SouthGobi Rejects Mongolia Tax Evasion Ruling After Appeal Fails

Canada’s SouthGobi Resources Ltd. said it will continue its legal defense after losing its appeal to overturn a ruling that it evaded taxes in Mongolia.

The company rejects the verdict and will “defend itself through all available legal means” including the possibility of a second appeal, the Vancouver-based coal miner said in a statement Wednesday, following a one-day trial in Mongolia’s capital.

The Ulaanbaatar court upheld a fine on the company of 35 billion tugrik ($18 million), which SouthGobi warned in February could result in its insolvency. Its market value has shrunk 95 percent over the past four years amid plunging coal prices and legal battles with Mongolia.

SouthGobi’s shares in Hong Kong fell 2.2 percent to HK$6.15 as of 09:46 a.m.

The verdict follows a presidential pardon granted to three former SouthGobi executives last month after they were handed five-year prison terms on the same charge of tax evasion.

The case has drawn scrutiny for its chilling effect on foreign investment in the resources-rich nation. Its treatment as a criminal breach of the law has also been criticized.

“We believe that there is a grave breach of legal due process in the SouthGobi case, where the penalty process should have been resolved through a tax-dispute mechanism outlined in tax laws and regulations of Mongolia,” Dale Choi, founder of Independent Mongolian Metals & Mining Research, said in a note to clients.

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