SouthGobi’s Mongolia Woes Worsen

SouthGobi Resources Ltd. shares were taking a beating Tuesday morning after
the company said uncertainty over Mongolia’s mining laws is stalling work at
its flagship Ovoot Tolgoi Mine.

The miner said in a statement Tuesday that work at the mine would be
“entirely curtailed” at the end of the second quarter, partially because it
can’t get government permission to revise an environmental impact assessment
for a dry coal handling facility, without which the company said it can’t
process coal for transport to market. SouthGobi shares slid 5% in Hong Kong.

It also said it scaled back extraction at the mine in the second quarter to
avoid accumulating too much unsold coal and to save cash, and has put on hold
unspent capital and exploration expenditures.

SouthGobi’s announcement comes as plans by Aluminum Corp. of China Ltd., or
Chalco’s, bid to buy a controlling stake in the company has run into regulatory
difficulties as Mongolia seeks to pass legislation that would cap future
foreign investment in the mining industry, partly to ward off over-reliance on
Chinese investment.

The Mongolian government in April suspended certain mining licenses by
SouthGobi at Ovoot Tolgoi. SouthGobi said the government announced at the end
of May it had lifted the temporary suspension but has failed to clarify what
the new laws would be.

SouthGobi said uncertainty over the new mining laws has deterred some
customers from entering into purchase contracts with the company.