HONG KONG (MarketWatch) -- China Investment Corp.'s latest investment came to light Monday, with news the Chinese sovereign-wealth fund will buy securities from a Canadian miner, while also securing a deal to source coal from the company's Mongolian operations.
CIC will invest $500 million in convertible bonds of SouthGobi Energy Resources Ltd. in a move that will help the Canadian company accelerate its coal mining and exploration activities in Mongolia.
SouthGobi /quotes/comstock/11v!sgq (CA:SGQ 12.80, +0.35, +2.81%) /quotes/comstock/11i!sgqrf (SGQR.F 11.86, +0.10, +0.86%) , in which Ivanhoe Mines /quotes/comstock/11t!ivn (CA:IVN 12.63, -0.66, -4.97%) holds about a 79.3% stake, wrote in a statement posted on its Web site Monday that a unit of CIC will invest $500 million in 30-year debentures of the company, bearing 8% a year in interest.
SouthGobi said it will shortly enter into a separate cooperation agreement with the CIC unit, under which it will be obliged to sell at least 10 million tons of coal mined in Mongolia to neighboring China over a five-year period, at the average rate of two million tons a year.
Inability to meet that target will oblige SouthGobi to pay CIC's unit "a compensatory payment," payable either in cash or shares.
The announcement by SouthGobi came after Dow Jones Newswires reported Friday, citing a person with direct knowledge of the matter, that the SouthGobi was planning to raise $250 million from in initial public offering in Hong Kong.
CIC is believed to have about $300 billion in assets.
SouthGobi's president and chief executive Alexander Molyneux said the investment program is "the first step toward establishing value-added processing in Mongolia, which is now a priority for the Mongolian government."
SouthGobi plans to build a coal-washing facility to sell processed coal products and will work with Mongolian partners to build transportation infrastructure in Mongolian territory near the Chinese border, where SouthGobi's mines are located.
SouthGobi said it may use about $120 million of the investment proceeds received from CIC for working capital, debt repayment and other general corporate purposes. The conversion price of the debentures has been set at 11.88 Canadian dollars ($12.71), or its 50-day volume weighted average price, whichever is lower, with a floor price of conversion set at 8.88 Canadian dollars.
SouthGobi shares rose 2.8% to 12.80 Canadian dollars in Toronto on Monday.
Under the terms of the complex agreement, both CIC and SouthGobi have the right to call for a conversion of the debentures into SouthGobi common shares, SouthGobi said.
CIC can convert the debentures 12 months after the date of issue, so long as its voting shares in SouthGobi don't exceed 29.9%, or if SouthGobi's public float stands at 25% or more of its common shares. At the same time, SouthGobi can ask CIC to convert about $250 million worth of debentures 24 months after the issue date, if SouthGobi shares are priced above 10.66 Canadian dollars.
CIC will also have the first rights to buy any planned stake sale in SouthGobi by its parent Ivanhoe Mines, while the debentures are outstanding or while CIC has a 15% stake in SouthGobi.
Varahabhotla Phani Kumar is a reporter in MarketWatch's Hong Kong bureau.
Source:www.marketwatch.com
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