It is our view that SouthGobi Resources (GM:SGQRF), a coal mining, development and exploration company that operates in Mongolia, remains overvalued at current levels. Although its share price has declined 83% over the past two years, SouthGobi still maintains a market capitalization of over $200 million and an enterprise value of approximately $276 million despite idling its only producing mine for nearly one year and then having difficulty finding profitable contracts for its coal after resuming operations six months ago.
SouthGobi is currently trading at a premium to other primarily metallurgical coal companies such as Walter Energy despite:
- Having difficulty selling its full production at profitable prices with current market conditions
- Posting operational losses even when metallurgical coal