SouthGobi Resources comments on recent share price activity

Coal company SouthGobi Resources (TSX:SGQ)(HKSE:1878) commented Wednesday on its recent share price activity in Toronto and Hong Kong, with trading volumes substantially above recent averages.

The company noted its share price fell by 9.9 percent and 7.6 percent in Toronto and Hong Kong, respectively, on March 12.

SouthGolbi said in a statement that it believes the activity is associated with the announcement by Standard & Poor's Canadian Index Operations after the close of trading on 9 March 2012, which said its shares would no longer be included in the Quarterly S&P/TSX Composite Index with effect from 19 March 2012.

"It is highly likely that index fund based investors are reducing holdings of SouthGobi shares," it said.

SouthGobi Resources is focused on exploration and development of its Permian-age metallurgical and thermal coal deposits in Mongolia's South Gobi Region.

The company's flagship coal mine, Ovoot Tolgoi, is producing and selling coal to customers in China.

Earlier this month, the company inked a deal to sell its thermal coal property, the Tsagaan Tolgoi deposit, to Modun Resources Limited (ASX:MOU for US$30 million.

The consideration is comprised of US$7.5 million up-front in cash, US$12.5 million up-front in Modun shares and deferred consideration of an additional US$10.0 million, also payable in Modun shares.

SouthGobi said it will have a significant shareholding in Modun and it will have the right to nominate one director to Modun's board, subject to SouthGobi holding an equity interest in excess of 14.9 percent. The deal is expected to close in early June.

In January, the coal supplier said it sold more than four million tonnes of coal in 2011, 58 percent more than it did in 2010.
In the fourth quarter, the company produced 1.34 million tonnes, resulting in full year 2011 output of around 4.57 million tonnes - up 64 percent from a year earlier.
SouthGobi shares were changing hands at around $6.19 on Wednesday early afternoon.