• Mongolia-based mining company, SouthGobi Resources (TSX:SGQ) is expected to report a net loss of around C$21 million for Q1 2020
  • This is a largely due to the ongoing border closure between Mongolia and China 
  • SouthGobi operates the Ovoot Tolgoi coal mine in Mongolia and has stood down operations at the site, but continues to sell and process stockpiled coal
  • SouthGobi stated that, until the border reopens, it expects to have ongoing issues with sales, profitability and liquidity
  • SouthGobi Resources (SGQ) is up 6.25 per cent, with shares trading for 8.5 cents and a market cap of $22.9 million

Mongolia-based mining company, SouthGobi Resources (TSX:SGQ) is expected to report a net loss of around C$21 million in 2020’s first quarter.

The company announced this today in a pre-warning to shareholders and potential investors. In the same quarter last year, the company reported a net profit just under $3 million.

The loss has been primarily caused by the ongoing Mongolian-Chinese border closure. The Mongolian government initially closed the border in early February to stem the spread of COVID-19, after the country recorded its first case.

SouthGobi operates the Ovoot Tolgoi coal mine in Mongolia and exports much of its production to China. As a result of the border closing, the company has stood down operations at the site, but continues to sell and process stockpiled coal.

SouthGobi pointed out that it is still unclear when the border will reopen, and sales can recommence at normal levels. Until that happens, the company stated it will continue to have a severe impact on the sales, profitability and liquidity.

Precisely how long SouthGobi can operate under these conditions is still unknown as the company has yet to file its Q1 2020 report. When it does, a more lucid picture of the company’s financials and prospects will become clear.

In this announcement the company did not reference its ongoing legal issues with First Concept Industrial Group Limited. Over the past few month SouthGobi has been locked a lengthy litigation process, regarding a pre-purchased coal agreement.

The company also reported earlier in the year that the Mongolian government had frozen one of the company’s bank accounts, for reasons SouthGobi didn’t disclose. It is still unclear if the account remains frozen and how this is affection the company’s liquidity.

These circumstances, paired with the significant net loss, suggest a difficult time ahead for SouthGobi.

SouthGobi Resources (SGQ) is up 6.25 per cent, with shares trading for 8.5 cents at 9:38am EST.

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