Suspension of SouthGobi licenses could be politically motivated in the context of the elections


Licenses of Southgobi are being suspended in connection with  proportional takeover bid by Chalco of the controlling interest of Ivanhoe in SouthGobi.


According to SouthGobi on April 16, 2012 ,  Mineral Resources Authority of Mongolia ("MRAM") held a press conference today in Ulaanbaatar announcing a request to suspend exploration and mining activity on certain licenses owned by SouthGobi Sands LLC, a wholly-owned division of SouthGobi Resources Ltd.   The request for suspension includes the license pertaining to SouthGobi's Ovoot Tolgoi Mine.  The Company has not received any official notification and has no reason to believe SouthGobi's licenses are not in good standing. However, the Company cautions at this time that any official notification received may require a suspension of operations until an injunction is granted.  Advice to the Company suggests the action has been taken under the broad national security powers of the Government of Mongolia. MRAM stated that the move is in connection to the proposed proportional takeover bid by Aluminum Corporation of China Limited ("CHALCO"), and the agreement by Ivanhoe Mines Ltd. ("Ivanhoe") to tender its controlling interest in SouthGobi to such a takeover. The suspension would be initiated to allow the Government of Mongolia to review the proposed change of ownership.  The Company has noted statements made by various Mongolian stakeholders that there has been little information disseminated to them and no prior government consultation regarding the proposed transaction.  SouthGobi has notified Ivanhoe and CHALCO, requesting them to discuss their agreement and the proposed transaction involving the Company with the Government of Mongolia.  SouthGobi has notified its other key investment stakeholders, including Rio Tinto (as Ivanhoe's 51% controlling shareholder) and the China Investment Corporation (the sovereign wealth fund of China owning 14% of the Company's common stock).  The Company will update investors when more information becomes available. 

According to Mongolian portal, ( ) during press conference regarding suspending temporarily licenses of SouthGobi Sand company Temporary Acting Chairman of MRAM M.Ariunbayar has said regarding suspension

  • Currently there is no opportunity to regulate this deal by Law on Minerals. Actually, there was a bill on Controls on Strategic Investment regarding this issue. Regulation can be done by it. The bill has good regulatory mechanism. On the other hand, we have introduced this issue in updated version of Law on Minerals. A clause has been introduced that has a meaning that a permission must be received from state organization or state organization must be informed on issue of selling deposit or transferring deposit in any manner.
  • Current law has no clauses reflecting this issue. Actually, all mining and exploration licenses of SouthGobi Sands company have been suspended on account of head company’s 57.6 per cent being sold and transferred. At any case, until conclusion is reached on state level  they have been suspended.
  • We have a right to suspend. Since we can issue, we can suspend.
  • The issue is to be regulated on the level of Parliament and Government. Therefore, after Parliament and Government will have issue clear it will be resolved one way or another.
  • Controlling strategic investment exists not only in our country but all over the world
  • Suspending license of one company will not affect Mongolian economy.
  • We have no similar information like this regarding Chinese or other country’s state owned company negotiating .



  • We have expected that Mongolia is likely not to object to Southgobi/Chalco takeover , because, according to Ivanhoe Mines on April 1,2012  “Ivanhoe plans to use the proceeds from the sale of its shares in SouthGobi primarily to fund the continued development of its flagship Oyu Tolgoi copper, gold and silver mine in southern Mongolia, which is on track to meet the mine's targeted start of initial production in Q3'12.”
  • Therefore, logically, it is in Mongolia’s interest to not to object to Southgobi/Chalco takeover, since it would benefit advancement of OT
  • Although advancement of OT  will benefit all Mongolians, most credit would go to Government and the ruling party
  • Therefore, logically, we view that suspension could be primarily motivated politically against the Government and the ruling party in the context of the elections approaching quickly and that takeover of Southgobi/Chalco should be considered from now on possibly in the context of politics/elections
  • At the same time, Chinese investment has always been sensitive in Mongolia historically, culturally, economically and politically.
  • Warranted (but not legislated) caution in this matter by Mongolia is being exploited by populist, resource nationalist politicians taking advantage of sensitivity of Mongolian public and at the same time stirring and playing on popular simplistic nationalist sentiment.
  • Southgobi is listed in Toronto and Hong Kong stock exchanges. And it is up to investors to decide whether they will invest into Southgobi. Attempt by Mongolia to regulate activities on these stock exchanges is of concern. Also there is continuing issue of simplistic equalization of deposits and companies that develop them
  • Regulatory approvals can be the case in Mongolia as it is the case in many other countries. In case of Mongolia, however, it would be relevant to MSE, there can be controls on percentage of foreign investments. However, these controls can be effective only after they have stipulated and approved as a law
  • This development is of concern not only to China but also to foreign investments as a whole
  • Suspensions should be seriously debated within Government and should be lifted to regain confidence from foreign investors.