Coal miner SouthGobi says its results for the three months ended September 30, 2020, were impacted on by a lower average selling price achieved for coal, despite higher sales volumes year-on-year.

The company reported sales volumes of one-million tonnes for the quarter under review, compared with the 800 000 t sold in the third quarter of 2019.

The average selling price of coal decreased from $35/t in the third quarter of 2019 to $31.6/t in the third quarter of 2020.

SouthGobi recorded a gross profit of $10.9-million in the quarter under review, compared with a gross profit of $12.8-million in the prior comparable quarter.

The company explains that its coal exports to China, from Mongolia, were impacted early in 2020 as borders were closed owing to Covid-19 outbreaks in the region.

The company could increase its coal exports from March 28 and about 2.4-million tonnes had been exported between April and December last year, from Mongolia to China, compared with an aggregate 2.6-million tonnes of coal being exported in the same period of 2019.

To mitigate some of the financial impact of the border closures and to preserve working capital, SouthGobi temporarily closed major mining operations and reduced production to only coal-blending activities at the time. The company had fully resumed its mining operations by August last year.

Production from August to December totalled 1.5-million tonnes, compared with the 2.3-million tonnes of coal produced from August to December 2019.

SouthGobi has warned that should the company’s ability to export coal into the Chinese market become restricted or limited again as a result of any future restrictions, which may be implemented at the Mongolian-Chinese border crossing, there may be a material adverse effect on the business and operations.

Additionally, SouthGobi's shares remain suspended to trading on the TSX since June 19, 2020, as the company is yet to file its financial statements for the year ended December 31, 2019, besides other financial statements.

The stock exchange will decide during a meeting on February 11 whether the company’s common shares will be delisted, should SouthGobi fail to demonstrate it has remedied the delisting criteria. The company’s listing also remains suspended on the Hong Stock Stock Exchange, which was effective from August 17, 2020.

SouthGobi also remains in default to China Investment Corporation (CIC) under its CIC Convertible Debenture and 2020 June Deferral Agreement, and the CIC may declare the amounts owing to it immediately due, which would have a material adverse effect on the business and operations of the company.

The company initially entered into a financing agreement with the CIC for $500-million in the form of a secured, convertible debenture bearing interest at 8%.

Several adverse conditions and material uncertainties cast doubt on the company’s ability to continue as a going concern. The company had a deficiency in assets of $73-million at the end of September 2020, compared with a deficiency in assets of $50-million at the end of December 2019, while the working capital deficiency stood at $217-million in September last year, and at $114-million in December 2019.

Included in the working capital deficiency as at September 30, 2020, are significant obligations, including interest amounting to $84-million that relates to various deferral agreements with CIC, while the company also owes about $33-million of tax to the Mongolian government.

Looking ahead, SouthGobi says market conditions in China are expected to be challenging for coal companies, as there are a number of prevailing uncertainties. However, the company remains cautiously optimistic about the Chinese coal market and will continue focusing on enhancing its product mix.

SouthGobi also endeavours to increase sales volumes and expand its sales network, while reducing production costs and enhancing productivity.