SouthGobi May Post Profit Next Year as Sales Rise by Two-Thirds, CEO Says

SouthGobi Resources Ltd., a coal producer backed by China’s sovereign wealth fund, may post a profit next year as increased output boosts sales by two-thirds, Chief Executive Officer Alexander Molyneux said.

The Toronto and Hong Kong-listed coal producer may expand sales to 4.5 million metric tons in 2011 from about 2.7 million tons this year, Molyneux said in an interview.

The coal producer posted a loss of $110.8 million last year after the startup of its Ovoot Tolgoi mine in Mongolia and costs increased. The company may report “robust” earnings next year as production expands, according to Molyneux in April.

SouthGobi will produce more higher-quality coking coal to ramp up sales, Molyneux said in his office in Hong Kong today. The company has been investing in mining equipment at Ovoot Tolgoi pit to help boost output, he said.

The coal producer’s mining operations made a loss of $6.7 million in the third quarter and revenue slumped 44 percent to $6.6 million partly because of sales of lower-quality coal with a higher ash content, the company said in a statement on Nov. 11.

The shares have fallen 23 percent since it started trading in Hong Kong on Jan. 29, compared with the 19 percent gain in the benchmark Hang Seng Index. SouthGobi rose 2.8 percent to close at HK$85.75.

SouthGobi may post a loss of $139 million this year, falling to $20.5 million next year, according to a median estimate of three analysts surveyed by Bloomberg. Nine out of 11 analysts surveyed by Bloomberg rate the stock a “Buy,” while two rate the stock a “Hold.”

The coal producer aims to get a mining license for a second pit in Mongolia by the year-end, Molyneux said on Aug. 13. About $205 million is needed to develop the mine, according to the chief executive.

China Investment Corp., the nation’s sovereign wealth fund, owns about 13 percent of the mining company’s shares.

To contact the reporter on this story: John Duce in Hong Kong at jduce1@bloomberg.net

To contact the editor responsible for this story: Amit Prakash at aprakash1@bloomberg.net.

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