Toronto and Hong Kong stock exchange-listed SouthGobi Resources released its 2019 third quarter financial and operating results on Wednesday.

The company recorded a gross profit of 12.8 million USD in the third quarter of 2019 compared to 9.2 million USD in the third quarter of 2018. Its net profit amounted to 2.1 million USD, compared to the 2.7 million USD net losses reported in the third quarter of 2018.

The report indicates that SouthGobi earned a profit of 9.5 million USD from third quarter operations, marking a whopping 6.5 million USD increase year-over-year. The improvement in profit from operations was principally attributable to the lower provision for doubtful trade and other receivables being made during the quarter (0.3 million USD and 3.9 million USD for the third quarter of 2019 and third quarter of 2018 respectively). The reversal of impairment of coal stockpile inventories of 5.3 million USD (nil for the third quarter of 2018) also helped boost operational profit, according to the company.

Coal sales volume was reported to have increased to 0.8 million tons over the last three months compared to 0.7 million tons in the same period of last year. The average realized selling price is 35 USD per ton for the third quarter of 2019, which is similar to 35.8 USD per ton for the third quarter of 2018.

Other important events for SouthGobi recorded from June 30 to November 13 are as follows:

Notice of arbitration – SouthGobi has not paid the November 2018, January 2019, May 2019 and September 2019 monthly payments due under a deed of settlement with First Concept Industrial Group Limited. On October 16 this year, SouthGobi Sands received a notice from First Concept claiming that the company is in default under the settlement deed and demanding payment of the full amount of the outstanding monthly payments, otherwise First Concept intends to commence legal action against the company. Since a default under the settlement deed is only triggered when there has been a failure to pay two or more consecutive monthly installment payments, the company is of the view that SouthGobi Sands is not in default under the settlement deed.

In the event that First Concept commences legal action against SouthGobi Sands regarding this matter, SouthGobi Resources intends to take appropriate steps to respond to such legal proceedings in the best interests of the company through independent litigation counsel. As of September 30, the outstanding amount payable to First Concept amounted to 5.5 million USD (12.5 million USD by December 31, 2018).

Termination of Soumber deposit mining licenses – On August 26, 2019, SouthGobi Sands received a letter from the Mineral Resources and Petroleum Authority notifying that the company’s three mining licenses (MV-016869, MV-020436 and MV-020451) for the Soumber deposit have been terminated, effective as of August 21, 2019. Authorities determined that the company had violated its environmental reclamation obligations with respect to the Soumber deposit.

The Soumber deposit is an undeveloped coal deposit covering approximately 22,263 hectares located approximately 20 kilometers east of the company’s Ovoot Tolgoi coal mine in Mongolia. The company owned a 100 percent interest in the Soumber deposit. SouthGobi Resources believes the cancelation of Soumber licenses is without merit and claims that it is not aware of any failure on its part to fulfill its environmental reclamation duties as they relate to the Soumber deposit.

On October 4, SouthGobi Sands filed a claim against the Mineral Resources and Petroleum Authority and Ministry of Environment and Tourism in the Administration Court, seeking an order to restore the Soumber licenses. The company anticipates the court to issue its ruling before the end of the 2019 calendar year. The company is prepared to take required actions, including additional legal actions, as it considers necessary to reinstate the Soumber licenses. However, there can be no assurance that a favorable outcome will be reached. The termination of the Soumber licenses does not have any impact on its current mining operations at the Ovoot Tolgoi mine site.