UPDATE: SouthGobi Falls 13% On Possible Mining Suspension, Auditor Quits

Shares of SouthGobi Resources Ltd. (1878.HK) fell as much as 13% Tuesday after the firm replaced its auditor Tuesday and the Mongolian coal miner said late Monday the local government is seeking a temporary halt to mining licenses for its flagship Ovoot Tolgoi coal mine.

Takeover target SouthGobi Resources, which produces coking coal and thermal coal and is listed in Hong Kong and Toronto, said in a statement Tuesday that Deloitte & Touche LLP has resigned as auditor of the Mongolian coal miner "on its own initiative" and that PricewaterhouseCoopers LLP has replaced it. Both events were effective April 2, it said.

Deloitte & Touche LLP resigned before its contract with SouthGobi Resources was due to expire, SouthGobi Resources said. But it noted the auditor "has not expressed any reservations" in its reports for SouthGobi Resources' two most recently completed fiscal years or for any period subsequent to the last completed fiscal year.

Deloitte & Touche and PricewaterhouseCoopers could not immediately be reached for comment.

Uncertainties over whether Aluminum Corp. of China Ltd.'s (ACH) plan to buy a controlling stake in SouthGobi would receive regulatory approval weighed on its share price. SouthGobi's stock tumbled 13% to a more than one month intraday low of HK$48.10 early Tuesday -- 27% lower than the HK$65.97 cash offer by Chalco for each of SouthGobi's shares. Chalco's stock fell as much as 2.7% to HK$3.67 in the morning session.

The share price weakness comes after SouthGobi said Monday the Mineral Resources Authority of Mongolia stated the request of suspension is connected to Chinese aluminum producer Chalco's proposed deal in April 2 to buy a controlling stake in SouthGobi from Canada's Ivanhoe Mines Ltd. (IVN) in a deal worth as much as HK$7.20 billion (US$923 million) as the Chinese aluminum producer diversifies into the resource-rich country.

The suspension would allow the Mongolian government time to review the proposed change of ownership, it noted.

SouthGobi has requested Ivanhoe and Chalco discuss the proposed deal with the Mongolian government. It has also informed Rio Tinto Ltd. (RIO.LN), which has a 51% stake in Ivanhoe, and Chinese sovereign wealth fund China Investment Corp., which owns a 14% stake in SouthGobi.

"If the acquisition falls through, it would have a negative impact on SouthGobi which relies very much on Chalco for financial support to ramp up its production," said Robin Tsui, an analyst at BOCI Research.

A spokesman at Chalco declined to comment on SouthGobi's possible mining suspension.

-By Joanne Chiu, Dow Jones Newswires; 852-2802-7002; joanne.chiu@dowjones.com

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