Southgobi Announces Fourth Quarter and Full Year 2024 Financial and Operating Results
- 1 -
For Result Ann,
please insert logo in P.2
(see P2)
R ESOURCE S
March 28, 2025
SOUTHGOBI ANNOUNCES FOURTH QUARTER AND FULL YEAR 2024
FINANCIAL AND OPERATING RESULTS
HONG KONG – SouthGobi Resources Ltd. (Hong Kong Stock Exchange ( “HKEX”): 1878, TSX
Venture Exchange ( “TSX-V”): SGQ ) (the “Company ” or “SouthGobi ”) today announces its financial
and operating results for the quarter and year ended December 31, 2024. 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, have completed their audit of the consolidated financial statements of the Company
for the year ended December 31, 2024 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, 2024 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, 2024 and the
subsequent period to March 28, 2025 are as follows:
• Operating Results – The Company increased the scale of its mining operations in 2024, as
well as implementing various coal processing methods, including screening, wet washing and
dry coal processing, which have resulted in improved coal quality and enhanced production
volume and growth of coal export volume into China during the year.
In response to the market demand for different coal products, the Company focused on
expanding the categories of coal products in its portfolio, including mixed coal, wet washed
coal and dry processed coal. In addition, the Company has experienced success with
processing its inventory of F-grade coal products through cost-effective screening procedures.
As a result of the improvement in the quality of the processed F-grade coal, the Company
was able to meet the import coal quality standards established by Chinese authorities and has
been exporting this product to China for sale since the first quarter of 2024, further enhancing
the Company ’s coal export volume.
The Company recorded sales volume of 7.0 million tonnes in 2024 compared to 3.6 million
tonnes in 2023, while the Company recorded an average realised selling price of $70.4 per
tonne in 2024 compared to $93.0 per tonne in 2023. The decrease in the average realised
selling price was mainly due to the Company facing headwinds in the China coal market in
2024, leading to the Company changing its product mix to sell a greater percentage of lower-
priced coal products.
- 2 -
For Result Ann,
please insert logo in P.2
(see P2)
• Financial Results – The Company recorded a $153.9 million profit from operations in 2024
compared to $75.9 million profit from operations in 2023. The financial results for 2024 were
impacted by the expansion of its sales network and diversification of its customer base, and
a reversal of additional tax and tax penalty of $48.5 million, which was recorded in the fourth
quarter of 2024.
• Build-Operate-Transfer Agreement – On July 15, 2024, the Company ’s wholly-owned
Mongolian subsidiary, Southgobi Sands LLC ( “SGS”), entered into a Build-Operate-Transfer
agreement (the “BOT Agreement ”) with Tangshan Shenzhou Manufacturing Group Co.,
Ltd ( “Tangshan ”), pursuant to which Tangshan will be responsible for the construction,
operation, and quality management of a new dry coal separation system, including key
machinery (collectively, the “Dry Coal Separation System ”) at the Company ’s Ovoot Tolgoi
Mine in Mongolia, which will be a stand-alone plant separate from the Company ’s existing
dry processing plant. Tangshan will also be responsible for the construction of all related
facilities for the Dry Coal Separation System. Under the BOT Agreement, SGS has the right
to supervise and manage the overall work of coal quality assurance and operation, including,
but not limited to, the supervision and management of operational safety, production planning,
and operations management.
The total consideration payable by the Company over the term of the BOT Agreement is
approximately $10.9 million, together with certain additional processing volume-based fees.
Subject to the terms as set out therein, the BOT Agreement is effective from July 15, 2024
until October 1, 2029.
• Additional Tax and Tax Penalty Imposed by the Mongolian Tax Authority ( “MTA”) – On
July 18, 2023, SGS received an official notice (the “Notice”) issued by the MTA stating that
the MTA had completed a periodic tax audit (the “Audit”) on the financial information of SGS
for the tax assessment years between 2017 and 2020, including transfer pricing, royalty, air-
pollution fee and unpaid tax payables. As a result of the Audit, the MTA notified SGS that it is
imposing a tax penalty against SGS in the amount of approximately $75.0 million. The penalty
mainly relates to the different view on the interpretation of tax law between the Company and
the MTA. Under Mongolian law, the Company had a period of 30 days from the date of receipt
of the Notice to file an appeal in relation to the Audit. Subsequently the Company engaged an
independent tax consultant in Mongolia to provide tax advice and support to the Company and
filed an appeal letter in relation to the Audit with the MTA in accordance with Mongolian laws
on August 17, 2023.
On February 8, 2024, SGS received notice from the Tax Dispute Resolution Council ( “TDRC”)
which stated that, after the TDRC ’s review, the TDRC issued a decision in relation to SGS ’
appeal of the Audit, and ordered that the audit assessments set forth in the Notice of July 18,
2023 be sent back to the MTA for review and re-assessment.
On February 22, 2024, SGS received another notice from the MTA stating that the MTA
anticipated commencing the re-assessment process on or about March 7, 2024 and the
duration of such process will be approximately 45 working days.
- 3 -
For Result Ann,
please insert logo in P.2
(see P2)
On May 15, 2024, SGS received a notice (the “Revised Notice ”) from the MTA regarding the
re-assessment result on the Audit (the “Re-assessment Result ”). The re-assessed amount of
the tax penalty is approximately $80.0 million. In accordance with applicable Mongolian laws,
SGS is entitled to file an appeal to the TDRC regarding the Re-assessment Result within a
30-day period from the date of receiving the Revised Notice.
On June 12, 2024, following consultation with its independent tax consultant in Mongolia, SGS
submitted an appeal letter to the TDRC regarding the Re-assessment Result, in accordance
with applicable Mongolian laws.
On January 10, 2025, SGS received a resolution dated December 19, 2024 (the “Resolution ”)
from the TDRC in response to the appeal letter sent by SGS to the TDRC on June 12,
2024, relating to the Re-assessment Result. As set forth in the Resolution, the TDRC has
determined to reduce the re-assessed amount of tax penalty against SGS from approximately
$80.0 million to approximately $26.5 million (the “Revised Re-assessment Result ”). In
accordance with the applicable Mongolian laws, SGS is entitled to file an appeal to the
Administrative Court in Ulaanbaatar, Mongolia (the “Administrative Court ”) regarding
the Revised Re-assessment Result within a 30-day period from the date of receiving the
Resolution. After careful consideration and consultation with the Company ’s independent tax
consultant in Mongolia, the Company has determined not to pursue a further appeal of the
Revised Re-assessment Result with the Administrative Court.
As at December 31, 2024, the Company recorded an additional tax and tax penalty in the
amount of $45.5 million (2023: $85.1 million), which consists of a tax penalty payable of
$26.5 million (2023: $75.0 million) and a provision for additional late tax penalty of $19.0
million (2023: $10.1 million). As a result of the Revised Re-assessment Result, the Company
recorded a reversal of additional tax and tax penalty of $48.5 million in 2024 (2023: $nil).
To date, the Company has paid the MTA an aggregate of $1.7 million in relation to the
aforementioned tax penalty. The Company anticipates paying down the outstanding amount of
the tax and tax penalty from cash generated from operations in the normal course. According
to Mongolian tax law, the Mongolian tax authority has a legal authority to demand payment
of the outstanding amount of the Revised Re-assessment Result from the Company at its
discretion.
• 2025 March Deferral Agreement – On March 20, 2025, the Company and JD Zhixing Fund
L.P. ( “JDZF”) entered into an agreement (the “2025 March Deferral Agreement ”) pursuant
to which JDZF agreed to grant the Company a deferral of (i) the cash and payment-in-
kind interest ( “PIK Interest ”), management fees, and related deferral fees in the aggregate
amount of approximately $111.6 million which will be due and payable to JDZF on or before
August 31, 2025 pursuant to the deferral agreement dated March 19, 2024 and the deferral
agreement dated April 30, 2024; (ii) semi-annual cash interest payment of approximately
$7.9 million payable to JDZF on May 19, 2025 under the Convertible Debenture; (iii) semi-
annual cash interest payments of approximately $8.1 million payable to JDZF on November
19, 2025 and the $4.0 million in PIK Interest payable to JDZF on November 19, 2025 under
the JDZF convertible debenture (the “Convertible Debenture ”); and (iv) management fees in
the aggregate amount of approximately $6.1 million payable to JDZF on May 16, 2025, August
15, 2025, November 15, 2025 and February 15, 2026, respectively, under the amended
and restated mutual cooperation agreement (the “Amended and Restated Cooperation
Agreement ”) (collectively, the “2025 March Deferred Amounts ”).
- 4 -
For Result Ann,
please insert logo in P.2
(see P2)
The effectiveness of the 2025 March Deferral Agreement and the respective covenants,
agreements and obligations of each party under the 2025 March Deferral Agreement
are subject to the Company obtaining the requisite approval of the 2025 March Deferral
Agreement from shareholders in accordance with the requirements of applicable Canadian
securities laws and Rule 14.33 and Rule 14A.36 of the Rules Governing the Listing
of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules ”). The
Company will be seeking approval of the 2025 March Deferral Agreement from disinterested
shareholders at the Company ’s upcoming annual general meeting ( “AGM”) of shareholders,
which will be held at a future date to be set by the Board.
The principal terms of the 2025 March Deferral Agreement are as follows:
• Payment of the 2025 March Deferred Amounts will be deferred until August 31, 2026
(the “2025 March Deferral Agreement Deferral Date ”).
• As consideration for the deferral of the 2025 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 2025
March Deferred Amounts, commencing on the date on which each such 2025 March
Deferred Amounts would otherwise have been due and payable under the Convertible
Debenture.
• As consideration for the deferral of the 2025 March Deferred Amounts which relate to
payment obligations arising from the 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 2025 March Deferred Amounts commencing on the date on
which each such 2025 March Deferred Amounts would otherwise have been due and
payable under the Amended and Restated Cooperation Agreement.
• The 2025 March Deferral Agreement does not contemplate a fixed repayment schedule
for the 2025 March Deferred Amounts or related deferral fees. Instead, the 2025 March
Deferral Agreement requires the Company to use its best efforts to pay the 2025
March Deferred Amounts and related deferral fees due and payable under the 2025
March Deferral Agreement to JDZF. During the period beginning as of the effective
date of the 2025 March Deferral Agreement and ending as of the 2025 March Deferral
Agreement 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 2025 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.
- 5 -
For Result Ann,
please insert logo in P.2
(see P2)
• If at any time before the 2025 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.
• Changes in Directors and Management
Ms. Chonglin Zhu : Ms. Zhu was appointed as Chief Financial Officer on February 2, 2024.
Mr. Alan Ho : Mr. Ho was redesignated from Chief Financial Officer to a new management
position within the Company on February 2, 2024.
Mr. Fan Keung Vic Choi : Mr. Choi was elected as an independent non-executive director at
the Company ’s AGM held on June 27, 2024.
Mr. Mao Sun : Mr. Sun did not stand for the re-election at the AGM and ceased to be an
independent non-executive director on June 27, 2024.
• 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.
- 6 -
For Result Ann,
please insert logo in P.2
(see P2)
OVERVIEW OF OPERATIONAL DATA AND FINANCIAL RESULTS
Summary of Annual Operational Data
Year ended
December 31,
2024 2023
Sales Volumes, Prices and Costs
Premium semi-soft coking coal
Coal sales (millions of tonnes) 0.91 2.08
Average realised selling price (per tonne) $ 105.10 $ 106.91
Standard semi-soft coking coal/premium thermal coal
Coal sales (millions of tonnes) 2.96 0.53
Average realised selling price (per tonne) $ 71.86 $ 70.58
Standard thermal coal
Coal sales (millions of tonnes) 0.86 –
Average realised selling price (per tonne) $ 38.40 $ –
Processed coal
Coal sales (millions of tonnes) 2.29 0.98
Average realised selling price (per tonne) $ 66.62 $ 75.23
Total
Coal sales (millions of tonnes) 7.02 3.59
Average realised selling price (per tonne) $ 70.40 $ 93.02
Raw coal production (millions of tonnes) 10.20 4.05
Cost of sales of product sold (per tonne) $ 51.37 $ 44.07
Direct cash costs of product sold (per tonne) (i) $ 39.56 $ 30.46
Mine administration cash costs of product sold (per tonne) (i) $ 1.58 $ 1.39
Total cash costs of product sold (per tonne) (i) $ 41.14 $ 31.85
Other Operational Data
Production waste material moved (millions of bank cubic meters) 59.47 25.71
Strip ratio (bank cubic meters of waste material per tonne of
coal produced) 5.84 6.36
Lost time injury frequency rate (ii) 0.06 0.17
(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.
- 7 -
For Result Ann,
please insert logo in P.2
(see P2)
Overview of Annual Operational Data
The Company recorded an average realised selling price of $70.4 per tonne for 2024 compared
to $93.0 per tonne for 2023. The decrease was mainly due to the Company facing headwinds in
the China coal market in 2024, leading to the Company changing its product mix to sell a greater
percentage of lower-priced coal products. The product mix for 2024 consisted of approximately
13% of premium semi-soft coking coal, 42% of standard semi-soft coking coal/premium thermal
coal, 12% of standard thermal coal and 33% of processed coal compared to approximately 58% of
premium semi-soft coking coal, 15% of standard semi-soft coking coal/premium thermal coal and
27% of processed coal in 2023.
The Company ’s unit cost of sales of product sold was $51.4 per tonne in 2024 compared to $44.1
per tonne in 2023. The increase was due to change in product mix with the Company expanding
into certain categories of processed coal with higher production costs.
Summary of Annual Financial Results
Year ended
December 31,
$ in thousands, except per share information 2024 2023
Revenue (i) $ 493,378 $ 331,506
Cost of sales (i) (360,588) (158,195)
Gross profit excluding idled mine asset costs (ii) 133,286 173,487
Gross profit 132,790 173,311
Other operating expenses, net (3,698) (870)
Administration expenses (13,454) (10,437)
Evaluation and exploration expenses (1,362) (991)
Reversal of/(provision for) additional tax and tax penalty 39,666 (85,143)
Profit from operations 153,942 75,870
Finance costs (37,766) (49,072)
Finance income 3,626 5,084
Share of earnings of joint ventures 3,227 2,840
Share of earnings of associates 587 4
Current income tax expenses (31,119) (33,818)
Net profit attributable to equity holders of the Company 92,497 908
Basic earnings per share $ 0.312 $ 0.003
Diluted earnings per share $ 0.311 $ 0.003
(i) Revenue and cost of sales related to the Company ’s Ovoot Tolgoi Mine within the Coal Division
operating segment. Refer to note 3 of the selected information from the notes to the consolidated
financial statements in this press release 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.
- 8 -
For Result Ann,
please insert logo in P.2
(see P2)
Overview of Annual Financial Results
The Company recorded a $153.9 million profit from operations in 2024 compared to $75.9 million
profit from operations in 2023. The increase was mainly due to an increase of 3.4 million tonnes of
sales volume in 2024 as compared to 2023 and a reversal of additional tax and tax penalty of $48.5
million was recorded in the fourth quarter of 2024.
Revenue was $493.4 million in 2024 compared to $331.5 million in 2023. The financial results were
impacted by increased sales volume, as a result of expansion of its sales network, diversification of
its customer base and expansion of the categories of coal products in its portfolio.
Cost of sales was $360.6 million in 2024 compared to $158.2 million in 2023. The increase in cost
of sales was mainly due to increased sales and the Company expanding into certain categories of
processed coal with higher production costs.
Cost of sales consists of operating expenses, share-based compensation expense, equipment
depreciation, depletion of mineral properties, royalties 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 “Non-IFRS Financial Measures ” section of this press release for further analysis) during the
year.
Year ended
December 31,
$ in thousands 2024 2023
Operating expenses $ 288,773 $ 114,346
Share-based compensation expense 18 4
Depreciation and depletion 19,924 5,165
Royalties 51,377 38,504
Cost of sales from mine operations $ 360,092 $ 158,019
Cost of sales related to idled mine assets 496 176
Cost of sales $ 360,588 $ 158,195
Operating expenses in cost of sales were $288.8 million in 2024 compared to $114.3 million in
2023. The overall increase in operating expenses was due to the Company expanding into certain
categories of processed coal with higher production costs.
Cost of sales related to idled mine assets in 2024 included $0.5 million related to depreciation
expenses for idled equipment (2023: $0.2 million).