CIC, Temasek to buy SouthGobi Energy shares in IPO

China Investment Corp. and Temasek Holdings Pte will buy shares in SouthGobi Energy Resources Ltd.’s initial public offering in Hong Kong.John Duce

China Investment Corp., the nation’s sovereign wealth fund, and Temasek Holdings Pte will buy shares in SouthGobi Energy Resources Ltd.’s initial public offering in Hong Kong.

CIC and the Singapore government-owned investment company will each invest $50 million in the share sale, Chief Executive Officer Alexander Molyneux said on a video link from London at a press briefing in the territory today.

SouthGobi, the Vancouver, Canada-based coal producer operating in the southern deserts of Mongolia, may raise as much as HK$3 billion ($387 million) in the share sale, according to a statement released by the company at the briefing. CIC has spent more than $4 billion on energy and resources investments since September to hedge against inflation and meet the needs of the world’s fasting-growing major economy.

“I don’t think you can get better cornerstone investors in an IPO than CIC and Temasek,” said Alisher Djumanov, managing partner at Singapore-based Eurasia Capital Management, which has about $100 million in investments in Mongolia and Central Asia. “I think both have recognized the potential for developing energy and resources in Mongolia.”

CIC bought $500 million of 30-year senior convertible bonds issued by SouthGobi last year. Other energy investments made by the sovereign wealth fund include $400 million worth of shares in China Longyuan Power Group Corp. when the wind-power producer started selling its stock in Hong Kong last month.

Boosting production

SouthGobi started production at its Ovoot Tolgoi mine in the deserts of southern Mongolia last year and aims to use the money raised in the share sale to boost output, improve infrastructure and finance exploration.

The coal producer may spend as much as $800 million in the next three years to increase output and supply customers in China, Molyneux told reporters Dec. 10.

The company is controlled by Vancouver-based Ivanhoe Mines Ltd. Robert Friedland, chairman of Ivanhoe, said in October that the underdeveloped resources of Mongolia could make the north Asian Country “the Saudi Arabia of coal.”

SouthGobi may have made a loss of $111 million in 2009, the company said in the statement. The energy supplier will be investing heavily to increase production and has no forecast for when it will start making a profit, Molyneux said today.

Railway track

SouthGobi’s plans may include building a 40-kilometer (25-mile) railway track from the Ovoot Tolgoi mine to the border with China. Coal is now trucked to the border by rail and road links.

Ovoot Tolgoi produced 1.2 million metric tons of coal last year and SouthGobi plans to increase this to 8 million tons annually by 2012 to supply customers in China, Molyneux said Dec. 10.

Friedland said Oct. 23 that Ivanhoe, through SouthGobi, wants to supply 1 percent of China’s coal needs within 10 years and is targeting long-term production of 20 million tons annually from Mongolia. Rio Tinto Group has a 19.7 percent stake in Ivanhoe.

SouthGobi’s stock will begin trading in Hong Kong on Jan. 29. Shares will be priced at a maximum of HK$133.50 each, the company said in the statement.

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