Southgobi Announces First Quarter 2026 Financial and Operating Results
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R ESOURCE S
May 14, 2026
SOUTHGOBI ANNOUNCES FIRST QUARTER 2026
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, 2026. 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, 2026 and
the subsequent period to May 14, 2026 are as follows:
• Operating Results – The Company continues to expand the scale of mining operations in
2026, 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. In addition, the Company
also continues to expand the categories of coal products in its portfolio, including mixed coal,
wet washed coal and dry processed coal, which further increases the Company ’s coal export
volume.
The Company recorded sales volume of 3.1 million tonnes for the first quarter of 2026
compared to 2.1 million tonnes for the first quarter of 2025, while the Company recorded an
average realised selling price of $54.4 per tonne for the first quarter of 2026 compared to
$59.5 per tonne for the first quarter of 2025. The decrease in the average realised selling
price was primarily attributable to prevailing market uncertainty and cautious buyer sentiment
in the Chinese coal market. As a result, the Company adjusted its sales strategy and selling
price to maintain its sales volume.
• Financial Results – The Company recorded a $4.6 million profit from operations for the first
quarter of 2026 compared to a $15.7 million loss from operations for the first quarter of 2025.
The financial results were impacted by the increased sales volume, as well as improved cost
control on the coal production process during this period.
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• 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”) 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 and exploration 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.
The Company also understands that any legal person holding a special licence for a Mineral
Deposit of Strategic Importance shall not, individually or jointly with other entities having a
common interest, hold more than 34% of the total issued and outstanding shares of such
legal person. However, there is uncertainty as to how these regulations will be interpreted
and applied to a publicly-listed company which is the beneficial owner of a Mineral Deposit of
Strategic Importance. The Company ’s Mongolian legal counsel has advised that, while there
is no clarity as to how the aforementioned ownership restriction will be interpreted and applied
in practice to a publicly-listed company, they are of the view that the ownership restriction
is likely to be determined with reference to the beneficial shareholders of the publicly-listed
company. In the event that the aforementioned ownership restriction is not complied with, the
Government of Mongolia shall have the right to appoint a Plenipotentiary Representative to
take charge of managing such legal person to ensure legal compliance.
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.
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 open pit coal mine ( “Ovoot Tolgoi Mine ”) and the Soumber Deposit.
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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 was imposing a tax penalty against SGS in the amount of approximately $75.0 million.
Subsequently, the Company filed an appeal letter in relation to the Audit with the MTA on
August 17, 2023.
On February 8, 2024, SGS received notice from the Tax Dispute Resolution Council ( “TDRC”)
which stated that, following the TDRC ’s review, the TDRC ordered that the audit assessments
set forth in the Notice be returned 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.
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 ”), which amounted to a tax
penalty of approximately $80.0 million.
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.
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.
As set forth in the Resolution, the TDRC reduced the re-assessment result from approximately
$80.0 million to approximately $26.5 million (the “Revised Re-assessment Result ”). The
Company decided not to pursue a further appeal of the Revised Re-assessment Result.
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 (the “MTA Officials ”) against the TDRC. SGS obtained a copy of an order
dated March 7, 2025 issued by the Administrative Court of First Instance in Ulaanbaatar,
Mongolia (the “Administrative Court of First Instance ”) regarding commencement of court
proceedings brought by the MTA Officials. The MTA Officials petitioned the court to overturn
the Revised Re-assessment Result (the “Proposed Case ”).
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 dismissing the Proposed Case.
The Company understood that the MTA Officials subsequently filed an appeal.
On June 9, 2025, SGS obtained a copy of a judgement dated May 27, 2025 (the “Appellate
Court Judgement ”) issued by the Appellate Court for Administrative in Ulaanbaatar, Mongolia
(the “Appellate Court ”), pursuant to which the Appellate Court upheld the Latest Court
Order. As a result, the Proposed Case was dismissed and rejected. According to applicable
Mongolian law, the Appellate Court Judgement is not subject to further appeal.
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In the prior year, the Company recorded an additional tax and tax penalty in the amount
of $45.5 million, which consist of a tax penalty payable of $26.5 million and a provision for
additional late tax penalty of $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. As
of the date hereof, the Company has fully settled the aforementioned tax penalty in February
2026. The provision for additional late tax penalty of $18.5 million refers to potential penalty
chargeable by the MTA for future tax audit periods. It is an estimated amount which will be
adjusted when the tax audit is finalised.
• 2026 March Deferral Agreement – On March 23, 2026, the Company and JDZF entered
into an agreement (the “2026 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
$140.5 million which will be due and payable to JDZF on or before August 31, 2026 pursuant
to the deferral agreement dated March 20, 2025; (ii) semi-annual cash interest payment
of approximately $7.9 million payable to JDZF on May 19, 2026 under the Convertible
Debenture; (iii) semi-annual cash interest payments of approximately $8.1 million payable
to JDZF on November 19, 2026 and the $4.0 million in PIK Interest payable to JDZF on
November 19, 2026 under the Convertible Debenture; and (iv) management fees in the
aggregate amount of approximately $7.6 million payable to JDZF on May 16, 2026, August
15, 2026, November 15, 2026 and February 15, 2027, respectively, under the Amended and
Restated Cooperation Agreement (collectively, the “2026 March Deferred Amounts ”).
The effectiveness of the 2026 March Deferral Agreement and the respective covenants,
agreements and obligations of each party under the 2026 March Deferral Agreement
are subject to the Company obtaining the requisite approval of the 2026 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 (the “Listing Rules ”). The Company will be seeking
approval of the 2026 March Deferral Agreement from disinterested shareholders at the
Company ’s upcoming special meeting of shareholders, which will be held at a future date to
be set by the board of directors of the Company (the “Board”).
The principal terms of the 2026 March Deferral Agreement are as follows:
• Payment of the 2026 March Deferred Amounts will be deferred until August 31, 2027
(the “2026 March Deferral Agreement Deferral Date ”).
• As consideration for the deferral of the 2026 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 2026
March Deferred Amounts, commencing on the date on which each such 2026 March
Deferred Amounts would otherwise have been due and payable under the Convertible
Debenture.
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• As consideration for the deferral of the 2026 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 2026 March Deferred Amounts commencing on the date on
which each such 2026 March Deferred Amounts would otherwise have been due and
payable under the Amended and Restated Cooperation Agreement.
• The 2026 March Deferral Agreement does not contemplate a fixed repayment schedule
for the 2026 March Deferred Amounts or related deferral fees. Instead, the 2026 March
Deferral Agreement requires the Company to use its best efforts to pay the 2026
March Deferred Amounts and related deferral fees due and payable under the 2026
March Deferral Agreement to JDZF. During the period beginning as of the effective
date of the 2026 March Deferral Agreement and ending as of the 2026 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 2026 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 2026 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.
• Build-Transfer Agreement – On April 22, 2026, the Company ’s wholly-owned Mongolian
subsidiary, SGS, entered into a Build-Transfer agreement (the “BT Agreement ”) with Tangshan
Shenzhou Manufacturing Group Co., Ltd ( “Tangshan ”), pursuant to which Tangshan will
be responsible for the construction of a new dry coal separation system (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 plants. Tangshan will also
be responsible for the construction of all related facilities for the Dry Coal Separation System.
Tangshan shall transfer the ownership and relevant intellectual property rights of the Dry Coal
Separation System and the related facilities to SGS upon the satisfaction of the conditions for
transfer under the BT Agreement. Under the BT Agreement, SGS has the right to supervise
and inspect Tangshan ’s construction progress and safety management.
The total consideration payable by the Company over the term of the BT Agreement is
approximately $7.8 million. Subject to the terms as set out therein, the BT Agreement is
effective from April 22, 2026 until the consideration has been fully paid by SGS, which is
expected to take place on or around April 22, 2031.
• 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,
2026 2025
Sales Volumes, Prices and Costs
Premium semi-soft coking coal
Coal sales (millions of tonnes)
– Run-of-mine 0.26 0.04
– Processed 0.95 0.08
Average realised selling price (per tonne)
– Run-of-mine $ 75.38 $ 90.75
– Processed $ 68.11 $ 87.91
Standard semi-soft coking coal
Coal sales (millions of tonnes)
– Run-of-mine 1.06 0.95
– Processed 0.01 0.22
Average realised selling price (per tonne)
– Run-of-mine $ 52.90 $ 70.46
– Processed $ 58.03 $ 78.34
Premium thermal coal
Coal sales (millions of tonnes)
– Processed 0.63 0.63
Average realised selling price (per tonne)
– Processed $ 43.14 $ 35.79
Standard thermal coal
Coal sales (millions of tonnes)
– Run-of-mine – 0.12
Average realised selling price (per tonne)
– Run-of-mine $ – $ 37.81
Coal by-products
Coal sales (millions of tonnes) 0.20 0.02
Average realised selling price (per tonne) $ 5.85 $ 13.91
Total
Coal sales (millions of tonnes) 3.11 2.06
Average realised selling price (per tonne) $ 54.40 $ 59.51
Run-of-mine production (millions of tonnes) 4.98 3.92
Cost of sales of product sold (per tonne) $ 51.48 $ 64.90
Direct cash costs of product sold (per tonne) (i) $ 40.51 $ 53.97
Mine administration cash costs of product sold (per tonne) (i) $ 1.44 $ 1.70
Total cash costs of product sold (per tonne) (i) $ 41.95 $ 55.67
Other Operational Data
Overburden stripped (millions of bank cubic meters) 22.47 19.36
Strip ratio (bank cubic meters of overburden per tonne of
coal produced) 4.51 4.93
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.
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Overview of Operational Data
The Company recorded an average realised selling price of $54.4 per tonne for the first quarter
of 2026 compared to $59.5 per tonne for the first quarter of 2025. The decrease was primarily
attributable to prevailing market uncertainty and cautious buyer sentiment in the Chinese coal
market. As a result, the Company adjusted its sales strategy and selling price to maintain its sales
volume. The product mix for the first quarter of 2026 consisted of approximately 39% of premium
semi-soft coking coal, 35% of standard semi-soft coking coal, 20% of premium thermal coal, and
6% of coal by-products compared to approximately 6% of premium semi-soft coking coal, 56% of
standard semi-soft coking coal, 31% of premium thermal coal, 6% of standard thermal coal and 1%
of coal by-products for the first quarter of 2025.
The Company ’s unit cost of sales of product sold was $51.5 per tonne for the first quarter of 2026
compared to $64.9 per tonne for the first quarter of 2025. The decrease was due to economies of
scale and improved cost control on the coal production process during this period.
The Company ended the first quarter of both 2026 and 2025 without any lost time injury.
Summary of Financial Results
Three months ended
March 31,
$ in thousands, except per share information 2026 2025
Revenue (i) $ 169,365 $ 122,867
Cost of sales (i) (160,109) (133,689)
Gross profit/(loss) excluding idled mine asset costs (ii) 9,828 (10,571)
Gross profit/(loss) 9,256 (10,822)
Other operating expenses, net (1,476) (1,571)
Administration expenses (3,171) (3,249)
Evaluation and exploration expenses (21) (32)
Profit/(loss) from operations 4,588 (15,674)
Finance costs (10,502) (8,812)
Finance income 22 21
Share of earning of a joint venture 1,337 613
Share of earnings/(losses) of associates 8 (187)
Current income tax expenses (3,489) (2,166)
Net loss attributable to equity holders of the Company (8,036) (26,205)
Basic and diluted loss per share $ (0.027) $ (0.088)
(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.
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Overview of Financial Results
The Company recorded a $4.6 million profit from operations for the first quarter of 2026 compared
to a $15.7 million loss from operations for the first quarter of 2025. The increase was mainly due to
the increased sales volume, as well as improved cost control on coal production process during this
period.
Revenue was $169.4 million for the first quarter of 2026 compared to $122.9 million for the first
quarter of 2025. The financial results were impacted by increased sales volume year-over-year, as
a result of an expansion of the Company ’s sales network, diversification of its customer base and
expansion of the categories of coal products in its portfolio.
Cost of sales was $160.1 million for the first quarter of 2026 compared to $133.7 million for the first
quarter of 2025. The increase in cost of sales was mainly due to increased sales volume year-over-
year, the Company expanding into certain categories of processed coal with higher production costs
and the increase of sales to further destinations with higher transportation 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 this
quarter.
Three months ended
March 31,
$ in thousands 2026 2025
Operating expenses $ 130,480 $ 114,682
Depreciation and depletion 16,165 8,775
Royalties 12,892 9,981
Cost of sales from mine operations $ 159,537 $ 133,438
Cost of sales related to idled mine assets 572 251
Cost of sales $ 160,109 $ 133,689
Operating expenses in cost of sales were $130.5 million for the first quarter of 2026 compared
to $114.7 million for the first quarter of 2025. The overall increase in operating expenses was
due to increased sales volume year-over-year, the Company expanding into certain categories of
processed coal with higher production costs and the increase of sales to further destinations with
higher transportation costs.
Cost of sales related to idled mine assets for the first quarter of 2026 included $0.6 million related
to depreciation expenses for idled equipment (first quarter of 2025: $0.3 million).