SouthGobi Says Cash May Not Last the Year as Holder Defers Debt

Aug 31, 2014 10:43 pm ET

Sept. 1 (Bloomberg) -- Hong Kong-listed SouthGobi Resources Ltd. said it may not have enough cash to see out the year as the Mongolian coal miner’s majority shareholder agreed to defer its debt repayments and it seeks new financing deals to help combat weak commodity prices.

“There can be no assurance that the company will have sufficient funding for the balance of 2014 to be able to continue as a going concern,” the company said in a statement today to the Hong Kong stock exchange. It’s seeking additional sources of financing, including coal prepayment, as a potential solution to continue operations.

Vancouver-based Turquoise Hill Resources Ltd. holds 56 percent of SouthGobi and is itself 51 percent owned by mining giant Rio Tinto Group. Turquoise Hill provided SouthGobi a $10 million revolving credit facility in May, $3.8 million of which has been drawn down.

Lower coal prices are hurting Mongolia which counts the commodity as its second-biggest export. The nation’s earnings from coal have steadily dropped from $2.27 billion in 2011 to $1.2 billion last year. In the first seven months of 2014 Mongolia exported 10.3 million tons of coal worth $500 million, according to the National Statistical Office of Mongolia.

SouthGobi’s financial woes come amid allegations of tax evasion by the Mongolian government. Following two years of investigation, a Court of Justice in Ulaanbaatar last week returned the tax case to the prosecutor for further investigation, citing insufficient evidence, according to a statement by SouthGobi.

SouthGobi shares declined 0.5 percent to HK$4.38 at 10:30 a.m. in Hong Kong today. The shares have plunged 36 percent this year.

In July, Turquoise Hill announced that it will sell 29.95 percent of SouthGobi to Hong Kong-based National United Resources Holdings Ltd. Turquoise Hill will maintain a 26 percent stake in SouthGobi after the deal which is due for completion by the end of November.