Singapore-based SCQ Coal Investments, which owns SouthGobi Sands LLC (SGS), the operator of the Ovoot Tolgoi coal mine, could proceed to sue the Mongolian government under the auspices of the International Centre for Settlement of Investment Disputes if the parties are unable to resolve the dispute.
Vancouver, Canada-based SouthGobi said it filed the notice after management had “exhausted all other possible means to resolve an ongoing investment dispute between SGS and the Mongolian authorities.”
The notice alleged that the Mineral Resources Authority of Mongolia had failed to execute the pre-mining agreements (PMAs) associated with SGS’s exploration licences lodged in 2011 covering the Zag Suuj and Soumber deposits.
SouthGobi said the Singapore-Mongolia treaty provides for disputes to be negotiated and resolved within a six-month period from the date of receipt of the notice.
If the Mongolian government fails to negotiate, ICSID arbitration proceedings may be accelerated before the six months have expired.
The share price of the Toronto-listed company has fallen to around C$4 or less than 40% of its 52-week peak following its recent troubles with the Mongolian government.
In April, the government suspended the exploration and mining licences for its Ovoot Tolgoi coal mine which is being targeted for a stake buyout by Chinese state aluminum firm Chalco.
SouthGobi Resources, which owns four coal projects in Mongolia, three development projects and a mineral exploration licence, said main shareholder Ivanhoe Mines had planned to sell its 57.6% stake to Chalco for US$926 million. Another large shareholder, Chinese sovereign wealth fund CIC, holds a 13.8% stake.
Alarmed that Chinese state firms could end up owning more than 71% of SouthGobi Resources, the Mongolian parliament quickly passed a foreign investment law requiring government approval for investments in mining or other strategic industries if the investors are foreign state-owned companies or if the foreign ownership stake exceeded 49%.
The new law along with what appears to be the country’s rising anti-foreign sentiments have frightened SouthGobi’s customers into reducing orders, forcing the company to cease production at the Ovoot Tolgoi mine in June.
Following a divisive general elections last month, a new parliament was sworn in as the parties negotiate to form a new coalition government.
SouthGobi Resources is focused on exploring and developing its Permian-age metallurgical and thermal coal deposits in Mongolia’s South Gobi region. The company said its flagship mine, Ovoot Tolgoi, holds an estimated 175.7 million metric tonnes of coal reserves.