The Company continues to operate under difficult market conditions. Coal prices in China and sales volumes remained under pressure in the third quarter of 2014 as a result of strong seaborne and domestic supply coupled with soft demand for coal in China. These difficult market conditions are expected to continue through the end of 2014.

In June 2014, following a review of operations in response to current market conditions, the Company reduced its production and placed approximately half of its workforce on furlough. The furlough has been extended and is anticipated to remain in place until the end of November 2014 subject to market conditions. Contracted sales volumes are expected to be met from the combination of the existing coal stockpile and reduced production volumes.

Other Information

Cash Position and Liquidity

The Company’s cash position and liquidity as at September 30, 2014, including comparative periods, is summarized in the table below. Amounts are presented in millions of U.S. Dollars.

As a result of the continued Mongolian tax investigations against the Company and three (3) of its former employees, there is increased uncertainty as to the timing of the release of cash placed under restrictions by the Mongolian authorities. Therefore, the cash and cash equivalents balance as at September 30, 2014 no longer includes $1.5 million of restricted cash held in Mongolia. The restricted cash has been reclassified within current assets in the Company’s financial statements.

The changes in the Company’s cash position in periods noted above are inclusive of cash interest paid on the China Investment Corporation ("CIC") convertible debenture in the amount of $nil in the third quarter of 2014, $7.9 million in the second quarter of 2014, $nil in the first quarter of 2014 and $4.1 million in the third quarter of 2013. The next cash interest payment on the CIC convertible of approximately $8 million is due on November 19, 2014.

The $10 million revolving credit facility ("the Facility") from Turquoise Hill Resources Ltd. ("Turquoise Hill") matured on August 30, 2014 and is no longer available for further drawdowns by the Company. Subject to certain terms and conditions as announced on August 31, 2014 and filed on SEDAR (www.sedar.com) on September 2, 2014 Turquoise Hill has accepted the deferral of repayments of amounts and obligations due by the Company under the Facility as follows:

$1.9 million in principal and all interest that has accrued on and under the Facility up to and including December 31, 2014 shall become due and payable on December 31, 2014; and
$1.9 million in principal and all interest that has accrued on and under the Facility from January 1, 2015 up to and including March 31, 2015 shall become due and payable on March 31, 2015.
The Company continues to actively seek additional sources of financing to continue operating and meet its objectives, which includes increasing the level of prepaid coal sales.

As at October 15, 2014, the Company had a cash balance of $4.8 million which excludes the $1.5 million restricted cash.

Transportation Infrastructure

As announced by the Company on September 28, 2014 the construction of a paved highway from the Ovoot Tolgoi Complex to the Shivee Khuren Border Crossing has been completed. The completion of the highway was one of the Company’s key objectives for 2014 and will significantly increase the safety of coal transportation, reduce environmental impacts and improve the efficiency and capacity of coal transportation.

Outlook

Coal production for the remainder of 2014 will be paced to meet contracted sales volumes.

The Company continues to experience negative impacts on its margins and liquidity and there can be no assurance that the Company will have sufficient funding for the balance of 2014 to be able to continue as a going concern, as more fully detailed in its Management’s Discussion and Analysis for the quarter ended June 30, 2014, available on SEDAR at www.sedar.com, and, in particular, section 5 "Liquidity and Capital Resources" and section 11 "Risk Factors" thereof. Therefore the Company is actively seeking additional sources of financing to continue operating and meet its objectives. The Company remains focused on minimizing uncommitted capital expenditures while preserving its growth options.