During Q2'13, exploration drilling continued and approximately 1,600 metres of surface diamond drilling was completed by one drill rig on the Oyu Tolgoi mining licence. Additionally, the exploration target portfolio on the core licences was reviewed and reprioritized. The reviewed work program for 2013 is currently being scoped and resourced in detail.
Updating of the Heruga geology model continued during Q2'13. A new resource estimate is being developed to incorporate the Heruga North resource potential.
In Q2'13, SouthGobi recorded revenue of $0.4 million compared to $8.4 million in Q2'12. Revenue decreased primarily due to decreased sales volumes and a lower average realized selling price. In Q2'13, SouthGobi sold approximately 40,000 tonnes of coal at an average realized selling price of $14.40 per tonne compared to sales of approximately 158,000 tonnes of coal at an average realized selling price of $62.56 per tonne in Q2'12. In Q2'13, SouthGobi's sales volume and average realized selling price were negatively impacted by the continued softness of the inland China coking coal markets closest to SouthGobi's operations. Economic activity post transition in China's leadership has been slower than expected. The Chinese steel industry has been particularly affected and, as a result, demand and prices for coking coal have been negatively impacted. SouthGobi's average realized selling price was also negatively impacted by SouthGobi's sales mix in Q2'13, which consisted of thermal coal.
In Q2'13, SouthGobi produced approximately 170,000 tonnes of raw coal with a strip ratio of 15.55 compared to approximately 270,000 tonnes of raw coal with a strip ratio of 4.31 in Q2'12. In Q2'13, SouthGobi primarily moved waste material (overburden) and exposed coal in the pit, aligning its operating activities to the significantly lower demand. SouthGobi's strip ratio of 15.55 for Q2'13 will not be indicative of the strip ratio moving forward.
Cost of sales was $25.7 million in Q2'13, compared to $25.7 million in Q2'12. Cost of sales comprises the direct cash costs of product sold, mine administration cash costs of product sold, costs related to idled mine assets, inventory write-downs, equipment depreciation, depletion of mineral properties and share-based compensation expense. As a result of the recommencement of mining operations at the Ovoot Tolgoi mine on March 22, 2013, costs related to idled mine assets decreased in Q2'13. However, the 2013 production plan does not fully utilize SouthGobi's existing mine fleet, therefore, costs related to idled mine assets will continue to be incurred moving forward. In Q2'13, cost of sales included $5.8 million of costs related to idled mine assets (Q2'12: $15.6 million) and $17.2 million of inventory write-downs (Q2'12: $0.8 million). The decrease in cost of sales from Q2'12, excluding costs related to idled mine assets and inventory write-downs, was primarily due to lower sales volumes.
Coal processing infrastructure
In February 2012, SouthGobi successfully commissioned the dry-coal handling facility (DCHF) at the Ovoot Tolgoi mine. The DCHF has the capacity to process nine million tonnes of run-of-mine (ROM) coal per year. The DCHF includes a 300-tonne-capacity dump hopper, which receives ROM coal from the Ovoot Tolgoi mine and feeds a coal rotary breaker that sizes coal to a maximum of 50 millimetres and rejects oversize ash. The DCHF is anticipated to reduce screening costs and improve yield recoveries.
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