SouthGobi May Raise Up to $447 Million in Share Sale

Wire: BLOOMBERG News (BN) Date: Jan 11 2010  7:57:14

By John Duce and Bei Hu
Jan. 11 (Bloomberg) -- SouthGobi Energy Resources Ltd., the Canada-based coal producer operating in the southern deserts of Mongolia, may raise as much as C$459 million ($446.6 million) in a Hong Kong share sale, said three people familiar with its plan.
 

 The Vancouver-based energy supplier plans to sell shares at the maximum price of the Hong Kong dollar equivalent of C$17 each, said the people, who declined to be identified before an official statement. China Investment Corp., the nation’s sovereign wealth fund, and Temasek Holdings Pte, the Singapore government-owned investment company, have each agreed to buy $50 million worth of shares, they added.
SouthGobi is raising capital to finance exploration, expand, and build production plants and infrastructure as it aims to increase output and supply customers in China. The company plans to sell 27 million new shares, or a 16.8 percent stake, an e- mail sent to fund managers on Jan. 4 said.
 “Investment by CIC and Temasek is a positive signal and I think this share offer will be well received by investors in Hong Kong,” said Alisher Djumanov, managing partner at Singapore-based Eurasia Capital Management, which has about $100 million in investments in Mongolia and Central Asia. “These sovereign wealth funds are investing in commodities and energy globally and Mongolia is seen as a frontier market with a lot of potential,” he said.
 SouthGobi spokeswoman Cindy Lung declined to comment. Citigroup Inc. and Macquarie Group Ltd. are managing the offering. James Griffiths, a Citigroup spokesman in Hong Kong, and Paul Scanlon, a spokesman for Macquarie in the city, declined to comment.

 ‘Saudi Arabia of Coal’
CIC bought $500 million of 30-year senior convertible bonds issued by SouthGobi last year, according to a draft prospectus posted on the Hong Kong stock exchange’s Web site. The sovereign wealth fund has spent more than $4 billion on energy and resources investments since September to hedge against inflation and meet the needs of the world’s fasting- growing major economy.
 SouthGobi may spend as much as $800 million in the next three years to increase output and supply customers in China, Chief Executive Officer Alexander Molyneux told reporters Dec. 10.
 The company, controlled by Vancouver-based Ivanhoe Mines Ltd., started producing coal at its Ovoot Tolgoi mine in a remote desert area of southern Mongolia last year. Ivanhoe Chairman Robert Friedland said in October that the underdeveloped resources of the north Asian country could make it “the Saudi Arabia of coal.”

Mongolia Mine
The plans may include building a 40-kilometer railway track from the Ovoot Tolgoi mine to the border with China. Coal is now trucked to the border by rail and road links.
Ovoot Tolgoi produced 1.2 million tons of coal last year and SouthGobi plans to increase this to 8 million tons annually by 2012 to supply customers in China, Molyneux said Dec. 10.
 Rivals including BHP Billiton Ltd., Vale SA and Xstrata Plc are interested in developing coal mines in southern Mongolia, the nation’s Minister of Mineral Resources and Energy, Dashdorj Zorigt, said on Dec. 3. The government is planning “more intense discussions” with the companies over development rights, he said. 
Mongolia is seeking $25 billion of overseas investments in mining in the next five years to develop some of the world’s largest untapped resources, including gold and copper, former Prime Minister Sanjaa Bayar said in a July interview.
Ivanhoe Mines is developing a $4 billion copper and gold mine at Oyu Tolgoi in Mongolia with Rio Tinto.  SouthGobi’s stock will begin trading in Hong Kong on Jan.29.