Operating Results. In response to the increase in the Coronavirus Disease 2019 (“COVID-19) case numbers in Mongolia, the Chinese authorities has been restricting the number of trucks permitted to cross the Ceke Port of Entry, and such restriction has severely impacted the sales volume of the Company in the third and fourth quarters of 2021. As a result, the Company’s sales volume decreased from 2.6 million tonnes in 2020 to 0.9 million tonnes in 2021. In response to the restrictions on the number of trucks crossing the Mongolian border into China which began as of the second quarter of 2021, the Company temporarily suspended its major mining operations (including coal mining) in the second quarter of 2021 in order to control the inventory level and preserve the Company’s working capital. Mining operations (including coal mining) resumed in the third quarter of 2021. However, mining operations were temporarily suspended again by the Company beginning in November 2021 in response to the temporary closure of the Ceke Port of Entry in the fourth quarter of 2021. See “Impact of the COVID-19 Pandemic” below. The Company experienced an increase in the average selling price of coal from $35.5 per tonne in the fourth quarter of 2020 to $55.4 per tonne in the fourth quarter of 2021, as a result of improved market conditions in China and an improvement of the overall product mix. • Financial Results – The Company recorded a $4.4 million profit from operations in 2021 compared to a $15.3 million profit in 2020. The financial results were impacted by the decreased sales resulting from the export volume limitations as well as the closure of the Ceke Port of Entry experienced by the Company during the year. • Impact of the COVID-19 Pandemic – Since the second quarter of 2021, additional precautionary measures were imposed by the Chinese authorities at the Ceke Port of Entry in response to the increase of COVID-19 cases in Mongolia, which included restricting the number of trucks crossing the Mongolian border into China. The restrictions on trucking volume have had an adverse impact on the Company’s ability to import its coal products into China in 2021. In response to the increase in the number of COVID-19 cases in Ejinaqi, a region in China’s Inner Mongolia Autonomous Region where the custom and border crossing are located, reported in late October 2021, the local government authorities have imposed stringent preventive measures throughout the region, including the temporary closure of the Ceke Port of Entry located at the border of Mongolia and China. Accordingly, the Company’s coal exports into China have been suspended and such suspension remains in effect as of the date hereof. The Company anticipates the temporary closure of the Ceke Port of Entry will have a material adverse impact on the Company’s sales and cash flow until such time as coal exports into China are allowed to resume. In order to control the inventory level and preserve the Company’s working capital, the Company temporarily suspended mining operations (including coal mining) beginning in early November 2021. The Company will continue to closely monitor the development of the COVID-19 pandemic and the impact it has on coal exports to China and will continue to react promptly to preserve the working capital of the Company and mitigate any negative impacts on the business and operations of the Company. In the event that the Company’s ability to export coal into the Chinese market continues to be restricted or limited, this is expected to have a material adverse effect on the business and operations of the Company and may negatively affect the price and volatility of the Common Shares and any investment in such shares could suffer a significant decline or total loss in value. • China Investment Corporation (“CIC”) Convertible Debenture (“CIC Convertible Debenture”) – On July 30, 2021, the Company and CIC entered into an agreement (the “2021 July Deferral Agreement”) pursuant to which CIC agreed to grant the Company a deferral of:
Appears in 1 contract
Sources: Announcement
Operating Results. In response to the increase in the Coronavirus Disease 2019 (“COVID-19”) case numbers in Mongolia, the Chinese authorities has been restricting the number of trucks permitted to cross the Ceke Port of Entry, and such restriction has severely impacted the sales volume of the Company in the third and fourth quarters of 2021. As a result, the Company’s sales volume decreased from 2.6 million tonnes in 2020 to 0.9 million tonnes in 2021. In response to the restrictions on the number of trucks crossing the Mongolian border into China which began as of the second quarter of 2021, the Company temporarily suspended its major mining operations (including coal mining) in the second quarter of 2021 in order to control the inventory level and preserve the Company’s working capital. Mining operations (including coal mining) resumed in the third quarter of 2021. However, mining operations were temporarily suspended again by the Company beginning in November 2021 in response to the temporary closure of the Ceke Port of Entry in the fourth quarter of 2021. See “Impact of the COVID-19 Pandemic” below. The Company experienced an increase in the average selling price of coal from $35.5 per tonne in the fourth quarter of 2020 to $55.4 per tonne in the fourth quarter of 2021, as a result of improved market conditions in China and an improvement of the overall product mix. • Financial Results – The Company recorded a $4.4 million profit from operations in 2021 compared to a $15.3 million profit in 2020. The financial results were impacted by the decreased sales resulting from the export volume limitations as well as the and temporary closure of the Ceke Port of Entry experienced by the Company during the year. • Impact of the COVID-19 Pandemic – Since the second quarter of 2021, additional precautionary measures were imposed by the Chinese authorities at the Ceke Port of Entry in response to the increase of COVID-19 cases in Mongolia, which included restricting the number of trucks crossing the Mongolian border into China. The restrictions on trucking volume have had an adverse impact on the Company’s ability to import its coal products into China in 2021. In response to the increase in the number of COVID-19 cases in Ejinaqi, a region in China’s Inner Mongolia Autonomous Region where the custom and border crossing are located, reported in late October 2021, the local government authorities have imposed stringent preventive measures throughout the region, including the temporary closure of the Ceke Port of Entry located at the border of Mongolia and China. Accordingly, the Company’s coal exports into China have been were suspended and such suspension remains in effect as of the date hereof. The Company anticipates the temporary closure of the Ceke Port of Entry will have a material adverse impact on the Company’s sales and cash flow until such time as coal exports into China are allowed from November 2021 to resumeMay 2022. In order to control the inventory level and preserve the Company’s working capital, the Company temporarily suspended mining operations (including coal mining) beginning in early November 2021. On May 25, 2022, the Ceke Port of Entry re-opened for coal export on a trial basis, with a limited number of trucks permitted to cross the border during the trial period. The Company has been proactively adjusting its sales strategy in response and exploring opportunities to expand its sales accordingly. Although the export of coal from Mongolia to China has resumed as of the date hereof, there can be no guarantee that the Company will be able to continue exporting coal to China, or the Chinese-Mongolian border crossings would not be the subject of additional closure as a result of COVID-19 or any variants thereof in the future. The Company anticipates that its revenue, liquidity and profitability will continue to be adversely impacted until such time as the coal exports into China are allowed to resume at normal levels. The Company will continue to closely monitor the development situation at the Ceke Port of Entry, including the COVID-19 pandemic number of trucks that are permitted to cross the border and the impact it has on coal exports to China and will continue to react promptly to preserve the working capital of the Company and mitigate any negative impacts on the business operations and operations financials of the Company, and will evaluate the most suitable time for the resumption of its mining operation. In the event that the Company’s ability to export coal into the Chinese market continues to be restricted or limited, this is expected to have a material adverse effect on the business and operations of the Company and may negatively affect the price and volatility of the Common Shares and any investment in such shares could suffer a significant decline or total loss in value. • China Investment Corporation (together with its wholly-owned subsidiaries and affiliates, “CIC”) Convertible Debenture (“CIC Convertible Debenture”) – On July 30, 2021, the Company and CIC entered into an agreement (the “2021 July Deferral Agreement”) pursuant to which CIC agreed to grant the Company a deferral of:: (i) semi-annual cash interest payments of $8.1 million payable to CIC on November 19, 2021; and (ii) $4.0 million worth of payment in kind interest (“PIK Interest”) shares (collectively, the “2021 Deferral Amounts”) issuable to CIC on November 19, 2021 under the CIC Convertible Debenture. The principal terms of the 2021 July Deferral Agreement are as follows: • Payment of the 2021 Deferral Amounts will be deferred until August 31, 2023. • As consideration for the deferral of the 2021 Deferral Amounts, the Company agreed to pay CIC a deferral fee equal to 6.4% per annum on the 2021 Deferral Amounts payable under the CIC Convertible Debenture, commencing on November 19, 2021. On May 15, 2022, the Company and CIC entered into an agreement (the “2022 May Deferral Agreement”) pursuant to which CIC agreed to grant the Company a deferral of (i) semi-annual cash interest payments of $7.9 million payable to CIC on May 19, 2022 (the “Deferred Amounts”); and (ii) the management fee which payable to CIC on February 14, 2022 and August 14, 2021 (the “Deferred Management Fee”) under the Amended and Restated Cooperation Agreement (collectively, the “2022 Deferral Amounts”) under the CIC Convertible Debenture. The principal terms of the 2022 May Deferral Agreement are as follows: • Payment of the 2022 Deferral Amounts will be deferred until August 31, 2023. • As consideration for the deferral of the Deferred Amounts, the Company agreed to pay CIC a deferral fee equal to 6.4% per annum on the Deferred Amounts payable under the CIC Convertible Debenture, commencing on May 19, 2022. • As consideration for the deferral of the Deferred Management Fee, the Company agreed to pay CIC a deferral fee equal to 2.5% per annum on the outstanding balance of the Deferred Management Fee payable under the Amended and Restated Cooperation Agreement, commencing on the date on which each such 2022 May Deferred Management Fee would otherwise have been due and payable under the Amended and Restated Cooperation Agreement. • The Company agreed to provide CIC with monthly updates regarding its operational and financial affairs. • If at any time before the 2022 Deferral Amounts and related deferral fee are fully repaid, the Company proposes to appoint, replace or terminate one or more of its chief executive officer, its chief financial officer or any other senior executive(s) in charge of its principal business function or its principal subsidiary, the Company will first consult with, and obtain written consent (such consent shall not be unreasonably withheld) from CIC prior to effecting such appointment, replacement or termination. • The Company and CIC agreed that nothing in the 2022 May Deferral Agreement prejudices CIC’s rights to pursue any of its remedies at any time pursuant to the prior deferral agreements. • Management Cease Trade Order (“MCTO”) – On March 11, 2022, the Company announced that it was advised by its external auditors that they would not be in a position to render an unmodified opinion on the Company’s annual consolidated financial statements for the year ended December 31, 2021 (the “2021 Financial Statements”) prior to the filing deadline of March 31, 2022 because they were not able to obtain sufficient evidence to support management’s going concern assumptions. As a result, the Company was unable to file: (i) the 2021 Financial Statements, accompanying Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) and chief executive officer and chief financial officer certificates prior to the filing deadline of March 31, 2022; and (ii) the Annual Information Form for the financial year ended December 31, 2021 prior to the filing deadline of March 31, 2022 (collectively, the “2022 Required Filings”). The Company was also unable to file its 2021 Annual Report prior to the filing deadline of March 31, 2022 as required under applicable HKEX listing rules. On March 17, 2022, the Company applied for a management cease trade order with the applicable Canadian securities regulators in connection with the anticipated delayed filing of the 2022 Required Filings. A MCTO was issued by the BCSC, the Company’s principal securities regulator in Canada, on April 1, 2022 (the “2022 MCTO”). • Application for New Listing on the TSX Venture Exchange (the “TSX-V”) and Primary Listing on the Hong Kong Stock Exchange – On April 20, 2022, the Company announced that it would be making an application (the “Listing Application”) to the TSX-V to list its common shares on the TSX-V. In conjunction with the foregoing, the Company would also apply for voluntary delisting of its common shares from the TSX, subject to the Company receiving approval from the TSX-V of the Listing Application. Pursuant to the Rules Governing the Listing of Securities on the Hong Kong Stock Exchange (the “Listing Rules”), the Company announced it intends to submit a written notification to the HKEX stating, among other things, that it will be able to fully comply with the applicable Listing Rules in connection with the approval of the Listing Application and the Listing Application becoming effective, and such that its current secondary listing on the HKEX will be converted to a primary listing. • Sale by CIC of its Interests in the Company – On May 27, 2022, the Company announced that as disclosed in the press release issued by CIC on May 26, 2022 (the “CIC Press Release”), CIC has entered into an agreement to sell (the “CIC Sale Transaction”) all of its interests in the Company, including its 64,766,591 common shares of the Company and the Convertible Debenture, to JD Zhixing Fund L.P. (the “Buyer”). The Company has been advised that the Buyer is an exempted limited partnership formed under the laws of Cayman Islands. The Buyer’s general partner is ▇▇ ▇▇▇▇▇▇▇▇ Limited, a corporation formed under the laws of the Cayman Islands. The Buyer’s limited partner is Inner Mongolia Tianyu Trading Limited, a corporation formed under the laws of Hong Kong. As disclosed in the CIC Press Release, completion of the Sale Transaction is subject to the satisfaction of certain conditions precedent. In connection with the Sale Transaction, CIC has agreed to assign (the “Assignment”) to the Buyer all of CIC’s rights in and obligations under: (i) the Convertible Debenture and related security documents; (ii) the Amended and Restated Cooperation Agreement and related documents; (iii) the deferral agreements between CIC, the Company and certain of its subsidiaries in connection with the deferral of interest payments and other outstanding fees under the Convertible Debenture and the Amended and Restated Cooperation Agreement (the “Deferral Agreements”); and (iv) the Securityholders Agreement. Subject to completion of the Sale Transaction and related Assignment, the Buyer has agreed, effective as of July 1, 2022, to reduce the service fee payable by the Company under the Amended and Restated Cooperation Agreement from 2.5% to 1.5% of all net revenues realized by the Company and all of its subsidiaries derived from sales into China. Upon the completion of the Sale Transaction and related Assignment: • while the Convertible Debenture is outstanding, or while the Buyer has a minimum 15% direct or indirect stake in the Company, the Buyer will have the right to nominate one director to the Board pursuant to the board nomination rights contained in the Securityholders Agreement; • the buyer also will have the right to nominate two additional directors to the Board if it and its affiliates have a minimum 20% direct or indirect stake in Company, or one additional director to the Board if it and its affiliate have a minimum 10% direct or indirect stake in Company, pursuant to the board nomination rights contained in the Deferral Agreements; and • while the Convertible Debenture is outstanding, or while the buyer has a minimum 15% direct or indirect stake in Company, the buyer will have certain pre-emption rights on a pro-rata basis to subscribe for any new shares to be allotted and issued by Company. The pre-emption rights do not apply to new shares issued pursuant to pro-rata public equity offerings made to all shareholders, exercise of stock options and shares issued to achieve a 25% public float. • Changes in Management Mr. ▇▇▇▇▇▇ ▇▇▇▇▇: ▇▇. ▇▇▇▇▇ resigned as Chief Financial Officer on February 10, 2021. ▇▇. ▇▇▇▇ ▇▇: ▇▇. ▇▇ was appointed as acting Chief Financial Officer on February 10, 2021. Mr. ▇▇▇▇▇▇ ▇▇▇: ▇▇. ▇▇▇ resigned as Chief Operating Officer on February 10, 2021. • Going Concern – Several adverse conditions and material uncertainties relating to the Company cast significant doubt upon the going concern assumption which includes the deficiencies in assets and working capital. See section “Liquidity and Capital Resources” of this press release for details. Year ended December 31, 2021 2020 Premium semi-soft coking coal Coal sales (millions of tonnes) 0.60 1.01 Average realized selling price (per tonne) $ 51.80 $ 33.22 Standard semi-soft coking coal/premium thermal coal Coal sales (millions of tonnes) 0.33 1.43 Average realized selling price (per tonne) $ 35.01 $ 31.69 Washed coal Coal sales (millions of tonnes) 0.01 0.19 Average realized selling price (per tonne) $ 48.53 $ 41.96 Total Coal sales (millions of tonnes) 0.94 2.63 Average realized selling price (per tonne) $ 46.02 $ 33.01 Raw coal production (millions of tonnes) 1.36 1.49 Cost of sales of product sold (per tonne) $ 33.30 $ 22.30 Direct cash costs of product sold (per tonne) (i) $ 17.81 $ 12.73 Mine administration cash costs of product sold (per tonne) (i) $ 1.53 $ 1.33 Total cash costs of product sold (per tonne) (i) $ 19.34 $ 14.06 Production waste material moved (millions of bank cubic meters) 5.94 5.34 Strip ratio (bank cubic meters of waste material per tonne of coal produced) 4.36 3.59
Appears in 1 contract
Sources: Announcement