased major mining operations (including coal mining), reduced production to only coal-blending activities and placed approximately half of its workforce on furlough from February 2020. Since August 2, 2020, the Company has resumed its mining operations, which includes mining, blending and washing of coal. As at December 31, 2020, SGS employed 237 employees at the Ovoot Tolgoi Mine site (December 31, 2019: 383 employees). The Company produced 1.5 million tonnes from August to December 2020, as compared to 2.3 million tonnes from August to December 2019. There were a few COVID-19 cases reported in Ulaanbaatar (being the capital city of Mongolia) on November 11, 2020. As a result, the Mongolian local authorities have taken certain precautionary steps to minimize further transmissions and announced a lockdown of Ulaanbaatar effective as of November 12, 2020. Although the Company’s mining operations and the export of coal from Mongolia to China continues as of the date hereof, there can be no guarantee that the Company will be able to continue exporting coal to China, or the border crossings would not be the subject of additional closures as a result of COVID-19 in the future. The Company will continue to closely monitor the development of the COVID-19 pandemic and the impact it has on coal exports to China and will react promptly to preserve the working capital of the Company.
There are significant uncertainties as to the outcomes of the above events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern and, therefore, the Company may be unable to realize its assets and