Initial Commentary on the New Mongolian Foreign Investment Legislation

• New Foreign Investment Legislation has been passed by the Mongolian Parliament and is likely to come into effect in the coming weeks.
• Larger investments in Mongolian mineral resources will now require Government review and approval. Similarities to the Foreign Investment Review Board (FIRB) in Australia.
• The legislation is primarily aimed at controlling investments by foreign state owned enterprises.
• The legislation is not retrospective.
• Voyager Resources project ownership remains unaffected and the Company maintains its majority ownership and control of its assets in Mongolia.

The Parliament of Mongolia approved a Foreign Investment Law bill on Thursday, 17 May 2012 and, unless vetoed by the President, it will become law ten days from that date.
The primary goal of the legislation is to provide the Government of Mongolia with the right to either approve or reject certain transactions involving either Mongolia located assets, or entities operating in Mongolia, in certain “strategic sectors”, including mineral resources and is not dissimilar to Australia’s FIRB or Canada’s FIRA. Both these agencies were established to ensure that any foreign acquisition of businesses was beneficial to the home country.

It is the Company’s current understanding that from the date the legislation comes into effect any investment that involves a foreign owned or foreign controlled entity acquiring over 49% of an asset or a business of a value over MNT100 billion (approximately US$75 million) in these strategic sectors will require approval. The legislation is more stringent in cases of potential investments by foreign state owned enterprises (SOEs).

Exactly how these thresholds will be triggered, and how the review procedures will be implemented in practice, remains to be seen, however the Law is not retrospective. Voyager Resources maintains its majority ownership and control of its assets in Mongolia.

Voyager Resources fully supports the right of the Mongolian Government to implement foreign investment regulation and the Company notes that, provided this new legislation is applied sensibly, the effect of this new legislation will be not dissimilar to the foreign investment review procedures that exist in many other jurisdictions, including Australia.
Voyager Resources and its legal advisors will continue to consider the impact of this legislation and will update the market once the application of the legislation becomes more certain.
Voyager Resources flagship project at KM continues in earnest. To date the Company has completed 213 RC drill holes, 59 diamond core drill holes and 31 diamond tailed RC holes on the project. Assays on these drilled holes have returned some of the best copper mineralisation reported in Mongolia outside of the giant Oyu Tolgoi deposits.

The most recent drilling was primarily focused on lateral and shallow extents to the mineralised hydrothermal breccias, identified by the Company, in order to support the completion of its maiden JORC Resource.

The initial metallurgy test work on this near surface mineralogy is nearing its conclusion. Complete flotation testing and further mineralogy should be completed in the coming months.
An extensive and detailed porphyry targeting review also nears completion. This review focuses on extensive geological mapping of the KM project, including lithology, alterations and structures and will provide a primary list of deep targets allowing the Company to target better the porphyry or porphyry stocks.

Matthew Wood
Executive Chairman
Voyager Resources Limited

SouthGobi Resources announced it swung to a profit on record first quarter coal sales and higher selling prices.

For the first three months of the year, the Mongolia-focused coal producer posted a profit of USD 3.1 million versus a net loss of USD 46.6 million in the year ago period. Finance costs fell to USD 1.5 million in the latest period from USD 45.6 million a year earlier, when the company was hit by a USD 36.8 million unrealized loss on the fair value change of its convertible debentures.

SouthGobi focus is the exploration, development and sale of Permian-age metallurgical and thermal coal deposits in Mongolia South Gobi Region. Ovoot Tolgoi, its flagship coal mine, produces and sells coal to customers in China, the largest consumer of coal in the world.

First quarter revenue almost doubled to USD 40.2 million, on the record sale of 0.84 million tonnes of coal up by 84%YoY as the company’s customer base expanded.

The company said quarterly average selling price amounted to USD 56.79 per tonne, 13% higher than a year ago and the highest quarterly average since the start of mining operations. The company reported a record profit margin of 56% in the latest quarter, versus 38% in the first quarter of 2011.

SouthGobi produced 1.07 million tonnes of raw coal with a strip ratio of 2.07 compared to production of 1.11 million tonnes of raw coal with a strip ratio of 3.47 a year earlier. The below-trend strip ratio in the latest quarter was a function of the mine plan and will be normalized over the life-of-mine.

Direct cash costs of product sold were USD 10.80 per tonne compared to USD 18.91 per tonne a year earlier with the decline due to the lower strip ratio. During the quarter, SouthGobi commissioned the dry coal-handling facility at the Ovoot Tolgoi Mine, which has the capacity to process nine million tonnes of run-of-mine coal per year and announced a deal to sell its Tsagaan Tolgoi deposit to Modun Resources for USD 30.0 million.

Source – Proactive Investors

(www.steelguru.com)

SouthGobi Resources Ltd., the coal producer which Aluminum Corp. of China Ltd. has agreed to buy, said some customers have cut orders after the Mongolian government requested the suspension of projects.

The Vancouver-based company said that it hasn’t received an official order to suspend operations, including at the Ovoot Tolgoi Mine, according to a Hong Kong stock exchange statement Monday. The company can’t provide guidance for the second quarter because of “uncertainty,” it said.

“The announcement regarding potential license suspension has created significant uncertainty among the company’s customers,” SouthGobi said in the statement. “Concern over whether SouthGobi will be able to deliver contracted volumes in the second quarter has in some cases led customers to reduce their coal purchases.”

Mongolia’s Mineral Resources Authority last month requested the suspension of projects, including SouthGobi’s Ovoot Tolgoi mine, while it reviews Chalco’s proposed purchase. Chalco said it won’t proceed with the deal unless it gets the required approvals from Mongolia, which is scheduled to hold federal elections next month.

SouthGobi fell 1.9 percent to close at HK$46.60 in Hong Kong today, before the announcement, as the Hang Seng Index lost 1.2 percent. The stock has gained 2.3 percent this year against the benchmark’s 7.1 percent increase.

The company’s first-quarter sales rose to $40.2 million from $20.2 million a year earlier, according to the filing. Net income was $3.13 million, or 2 cents a share, compared with a net loss of $46.6 million, or 25 cents. Coal sales were 840,000 metric tons, an 84 percent gain on year, it said.

MUMBAI (MINEWEB) – In a bid to reduce costly imports and excessive dependence on Australian coking coal, India is all set to acquire a coal mine in Mongolia and set up the first steel plant there. The Indian government says the plan is to first supply the coal needed for the steel plant and then export the rest to India.

The country is battling a massive shortage of coal. Interestingly, for the first time last year, China imported more coal from Mongolia than from Australia. By securing its own feed, and especially with Australian coal prices hitting the roof, analysts say India will soon be able to tap into what is considered a rich resource.

Coking coal prices from Australia shot up last year, to more than $300 a tonne, after floods took out 16 million tonnes of annual production from Queensland mines, in late 2010 and 2011. An analyst with Mumbai-based brokerage firm Pinc Research said the drastic rise in prices hit the bottom lines of Indian steel makers, who rely mainly on imports to meet their requirements.

“Coking coal prices, which shot up to around $320-$350 a tonne, did not come down despite normalcy being restored in the Australian mines. Australian coking coal prices shot up from $125 in 2010 to $350 in 2011. Currently it is moving between $200 and $230 per tonne. The profit margins of most energy-intensive industries in India such as cement, aluminium and sponge iron have come under pressure in the March quarter due to this,” said an analyst.

Moreover, Australia’s Mineral Resource Tax that will levy a 30% tax on the profits of iron ore and coal mining companies, got approved by the Australian Senate on March 19, 2012. The tax is due to start on July 1, 2012 and is expected to generate AUD$ 11.0 billion in its first three years. Australian miners will likely pass on the cost hike to their customers – steel producers in India – impacting profitability. Pinc Research estimates the tax will push up coking coal prices by 4%.

India currently imports a major chunk of coking coal from Australia and with India’s steel capacity going up over the next 18 months, the coking coal demand is expected to move up equally.

The new agreement in Mongolia is set to help ease the burden. An Indian delegation comprising the chairman of the Steel Authority of India, C S Verma and U P Singh, joint secretary in the Ministry of Steel are in Beijing and are to visit Ulaanbaatar to formalise the accord.

Speaking to newswires, Verma said the memorandum of understanding with the Mongolian government would be for the allocation of coking coal mines. He told newspersons that the Indian government has been in talks with their counterparts in Mongolia for about a year on the issue.

Despite abundant coking coal mines, Mongolia does not have any steel plant of its own. Verma said Mongolia has very good quality coking coal mines and that India does not have such quality coal mines. The reciprocal arrangement would be to set up a steel plant there and the Mongolian government would, in turn, allocate coking coal mines.

Acquisition of the mine would be the first attempt by India to cut away from its dependence on Australian coking coal. India is Australia’s second biggest market after China, exporting about 32 million tonnes last year.

India imports around 60% to 70% of coking coal from Australia, while the rest comes in from the US and New Zealand. With demand from the steel sector hovering near 55-60 million tonnes, and with plans to expand steel production to 200 million tonnes by 2020, India has been seeking securitisation of coking coal.

Mongolian coal also has a price advantage over Australian imports. Mongolian coal is substantially cheaper, by $50-$70, than Australia’s coal supply. Mongolia also has estimated coal deposits of up to 152 billion tonnes. Coking coal accounts for about 35% of the country’s coal deposits.

With close proximity to India, transportation costs from Mongolia would be cheaper. Companies pay $25 a tonne for transport from Australia.

The world’s biggest user and producer of coal, China, has also been looking to Mongolia to meet its demand. China’s total coal imports in 2011 were 182 million tonnes, up 10.8% from a year ago. Net imports (lignite excluded) amounted to 167 million tonnes, increasing 15.1% year on year. In December alone, China imported 21 million tonnes of coal.

Mongolian coking coal occupied 43% of China’s total imports in 2011, up from 32% a year ago.

Analysts said the competitive price of Mongolia coking coal is also making it a hot favourite. During Q1-Q3 2011, the average sale price for imported coking coal from Mongolia was $75.5 per tonnes as compared to Australian coking coal’s price of $221.4 per tonne.

(Reuters) – SouthGobi Resources Ltd (SGQ.TO), a coal miner with operations in Mongolia, reported a first-quarter profit on Monday, as its sales nearly doubled and its average selling price rose.

The Toronto-listed miner said its coal mines in Mongolia were still operating despite a recent government announcement about a planned suspension of its mining licenses.

After China’s state-owned Chalco (601600.SS) (2600.HK) said in April it planned to acquire a majority stake in SouthGobi for $926 million, the Mongolian government said it would to suspend SouthGobi’s licenses for its several large coal projects. The government has also begun to write new foreign investment laws.

On Monday, SouthGobi said as of May 14 it had not received any official notification of the suspension and it believed its licenses were still in good standing.

That said, the company cautioned it would have to halt operations if it received such a notice. Due to this uncertainty the company said it was unable to provide any forecast for the second quarter.

In a note to clients, CIBC analyst Alec Kodatsky said the political uncertainty in the Mongolia is clouding its outlook.

“Some customers have reportedly reduced their coal purchases reacting to the potential license suspension announced by the Mongolian government,” he said, while trimming his price target on shares of the company to C$11 from C$13.

First-quarter net income amounted to $3.1 million, or 2 cents a share, compared with a year-earlier loss of $46.6 million, or 25 cents a share.

Quarterly revenue almost doubled to $40.2 million from $20.2 million, while gross margins in the quarter rose to 56 percent from 38 percent a year earlier.

Shares of the company were down less than 1 percent on Monday afternoon at C$5.91 on the Toronto Stock Exchange.

(Reporting by Euan Rocha; Editing by Frank McGurty)

NEW DELHI, MAY 12: Steel Authority of India Ltd (SAIL) plans to help Mongolia develop its iron ore and coal deposits.

A memorandum of understanding (MoU) to this effect was signed between SAIL and the Mongolian Ministry of Mineral Resource and Energy on Friday.

The two entities will carry out a joint pre-feasibility study to set up mineral processing facility for iron ore and coal, both thermal and coking coal varieties. Besides, they will also explore options for a downstream steel making facility in Mongolia, SAIL said in a statement.

SAIL will select the best available technology to treat Mongolian iron ore and coal deposits based on the feasibility study.

The MoU envisages exploration of opportunities for investments to be made by SAIL either individually or in a consortium with other entities to develop mineral processing/steel manufacturing facility in Mongolia, the statement said.

SAIL is happy to be a partner in Mongolia’s economic development, said the Chairman, Mr C.S. Verma. Commending the Mongolian Government for its initiatives in developing its mining sector, Mr Verma said such steps shall serve to be the crucial drivers of FDI for the country, while also meeting the mineral needs of India and other Asian economies.

Though Mongolia is rich in minerals such as iron ore, coking coal, copper and uranium, the mineral assets are under developed and the sector faces infrastructure issues, especially relating to evacuation and transportation.

Mongolia is the second such nation where SAIL plans to develop mineral resources. Recently, a consortium of Indian steel companies led by SAIL has been shortlisted by Afghanistan to develop the mineral resources in that country.

India, currently embroiled in a coal supply shortage owing to various complicated issues at the home front, is set to enter into a memorandum of understanding (MoU) with Mongolia that will enable it to acquire a coking coal mine in the coal rich country.

A report by The Hindu said an Indian delegation led by C.S. Verma, Chairman of Steel Authority of India (SAIL) and U.P. Singh, Joint Secretary in the Ministry of Steel, is scheduled to fly to Ulaanbaatar today for the contract signing.

“We are signing an MoU with the Mongolian government for allocation of some coking coal mine. We have been talking about this for about a year,” The Hindu quoted Verma as saying.

“Mongolia has very good quality of coking coal mines. We do not have such quality coal mines ourselves. Let Mongolian government allocate some good coking coal mine and we will have reciprocal arrangement to set up a steel plant there,” he said.

In exchange for the coal mine acquisition, India has proposed to construct a steel plant in Mongolia, the country’s first ever plant.

“We will be too keen to get good volumes, good coal mine with lot of reserves, so that we feed the steel plant which we will be setting up there and the surplus will be brought to India,” Verma said.

The coal mine India targets to acquire should be able to meet the requirement of the proposed steel plant. The coal will first be used to power the plant. An excess will then be transported to India.

The mine and expected quantity of the coal will be drawn out after the MoU has been signed.

India is fast tracking the acquisition of coal mines overseas in order to support plans of its steel industry to increase production from the current 80 MT to 200 MT by 2020. To produce one tonne of steel alone already requires 0.9 tonne of coking coal. Unfortunately, India lacks quality coking coal mines at home.

India, which imports 35 MT of coking coal every year, mostly sources 60 per cent to 70 per cent of these from Australia, while the rest comes from the US and New Zealand.

However, Australian coking coal price is already excessively expensive, going up from $125 per tonne in 2010 to $350 per tonne in 2011, Verma said.

Currently, Australian coking coal is priced between $200 per tonne and $210 per tonne.

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The mine and volumes of the coal expected of it will be identified after the pact is in place, Verma said. This will be the first attempt by India to break away from the excessive dependence of Australian coking coal, which has become too costly in recent years pushing up the cost of steel production to very high level in India. “India is importing 35 MT of coking coal every year about 60 to 70 per cent from Australia which is close to India and the rest from US and New Zealand,” Verma said. Considering India plans to expand steel production from the current 80 MT to 200 MT by 2020, it is looking to get coking coal securitisation, as there were no quality coking coal mines at home. It has become very important as to produce one tonne of steel requires 0.9 tonne of coking coal. The consumption of coking coal in India is roughly about 35-40 MT of which about 12-15 MT available in India. But it is not very good quality but medium grade soft coking coal, Verma said. About 30-35 MT is imported in India every year. Of which SAIL is imports about 14 MT. “We have to acquire mines outside India as we do not have coking coal mines in India. The expansion and capacity addition is going to happen in India mostly on the blast furnace route only for which coking coal is required more,” he said. Though the newer technologies are coming up, they would take a long time to emerge he said referring to talks with POSCO to set up furnace based steel plants. “But mostly expansion will happen in blast furnace route which requires coking coal,” he said.

BEIJING: In a move to reduce dependence on highly priced Australian coking coal, India will acquire a mine in Mongolia and also set up the first steel plant in the quality coal rich country.

The Indian delegation comprising of Chairman of Steel Authority of India (SAIL) C S Verma and U P Singh, Joint Secretary in the Ministry of Steel will go to Ulaanbaatar tomorrow to sign a pact in this regard.

“We are signing an MoU with the Mongolian government for allocation of some coking coal mine. We have been talking about this for about a year,” Verma who held talks with top Chinese steel officials and producers in the past two days told PTI.

The plan is to acquire the mine, utilise the coal for the steel plant India proposes to set up in Mongolia and export the rest to India through Chinese ports as Mongolia is a land locked country.

Asked whether India is expecting substantial volumes from Mongolian mines, Verma said, “I think it should happen. We will be too keen to get good volumes, good mine with lot of reserves, so that we feed the steel plant which we will be setting up there and the surplus will be brought to India,” Verma said.

“Mongolia has very good quality of coking coal mines. We do not have such quality coal mines ourselves. Let Mongolian government allocate some good coking coal mine and we will have reciprocal arrangement to set up a steel plant there,” he said.

Despite being a growing economy with abundant coking coal mines, Mongolia does not have any steel plant of its own.

The mine India plans to acquire will first meet the requirement of setting up a steel plant there. Then the surplus coking coal will be taken to from there, Verma said.

VANCOUVER, BRITISH COLUMBIA — Prophecy Coal Corp. (“Prophecy” or the “Company”) (TSX:PCY)(OTCQX:PRPCF)(FRANKFURT:1P2) is pleased to provide the following update on its open pit coal operation at its Ulaan Ovoo mine in Mongolia.

Since 2010, the Company has invested over $30 million at Ulaan Ovoo, including road and bridge building, mining fleet, mining camp, pre-stripping, and other infrastructure and community improvement. Since September 2011, Prophecy has sold and delivered some 188,915 tonnes of thermal coal, including 8,055 tonnes to Russia, 23,543 tonnes to private Mongolian companies, and 157,317 tonnes to Mongolian government owned power plants.

The Company has contracts to deliver an additional 228,388 tonnes in 2012, the majority of which is to be delivered to the Darhan and Erdenet power plants in Mongolia. In just over a year, Prophecy’s Ulaan Ovoo mine has become the largest independent supplier of coal to Mongolian power plants, for the benefit of Mongolians.

There are currently approximately 130,000 tonnes of coal stockpiled at Ulaan Ovoo. Total sales target for 2012 is 300,000 tonnes of coal. For the rest of 2012, the Company expects a stabilized production cost and minimal capital expenditures at Ulaan Ovoo.

In the past months, the Company has experienced a steady increase in both demand and realized sale price for its coal. In 2012, the Company has received commitment and interest for a substantial quantity of Ulaan Ovoo coal from Russian buyers, however Prophecy is postponing sales to Russia pending the opening of the Zeltura border crossing and a revised export royalty scheme from the General Department of Taxation of Mongolia. Prophecy is currently paying export royalties based on a government-set benchmark coal price which is nearly 3 times higher than the Company’s actual sale price. Prophecy is optimistic that progress will be made on both royalty and border opening fronts to improve the margin on sales.

John Lee, Chairman and CEO of Prophecy states: “Ulaan Ovoo produces highly desirable thermal coal of NAR 5,100 kcal/kg quality to fulfill the regional demand of the thermal coal market. The coal inventory levels at Mongolian power plants this past winter were down to only a few days, which created a national emergency. We are committed to delivering our quota to Mongolian power plants in 2012, while continuing to work with the Mongolian government on the 600 MW Chandgana Power Purchase Agreement to address the long-term energy needs of this rapidly developing country and at the same time, provide a stable return to our shareholders.”

About Prophecy Coal

Prophecy Coal Corp. is a Canadian listed company aiming to build the first independent thermal power plant in Mongolia. The Company’s Ulaan Ovoo deposit hosts a measured resource of 174 million tonnes and an indicated resource of 34 million tonnes, while its Chandgana deposit hosts a measured resource of 650 million tonnes and an indicated resource of 539 million tonnes. The proposed 600 MW Chandgana mine-mouth power plant has been permitted and the Company is currently in discussion with the Government on a Power Purchase Agreement. Mineral resources that are not mineral reserves do not have demonstrated economic viability. Further information on Prophecy Coal can be found at www.prophecycoal.com.

ON BEHALF OF THE BOARD OF DIRECTORS of Prophecy Coal Corp.

John Lee, CEO/Chairman

Forward-Looking Statements: This news release includes certain statements that may be deemed “forward-looking statements”. All statements in this release, other than statements of historical facts, including, without limitation, statements regarding the proposed power plant future exploration and development plans and objectives of the Company are forward-looking statements that involve various risks and uncertainties.