SouthGobi allegedly overstates coal reserves
SHANGHAI, June 21 -- A man claiming to be an employee of SouthGobi Resources Ltd. said last Thursday the Canadian miner had overstated the size of coal reserves at its flagship mine, an allegation the company said was an Internet hoax.
In e-mails sent to securities firms and investment banks, former senior engineer Liu Xin alleged that the measured reserves at SouthGobi's Ovoot Tolgoi mine, located in southern Mongolia, is only one fourth of what the firm reported in 2011, and that indicated resources were barely one sixth of the published value.
SouthGobi CEO Alexander Molyneux denied the allegations as groundless, saying they had no record of any employee by the name. However, the company would not comment on accusations about its mine reserves in a ten-point rebuttal sent to the press, adding that the matter was still under investigation.
Shares of the company, currently controlled by Canada's Ivanhoe Mines Ltd, did not indicate significant moves since the accusation surfaced.
Such allegations come at a sensitive time for SouthGobi, a takeover target of a state-run Chinese aluminum producer. Alumninum Corp of China Ltd, better known as Chalco, has agreed to buy Ivanhoe's controlling stake with $926 million in April, and expects to close the deal on July 5.
A Chalco spokeswoman surnamed Sun said in a telephone interview that the company was "very concerned" about the issue and it would make efforts to understand the details.
Chalco's annual shareholders' meeting is due on June 29th, in which the takeover will be discussed. The recent allegations add to uncertainties to the company's latest move to expand its commodity reservoir and diversify revenue.
Liu said his exploration team found in 2008 that coal seams in the western part of Ovoot Tolgoi were much thinner than expected, sometimes less than 15 percent. Holes they drilled confirmed their assumption that many of which only had bare rocks laying below, absent of pitch-black gold.
Liu said SouthGobi, after being briefed on the situation, moved to seek buyers for the coalfield, preferably from China, the world's largest consumer of coal.
SouthGobi refuted all the allegations, claiming their resource data was prepared by independent technical experts including Minarco Mineconsult, a Sydney-based mining advising agency accused by Liu of having received $3 million by SouthGobi for "tailored reports".
SouthGobi owns a handful of coal projects spread across Mongolia. The flagship Ovoot Tolgoi coal mine, with estimated measured deposits of 200 million metric tonnes, is about 40 kilometers north of the border with China.
The takeover deal came amidst a bleak outlook for aluminum as well as China's efforts to try to reduce annual growth in coal output to about 2 percent from around 10 percent over the next four years to conserve resources and protect the environment.
Chalco is offering to buy all of SouthGobi's coal for up to 24 months. The company's parent, Chinalco, is the largest shareholder in Rio Tinto, one of the world's most diversified mining houses, with a 12.9 percent stake.