Group 1 - The core viewpoint of the article highlights a general increase in coal stocks in the Hong Kong market on September 8, with notable gains among various companies [1] Group 2 - Strength Development saw a rise of 2.6% [1] - China Qinfa, Yanzhou Coal Mining, China Coal Energy, and South Gobi all increased by over 2% [1] - China Shenhua rose by 1.5%, while Yida Zong also gained over 1% [1] - Shougang Resources followed the upward trend [1]

Group 1 - The core viewpoint of the article highlights a bullish trend in the coal sector of the Hong Kong stock market, driven by favorable macroeconomic conditions such as "loose monetary policy, low interest rates, and improved risk appetite" [1] - The report from Zhongtai Securities indicates that the coal industry is expected to enter a new upward cycle due to the "anti-involution" policy, which is anticipated to strengthen expectations for capacity reduction and promote high-quality development within the sector [1] - The report suggests that there is a time lag between policy expectations and their realization, indicating that sector rotation may occur imminently, and advises investors to focus on liquidity and risk appetite improvements rather than short-term earnings reports [1] Group 2 - The article lists several coal stocks that experienced gains, with notable increases including Strength Development up by 2.6%, China Qinfa and Yanzhou Coal Energy both up over 2%, and China Shenhua up by 1.5% [1] - The report emphasizes the importance of capturing investment opportunities arising from the dual catalysts of coal valuation recovery and performance elasticity, as the industry prepares for a new upward cycle [1]

股份發行人及根據《上市規則》第十九B章上市的香港預託證券發行人的證券變動月報表 | 截至月份: | 2025年8月31日 | 狀態: 新提交 | | --- | --- | --- | | 致：香港交易及結算所有限公司 | | | | 公司名稱: | 南戈壁資源有限公司 | | | 呈交日期: | 2025年9月3日 | | | I. 法定/註冊股本變動 不適用 | | | (A). 股份期權（根據發行人的股份期權計劃） FF301 第 1 頁 共 10 頁 v 1.1.1 FF301 II. 已發行股份及/或庫存股份變動 | 1. 股份分類 | 普通股 | | 股份類別 | 不適用 | | 於香港聯交所上市 (註1) | 是 | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | 證券代號 (如上市) | 01878 | 說明 | | | | | | | | | | 已發行股份（不包括庫存股份）數目 | | | 庫存股份數目 | | 已發行股份總數 | | | 上月底結存 | | | | 296,704,666 | | 0 | | 296, ...

[Forward-Looking Statements](index=2&type=section&id=Forward-Looking%20Statements) This section outlines various forward-looking statements regarding the company's operational capabilities, financial adjustments, and future outlook - This section contains multiple forward-looking statements concerning the company's going concern ability, balance sheet adjustments, liquidity, future financing needs, operational and development plans, production levels, negotiations with the Mongolian government, ability to pay tax penalties, class action lawsuit outcomes, impairment analysis, coal washing facility efficiency improvements, product value enhancement, environmental impact, China's coal demand and industry trends, and the outlook for 2025 and beyond[3](index=3&type=chunk) - Forward-looking statements are based on management's opinions and estimates, subject to various risks and uncertainties including mining activity uncertainties, cost overruns, reserve estimate deviations, regulatory changes, licensing issues, risks of the Mongolian government designating deposits as strategic, tax penalty payment risks, convertible debenture valuation model changes, debt default risks, legal amendment impacts, coal price fluctuations, class action lawsuit outcomes, customer credit risks, and cash flow and liquidity risks[5](index=5&type=chunk) [Introduction](index=4&type=section&id=Introduction) This MD&A, as of June 30, 2025, should be read with the interim financial statements, prepared under IAS 34 and presented in USD - This Management Discussion and Analysis (MD&A) as of June 30, 2025, should be read in conjunction with the company's condensed consolidated interim financial statements and notes, prepared in accordance with IAS 34 and presented in US dollars, with Chinese subsidiaries' functional currency in RMB and Mongolian operations in MNT[8](index=8&type=chunk)[9](index=9&type=chunk) - Scientific or technical disclosures in this MD&A regarding the Ovoot Tolgoi Coal Mine and Soumber Deposits are extracted from technical reports prepared by Bao-Wan Minerals Ltd. under NI 43-101, and prepared or supervised by independent qualified persons including Jaydee Ammugauan and Xu Tao[11](index=11&type=chunk)[12](index=12&type=chunk) [1. Overview](index=5&type=section&id=1.%20Overview) The company, a comprehensive coal mining and exploration entity, faces significant operational and financial challenges, including a shift to operating loss and ongoing negotiations with the Mongolian government [Company Profile](index=5&type=section&id=Company%20Profile) SouthGobi Resources Ltd. is an integrated coal mining, development, and exploration company operating flagship Ovoot Tolgoi mine in Mongolia, selling primarily to China - The company is an integrated coal mining, development, and exploration company with **808 employees**, whose common shares are traded on the Hong Kong Stock Exchange (1878) and TSX-V (SGQ)[13](index=13&type=chunk) - The company wholly owns the Ovoot Tolgoi open-pit coal mine, Soumber Deposits, and Zag Suuj Deposit development project, all located in Mongolia's Umnugobi Province, adjacent to the China-Mongolia border[13](index=13&type=chunk) - The Ovoot Tolgoi Coal Mine is the flagship asset, approximately **40 kilometers** from the Shivee Khuren-Ceke border crossing, primarily producing standard and premium semi-soft coking coal, with some high-ash products processed into semi-soft coking coal and unwashed coal sold as thermal coal, mainly to China[13](index=13&type=chunk) [Significant Events and Summary](index=6&type=section&id=Significant%20Events%20and%20Summary) The company experienced a shift to operating loss, government designation of strategic deposits, tax penalty resolution, and a deferral agreement, with significant going concern uncertainties [Operating Performance](index=6&type=section&id=Operating%20Performance) Despite increased mining operations and sales volume, the company's operating performance shifted from profit to loss due to a significant decline in average realized selling prices - Since 2024, the company has expanded its mining operations, employing various coal processing methods including screening, wet washing, and dry beneficiation, to improve coal quality and output, facilitating coal exports to China[14](index=14&type=chunk) 2025 Q2 Operating Performance Comparison | Metric | 2025 Q2 | 2024 Q2 | Change | Change Rate | | :--- | :--- | :--- | :--- | :--- | | Sales Volume (million tonnes) | 3.00 | 1.20 | Increase 1.80 million tonnes | +150% | | Average Realized Selling Price (USD/tonne) | 52.6 | 77.6 | Decrease 25 USD/tonne | -32.2% | - The decrease in average realized selling price was primarily due to the downturn in the Chinese coal market, leading the company to change its product mix and sell a larger proportion of lower-priced coal products[14](index=14&type=chunk) [Financial Performance](index=6&type=section&id=Financial%20Performance) The company reported an operating loss of $14.3 million in Q2 2025, primarily due to lower selling prices, product mix changes, and inventory impairment 2025 Q2 Operating Profit/Loss Comparison | Metric | 2025 Q2 | 2024 Q2 | Change | | :--- | :--- | :--- | :--- | | Operating Profit/(Loss) (million USD) | (14.3) | 15.0 | Shift to Loss | - The shift to financial loss was mainly due to a decrease in average realized selling price, a change in product mix (selling more processed coal with higher production costs), and a **$12.3 million** coal inventory impairment loss[16](index=16&type=chunk) [Notice from Mongolian Government Plenipotentiary and Designation of Company's Deposits as Strategically Important](index=6&type=section&id=Notice%20from%20Mongolian%20Government%20Plenipotentiary%20and%20Designation%20of%20Company's%20Deposits%20as%20Strategically%20Important) The Mongolian government designated the company's deposits as strategically important, initiating negotiations for state ownership interests in SGS - On February 5, 2025, the Mongolian government resolved to appoint a plenipotentiary representative to negotiate with legal entities holding strategic mineral mining licenses, in accordance with the Law on the National Wealth Fund, to determine the proportion of Mongolia's interest[15](index=15&type=chunk) - SGS received a letter from the Mongolian government's plenipotentiary representative on April 2, 2025, inviting it to participate in discussions to determine the Mongolian government's ownership interest in SGS, with preliminary discussions commencing on April 24, 2025[16](index=16&type=chunk)[18](index=18&type=chunk) - The mineral deposits covered by the company's four Mongolian mining licenses, including the Ovoot Tolgoi Coal Mine and Soumber Deposits, have been designated as strategically important by the Mongolian government authorities[18](index=18&type=chunk) [Additional Taxes and Penalties Imposed by Mongolian Tax Authority](index=7&type=section&id=Additional%20Taxes%20and%20Penalties%20Imposed%20by%20Mongolian%20Tax%20Authority) Tax penalties initially around $75-80 million were reduced to $26.5 million by TDRC, with the company having paid $17.3 million and planning to pay the remainder from operating cash - The Mongolian Tax Authority's tax audit of SGS for the 2017-2020 tax years initially imposed penalties of approximately **$75 million**, which were later re-evaluated and increased to approximately **$80 million**[18](index=18&type=chunk)[19](index=19&type=chunk) - Following a TDRC resolution, the tax penalty amount was reduced from approximately **$80 million** to approximately **$26.5 million**, and the company decided not to appeal this decision to the first instance administrative court[20](index=20&type=chunk) - Mongolian tax officials attempted to request the court to overturn the TDRC's decision, but the first instance administrative court refused to accept it, and the appellate court upheld the first instance administrative court's order, making the TDRC's decision final; the company has paid **$17.3 million** and expects to pay the remaining outstanding taxes and penalties from operating cash[21](index=21&type=chunk)[22](index=22&type=chunk) [March 2025 Deferral Agreement](index=9&type=section&id=March%202025%20Deferral%20Agreement) The company and JDZF agreed to defer approximately $111.6 million in various payments until August 31, 2026, subject to shareholder approval and specific terms - The company and JDZF entered into the March 2025 Deferral Agreement, deferring multiple payments, including cash and payment-in-kind interest, management fees, and related deferral fees, totaling approximately **$111.6 million**, until August 31, 2026[24](index=24&type=chunk)[25](index=25&type=chunk) - The Deferral Agreement was approved by disinterested shareholders at the Annual General Meeting on June 27, 2025[24](index=24&type=chunk) - The company is required to pay a deferral fee at an annual interest rate of **6.4%** for convertible debenture-related amounts and **1.5%** for cooperation agreement-related amounts; the agreement has no fixed repayment schedule, with the company discussing repayment amounts monthly with JDZF and requiring JDZF's written consent before any changes in senior management[25](index=25&type=chunk)[28](index=28&type=chunk) [Going Concern](index=10&type=section&id=Going%20Concern) Significant uncertainties regarding the company's going concern ability arise from asset and working capital deficiencies - Certain adverse conditions and significant uncertainties, including asset and working capital deficiencies, raise substantial doubt about the company's going concern assumption[28](index=28&type=chunk) [2. Review of Operating Data and Financial Performance](index=11&type=section&id=2.%20Review%20of%20Operating%20Data%20and%20Financial%20Performance) The company experienced significant sales volume growth but a sharp decline in average realized selling prices, leading to operating losses despite improved stripping ratios [Operating Data Summary](index=11&type=section&id=Operating%20Data%20Summary) Q2 2025 saw significant coal sales volume growth but a substantial drop in average realized selling prices, with improved stripping ratios 2025 Q2 and H1 Operating Data Comparison | Metric | 2025 Q2 | 2024 Q2 | 2025 H1 | 2024 H1 | | :--- | :--- | :--- | :--- | :--- | | Total Coal Sales Volume (million tonnes) | 2.96 | 1.20 | 5.02 | 2.25 | | Average Realized Selling Price (USD/tonne) | 52.55 | 77.55 | 55.41 | 78.47 | | Cost of Sales of Products Sold (USD/tonne) | 53.87 | 61.32 | 58.39 | 52.94 | | Total Cash Cost of Products Sold (USD/tonne) | 46.20 | 49.57 | 50.08 | 41.27 | | Stripping Ratio (cubic meters/tonne) | 5.08 | 7.27 | 5.01 | 8.27 | [Operating Data Review](index=12&type=section&id=Operating%20Data%20Review) Average realized selling prices declined in Q2 2025 and H1 2025 due to market downturns and product mix changes, while sales volumes increased significantly - The average realized selling price for Q2 2025 was **$52.6 per tonne**, a decrease from **$77.6 per tonne** in Q2 2024, primarily due to the downturn in the Chinese coal market and a change in product mix (selling more lower-priced coal products)[32](index=32&type=chunk) - The unit cost of sales for products sold in Q2 2025 was **$53.9 per tonne**, a decrease from **$61.3 per tonne** in Q2 2024, mainly due to changes in product mix and increased raw coal sales volume[32](index=32&type=chunk) - Sales volume for the first six months of 2025 was **5.0 million tonnes**, a significant increase from **2.3 million tonnes** in the first six months of 2024, but the average realized selling price decreased from **$78.5 per tonne** to **$55.4 per tonne** for the same reasons; the unit cost of sales increased from **$52.9 per tonne** to **$58.4 per tonne** due to business expansion into higher-cost processed coal categories[34](index=34&type=chunk) [Financial Performance Summary](index=13&type=section&id=Financial%20Performance%20Summary) Both Q2 and H1 2025 saw operating losses, driven by lower selling prices, higher-cost processed coal sales, and coal inventory impairment 2025 Q2 and H1 Financial Performance Summary | Metric (thousand USD) | 2025 Q2 | 2024 Q2 | 2025 H1 | 2024 H1 | | :--- | :--- | :--- | :--- | :--- | | Revenue | 155,289 | 92,821 | 278,156 | 174,990 | | Cost of Sales | (159,452) | (73,582) | (293,141) | (119,115) | | Operating Profit/(Loss) | (14,326) | 15,045 | (30,000) | 47,193 | | Net Profit/(Loss) Attributable to Equity Holders | (22,806) | (2,085) | (49,011) | 10,167 | | Basic and Diluted Earnings/(Loss) Per Share (USD) | (0.077) | (0.007) | (0.165) | 0.034 | - Operating losses were recorded in both Q2 2025 and H1 2025, primarily due to a decrease in average realized selling price, a change in product mix (selling more processed coal with higher production costs), and a **$12.3 million** coal inventory impairment loss[39](index=39&type=chunk)[46](index=46&type=chunk) - The increase in revenue was mainly driven by expanded sales networks, diversified customer base, and increased sales volume due to an expanded range of coal product categories; the increase in cost of sales was primarily due to higher sales volume, business expansion into higher-cost processed coal categories, and selling more products to more distant destinations with higher transportation costs[39](index=39&type=chunk)[47](index=47&type=chunk) - Net other operating expenses increased, mainly due to higher management fees and a **$12.3 million** coal inventory impairment loss, partially offset by the write-off of **$6.3 million** in other payables[41](index=41&type=chunk)[48](index=48&type=chunk) [Quarterly Operating Data Summary](index=17&type=section&id=Quarterly%20Operating%20Data%20Summary) Quarterly data shows substantial sales volume growth in Q2 2025 but a continuous decline in average realized selling prices Quarterly Operating Data Comparison (Q2 2023 - Q2 2025) | Metric | Jun 30, 2025 | Mar 31, 2025 | Dec 31, 2024 | Sep 30, 2024 | Jun 30, 2024 | Mar 31, 2024 | Dec 31, 2023 | Sep 30, 2023 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Total Coal Sales Volume (million tonnes) | 2.96 | 2.06 | 2.66 | 2.11 | 1.20 | 1.05 | 0.96 | 1.15 | | Average Realized Selling Price (USD/tonne) | 52.55 | 59.51 | 65.72 | 67.77 | 77.55 | 79.52 | 92.93 | 85.57 | | Cost of Sales of Products Sold (USD/tonne) | 53.87 | 64.90 | 48.92 | 52.77 | 61.32 | 43.36 | 38.17 | 42.23 | | Total Cash Cost of Products Sold (USD/tonne) | 46.20 | 55.67 | 39.80 | 42.68 | 49.57 | 31.78 | 28.03 | 33.08 | | Stripping Ratio (cubic meters/tonne) | 5.08 | 4.93 | 4.17 | 5.48 | 7.27 | 9.87 | 5.85 | 6.24 | [Quarterly Financial Performance Summary](index=18&type=section&id=Quarterly%20Financial%20Performance%20Summary) Q2 2025 revenue increased significantly, but gross profit and operating profit turned to losses, with expanded net losses Quarterly Financial Performance Comparison (Q2 2023 - Q2 2025) | Metric (thousand USD) | Jun 30, 2025 | Mar 31, 2025 | Dec 31, 2024 | Sep 30, 2024 | Jun 30, 2024 | Mar 31, 2024 | Dec 31, 2023 | Sep 30, 2023 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Revenue | 155,289 | 122,867 | 174,640 | 143,748 | 92,821 | 82,169 | 88,504 | 97,979 | | Gross Profit/(Loss) | (4,163) | (10,822) | 44,521 | 32,394 | 19,239 | 36,636 | 51,859 | 49,410 | | Operating Profit/(Loss) | (14,326) | (15,674) | 79,052 | 27,697 | 15,045 | 32,148 | 42,044 | 46,343 | | Net Profit/(Loss) | (22,806) | (26,205) | 72,291 | 10,039 | (2,085) | 12,252 | 24,336 | 29,349 | | Basic Earnings/(Loss) Per Share | (0.077) | (0.088) | 0.244 | 0.034 | (0.007) | 0.041 | 0.082 | 0.099 | [3. Non-IFRS Financial Measures](index=18&type=section&id=3.%20Non-IFRS%20Financial%20Measures) The company uses non-IFRS financial measures like cash costs and idle mine asset costs to monitor operational efficiency and provide relevant financial insights [Cash Costs](index=19&type=section&id=Cash%20Costs) Cash costs, a non-IFRS measure, reflect cash production and related costs for inventory, excluding idle mine asset costs and non-cash expenses - Cash costs are a non-IFRS financial measure that reflects the cash production and related cash costs incurred to bring inventory to its present location and condition, excluding idle mine asset costs and non-cash expenses, used to monitor internal operating cash costs[58](index=58&type=chunk) Total Cash Cost of Products Sold Comparison | Metric | 2025 Q2 | 2024 Q2 | 2025 H1 | 2024 H1 | | :--- | :--- | :--- | :--- | :--- | | Total Cash Cost of Products Sold (USD/tonne) | 46.20 | 49.57 | 50.08 | 41.27 | - The cash cost per tonne of products sold decreased from **$49.6** in Q2 2024 to **$46.2** in Q2 2025, primarily due to changes in product mix and increased raw coal sales volume[59](index=59&type=chunk) [Idle Mine Asset Costs](index=20&type=section&id=Idle%20Mine%20Asset%20Costs) Idle mine asset costs, including share-based compensation and impairment, are used for internal gross profit monitoring and investor information - Idle mine asset costs include share-based compensation expenses, coal inventory impairment, and depreciation and depletion of property, plant, and equipment and mineral properties, used for internal gross profit monitoring[60](index=60&type=chunk) Gross Profit/(Loss) Reconciliation (thousand USD) | Metric | 2025 Q2 | 2024 Q2 | 2025 H1 | 2024 H1 | | :--- | :--- | :--- | :--- | :--- | | Gross Profit/(Loss) (excluding idle mine asset costs) | (3,852) | 19,303 | (14,423) | 55,985 | | Less non-cash idle mine asset costs | (311) | (64) | (562) | (110) | | Gross Profit/(Loss) (including idle mine asset costs) | (4,163) | 19,239 | (14,985) | 55,875 | [4. Properties](index=19&type=section&id=4.%20Properties) The company holds six mining licenses in Mongolia, with the Ovoot Tolgoi Coal Mine as its flagship operating asset, strategically located near the Chinese border [Operating Coal Mines](index=20&type=section&id=Operating%20Coal%20Mines) The company operates the Ovoot Tolgoi Coal Mine, its flagship asset, strategically located near the China-Mongolia border, producing semi-soft coking coal and thermal coal [Ovoot Tolgoi Coal Mine](index=20&type=section&id=Ovoot%20Tolgoi%20Coal%20Mine) The Ovoot Tolgoi Coal Mine, a flagship asset in Mongolia, produces semi-soft coking coal and thermal coal, aiming to expand market penetration in China - The Ovoot Tolgoi Coal Mine is the company's flagship asset, located in Umnugobi Aimag, Mongolia, approximately **40 kilometers** from the Shivee Khuren-Ceke border crossing with China, and has been in operation since 2008[13](index=13&type=chunk)[64](index=64&type=chunk) - Primary products include standard and premium semi-soft coking coal, with some high-ash products processed into semi-soft coking coal, and unwashed products sold as thermal coal; the company aims to develop markets, seek long-term supply agreements with Chinese end-users, and enhance product quality and market penetration in China through various coal processing methods[13](index=13&type=chunk)[64](index=64&type=chunk) [Resources](index=20&type=section&id=Resources) Resource estimates for the Ovoot Tolgoi deposit are detailed in the technical report prepared by Bao-Wan Minerals Ltd., available on SEDAR+ - Resource estimates for the Ovoot Tolgoi deposit are contained in the Ovoot Tolgoi Technical Report prepared by Bao-Wan Minerals Ltd. on behalf of the company, a copy of which was filed on the SEDAR+ website on December 2, 2024[65](index=65&type=chunk) [Reserves](index=20&type=section&id=Reserves) Reserve estimates for the Ovoot Tolgoi deposit are detailed in the technical report prepared by Bao-Wan Minerals Ltd., available on SEDAR+ - Reserve estimates for the Ovoot Tolgoi deposit are contained in the Ovoot Tolgoi Technical Report prepared by Bao-Wan Minerals Ltd. on behalf of the company, a copy of which was filed on the SEDAR+ website on December 2, 2024[66](index=66&type=chunk) [Mining Operations](index=21&type=section&id=Mining%20Operations) Ovoot Tolgoi employs open-pit bench mining with large-scale hydraulic excavators and trucks, supported by a predominantly Mongolian workforce [Mining Method](index=21&type=section&id=Mining%20Method) The Ovoot Tolgoi deposit utilizes open-pit bench mining with large-scale hydraulic excavators and trucks for high-productivity extraction in steeply dipping coal seams - The Ovoot Tolgoi deposit employs open-pit bench mining, utilizing large-scale hydraulic excavators, shovels, and trucks for high-productivity extraction in steeply dipping coal seams[68](index=68&type=chunk) [Mining Equipment](index=21&type=section&id=Mining%20Equipment) The current mining fleet includes Liebherr hydraulic excavators and MT4400AC haul trucks, along with various auxiliary equipment - The mining fleet currently in use includes one Liebherr 996 hydraulic excavator (**34 cubic meters**), four Liebherr R9250 hydraulic excavators (**15 cubic meters**), nineteen MT4400AC haul trucks (**240-tonne** carrying capacity), and various auxiliary equipment[69](index=69&type=chunk) [Workforce](index=21&type=section&id=Workforce) As of June 30, 2025, SGS employed 701 staff in Mongolia, with 99% being Mongolian nationals and 36% local residents - As of June 30, 2025, SGS employed **701 staff** in Mongolia, of whom **697 (99%)** were Mongolian nationals and **250 (36%)** were local residents[70](index=70&type=chunk) [5. Liquidity and Capital Resources](index=21&type=section&id=5.%20Liquidity%20and%20Capital%20Resources) The company manages liquidity through planning and forecasting, addressing tax penalties and deferral agreements, while facing significant going concern uncertainties [Liquidity and Capital Management](index=21&type=section&id=Liquidity%20and%20Capital%20Management) The company manages liquidity through planning, budgeting, and forecasting, addressing tax penalties and deferral agreements, while relying on major shareholder support amid going concern uncertainties [Additional Taxes and Penalties Imposed by Mongolian Tax Authority](index=21&type=section&id=Additional%20Taxes%20and%20Penalties%20Imposed%20by%20Mongolian%20Tax%20Authority) Tax penalties initially around $75-80 million were reduced to $26.5 million by TDRC, with the company having paid $17.3 million and planning to pay the remainder from operating cash - The Mongolian Tax Authority's tax audit of SGS for the 2017-2020 tax years initially imposed penalties of approximately **$75 million**, which were later re-evaluated and increased to approximately **$80 million**[72](index=72&type=chunk)[73](index=73&type=chunk) - Following a TDRC resolution, the tax penalty amount was reduced from approximately **$80 million** to approximately **$26.5 million**, and the company decided not to appeal this decision to the first instance administrative court[74](index=74&type=chunk) - Mongolian tax officials attempted to request the court to overturn the TDRC's decision, but the first instance administrative court refused to accept it, and the appellate court upheld the first instance administrative court's order, making the TDRC's decision final; the company has paid **$17.3 million** and expects to pay the remaining outstanding taxes and penalties from operating cash[75](index=75&type=chunk)[76](index=76&type=chunk) [Going Concern Considerations](index=23&type=section&id=Going%20Concern%20Considerations) Asset and working capital deficiencies raise significant doubts about the company's going concern ability, despite measures like deferral agreements and anticipated shareholder support Asset and Working Capital Deficiencies (thousand USD) | Metric | Jun 30, 2025 | Dec 31, 2024 | | :--- | :--- | :--- | | Asset Deficiency | 108,406 | 49,843 | | Working Capital Deficiency | 147,962 | 228,134 | - The working capital deficiency includes **$212.3 million** in trade and other payables and **$28.2 million** in additional taxes and penalties, which could lead to potential legal actions or bankruptcy proceedings[78](index=78&type=chunk)[79](index=79&type=chunk) - The company has taken steps to improve liquidity, including entering into a deferral agreement with JDZF, negotiating repayment plans with suppliers, and expecting to receive financial support of up to **$127 million (RMB 900 million)** from an affiliate of its major shareholder; management believes it has sufficient financial resources to continue operations, but the timely availability of financial support is a key uncertainty for going concern[80](index=80&type=chunk)[81](index=81&type=chunk) [Convertible Debentures](index=24&type=section&id=Convertible%20Debentures) The company issued $500 million in convertible debentures to CIC in 2009, with $250 million remaining outstanding and rights transferred to JDZF in 2022 - The company issued **$500 million** in secured convertible debentures to CIC in November 2009, with an annual interest rate of **8.0% (6.4% cash, 1.6% shares)** and a maximum term of **30 years**; **$250 million** of the debentures were converted in 2010, with the remaining **$250 million** principal unchanged[83](index=83&type=chunk) - In August 2022, CIC transferred the convertible debentures and related rights and obligations to JDZF[188](index=188&type=chunk) - Debenture terms include: **8% annual interest (6.4% cash, 1.6% shares)**, a maximum **30-year term**, secured by a first charge on company assets, a conversion price of **CAD 11.88** or the 50-day volume-weighted average price on the conversion date (whichever is lower, with a minimum of **CAD 8.88**); JDZF has the right to appoint directors, voting rights not exceeding **29.9%**, and certain pre-emptive rights[190](index=190&type=chunk) [Deferral Agreement](index=25&type=section&id=Deferral%20Agreement) The company and JDZF agreed to defer approximately $111.6 million in various payments until August 31, 2026, subject to shareholder approval and specific terms - The company and JDZF entered into the March 2025 Deferral Agreement, deferring multiple payments, including cash and payment-in-kind interest, management fees, and related deferral fees, totaling approximately **$111.6 million**, until August 31, 2026[24](index=24&type=chunk)[85](index=85&type=chunk) - The Deferral Agreement was approved by disinterested shareholders at the Annual General Meeting on June 27, 2025[24](index=24&type=chunk)[85](index=85&type=chunk) - The company is required to pay a deferral fee at an annual interest rate of **6.4%** for convertible debenture-related amounts and **1.5%** for cooperation agreement-related amounts; the agreement has no fixed repayment schedule, with the company discussing repayment amounts monthly with JDZF and requiring JDZF's written consent before any changes in senior management[25](index=25&type=chunk)[86](index=86&type=chunk) [Net Debt to Equity Ratio](index=26&type=section&id=Net%20Debt%20to%20Equity%20Ratio) The company's net debt to equity ratio improved to -476% as of June 30, 2025, but remains negative, indicating negative equity Net Debt to Equity Ratio Comparison | Metric | Jun 30, 2025 | Dec 31, 2024 | | :--- | :--- | :--- | | Net Debt to Equity Ratio | -476% | -945% | [Cash Flow Summary](index=26&type=section&id=Cash%20Flow%20Summary) In H1 2025, net cash from operating activities increased, cash used in investing activities decreased, and cash used in financing activities significantly reduced [Net Cash Flows from Operating Activities](index=26&type=section&id=Net%20Cash%20Flows%20from%20Operating%20Activities) Net cash flows from operating activities increased to $34.6 million in H1 2025, primarily due to higher sales volume Net Cash Flows from Operating Activities (thousand USD) | Metric | 2025 H1 | 2024 H1 | Change | | :--- | :--- | :--- | :--- | | Net Cash Flows from Operating Activities | 34,570 | 32,355 | Increase 2,215 | [Cash Used in Investing Activities](index=26&type=section&id=Cash%20Used%20in%20Investing%20Activities) Cash used in investing activities decreased to $39.3 million in H1 2025, mainly for property, plant, and equipment expenditures Cash Used in Investing Activities (thousand USD) | Metric | 2025 H1 | 2024 H1 | Change | | :--- | :--- | :--- | :--- | | Cash Used in Investing Activities | (39,349) | (64,294) | Decrease 24,945 | | Property, Plant, and Equipment Expenditures | 39,600 | 64,000 | Decrease 24,400 | [Cash Used in Financing Activities](index=26&type=section&id=Cash%20Used%20in%20Financing%20Activities) Cash used in financing activities significantly decreased to $0.4 million in H1 2025 Cash Used in Financing Activities (thousand USD) | Metric | 2025 H1 | 2024 H1 | Change | | :--- | :--- | :--- | :--- | | Cash Used in Financing Activities | (374) | (3,291) | Decrease 2,917 | [Contractual Obligations and Guarantees](index=26&type=section&id=Contractual%20Obligations%20and%20Guarantees) As of June 30, 2025, the company's total future minimum payment commitments amounted to $11.04 million, primarily for capital expenditures Contractual Obligations and Guarantees (thousand USD) | Obligation Type | Within 1 Year | 2-3 Years | Over 3 Years | Total | | :--- | :--- | :--- | :--- | :--- | | Capital Expenditure Commitments | 1,964 | 3,848 | 3,815 | 9,627 | | Operating Expenditure Commitments | 1,216 | 38 | 159 | 1,413 | | Total | 3,180 | 3,886 | 3,974 | 11,040 | [Ovoot Tolgoi Coal Mine Impairment Analysis](index=26&type=section&id=Ovoot%20Tolgoi%20Coal%20Mine%20Impairment%20Analysis) Impairment indicators were identified for the Ovoot Tolgoi mine due to future coal price uncertainty, but no impairment was recognized as recoverable amounts exceeded carrying values - As of June 30, 2025, impairment indicators were identified for the Ovoot Tolgoi Coal Mine cash-generating unit, due to uncertainty regarding future Chinese coal prices[93](index=93&type=chunk) - No impairment of non-financial assets was recognized for the six months ended June 30, 2025, as the recoverable amount exceeded the carrying value[93](index=93&type=chunk) [Financial Instruments](index=27&type=section&id=Financial%20Instruments) The fair values of the company's financial instruments generally align with carrying values, except for certain liabilities, with convertible debenture derivatives valued using Monte Carlo simulation - The fair values of all the company's financial instruments are similar to their carrying values, except for trade and other payables, interest-bearing borrowings, and convertible debentures, whose fair values are lower than their respective carrying values[95](index=95&type=chunk) - The fair value of the convertible debenture embedded derivative is determined using a Monte Carlo simulation valuation model, and the company mitigates related risks by ensuring corporate activities comply with all contractual obligations under the convertible debentures[95](index=95&type=chunk) Financial Assets and Liabilities (thousand USD) | Metric | Jun 30, 2025 | Dec 31, 2024 | | :--- | :--- | :--- | | **Financial Assets** | | | | Cash | 2,614 | 8,590 | | Restricted Cash | 838 | 274 | | Trade and Other Receivables | 17,233 | 31,486 | | **Financial Liabilities** | | | | Convertible Debentures - Embedded Derivative | 7 | 63 | | Trade and Other Payables | 212,289 | 169,281 | | Lease Liabilities | 1,979 | 2,192 | | Convertible Debentures - Debt Host and Accrued Interest | 222,392 | 204,855 | [6. Regulatory Matters and Contingencies](index=28&type=section&id=6.%20Regulatory%20Matters%20and%20Contingencies) The company faces ongoing litigation, disputes over special protection areas, and risks from frequent changes in Mongolian tax laws [Litigation](index=28&type=section&id=Litigation) The company faces an ongoing class action lawsuit regarding misstatements, with a conditional settlement of CAD 6.8 million covered by insurance awaiting court approval - The company has faced a class action lawsuit since 2014, alleging misrepresentations due to previously restated financial statements; while claims against former officers and directors have been dismissed, the class action against the company is ongoing[97](index=97&type=chunk)[98](index=98&type=chunk) - The company reached a conditional settlement with the class action plaintiffs for **CAD 6.8 million**, covering all liabilities, legal fees, etc., to be borne by the company's insurance provider since January 2014[98](index=98&type=chunk) - The settlement agreement is subject to approval by a judge of the Ontario Superior Court of Justice, with a motion expected to be filed on or before December 31, 2025[98](index=98&type=chunk) [Special Needs Areas in Umnugobi Province](index=29&type=section&id=Special%20Needs%20Areas%20in%20Umnugobi%20Province) Disputes over mining license areas being designated as special protection zones have been largely resolved in the company's favor, with court rulings invalidating attempts to re-include them - The Soumber mining license areas were previously included in special protected areas, prohibiting mining activities; SGS reached an amicable agreement with local authorities to exclude the license areas from the special needs area[101](index=101&type=chunk) - As of July 2021, two license areas no longer overlap with special needs areas, but the company is still negotiating with Mongolian authorities regarding the remaining license area[102](index=102&type=chunk) - The local Citizens' Representative Khural attempted to re-include the license areas into the protected zone, but both the Umnugobi Province First Instance Court and the Appellate Court ruled their claims invalid, and the Appellate Court's decision is final[102](index=102&type=chunk)[103](index=103&type=chunk) [Tax Laws](index=30&type=section&id=Tax%20Laws) Frequent changes in Mongolian tax laws pose risks of additional taxes and penalties, though a significant tax penalty reduction was upheld by the appeals court - The interpretation and changes to Mongolian tax, currency, and customs laws are frequent, potentially leading to the imposition of significant additional taxes, penalties, and interest on the company[104](index=104&type=chunk) - Mongolian tax officials attempted to request the court to overturn the TDRC's decision to reduce SGS's tax penalties from approximately **$80 million** to approximately **$26.5 million**, but the first instance administrative court refused to accept it, and the appellate court upheld the first instance administrative court's order, making the TDRC's decision final[105](index=105&type=chunk)[106](index=106&type=chunk) - The company recorded a reversal of additional taxes and penalties of **$48.5 million** in 2024 and has paid **$17.3 million** to date; management will continue to assess the impact of subsequent events on tax liabilities[106](index=106&type=chunk)[108](index=108&type=chunk) [7. Outstanding Share Data](index=31&type=section&id=7.%20Outstanding%20Share%20Data) As of August 14, 2025, the company had approximately 296.7 million common shares outstanding, with key shareholders including JDZF, Blueport International Holdings, and Voyage Wisdom - As of August 14, 2025, the company had approximately **296.7 million** common shares issued and outstanding, along with incentive stock options to subscribe for approximately **1.2 million** unissued common shares at an exercise price of **HKD 1.41**, but no preferred shares outstanding[109](index=109&type=chunk) Major Shareholder Holdings (as of August 14, 2025) | Shareholder Name | Number of Shares Held (approx.) | Percentage of Issued and Outstanding Common Shares (approx.) | | :--- | :--- | :--- | | JDZF | 85.7 million shares | 28.9% | | Blueport International Holdings Limited | 46.4 million shares | 15.6% | | Voyage Wisdom Limited | 25.8 million shares | 8.7% | [8. Disclosure Controls and Procedures and Internal Control Over Financial Reporting](index=31&type=section&id=8.%20Disclosure%20Controls%20and%20Procedures%20and%20Internal%20Control%20Over%20Financial%20Reporting) No significant changes occurred in the company's internal controls over financial reporting during the most recent quarter - No significant changes occurred in the company's internal controls over financial reporting during the most recently completed quarter that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting[110](index=110&type=chunk) [9. Critical Accounting Estimates and Judgments](index=31&type=section&id=9.%20Critical%20Accounting%20Estimates%20and%20Judgments) No new IFRS accounting standards or interpretations are expected to significantly impact the company, with details available in the interim financial statements - No new IFRS accounting standards or interpretations not yet effective are expected to have a significant impact on the company[110](index=110&type=chunk) - Information regarding accounting judgments and estimates can be found in Note 2.3 to the company's condensed consolidated interim financial statements for the quarter ended June 30, 2025[110](index=110&type=chunk) [10. Risk Factors](index=31&type=section&id=10.%20Risk%20Factors) The company's business involves various risks and uncertainties, consistent with those disclosed in its annual information form for the year ended December 31, 2024 - The company's business involves certain risks, some of which are beyond its control; the significant risks and uncertainties affecting the company, their potential impact on operations, and key risk management strategies are substantially consistent with those disclosed in the company's most recently filed Annual Information Form for the year ended December 31, 2024[111](index=111&type=chunk) [11. Hong Kong Listing Rules Requirements](index=32&type=section&id=11.%20Hong%20Kong%20Listing%20Rules%20Requirements) The company has no significant investments, acquisitions, dispositions, or future capital asset plans, and details its employee compensation and benefits [Significant Investments](index=32&type=section&id=Significant%20Investments) As of June 30, 2025, the company had no significant investments other than those in joint ventures and associates - As of June 30, 2025, the company had no significant investments other than those in joint ventures and associates[113](index=113&type=chunk) [Significant Acquisitions and Dispositions of Subsidiaries, Joint Ventures, and Associates](index=32&type=section&id=Significant%20Acquisitions%20and%20Dispositions%20of%20Subsidiaries,%20Joint%20Ventures,%20and%20Associates) For the six months ended June 30, 2025, the company had no significant acquisitions or dispositions of subsidiaries, joint ventures, or associates - For the six months ended June 30, 2025, the company had no significant acquisitions or dispositions of subsidiaries, joint ventures, or associates[114](index=114&type=chunk) [Future Plans for Material Investments or Capital Assets](index=32&type=section&id=Future%20Plans%20for%20Material%20Investments%20or%20Capital%20Assets) As of June 30, 2025, the company had no specific plans for material investments or capital assets - As of June 30, 2025, the company had no specific plans for material investments or capital assets[115](index=115&type=chunk) [Employees](index=32&type=section&id=Employees) As of June 30, 2025, the company employed 808 individuals, offering competitive compensation and a share option scheme to attract and retain talent - As of June 30, 2025, the company had a total of **808 employees**[116](index=116&type=chunk) - The company offers competitive compensation packages, including salaries, director's fees, key performance indicators linked to performance targets, discretionary bonuses, and other benefits, and has a share option scheme to attract, retain, motivate, and reward employees, while also funding external training courses[116](index=116&type=chunk) [12. Outlook](index=32&type=section&id=12.%20Outlook) The company anticipates a reshaping of the international coal market due to geopolitical shifts and aims to expand its market presence in China with JDZF's support [Market Environment and Company Strategy](index=32&type=section&id=Market%20Environment%20and%20Company%20Strategy) The company expects global geopolitical shifts to reshape the international coal market, focusing on expanding its Chinese market reach and customer base with JDZF's support - The global geopolitical landscape and US-China trade tensions are expected to reshape the international coal market, with Chinese coal users potentially shifting to more stable and reliable supply sources such as Australia, Russia, Canada, and Mongolia[117](index=117&type=chunk) - Enhanced cooperation between the Chinese and Mongolian governments will strengthen trade ties and improve infrastructure, creating favorable conditions for Mongolian coal exports to China[117](index=117&type=chunk) - Despite challenges in China's property market and infrastructure investment leading to a decline in coking coal demand, the company remains cautiously optimistic about the Chinese coal market, expecting coal to remain a primary energy source and supply constraints to cause price volatility[117](index=117&type=chunk) - With the continued assistance and support of JDZF, the company will focus on expanding its market reach and customer base in China to improve the profitability of its coal products[117](index=117&type=chunk) [Medium-Term Objectives](index=33&type=section&id=Medium-Term%20Objectives) Medium-term goals include expanding mining operations, optimizing product mix, increasing market reach, enhancing production, and optimizing cost structures while operating safely - The company will continue to expand its mining operations and coal processing capabilities to capture market share[120](index=120&type=chunk) - Optimize product portfolio: Produce economically efficient blended coal products by improving mining operations, utilizing dry and wet washing coal processing plants, and trading and blending different coal types[121](index=121&type=chunk) - Expand market reach and customer base: Increase sales volume and improve selling prices by expanding sales networks, diversifying customer base, increasing coal logistics capacity, and setting market-driven sales prices[121](index=121&type=chunk) - Increase production and optimize cost structure: Aim to increase coal production to leverage economies of scale and reduce production costs by engaging large third-party contract mining companies, strengthening procurement management, continuous training, and improving productivity[121](index=121&type=chunk) - Operate safely and socially responsibly: Maintain the highest standards of health, safety, and environmental protection[121](index=121&type=chunk) [Long-Term Competitive Advantages](index=33&type=section&id=Long-Term%20Competitive%20Advantages) Long-term competitive advantages include the strategic location of Ovoot Tolgoi, substantial reserves, growth potential of other deposits, and its role as a bridge between China and Mongolia - Strategic location: The Ovoot Tolgoi Coal Mine is approximately **40 kilometers** from major Chinese coal markets and has railway connections to key Chinese coal distribution hubs[121](index=121&type=chunk) - Substantial reserve base: The Ovoot Tolgoi deposit holds at least **82.3 million tonnes** of mineral reserves[121](index=121&type=chunk) - Several growth potentials: Including the Soumber Deposits and Zag Suuj Deposit[121](index=121&type=chunk) - Bridge between China and Mongolia: The company is well-positioned to seize business opportunities between China and Mongolia and will seek assistance and support from its two largest shareholders (experienced Chinese coal mining enterprises)[121](index=121&type=chunk)

If you want to receive a printed version of the Current Corporate Communications, please write to the Company c/o Computersha re Hong Kong Investor Services Limited (the "Share Registrar"), at 17M Floor, Hopewell Centre, 183 Queen's Road East, Wanchai, Hong Kong or send email to SouthGobi.ecom@computershare.com.hk specifying your name, address and request. Arrangement of Electronic Dissemination of Corporate Communications SOUTHGOBI RESOURCES LTD. 南戈壁資源有限公司* (A company continued under the laws of British Co ...

The English and Chinese versions of the Company's Current Corporate Communications are available on the Company's website at SouthGobi.com and the HKEXnews website at www.hkexnews.hk, or the arranged printed form(s) of Current Corporate Communications is enclosed (if applicable). You may access the Current Corporate Communications by clicking "Investor Relations" on the home page of our website, then selecting "Financial Reports" and viewing them through Adobe® Reader® or browsing through the HKEXnews websi ...

Core Viewpoint - The company reported a significant increase in revenue but faced substantial net losses due to operational challenges and market conditions [1] Financial Performance - The company achieved revenue of $278 million for the six months ending June 30, 2025, representing a year-on-year increase of 58.96% [1] - The net loss attributable to equity holders was $49.01 million, compared to a net profit of $10.17 million in the same period last year [1] - Basic and diluted loss per share was $0.165 [1] Operational Challenges - The company incurred an operating loss of $30 million in the first half of 2025, whereas it recorded an operating profit of $47.2 million in the first half of 2024 [1] - Financial performance was negatively impacted by a decline in average realized prices and changes in product mix [1] - The company sold more higher-cost processed coal in the second quarter of 2025 and recorded an inventory impairment loss of $12.3 million [1]

Core Viewpoint - The company reported a significant increase in revenue but faced substantial net losses due to operational challenges and market conditions [1] Financial Performance - The company achieved revenue of $278 million for the six months ending June 30, 2025, representing a year-on-year increase of 58.96% [1] - The net loss attributable to equity holders was $49.01 million, compared to a net profit of $10.17 million in the same period last year [1] - Basic and diluted loss per share was $0.165 [1] Operational Challenges - The company incurred an operating loss of $30 million in the first half of 2025, whereas it recorded an operating profit of $47.2 million in the first half of 2024 [1] - Financial performance was negatively impacted by a decrease in average realized prices and changes in product mix [1] - The company sold more higher-cost processed coal in the second quarter of 2025 and recorded an inventory impairment loss of $12.3 million [1]

Core Insights - The company reported a significant decline in revenue and operating profit for the second quarter of 2025 compared to the same period in 2024, with revenue dropping from $92.8 million to $155.3 million and operating profit turning into a loss of $14.3 million from a profit of $15 million [1][1][1] Financial Performance - For the second quarter of 2025, the company recorded revenue of $155.3 million, a substantial increase from $92.8 million in the second quarter of 2024 [1] - The operating loss for the second quarter of 2025 was $14.3 million, contrasting with an operating profit of $15 million in the same quarter of 2024 [1] - The first six months of 2025 saw revenue of $278.2 million, up from $175 million in the first half of 2024 [1] - The operating loss for the first half of 2025 was $30 million, compared to an operating profit of $47.2 million in the first half of 2024 [1] Factors Influencing Performance - The decline in operating profit was primarily attributed to a decrease in average realized prices and changes in the product mix, with the company selling more higher-cost processed coal in the second quarter of 2025 [1] - The company also recorded an inventory impairment loss of $12.3 million in the second quarter of 2025 [1]

[Company Announcement](index=1&type=section&id=Company%20Announcement) [Announcement Summary](index=1&type=section&id=Announcement%20Summary) SouthGobi Resources Ltd. announced its unaudited financial and operating results for the three and six months ended June 30, 2025, with detailed reports available on SEDAR+ and HKEXnews websites - SouthGobi Resources Ltd. announced its unaudited financial and operating results for the three and six months ended June 30, 2025, on August 14, 2025[2](index=2&type=chunk) [Board of Directors](index=1&type=section&id=Board%20of%20Directors) As of the announcement date, the company's board of directors comprises executive, independent non-executive, and non-executive directors, with Yingbin He serving as Lead Director - As of the announcement date, the board members include Mr. Ruibin Xu, Ms. Chonglin Zhu, Mr. Chen Shen (Executive Directors), Mr. Yingbin He, Ms. Jinlan Quan, Mr. Fenqiang Cai (Independent Non-Executive Directors), and Mr. Zhu Gao, Mr. Zaixiang Wen (Non-Executive Directors)[3](index=3&type=chunk) [Significant Events and Highlights](index=2&type=section&id=Significant%20Events%20and%20Highlights) [Operating Performance](index=2&type=section&id=Operating%20Performance) Since 2024, the company has expanded its mining operations, employing various coal processing methods to enhance coal quality and output, facilitating exports to China; however, a downturn in the Chinese coal market led to a decrease in average realized prices and a shift in product mix towards lower-priced coal products - The company expanded its mining operations since 2024, employing various methods such as screening, wet washing, and dry coal processing to improve coal quality and output, facilitating exports to China[6](index=6&type=chunk) - Sales volume reached **3.0 million tonnes** in Q2 2025, a significant increase from **1.2 million tonnes** in Q2 2024[6](index=6&type=chunk) | Metric | 2025 Q2 | 2024 Q2 | Change | | :--- | :--- | :--- | :--- | | Sales Volume (million tonnes) | 3.0 | 1.2 | +150% | | Average Realized Price (USD/tonne) | 52.6 | 77.6 | -32.2% | [Mongolian Government Strategic Mineral Deposit Designation](index=3&type=section&id=Mongolian%20Government%20Strategic%20Mineral%20Deposit%20Designation) The Mongolian government designated certain company mineral deposits as strategically important under the State Wealth Fund Law and initiated preliminary discussions with the company's subsidiary SGS to determine Mongolia's ownership or royalty interests in SGS - The Mongolian government designated four mining licenses related to the company's Ovoot Tolgoi and Soumber deposits as strategically important under the State Wealth Fund Law[7](index=7&type=chunk)[8](index=8&type=chunk) - SGS received a letter from the Mongolian government's plenipotentiary representative on April 2, 2025, inviting discussions on the Mongolian government's ownership interest in SGS, with preliminary discussions commencing on April 24, 2025[7](index=7&type=chunk)[9](index=9&type=chunk) [Financial Performance](index=3&type=section&id=Financial%20Performance) In Q2 2025, the company reported an operating loss of $14.3 million, compared to an operating profit of $15.0 million in the prior year, primarily due to lower average realized prices, a shift in product mix towards higher-cost processed coal, and an impairment loss of $12.3 million on coal inventory | Metric | 2025 Q2 | 2024 Q2 | Change | | :--- | :--- | :--- | :--- | | Operating Profit/(Loss) (million USD) | (14.3) | 15.0 | Shift from profit to loss | - The decline in financial performance was primarily due to lower average realized prices, a shift in product mix (selling more higher-cost processed coal), and an impairment loss of **$12.3 million** on coal inventory[9](index=9&type=chunk) [Mongolian Tax Authority Additional Taxes and Penalties](index=4&type=section&id=Mongolian%20Tax%20Authority%20Additional%20Taxes%20and%20Penalties) The Mongolian Tax Authority's initial tax penalty of approximately $75 million against SGS was ultimately reduced to about $26.5 million by the Tax Dispute Resolution Council after multiple appeals and reassessments; an appeal by tax officials to overturn this decision was rejected by the Administrative Court, making the ruling final, and the company has paid $17.3 million, with the remainder expected to be paid from operating cash - The Mongolian Tax Authority initially imposed a tax penalty of approximately **$75 million** on SGS, which was later increased to approximately **$80 million** after reassessment[10](index=10&type=chunk)[11](index=11&type=chunk) - Following a TDRC ruling, the tax penalty amount was ultimately reduced to approximately **$26.5 million**[12](index=12&type=chunk) - The Mongolian Tax Authority's appeal to overturn the TDRC ruling was rejected by the first-instance Administrative Court and the Appeals Court, making the decision final; the company has paid **$17.3 million** and expects to pay the remaining amount from operating cash[14](index=14&type=chunk)[15](index=15&type=chunk) [March 2025 Deferral Agreement](index=6&type=section&id=2025%20March%20Deferral%20Agreement) The company entered into a March 2025 deferral agreement with JD Zhixing Fund L.P. (JDZF) to postpone payments totaling approximately $133.7 million until August 31, 2026, subject to deferral fees; the agreement, approved by shareholders, requires monthly financial updates to JDZF and negotiation of repayment amounts - The company reached an agreement with JDZF to defer approximately **$133.7 million** in cash and in-kind interest, management fees, and related deferral fees until August 31, 2026[16](index=16&type=chunk)[17](index=17&type=chunk) - The deferred payments are subject to deferral fees at an annual interest rate of **6.4%** (related to convertible bonds) and **1.5%** (related to cooperation agreements)[17](index=17&type=chunk) - The agreement requires the company to provide monthly financial updates to JDZF and negotiate repayment amounts, also stipulating that changes in senior management require JDZF's written consent[19](index=19&type=chunk)[57](index=57&type=chunk) [Going Concern Considerations](index=7&type=section&id=Going%20Concern%20Considerations) The company faces adverse conditions and significant uncertainties, including asset and working capital deficits, which cast substantial doubt on its ability to continue as a going concern - The company faces adverse conditions and significant uncertainties, including asset and working capital deficits, which cast substantial doubt on its ability to continue as a going concern[19](index=19&type=chunk) [Operating Data and Financial Performance Review](index=8&type=section&id=Operating%20Data%20and%20Financial%20Performance%20Review) [Operating Data Summary](index=8&type=section&id=Operating%20Data%20Summary) In Q2 and H1 2025, the company experienced significant growth in coal sales volume, but average realized prices declined sharply due to a downturn in the Chinese coal market, with the product mix shifting towards lower-priced processed coal, leading to an increase in unit cost of sales in H1 | Metric | 2025 Q2 | 2024 Q2 | YoY Change | 2025 H1 | 2024 H1 | YoY Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | **Coal Sales Volume (million tonnes)** | | | | | | | | Premium Semi-Soft Coking Coal | 0.17 | 0.29 | -41.4% | 0.21 | 0.65 | -67.7% | | Standard Semi-Soft Coking Coal/Premium Thermal Coal | 1.65 | 0.28 | +489.3% | 2.60 | 0.56 | +364.3% | | Standard Thermal Coal | 0.09 | 0.12 | -25.0% | 0.23 | 0.24 | -4.2% | | Processed Coal | 1.05 | 0.51 | +105.9% | 1.98 | 0.80 | +147.5% | | **Total Sales Volume (million tonnes)** | **2.96** | **1.20** | **+146.7%** | **5.02** | **2.25** | **+123.1%** | | **Average Realized Price (USD/tonne)** | | | | | | | | Premium Semi-Soft Coking Coal | 59.84 | 102.61 | -41.7% | 65.57 | 107.22 | -38.8% | | Standard Semi-Soft Coking Coal/Premium Thermal Coal | 60.07 | 77.04 | -22.1% | 63.88 | 76.56 | -16.6% | | Standard Thermal Coal | 17.89 | 36.10 | -50.4% | 28.54 | 41.93 | -32.0% | | Processed Coal | 42.46 | 73.04 | -41.9% | 46.28 | 67.09 | -31.0% | | **Total Average Realized Price (USD/tonne)** | **52.55** | **77.55** | **-32.2%** | **55.41** | **78.47** | **-29.4%** | | **Cost of Sales of Products Sold (USD/tonne)** | 53.87 | 61.32 | -12.1% | 58.39 | 52.94 | +10.3% | [For the Three Months Ended June 30, 2025](index=9&type=section&id=For%20the%20Three%20Months%20Ended%20June%2030%2C%202025) In Q2 2025, the average realized price was $52.6/tonne, a 32.2% year-over-year decrease, primarily due to the downturn in the Chinese coal market and a shift in product mix towards lower-priced coal products, while the unit cost of sales was $53.9/tonne, a 12.1% year-over-year decrease, mainly due to increased raw coal sales - The average realized price in Q2 2025 was **$52.6/tonne**, a decrease from **$77.6/tonne** in Q2 2024, primarily due to the downturn in the Chinese coal market and changes in product mix[22](index=22&type=chunk) - The unit cost of sales for products sold in Q2 2025 was **$53.9/tonne**, a decrease from **$61.3/tonne** in Q2 2024, mainly due to changes in product mix and increased raw coal sales[22](index=22&type=chunk) [For the Six Months Ended June 30, 2025](index=9&type=section&id=For%20the%20Six%20Months%20Ended%20June%2030%2C%202025) In H1 2025, sales volume reached 5.0 million tonnes, a significant year-over-year increase, but the average realized price was $55.4/tonne, a 29.4% year-over-year decrease, also affected by market downturns and product mix adjustments, while the unit cost of sales was $58.4/tonne, a 10.3% year-over-year increase, primarily due to business expansion into higher-cost processed coal categories - Sales volume in H1 2025 was **5.0 million tonnes**, a significant increase from **2.3 million tonnes** in H1 2024[24](index=24&type=chunk) - The average realized price in H1 2025 was **$55.4/tonne**, a decrease from **$78.5/tonne** in H1 2024, primarily due to the downturn in the Chinese coal market and changes in product mix[24](index=24&type=chunk) - The unit cost of sales for products sold in H1 2025 was **$58.4/tonne**, an increase from **$52.9/tonne** in H1 2024, mainly due to business expansion into higher-cost processed coal categories[24](index=24&type=chunk) [Quarterly Operating Data Summary](index=15&type=section&id=Quarterly%20Operating%20Data%20Summary) The report provides detailed quarterly operating data from 2023 to 2025, including sales volume, average realized price, raw coal production, cost of sales, and strip ratio for various coal types, illustrating trends in sales fluctuations and market-influenced pricing | Metric | 2025 Q2 | 2025 Q1 | 2024 Q4 | 2024 Q3 | 2024 Q2 | 2024 Q1 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | **Total Sales Volume (million tonnes)** | 2.96 | 2.06 | 2.66 | 2.11 | 1.20 | 1.05 | | **Total Average Realized Price (USD/tonne)** | 52.55 | 59.51 | 65.72 | 67.77 | 77.55 | 79.52 | | **Raw Coal Production (million tonnes)** | 3.91 | 3.92 | 4.19 | 2.75 | 2.01 | 1.25 | | **Cost of Sales of Products Sold (USD/tonne)** | 53.87 | 64.90 | 48.92 | 52.77 | 61.32 | 43.36 | [Financial Performance Summary](index=10&type=section&id=Financial%20Performance%20Summary) In Q2 and H1 2025, the company's operating performance shifted from profit to loss, primarily due to declining average realized prices, changes in product mix, impairment losses on coal inventory, and a significant increase in cost of sales; while revenue grew, it could not offset rising costs and adverse market factors | Metric (thousand USD) | 2025 Q2 | 2024 Q2 | YoY Change | 2025 H1 | 2024 H1 | YoY Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Revenue | 155,289 | 92,821 | +67.3% | 278,156 | 174,990 | +58.9% | | Cost of Sales | (159,452) | (73,582) | +116.7% | (293,141) | (119,115) | +146.1% | | Gross Profit/(Loss) | (4,163) | 19,239 | Shift from profit to loss | (14,985) | 55,875 | Shift from profit to loss | | Operating Profit/(Loss) | (14,326) | 15,045 | Shift from profit to loss | (30,000) | 47,193 | Shift from profit to loss | | Net Profit/(Loss) Attributable to Owners of the Company | (22,806) | (2,085) | Loss widened | (49,011) | 10,167 | Shift from profit to loss | | Basic and Diluted Earnings/(Loss) Per Share (USD) | (0.077) | (0.007) | Loss widened | (0.165) | 0.034 | Shift from profit to loss | [For the Three Months Ended June 30, 2025](index=11&type=section&id=For%20the%20Three%20Months%20Ended%20June%2030%2C%202025_Financial) In Q2 2025, the company reported an operating loss of $14.3 million, with revenue increasing to $155.3 million, but cost of sales significantly rising to $159.5 million due to higher sales volume, sales of high-cost processed coal, and increased transportation costs; other operating expenses also increased significantly due to a $12.3 million impairment loss on coal inventory - In Q2 2025, operating activities resulted in a **$14.3 million loss**, compared to a **$15.0 million profit** in Q2 2024, primarily due to lower average realized prices, changes in product mix, and a **$12.3 million** impairment loss on coal inventory[28](index=28&type=chunk) - Revenue increased to **$155.3 million** (Q2 2024: $92.8 million), while cost of sales increased to **$159.5 million** (Q2 2024: $73.6 million), mainly due to higher sales volume, sales of high-cost processed coal, and increased transportation costs[28](index=28&type=chunk) - Other operating expenses increased to **$7.0 million** (Q2 2024: $1.2 million), primarily due to higher administrative fees and a **$12.3 million** impairment loss on coal inventory[30](index=30&type=chunk) [For the Six Months Ended June 30, 2025](index=13&type=section&id=For%20the%20Six%20Months%20Ended%20June%2030%2C%202025_Financial) In H1 2025, the company incurred an operating loss of $30.0 million, with revenue increasing to $278.2 million, and cost of sales rising to $293.1 million, mainly due to increased sales volume and expansion into higher-cost processed coal categories; other operating expenses also increased due to the impairment loss on coal inventory - In H1 2025, operating activities resulted in a **$30.0 million loss**, compared to a **$47.2 million profit** in H1 2024, primarily due to lower average realized prices, changes in product mix, and a **$12.3 million** impairment loss on coal inventory[33](index=33&type=chunk) - Revenue increased to **$278.2 million** (H1 2024: $175.0 million), while cost of sales increased to **$293.1 million** (H1 2024: $119.1 million), mainly due to higher sales volume and business expansion into higher-cost processed coal categories[33](index=33&type=chunk) - Other operating expenses increased to **$8.6 million** (H1 2024: $2.2 million), primarily due to higher administrative fees and a **$12.3 million** impairment loss on coal inventory[35](index=35&type=chunk) [Quarterly Financial Performance Summary](index=16&type=section&id=Quarterly%20Financial%20Performance%20Summary) The report provides detailed quarterly financial performance from 2023 to 2025, including revenue, cost of sales, gross profit, operating profit/loss, and net profit/loss, reflecting quarterly fluctuations in performance and the impact of market environment changes | Metric (thousand USD) | 2025 Q2 | 2025 Q1 | 2024 Q4 | 2024 Q3 | 2024 Q2 | 2024 Q1 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Revenue | 155,289 | 122,867 | 174,640 | 143,748 | 92,821 | 82,169 | | Cost of Sales | (159,452) | (133,689) | (130,119) | (111,354) | (73,582) | (45,533) | | Gross Profit/(Loss) | (4,163) | (10,822) | 44,521 | 32,394 | 19,239 | 36,636 | | Operating Profit/(Loss) | (14,326) | (15,674) | 79,052 | 27,697 | 15,045 | 32,148 | | Net Profit/(Loss) | (22,806) | (26,205) | 72,291 | 10,039 | (2,085) | 12,252 | | Basic Earnings/(Loss) Per Share (USD) | (0.077) | (0.088) | 0.244 | 0.034 | (0.007) | 0.041 | [Liquidity and Capital Resources](index=17&type=section&id=Liquidity%20and%20Capital%20Resources) [Liquidity and Capital Management](index=17&type=section&id=Liquidity%20and%20Capital%20Management) The company has established planning, budgeting, and forecasting procedures to determine the funding required for ongoing operations and expansion plans, while closely monitoring factors affecting liquidity - The company has established planning, budgeting, and forecasting procedures to determine the funding required for ongoing operations and expansion plans[42](index=42&type=chunk) [Mongolian Tax Authority Additional Taxes and Penalties_Liquidity](index=17&type=section&id=Mongolian%20Tax%20Authority%20Additional%20Taxes%20and%20Penalties_Liquidity) The Mongolian Tax Authority's tax penalty against SGS was ultimately determined to be $26.5 million after multiple appeals and court rulings; the company has paid $17.3 million, with the remaining amount expected to be paid through operating cash flow, and management will continue to assess the impact of subsequent events on the tax amount - The Mongolian Tax Authority's tax penalty against SGS was finally determined to be **$26.5 million**, of which the company has paid **$17.3 million**[45](index=45&type=chunk)[47](index=47&type=chunk) - The Mongolian Tax Authority's appeal to overturn the TDRC ruling was rejected by the first-instance Administrative Court and the Appeals Court, making the decision final[46](index=46&type=chunk) - The company expects to pay the outstanding taxes and tax penalties from cash generated by operating activities, and management will continue to assess the impact of any subsequent events on the tax amount[47](index=47&type=chunk) [Going Concern Considerations](index=19&type=section&id=Going%20Concern%20Considerations) The company faces an asset deficit of $108.4 million and a working capital deficit of $148.0 million, raising significant doubt about its ability to continue as a going concern; to address liquidity issues, the company has implemented measures including deferral agreements, repayment negotiations with suppliers, and access to up to $127 million in financial support from a major shareholder's affiliate, with the Board believing sufficient financial resources exist for continued operations | Metric (thousand USD) | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Asset Deficit | (108,406) | (49,843) | | Working Capital Deficit | (147,962) | (228,134) | - Significant uncertainty exists regarding the company's ability to continue as a going concern, but management has developed cash flow forecasts and implemented measures including deferral agreements, repayment negotiations with suppliers, and access to up to **$127 million** in financial support from a major shareholder's affiliate[48](index=48&type=chunk)[50](index=50&type=chunk) - The Board believes the company has sufficient financial resources to continue operations, but its going concern status depends on the timely utilization of financial support from the major shareholder's affiliate[50](index=50&type=chunk) [Convertible Bonds](index=21&type=section&id=Convertible%20Bonds) In November 2009, the company entered into a financing agreement with CIC, issuing $500 million in secured convertible bonds with an 8.0% interest rate and a 30-year term; in March 2010, the company exercised its conversion right, converting $250 million of bonds into approximately 21.5 million shares - In November 2009, the company issued **$500 million** in secured convertible bonds to CIC, with an **8.0%** interest rate and a **30-year** term[53](index=53&type=chunk) - In March 2010, the company converted **$250 million** of convertible bonds into approximately **21.5 million** shares[53](index=53&type=chunk) [Deferral Agreement](index=21&type=section&id=Deferral%20Agreement) The company signed a March 2025 deferral agreement with JDZF, postponing approximately $133.7 million in payments until August 31, 2026, subject to deferral fees; the agreement, approved by shareholders, requires monthly financial updates to JDZF, negotiation of repayment amounts, and JDZF's written consent for senior management changes - The company signed a March 2025 deferral agreement with JDZF, deferring approximately **$133.7 million** in payments until August 31, 2026[54](index=54&type=chunk)[55](index=55&type=chunk) - The deferred payments are subject to deferral fees at an annual interest rate of **6.4%** (related to convertible bonds) and **1.5%** (related to cooperation agreements)[55](index=55&type=chunk)[57](index=57&type=chunk) - The agreement requires the company to provide monthly financial updates to JDZF and negotiate repayment amounts, and changes in senior management require JDZF's written consent[57](index=57&type=chunk) [Ovoot Tolgoi Coal Mine Impairment Analysis](index=22&type=section&id=Ovoot%20Tolgoi%20Coal%20Mine%20Impairment%20Analysis) As of June 30, 2025, the Ovoot Tolgoi coal mine showed impairment indicators, primarily due to uncertainties in future Chinese coal prices; however, no impairment of non-financial assets was recognized for the period as the recoverable amount exceeded the carrying value - The Ovoot Tolgoi coal mine showed impairment indicators, primarily due to uncertainties in future Chinese coal prices[56](index=56&type=chunk) - No impairment of non-financial assets was recognized for the six months ended June 30, 2025, as the recoverable amount exceeded the carrying value[56](index=56&type=chunk) [Regulatory Matters and Contingencies](index=23&type=section&id=Regulatory%20Matters%20and%20Contingencies) [Litigation](index=23&type=section&id=Litigation) The company faces a class action lawsuit stemming from restated financial statements and has reached a conditional settlement of CAD 6.8 million with the plaintiffs, with costs covered by the company's insurer, pending approval by the Ontario Superior Court - The company faces a class action lawsuit due to restated financial statements and has reached a conditional settlement of **CAD 6.8 million** with the plaintiffs[59](index=59&type=chunk) - The settlement costs are covered by the company's insurer and are pending approval by the Ontario Superior Court[59](index=59&type=chunk)[60](index=60&type=chunk) [Special Needs Areas in South Gobi Province](index=24&type=section&id=Special%20Needs%20Areas%20in%20South%20Gobi%20Province) The company's Soumber mining licenses were previously included in a special needs area prohibiting mining; following negotiations and court rulings, two license areas no longer overlap with special needs areas, and the local government's appeal to re-designate the license areas as protected zones was rejected, making the ruling final - Mining licenses for the Soumber deposit were previously included in a special needs area, prohibiting mining[62](index=62&type=chunk) - Following negotiations and court rulings, two mining license areas no longer overlap with special needs areas[63](index=63&type=chunk) - The local government's appeal to re-designate the license areas as protected zones was rejected, making the ruling final[64](index=64&type=chunk) [Tax Law](index=25&type=section&id=Tax%20Law) Mongolian tax laws are subject to frequent interpretation and changes, potentially exposing the company to additional taxes, penalties, and interest risks; despite management's belief in its appropriate interpretations, tax authorities may still raise objections, and the company has paid $17.3 million in tax penalties and continues to assess the impact of subsequent events - Mongolian tax, currency, and customs laws are frequently subject to differing interpretations and changes, potentially leading to significant additional taxes, penalties, and interest being levied against the company[65](index=65&type=chunk) - The Mongolian Tax Authority's appeal to overturn the TDRC's reduction of SGS's tax penalty was rejected by the Administrative Court, making the ruling final[67](index=67&type=chunk) - The company has paid a total of **$17.3 million** to the Mongolian Tax Authority for the aforementioned tax penalties, and management will continue to assess the impact of any subsequent events on the tax amount[68](index=68&type=chunk) [Transportation Infrastructure](index=26&type=section&id=Transportation%20Infrastructure) The company, through its Mongolian subsidiary SGS, holds a 40% indirect equity interest in RDCC LLC, which owns a 30-year patent for the road from the Ovoot Tolgoi coal mine to the Shivee Khuren border crossing; in H1 2025, RDCC LLC recognized $6.5 million in toll revenue, and most of the company's mobile equipment is pledged as collateral for convertible bonds - The company, through SGS, holds a **40%** indirect equity interest in RDCC LLC, which owns a **30-year** patent for the road from the Ovoot Tolgoi coal mine to the Shivee Khuren border crossing[69](index=69&type=chunk) - In H1 2025, RDCC LLC recognized **$6.5 million** in toll revenue (2024: $6.3 million)[70](index=70&type=chunk) - As of June 30, 2025, most of the company's mobile equipment and other operating equipment with a carrying value of **$12.6 million** is pledged as collateral for convertible bonds[71](index=71&type=chunk) [Corporate Governance and Other Disclosures](index=27&type=section&id=Corporate%20Governance%20and%20Other%20Disclosures) [Purchase, Sale or Redemption of Listed Securities](index=27&type=section&id=Purchase%2C%20Sale%20or%20Redemption%20of%20Listed%20Securities) For the six months ended June 30, 2025, neither the company nor its subsidiaries purchased, sold, or redeemed any listed securities, and the company held no treasury shares - For the six months ended June 30, 2025, neither the company nor its subsidiaries purchased, sold, or redeemed any listed securities[72](index=72&type=chunk) - As of June 30, 2025, the company held no treasury shares[72](index=72&type=chunk) [Compliance with Corporate Governance Requirements](index=27&type=section&id=Compliance%20with%20Corporate%20Governance%20Requirements) For the six months ended June 30, 2025, the company generally complied with the Corporate Governance Code, with three exceptions: the Board having no chairman (duties performed by the independent Lead Director), insufficient frequency of meetings between the chairman and non-executive directors, and the independent Lead Director chairing the annual general meeting - The company generally complied with the Corporate Governance Code, with three exceptions, including the Board having no chairman (duties performed by the independent Lead Director), insufficient frequency of meetings between the chairman and non-executive directors, and the independent Lead Director chairing the annual general meeting[73](index=73&type=chunk) [Directors' Securities Transactions](index=28&type=section&id=Directors'%20Securities%20Transactions) The company has adopted a directors' securities dealing policy with terms no less exacting than the Model Code, and all directors confirmed compliance; directors engaging in transactions involving company securities or related financial instruments must submit insider reports and disclose to the HKEX - The company has adopted a directors' securities dealing policy, and all directors confirmed compliance with the policy and the Model Code[74](index=74&type=chunk) - Directors engaging in transactions involving company securities or related financial instruments must submit insider reports and disclose to the HKEX[74](index=74&type=chunk) [Material Investments](index=28&type=section&id=Material%20Investments) As of June 30, 2025, the company had no material investments other than investments in joint ventures and associates - As of June 30, 2025, the company had no material investments other than investments in joint ventures and associates[76](index=76&type=chunk) [Material Acquisitions and Disposals of Subsidiaries, Joint Ventures and Associates](index=28&type=section&id=Material%20Acquisitions%20and%20Disposals%20of%20Subsidiaries%2C%20Joint%20Ventures%20and%20Associates) For the six months ended June 30, 2025, the company had no material acquisitions or disposals of subsidiaries, joint ventures, or associates - For the six months ended June 30, 2025, the company had no material acquisitions or disposals of subsidiaries, joint ventures, or associates[77](index=77&type=chunk) [Future Plans for Material Investments or Capital Assets](index=28&type=section&id=Future%20Plans%20for%20Material%20Investments%20or%20Capital%20Assets) As of June 30, 2025, the company had no specific plans for material investments or capital assets - As of June 30, 2025, the company had no specific plans for material investments or capital assets[78](index=78&type=chunk) [Outlook](index=28&type=section&id=Outlook) [Market Outlook](index=28&type=section&id=Market%20Outlook) Despite global geopolitical challenges and a downturn in the Chinese real estate market impacting coking coal demand, the company remains cautiously optimistic about the Chinese coal market, anticipating continued reliance on coal and supply constraints from environmental and safety regulations, which may lead to price volatility; the company will focus on expanding market reach and customer base to improve profit margins - Global geopolitical dynamics and US-China trade tensions may lead to a shift in China's coal import sources, potentially benefiting Mongolia through strengthened Sino-Mongolian government cooperation and improved infrastructure[79](index=79&type=chunk)[80](index=80&type=chunk) - Challenges in China's real estate market and infrastructure investment are leading to a decline in steel demand and coking coal demand[80](index=80&type=chunk) - The company remains cautiously optimistic about the Chinese coal market, expecting coal to remain China's primary energy source, with environmental and safety production requirements limiting supply, potentially leading to price volatility[80](index=80&type=chunk) [Medium-Term Objectives](index=29&type=section&id=Medium-Term%20Objectives) In the medium term, the company will continue to expand mining operations and coal processing capacity, optimize its product portfolio through improved mining, processing plants, and blended coal trading, broaden its market reach and customer base via sales networks, logistics capabilities, and market pricing, and optimize its operating cost structure, all while prioritizing safety and social responsibility - The company will continue to expand mining operations and coal processing capacity to capture market share[81](index=81&type=chunk) - Medium-term objectives include optimizing the product portfolio (improving mining, utilizing processing plants, trading blended coal), expanding market reach and customer base (sales network, logistics capabilities, market pricing), and optimizing the operating cost structure, while prioritizing safety and social responsibility[81](index=81&type=chunk)[82](index=82&type=chunk) [Long-Term Competitive Advantages](index=30&type=section&id=Long-Term%20Competitive%20Advantages) The company's long-term competitive advantages include increased production and optimized cost structure, safe and socially responsible operations, a strategic geographical location (Ovoot Tolgoi coal mine near the Chinese market), a substantial reserve base, growth potential (Soumber and Zag Suuj deposits), and its role as a bridge between China and Mongolia - Long-term competitive advantages include increased production and optimized cost structure, safe and socially responsible operations, strategic location (Ovoot Tolgoi coal mine close to the Chinese market), a substantial reserve base (at least **82.3 million tonnes**), several growth potentials (Soumber and Zag Suuj deposits), and its position as a bridge between China and Mongolia[84](index=84&type=chunk) [Non-IFRS Financial Measures](index=30&type=section&id=Non-IFRS%20Financial%20Measures) [Cash Cost](index=30&type=section&id=Cash%20Cost) The company uses cash cost as a non-IFRS financial measure to reflect cash production and related cash costs incurred to bring inventory to its present location and condition, excluding idle mine asset costs and non-cash expenses, for internal monitoring and providing investors with operating cash cost information - Cash cost is a non-IFRS financial measure used by the company to monitor internal operating cash costs[83](index=83&type=chunk) - Cash cost includes all production costs (direct and indirect) but excludes idle mine asset costs and non-cash expenses (such as share-based compensation, coal inventory impairment, depreciation, and depletion)[83](index=83&type=chunk) [Financial Data Summary](index=31&type=section&id=Financial%20Data%20Summary) [Comprehensive Income Data Summary](index=31&type=section&id=Comprehensive%20Income%20Data%20Summary) In Q2 and H1 2025, the company reported net losses and comprehensive losses, primarily due to a significant increase in cost of sales, a shift from operating profit to loss, and negative impacts from exchange differences | Metric (thousand USD) | 2025 Q2 | 2024 Q2 | 2025 H1 | 2024 H1 | | :--- | :--- | :--- | :--- | :--- | | Revenue | 155,289 | 92,821 | 278,156 | 174,990 | | Cost of Sales | (159,452) | (73,582) | (293,141) | (119,115) | | Gross Profit/(Loss) | (4,163) | 19,239 | (14,985) | 55,875 | | Operating Profit/(Loss) | (14,326) | 15,045 | (30,000) | 47,193 | | Net Profit/(Loss) | (22,806) | (2,085) | (49,011) | 10,167 | | Other Comprehensive Income/(Loss) (Exchange Differences) | (5,324) | (196) | (9,552) | 2,006 | | Net Comprehensive Income/(Loss) | (28,130) | (2,281) | (58,563) | 12,173 | | Basic and Diluted Earnings/(Loss) Per Share (USD) | (0.077) | (0.007) | (0.165) | 0.034 | [Financial Position Data Summary](index=32&type=section&id=Financial%20Position%20Data%20Summary) As of June 30, 2025, the company's total assets were $410.7 million, and total liabilities were $519.1 million, resulting in an asset deficit of $108.4 million; total current liabilities were $279.9 million, leading to a working capital deficit of $148.0 million, primarily influenced by trade and other payables and additional tax penalties | Metric (thousand USD) | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | **Assets** | | | | Total Current Assets | 131,994 | 153,679 | | Total Non-Current Assets | 278,689 | 276,174 | | **Total Assets** | **410,683** | **429,853** | | **Liabilities** | | | | Total Current Liabilities | 279,956 | 381,813 | | Total Non-Current Liabilities | 239,133 | 97,883 | | **Total Liabilities** | **519,089** | **479,696** | | **Equity** | | | | Total Asset Deficit | (108,406) | (49,843) | | **Net Current Liabilities (Working Capital Deficit)** | **(147,962)** | **(228,134)** | [Cash Flow Data Summary](index=34&type=section&id=Cash%20Flow%20Data%20Summary) In H1 2025, net cash flow from operating activities was $34.57 million, net cash outflow from investing activities was $39.349 million, and net cash outflow from financing activities was $0.374 million, resulting in a decrease in cash and cash equivalents to $2.614 million at period-end | Metric (thousand USD) | 2025 H1 | 2024 H1 | | :--- | :--- | :--- | | Net Cash Flow from Operating Activities | 34,570 | 32,355 | | Net Cash Flow Used in Investing Activities | (39,349) | (64,294) | | Net Cash Flow Used in Financing Activities | (374) | (3,291) | | Net Effect of Exchange Rate Changes | (823) | (105) | | Decrease in Cash and Cash Equivalents | (5,976) | (35,335) | | Cash and Cash Equivalents at End of Period | 2,614 | 12,658 | [Selected Information from Notes to Condensed Consolidated Financial Statements](index=36&type=section&id=Selected%20Information%20from%20Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) [Basis of Preparation](index=36&type=section&id=Basis%20of%20Preparation) The condensed consolidated interim financial statements are prepared on a going concern basis, despite the company facing an asset deficit of $108.4 million and a working capital deficit of $148.0 million, which raises significant doubt about its ability to continue as a going concern; management has developed plans, including deferral agreements and financial support from a major shareholder, to ensure liquidity for the next 12 months - The condensed consolidated interim financial statements are prepared on a going concern basis, but the company faces an asset deficit of **$108.4 million** and a working capital deficit of **$148.0 million**, raising significant doubt about its ability to continue as a going concern[92](index=92&type=chunk) - The company has implemented measures, including deferral agreements, repayment negotiations with suppliers, and access to up to **$127 million** in financial support from a major shareholder's affiliate, to ensure liquidity for the next 12 months[94](index=94&type=chunk) [Company Overview and Going Concern](index=36&type=section&id=Company%20Overview%20and%20Going%20Concern) The company faces severe asset and working capital deficits, creating significant uncertainty about its ability to continue as a going concern; management has developed cash flow forecasts and implemented various measures, including deferral agreements and financial support from a major shareholder, to address liquidity challenges and considers the going concern assumption appropriate | Metric (thousand USD) | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Asset Deficit | (108,406) | (49,843) | | Working Capital Deficit | (147,962) | (228,134) | - Significant uncertainty exists regarding the company's ability to continue as a going concern, but management has developed cash flow forecasts and implemented measures, including deferral agreements, repayment negotiations with suppliers, and access to up to **$127 million** in financial support from a major shareholder's affiliate[94](index=94&type=chunk) - The Board believes the company has sufficient financial resources to continue operations, but its going concern status depends on the timely utilization of financial support from the major shareholder's affiliate[94](index=94&type=chunk) [Compliance Statement](index=37&type=section&id=Compliance%20Statement) The condensed consolidated interim financial statements are prepared in accordance with International Accounting Standard 34, comply with IFRS accounting policies and interpretations, and were approved for issue by the Board of Directors on August 14, 2025 - The condensed consolidated interim financial statements are prepared in accordance with International Accounting Standard 34 and comply with IFRS accounting policies and interpretations[97](index=97&type=chunk) - The financial statements were approved and authorized for issue by the Board of Directors on August 14, 2025[97](index=97&type=chunk) [Basis of Presentation](index=37&type=section&id=Basis%20of%20Presentation) The condensed consolidated interim financial statements adopt accounting policies and measurement methods consistent with the annual consolidated financial statements for the year ended December 31, 2024, and should be read in conjunction with those annual statements - The condensed consolidated interim financial statements adopt accounting policies and measurement methods consistent with the annual consolidated financial statements for the year ended December 31, 2024[98](index=98&type=chunk) - The financial statements should be read in conjunction with the company's annual consolidated financial statements for the year ended December 31, 2024[98](index=98&type=chunk) [Adoption of New and Revised Standards and Interpretations](index=38&type=section&id=Adoption%20of%20New%20and%20Revised%20Standards%20and%20Interpretations) No other new or revised IFRS or interpretations, apart from those already disclosed as not yet effective, are expected to have a significant impact on the company - No other new or revised IFRS or interpretations, apart from those already disclosed as not yet effective, are expected to have a significant impact on the company[99](index=99&type=chunk) [Segment Information](index=38&type=section&id=Segment%20Information) The company has only one reportable operating segment, the coal segment, primarily engaged in coal mining, development, and exploration in Mongolia, and coal logistics and trading in Mongolia and China; revenue is mainly derived from Chinese customers, with two largest customers contributing over 10% of total revenue - The company has only one reportable operating segment, the coal segment, primarily engaged in coal mining, development, and exploration in Mongolia, and coal logistics and trading in Mongolia and China[100](index=100&type=chunk) - For the six months ended June 30, 2025 and 2024, two customers each contributed over **10%** of total revenue, with the largest customer accounting for **20%** (2024: 15%) and the second largest for **12%** (2024: 12%)[101](index=101&type=chunk) - For the six months ended June 30, 2025, the company's revenue primarily originated from China (**$278.2 million**), and non-current assets were mainly located in Mongolia (**$277.2 million**)[103](index=103&type=chunk) [Information on Major Customers](index=38&type=section&id=Information%20on%20Major%20Customers) For the six months ended June 30, 2025 and 2024, the company had 70 and 50 active customers, respectively; two customers each contributed over 10% of total revenue, with the largest customer accounting for 20% (2024: 15%) and the second largest for 12% (2024: 12%) - For the six months ended June 30, 2025 and 2024, the company had **70** and **50** active customers, respectively[101](index=101&type=chunk) - Two customers each contributed over **10%** of total revenue, with the largest customer accounting for **20%** (2024: 15%) and the second largest for **12%** (2024: 12%)[101](index=101&type=chunk) [Geographical Information](index=38&type=section&id=Geographical%20Information) The company's operations are primarily located in Mongolia, Hong Kong, and China; for the six months ended June 30, 2025, the vast majority of revenue ($278.2 million) was generated from China, while non-current assets were mainly concentrated in Mongolia ($277.2 million) - The company's operations are primarily located in Mongolia, Hong Kong, and China[102](index=102&type=chunk) | Metric (thousand USD) | Mongolia | Hong Kong | China | Consolidated Total | | :--- | :--- | :--- | :--- | :--- | | **Revenue (2025 H1)** | 4 | – | 278,152 | 278,156 | | **Non-Current Assets (June 30, 2025)** | 277,183 | 357 | 1,149 | 278,689 | [Revenue](index=38&type=section&id=Revenue) Revenue is derived from coal trading and recognized when customers obtain control of the goods and services - Revenue is derived from coal trading and recognized when customers obtain control of the goods and services[104](index=104&type=chunk) [Expenses by Nature](index=39&type=section&id=Expenses%20by%20Nature) In Q2 and H1 2025, the company's total operating expenses significantly increased, primarily due to higher depreciation, employee benefit expenses, impairment loss on coal inventory, and mine operating costs | Metric (thousand USD) | 2025 Q2 | 2024 Q2 | 2025 H1 | 2024 H1 | | :--- | :--- | :--- | :--- | :--- | | Depreciation | 12,254 | 3,555 | 21,378 | 5,944 | | Employee Benefit Expenses | 4,460 | 3,535 | 9,878 | 7,919 | | Impairment Loss on Coal Inventory | 12,348 | – | 12,348 | – | | Mine Operating Costs and Others | 135,301 | 58,649 | 247,573 | 90,795 | | **Total Operating Expenses** | **169,615** | **77,776** | **308,156** | **127,797** | [Cost of Sales](index=40&type=section&id=Cost%20of%20Sales) In Q2 and H1 2025, cost of sales significantly increased, primarily comprising operating expenses, depreciation and depletion, royalties, and cost of sales of idle mine assets; inventory costs also increased substantially | Metric (thousand USD) | 2025 Q2 | 2024 Q2 | 2025 H1 | 2024 H1 | | :--- | :--- | :--- | :--- | :--- | | Operating Expenses | 136,759 | 59,483 | 251,441 | 92,854 | | Depreciation and Depletion | 11,842 | 3,355 | 20,617 | 5,565 | | Royalties | 10,540 | 10,662 | 20,521 | 20,568 | | Cost of Sales of Idle Mine Assets | 311 | 64 | 562 | 110 | | **Cost of Sales** | **159,452** | **73,582** | **293,141** | **119,115** | - For the three and six months ended June 30, 2025, inventory costs recognized as cost of sales totaled **$119,692** and **$221,516**, respectively, a significant increase from the prior year[107](index=107&type=chunk) [Net Other Operating Expenses](index=40&type=section&id=Net%20Other%20Operating%20Expenses) In Q2 and H1 2025, net other operating expenses significantly increased, primarily due to a $12.3 million impairment loss on coal inventory, partially offset by the write-off of other payables | Metric (thousand USD) | 2025 Q2 | 2024 Q2 | 2025 H1 | 2024 H1 | | :--- | :--- | :--- | :--- | :--- | | Administrative Expenses | 2,229 | 1,268 | 3,917 | 2,384 | | Net Foreign Exchange Loss/(Gain) | (914) | 382 | (945) | 582 | | Impairment Loss on Coal Inventory | 12,348 | – | 12,348 | – | | Write-off of Other Payables | (6,272) | – | (6,272) | – | | **Net Other Operating Expenses** | **7,013** | **1,157** | **8,584** | **2,210** | [Finance Costs and Income](index=41&type=section&id=Finance%20Costs%20and%20Income) In Q2 and H1 2025, finance costs, primarily consisting of interest expense on convertible bonds, decreased compared to the prior year; finance income mainly arose from fair value gains on embedded derivatives of convertible bonds and interest income | Metric (thousand USD) | 2025 Q2 | 2024 Q2 | 2025 H1 | 2024 H1 | | :--- | :--- | :--- | :--- | :--- | | Interest Expense on Convertible Bonds | 8,915 | 9,686 | 17,536 | 18,929 | | **Finance Costs** | **9,140** | **10,322** | **17,952** | **20,655** | | Fair Value Gain on Embedded Derivatives of Convertible Bonds | 40 | 688 | 55 | – | | Interest Income | 13 | 34 | 19 | 107 | | **Finance Income** | **53** | **722** | **74** | **107** | [Taxation](index=41&type=section&id=Taxation) In Q2 and H1 2025, the company's current income tax expense, primarily from jurisdictions outside Canada, significantly decreased compared to the prior year | Metric (thousand USD) | 2025 Q2 | 2024 Q2 | 2025 H1 | 2024 H1 | | :--- | :--- | :--- | :--- | :--- | | Current Tax - Other Jurisdictions | 284 | 8,585 | 2,450 | 18,376 | | **Total Tax Expense for the Period** | **284** | **8,585** | **2,450** | **18,376** | [Earnings/(Loss) Per Share](index=42&type=section&id=Earnings%2F%28Loss%29%20Per%20Share) In Q2 and H1 2025, the company's basic and diluted loss per share were $0.077 and $0.165, respectively, representing an expanded loss or a shift from profit to loss compared to the prior year | Metric | 2025 Q2 | 2024 Q2 | 2025 H1 | 2024 H1 | | :--- | :--- | :--- | :--- | :--- | | Net Profit/(Loss) (thousand USD) | (22,806) | (2,085) | (49,011) | 10,167 | | Weighted Average Number of Shares (thousands) | 296,705 | 295,844 | 296,705 | 295,987 | | **Basic and Diluted Earnings/(Loss) Per Share (USD)** | **(0.077)** | **(0.007)** | **(0.165)** | **0.034** | - In calculating diluted loss, the related shares embedded in anti-dilutive convertible bonds and share options were not included[111](index=111&type=chunk) [Cash and Cash Equivalents](index=42&type=section&id=Cash%20and%20Cash%20Equivalents) As of June 30, 2025, the company's cash and cash equivalents were $2.614 million, a significant decrease from $8.59 million as of December 31, 2024; cash is primarily denominated in RMB and Mongolian Tugrik, and exchange rate fluctuations have a sensitive impact on profit/loss before tax | Metric (thousand USD) | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Cash and Bank Balances | 3,452 | 8,864 | | Less: Restricted Cash | (838) | (274) | | **Cash and Cash Equivalents** | **2,614** | **8,590** | - Cash is primarily denominated in RMB (**$1,826 thousand**) and Mongolian Tugrik (**$439 thousand**)[112](index=112&type=chunk) | Exchange Rate Change | June 30, 2025 (thousand USD) | December 31, 2024 (thousand USD) | | :--- | :--- | :--- | | Foreign currency exchange rate increase/+5% | 422 | 273 | | Foreign currency exchange rate decrease/-5% | (422) | (273) | [Trade and Other Receivables](index=43&type=section&id=Trade%20and%20Other%20Receivables) As of June 30, 2025, total trade and other receivables amounted to $17.233 million, a significant decrease from $31.486 million as of December 31, 2024, with most balances less than one month old; the company provides for expected credit losses based on days past due, with an ending provision of $21.876 million | Metric (thousand USD) | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Trade Receivables | 15,710 | 25,418 | | Other Receivables | 1,523 | 6,068 | | **Total Trade and Other Receivables** | **17,233** | **31,486** | - As of June 30, 2025, the loss allowance for trade and other receivables was **$21.876 million**[116](index=116&type=chunk)[117](index=117&type=chunk) [Trade and Other Payables](index=44&type=section&id=Trade%20and%20Other%20Payables) As of June 30, 2025, total trade and other payables amounted to $212.3 million, an increase from $169.3 million as of December 31, 2024, with $84.41 million of payables outstanding for over six months | Aging | June 30, 2025 (thousand USD) | December 31, 2024 (thousand USD) | | :--- | :--- | :--- | | Less than 1 month | 49,885 | 53,646 | | 1 to 3 months | 52,930 | 50,936 | | 3 to 6 months | 25,064 | 18,205 | | More than 6 months | 84,410 | 46,494 | | **Total Trade and Other Payables** | **212,289** | **169,281** | [Accumulated Losses and Dividends](index=44&type=section&id=Accumulated%20Losses%20and%20Dividends) As of June 30, 2025, the company's accumulated losses increased to $1,198.2 million from $1,149.2 million as of December 31, 2024; the company has not paid or declared any dividends since its inception | Metric (thousand USD) | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Accumulated Losses | (1,198,236) | (1,149,222) | - The company has not paid or declared any dividends since its inception[120](index=120&type=chunk) [Other Information](index=45&type=section&id=Other%20Information) [Interim Results Review](index=45&type=section&id=Interim%20Results%20Review) The company's condensed consolidated interim financial statements for the three and six months ended June 30, 2025, are unaudited but have been reviewed by the company's audit committee and are available on SEDAR+ and the company's website - The company's condensed consolidated interim financial statements for the three and six months ended June 30, 2025, are unaudited but have been reviewed by the company's audit committee[121](index=121&type=chunk) [About SouthGobi](index=45&type=section&id=About%20SouthGobi) SouthGobi Resources Ltd. is listed on the HKEX and TSX-V, owns and operates the Ovoot Tolgoi coal mine in Mongolia, holds mining licenses for other coking and thermal coal deposits, and primarily sells coal to Chinese customers - SouthGobi Resources Ltd. is listed on the HKEX and TSX-V and owns and operates the Ovoot Tolgoi coal mine in Mongolia[122](index=122&type=chunk) - The company holds mining licenses for other coking and thermal coal deposits in Mongolia and primarily sells coal to Chinese customers[122](index=122&type=chunk) [Contact Information](index=45&type=section&id=Contact%20Information) Contact information for investors is provided, including email and office phone, along with details for CEO Mr. Ruibin Xu and the company website - Investors can contact the company via email at info@southgobi.com or by office phone[123](index=123&type=chunk)[124](index=124&type=chunk) - The CEO is Mr. Ruibin Xu, and the company website is www.southgobi.com[124](index=124&type=chunk) [Forward-Looking Statements](index=45&type=section&id=Forward-Looking%20Statements) The report contains numerous forward-looking statements regarding the company's going concern ability, future liquidity, discussions with the Mongolian government, operational plans, litigation outcomes, and market outlook; these statements are based on management's current opinions and estimates but are subject to various risks and uncertainties, and actual results may differ materially, with no obligation for the company to update them - The report contains numerous forward-looking statements regarding the company's going concern ability, future liquidity, discussions with the Mongolian government, operational plans, litigation outcomes, and market outlook[125](index=125&type=chunk)[126](index=126&type=chunk) - Forward-looking statements are based on management's current opinions and estimates but are subject to various risks, uncertainties, and other factors, and actual events or results may differ materially from expectations[127](index=127&type=chunk) - The company has no obligation to update forward-looking statements, and readers should not place undue reliance on them[128](index=128&type=chunk) [Disclaimer](index=48&type=section&id=Disclaimer) Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited assume no responsibility for the contents of this announcement and make no representation as to its accuracy or completeness; TSX-V and its Regulation Services Provider also bear no responsibility for the adequacy or accuracy of this announcement - The Stock Exchange of Hong Kong Limited assumes no responsibility for the contents of this announcement and makes no representation as to its accuracy or completeness[1](index=1&type=chunk) - TSX-V and its Regulation Services Provider assume no responsibility for the adequacy or accuracy of the contents of this announcement[129](index=129&type=chunk)