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| CI Canadian Banks Coverd Call Income Class ETF | TSX:CIC | Toronto | Exchange Traded Fund |
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SouthGobi Resources Ltd. (TSX:SGQ)(SEHK:1878) (the "Company" or "SouthGobi")
today announced its financial results for the three months ended March 31, 2011.
All figures are in US dollars unless otherwise stated.
HIGHLIGHTS
The Company's highlights for the quarter ended March 31, 2011 and subsequent weeks:
-- Total sales of approximately 450,000 tonnes and revenue of $20.2 million
for the quarter ended March 31, 2011, with both figures representing a
record for any given first quarter and the revenue also being the second
highest quarterly revenue since the commencement of mining operations.
-- Average realized selling price for the first quarter of 2011 was $50 per
tonne, an increase of 56% compared to the fourth quarter of 2010.
-- Direct mining cash costs per tonne sold for the first quarter of 2011
were $18.91 per tonne, a reduction of 15% compared to the first quarter
of 2010.
-- Income from mining operations of $7.7 million resulting in a margin on
revenue of 38%, with both figures representing a quarterly record since
the commencement of mining operations.
-- Substantially completed the process of registering the resource
associated with the Soumber deposit. Mineral resource registration is
the pre-requisite allowing a formal mining license application to be
made.
REVIEW OF QUARTERLY OPERATING RESULTS
The Company's operating results for the previous eight quarters are summarized
in the table below:
--------------------------------------------------
2011 2010
----------------------------------------------------------------------------
QUARTER ENDED 31-Mar 31-Dec 30-Sep 30-Jun 31-Mar
----------------------------------------------------------------------------
Volumes and prices
Raw semi-soft coking coal
Raw coal production
(millions of tonnes) 0.48 0.41 0.18 0.39 0.21
Coal sales (millions of
tonnes) 0.34 0.35 0.11 0.42 0.40
Average realized sales
price (per tonne) $ 56.50 $ 47.08 $ 46.04 $ 44.10 $ 36.62
Raw higher-ash coal
Raw coal production
(millions of tonnes) 0.63 0.97 0.39 0.23 0.01
Coal sales (millions of
tonnes) 0.11 1.12 0.08 0.03 0.03
Average realized sales
price (per tonne) $ 31.68 $ 26.75 $ 25.34 $ 18.82 $ 21.24
Total
Raw coal production
(millions of tonnes) 1.11 1.38 0.57 0.62 0.22
Coal sales (millions of
tonnes) 0.45 1.47 0.19 0.45 0.43
Average realized sales
price (per tonne) $ 50.29 $ 31.56 $ 37.15 $ 42.63 $ 35.52
Costs
Direct cash costs of
product sold (per tonne) $ 18.91 $ 18.53 $ 18.59 $ 21.37 $ 22.25
Total cash costs of
product sold (per tonne) $ 20.61 $ 19.25 $ 22.04 $ 22.30 $ 23.32
Operating statistics
Sunset
Total waste material
moved (millions of bank
cubic meters) 3.85 3.56 2.90 1.73 1.50
Strip ratio (bank cubic
meters of waste rock per
tonne of coal produced) 3.47 2.58 5.09 2.79 6.79
Sunrise
Total waste material
moved (millions of bank
cubic meters) 0.49 0.73 0.43 0.02 -
----------------------------------------------------------------------------
--------------------------------
2009
----------------------------------------------------------
QUARTER ENDED 31-Dec 30-Sep 30-Jun
----------------------------------------------------------
Volumes and prices
Raw semi-soft coking coal
Raw coal production
(millions of tonnes) 0.16 0.35 -
Coal sales (millions of
tonnes) 0.36 0.46 0.38
Average realized sales
price (per tonne) $ 29.55 $ 27.82 $ 29.71
Raw higher-ash coal
Raw coal production
(millions of tonnes) - 0.01 -
Coal sales (millions of
tonnes) - - -
Average realized sales
price (per tonne) $ - $ - $ -
Total
Raw coal production
(millions of tonnes) 0.16 0.36 -
Coal sales (millions of
tonnes) 0.36 0.46 0.38
Average realized sales
price (per tonne) $ 29.55 $ 27.82 $ 29.71
Costs
Direct cash costs of
product sold (per tonne) $ 16.97 $ 11.16 $ 16.64
Total cash costs of
product sold (per tonne) $ 18.29 $ 13.41 $ 18.13
Operating statistics
Sunset
Total waste material
moved (millions of bank
cubic meters) 0.87 1.06 -
Strip ratio (bank cubic
meters of waste rock per
tonne of coal produced) 5.38 2.98 -
Sunrise
Total waste material
moved (millions of bank
cubic meters) - - -
----------------------------------------------------------
In the three months ended March 31, 2011, the Company produced 1.11 million
tonnes of raw coal with a strip ratio of 3.47 compared to production of 0.22
million tonnes with a strip ratio of 6.79 in the three months ended March 31,
2010. Production has increased 405% in the first quarter of 2011 compared to the
first quarter of 2010, primarily due to expansion of the Company's mining fleet
throughout 2010.
In the three months ended March 31, 2011, the Company shipped approximately 0.45
million tonnes of coal at an average realized selling price of approximately $50
per tonne. This compares to 0.43 million tonnes of coal shipped in the three
months ended March 31, 2010 at an average realized selling price of
approximately $36 per tonne.
The average realized selling price for both of the Company's individual coal
types increased in the first quarter of 2011. The average realized selling price
for the raw semi-soft coking coal increased by 20% compared to the fourth
quarter of 2010 and by 54% compared to the first quarter of 2010. The average
realized selling price for the raw higher-ash coal increased by 18% compared to
the fourth quarter of 2010 and by 49% compared to the first quarter of 2010.
Direct cash costs of product sold were $18.91 per tonne in the three months
ended March 31, 2011 compared to $22.25 per tonne in the three months ended
March 31, 2010. Direct cash costs have decreased primarily due to the higher
productivity as a result of the expanded fleet. In the first quarter of 2010
direct cash costs were negatively impacted by the Sunset open pit realignment.
REVIEW OF QUARTERLY FINANCIAL RESULTS
The Company's financial results for the previous eight quarters are summarized
in the table below:
($ in thousands, except for per share information, unless otherwise indicated)
---------------------------------------------------
2011 2010
----------------------------------------------------------------------------
QUARTER ENDED 31-Mar 31-Dec 30-Sep 30-Jun 31-Mar
----------------------------------------------------------------------------
Revenue $ 20,158 $ 41,595 $ 6,597 $ 17,668 $ 13,917
Income/(loss) from mine
operations 7,690 3,376 (6,674) 4,400 1,187
Margin on revenue 38% 8% -101% 25% 9%
Evaluation and
exploration expenses (1,991) (4,144) (6,314) (6,659) (1,651)
Operating loss from
continuing operations (1,020) (8,914) (20,969) (10,595) (6,498)
Net interest
(expense)/income (4,251) (4,191) (4,385) (4,384) (9,024)
Other finance income
/(costs) (40,896) (15,697) 51,507 67,677 (153,410)
Total finance income
/(costs) (45,147) (19,887) 47,122 63,293 (162,434)
Net (loss)/income from
continuing operations
before other finance
income/(costs) (5,706) (13,027) (24,012) (14,376) (14,861)
Income/(loss) from
continuing operations (46,602) (28,720) 27,495 53,301 (168,271)
Income/(loss) from
discontinued operations - - - - -
Net income/(loss) (46,602) (28,720) 27,495 53,301 (168,271)
Net income/(loss) per
share (0.25) (0.16) 0.15 0.29 (1.09)
----------------------------------------------------------------------------
------------------------------
2009
-------------------------------------------------------
QUARTER ENDED 31-Dec 30-Sep 30-Jun
-------------------------------------------------------
Revenue $ 9,960 $ 11,871 $ 10,666
Income/(loss) from mine
operations 1,524 3,234 1,527
Margin on revenue 15% 27% 14%
Evaluation and
exploration expenses (739) (2,150) (1,742)
Operating loss from
continuing operations (6,948) (5,031) (4,783)
Net interest
(expense)/income (8,243) (642) (356)
Other finance income
/(costs) (53,536) - -
Total finance income
/(costs) (61,779) (642) (356)
Net (loss)/income from
continuing operations
before other finance
income/(costs) (16,651) 2,224 (5,139)
Income/(loss) from
continuing operations (70,187) 2,224 (5,139)
Income/(loss) from
discontinued operations 1,034 (26,006) (2,772)
Net income/(loss) (69,153) (23,782) (7,911)
Net income/(loss) per
share (0.52) (0.17) (0.06)
-------------------------------------------------------
The Company recorded a net loss for the three months ended March 31, 2011 of
$46.6 million compared to a net loss of $168.3 million for the three months
ended March 31, 2010. The net loss in the first quarter of 2011 is due primarily
to the $36.8 million loss on the fair value change of the embedded derivatives
in the CIC convertible debenture. The first quarter of 2010 includes a loss on
partial conversion of the CIC convertible debenture of $151.4 million.
The Company incurred an operating loss from continuing operations for the three
months ended March 31, 2011 of $1.0 million compared to a loss of $6.5 million
for the three months ended March 31, 2010. The decrease in the operating loss
can be attributed to several factors, some of the key factors are discussed
below.
Income from Mine Operations
The Company's income from mine operations is composed of revenue and cost of
sales and relates solely to the Mongolian Coal Division. In the first quarter of
2011, the Company had income from mine operations of $7.7 million. This compares
to income from mine operations of $1.2 million in the first quarter of 2010.
Revenue increased from $13.9 million in the three months ended March 31, 2010 to
$20.2 million in the three months ended March 31, 2011 due to selling prices for
individual coal types increasing by between 49% and 54%.
Cost of sales were $12.5 million in the three months ended March 31, 2011,
compared to $12.7 million for the three months ended March 31, 2010. Cost of
sales comprise the direct cash cost of products sold, mine administration costs,
equipment depreciation, depletion of stripping costs, and share-based
compensation.
Administration Expenses
Administration expenses for the three months ended March 31, 2011 were $6.7
million compared to $6.0 million for the three months ended March 31, 2010. The
increase in Administration expenses is impacted by the items discussed below.
Corporate administration fees are higher in the three months ended March 31,
2011, compared to the three months ended March 31, 2010. Corporate
administration fees include office costs, regulatory and filing fees, travel
costs and investor relations costs.
Salaries and benefits, excluding share-based compensation costs, for the three
months ended March 31, 2011 were $0.9 million compared to $0.8 million for the
three months ended March 31, 2010. Share-based compensation expense allocated to
administration expenses was $2.1 million for the three months ended March 31,
2011 and $2.5 million for the three months ended March 31, 2010.
Sustainability and community relations costs are incurred in Mongolia.
Sustainability and community relations expenses were $0.3 million for the three
months ended March 31, 2011 compared to $0.2 million for the three months ended
March 31, 2010. Public infrastructure costs, which relate to the maintenance and
upgrading of public transportation infrastructure used to transport coal from
the Ovoot Tolgoi Mine to the Chinese border, were $0.7 million for the three
months ended March 31, 2011 compared to $0.5 million for the three months ended
March 31, 2010.
Exploration Expenses
The exploration expenditures for the three months ended March 31, 2011 were $2.0
million compared to $1.7 million for the three months ended March 31, 2010. Key
exploration targets for 2011 will include additional drilling at the Soumber
Deposit and the fields surrounding the Soumber Deposit and additional areas
within the Ovoot Tolgoi mining licenses that have not been fully explored.
Exploration activities include drilling, trenching, water exploration and
geological reconnaissance.
Finance Income & Finance Costs
The Company incurred finance costs for the three months ended March 31, 2011 of
$45.6 million compared to $163.0 million in the three months ended March 31,
2010. The finance costs in the first quarter of 2011, relate primarily to a
$36.8 million loss on the fair value change of embedded derivatives in the China
Investment Corporation ("CIC") convertible debenture, $4.5 million interest
expense on the CIC convertible debenture and $3.8 million mark to market loss on
the Company's investment in Kangaroo Resources Ltd. In the three months ended
March 31, 2010, included in finance costs was a $151.4 million non-cash loss on
the partial conversion of the CIC convertible debenture.
The Company finance income is composed entirely of interest income and for the
three months ended March 31, 2011, the Company earned $0.4 million of interest
compared to $0.6 million for the three months ended March 31, 2010. The lower
interest income in the three months ended March 31, 2011 reflects lower cash
balances. The current economic climate has resulted in very low interest rates
especially for US$ denominated investments.
The Company's investment in Aspire Mining Ltd. ("Aspire") continues to be
classified as an available-for-sale financial instrument and in the three months
ended March 31, 2011, the Company recorded an after-tax mark to market gain of
$50.7 million related to Aspire that has been recorded in other comprehensive
income.
FINANCIAL POSITION AND LIQUIDITY
The Company's total assets at March 31, 2011 were $1,025.2 million compared with
$961.9 million at December 31, 2010. At March 31, 2011, the Company had $420.7
million in cash and cash equivalents and $77.3 million in money market
investments for a total liquidity of $498.0 million compared with $492.0 million
in cash and cash equivalents and $62.7 million in money market investments for a
total liquidity of $554.7 million at December 31, 2010.
The Company's long term liabilities at March 31, 2011 were $297.0 million
compared with $252.5 million at December 31, 2010. The increase in long term
liabilities relates to the increase in the fair value of the CIC convertible
debenture and the increase in deferred tax liabilities associated with the
Company's investment in Aspire.
COMMON SHARE REPURCHASE PROGRAM
On June 8, 2010, the Company announced that its Board of Directors authorized a
share repurchase program to purchase up to 2.5 million common shares of the
Company on each or either of the Toronto Stock Exchange and the Hong Kong Stock
Exchange, in aggregate representing up to 5 million common shares of the
Company. As of May 12, 2011, the Company had repurchased 250,750 shares on the
Hong Kong Stock Exchange and 1,255,550 shares on the Toronto Stock Exchange for
a total of 1,506,300 common shares. The Company cancels all shares after they
are repurchased.
OUTLOOK
Through its marketing efforts SouthGobi's continues to develop a more
proliferated customer base. For the second quarter of 2011, the Company will
continue to sell coal through two sales channels, including 'mine gate' and also
direct delivery inside China. Another three new customers have been added
including a major regional steel producer.
Contracted prices for individual coal products for the second quarter of 2011
are generally between 15% and 20% higher than for the first quarter of 2011.
Sales price for the raw semi-soft coking coal product is now generally at or
above $65 per tonne, whilst the raw higher-ash coal is achieving approximately
$40 per tonne. However, SouthGobi anticipates the overall average realized sales
price in the second quarter of 2011 to be similar to the $50 per tonne achieved
in the first quarter due to a higher proportion of the lower value raw higher
ash coal in the sales mix.
Sales volumes for the second quarter of 2011 will be difficult to predict due
to: (a) volumes in April were relatively low as it took some time for key larger
customers to accept SouthGobi's prices; and (b) the Mongolia-China border at
Shivee Khuren-Ceke has been shut for a number of days in May due to the Chinese
holiday at the start of May but also to allow for construction activity on the
road on the Chinese side of the border. SouthGobi anticipates overall sales
volumes for the second quarter of 2011 to be in the range of 600,000 tonnes to
1.3 million tonnes.
Based on the Company's current expectation for volumes, pricing and costs,
SouthGobi anticipates a further expansion of its normalized income from mine
operations in the second quarter of 2011 when compared to the first quarter of
2011.
The success to date and potential for future growth can be attributed to a
combination of the Company's competitive strengths, including the following:
-- Projects are strategically located close to China;
-- Substantial resources and reserves;
-- Produce premium quality coals;
-- Low cost structure due to favorable geographic and geological
conditions;
-- Strong financial profile after the financings in late 2009 and early
2010;
-- Established production with strong growth potential through future
expansion of existing mine capacity and development of the Company's
priority assets; and
-- Experienced management team with strong skills in mining, exploration
and marketing.
Overview and Objectives
The Company continues to focus its efforts on mining, development and
exploration of coking and raw coal products in Mongolia for supply of quality
products to customers in China. As the Company looks forward through 2011, the
Company is encouraged by the overall long term demand for our products. There
are many positive developments in Mongolia, which provide further support that
the mining sector will develop its resource base for long term growth. The
Company is making progress with its sales and marketing efforts, while
continuing to focus on efficiency and prudent financial management and intends
to manage production levels to meet anticipated demand for the Company's
products.
The Company's objectives for 2011 remain unchanged from the year ended December
31, 2010 and are as follows:
-- Grow Ovoot Tolgoi Mine - The additional capacity of the new mining
fleets should support growth in coal availability and sales for 2011
over 2010, and the future.
-- Continue to develop regional infrastructure - The Company's immediate
priority centers on improving roads in the area around Ovoot Tolgoi
Mine. SouthGobi has entered into a contract to design and construct a
coal-haul highway with capacity well in excess of 20 million tonnes per
year for completion by the end of 2012.
-- Advancing the Soumber deposit - SouthGobi intends to further define the
deposit with continued exploration work while also substantially
advancing the feasibility, planning and licensing for a mine at Soumber.
-- Value-adding/upgrading coal - The Company has commenced construction of
a coal-handling facility at Ovoot Tolgoi Mine including the secondary
processing stage of dry air separation.
-- Exploration - Further greenfields exploration will take place, with the
Company planning an exploration budget in the order of $10-20 million.
-- Operations - Continuing to focus on production safety, environmental
protection, operational excellence and community relations.
CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidated Interim Statement of Comprehensive Income
(Unaudited)
(Expressed in thousands of U.S. Dollars, except for share and per share
amounts)
Three months ended
March 31,
------------------------------
2011 2010
------------------------------
Revenue $ 20,158 $ 13,917
Cost of sales (12,468) (12,730)
----------------------------------------------------------------------------
Income from mine operations 7,690 1,187
Administration expenses (6,719) (6,034)
Evaluation and exploration expenses (1,991) (1,651)
----------------------------------------------------------------------------
Operating loss from continuing operations (1,020) (6,498)
Finance costs (45,574) (163,009)
Finance income 427 575
----------------------------------------------------------------------------
Loss before tax (46,167) (168,932)
Current income tax expense (1,753) (10)
Deferred income tax recovery 1,318 671
----------------------------------------------------------------------------
Net loss for the period (46,602) (168,271)
----------------------------------------------------------------------------
OTHER COMPREHENSIVE INCOME
Gain on available-for-sale assets, net of tax 50,748 -
----------------------------------------------------------------------------
Net comprehensive income/(loss) attributable
to equity holders of the Company $ 4,146 $ (168,271)
----------------------------------------------------------------------------
BASIC AND DILUTED LOSS PER SHARE $ (0.25) $ (1.09)
Condensed Consolidated Interim Statement of Financial Position
(Unaudited)
(Expressed in thousands of U.S. Dollars)
As at
------------------------------
March 31, December 31,
2011 2010
------------------------------
ASSETS
Current assets
Cash and cash equivalents $ 420,664 $ 492,038
Trade and other receivables 28,383 30,246
Short term investments 17,488 17,529
Inventories 51,227 26,160
Prepaid expenses and deposits 11,927 10,026
----------------------------------------------------------------------------
Total current assets 529,689 575,999
Non-current assets
Property, plant and equipment 305,763 266,771
Deferred income tax assets 12,760 11,442
Long term investments 176,799 107,416
Other receivables 238 238
----------------------------------------------------------------------------
Total non-current assets 495,560 385,867
----------------------------------------------------------------------------
Total assets $ 1,025,249 $ 961,866
----------------------------------------------------------------------------
EQUITY AND LIABILITIES
Current liabilities
Trade and other payables $ 31,232 $ 24,137
Amounts due under line of credit facility 4,840 -
Current portion of convertible debenture 7,233 6,312
----------------------------------------------------------------------------
Total current liabilities 43,305 30,449
Non-current liabilities
Convertible debenture 282,296 245,498
Deferred income tax liabilities 11,216 3,966
Decommissioning liability 3,476 3,063
----------------------------------------------------------------------------
Total non-current liabilities 296,988 252,527
----------------------------------------------------------------------------
Total liabilities 340,293 282,976
Shareholders' equity
Common shares 1,068,113 1,061,560
Share option reserve 33,052 32,360
Investment revaluation reserve 78,509 27,761
Accumulated deficit (494,718) (442,791)
----------------------------------------------------------------------------
Total shareholders' equity 684,956 678,890
----------------------------------------------------------------------------
Total shareholders' equity and liabilities $ 1,025,249 $ 961,866
----------------------------------------------------------------------------
Net current assets $ 486,384 $ 545,550
Total assets less current liabilities $ 981,944 $ 931,417
REVIEW OF INTERIM RESULTS
The condensed consolidated financial statements for the Company for the three
months ended March 31, 2011, were reviewed by the Audit Committee of the
Company.
SouthGobi's results for the quarter ended March 31, 2011, are contained in the
unaudited Condensed Consolidated Interim Financial Statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations,
available on the SEDAR website at www.sedar.com and SouthGobi Resources website
at www.southgobi.com.
ABOUT SOUTHGOBI RESOURCES
SouthGobi Resources is focused on exploration and development of its Permian-age
metallurgical and thermal coal deposits in Mongolia's South Gobi Region. The
Company's flagship coal mine, Ovoot Tolgoi, is producing and selling coal to
customers in China. The company plans to supply a wide range of coal products to
markets in Asia.
Disclosure of a scientific or technical nature in this release and the Company's
MD&A with respect to the Company's Coal Division was prepared by, or under the
supervision of Dave Bartel, P.Eng., the Company's Vice President, External
Affairs and Investor Relations. Mr. Bartel is a "qualified person" for the
purposes of National Instrument 43-101 of the Canadian Administrators ("NI
43-101").
Forward-Looking Statements: This document includes forward-looking statements.
Forward-looking statements include, but are not limited to: proliferation of
SouthGobi's customer; pricing for individual coal products are between 15% and
20% higher than for the first quarter of 2011; average realized sales prices
similar to $50 per tonne achieved in the first quarter of 2011; sales volumes
for the second quarter of 2011 will be between 600,000 to 1.3 million tonnes;
normalized income from mine operations in the second quarter of 2011 will exceed
the first quarter of 2011; long-term demand for SouthGobi's products; positive
developments in Mongolia will support the mining sector and will develop
Mongolia's resource base; management of production levels to meet anticipated
demand for SouthGobi's products; plans to supply a wide range of coal products
to markets in Asia; and other statements that are not historical facts. When
used in this document, the words such as "plan," "estimate," "expect," "intend,"
"may," and similar expressions are forward-looking statements. Although
SouthGobi believes that the expectations reflected in these forward-looking
statements are reasonable, such statements involve risks and uncertainties and
no assurance can be given that actual results will be consistent with these
forward-looking statements. Important factors that could cause actual results to
differ from these forward-looking statements are disclosed under the heading
"Risk Factors" in SouthGobi's Management Discussion and Analysis of Financial
Condition and Results of Operations for the year ended December 31, 2010 and
quarter ended March 31, 2011, which are available at www.sedar.com.
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