SouthGobi Resources Announces Second Quarter 2010 Financial and Operating Results

SouthGobi Resources Ltd. (TSX:SGQ)(SEHK:1878) (the "Company" or "SouthGobi")
today announced its financial results for the six months ended June 30, 2010.
All figures are in US dollars unless otherwise stated.


HIGHLIGHTS

The Company's highlights for the quarter ended June 30, 2010 are:



--  Total shipments for the three months ended June 30, 2010 were 449,000
    tonnes. 
--  Average realized selling price was $43 per tonne, approximately 19%
    higher than the average realized selling price in the first quarter of
    2010. 
--  Income from mine operations for the quarter ended June 30, 2010 was $4.4
    million as compared to $1.2 million for the quarter ended March 31,
    2010. 
--  Commenced construction of a basic coal-handling facility at Ovoot Tolgoi
    Complex. 
--  Board of Directors authorized a share repurchase program. 
--  Operations were impacted by delayed commissioning of final second mining
    fleet Terex MT4400 haul trucks and low availability of Terex TR100 haul
    trucks from first mining fleet. 
--  Direct mining cash costs reduced compared to the quarter ended March 31,
    2010 but remained high at $21.37 per tonne. 



OVOOT TOLGOI COMPLEX

The Company continues to ramp up production at the Ovoot Tolgoi Mine. The
additional equipment for the second mining fleet, including the larger Liebherr
996 shovel, four 218 tonne Terex haul trucks and various auxiliary equipment,
was delivered throughout the fourth quarter of 2009 and early 2010 and full
commissioning was completed in June 2010. The Company expects that the third
mining fleet, already ordered, will be commissioned in late 2010. An additional
fourth fleet of equipment has been ordered for delivery in 2011.


COAL-HANDLING FACILITY

To further enhance product value, the Company commenced construction of a basic
coal-handling facility in June 2010. The coal-handling facility will allow the
Company to remove ash (waste rock) and enable the blending of coal from
different seams to create higher-value products.


Expected to be operational in early 2011, the coal-handling facility will
include a 300-tonne-capacity dump hopper, which will receive run-of-mine coal
from the Ovoot Tolgoi Mine and feed a coal rotary breaker that will size coal to
a maximum of 50 millimeters and reject oversize ash. A radial stacker will
facilitate loading of the sized coal into customers' trucks.


The coal-handling facility will be located between Ovoot Tolgoi's Sunset and
Sunrise open-pits and is expected to initially operate on one 12-hour shift per
day, six days per week. Annual capacity on that basis will be up to six million
tonnes of coal, and can be adjusted upwards as mining capacity increases.


COMMON SHARE REPURCHASE PROGRAM

On June 8, 2010 the 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 August 11,
2010, the Company had not repurchased any common shares.


REVIEW OF RESULTS

Review of results for the three months ended June 30, 2010

In the three months ended June 30, 2010, 0.62 million tonnes of coal was
produced with a strip ratio of 2.79 compared to production of 0.22 million
tonnes with a strip ratio of 6.79 in the three months ended March 31, 2010.


In December 2009, the Company commenced realigning the Sunset open-pit for a
north-south entry. Waste removal at Ovoot Tolgoi was originally along the seam's
strike-length, i.e. east-west. This allowed for better utilization of capital
when financing was more constrained. Strip ratio and waste movements were lower
and customer trucks were allowed to enter directly in the shallow pit for
loading. However, such alignment is not beneficial for the longer-term because
it becomes less efficient as the pit depth increases. The Sunset open-pit
realignment has been completed but continued to impact cost per tonne sold in
the second quarter and direct cash cost per tonne produced started decreasing
towards the end of the second quarter.


In addition to the impact of the pit-realignment, costs were adversely impacted
by fleet issues. Delayed commissioning of the final two Terex MT4400 (218 tonne)
haul trucks from the second mining fleet meant the Liebherr 996 shovel was not
operating efficiently. Furthermore, the Company's Terex TR100 (91-tonne
capacity) haul trucks from the first mining fleet have been experiencing poor
equipment availability ratios (approximately 72% availability for the second
quarter of 2010), leading to lower productivity and increased maintenance costs.


In the three months ended June 30, 2010, the Company shipped approximately 0.45
million tonnes of coal at an average realized selling price of approximately $43
per tonne. This compares to 0.38 million tonnes of coal shipped in the three
months ended June 30, 2009 at an average realized selling price of $30 per
tonne. The increased sales volume and average realized selling price in the
second quarter of 2010 resulted in higher sales revenue compared to the second
quarter of 2009. Variability in the average realized selling price relates
primarily to increased prices of individual customer contracts.


The Company recorded net income for the three months ended June 30, 2010 of
$53.3 million compared to a net loss of $168.3 million for the three months
ended March 31, 2010 and a net loss of $7.9 million for the three months ended
June 30, 2009. The net income in the second quarter of 2010 is due primarily to
the $72.2 million gain on the fair value change of the embedded derivatives in
the China Investment Corporation ("CIC") convertible debenture.


The income from continuing operations includes finance income for the three
months ended June 30, 2010 of $72.9 million compared to $0.6 million for the
three months ended March 31, 2010. The significant increase in finance income
relates to the fair value change of embedded derivatives in the CIC convertible
debenture. The Company incurred finance costs for the three months ended June
30, 2010 of $9.6 million compared to $171.2 million for the three months ended
March 31, 2010. In the first quarter of 2010, finance costs included a $151.4
million loss on partial conversion of the CIC convertible debenture. The large
fluctuations in finance income and finance costs are due primarily to
fluctuations in the Company's share price which impact the carrying value of the
CIC convertible debenture.


The Company incurred an operating loss from continuing operations for the three
months ended June 30, 2010 of $10.6 million compared to a $4.8 million loss for
the three months ended June 30, 2009. The operating loss from continuing
operations is impacted by the factors discussed below.


Revenue and income from mine operations relate to the Mongolian Coal Division.
Revenues increased to $17.7 million in the second quarter of 2010 from $13.9
million in the first quarter of 2010 and from $10.7 million in the second
quarter of 2009. Revenues have increased due to both higher sales volumes and
higher realized sales prices.


Income from mine operations increased to $4.4 million in the second quarter of
2010 from $1.2 million in the first quarter of 2010 and $1.5 million in the
second quarter of 2009. Income from mine operations in the second quarter of
2010 was higher than all previous quarters due primarily to the higher average
realized sales price. Income from mine operations will vary depending on sales
volume, sales price, production and unit costs.


Cost of sales was $13.3 million in the three months ended June 30, 2010,
compared to $9.1 million for the three months ended June 30, 2009. The increase
in cost of sales relates to the higher sales volume and higher production costs
in 2010. Also, during the quarter ended June 30, 2010, the Company continued to
realign the open-pit resulting in increased operating costs. Additional mobile
equipment acquired in 2009 and 2010, resulted in higher depreciation in the
quarter ended June 30, 2010. Cost of sales will vary depending on sales volume,
production and unit costs which directly affects income from mine operations.


Direct cash costs of product sold were $21.37 per tonne for the three months
ended June 30, 2010 compared to $22.25 per tonne for the three months ended
March 31, 2010. The completion of the pit realignment during the second quarter
of 2010 contributed to this decrease.


Administration expenses for the three months ended June 30, 2010 were $8.3
million compared to $4.6 million for the three months ended June 30, 2009.
Administration expenses for the three months ended June 30, 2010, includes
approximately $2.3 million of stock-based compensation compared to approximately
$2.6 million for the three months ended June 30, 2009. As a result of higher
sales volumes and lower mine administration costs in 2010, mine administration
costs per tonne decreased to $0.93 per tonne for the three months ended June 30,
2010, compared to $1.50 per tonne for the three months ended June 30, 2009.


Exploration costs for the three months ended June 30, 2010, increased to $6.7
million from $1.7 million for the three months ended June 30, 2009, as drilling
continued on Soumber and additional greenfield targets in Mongolia. Exploration
costs will vary from quarter to quarter depending on the number of projects and
the related seasonality of the exploration programs.


Review of results for the six months ended June 30, 2010

In the six months ended June 30, 2010, 0.84 million tonnes of coal was produced
with a strip ratio of 3.84 compared to production of 0.16 million tonnes with a
strip ratio of 2.19 in the six months ended June 30, 2009. The Company's
initiative to realign the open-pit at Ovoot Tolgoi Mine announced in December
2009 is reflected in the higher strip ratio.


In the six months ended June 30, 2010, the Company shipped approximately 0.87
million tonnes of coal at an average realized selling price of approximately $39
per tonne. This compares to 0.51 million tonnes of coal shipped in the six
months ended June 30, 2009 at an average realized selling price of $30 per
tonne. The increased sales volume and average realized selling price in the six
months ended June 30, 2010 resulted in higher sales revenue compared to the six
months ended June 30, 2009.


The Company incurred an operating loss from continuing operations for the six
months ended June 30, 2010 of $17.1 million compared to $11.3 million for the
six months ended June 30, 2009. This variance is due to the factors discussed
below.


Cost of sales was $26.0 million in the six months ended June 30, 2010 compared
to $12.4 million for the six months ended June 30, 2009. Cost of sales includes
the direct cash cost of products sold, mine administration costs, equipment
depreciation and depletion of stripping costs. The increase in cost of sales for
the six months ended June 30, 2010 is due to the higher sales volumes and higher
production costs.


Direct cash costs of product sold were $21.81 per tonne for the six months ended
June 30, 2010 compared to $16.05 per tonne for the same period in 2009. The
increase in direct cash costs is due primarily to the realignment of the Sunset
open-pit which began in December 2009.


Administration expenses for the six months ended June 30, 2010 were $14.4
million compared to $10.7 million for the six months ended June 30, 2009.
Administration expenses for 2010 were impacted by and include the following
items.


Corporate administration costs for the six months ended June 30, 2010 were $2.9
million compared to $1.0 million for the six months ended June 30, 2009. Public
infrastructure costs for the six months ended June 30, 2010 were $2.3 million
compared to $nil for the six months ended June 30, 2009. Administration expenses
for the six months ended June 30, 2010, include $4.8 million of stock based
compensation compared to $5.8 million for the six months ended June 30, 2009.


Exploration expenses for the six months ended June 30, 2010, were $5.8 million
higher than the six months ended June 30, 2009. Increased exploration expense in
2010 relates to drilling at the Soumber deposit and other greenfield targets.


FINANCIAL POSITION AND LIQUIDITY

The Company's total assets at June 30, 2010 were $951.4 million compared with
$974.4 million at March 31, 2010. The decrease in total assets relates primarily
to cash used in operating activities. At June 30, 2010 the Company had $744.4
million in cash and cash equivalents and money market investments compared to
$800.6 million at March 31, 2010. This decrease is primarily related to cash
used in operating activities and cash used to purchase property, plant and
equipment of $29.8 million.


The Company's long term liabilities at June 30, 2010 were $276.2 million
compared with $348.4 million at March 31, 2010. The decrease in long term
liabilities relates to the decrease in the fair value of the CIC convertible
debenture.


CORPORATE GOVERNANCE

The Company has, throughout the six months ended June 30, 2010, applied the
principles and complied with the requirements of its corporate governance
practices as defined by the Board and all applicable statutory, regulatory and
stock exchange listings standards.


COMPLIANCE WITH MODEL CODE

The Company has adopted policies regarding directors' securities transactions in
its Corporate Disclosure, Confidentiality and Securities Trading policy that has
terms that are no less exacting than those set out in the Model Code of Appendix
10 of the rules governing the listing of securities on the Hong Kong Stock
Exchange.


The Board confirms that all of the Directors of the Company have complied with
the required policies in the Company's Corporate Disclosure, Confidentiality and
Securities Trading policy throughout the six months ended June 30, 2010.


PURCHASE, SALE AND REDEMPTION OF THE COMPANY'S LISTED SECURITIES

Neither the Company nor any of its subsidiaries purchased, sold or redeemed any
of the Company's listed securities during the six months ended June 30, 2010.


OUTLOOK

It is difficult to reliably forecast commodity prices and customer demand for
the Company's products; however the Company's sales and marketing efforts
continue to provide positive results. There is still informal evidence that
suggests Mongolia will set a new record for coal shipments to China in 2010 and
become a significant supplier of China's coal needs.


For the quarter ended June 30, 2010, revenue ($17.7 million) and income from
mine operations ($4.4 million) were records for the Company. Also, the Company
recorded its highest average realized selling price for the quarter ($43 per
tonne).


From an operating perspective, the Company is encountering two issues that will
impact its short term outlook. Firstly, there will be proportionately less of
the better quality coal coming from the #5 seam in the near-term mine plan.
Secondly, the Company is currently experiencing areas of higher sulphur than
originally anticipated in mine plans and studies. Some of the higher sulphur
coal will not be attractive to customers in its current form and may need to be
stockpiled until appropriate processing is in place or blending opportunities
arise. With these issues in mind, the Company doesn't expect the rate of coal
sales volumes to be substantially different for the remainder of 2010 than for
the six months ended June 30, 2010.


SouthGobi continues to increase pricing of its coals. Sales contracts for the
third quarter of 2010 reflect on average in excess of a further 10% increase in
pricing for the premium coal product. However, the Company anticipates the sales
mix to be more heavily weighted to lower value products in the third quarter of
2010 with a potential small decline in overall average selling price.


With the full commissioning of the second mining fleet, capacity to move
material is now much higher than for the first half of 2010. For example, in
excess of one million bank cubic meters of waste was mined in the month of July.
SouthGobi has received five Terex MT4400 (218 tonne) haul trucks for the third
fleet in addition to the four Terex MT4400 haul trucks commissioned for the
second fleet. Those trucks are being assembled on site at Ovoot Tolgoi Mine. The
hydraulic excavator has been shipped from Europe and is expected to be delivered
in late-2010 along with various other pieces of ancillary equipment.


SouthGobi continues to assess fleet requirements at Ovoot Tolgoi Mine including
the consideration of adding additional equipment to expand capacity beyond
current plans.


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 and growing 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 and are able to leverage the expertise, experience and
    relationships of its principal shareholder, Ivanhoe Mines Ltd. 


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          Six months ended
                                 June 30,                  June 30,
                         ----------------------  -------------------------
                               2010        2009          2010         2009
                         ----------  ----------  ------------  -----------
CONTINUING OPERATIONS
Revenue                  $   17,668   $  10,666   $    31,585   $   14,207
Cost of sales               (13,268)     (9,139)      (25,998)     (12,352)
--------------------------------------------------------------------------
Income from mine
 operations                   4,400       1,527         5,587        1,855

Administration expenses      (8,336)     (4,568)      (14,370)     (10,687)
Evaluation and
 exploration expenses        (6,659)     (1,742)       (8,310)      (2,511)
--------------------------------------------------------------------------
Operating loss from
 continuing operations      (10,595)     (4,783)      (17,093)     (11,343)

Finance costs                (9,588)       (356)     (171,224)        (418)
Finance income               72,881           -        72,085            5
--------------------------------------------------------------------------
Income/(loss) before tax     52,698      (5,139)     (116,232)     (11,756)
Current income tax
 expense                       (368)          -          (378)           -
Deferred income tax
 recovery                       971           -         1,642            -
--------------------------------------------------------------------------
Income/(loss) from
 continuing operations       53,301      (5,139)     (114,968)     (11,756)
Loss from discontinued
 operations                       -      (2,772)            -       (6,115)
--------------------------------------------------------------------------
Net income/(loss) and
 comprehensive income/(loss)
 attributable to equity
 holders of the Company  $   53,301   $  (7,911)  $  (114,968)  $  (17,871)
--------------------------------------------------------------------------
--------------------------------------------------------------------------

BASIC INCOME/(LOSS)
 PER SHARE FROM:
Continuing operations    $     0.29   $   (0.04)  $     (0.68)  $    (0.09)
Discontinued operations           -       (0.02)            -        (0.05)
--------------------------------------------------------------------------
Continuing and
 discontinued operations $     0.29   $   (0.06)  $     (0.68)  $    (0.14)
--------------------------------------------------------------------------
--------------------------------------------------------------------------

DILUTED INCOME/(LOSS)
 PER SHARE FROM:
Continuing operations    $     0.28   $   (0.04)  $     (0.68)  $    (0.09)
Discontinued operations           -       (0.02)            -        (0.05)
--------------------------------------------------------------------------
Continuing and
 discontinued operations $     0.28   $   (0.06)  $     (0.68)  $    (0.14)
--------------------------------------------------------------------------
--------------------------------------------------------------------------


Condensed Consolidated Interim Statement of Financial Position
(Unaudited)
(Expressed in thousands of U.S. Dollars)

                                                          As at
                                              ----------------------------
                                                   June 30,    December 31,
                                                      2010            2009
                                              ------------   -------------
ASSETS
Current assets
Cash and cash equivalents                     $    667,204   $    357,342
Trade and other receivables                         18,521         12,328
Short term investments                               2,498         14,999
Inventories                                         24,982         16,384
Prepaid expenses and deposits                       10,851          8,119
-------------------------------------------------------------------------
Total current assets                               724,056        409,172

Non-current assets
Property, plant and equipment                      139,158         82,705
Deferred listing costs                                   -          4,565
Deferred income tax assets                           8,589          6,947
Long term investments                               79,330         57,070
Other receivables                                      238            225
-------------------------------------------------------------------------
Total non-current assets                           227,315        151,512
-------------------------------------------------------------------------
Total assets                                  $    951,371   $    560,684
-------------------------------------------------------------------------
-------------------------------------------------------------------------

EQUITY AND LIABILITIES
Current liabilities
Trade and other payables                      $     14,516   $     12,669
Amounts due under line of credit facility            2,703          3,009
Current portion of convertible debenture             4,296          4,712
-------------------------------------------------------------------------
Total current liabilities                           21,515         20,390

Non-current liabilities
Convertible debenture                              275,242        542,351
Asset retirement obligation                            994            735
-------------------------------------------------------------------------
Total non-current liabilities                      276,236        543,086
-------------------------------------------------------------------------
Total liabilities                                  297,751        563,476

Shareholders' equity/(deficiency)
Common shares                                    1,063,747        296,419
Share option reserve                                26,352         22,300
Accumulated deficit                               (436,479)      (321,511)
-------------------------------------------------------------------------
Total shareholders' equity/(deficiency)            653,620         (2,792)
-------------------------------------------------------------------------

Total shareholders' equity and liabilities    $    951,371   $    560,684
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Net current assets                            $    702,541   $    388,782
Total assets less current liabilities         $    929,856   $    540,294


OPERATING STATISTICS
--------------------

                                  Three months ended      Six months ended
                                        June 30,              June 30,
                                 -------------------- --------------------
                                       2010      2009       2010      2009
                                 ---------- --------- ---------- ---------

Volumes, Prices and Costs
Coal production
 (millions of tonnes)                  0.62         -       0.84      0.16
Coal sales (millions of tonnes)        0.45      0.38       0.87      0.51
Average realized sales price
 (per tonne)                       $  42.63  $  29.71  $   39.17  $  29.60
Total cash costs of product sold
 (per tonne)                       $  22.30  $  18.13  $   22.80  $  18.23
Direct cash costs of product sold
 (per tonne)                       $  21.37  $  16.64  $   21.81  $  16.05

Operating Statistics
 Sunset
 Total waste material moved
  (millions of bank cubic metres)      1.73         -       3.22      0.34
 Strip ratio (bank cubic metres
  of waste rock per tonne
  of clean coal produced)              2.79         -       3.84      2.19
 Sunrise
 Total waste material moved
  (millions of bank cubic metres)      0.02         -       0.02         -



Disclosures of a scientific or technical nature in this release and the
Company's MD&A in respect of each of SouthGobi's mineral resource properties
were prepared by, or under the supervision of, Stephen Torr, P. Geo, a qualified
person as defined in NI 43-101.


REVIEW OF INTERIM RESULTS

The condensed consolidated financial statements for the Company for the six
months ended June 30, 2010, were reviewed by the Audit Committee of the Company.


SouthGobi's results for the quarter ended June 30, 2010, 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.


Forward-Looking Statements: This document includes forward-looking statements.
Forward-looking statements include, but are not limited to, 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 Dec. 31, 2009, and quarter ended June 30, 2010
which are available at www.sedar.com.