Rio Tinto’s SouthGobi Makes Second Distress Call as Coal SlumpsDavid Yong
SouthGobi Resources Ltd., a Mongolian coal miner controlled by Rio Tinto Plc, said it’s seeking additional funding for a second time in six months to stay in business amid a slump in coal prices.
The miner, listed on exchanges in Hong Kong and Toronto, said there can be “no assurance” that it will have sufficient money through December to remain a going concern amid pressure on margins and liquidity, according to a stock exchange filing today. It’s seeking more funding including coal prepayments, and is minimizing capital spending, it said.
The announcement came after a distress call in March highlighted debt repayment concern as coal prices tumbled. Miners from Mongolia to Indonesia have faced a cash crunch following a 15.7 percent slump in coking coal prices this year, adding to a 47 percent slide in the previous three years. Bonds sold by global junk-rated mining and metals producers rose 3.59 percent this year, versus 5.66 percent in 2013 and 7.43 percent in 2012, according to Bank of America Merrill Lynch index data.
Turquoise Hill Resources Ltd., which owns 56 percent of SouthGobi, has agreed to let SouthGobi defer repayment of $3.8 million drawn from a credit line, according to the filing. Rio Tinto in turn owns 50.8 percent of Turquoise Hill while Singapore’s Temasek Holdings Pte. has 7.3 percent, according to data compiled by Bloomberg.
SouthGobi mines thermal coal at Ovoot Tolgoi about 40 kilometers (25 miles) from Mongolia’s border with China. The stock fell 10.2 percent in August to HK$4.40, bringing the losses this year to 36 percent.
The miner forecast in March that it wouldn’t have enough cash flow to meet obligations including interest payments on $250 million of convertible debentures held by the sovereign wealth fund China Investment Corp.