Tough times for SouthGobi

EMBATTLED Mongolian coal miner SouthGobi Resources has finished a tough third quarter with a gross loss of $27.5 million.
Tough times for SouthGobi Tough times for SouthGobi Tough times for SouthGobi Tough times for SouthGobi Tough times for SouthGobi

Courtesy SouthGobi Resources.

Noel Dyson

The company has been at the centre of a Mongolian sovereignty battle and had one of its employees – Australian lawyer Sarah Armstrong – detained by Mongolian authorities.

Longwalls understands Armstrong is still in Mongolia assisting the authorities with their inquiries into corruption allegations and while she cannot leave the country, she is free to travel within its bounds.

SouthGobi has also cut its workforce by a third.

The company’s loss for the three months ending September 30 was negatively impacted due to $18.9 million worth of idled mine costs.

The company still faced uncertainty over whether it would receive a formal request from the Mineral Resources Authority of Mongolia to suspend mining activities on its Ovoot Tolgoi mining licence.

On April 16, SouthGobi announced MRAM had held a press conference announcing a request to suspend exploration and mining on certain SouthGobi licence areas.

“MRAM stated the move was in connection to the proposed proportional takeover by CHALCO [Aluminum Corporation of China Limited] and the agreement by [major SouthGobi shareholder] Turquoise Hill to tender its controlling interest in SouthGobi to such a takeover,” the company says in its third quarter report.

On September 3, CHALCO abandoned its proportional takeover bid.

On September 6, SouthGobi received official notification from MRAM that its exploration and mining licenses were in good standing.

Subsequent to the third quarter, the company says, it noted several articles in the Mongolian and international media regarding allegations against SouthGobi and some of its employees.

“To date, neither SouthGobi nor any of its employees have been charged with any wrongdoing,” it says.

“SouthGobi and its employees continue to cooperate with the Mongolian government agencies including the Independent Authority Against Corruption in their ongoing investigations.”

Without those mine idle costs the company would have had a gross loss of $8.6 million. That is down considerably from the $1.8 million gross profit excluding idled mine costs of $1.8 million the company posted for the three months to June 30.

For the three months the company sold 310,000 tonnes of coal at an average price of $15.79 per tonne. That is down considerably on the 1.37 million tonnes at an average price of $54.01 a tonne for the same period last year.

The decreased sales volume and price has been due to the softening of the inland China coking coal markets closest to SouthGobi’s operations.

Adding to its difficulties, the company announced on July 11 that its subsidiary SGQ Coal Investment had filed a notice of investment dispute on the Mongolian government pursuant to the bilateral investment treaty between Mongolia and Singapore.

This notice of investment dispute consists of, but is not limited to, MRAM’s failure to execute the pre-mining agreements associated with certain SouthGobi exploration licenses.

The company claims it lodged valid PMA applications on those areas in 2011.

The areas covered by these PMA applications include the Zag Suuj deposit and areas associated with the Soumber deposit outside the existing mining license.

This notice of investment dispute gives the Mongolian government a six-month “cure period” to negotiate a resolution.

If negotiations fail, SouthGobi is entitled to start conciliation or arbitration proceedings under the International Center for Settlement of Investment Disputes.

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