CIC to fund expansion of SouthGobi Energy Resources

Toronto-listed SouthGobi Energy Resources yesterday announced that China Investment Corporation (CIC) has agreed to provide a $500 million loan to finance the expansion of the company's mining and exploration operations in the south of Mongolia. This is the first significant deal in Mongolia since its government signed the Oyu Tolgoi investment earlier this month.

The loan is in the form of convertible debentures issued by SouthGobi to CIC. The interest shall be 8% per annum, of which 6.4% shall be payable in cash and the remainder in SouthGobi shares. The maximum term of the loan is 30 years and $120 million of the total amount can be used for working capital.

The conversion price will be C$11.88 ($11.16) or the 50-day volume-weighted average price (VWAP) on the conversion date, whichever is lower. The floor price is C$8.88 a share. CIC can convert the debentures one year after issuance, while SouthGobi can call for conversion of up to $250 million of the loan two years after its issue, if its share price goes over C$10.66, or if the company goes public.

If CIC converts the full loan at C$11.88 after SouthGobi has achieved a 25% public float, the sovereign wealth fund will have a 22% stake in the company.