SGQ.V · 2021-03-30

Southgobi Resources Announces Fourth Quarter and Full Year 2020 Financial and Operating Results

Production Results Financials

R E S O U R C E S March 30, 2021

SOUTHGOBI RESOURCES ANNOUNCES FOURTH QUARTER AND FULL YEAR 2020 FINANCIAL AND OPERATING RESULTS

HONG KONG – 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 quarter and the year ended December 31, 2020. All figures are in U.S. dollars (“USD”) unless otherwise stated.

The Board of Directors (the “Board”) wish to inform that the Company’s independent auditors, BDO Limited (“BDO”), have completed their audit of the consolidated financial statements of the Company for the year ended December 31, 2020 in accordance with Canadian generally accepted auditing standards and would like to announce the audited annual results of the Company for the year ended December 31, 2020 together with the comparative figures for the previous year and the respective notes in this announcement.

SIGNIFICANT EVENTS AND HIGHLIGHTS

The Company’s significant events and highlights for the year ended December 31, 2020 and the subsequent period to March 30, 2021 are as follows:

Operating Results – The Company’s sales volume decreased from 3.7 million tonnes in 2019 to 2.6 million tonnes in 2020 due to the impact of the Coronavirus Disease 2019 (“COVID-19”) pandemic. The average selling price of coal decreased from $34.9 per tonne in 2019 to $33.0 per tonne in 2020. The decrease in the average selling price was principally attributable to 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 $15.3 million profit from operations in 2020 compared to a $29.8 million profit in 2019. The financial results were impacted by (i) the closure of the Mongolia-China border beginning as of February 11, 2020 which resulted in the Company being unable to export its coal products to China during the first quarter of 2020; (ii) the export volume limitation imposed following the reopening of the Mongolia-China border on a trial basis on March 28, 2020; and (iii) the provision for commercial arbitration of $4.6 million recorded in connection with the Company entering into a settlement agreement with First Concept Industrial Group Limited (“First Concept”) on June 7, 2020.
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Impact of the 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 Mongolia-China 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.

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 closure 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 in February 2020. On August 2, 2020, the Company resumed its mining operations. Although 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 closure as a result of COVID-19 or any variants thereof 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 Mongolia-China 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 (together with its wholly-owned subsidiaries and affiliates, “CIC”) convertible debenture (“CIC Convertible Debenture”) – 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 deferral agreement signed on April 23, 2019 (the “2019 Deferral Agreement”); and (ii) approximately $0.7 million of fees (the “Management Fee”) which was due and payable on February 14, 2020 to CIC under the amended and restated mutual cooperation agreement dated November 19, 2009 (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.
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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 Fee 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 Fee 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 and 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 payment in kind interest (“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”).

On October 29, 2020, the Company obtained an order from the British Columbia Securities Commission (the “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 2020 November Deferral Agreement became effective on January 21, 2021, being the date on which the 2020 November Deferral Agreement was approved by shareholders at the Company’s annual and special meeting of shareholders. As a consequence of the Company not entering into a deferral agreement with CIC as at December 31, 2020, International Accounting Standard (“IAS”) 1 requires the Company to classify the entire balance of the CIC Convertible Debenture as a current liability as at December 31, 2020.

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 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 Amounts would otherwise have been due and payable under the CIC Convertible Debenture or the June 2020 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 June 2020 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.
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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.
Settlement with First Concept – On June 7, 2020, SouthGobi Sands LLC (“SGS”), a subsidiary of the Company, entered into a settlement agreement with First Concept, pursuant to which SGS agreed to pay to First Concept a settlement sum in the amount of $8.0 million in full and final settlement of any and all claims which First Concept may have against SGS in relation to Arbitration Award (as defined below), the subject matter of the Arbitration Award including any claims for interests and costs and the fees and expenses of the Arbitration Award, and any and all enforcement proceedings and applications in any jurisdictions, and in relation to the deed of settlement with First Concept (the “Full Settlement Sum”). The Full Settlement Sum was fully satisfied by the Company in June 2020 and the outstanding payable to First Concept as of the date hereof is $nil.
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 a 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 and Analysis of Financial Condition and Result 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 MD&A, in each case prior to the filing deadline of June 15, 2020.

On February 5, 2021, the BCSC and the Ontario Securities Commission granted a full revocation of the CTO. Trading in the Common Shares resumed on the TSX on February 8, 2021.

Suspension of Trading on HKEX – At the request of the Company, trading in the Common Shares 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 February 9, 2021, the Company confirmed that it has fulfilled all the conditions stated in the resumption guidance to the satisfaction of the HKEX. Trading in the Common Shares resumed on the HKEX on February 10, 2021.

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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.

On February 15, 2021, the Company announced that the TSX Continued Listing Committee determined that the Company satisfies the TSX’s applicable requirements for continued listing.

Restoration of Soumber Deposit Mining Licenses – On August 26, 2019, SGS received a letter (the “Notice Letter”) from the Mineral Resource Authority of Mongolia (“MRAM”) notifying that the Company’s three mining licenses (MV-016869, MV-020436 and MV-020451) (the “Soumber Mining Licenses”) for the Soumber Deposit have been terminated by the Head of Cadastre Division of MRAM effective as of August 21, 2019.

On March 2, 2021, SGS received a notice from the Mongolian governmental authority that the Soumber Mining Licenses have been reinstated effective as of March 2, 2021.

Changes in Management and Directors

Mr. Wen Yao: Mr. Yao resigned as a non-executive director on March 11, 2020.

Mr. Jianmin Bao: Mr. Bao was appointed as a non-executive director on March 18, 2020.

Mr. Shougao Wang: Mr. Wang resigned as Chief Executive Officer and an executive director on March 31, 2020.

Mr. Dalanguerban: Mr. Dalanguerban was appointed as Chief Executive Officer and an executive director on March 31, 2020.

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.

Mr. Weiguo Zhang: Mr. Zhang resigned as Chief Financial Officer on February 10, 2021.

Mr. Alan Ho: Mr. Ho was appointed as acting Chief Financial Officer on February 10, 2021.

Mr. Aiming Guo: Mr. Guo resigned as Chief Operating Officer on February 10, 2021.

Mr. Tao Zhang: Mr. Zhang has been re-designated from Vice President to Vice President of Sales on February 10, 2021.

Mr. Munkhbat Chuluun: Mr. Chuluun was appointed as Vice President of Public Relations on February 10, 2021.

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.

Refer to section “Liquidity and Capital Resources” for details.

OVERVIEW OF OPERATIONAL DATA AND FINANCIAL RESULTS

Summary of Annual Operational Data

Year ended December 31, 2020

2019

Sales Volumes, Prices and Costs

Premium semi-soft coking coal

1.01

Coal sales (millions of tonnes) 0.67 $ 33.22 $ Average realized selling price (per tonne) 32.96 Standard semi-soft coking coal/premium thermal coal

1.43

Coal sales (millions of tonnes) 2.35 $ 31.69 $ Average realized selling price (per tonne) 33.54 Standard thermal coal

–

Coal sales (millions of tonnes) 0.09 $ – $ Average realized selling price (per tonne) 29.43 Washed coal

0.19

Coal sales (millions of tonnes) 0.63 $ 41.96 $ Average realized selling price (per tonne) 43.05 Total

2.63

Coal sales (millions of tonnes) 3.74 $ 33.01 $ Average realized selling price (per tonne) 34.88

1.49

Raw coal production (millions of tonnes) 5.05

$ 22.30 $ Cost of sales of product sold (per tonne) 22.57 $ 12.73 $ Direct cash costs of product sold (per tonne) ⁽ⁱ⁾ 14.84 $ 1.33 $ Mine administration cash costs of product sold (per tonne) ⁽ⁱ⁾ 1.08 $ 14.06 $ Total cash costs of product sold (per tonne) ⁽ⁱ⁾ 15.92

Other Operational Data 5.34

Production waste material moved (millions of bank cubic meters) 18.22 Strip ratio (bank cubic meters of waste material per tonne of

3.59

coal produced) 3.61

0.03

Lost time injury frequency rate ⁽ⁱⁱ⁾ 0.06

(i) A Non-International Financial Reporting Standards (“non-IFRS”) financial measure, which does not have a standardized meaning according to International Financial Reporting Stardards (“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.

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Overview of Annual Operational Data

As at December 31, 2020, the Company had a lost time injury frequency rate of 0.03 per 200,000 man hours based on a rolling 12-month average.

The Company experienced a decrease in the average selling price of coal from $34.9 per tonne in 2019 to $33.0 per tonne in 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 2020 consisted of approximately 39% of premium semi-soft coking coal, 54% of standard semi-soft coking coal/premium thermal coal and 7% of washed coal compared to approximately 18% of premium semi-soft coking coal, 63% of standard semi-soft coking coal/ premium thermal coal, 17% of washed coal and 2% of standard thermal coal in 2019.

Sales volume decreased from 3.7 million tonnes in 2019 to 2.6 million tonnes in 2020.

The Company’s production in 2020 was lower than 2019 as a result of the temporary cessation of the Company’s major mining operations (including coal mining) during February to August 2020 for the purpose of mitigating the financial impact of the border closure and preserving the Company’s working capital, yielding 1.5 million tonnes for 2020 as compared to 5.1 million tonnes for 2019.

The Company’s unit cost of sales of product sold for 2020 was $22.3 per tonne, which is similar to $22.6 per tonne for 2019.

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Summary of Annual Financial Results

Year ended December 31, 2020

$ in thousands, except per share information 2019

$ 85,951 $ Revenue ⁽ⁱ⁾ 129,712

(58,657)

Cost of sales ⁽ⁱ⁾ (84,400)

32,147

Gross profit excluding idled mine asset costs ⁽ⁱⁱ⁾ 49,310

27,294

Gross profit 45,312

(4,821)

Other operating expenses (5,581)

(6,971)

Administration expenses (9,447)

(226)

Evaluation and exploration expenses (452)

15,276

Profit from operations 29,832

(31,692)

Finance costs (28,010)

2,613

Finance income 4,417

1,313

Share of earnings of a joint venture 1,329

(7,599)

Current income tax expense (3,367)

(20,089)

Net profit/(loss) attributable to equity holders of the Company 4,201 $ (0.07) $ Basic and diluted earnings/(loss) per share 0.02

(i) Revenue and cost of sales related to the Company’s Ovoot Tolgoi Mine within the Coal Division operating segment. Refer to note 2 of the selected information from the notes to the consolidated financial statements for further analysis regarding the Company’s reportable operating segments.

(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 Annual Financial Results

The Company recorded a $15.3 million profit from operations in 2020 compared to a $29.8 million profit in 2019. The financial results were impacted by (i) the closure of the Mongolia-China border beginning as of February 11, 2020 which resulted in the Company being unable to export its coal products to China during the first quarter of 2020; (ii) the export volume limitation imposed following the reopening of the Mongolia-China border on a trial basis on March 28, 2020; and (iii) the provision for commercial arbitration of $4.6 million recorded in connection with the Company entering into a settlement agreement with First Concept on June 7, 2020.

Revenue was $86.0 million in 2020 compared to $129.7 million in 2019. The Company’s effective royalty rate for 2020, based on the Company’s average realized selling price of $33.0 per tonne, was 12.2% or $4.0 per tonne, compared to 8.9% or $3.1 per tonne in 2019 (based on the average realized selling price of $34.9 per tonne). The increase in effective royalty rate was mainly due to the new royalty regime introduced by the Government of Mongolia in the third quarter of 2019.

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Royalty regime in Mongolia

The royalty regime in Mongolia is evolving and has been subject to change since 2012.

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.

Cost of sales was $58.7 million in 2020 compared to $84.4 million in 2019. The decrease in cost of sales in 2020 was mainly due to the effect of decreased sales volume. Cost of sales consists of operating expenses, share-based compensation expense, equipment depreciation, depletion of mineral properties, royalties, coal stockpile inventory impairment/(reversal of 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, refer to section “Non-IFRS Financial Measures” for further analysis) during the year.

Year ended December 31, 2020

$ in thousands 2019

$ 36,974 $ Operating expenses 59,549 Share-based compensation expense 9

6,243

Depreciation and depletion 11,028

10,563

Royalties 11,639

–

Reversal of impairment of coal stockpile inventories (1,823)

Cost of sales from mine operations	53,804	80,402
Cost of sales related to idled mine assets	4,853	3,998
Cost of sales	$ 58,657 $	84,400

Operating expenses in cost of sales were $37.0 million in 2020 compared to $59.5 million in 2019. The overall decrease in operating expenses was primarily due to the decreased sales volume from 3.7 million tonnes in 2019 to 2.6 million tonnes in 2020.

Cost of sales in 2019 included a reversal of impairment of coal stockpile inventories of $1.8 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 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 2020 included $4.9 million related to depreciation expenses for idled equipment (2019: $4.0 million).

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