07/11/2012 09:27 EDT | Updated 09/10/2012 05:12 EDT

SouthGobi Resources files notice of investment dispute with Mongolia

HONG KONG - SouthGobi Resources Ltd. (TSX:SGQ) has filed a notice of investment dispute on the government in Mongolia, where officials are leery about the possible sale of the Canadian company to a state-owned Chinese concern.

Vancouver-based SoutGobi said Wednesday that it filed the notice after management determined that it had "exhausted all other possible means to resolve an ongoing investment dispute" involving its Mongolian operating subsidiary.

The notice "consists of but is not limited to" alleged failure by the Mineral Resources Authority of Mongolia to execute the pre-mining agreements associated with certain exploration licences of SouthGobi Sands LLC.

Filed pursuant to the Bilateral Investment Treaty between Singapore and Mongolia, the notice triggers a dispute resolution process.

Under the process, the Mongolian government has a six-month cure period to satisfactorily resolve the dispute through negotiations.

"If the negotiations are not successful, the company will be entitled to commence conciliation/arbitration proceedings under the auspices of the International Centre for Settlement of Investment Disputes...," SouthGobi said in a release.

Last month SouthGobi announced curtailment of production at its Ovoot Tolgoi mine in Mongolia amid controversy over a bid by state-owned Aluminum Corp. of China (Chalco) to acquire a majority stake in SouthGobi from Ivanhoe Mines Ltd. (TSX:IVN).

The company said earlier that Mongolian authorities had asked it to suspend production while they reviewed the Chalco bid.

Mongolia has profited from selling coal, copper and other minerals to China's booming economy but some in the sparsely populated north Asian country are uneasy about possible economic domination by their giant neighbour.

Chalco's plan to buy a 57.6 per cent stake in SouthGobi from Ivanhoe triggered anxiety in Mongolia about Chinese ownership of a major resource producer.

Earlier this year, Mongolia's parliament passed a foreign investment law that appeared aimed at stopping Chalco. It requires government approval for investments in mining or other strategic industries if the investors are foreign state-owned companies or if foreign investment would exceed 49 per cent of the venture.

Both Ivanhoe and SouthGobi have most of their operations outside Canada but are listed on the Toronto Stock Exchange and have corporate head offices in Vancouver.

Ivanhoe is developing the Oyu Tolgoi mine in southern Mongolia. The mine is expected to produce 1.2 billion pounds of copper and 650,000 ounces of gold a year in the first decade of operation.

Rio Tinto owns a 51 per cent stake in Ivanhoe, which in turn owns two-thirds of the Oyu Tolgoi project. The Mongolian government owns the remaining third.