May 14, 2012 / 6:48 PM / in 5 years

SouthGobi posts profit, says Mongolia mines open

TORONTO, May 14 (Reuters) - SouthGobi Resources Ltd , a coal miner with operations in Mongolia, reported a first-quarter profit on Monday, as its sales nearly doubled and its average selling price rose.

The Toronto-listed miner said its coal mines in Mongolia were still operating despite a recent government announcement about a planned suspension of its mining licenses.

After China’s state-owned Chalco said in April it planned to acquire a majority stake in SouthGobi for $926 million, the Mongolian government said it would to suspend SouthGobi’s licenses for its several large coal projects. The government has also begun to write new foreign investment laws.

On Monday, SouthGobi said as of May 14 it had not received any official notification of the suspension and it believed its licenses were still in good standing.

That said, the company cautioned it would have to halt operations if it received such a notice. Due to this uncertainty the company said it was unable to provide any forecast for the second quarter.

In a note to clients, CIBC analyst Alec Kodatsky said the political uncertainty in the Mongolia is clouding its outlook.

“Some customers have reportedly reduced their coal purchases reacting to the potential license suspension announced by the Mongolian government,” he said, while trimming his price target on shares of the company to C$11 from C$13.

First-quarter net income amounted to $3.1 million, or 2 cents a share, compared with a year-earlier loss of $46.6 million, or 25 cents a share.

Quarterly revenue almost doubled to $40.2 million from $20.2 million, while gross margins in the quarter rose to 56 percent from 38 percent a year earlier.

Shares of the company were down less than 1 percent on Monday afternoon at C$5.91 on the Toronto Stock Exchange.

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