Coal news and updates

Citic Group pulls investment in SouthGobi Resources given coal industry downturn

China’s largest conglomerate Citic Group’s merchant banking arm has pulled out of a US$28.7 million investment in debt-troubled Mongolia coking coal miner SouthGobi Resources amid a protracted slump of the coal industry.

“The conditions precedent to the agreement have not been fulfilled and Citic Merchant has informed the company that it will not be subscribing for shares in the company pursuant to the signed private placement agreement,” SouthGobi said in a filing to Hong Kong’s stock exchange late on Thursday.

Citic Merchants late last month agreed to buy new shares equivalent to 17 per cent of SouthGobi for US$28.7 million, while Swiss Life, the asset management firm of private bank SwissLife Banque Privee, has agreed to buy new SouthGobi shares equalling a 2 per cent stake for US$2.9 million.

The purchase price was a 20 per cent discount to the five-day average prior to the shares purchase agreements.

SouthGobi said it is “actively seek additional sources of financing to continue operating and meet its objectives, [including possible] coal offtake agreements, an interim loan and a revolving loan.”

A multi-year slump in the coal market, including coking coal used in steel smelting, has seen SouthGobi struggle to pay US$7.9 million of interests on a convertible debenture due to sovereign fund China Investment Corp in May this year.

An extension on payment until July 27 has been granted. A non-payment would result in default, and CIC has the right to demand full repayment of the full principal of US$250 million and accrued interest.

SouthGobi had US$0.9 million of cash at the end of June. It had a net loss of US$103 million last year. Hard coking coal prices have fallen from US$400 a tonne late 2010 to around US$83 mid this month, according to RBC Capital Markets which forecasts modest price recovery in the next few years as more mines are closed.

By purchasing existing shares from mining giant Rio Tinto’s Mongolia unit Turquoise Hill and subscribing to new shares, Novel Sunrise Investments in April became SouthGobi’s largest shareholder with a 29.3 per cent stake.

Novel Sunrise, a mainland Chinese private enterprise in the real estate, logistics and supply chain management businesses, said Monday it has been wholly acquired by a Hong Kong unit of China Cinda Asset Management.

SouthGobi has been put on review for a possible delisting from the Toronto stock exchange. Its Hong Kong shares closed Thursday at HK$4.17, a far cry from the high of HK$130 in early 2010.

source: http://www.scmp.com