SouthGobi curtails Mongolia coal output, suspends capex
JOHANNESBURG (miningweekly.com) – TSX-listed SouthGobi Resources has suspended uncommitted capital and exploration expenditure and reduced its mining activity at its flagship Ovoot Tolgoi coal mine, in Mongolia, to preserve the group’s financial resources.
SouthGobi implemented these initiatives during the second quarter of the year to maintain efficient levels of working capital and to prevent the build-up of a significant unsold coal inventory, as deteriorating market conditions continued to impact on the exploration and development company.
The company, which is also listed in Hong Kong, said late on Monday it expected second-quarter production to reach between 200 000 t and 300 000 t. At the end of the quarter, production at Ovoot Tolgoi would be “entirely curtailed”.
Considering the difficult conditions of the second quarter and uncertainty surrounding third-quarter development, SouthGobi warned that sales volumes, pricing and production volume outcomes for the full year of 2012 could not be estimated.
SouthGobi said that the past few weeks had seen customer sentiment deteriorate and prices fall, after holding steady for the past year.
“The reference price for one-third coking coal in Wuhai, Inner Mongolia, fell by RMB20/t on April 23, and then fell a further RMB30/t on June 18. Further east in Baotou, Inner Mongolia, the reference price for clean coking coal started falling in late May and has now fallen by RMB110/t,” the company said in a statement.
Further, the junior pointed out that owing to a delay in the opening of expanded border-crossing capacity until May, holiday closure in the first quarter, and the closure of the export road for repair in April and May, production levels were impacted, which has made customers reluctant to enter new purchase commitments.
“It does appear that customers have robust volume appetite for the third quarter, particularly as SouthGobi's largest customer has now exhausted prepurchased coal inventory. However, achieving mutually agreeable contracts is difficult in the context of the regional coking coal market conditions,” the company explained.
In addition, a lack of clarity over whether SouthGobi could receive a formal licence suspension at some stage had customers fearful that they would be unable to collect and export additional coal from Ovoot Tolgoi mine.
In April, Mongolia’s Mineral Resources Authority publicly requested the suspension of exploration and mining activity on certain licences; however, to date, the company has received no official notification and continued operations.
On the back of this uncertainty, many government bodies and regulatory authorities were reluctant to provide approvals and permits, resulting in SouthGobi’s Mongolian subsidiary’s failure to obtain approval from the Ministry of Environment for a revision to its environmental-impact assessment for a dry coal handling facility.
Further, the company also appealed for clarification on a comment in May by the Mongolian Minister of Mineral Resources and Energy that "the temporary suspension has been lifted, but regarding the new law, the licence of Ovoot Tolgoi will be discussed by the Cabinet and Parliament".
Edited by: Mariaan Webb
SouthGobi implemented these initiatives during the second quarter of the year to maintain efficient levels of working capital and to prevent the build-up of a significant unsold coal inventory, as deteriorating market conditions continued to impact on the exploration and development company.
The company, which is also listed in Hong Kong, said late on Monday it expected second-quarter production to reach between 200 000 t and 300 000 t. At the end of the quarter, production at Ovoot Tolgoi would be “entirely curtailed”.
Considering the difficult conditions of the second quarter and uncertainty surrounding third-quarter development, SouthGobi warned that sales volumes, pricing and production volume outcomes for the full year of 2012 could not be estimated.
SouthGobi said that the past few weeks had seen customer sentiment deteriorate and prices fall, after holding steady for the past year.
“The reference price for one-third coking coal in Wuhai, Inner Mongolia, fell by RMB20/t on April 23, and then fell a further RMB30/t on June 18. Further east in Baotou, Inner Mongolia, the reference price for clean coking coal started falling in late May and has now fallen by RMB110/t,” the company said in a statement.
Further, the junior pointed out that owing to a delay in the opening of expanded border-crossing capacity until May, holiday closure in the first quarter, and the closure of the export road for repair in April and May, production levels were impacted, which has made customers reluctant to enter new purchase commitments.
“It does appear that customers have robust volume appetite for the third quarter, particularly as SouthGobi's largest customer has now exhausted prepurchased coal inventory. However, achieving mutually agreeable contracts is difficult in the context of the regional coking coal market conditions,” the company explained.
In addition, a lack of clarity over whether SouthGobi could receive a formal licence suspension at some stage had customers fearful that they would be unable to collect and export additional coal from Ovoot Tolgoi mine.
In April, Mongolia’s Mineral Resources Authority publicly requested the suspension of exploration and mining activity on certain licences; however, to date, the company has received no official notification and continued operations.
On the back of this uncertainty, many government bodies and regulatory authorities were reluctant to provide approvals and permits, resulting in SouthGobi’s Mongolian subsidiary’s failure to obtain approval from the Ministry of Environment for a revision to its environmental-impact assessment for a dry coal handling facility.
Further, the company also appealed for clarification on a comment in May by the Mongolian Minister of Mineral Resources and Energy that "the temporary suspension has been lifted, but regarding the new law, the licence of Ovoot Tolgoi will be discussed by the Cabinet and Parliament".
Edited by: Mariaan Webb
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