SouthGobi Aids in Mongolia Anti-Graft Probe; Shares Up

Coal miner SouthGobi Resources says it is co-operating with Mongolia's anti-corruption agency regarding an investigation into a third party which was likely to blame for a sharp fall in its share price.

Shares of the company [1878.HK 48.70 2.70 (+5.87%) ], which is the subject of a proposed $926 million takeover by China's Chalco[2600.HK 3.35 -0.18 (-5.08%) ], hit a record low on Tuesday before paring losses to close down 13 percent at HK$46.

The stock was up more than 6 percent early on Wednesday, outpacing a 0.6 percent drop in the benchmark index [.HSI 20330.64 -154.11 (-0.75%) ].

SouthGobi Resources "has no reason to believe SouthGobi Sands is itself the subject of any investigation", it said in a filing to the Hong Kong stock exchange on Wednesday, referring to its subsidiary.

SouthGobi had provided information from the offices of its subsidiary, it added, without giving details.

The coal miner blamed Tuesday's sharp fall on a proposed bill regarding foreign investment in Mongolia that requires 51 percent Mongolian ownership of strategic assets.

The investigation comes at a bad time for SouthGobi, which recently had some exploration licenses suspended by the Mongolian government in a move that some feared could scupper Chalco's bid for a 57.6 percent stake in the miner held by billionaire Robert Friedland's Ivanhoe Resources.

Resource-rich Mongolia has become an attractive target for Chalco which has long sought to diversify away from aluminum.

But while Mongolia has opened its doors to foreign investors over the past decade and has willingly sold coal to China, Chinese companies have found it hard to access Mongolia's vast copper and coal mines directly due to Mongolia's historic mistrust of its giant neighbor.

SouthGobi is due to announce its first quarter results on Tuesday.

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