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SouthGobi Resources announces third quarter 2019 financial and operating results

SouthGobi Resources announces third quarter 2019 financial and operating results

HONG KONG, Nov. 13, 2019 (GLOBE NEWSWIRE) -- SouthGobi Resources Ltd. (Toronto Stock Exchange (“TSX”): SGQ, Hong Kong Stock Exchange (“HKEX”): 1878) (the "Company" or “SouthGobi”) today announces its financial and operating results for the three and nine months ended September 30, 2019. All figures are in U.S. dollars (“USD”) unless otherwise stated.

Significant Events and Highlights

The Company’s significant events and highlights for the three months ended September 30, 2019 and the subsequent period up to November 13, 2019 are as follows:

  • Operating Results – The Company increased sales volume to 0.8 million tonnes for the third quarter of 2019 from 0.7 million tonnes for the third quarter of 2018. The average realized selling price is $35.0 per tonne for the third quarter of 2019, which is similar to $35.8 per tonne for the third quarter of 2018.
     
  • Financial Results – The Company recorded a gross profit of $12.8 million in the third quarter of 2019 compared to $9.2 million in the third quarter of 2018 while a $2.1 million net profit was recorded in the third quarter of 2019 compared to $2.7 million net loss in the third quarter of 2018 (restated). The Company recorded a profit from operations of $9.5 million in the third quarter of 2019 compared to a $3.0 million in the third quarter of 2018 (restated). The improvement in profit from operations was principally attributable to (i) the lower provision for doubtful trade and other receivables being made during the quarter ($0.3 million and $3.9 million for the third quarter of 2019 and third quarter of 2018, respectively); and (ii) a reversal of the impairment of coal stockpile inventories of $5.3 million (nil for third quarter of 2018).
     
  • Notice of Arbitration – As of the date hereof, the Company has not paid the November 2018, January 2019, May 2019 and September 2019 monthly payments due under a deed of settlement (the “Settlement Deed”) with First Concept Industrial Group Limited (“First Concept”). On October 16, 2019, SouthGobi Sands LLC (“SGS”), a subsidiary of the Company, received a notice from First Concept claiming that the Company is in default under the Settlement Deed and demanding payment of the full amount of the outstanding monthly payments due under the Settlement Deed, otherwise First Concept intends to commence legal action against SGS pursuant to the Settlement Deed. Since a default under the Settlement Deed is only triggered when there has been a failure to pay two or more consecutive monthly instalment payments, the Company is of the view that SGS is not in default under the Settlement Deed. In the event that First Concept commences legal action against SGS regarding this matter, the Company intends to take appropriate steps to respond to such legal proceedings in the best interests of the Company through independent litigation counsel which has been retained by the Company for this purpose. As at September 30, 2019, the outstanding amount payable to First Concept amounted to $5.5 million (December 31, 2018: $12.5 million), which is due and payable as of the date hereof.

  • Termination of Soumber Deposit Mining Licenses – On August 26, 2019, SGS received a letter (the “Notice Letter”) from the Mineral Resources and Petroleum Authority of Mongolia (“MRAM”) notifying that the Company’s three mining licenses (MV-016869, MV-020436 and MV-020451) (the “Soumber Licenses”) for the Soumber Deposit have been terminated by the Head of Cadastre Division of MRAM effective as of August 21, 2019.

    According to the Notice Letter, the Soumber Licenses have been terminated pursuant to Clause 56.1.5 of Article 56 of the Minerals Law, Clauses 4.2.1 and 4.2.5 of Article 4 and Clause 28.1.1 of Article 28 of the General Administrative Law and a decision order of a working group established under an order of the Minister of Environment and Tourism (Mongolia). According to this decision order, the working group determined that SGS had violated its environmental reclamation obligations with respect to the Soumber Deposit. The Soumber Deposit is an undeveloped coal deposit covering approximately 22,263 hectares located approximately 20 kilometers east of the Company’s Ovoot Tolgoi coal mine in Mongolia. The Company owned a 100% interest in the Soumber Deposit.

    The Company believes the cancelation of the Soumber Licenses is without merit. The Company is not aware of any failure on its part to fulfill its environmental reclamation duties as they relate to the Soumber Deposit. On October 4, 2019, SGS filed a claim against MRAM and the Ministry of Environment and Tourism of Mongolia in the Administration Court of the Capital City (the “Administration Court”) seeking an order to restore the Soumber Licenses. The Company anticipates that the Administration Court will issue its ruling before the end of the 2019 calendar year. The Company will take all such actions, including additional legal actions, as it considers necessary to reinstate the Soumber Licenses. However, there can be no assurance that a favorable outcome will be reached. The termination of the Soumber Licenses does not have any impact on its current mining operations at the Ovoot Tolgoi mine site.

  • Key Findings of Formal Investigation – On December 17, 2018, the Company announced that it had learned of certain information relating to past conduct engaged in by former senior executive officers and employees of the Company (“Former Management and Employees”) which raised suspicions of serious fraud, misappropriation of Company assets and other criminal acts by the Former Management and Employees relating to prior transactions (“Suspicious Transactions”) between 2016 and the first half of 2018 involving the Company, Inner Mongolia SouthGobi Energy Co. Ltd. (“IMSGE”), a subsidiary of the Company, and certain coal trading and transportation companies, some of which are allegedly related to or controlled by the Former Management and Employees or their related persons. The Company filed a report with local police authorities in China in respect of certain of the Suspicious Transactions and, on December 17, 2018, the Company’s board of directors (the “Board”) expanded the mandate of its special committee of independent non-executive directors (the “Special Committee”), which was previously established to initiate a formal internal investigation into certain legal charges against Mr. Aminbuhe (the Company’s former Chairman and Chief Executive Officer), to include a formal investigation (the “Formal Investigation”) of the Suspicious Transactions, the implicated Former Management and Employees, and their impact, if any, on the business and affairs of the Company.

    On March 30, 2019, the Company announced that the Special Committee concluded the Formal Investigation and delivered a final report summarizing its key findings to the Board, which was adopted and approved at a meeting held on March 30, 2019. Please refer to the Company’s Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) for the three months ended March 31, 2019 for a summary of the key findings of the Formal Investigation, a copy of which is available under the Company’s profile on SEDAR at www.sedar.com.

    Based on the key findings of and information obtained from the Formal Investigation, the Company considered the resulting financial impact on its prior financial statements and restated certain items in the Company’s financial statements for the years ended December 31, 2016 and December 31, 2017 (the “Prior Restatement”), as disclosed in the Company’s audited annual consolidated financial statements and related management’s discussion and analysis for the year ended December 31, 2018, copies of which are available under the Company’s profile on SEDAR at www.sedar.com. The Prior Restatement reflects the impact of the misappropriation of assets as well as the reclassification of certain balances of assets in the prior years. With respect to the three and nine months period ended September 30, 2018, the net effect of the Prior Restatement was a decrease in the net comprehensive loss of $1.3 million and $3.3 million for the respective periods. A summary of the requisite adjustments on the financial statements for the three and nine months period ended September 30, 2018 is set forth in the table below:
                 
        Three months ended       Three months ended
$ in thousands     September 30, 2018   Loss decrease/ September 30, 2018
Statement of comprehensive income extract     (As previously reported)   (increase)   (Restated)
                 
Other operating expenses       (4,721 )     1,304       (3,417 )
                 
Net loss attributable to equity holders of the Company     $ (3,990 )   $ 1,304     $ (2,686 )
Other comprehensive loss for the period       (7,247 )     (16 )     (7,263 )
                 
Net comprehensive loss attributable to equity holders of the Company       $ (11,237 )   $ 1,288     $ (9,949 )
                 
        Nine months ended       Nine months ended
$ in thousands     September 30, 2018   Loss decrease/ September 30, 2018
Statement of comprehensive income extract     (As previously reported)   (increase)   (Restated)
                 
Other operating expenses     $ (24,150 )   $ 3,464     $ (20,686 )
Finance income       472       (290 )     182  
                 
Net loss attributable to equity holders of the Company     $ (34,053 )   $ 3,174     $ (30,879 )
Other comprehensive loss for the period       (9,677 )     119       (9,558 )
                 
Net comprehensive loss attributable to equity holders of the Company       $ (43,730 )   $ 3,293     $ (40,437 )
  • Going ConcernIn 2016, the Company started its program to build a coal washing plant to upgrade the low quality fractions of its run-of-mine coals to higher value and higher margin products. The commissioning of the wash plant at the Ovoot Tolgoi mine was completed during the second quarter of 2019. On July 31, 2019, the Company entered into an agreement with the wash plant operator regarding the operation of the wash plant which expires on December 31, 2019; however, there can be no assurance that the Company will extend this agreement after the expiry date.

    The current operation plan contemplates significantly higher volumes of production in order to achieve the Company’s revenue and cash flow targets. Such plans will require a significant level of capital expenditure in waste rock stripping in 2019 and 2020. Such expenditures and other working capital requirements may require the Company to seek additional financing. There is no guarantee that the Company will be able to successfully execute the programs mentioned above and to secure other sources of financing. In addition, the current import restrictions on F-grade coal by Chinese authorities will further affect the short term cash inflow and may in turn undermine the execution of the operation plan. If the import restrictions on F-grade coal continue for an indefinite period, or if the Company fails to execute the aforementioned programs, or is unable to secure additional capital financing, or otherwise restructure or refinance its business in order to address its cash requirements through September 30, 2020, then the Company is unlikely to have sufficient cash flows from mining operations in order to satisfy its current ongoing obligations and future contractual commitments. This could result in adjustments to the amounts and classifications of assets and liabilities in the Company’s consolidated financial statements and such adjustments could be material.

    Unless the Company acquires additional sources of financing and/or funding in the short term, the ability of the Company to continue as a going concern is threatened. If the Company is unable to continue as a going concern, it may be forced to seek relief under applicable bankruptcy and insolvency legislation. See section “Liquidity and Capital Resources” of this press release for details. As at November 13, 2019, the Company had $2.6 million of cash.       

OVERVIEW OF OPERATIONAL DATA AND FINANCIAL RESULTS

Summary of Operational Data 

                   
    Three months ended   Nine months ended  
    September 30,   September 30,  
      2019       2018       2019       2018    
Sales Volumes, Prices and Costs                
                   
Premium semi-soft coking coal                
Coal sales (millions of tonnes)   0.05       0.25       0.28       0.35    
Average realized selling price (per tonne) $ 31.49     $ 48.15     $ 38.27     $ 52.36    
Standard semi-soft coking coal/ premium thermal coal                
Coal sales (millions of tonnes)   0.51       0.26       1.95       0.86    
Average realized selling price (per tonne) $ 31.67     $ 34.40     $ 33.87     $ 39.93    
Standard thermal coal                
Coal sales (millions of tonnes)   -       0.22       0.09       0.66    
Average realized selling price (per tonne) $ -     $ 23.49     $ 29.43     $ 25.21    
Washed coal                
Coal sales (millions of tonnes)   0.25       -       0.43       -    
Average realized selling price (per tonne) $ 42.37     $ -     $ 43.10     $ -    
Total                
Coal sales (millions of tonnes)   0.81       0.73       2.75       1.87    
Average realized selling price (per tonne) $ 34.98     $ 35.77     $ 35.54     $ 37.03    
                   
Raw coal production (millions of tonnes)   1.21       1.11       3.57       2.47    
                   
Cost of sales of product sold (per tonne) $ 19.16     $ 23.44     $ 22.17     $ 27.70    
Direct cash costs of product sold (per tonne) (i) $ 18.03     $ 7.41     $ 15.03     $ 11.08    
Mine administration cash costs of product sold (per tonne) (i) $ 1.09     $ 1.24     $ 1.26     $ 1.16    
Total cash costs of product sold (per tonne) (i) $ 19.12     $ 8.65     $ 16.29     $ 12.24    
                   
Other Operational Data                
                   
Production waste material moved (millions of bank cubic   4.36       4.56       14.61       12.62    
 meters)                
Strip ratio (bank cubic meters of waste material per tonne of   3.61       4.11       4.09       5.08    
coal produced)                
Lost time injury frequency rate (ii)   0.08       0.00       0.05       0.06    
                   

(i) A Non-International Financial Reporting Standards (“IFRS”) financial measure, which does not have a standardized meaning according to IFRS. See “Non-IFRS Financial Measures” section. Cash costs of product sold exclude idled mine asset cash costs.
(ii) Per 200,000 man hours and calculated based on a rolling 12 month average.

Overview of Operational Data

For the three months ended September 30, 2019

For the three months ended September 30, 2019, the Company had a lost time injury frequency rate of 0.08 per 200,000 man hours based on a rolling 12 month average.

The average realized selling price is $35.0 per tonne for the third quarter of 2019, which is similar to $35.8 per tonne for the third quarter of 2018.

The product mix for the third quarter of 2019 consisted of approximately 6% of premium semi-soft coking coal, 63% of standard semi-soft coking coal/premium thermal coal and 31% of washed coal compared to approximately 34% of premium semi-soft coking coal, 36% of standard semi-soft coking coal/premium thermal coal and 30% of standard thermal coal in the third quarter of 2018.

The Company sold 0.8 million tonnes for the third quarter of 2019 as compared to 0.7 million tonnes for the third quarter of 2018.

The Company’s production in the third quarter of 2019 was higher than the third quarter of 2018 as a result of pacing production to meet the expected sales as well as a lower strip ratio achieved for the quarter, yielding 1.2 million tonnes for the third quarter of 2019 as compared to 1.1 million tonnes for the third quarter of 2018.

The Company’s unit cost of sales of product sold decreased to $19.2 per tonne in the third quarter of 2019 from $23.4 per tonne in the third quarter of 2018. The decrease was mainly driven by (i) increased sales and the related economies of scale; and (ii) the reversal of impairment of coal stockpile inventories of $5.3 million during the quarter (nil for the third quarter of 2018).

For the nine months ended September 30, 2019

The Company sold 2.8 million tonnes for the first nine months of 2019 as compared to 1.9 million tonnes for the first nine months of 2018. The average selling price decreased from $37.0 per tonne for the first nine months of 2018 to $35.5 per tonne for the first nine months of 2019.

The Company’s production in the first nine months of 2019 was higher than the first nine months of 2018 as a result of pacing the production to meet the expected sales, yielding 3.6 million tonnes for the nine months of 2019 as compared to 2.5 million tonnes for the first nine months of 2018.

The Company’s unit cost of sales of product sold decreased to $22.2 per tonne in the first nine months of 2019 from $27.7 per tonne in the first nine months of 2018. The decrease was mainly driven by increased sales and the related economies of scale.

Summary of Financial Results

                   
    Three months ended   Nine months ended  
    September 30,   September 30,  
      2019     2018 (iii)     2019     2018 (iii)  
$ in thousands, except per share information     (Restated)       (Restated)  
                   
Revenue (i) $ 28,309     $ 26,277     $ 97,599     $ 69,990    
Cost of sales (i)   (15,518 )     (17,110 )     (60,954 )     (51,808 )  
Gross profit excluding idled mine asset costs (ii)   13,664       13,195       39,339       29,524    
Gross profit   12,791       9,167       36,645       18,182    
                   
Other operating expenses   (1,245 )     (3,417 )     (3,992 )     (20,686 )  
Administration expenses   (2,074 )     (2,724 )     (8,061 )     (8,957 )  
Evaluation and exploration expenses   (22 )     (40 )     (70 )     (320 )  
Profit/(loss) from operations   9,450       2,986       24,522       (11,781 )  
      -       -           -    
Finance costs   (7,184 )     (5,758 )     (20,915 )     (17,690 )  
Finance income   68       106       4,381       182    
Share of earnings of a joint venture   277       247       1,104       1,215    
Income tax expense   (468 )     (267 )     (2,708 )     (2,805 )  
      -       -           -    
Net profit/(loss)   2,143       (2,686 )     6,384       (30,879 )  
Basic and diluted earning (loss) per share $ 0.01     $ (0.01 )   $ 0.02     $ (0.11 )  
                   

(i) Revenue and cost of sales relate to the Company’s Ovoot Tolgoi Mine within the Coal Division operating segment. Refer to note 3 of the condensed consolidated financial statements for further analysis regarding the Company’s reportable operating segments. Royalties have been reclassified from revenue to cost of sales.
(ii) A non-IFRS financial measure, idled mine asset costs represents the depreciation expense relates to the Company’s idled plant and equipment.
(iii) The financial results for the three and nine months ended September 30, 2018 were restated. Refer to section “Significant events and highlights” of this press release under the heading entitled "Key Findings of Formal Investigation" for details.

Overview of Financial Results

For the three months ended September 30, 2019

The Company recorded a $9.5 million profit from operations in the third quarter of 2019 compared to a $3.0 million in the third quarter of 2018 (restated). The improvement in profit from operations was principally attributable to (i) the lower provision for doubtful trade and other receivables being made during the quarter ($0.3 million and $3.9 million for the third quarter of 2019 and third quarter of 2018, respectively); and (ii) the reversal of the impairment of coal stockpile inventories of $5.3 million (nil for the third quarter of 2018).

Revenue was $28.3 million in the third quarter of 2019 compared to $26.3 million in the third quarter of 2018. The Company’s effective royalty rate for the third quarter of 2019, based on the Company’s average realized selling price of $35.0 per tonne, was 8.2% or $2.9 per tonne, compared to 6.8% or $2.4 per tonne in the third quarter of 2018 (based on the average realized selling price of $35.8 per tonne in the third quarter of 2018).

Royalty regime in Mongolia

The royalty regime in Mongolia is evolving and has been subject to change since 2012.

On February 1, 2016, the Government of Mongolia issued a resolution in connection with the royalty regime. From February 1, 2016 onwards, royalties are to be calculated based on the actual contract price including transportation costs to the Mongolia border. If such transportation costs have not been included in the contract, the relevant transportation costs, customs documentation fees, insurance and loading costs should be estimated for the calculation of royalties. In the event that the calculated sales price as described above differs from the contract sales price of other entities in Mongolia (same quality of coal and same border crossing) by more than 10%, the calculated sales price will be deemed to be “non-market” under Mongolian tax law and the royalty will then be calculated based on a reference price as determined by the Government of Mongolia. See the section entitled “Risk Factors - Company’s Projects in Mongolia” in the Company’s most recently filed Annual Information Form for the year ended December 31, 2018, a copy of which is available under the Company’s profile on SEDAR at www.sedar.com.

On September 4, 2019, the Government of Mongolia issued a resolution in connection with the royalty regime. From September 1, 2019 onwards, in the event that the contract sales price is less than the reference price as determined by the Government of Mongolia by more than 30%, then the royalty payable will be calculated based on the Mongolian government’s reference price instead of the contract sales price.

Cost of sales was $15.5 million in the third quarter of 2019 compared to $17.1 million in the third quarter of 2018. The decrease in cost of sales was mainly due to the reversal of impairment of coal stockpile inventories of $5.3 million during the quarter. Cost of sales consists of operating expenses and royalties, share-based compensation expense, equipment depreciation, depletion of mineral properties and idled mine asset costs. Operating expenses in cost of sales reflect the total cash costs of product sold (a Non-IFRS financial measure, see section “Non-IFRS financial measure” for further analysis) during the quarter. 

           
        Three months ended
September 30,
 
$ in thousands       2019     2018  
                   
Operating expenses     $ 15,485   $ 6,318  
Share-based compensation expense       2     1  
Depreciation and depletion       2,121     4,973  
Royalties       2,326     1,790  
Reversal of impairment of coal stockpile inventories       (5,289)     -  
Cost of sales from mine operations       14,645     13,082  
Cost of sales related to idled mine assets       873     4,028  
Cost of sales     $ 15,518   $ 17,110  
                   

Operating expenses in cost of sales were $15.5 million in the third quarter of 2019 compared to $6.3 million in the third quarter of 2018. The overall increase in operating expenses was primarily due to the effect of: (i) increased sales volume from 0.7 million tonnes in the third quarter of 2018 to 0.8 million tonnes in the third quarter of 2019; (ii) higher inventory carrying costs given less deferred stripping cost was capitalized for the third quarter of 2019; and (iii) no impairment of coal stockpile inventories was recorded for 2018.

Cost of sales in the third quarter of 2019 included a reversal of impairment of coal stockpile inventories of $5.3 million, to increase the carrying value of the Company’s coal stockpiles to the lower of the cost and the net realizable value. The reversal of impairment of coal stockpile inventories recorded in the third quarter of 2019 reflected the enhancement in the wash plant capacity and its continuous operation at the expected level.

Cost of sales related to idled mine assets in the third quarter of 2019 included $0.9 million related to depreciation expenses for idled equipment (third quarter of 2018: $4.0 million).

Other operating expenses was $1.2 million in the third quarter of 2019 (third quarter of 2018 (restated): $3.4 million). 

                   
        Three months ended
September 30,
 
          2019     2018  
$ in thousands             (Restated)  
                     
CIC service fee     $ (1,175)   $ (358)  
Provision for doubtful trade and other receivables       (344)     (3,947)  
Provision for commercial arbitration       (180)     (232)  
Loss on disposal of properties for resale       (23)     -  
Foreign exchange gain       477     693  
Gain on settlement of trade payables       -     2,956  
Loss on disposal of property, plant and equipment       -     (1,145)  
Impairment of properties for resale       -     (1,372)  
Other       -     (12)  
Other operating expenses     $ (1,245)   $ (3,417)  
                   

During the third quarter of 2019, the Company made a provision for doubtful trade and other receivables of $0.3 million (third quarter of 2018: $3.9 million) for certain long aged receivables based on expected credit loss model.

Administration expenses were $2.1 million in the third quarter of 2019 as compared to $2.7 million in the third quarter of 2018, as follows: 

         
      Three months ended
September 30,
 
$ in thousands       2019     2018  
                 
Corporate administration     $ 457   $ 616  
Professional fees       365     713  
Salaries and benefits       1,084     1,342  
Share-based compensation expense       7     10  
Depreciation       161     43  
Administration expenses     $ 2,074   $ 2,724  
                 

The decrease was mainly due to the decrease in professional fees incurred during the third quarter of 2019.

The Company continued to minimize evaluation and exploration expenditures in the third quarter of 2019 in order to preserve the Company’s financial resources. Evaluation and exploration activities and expenditures in the third quarter of 2019 were limited to ensuring that the Company met the Mongolian Minerals Law requirements in respect of its mining licenses.

Finance costs were $7.2 million and $5.8 million in the third quarter of 2019 and 2018 respectively, which primarily consisted of interest expense on the $250.0 million China Investment Corporation (“CIC”) convertible debenture (“CIC Convertible Debenture”).

For the nine months ended September 30, 2019

The Company recorded a $24.5 million profit from operations in the first nine months of 2019 compared to an $11.8 million loss from operations in the first nine months of 2018 (restated). The improvement of overall financial results was principally attributable to lower unit cost of sales of products sold during the first nine months of 2019 and the provision for doubtful trade and other receivables of $19.3 million during the first nine months of 2018.

Revenue was $97.6 million in the first nine months of 2019 compared to $70.0 million in the first nine months of 2018. The Company sold 2.8 million tonnes of coal at an average realized selling price of $35.5 per tonne in the first nine months of 2019 compared to sales of 1.9 million tonnes at an average realized selling price of $37.0 per tonne in the first nine months of 2018.

The Company’s effective royalty rate for the first nine months of 2019, based on the Company’s average realized selling price of $35.5 per tonne, was 7.1% or $2.5 per tonne compared to 7.0% or $2.6 per tonne based on the average realized selling price of $37.0 per tonne in the first nine months of 2018.

Cost of sales was $61.0 million in the first nine months of 2019 compared to $51.8 million in the first nine months of 2018 as follows: 

                   
        Nine months ended
September 30,
 
$ in thousands       2019     2018  
                   
Operating expenses     $ 44,794   $ 22,895  
Share-based compensation expense       7     1  
Depreciation and depletion       8,379     12,667  
Royalties       6,903     4,903  
Reversal of impairment of coal stockpile inventories       (1,823)     -  
Cost of sales from mine operations       58,260     40,466  
Cost of sales related to idled mine assets       2,694     11,342  
Cost of sales     $ 60,954   $ 51,808  
                   

Operating expenses in cost of sales were $44.8 million in the first nine months of 2019 compared to $22.9 million in the first nine months of 2018. The increase in operating expenses was primarily due to the effect of: (i) increase in sales volume from 1.9 million tonnes in the first nine months of 2018 to 2.8 million tonnes in the first nine months of 2019; (ii) higher inventory carrying costs given less deferred stripping cost was capitalized for the first nine months of 2019; and (iii) no impairment of coal stockpile inventories was recorded for 2018.

Cost of sales in the first nine months of 2019 included a reversal of impairment of coal stockpile inventories of $1.8 million. The reversal of impairment of coal stockpile inventories reflected the enhancement in the wash plant capacity and its continuous operation at the expected level.

Cost of sales related to idled mine asset costs primarily consisted of period costs, which were expensed as incurred and primarily included depreciation expense. Cost of sales related to idled mine assets in the first nine months of 2019 included $2.7 million related to depreciation expenses for idled equipment (first nine months of 2018: $11.3 million).

Other operating expenses were $4.0 million in the first nine months of 2019 compared to $20.7 million in the first nine months of 2018 (restated) as follows: 

                   
        Nine months ended
September 30,
 
          2019     2018  
$ in thousands             (Restated)  
                   
CIC service fee     $ (3,355)   $ (1,336)  
Provision for doubtful trade and other receivables       (441)     (19,303)  
Provision for commercial arbitration       (406)     (686)  
Provision for prepaid expenses and deposits       478     -  
Loss on disposal of properties for resale       (260)     -  
Foreign exchange gain       (37)     730  
Gain/(loss) on disposal of property, plant and equipment       29     (1,173)  
Impairment of properties for resale       -     (1,372)  
Penalty on late settlement of trade payables       -     (427)  
Gain on settlement of trade payables       -     2,956  
Other       -     (75)  
Other operating expenses     $ (3,992)   $ (20,686)  
                   

During the first nine months of 2019, the Company made a provision for doubtful trade and other receivables of $0.4 million (first nine months of 2018: $19.3 million) for certain long aged receivables based on expected credit loss model.

Administration expenses were $8.1 million in the first nine months of 2019 compared to $9.0 million in the first nine months of 2018 as follows: 

           
        Nine months ended
September 30,
 
$ in thousands       2019     2018  
                   
Corporate administration     $ 1,555   $ 1,988  
Professional fees       2,668     2,976  
Salaries and benefits       3,315     3,820  
Share-based compensation expense       30     47  
Depreciation       493     126  
Administration expenses     $ 8,061   $ 8,957  
                   

The Company continued to minimize evaluation and exploration expenditures in the first nine months of 2019 in order to preserve the Company’s financial resources. Evaluation and exploration activities and expenditures in the first nine months of 2019 were limited to ensuring that the Company met the Mongolian Minerals Law requirements in respect of its mining licenses.

Finance costs were $20.9 million and $17.7 million in the first nine months of 2019 and 2018 respectively. This primarily consisted of interest expense on the CIC Convertible Debenture.

Finance income was $4.4 million for the first nine months of 2019 (first nine months of 2018 (restated): $0.2 million), which primarily related to the modification of the terms of the CIC Convertible Debenture as a result of signing the deferral agreement with CIC dated April 23, 2019 (“2019 Deferral Agreement”).

Summary of Quarterly Operational Data 

null
                       
      2019       2018       2017  
Quarter Ended 30-Sep 30-Jun 31-Mar   31-Dec 30-Sep 30-Jun 31-Mar   31-Dec
                       
Sales Volumes, Prices and Costs                    
                       
Premium semi-soft coking coal                    
Coal sales (millions of tonnes)   0.05     0.12     0.11       0.24     0.25     0.07     0.03       0.37  
Average realized selling price (per tonne) $ 31.49   $ 32.72   $ 47.34     $ 47.37   $ 48.15   $ 59.98   $ 67.94     $ 50.47  
Standard semi-soft coking coal/ premium thermal coal                    
Coal sales (millions of tonnes)   0.51     0.59     0.85       0.40     0.26     0.19     0.41       0.60  
Average realized selling price (per tonne) $ 31.67   $ 35.67   $ 33.34     $ 32.60   $ 34.40   $ 33.80   $ 46.34     $ 37.49  
Standard thermal coal                    
Coal sales (millions of tonnes)   -     -     0.09       0.12     0.22     0.32     0.12       0.29  
Average realized selling price (per tonne) $ -   $ -   $ 34.88     $ 24.26   $ 23.49   $ 26.32   $ 25.40     $ 16.98  
Washed coal                    
Coal sales (millions of tonnes)   0.25     0.17     0.01       0.15     -     -     -       -  
Average realized selling price (per tonne) $ 42.37   $ 44.20   $ 45.07     $ 44.02   $ -   $ -   $ -     $ -  
Total                    
Coal sales (millions of tonnes)   0.81     0.88     1.06       0.91     0.73     0.58     0.56       1.26  
Average realized selling price (per tonne) $ 34.98   $ 36.80   $ 34.91     $ 37.32   $ 35.77   $ 32.81   $ 43.02     $ 36.54  
                       
Raw coal production (millions of tonnes)   1.21     1.33     1.03       1.87     1.11     0.98     0.38       0.51  
                       
Cost of sales of product sold (per tonne) $ 19.16   $ 25.04   $ 22.08     $ 30.80   $ 23.44   $ 29.27   $ 31.64     $ 23.54  
Direct cash costs of product sold (per tonne) (i) $ 18.03   $ 17.18   $ 10.82     $ 8.73   $ 7.41   $ 10.12   $ 16.86     $ 9.91  
Mine administration cash costs of product sold (per tonne) (i) $ 1.09   $ 1.39   $ 1.41     $ 2.19   $ 1.24   $ 1.00   $ 1.23     $ 4.92  
Total cash costs of product sold (per tonne) (i) $ 19.12   $ 18.57   $ 12.23     $ 10.92   $ 8.65   $ 11.12   $ 18.09     $ 14.83  
                       
Other Operational Data                    
                       
Production waste material moved (millions of bank   4.36     5.34     4.91       5.54     4.56     5.18     2.88       4.36  
cubic meters)                    
Strip ratio (bank cubic meters of waste material per tonne of   3.61