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Mongolia suspends some SouthGobi licenses

23 Apr 2012

Mongolia’s mining ministry said it suspended mining and exploration licenses for SouthGobi Resources Ltd, two weeks after the Aluminum Corporation of China Ltd (Chalco) made a US$930 million bid for a majority stake in the coal producer.

SouthGobi said the Mineral Resources Authority of Mongolia had unexpectedly announced at a press conference that some of the company’s licenses would be suspended, including those for mining at the company's flagship Ovoot Tolgoi mine.

“The company has not received any official notification and has no reason to believe SouthGobi's licenses are not in good standing,” SouthGobi said in a statement. “Any official notification received may require a suspension of operations until an injunction is granted.”

The company said it believed the suspension had been made to allow Mongolia’s government to review the Chinese offer.

Bauxite producer Chalco said it would offer C$8.48/share (US$8.50) for a stake of up to 60% in SouthGobi, which is 58% owned by Ivanhoe Mines Ltd. Ivanhoe is itself majority owned by Rio Tinto.
Analysts at risk researcher Makor argued that government approval was not legally required for the deal to proceed and that Chalco’s good standing with the Mongolia authorities would reduce its risks, saying “The threatened suspension might delay the deal, but it is still likely to close.”
Shares in Hong Kong-listed SouthGobi fell about 11% following the announcement