SouthGobi Resources (TSE:SGQ) Monday posted a profit for 2011, thanks to a record 58 percent increase in the amount of coal sold to around 4.02 million tonnes.
Monday morning, shares were up 2.8 percent to $6.30.
SouthGobi Resources is a coal production and development company
whose flagship coal mine, Ovoot Tolgoi, sells coal to customers in
China - the largest consumer of coal in the world.
The company has positioned itself for a forecasted increase in demand for coal, with a pipeline of exploration and development
projects in strategic locations that will help to provide for future growth and expansion.
For the year that ended December 31, the company posted net earnings
of $46.5 million, compared to a loss of $88.4 million a year earlier. On
a per share basis, the company posted a loss of 19 cents, compared to a
66-cent loss for 2010.
Revenue for 2011 more than doubled to $179.0 million. As at December 31, the company had $123.6 million in cash and equivalents.
In 2011, SouthGobi Resources said coal production reached 4.57
million tonnes compared to 2.79 million tonnes in 2010, continuing to
demonstrate the successful ramp-up of operations at its Ovoot Tolgoi
Average realized selling price was $54.03 per tonne, an increase of 56 percent, the company said.
Total cash costs for the year only increased by $3.31 per tonne to
$24.01 per tonne, which was primarily due to the year-on-year rise in
average fuel costs of approximately 55 percent per tonne of product
sold, as well as increased screening activities.
Earlier this month, SouthGobi announced an updated NI 43-101
compliant estimate of resources and reserves, which increased overall
measured and indicated resources by 35 percent to 492.6 million tonnes
from 363.6 million tonnes.
Inferred resources grew by 42 percent to 244.0 million tonnes from 171.9 million tonnes.
Meanwhile, proven and probable reserves for the Ovoot Tolgoi mine rose 65 percent to 175.7 million tonnes from 106.8 million
For the quarter that ended December 31, SouthGobi narrowed its net loss to $18.9 million from $28.7 million a year earlier, as
revenue grew to $51.1 million from $41.6 million in the same period a year ago.
On a per share basis, fourth-quarter loss narrowed to 14 cents from a 16 cent loss in 2010.
Looking ahead, in terms of pricing, SouthGobi currently forecasts it
will set a new record level for its gross average sales price
in the first quarter of 2012.
Much has been said by publicly-listed coking coal producers regarding weaker current market conditions. North American and
coking coal producers have mostly indicated that early 2012 will be
characterized by lower prices and physical demand in the seaborne coking
However, SouthGobi believes its location in southern Mongolia, close to the Chinese market, provides it with a different market
environment. China is absolutely the key theme for internationally-traded coking coal.
From 2008 to 2011, China grew its annual net coking coal imports by
approximately 38.01 million tonnes, while the rest of the world combined
actually reduced net coking coal imports by approximately 10.02 million
tonnes. Mongolia, being a direct neighbor to China and with scalable
land-based infrastructure, has now become the dominant supplier of
China's coking coal import requirements.
Indeed, Mongolia provided around 45 percent of China's coking coal
import needs in 2011, almost twice the share of the next largest
China continues to grow its requirements for coking coal and the Chinese market environment is more stable than the relatively
seaborne market. Since peaking at the start of 2011, seaborne coking
coal prices have fallen by up to 44 percent, whereas Chinese regional
domestic coking coal prices have generally risen in that period.
SouthGobi said it has contracted to sell 50 to 60 percent more coal
than in the first quarter of 2011, which if achieved, will put
it ahead of plan for year-over-year sales volume growth.
Looking at 2012 as a whole, SouthGobi outlined a number of
objectives, which included growing the Ovoot Tolgoi Mine, continuing to
develop regional infrastructure, and advancing the Soumber deposit. The
company intends to further advance the feasibility, planning and
preparation for a mine at Soumber.
SouthGobi Resources also said Ejin Jinda was close to completing the commissioning of its wet washing facility to process some
SouthGobi coals close to the Shivee Khuren Border Crossing, on a toll washing arrangement.
The Mongolian coal company also said exploration will take place to further define the company's existing deposits.