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SouthGobi mulls diversification into power generation, contract mining

SouthGobi Resources Ltd. is considering branching out into areas including power generation and contract mining, following the Chinese government's decision to slash coal production.

The company said March 31 that it is evaluating opportunities in addition to coal mining and trading in Mongolia to diversify its risk profile and create greater value for investors.

In 2016, the Chinese government outlined its plans to cut coal output by 500 million tonnes in the next three to five years to accelerate supply-side reform.

The plan includes reducing the number of working days of domestic coal miners from 330 days per year to 276 days per year and ban greenfield coal mine construction between 2016 and 2018.

Following the implementation of these measures, coal supply in China was impacted, which led to overall coal price increases in 2016 after years of difficulties.

SouthGobi said that while coal prices generally improved in China last year, the impact of negotiating sale agreements during lower price periods and the depreciation of the renminbi against the U.S. dollar negatively impacted the overall coal price.

However, the company narrowed its full-year loss to US$60.8 million from US$186.8 million in 2015 after revenue climbed to US$58.5 million from US$16.0 million and write-downs declined substantially to around US$1.2 million from US$92.7 million.