november 2014 - southgobi · november 2014| 6 key assets overview key assets overview ovoot tolgoi...

November 2014| 1

November 2014

Investor presentation

November 2014| 2

Cautionary statement

This presentation includes certain “forward-looking statements.” All statements, other than statements of historical

fact, are forward-looking statements that involve various risks and uncertainties. There can be no assurances that

such statements will prove accurate, and actual results and future events could differ materially from those

anticipated in such statements. Such information contained herein represents management’s best judgment as of

the date hereof based on information currently available. The company does not assume the obligation to update

any forward-looking statement.

Forward-looking statements

November 2014| 3

Solid platform to create value for shareholders

Investment highlights

• Strategic location near the border with China, the major coal growth market

• Large resource base

• Several growth options

• Flexibility of product offering

• SouthGobi’s financial performance has been impacted by the recent declines in

the coal market

• However, longer term forecasts indicate modest growth in China’s demand for

imported coal

Solid long term market

fundamentals

• Secure financing

• Further improve operational efficiencies and reduce costs

• Deliver value through marketing and coal processing

• Develop Soumber deposit in the longer term

Clear strategy

November 2014| 4

27.5%

16.5%

56.0%

Key facts

• An integrated coal mining, development and

exploration company

• Incorporated in British Columbia, Canada

• Three significant coal projects in Mongolia:

– Ovoot Tolgoi Mine (producing mine)

– Two development projects:

• Soumber Deposit

• Zag Suuj Deposit

• All mineral mining and exploration licenses in

good standing

• Located in the South Gobi Province of Mongolia:

– The projects are within 150km of each other

– In close proximity to the Mongolia-China

border

• Key terms of CIC convertible debenture:

Total shares outstanding: 187.3million

Public Float

• Share structure (as at November 11, 2014):

• Primary listing: Toronto (TSX: SGQ)

Secondary listing: Hong Kong (HKEx: 1878)

- Maturity: November 2039

- Coupon: 6.4% p.a. payable in cash; 1.6% p.a. in shares

- Base/minimum conversion value: C$11.88/C$8.88 per share

• Balance sheet (as at November 11, 2014):

- Cash $6.1m

- Debt (CIC convertible debenture) $250m

November 2014| 5

Corporate timeline

MIL

ESTO

NES

New management team in

place

2002 - 2005 2006 - 2008 2009 - 2011 2012 2013

Incorporation

Acquired coal

assets from

Ivanhoe

Commenced

coal mining at

Ovoot Tolgoi

CIC invested

US$500m as

convertible

debenture

Trading on TSX

Trading on HKEx

Mining license

for Soumber

Deposit

Chalco

announced bid

for Ivanhoe’s

58% stake in

SouthGobi

Production

at Ovoot

Tolgoi

halted

New President

and CEO:

Ross Tromans

Termination

of Chalco’s

takeover bid

Resumption of

production at

Ovoot Tolgoi

Outstanding Pre-

Mining Agreements

granted in Mongolia

2014

NUR

announced

bid for TRQ’s

29.95%stake

in SouthGobi

Completion of

construction

of coal-haul

highway

November 2014| 6

Key assets overview Key assets overview

Ovoot Tolgoi Complex

Flagship Ovoot Tolgoi Mine and the Ovoot Tolgoi Underground Deposit

Ovoot Tolgoi Mine in production since 2008

Production capacity of 8 million tonnes of ROM coal

Ongoing work to optimise the mine plan and product mix

Soumber Deposit

Located approximately 20 km east of the Ovoot Tolgoi Mine

East Soumber mining license received in July 2011

Central Soumber PMA granted in August 2013

Zag Suuj Deposit Pre-Mining Agreements (PMAs) granted in August 2013

November 2014| 7

SouthGobi’s assets strategically located

• Short-haul to China infrastructure

o Approximately 45km to Ceke

o Typical truck haul for coal operations

o Coal storage and rail loading available at

Chinese border

• Border upgrade completed

o In May 2012, 4 dedicated inbound and

four dedicated outbound coal gates

replaced the single gate

• New coal-haul highway

o 40% interest in joint venture with

consortium partner NTB LLC to build and

operate the road under a 17-year BOT

agreement signed in October 2011

o 3-lane paved highway built to international

standards

o Completed in September 2014 and

commissioning by December 2014

Coal-haul highway

(40% interest)

November 2014| 8

At the doorstep of China, the major growing coal

market

Source: SouthGobi estimates

November 2014| 9

302

86

173

22

497

123

84

293

0

100

200

300

400

500

600

700

800

900

1,000

Ovoot Tolgoi Complex Soumber Deposit Zag Suuj Deposit Total (100% SouthGobi)

Resourc

e (

mt)

Inferred

Measured &Indicated

388

Summary of resources by mine and deposit(1)

Ovoot Tolgoi Complex resource incorporates 176mt of Proven and Probable Reserves

Note:

(1) SouthGobi’s resources are prepared in accordance with the Canadian NI 43-101 resource estimation standard - the table above summarizes those resources

disclosed publicly in individual NI 43-101 compliant tables. Ovoot’s resources are prepared in accordance with Australian JORC resource estimation standard.

490 106 296

A large resource base

November 2014| 10

Key assets overview Flexibility of product offer

Type Specification

Semi-soft coking coal

7,100-7,300Kcal/kg

Ash: 8-10%

CSN (FSI): 4.5-6.5

Medium-ash coal

6500Kcal/kg nar

Ash: 11.5-12.0%

CSN (FSI): >2.5

Higher-ash/ sulphur coal

(screened)

6,000-6,200Kcal/kg

Ash: 17.0-18.0%

CSN (FSI): c.2.5

Premium hard coking

Ro Max of 1.5% (average)

VM 19% (average)

Ovo

ot

To

lgo

i C

om

ple

x

(cu

rre

nt

raw

pro

du

cts

) S

ou

mb

er

Hard coking and semi-soft coking

FSI 7.6% (average)

Ash 22.8-29.4% (raw)

Zag

Su

uj

November 2014| 11

Ovoot Tolgoi update

• Paced production with market demand and as a

result, operated significantly below its operating

capacity in the 2014

• Produced 1.36 million tonnes and sold 1.67 million

tonnes of coal in January to September 2014

• Reduced total cash costs of product sold from

$20/tonne in 2012 to $9.7/tonne in third quarter of

2014

• Ongoing work to optimise the mine plan and product

mix

November 2014| 12

Growth optionality at Soumber: preparing a 5Mtpa

coking coal production capacity

• Evaluate funding options

• Complete detailed feasibility study

• Complete detailed Environmental Impact

Assessment and resettlement program

Action plan

• Located 20km east of Ovoot Tolgoi Complex

• Operational synergies via sharing of

common infrastructure

• Premium hard coking coal characteristics

o VM 19% (average)

o Ro max of 1.5% (average)

o Low to medium volatile bituminous coal

• Current total resources of 296mt

• Mining license issued July 2011

• Completed bulk sampling

Current status of development

November 2014| 13



• Strategic location near the border with China, the major coal growth market





the coal market


imported coal


fundamentals





Clear strategy

November 2014| 14

Chinese coking coal prices

Mt

Market conditions for Mongolian coal continue to be

challenging

Source: CCR Weekly Supplement

Chinese coking coal imports

Source: CCR Weekly Supplement

RMB/t incl. VAT

Baotou primary

coking

Wuhai

washed 1/3

coking

Ceke 1/3 coking

coal ex-stock

0

200

400

600

800

1,000

No

v-1

3

De

c-1

3

Jan-1

4

Feb

-14

Ma

r-1

4

Apr-

14

Ma

y-1

4

Jun-1

4

Jul-1

4

Aug-1

4

Sep-1

4

Oct-

14

0

1

2

3

4

5

6

7

8

9

Oct

13

No

v 1

3

Dec

13

Jan

14

Feb

14

Mar

14

Ap

r 1

4

May

14

Jun

14

Jul 1

4

Au

g 1

4

Sep

t 1

4

Mongolia Australia Others

Mongolia accounts for 24% of

China’s coking coal import in 2014

YTD

November 2014| 15

Robust growth forecast in Chinese import coal demand

CHINESE SEABORNE COAL IMPORT

DEMAND

Million tonnes

Source: Company’s estimate, AME Group, BoA Merrill Lynch

CAGR

3.9%

0

50

100

150

200

250

300

350

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Thermal coal Coking coal

November 2014| 16

More can be done to unlock value from Mongolian coal

Chinese and Mongolian coal trade are working together in response to industry challenges with key objectives

including:

• Stable coal trade between China and Mongolia

• Bringing international price standard to the Chinese Mongolian market

• Reducing the level of Chinese and Mongolian Government tax charges

• Reducing the transportation cost associated with moving coal including considering railway infrastructure

• Examining the Chinese driver visa cost and labor tax

• Reviewing the border checking procedure to ensure efficient methods are used

Potential to unlock more value from Mongolian coal

November 2014| 17



• Strategic location near the border with China, the major coal growth market;





the coal market


imported coal


fundamentals





Clear strategy

November 2014| 18

Clear strategy for delivering value

Secure immediate and additional sources of

financing

Drive operational excellence to increase

production efficiency and reduce costs

Deliver value through marketing by improving the

Company’s access to market and end customers

and by beneficiating to improve the overall quality

of its product

to develop Soumber Deposit in long term, while

compliance requirements with the Mongolian

Minerals Law for other license

Re-establish good working relationships with

external stakeholders

November 2014| 19

SouthGobi’s objectives for 2014 and beyond

Operational excellence

Product Development

Soumber Deposit

Re-establish

Reputation

Financing

Secure financing

Focus on securing additional

and immediate sources of

financing

Drive operational excellence

Further improve operational

efficiency in delivering production

to meet market requirements

Progress growth options

Prepare development plan and

financing plan of Soumber

deposit

Deliver value through marketing

Ongoing assessment of the

utilization of the wet washing

facility and expanding the

customer base

Re-establish Company’s

reputation

Internal processes strengthened,

continue to engage with

stakeholders

Operate in socially responsible

manner

Focus on production safety,

environmental protection and

community relations Operating Responsibly

Note:

Certain objectives are subject to available financial resources

November 2014| 20

Appendix

November 2014| 21

CIC debenture: key terms

November 2014| 22

Experienced management team

Ross Tromans

President &

Chief Executive Officer

Mr. Tromans joined the Company in September 2012. He has over 30-years sales and marketing

experience in the coal and energy sectors covering the Asian and North American markets. Most

recently, he was General Manager Marketing at Rio Tinto Coal Australia where he was

responsible for the development and implementation of the overall marketing strategy for

thermal, coking and semi-soft coal. Previously, Mr. Tromans held senior roles at Rio Tinto

including General Manager Marketing and Sales at Rio Tinto Alcan, Director New Markets and

Service at Kennecott Energy and General Manager Marketing at Kaltim Prima Coal.

Bertrand Troiano

Chief Financial Officer

Mr. Troiano has joined SouthGobi in April 2013. Mr. Troiano, began his career in corporate

banking with BNP-Paribas in Japan and has spent the past 13 years in finance roles in the

mining and metal industry. During this time, he worked for Pechiney, Alcan and Rio Tinto in the

United States, the Netherlands and Canada. Prior to joining SouthGobi, Mr. Troiano was Finance

Director for Rio Tinto Alcan's Business Development, Major Projects and Technology group.

S. Enkh-Amgalan

President and Executive Director,

SouthGobi Sands LLC

Mr. Enkh-Amgalan joined the Company in July 2013 from Clean Energy LLC, a subsidiary of

Newcom Group, where he was CEO and led the successful development of the first commercial

scale wind farm in Mongolia. Prior to this, he gained extensive experience in the extractive

industry through a number of senior management positions at the MCS Group of companies.

Most recently this included Chief Executive Officer of Nordstar Resources LLC and MCS Petro

Mongolia LLC. Before this, he was Vice President, Corporate Development at Mongolian Mining

Corporation.

november 2014 - southgobi · november 2014| 6 key assets overview key assets overview ovoot tolgoi...

Documents