SGQ SouthGobi Resources Ltd

Alexander Molyneux, President and CEO of SouthGobi Energy Resources Ltd. (TSX
VENTURE:SGQ), announced today that SouthGobi will accelerate the development of
its Mongolian coal projects through its wholly-owned Mongolian operating
subsidiary, Southgobi sands LLC.


SouthGobi's Mongolian investment program during the next three to five years is
planned to include:


- Expansion of the Ovoot Tolgoi Mine. SouthGobi intends to expand the Ovoot
Tolgoi open-pit mine to a targeted eight million tonnes of high-quality coal per
year from the current sales target of 1.5 million tonnes for 2009. The mine is
in Mongolia's South Gobi Region, approximately 40 kilometres north of the
Mongolia-China border.


- Development of the Soumber deposit. SouthGobi intends to develop a separate
coal mining operation at Soumber, approximately 20 kilometres east of the Ovoot
Tolgoi Mine. Work is subject to completion of feasibility studies and securing
appropriate licenses and permits.


- Development of regional transportation infrastructure. SouthGobi will continue
investing in improvements to the regional road network at and around the Ovoot
Tolgoi Mine. It also will evaluate opportunities to participate in the
development of a cross-border rail link between the Ovoot Tolgoi Mine and the
Mongolia-China border crossing at Shivee Khuren-Ceke. Ceke, on the China side of
the border, is a major coal shipment terminal with rail connections to
industrial customers.


- Construction of a coal washing facility. SouthGobi is conducting preliminary
testing of the washability of its coals. Testing so far indicates that value,
and jobs, can be added by processing some of its coal products in Mongolia to
reduce sulphur and ash content and upgrade other specifications.


- Creation of approximately 300 new jobs. Based on studies of the planned
investments, SouthGobi believes that its coal operations can play an even more
significant role in expanding the regional economy through new jobs, skills
training and new contracts with Mongolian suppliers for goods and services.


Mr. Molyneux said financing for the investment program has been secured from a
wholly-owned subsidiary of China Investment Corporation ("CIC"), which will
provide US$500 million in the form of a secured, convertible debenture bearing
interest at 8.0%.


"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," Mr. Molyneux added.


"We recently announced our Measured and Indicated coal resource base, compliant
with the Canadian NI 43-101 reporting standard, has increased from 221.2 million
tonnes to 307.6 million tonnes, a jump of 39%. We also announced the initial
resource at Soumber, an entirely new coal deposit in the South Gobi, and there
is significant potential for other discoveries."


Mr. Molyneux said SouthGobi also was encouraged by the improving investment
climate in Mongolia that has enabled the company to secure an attractive
financing package.


"Through this expanded investment program, we can accelerate the transformation
of Mongolian coal resources into jobs, enhanced prosperity and sustainable
development for Mongolia. This is not just about expanding our mining capacity.
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. SouthGobi's plans include building a large and sophisticated
coal-washing facility to sell processed coal products. We also will work with
Mongolian partners in building transportation infrastructure in the region."


Higher Mongolian government revenues, skills training and added-value products


SouthGobi's accelerated investment program will provide many benefits for
Mongolia and the Mongolian people, including:


- Increased revenues to the Government of Mongolia through royalties, fees and
taxes.


- Additional training, employment and professional development opportunities. As
at the end of September, a total of 97% of Southgobi sands' 278 employees are
Mongolian nationals and the company now expects to double its total employee
base by 2014.


- The introduction of modern technologies to Mongolia to add value by
manufacturing processed coal products.


- The stimulation of economic growth in the South Gobi Region and elsewhere in
Mongolia. Southgobi sands already sources more than 90% of its supplies within
Mongolia.


Key terms of the new financing facility

Following an extensive review of financing options and discussions with a number
of major funds and financiers, SouthGobi has entered into an agreement with a
wholly-owned investment subsidiary of CIC, which will provide US$500 million in
financing required primarily to support the accelerated investment program in
Mongolia. Up to US$120 million of the financing may also be used for working
capital, repayment of debt due on funding, general and administrative expenses
and other general corporate purposes. The proposed financing has received
conditional approval from Canada's TSX Venture Exchange.


Key commercial terms of the financing include:

- Interest. 8% per annum (6.4% payable in cash and 1.6% payable in SouthGobi
shares, where the number of shares to be issued is calculated based on the
50-day volume-weighted average price (VWAP).


- Term. Maximum of 30 years.

- Security. First charge over SouthGobi's assets, including shares of its
material subsidiaries. 


- Conversion price. The conversion price is set as the lower of C$11.88 or the
50-day VWAP at the date of conversion, with a floor price of C$8.88 per share.
Assuming full conversion at the base price of C$11.88 and that any conversion
occurs following SouthGobi achieving a 25% public float (on an as converted for
the debenture loan basis), CIC's overall shareholding interest in SouthGobi
would be approximately 22%.


- Conversion timing. SouthGobi and CIC each have various rights to call
conversion of the debenture into common shares. CIC has the right to convert the
debenture, in whole or in part, into common shares 12 months after the date of
issue. SouthGobi has the right to call for the conversion of up to US$250
million of the debenture on the earlier of 24 months after the issue date, if
the market price of its common shares is greater than C$10.66, or upon SouthGobi
achieving a public float of 25% of its common shares under certain agreed
circumstances. If SouthGobi fully exercises its conversion right immediately
following its achieving a 25% public float (on an as converted for the debenture
loan basis) and assuming conversion at the C$11.88 base price, CIC's initial
shareholding interest in SouthGobi would be approximately 11%.


- Representation on SouthGobi Board. While the debenture loan is outstanding, or
while CIC has a minimum 15% direct or indirect stake in SouthGobi, CIC has the
right to nominate one director to SouthGobi's Board. SouthGobi currently has
eight Board members.


- Voting restriction. CIC has agreed that it will not have any voting rights in
SouthGobi beyond 29.9% if CIC ever acquires ownership of such a shareholder
stake through exercising the debenture.


- Pre-emption rights. While the debenture loan is outstanding, or while CIC has
a 15% direct or indirect stake in SouthGobi, CIC has certain pre-emption rights
on a pro-rata basis to subscribe for any new shares to be allotted and issued by
SouthGobi for the period which the debenture is outstanding. The pre-emption
rights will not apply to new shares issued pursuant to pro-rata public equity
offerings made to all shareholders, exercise of stock options and shares issued
to achieve a 25% public float.


- Right of first offer. While a portion of the debenture is outstanding, or
while CIC has a 15% direct or indirect stake in SouthGobi, CIC has the right of
first offer for any direct and indirect sale of Ivanhoe Mines' ownership stake
in SouthGobi. Ivanhoe Mines currently owns directly and indirectly approximately
105.8 million SouthGobi shares, or approximately 79.13% of SouthGobi's current
issued and outstanding shares.


- Registration Rights. CIC has registration rights under applicable Canadian
provincial securities laws in connection with the common shares issuable upon
conversion of the debenture.


In conjunction with the financing, SouthGobi will also enter into a mutual
co-operation agreement with a subsidiary of CIC. Under the terms of the
agreement, CIC's subsidiary will provide advice and services to SouthGobi on
matters that include sales to China, procurement and logistics, and will receive
a customary commercial payment for such services based on product sales from
Mongolia to China. If cumulative coal sales fall below 10 million tonnes during
an initial five-year period (an average of two million tonnes per year),
SouthGobi would be obliged to pay CIC's subsidiary a compensatory payment, less
any amount previously paid under the co-operation agreement. This amount would
be payable at SouthGobi's option in cash or common shares valued on the basis of
the 50-day VWAP.


China Investment Corporation

CIC is the sovereign wealth fund of the People's Republic of China.

Information about CIC is available on its website:
www.china-inv.cn/cicen/about_cic/aboutcic_overview.html


Transaction advisers


SouthGobi's financial adviser for the financing facility was Macquarie Capital
Advisers. CIC was advised by Citigroup Global Markets Asia Limited.


About SouthGobi Energy Resources

SouthGobi Energy Resources is focused on exploration and development of its
Permian-age metallurgical and thermal coal deposits in Mongolia's South Gobi
Region. The company's flagship coal mine, Ovoot Tolgoi, is producing and selling
coal to customers in China. The company plans to supply a wide range of coal
products to markets in Asia.


Forward-Looking Statements: This document includes forward-looking statements.
Forward-looking statements include, but are not limited to, Expansion of Ovoot
Tolgoi Mine; Development of the Soumber Deposit; Development of regional
transportation infrastructure; Construction of a coal washing facility; Plans to
supply a wide range of coal products to markets in Asia; Conversion price;
Conversion timing; and other statements that are not historical facts. When used
in this document, the words such as "could," "plan," "estimate," "expect,"
"intend," "may," "potential," "should" and similar expressions are
forward-looking statements. Although SouthGobi Energy Resources believes that
the expectations reflected in these forward-looking statements are reasonable,
such statements involve risks and uncertainties and no assurance can be given
that actual results will be consistent with these forward-looking statements.
Important factors that could cause actual results to differ from these
forward-looking statements are disclosed under the heading "Risk Factors" in
SouthGobi Energy's Management's Discussion and Analysis of Financial Condition
and Results of Operations for the year ended Dec. 31, 2008, and each of the
months ended March 31, 2009, and June 30, 2009, all of which are available at
www.sedar.com.

SouthGobi Resources (TSXV:SGQ)
Historical Stock Chart
Von Mai 2024 bis Jun 2024

SouthGobi Resources (TSXV:SGQ)
Historical Stock Chart
Von Jun 2023 bis Jun 2024