Ovoot Tolgoi
JOHANNESBURG (miningweekly.com) – TSX- and HKSE-listed coal producer SouthGobi Resources is delaying payment to the China Investment Corporation (CIC) of about $8.1-million in cash – the November 2014 instalment of cash interest due on the secured convertible debenture it entered into with a wholly owned subsidiary of the CIC.
As of Thursday, SouthGobi, in which Turquoise Hill has a 56% shareholding, only had $4.9-million cash and continued to seek additional funding to meet its interest obligations under the CIC convertible debenture. Rio Tinto has a majority shareholding in Turquoise Hill, which took management control of SouthGobi in September 2012, making changes to the board and senior management.
SouthGobi was due to pay the instalment on November 19, but the CIC had advised the company that it would extend the cash interest payment date to December 1.
“In the event the company fails to make the CIC convertible debenture interest instalment on December 1, this would result in an event of default under the CIC convertible debenture and the CIC would have the right to declare the principal and accrued interest owing thereunder immediately due and payable, which could result in voluntary or involuntary proceedings involving SouthGobi,” the company explained.
HISTORY OF AGREEMENT
In November 2009, SouthGobi entered into a financing agreement with a wholly owned subsidiary of the CIC for $500-million in the form of a secured, convertible debenture-bearing interest at 8% – 6.4% payable semiannually in cash and 1.6% payable annually in the company's shares – with a maximum term of 30 years. The CIC convertible debenture was secured by a charge over SouthGobi assets and certain subsidiaries.
On March 29, 2010, SouthGobi exercised its right to call for the conversion of up to $250-million of the CIC convertible debenture into about 21.5-million shares. The CIC currently owned about 16.5% of the issued and outstanding common shares of SouthGobi.
SouthGobi is focused on exploration and development of its metallurgical and thermal coal deposits in Mongolia's South Gobi region and has a 100% shareholding in SouthGobi Sands, a Mongolian registered company that holds the mining and exploration licences in Mongolia and operates the company’s flagship Ovoot Tolgoi coal mine.