From the Business Council of Mongolia news wire:
SOUTHGOBI RESOURCES INVESTIGATED FOR MONEY LAUNDERINGThe investigation into SouthGobi Resources Ltd. and a former Mineral Resources Authority (MRA) head has revealed evidence of money laundering and tax evasion.
The investigation in former MRA Chairman D. Barkhuyag's involvement in the illegal distribution of mining permits has reportedly revealed that SouthGobi Resources avoided paying up to MNT 150 billion in taxes from the years 2007 to 2010.
Furthermore, USD 4.3 billion was transferred to the firm's bank account in Mongolia from Hong Kong, allegedly for an investment into its mining operations. This transferred sum was not reported in the company's annual financial report. It seems most of the money transferred ended up in the hands of Monnis International.
SouthGobi Resources David Lokhav and Dennis Dortaj fled the country during the investigation into them, while company lawyer Sarah Armstrong has been prohibited from leaving the country. The two executives are now wanted by Interpol.
Link to article in Mongolian.
SouthGobi Resources (OTC:SGQRF) is 57.6% owned by Turquoise Hill Resources (NYSE:TRQ) (as recently as 2009, it was 80% owned by Turquoise Hill Resources; which is near the end of the 2007 to 2010 period indicated).
SouthGobi Resources and Oyu Tolgoi LLC (the company overseeing Turquoise Hill's Oyu Tolgoi project) both have their offices in Monnis Tower in Ulaanbaatar, Mongolia.
The Sarah Armstrong case has been covered regularly in the international media, including this ABC radio Australia report (where you can hear me as well).
- The SouthGobi Resources money laundering story has not arrived in the international press yet to my knowledge (i.e. Australian newspapers, Reuters, Bloomberg, Financial Times, Wall Street Journal).
- There is no link being made yet in this case between SouthGobi and Turquoise Hill. I would anticipate this will come with all the news about the government of Mongolia's desire to renegotiate the Oyu Tolgoi Investment Agreement. The Oyu Tolgoi Investment Agreement was initially worked out in 2009 (when SouthGobi was still 80% owned by Turquoise Hill).
Readers are advised this is bearish news for SouthGobi Resources and Turquoise Hill until such time as the news cycle on this story abates, and it has not yet started.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.