Coal miner SouthGobi Resources Ltd
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, which is the
subject of a proposed $926-million takeover by China”s Chalco, hit a record low
on Tuesday before paring losses to close down 13% at HK$46.

The stock was up more than 6% early
on Wednesday, outpacing a 0.6% drop in the benchmark index.

SouthGobi Resources “has no
reason to believe SouthGobi Sands LLC 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% Mongolian ownership of strategic assets.

The investigation comes at a bad
time for SouthGobi, which recently had some exploration licences suspended by
the Mongolian government in a move that some feared could scupper Chalco”s bid
for a 57.6% 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
aluminium.

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 neighbour.

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

Edited by: Reuters