SouthGobi to expand in Mongolia, create 300 new jobs with financing from China

By The Canadian Press

HONG KONG - SouthGobi Energy Resources Ltd. (TSXV: SGQ.V) announced Monday it has secured US$500 million in debt financing from China's sovereign wealth fund and will use the money to expand its Mongolian coal projects and create 300 jobs.

The junior mining company, a publicly traded subsidiary of Vancouver-headquartered Ivanhoe Mines (TSX: IVN.TO), said the new investment program is expected to run between three to five years.

SouthGobi, which is 80 per cent owned by Ivanhoe Mines, is focused on exploring and developing metallurgical and thermal coal deposits in Mongolia and Indonesia.

In addition to expanding its coal projects, SouthGobi said it also plans to invest in regional transportation infrastructure around its Mongolian mines as well as construct a coal washing facility to process some of its products in the country.

China's sovereign wealth fund, China Investment Corp., will provide US$500 million in the form of secured convertible debentures, about $200 million more than media reports suggested last week.

"Our continued exploration successes have significantly expanded our coal resources in Mongolia's South Gobi -and now we are in a position to develop our company into a prominent regional producer and exporter," said Alexander Molyneux, SouthGobi's president and chief executive officer.

Molyneux said the investment program would allow the company to accelerate the transformation of coal resources into jobs and sustained development.

"This is not just about expanding our mining capacity," he said. "This investment program will see us take the first step toward establishing value-added processing in Mongolia, which now is a priority for the Mongolian Government."

Under the terms of the financing, up to $120 million may be used for working capital, repayment of debt due on funding and general corporate purposes.

The debentures will earn an annual rate of interest of eight per cent annually. Of this, 6.4 per cent will be payable in cash and 1.6 will be paid in SouthGobi shares. The financing has a maximum term of 30 years.

CIC has the right to convert the debentures into common shares 12 months after they are issued.

SouthGobi can call for the conversion of up to $250 million on the earlier of 24 months after the issuing date if the market price of its common shares is greater than C$10.66, or if it achieves a public float of 25 per cent of its common shares.

SouthGobi shares closed at $12.45 Friday on the Toronto Stock Exchange.