Southgobi Announces First Quarter 2025 Financial and Operating Results
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R ESOURCE S
May 15, 2025
SOUTHGOBI ANNOUNCES FIRST QUARTER 2025
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 three months ended March 31, 2025. All figures are in U.S. dollars
(“USD”) unless otherwise stated.
SIGNIFICANT EVENTS AND HIGHLIGHTS
The Company ’s significant events and highlights for the three months ended March 31, 2025 and
the subsequent period to May 15, 2025 are as follows:
• Operating Results – The Company increased the scale of its mining operations since
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 period.
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 2.1 million tonnes for the first quarter of 2025
compared to 1.1 million tonnes for the first quarter of 2024, while the Company recorded an
average realised selling price of $59.5 per tonne for the first quarter of 2025 compared to
$79.5 per tonne for the first quarter of 2024. The decrease in the average realised selling
price was mainly due to the Company facing headwinds in the China coal market since 2024,
leading to the Company changing its product mix to sell a greater percentage of lower-priced
coal products.
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• Financial Results – The Company recorded a $15.7 million loss from operations for the first
quarter of 2025 compared to $32.1 million profit from operation for the first quarter of 2024.
The financial results for the first quarter of 2025 were impacted by the decreased average
realised selling price and the change in product mix, as the Company sold more processed
coal with higher production costs during the first quarter of 2025.
• Notice from Mongolian Government Plenipotentiary and designation of Company ’s
mining deposits as mineral deposits of strategic importance – On April 2, 2025,
Southgobi Sands LLC ( “SGS”), the Company ’s wholly-owned Mongolian subsidiary, received
a letter from a plenipotentiary representative of the Mongolian government (the “Letter”) which
invited SGS to participate in negotiations in relation to determining the Mongolian state ’s
ownership interest in SGS, being the legal entity which holds the Company ’s coal mining
licenses in Mongolia.
The Letter states that, in furtherance of Mongolia ’s National Wealth Fund Law which was
passed in April 2024, the Mongolian government resolved on February 5, 2025 to appoint
a plenipotentiary representative (the “Plenipotentiary Representative of the Mongolian
Government ”) to negotiate with legal persons holding a mining license for a deposit
designated by the Mongolian government as a strategically important deposit ( “Mineral
Deposits of Strategic Importance ”) in relation to determining the proportionate interest the
Mongolian state has in such legal entity or whether to replace the Mongolian state ’s interest
with a royalty interest.
The Company has been advised by its Mongolian legal counsel that, the Government of
Mongolia is empowered to participate on an equity ownership basis with the license holder
in the exploitation and/or mining of each Mineral Deposit of Strategic Importance on terms to
be negotiated between the Government of Mongolia and such license holder. Based solely on
the knowledge of the Company ’s Mongolian legal counsel, the Company is aware that various
other license holders of Mineral Deposits of Strategic Importance have entered into similar
negotiations with the Plenipotentiary Representative of the Mongolian Government.
As at the date of this press release, the deposits covered by four of the Company ’s Mongolian
mining licenses have been designated as Mineral Deposits of Strategic Importance by
Mongolian government authorities. The relevant mining licenses relate to the Company ’s
Ovoot Tolgoi Mine and the Soumber Deposit.
On April 24, 2025, SGS initiated preliminary discussions with the Plenipotentiary
Representative of the Mongolian Government. The Company anticipates that the discussion
between SGS and the Plenipotentiary Representative of the Mongolian Government will
continue and both parties will endeavour to engage in good faith for the purpose of arriving
at a mutual and constructive understanding and agreement. The Company intends to fully
cooperate with the Mongolian government and provide all necessary information to the extent
permitted by applicable law.
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• 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.
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.
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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 applicable Mongolian laws, SGS is entitled to file an appeal
to the Administrative Court of First Instance in Ulaanbaatar, Mongolia (the “Administrative
Court of First Instance ”) 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 of
First Instance.
On March 19, 2025, SGS received correspondence from the Administrative Court of First
Instance requesting supplemental information regarding a court proceeding initiated by certain
officers of the MTA ( “MTA Officials ”) against the TDRC. Upon further enquiry, SGS obtained
a copy of an order dated March 7, 2025 issued by the Administrative Court of First Instance
regarding commencement of court proceedings brought by the MTA Officials. The MTA
Officials are petitioning the court to overturn the TDRC ’s ruling that reduced SGS ’s tax penalty
from approximately $80.0 million to approximately $26.5 million ( “Proposed Case ”).
Based on preliminary advice from the Company ’s independent Mongolian legal counsel and
tax consultants: (i) SGS has not been named as a third party defendant to these proceedings;
(ii) the TDRC ’s Revised Re-assessment Result remains legally enforceable unless formally
overturned by the court; and (iii) SGS ’s acceptance of the TDRC ’s decision makes the ruling
final under Mongolian tax law.
On April 25, 2025, SGS obtained a copy of an order dated April 15, 2025 (the “Latest Court
Order”) issued by the Administrative Court of First Instance refusing to accept the Proposed
Case. According to the Latest Court Order, the Proposed Case has been dismissed by the
Administrative Court of First Instance. According to applicable Mongolian laws, the plaintiff is
entitled to file an appeal to the appellate court, and the Company understands that the MTA
Officials, as plaintiff in the Proposed Case, has filed an appeal.
As at March 31, 2025, the Company recorded an additional tax and tax penalty in the amount
of $45.5 million (December 31, 2024: $45.5 million), which consists of a tax penalty payable
of $26.5 million (December 31, 2024: $26.5 million) and a provision for additional late tax
penalty of $19.0 million (December 31, 2024: $19.0 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. To date, the Company has paid the MTA an aggregate of $3.3
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.
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• 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 ”).
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.
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• 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.
• 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 Management
Mr. Munkhbat Chuluun : Mr. Chuluun was transitioned from Vice President of Public Relations
to a non-managerial position within the Company on January 1, 2025.
• 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 Operational Data
Three months ended
March 31,
2025 2024
Sales Volumes, Prices and Costs
Premium semi-soft coking coal
Coal sales (millions of tonnes) 0.04 0.36
Average realised selling price (per tonne) $ 90.75 $ 111.01
Standard semi-soft coking coal/premium thermal coal
Coal sales (millions of tonnes) 0.95 0.28
Average realised selling price (per tonne) $ 70.46 $ 76.07
Standard thermal coal
Coal sales (millions of tonnes) 0.14 0.12
Average realised selling price (per tonne) $ 35.37 $ 47.91
Processed coal
Coal sales (millions of tonnes) 0.93 0.29
Average realised selling price (per tonne) $ 50.57 $ 56.65
Total
Coal sales (millions of tonnes) 2.06 1.05
Average realised selling price (per tonne) $ 59.51 $ 79.52
Raw coal production (millions of tonnes) 3.92 1.25
Cost of sales of product sold (per tonne) $ 64.90 $ 43.36
Direct cash costs of product sold (per tonne) (i) $ 53.97 $ 30.70
Mine administration cash costs of product sold (per tonne) (i) $ 1.70 $ 1.08
Total cash costs of product sold (per tonne) (i) $ 55.67 $ 31.78
Other Operational Data
Production waste material moved (millions of bank cubic meters) 19.36 12.36
Strip ratio (bank cubic meters of waste material per tonne of coal
produced) 4.93 9.87
Lost time injury frequency rate (ii) 0.00 0.22
(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.
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Overview of Operational Data
The Company ended the first quarter of 2025 without a lost time injury. As at March 31, 2024, the
Company had a lost time injury frequency rate of 0.22 per 200,000 man hours based on a rolling
12-month average.
The Company recorded an average realised selling price of $59.5 per tonne in the first quarter
of 2025 compared to $79.5 per tonne in the first quarter of 2024. The decrease was mainly due
to the Company facing headwinds in the China coal market since 2024, leading to the Company
changing its product mix to sell a greater percentage of lower-priced coal products. The product mix
for the first quarter of 2025 consisted of approximately 2% of premium semi-soft coking coal, 46%
of standard semi-soft coking coal/premium thermal coal, 7% of standard thermal coal and 45% of
processed coal compared to approximately 34% of premium semi-soft coking coal, 27% of standard
semi-soft coking coal/premium thermal coal, 11% of standard thermal coal and 28% of processed
coal for the first quarter of 2024.
The Company ’s unit cost of sales of product sold was $64.9 per tonne in the first quarter of 2025
compared to $43.4 per tonne in the first quarter of 2024. The increase was due to change in
product mix with the Company expanding into certain categories of processed coal with higher
production costs and more sales were made to a farther destination with higher transportation cost.
Summary of Financial Results
Three months ended
March 31,
$ in thousands, except per share information 2025 2024
Revenue (i) $ 122,867 $ 82,169
Cost of sales (i) (133,689) (45,533)
Gross profit/(loss) excluding idled mine asset costs (ii) (10,571) 36,682
Gross profit/(loss) (10,822) 36,636
Other operating expenses, net (1,571) (1,053)
Administration expenses (3,249) (3,413)
Evaluation and exploration expenses (32) (22)
Profit/(loss) from operations (15,674) 32,148
Finance costs (8,812) (11,021)
Finance income 21 73
Share of earnings of joint ventures 613 833
Share of earnings/(loss) of associates (187) 10
Current income tax expenses (2,166) (9,791)
Net profit/(loss) attributable to equity holders of the Company (26,205) 12,252
Basic and diluted earnings/(loss) per share $ (0.088) $ 0.041
(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 condensed consolidated interim 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.