SouthGobi Resources is a coal mining company listed on the

Hong Kong Stock Exchange The Stock Exchange of Hong Kong (SEHK, also known as Hong Kong Stock Exchange) is a stock exchange based in Hong Kong. As of the end of 2020, it has 2,538 listed companies with a combined market capitalization of HK$47 trillion. It is repor ...

and

Toronto Stock Exchange The Toronto Stock Exchange (TSX; french: Bourse de Toronto) is a stock exchange located in Toronto, Ontario, Canada. It is the 10th largest exchange in the world and the third largest in North America based on market capitalization. Based in t ...

. The company's primary asset is a coal mine and development projects of coal assets in

Mongolia Mongolia; Mongolian script: , , ; lit. "Mongol Nation" or "State of Mongolia" () is a landlocked country in East Asia, bordered by Russia to the north and China to the south. It covers an area of , with a population of just 3.3 million, ...

. A proposed acquisition of the company by a Chinese state owned mining firm in 2012 was thwarted by

resource nationalism Resource nationalism is the tendency of people and governments to assert control over natural resources located on their territory. As a result, resource nationalism conflicts with the interests of multinational corporations. The approach of pe ...

in Mongolia. The blocked deal led to a chain of events that negatively affected the Mongolian economy for the rest of the decade. Quickly in response to the announced deal, Mongolia passed an investment review law in Mongolia (shortly repealed after enactment) that while only briefly in force stunted for years foreign investor confidence in the country, which had been a darling in emerging markets investment circles before 2012. After the blocked deal, SouthGobi would itself face an equally dramatic fall from grace as the

Mongolian economy The economy of Mongolia has traditionally been based on agriculture and livestock. Mongolia also has extensive mineral deposits: copper, coal, molybdenum, tin, tungsten, and gold account for a large part of industrial production. Soviet assista ...

. By 2015, the company lost 98% of its once sky high $3 billion Canadian dollar market capitalization that had peaked in 2012.

Corporate affairs

The company is publicly listed on the Stock Exchange of Hong Kong (HKEX: 1878) and Toronto Stock Exchange (TSX: SGQ). Its principal shareholders according to its 2018 annual report are the

China Investment Corporation China Investment Corporation (CIC) (Chinese: 中国投资有限责任公司; pinyin: ''zhōngguó tóuzī yǒuxiàn zérèn gōngsī'') is a sovereign wealth fund that manages part of the People's Republic of China's foreign exchange reserves. C ...

with 23.8%; Novel Sunrise with 17.0%, and Voyage Wisdom with 9.5%. Novel Sunrise is 100% controlled by

China Cinda Asset Management China Cinda Asset Management Co., Ltd. known as China Cinda or just Cinda is a Chinese merchant bank and asset management company. The corporation was founded as a state-owned enterprise and a bad bank for China Construction Bank in 1999. The ban ...

. Both the China Investment Corporation and China Cinda Asset Management are central state owned enterprises of China.

History

Early history

The company was founded in 2002. SouthGobi listed on the

in 2007 and

in 2010. In 2009, the

funded a $500 million

convertible debenture In finance, a convertible bond or convertible note or convertible debt (or a convertible debenture if it has a maturity of greater than 10 years) is a type of bond that the holder can convert into a specified number of shares of common stock in ...

issued by SouthGobi. In March 2010, $250 million of the convertible debenture was converted into SouthGobi common shares. This move lowered the interest held by Ivanhoe Mines (later renamed

Turquoise Hill Resources Turquoise Hill Resources was a Canadian mineral exploration and development company headquartered in Montreal, Quebec, and a majority-owned subsidiary of Rio Tinto Group. The company was called Ivanhoe Mines until August 2, 2012 when a financing ...

) to 57.6%.

Blocked Chalco sale

By 2012, Ivanhoe Mines had come under the influence of its largest shareholder

Rio Tinto Rio Tinto, meaning "red river", may refer to: Businesses * Rio Tinto (corporation), an Anglo-Australian multinational mining and resources corporation ** Rio Tinto Alcan, based in Canada ** Rio Tinto Borax in America *** Rio Tinto Borax Mine, a ...

, which wanted to sell non-core assets, which included SouthGobi. In the same year, Ivanhoe Mines attempted to sell its 57.6% of SouthGobi to

Aluminum Corporation of China Limited Aluminum Corporation of China Limited (, known as Chalco), is a Chinese company listed in Hong Kong and in New York. A multinational aluminium company, its headquarters are in Beijing, People's Republic of China. It is the world's second-largest ...

(Chalco) for $889 million. The attempt announced in April 2012 failed. Chalco called off the deal in September 2012 after estimating "chances for obtaining approval from the Mongolian government were slim". Negative public opinion in Mongolia based on

opposed the sale. The masses did not want majority ownership by foreign state-owned enterprises of companies in their mining industry. Harassment by the Mongolian government targeting SouthGobi and its personnel also took its toll. During and after the sale process, the Mongolian government jailed SouthGobi employees and suspended its mining license for several months. In October 2012, its chief legal counsel Sarah Armstrong was detained and prevented from leaving the country. The Mongolian government alleged the company management had bribed Mongolian state officials. The allegations resulted in the shutdown and search of SouthGobi headquarters in Mongolia by a Mongolian anti-corruption agency. In May 2013 Justin Capla, another company executive, was prosecuted and later sentenced to prison for five years. He was later pardoned by President

Tsakhiagiin Elbegdorj Tsakhiagiin Elbegdorj (, ''Cahiagín Elbegdorj'' ; also referred to as Mongolyin Tsakhiagiin Elbegdorj and Tsakhia Elbegdorj; born 30 March 1963) is a Mongolian politician who served as President of Mongolia from 2009 to 2017. He previously ser ...

in February 2015.

Fallout from Chalco sale failure

The aggressive actions of the Mongolian government against SouthGobi succeeded in blocking the deal with Chalco but had the effect of terrifying foreign investors, resulting in a large slump in investment to Mongolia that continued for several years after 2012. SouthGobi would dramatically lose value after the blocked sale. The company had been valued at $3 billion Canadian dollars at its high point in 2012. However, by 2015, SouthGobi had lost 98% of its market capitalization compared to its 2012 peak. In 2015, Turquoise Hill tried to unload all of its shares in SouthGobi in 2 separate deals. One of the deals was closed with Novel Sunrise Investments to sell 48.7 million shares in SouthGobi for about $17 million Canadian dollars.

Operations

The company holds the Ovoot Tolgoi Mine and development projects at the Soumber Deposit and Zag Suuj Deposit.

References

{{reflist Coal companies of Mongolia Companies listed on the Hong Kong Stock Exchange Companies listed on the TSX Venture Exchange