Hong Kong-based SouthGobi Resources (TSX:SGQ)(HKSE:1878) said Tuesday that sales volumes and revenue declined in the third quarter as mining activities at its coal properties remained fully curtailed during the period.
Two months ago, Aluminum Corporation of China (Chalco) dropped a $925 million bid for up to 60 per cent of coal producer SouthGobi, as takeover efforts were hindered by the Mongolian government, which passed a law in May restricting foreign state-owned companies from controlling key assets.
Operations at SouthGobi's Ovoot Tolgoi Mine in Mongolia were "entirely curtailed" at the end of the second quarter, citing weak market conditions and regulatory issues relating to the cancelled bid.
Activities remained limited throughout the third quarter to manage coal inventories and to maintain efficient working capital levels, the company said.
But in some good news for the coal miner, SouthGobi received a letter from the Mineral Resources Authority of Mongolia (MRAM) confirming that as of September 4, all exploration and mining licenses held by the company were in good standing.
For the three months that ended September 30, when mining was curtailed, the company sold 0.31 million tonnes of coal at an average realized selling price of $15.79 per tonne, compared to sales of 1.37 million tonnes at an average price of $54.01 per tonne a year earlier.
Aside from the uncertainty revolving around the possibility of a formal request for suspension of mining activity from MRAM, sales volumes were also hit by the continued softening of inland China coking coal markets closest to SouthGobi's operations.
The decrease in selling prices was due to the company's sales mix - only higher-ash coals stockpiles were sold in latest period, for which prices were significantly reduced.
The miner continued to suspend uncommitted capital and exploration expenditures to preserve financial resources.
Revenue was $3.3 million in the latest period, down from $60.5 million a year ago. Net loss was $54.6 million, or 30 cents per share, compared to a profit of $55.9 million, or a loss of 2 cents per share, a year ago.
Direct cash costs of product sold, excluding idled mine costs, were $8.23 per tonne, compared to $22.64 per tonne in the third quarter of 2011.
SouthGobi embarked on sweeping changes at the board level and in senior management, appointing industry veteran Ross Tromans as president and CEO in September, and announcing the resignation of three existing directors and the appointment of five new directors effective September 3.
The company noted Tromans has around 30-years sales and marketing experience in the coal and energy sectors covering the Asian and North American markets.
SouthGobi's flagship coal mine, Ovoot Tolgoi, produces and sells coal to customers in China. The company plans to supply a wide range of coal products to markets in Asia.