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