SouthGobi announces fourth quarter and full year 2022 financial and operating results
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R ESOURCE S
March 31, 2023
SouthGobi announces fourth quarter and full year 2022
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, 2022. 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, 2022 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, 2022 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, 2022 and the
subsequent period to March 31, 2023 are as follows:
• Operating Results – In response to the increase in the number of the Coronavirus Disease
2019 ( “COVID-19 ”) case in Ejinaqi, a region in China ’s Inner Mongolia Autonomous Region
where the custom and border crossing are located, reported in late October 2021, the local
government authorities imposed stringent preventive measures throughout the region,
including the temporary closure of the Ceke Port of Entry located at the border of Mongolia
and China. Accordingly, the Company ’s coal exports into China were suspended from
November 2021 to May 2022. Following the reopening of the Ceke Port of Entry for coal
export on May 25, 2022, coal sales increased from 0.9 million tonnes in 2021 to 1.1 million
tonnes in 2022.
Since May 25, 2022, the number of trucks permitted to cross the Chinese-Mongolian border,
as well as the volume of coal exports, have increased. As a result, the Company has gradually
resumed mining operations beginning on July 15, 2022. The Company ’s major mining
operations, including coal mining, have resumed and the Company expects to increase the
volume of coal production in a gradual manner, while coal washing shall remain suspended
for the time being. In response to the market situation, the Company has been mixing some
higher ash content product with the semi-soft coking coal product and sold to the market as
processed coal in 2022.
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The Company experienced an increase in the average selling price of coal from $46.0 per
tonne in 2021 to $65.7 per tonne in 2022, due to improved market conditions in China.
• Financial Results – The Company recorded a $13.6 million profit from operations in 2022
compared to a $4.4 million profit from operations in 2021. The financial results for 2022 were
impacted by a foreign exchange gain of $4.6 million and the increased sales experienced by
the Company following the reopening of the Ceke Port of Entry during the second quarter of
2022.
• Completion of Sale by China Investment Corporation (together with its wholly-owned
subsidiaries and affiliates, “CIC”) of its Interests in the Company – The Company
announced that, as disclosed in the press releases issued by CIC and JD Zhixing Fund L.P.
(the “JDZF”) respectively on August 30, 2022, the sale (the “CIC Sale Transaction ”) by CIC of
all of its interests in the Company, including its 64,766,591 common shares of the Company
and the convertible debenture (the “Convertible Debenture ”), to JDZF was successfully
completed on August 30, 2022. Following the completion of the CIC Sale Transaction, the
respective rights and obligations of CIC under (i) the Convertible Debenture and related
security documents; (ii) the amended and restated mutual cooperation agreement signed on
April 23, 2019 (the “Amended and Restated Cooperation Agreement ”) and related documents;
(iii) the deferral agreements between CIC, the Company and certain of its subsidiaries in
connection with the deferral of interest payments and other outstanding fees under the
Convertible Debenture and the Amended and Restated Cooperation Agreement; and (iv)
the security holders agreement between the Company, CIC and a former shareholder of
the Company, were assigned to JDZF. In connection with the completion of the CIC Sale
Transaction, JDZF agreed to reduce the service fee payable by the Company under the
Amended and Restated Cooperation Agreement from 2.5% to 1.5% of all net revenues
realised by the Company and all of its subsidiaries derived from sales into China.
• Deferral Agreements – On November 11, 2022, the Company and JDZF entered into an
agreement (the “2022 November Deferral Agreement ”) pursuant to which JDZF agreed to
grant the Company a deferral of: (i) semi-annual cash interest payments of $7.1 million
payable to JDZF on November 19, 2022 under the Convertible Debenture; (ii) $1.1 million
in payment-in-kind interest ( “PIK Interest ”) shares issuable to JDZF on November 19, 2022
under the Convertible Debenture (collectively, the “2022 November Deferred Interest ”); and
(iii) the management fees payable to JDZF on November 15, 2022, February 15, 2023, May
16, 2023 and August 15, 2023 under the Amended and Restated Cooperation Agreement (the
“2022 November Deferred Management Fees ”).
The principal terms of the 2022 November Deferral Agreement are as follows:
• Payment of the 2022 November Deferred Interest and the 2022 November Deferred
Management Fees will be deferred until November 19, 2023.
• As consideration for the deferral of the 2022 November Deferred Interest, the Company
agreed to pay JDZF a deferral fee equal to 6.4% per annum on the 2022 November
Deferred Interest payable under the Convertible Debenture, commencing on November
19, 2022.
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• As consideration for the deferral of the 2022 November Deferred Management Fees,
the Company agreed to pay JDZF a deferral fee equal to 1.5% per annum on the
outstanding balance of the 2022 Deferred Management Fees payable under the
Amended and Restated Cooperation Agreement, commencing on the date on which
each such 2022 November Deferred Management Fees would otherwise have been due
and payable under the Amended and Restated Cooperation Agreement.
• If at any time before the 2022 November Deferred Interest and the 2022 November
Deferred Management Fees 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, the Company will first consult with, and obtain written
consent (such consent shall not be unreasonably withheld) from JDZF prior to effecting
such appointment, replacement or termination.
• The Company agreed to comply with all of its obligations under the prior deferral
agreements assigned to JDZF.
• The Company and JDZF agreed that nothing in the 2022 November Deferral Agreement
prejudices JDZF ’s rights to pursue any of its remedies at any time pursuant to the prior
deferral agreements.
On March 24, 2023, the Company and JDZF entered into an agreement (the “2023 March
Deferral Agreement ”) pursuant to which JDZF agreed to grant the Company a deferral of (i)
the cash interest payment of approximately $7.9 million (the “2023 May Cash Interest ”) which
will be due and payable on May 19, 2023 under the Convertible Debenture; (ii) the cash
interest, management fees, and related deferral fees of approximately $8.7 million (the “2022
May Deferred Amounts ”) which are due and payable to JDZF on or before August 31, 2023
under the deferral agreement dated May 13, 2022; (iii) the cash and PIK Interest, and related
deferral fees of approximately $13.5 million (the “2021 July Deferred Amounts ”) which are
due and payable to JDZF on or before August 31, 2023 under the deferral agreement dated
July 30, 2021; and (iv) the cash and PIK Interest, management fees, and related deferral fees
of approximately $110.4 million (the “2020 November Deferred Amounts ”, and together with
the 2023 May Cash Interest, the 2022 May Deferred Amounts and the 2021 July Deferred
Amounts, the “2023 March Deferred Amounts ”) which are due and payable to JDZF on or
before August 31, 2023 under the deferral agreement dated November 19, 2020.
The effectiveness of the 2023 March Deferral Agreement and the respective covenants,
agreements and obligations of each party under the 2023 March Deferral Agreement are
subject to the approvals from the TSX and the shareholders of the Company in accordance
with the requirements of Section 501(c) of the TSX Company Manual and the HKEX listing
rules.
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The principal terms of the 2023 March Deferral Agreement are as follows:
• Payment of the 2023 March Deferred Amounts will be deferred until August 31, 2024
(the “Deferral Date ”).
• As consideration for the deferral of the 2023 March Deferred Amounts which relate to the
payment obligations arising from the Convertible Debenture, the Company agreed to pay
JDZF a deferral fee equal to 6.4% per annum on the outstanding balance of such 2023
March Deferred Amounts, commencing on the date on which each such 2023 March
Deferred Amounts would otherwise have been due and payable under the Convertible
Debenture.
• As consideration for the deferral of the 2023 March Deferred Amounts which relate
to payment obligations arising from Amended and Restated Cooperation Agreement,
the Company agreed to pay JDZF a deferral fee equal to 1.5% per annum on the
outstanding balance of such 2023 March Deferred Amounts commencing on the date on
which each such 2023 March Deferred Amounts would otherwise have been due and
payable under the Amended and Restated Cooperation Agreement.
• The 2023 March Deferral Agreement does not contemplate a fixed repayment schedule
for the 2023 March Deferred Amounts or related deferral fees. Instead, the 2023 March
Deferral Agreement requires the Company to use its best efforts to pay the 2023 March
Deferred Amounts and related deferral fees due and payable under the 2023 March
Deferral Agreement to JDZF. During the period beginning as of the effective date of
the 2023 March Deferral Agreement and ending as of the Deferral Date, the Company
will provide JDZF with monthly updates of its financial status and business operations,
and the Company and JDZF will on a monthly basis discuss and assess in good faith
the amount (if any) of the 2023 March Deferred Amounts and related deferral fees
that the Company may be able to repay to JDZF, 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.
• If at any time before the 2023 March Deferred 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, the Company will first consult
with, and obtain written consent (such consent shall not be unreasonably withheld) from
JDZF prior to effecting such appointment, replacement or termination.
• The Company is convening a special meeting of Shareholders in the second quarter of
2023 to seek disinterested Shareholder approval of the 2023 March Deferral Agreement.
• Issuance of PIK Interest shares – In November 2022, the Company issued 20,947,603
Common Shares to JDZF in accordance with the terms of the Convertible Debenture at an
issuance price of CA$0.185 per Common Share as settlement of $2.9 million in outstanding
PIK Interest owing by the Company to JDZF under the Convertible Debenture and related
deferral agreements.
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• Application for New Listing on the TSX Venture Exchange (the “TSX-V”) and Primary
Listing on the Hong Kong Stock Exchange – On April 20, 2022, the Company announced
that it would be making an application (the “Listing Application ”) to the TSX-V to list its
common shares on the TSX-V. In conjunction with the foregoing, the Company would also
apply for voluntary delisting of its common shares from the TSX (the “Delisting ”), subject to
the Company receiving approval from the TSX-V of the Listing Application. Pursuant to the
Rules Governing the Listing of Securities on the Hong Kong Stock Exchange (the “Listing
Rules”), the Company announced it intends to submit a written notification to the HKEX
stating, among other things, that it will be able to fully comply with the applicable Listing Rules
in connection with the approval of the Listing Application and the Listing Application becoming
effective, and such that its current secondary listing on the HKEX will be converted to a
primary listing.
On July 28, 2022, the Company received an acknowledgment from the HKEX in respect
of the Delisting issued pursuant to paragraph 3.34 of the HKEX ’s Guidance Letter (HKEX-
GL-112-22), which informed the Company that, upon the effective date of the Delisting,
the Hong Kong Stock Exchange will regard the Company as having a primary (rather than
secondary) listing status on the HKEX pursuant to Rule 19C.13A of the HKEX Listing Rules
and the dis-application of the stock marker “S” from the Company ’s trading symbol on the
HKEX will take effect.
On March 6, 2023, the Company announced that it received a conditional acceptance letter
from the TSX-V (the “TSX-V Conditional Approval Letter ”) confirming that the TSX-V Listing
Application had been approved subject to the satisfaction of certain listing conditions of the
TSX-V. The Company is targeting a tentative date for the listing of the Company ’s common
shares on the TSX-V and the date of Delisting from TSX (i.e., the Effective Date) of April 17,
2023. The Company expects that the listing conditions of the TSX-V can be fulfilled by the
Company before the Effective Date.
• Completion of Sale by China Cinda (HK) Asset Management Co., Limited (together with
its wholly-owned subsidiaries and affiliates, “CCAM”) of its Interests in the Company –
The Company announced that, as disclosed in the press releases issued by CCAM and Land
Grand International Holding Limited ( “Land Grand ”) respectively on November 28, 2022, the
sale (the “Cinda Sale Transaction ”) by CCAM of all of its interests in the Company, including
its 46,358,978 common shares of the Company to Land Grand was successfully completed. In
connection with the Cinda Sale Transaction, CCAM assigned to Land Grand certain rights in
and obligations under the subscription agreement between the Company and Novel Sunrise
Investments Limited ( “Novel Sunrise ”) dated February 24, 2015, including Novel Sunrise ’s
right to nominate a certain number of individual(s) for appointment or election to the board
of directors of the Company while its beneficial interests in the Company ’s issued and
outstanding common shares exceed 10%.
• Revolving Credit Facility – On March 2, 2023, an indirect wholly-owned subsidiary of the
Company (the “Borrower ”) entered into an unsecured revolving credit facility (the “Credit
Facility ”) with a related party of JDZF, the Company ’s largest shareholder, which makes
available to the Company up to a maximum principal sum of RMB90 million with a maturity
date of three months after the agreement was signed. The Company has obtained the
requisite acceptance from the TSX for the Credit Facility in accordance with the requirements
of the TSX Company Manual, subject to certain standard conditions.
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The principal terms of the Credit Facility are as follows:
• All obligations under the Credit Facility are due and payable on the maturity date.
• The Credit Facility is a revolving facility, pursuant to which the Borrower will be entitled,
but not obligated, to request advances ( “Advances ”) under the Credit Facility from time
to time, provided that the aggregate amount of the outstanding Advances under the
Credit Facility does not exceed the maximum loan amount at any time. The Borrower is
entitled to repay all or any portion of the outstanding Advances under the Credit Facility
from time to time without bonus or penalty.
• Advances under the Credit Facility will not accrue interest if the Borrower repays any
Advance in full within fifteen (15) days following the date of drawdown (the “Interest-
Free Period ”). If the Borrower fails to repay in full the amount of the Advance prior to
the end of the Interest-Free Period, then the Borrower will pay to the Lender interest on
the outstanding amount of such Advance, beginning on the day immediately following
the last day of the Interest-Free Period (the “Interest Trigger Date ”) and ending on but
excluding the day on which such Advance is repaid or satisfied in full. Interest on the
outstanding amount of each Advance from the Interest Trigger Date is calculated at a
rate per annum equal to 5%, determined daily and calculated and payable on the date
on which the relevant Advance is repaid in full.
• The Company intends to use the proceeds of the Credit Facility for general corporate
purposes.
• Changes in Management
Mr. Jianmin Bao : Mr. Bao resigned as a non-executive director on August 31, 2022.
Mr. Ben Niu : Mr. Niu resigned as a non-executive director on August 31, 2022.
Mr. Tao Zhang : Mr. Zhang resigned as Vice President of Sales on September 2, 2022.
Mr. Dalanguerban : Mr. Dalanguerban was re-designated from Chief Executive Officer to
President on September 8, 2022 and resigned as an executive director on December 6, 2022.
Mr. Dong Wang : Mr. Wang was appointed as Chief Executive Officer and an executive
director on September 8, 2022.
Mr. Alan Ho : Mr. Ho was appointed as Chief Financial Officer (formerly, the acting Chief
Financial Officer) on September 8, 2022.
Ms. Chonglin Zhu : Ms. Zhu was appointed as Senior Vice President of Finance and an
executive director on September 8, 2022.
Mr. Zhiwei Chen : Mr. Chen resigned as a non-executive director on December 6, 2022.
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Ms. Ka Lee Ku : Ms. Ku resigned as a non-executive director on December 6, 2022.
Mr. Zhu Gao : Mr. Gao was appointed as a non-executive director on December 6, 2022.
Mr. Gang Li : Mr. Li was appointed as a non-executive director on December 6, 2022.
Mr. Chen Shen : Mr. Shen was appointed as a non-executive director on December 6, 2022
and re-designated to an executive director on February 17, 2023.
• 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.
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OVERVIEW OF OPERATIONAL DATA AND FINANCIAL RESULTS
Summary of Annual Operational Data
Year ended
December 31,
2022 2021
Sales Volumes, Prices and Costs
Premium semi-soft coking coal
Coal sales (millions of tonnes) 0.27 0.60
Average realised selling price (per tonne) $ 73.49 $ 51.80
Standard semi-soft coking coal/ premium thermal coal
Coal sales (millions of tonnes) 0.08 0.33
Average realised selling price (per tonne) $ 39.85 $ 35.01
Processed coal
Coal sales (millions of tonnes) 0.76 0.01
Average realised selling price (per tonne) $ 65.43 $ 48.53
Total
Coal sales (millions of tonnes) 1.11 0.94
Average realised selling price (per tonne) $ 65.69 $ 46.02
Raw coal production (millions of tonnes) 0.69 1.36
Cost of sales of product sold (per tonne) $ 52.04 $ 33.30
Direct cash costs of product sold (per tonne) (i) $ 34.52 $ 17.81
Mine administration cash costs of product sold (per tonne) (i) $ 1.62 $ 1.53
Total cash costs of product sold (per tonne) (i) $ 36.14 $ 19.34
Other Operational Data
Production waste material moved (millions of bank cubic meters) 3.59 5.94
Strip ratio (bank cubic meters of waste material per tonne of
coal produced) 5.14 4.36
Lost time injury frequency rate (ii) 0.00 0.00
(i) A Non-International Financial Reporting Standards ( “non-IFRS ”) financial measure. Refer to “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.