SouthGobi makes a slow crawl back from Mongolian purgatory - Report
Mongolia focused coal miner SouthGobi Resources had time for a short hooray following the relaunch of operations at its Ovoot Tolgoi project, it still has a myriad of issues to contend with if it's to appease both investors and the Mongolian government.
Just 3 days after announcing the relaunch of operations on March 22nd, SouthGobi released an inevitable dismal annual report that included a USD 103 million loss for 2012, inevitable because the company became the epicenter of a fierce fight over resource nationalism in Mongolia and worries there about growing Chinese influence, and had to endure nine months of being unable to mine its coal deposits while the Mongolian government put the company's licenses under a microscope. That loss compared with a USD 57.7 million net profit for the previous year when operations went undisturbed.
The Canadian listed company in a statement said that "While a certain amount of volatility remains in the coal markets, signs of improvement justify this restart of operations. The flow of coal and sales will be carefully managed in order to react quickly to any future changes in market conditions."
For many, the company's fate was sealed in January 2012 when Rio Tinto bought a controlling stake in Turquoise Hill Resources, the majority owner of SouthGobi. Rio made it clear that it was interested in holding on to only one of Turquoise Hill's Mongolian assets, with its eyes clearly fixed on the prized Oyu Tolgoi copper and gold mine.
The day to cut SouthGobi loose finally came in March 2012 when a deal was struck to sell Turquoise Hill's 57.6% stake in the coal miner to Aluminum Corporation of China (Chalco). Another Chinese entity, the sovereign wealth fund China Investment Corporation, already owned 14% of the SouthGobi.
Turquoise Hill had hoped to use the proceeds from the sale of the SouthGobi stake to directly fund the development of its $6.6bn Oyu Tolgoi copper/gold mine, but instead the proposed deal set alarms bells ringing in political circles already on edge about growing Chinese influence in the country. The result was the politicians dusted off a piece of draft legislation on foreign investment in the country's natural resources that until then had been languishing and rushed its passage through Mongolia's parliament, plunging SouthGobi into financial difficulties and sending shock waves rippling out through the rest of Mongolia's mining sector.
Government officials said that the law was meant to create a review process for deals involving foreign investors in the country's resources that involved parliament, but without a mechanism to see the process through, it effectively killed the deal. Chalco announced last October it had given up trying to take control of SouthGobi, as well as the proposed purchase of a 29.9% interest in Mongolian coking coal supplier Winsway Coking Coal Holdings.
Immediately following the March 2012 announcement of Chalco's proposed purchase of the stake, the government also said it would suspend SouthGobi's licenses, although the company insisted its licenses were in good order. But then an official at the Mineral Resources Authority of Mongolia was arrested for an illegal transfer of licenses, including one held by SouthGobi.
Extraction halted at the end of June 2012 and SouthGobi had to start burning through its stockpiled reserves to supply customers. SouthGobi saw its share price on the Toronto Stock Exchange fall 74% from a 52 week high hit in April 2012 of USD 7.32 to as low as USD 1.84.
Source - Business News Europe
Just 3 days after announcing the relaunch of operations on March 22nd, SouthGobi released an inevitable dismal annual report that included a USD 103 million loss for 2012, inevitable because the company became the epicenter of a fierce fight over resource nationalism in Mongolia and worries there about growing Chinese influence, and had to endure nine months of being unable to mine its coal deposits while the Mongolian government put the company's licenses under a microscope. That loss compared with a USD 57.7 million net profit for the previous year when operations went undisturbed.
The Canadian listed company in a statement said that "While a certain amount of volatility remains in the coal markets, signs of improvement justify this restart of operations. The flow of coal and sales will be carefully managed in order to react quickly to any future changes in market conditions."
For many, the company's fate was sealed in January 2012 when Rio Tinto bought a controlling stake in Turquoise Hill Resources, the majority owner of SouthGobi. Rio made it clear that it was interested in holding on to only one of Turquoise Hill's Mongolian assets, with its eyes clearly fixed on the prized Oyu Tolgoi copper and gold mine.
The day to cut SouthGobi loose finally came in March 2012 when a deal was struck to sell Turquoise Hill's 57.6% stake in the coal miner to Aluminum Corporation of China (Chalco). Another Chinese entity, the sovereign wealth fund China Investment Corporation, already owned 14% of the SouthGobi.
Turquoise Hill had hoped to use the proceeds from the sale of the SouthGobi stake to directly fund the development of its $6.6bn Oyu Tolgoi copper/gold mine, but instead the proposed deal set alarms bells ringing in political circles already on edge about growing Chinese influence in the country. The result was the politicians dusted off a piece of draft legislation on foreign investment in the country's natural resources that until then had been languishing and rushed its passage through Mongolia's parliament, plunging SouthGobi into financial difficulties and sending shock waves rippling out through the rest of Mongolia's mining sector.
Government officials said that the law was meant to create a review process for deals involving foreign investors in the country's resources that involved parliament, but without a mechanism to see the process through, it effectively killed the deal. Chalco announced last October it had given up trying to take control of SouthGobi, as well as the proposed purchase of a 29.9% interest in Mongolian coking coal supplier Winsway Coking Coal Holdings.
Immediately following the March 2012 announcement of Chalco's proposed purchase of the stake, the government also said it would suspend SouthGobi's licenses, although the company insisted its licenses were in good order. But then an official at the Mineral Resources Authority of Mongolia was arrested for an illegal transfer of licenses, including one held by SouthGobi.
Extraction halted at the end of June 2012 and SouthGobi had to start burning through its stockpiled reserves to supply customers. SouthGobi saw its share price on the Toronto Stock Exchange fall 74% from a 52 week high hit in April 2012 of USD 7.32 to as low as USD 1.84.
Source - Business News Europe
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