China to Fund SouthGobi Mongolia Coal Expansion

Oct. 26 (Bloomberg) -- SouthGobi Energy Resources Ltd., a unit of Ivanhoe Mines Ltd., said it has obtained $500 million of financing from China’s sovereign wealth fund to expand and develop coal reserves in southern Mongolia.

China Investment Corp., the country’s $200 billion sovereign wealth fund, will provide SouthGobi a $500 million convertible debenture to expand its coal-mining business at deposits including Ovoot Tolgoi and Soumber, Chief Executive Officer Alexander Molyneux said today in an interview in Beijing. The debentures can be converted into a 22 percent stake in SouthGobi, Molyneux said.

“We’re at a stage where we want to accelerate our business and we need the financing to move forward, otherwise the timeline for development will be slower,” Molyneux said. “China Investment Corp. provided us an attractive option” for doing so, he said.

Ivanhoe Mines Chairman Robert Friedland said last week Mongolia may become the “Saudi Arabia of coal.”

Ovoot Tolgoi, 45 kilometers (28 miles) north of Mongolia’s southern border with China, has 114.1 million metric tons of coal reserves, according to an October presentation on the company’s Web site.

Third-quarter coal sales from Ovoot Tolgoi were forecast to rise 17 percent from the previous quarter to 450,000 tons, according to the presentation.

Ivanhoe Mines, based in Vancouver, owns 80 percent of SouthGobi.

To contact the Bloomberg News staff on this story: Eugene Tang in Beijing on eugenetang@bloomberg.net; Stephen Engle in Beijing at sengle1@bloomberg.net.