Eurasia Capital research team has recently made a site visit to Ovoot Tolgoi coal mine in Mongolia and met with SouthGobi Energy (SGQ) management to receive updates following the recent successful closing of substantial financing. Its key takeaway from these management meetings is that the company will be able to substantially improve their margins by bringing the pricing of their products in line with coal prices in China thanks to improvements in product quality, CIC partnership and infrastructure development. In addition, the major share of SGQ’s production will consists of high quality hard and semi-soft coking coal going forward, marking the company’s entrance into upstream of the Chinese steel industry. We believe the market has yet to price in these two significant factors leaving big upside in the share price. It has increased our target price to C$24 per share. This represents 40% upside to current SGQ’s share price of C$17.1 (Dec 31, 2009).
About SouthGobi Energy Resources
SouthGobi Energy Resources (SGQ) is a coal producer listed on the Toronto Stock Exchange with market capitalization of US$2.2bn (C$2.3bn). SGQ is focused on developing coal assets in Mongolia. The company’s flagship mine, Ovoot Tolgoi, is producing and selling coal to customers in China. www.southgobi.com
About Eurasia Capital
Eurasia Capital is a Hong Kong-based pan-regional investment bank with focus on Mongolia, China, Russia and Central Asia. The Firm offers cross border M&A and advisory, capital raising, sales & trading and research services to its international and regional clients including government agencies, major energy and resource companies, sovereign wealth funds, private equity groups and global portfolio investors. www.eurasiac.com
The following link gives access to Eurasia Capital’s full report “SouthGobi Energy: Company Update” published on January 4, 2010 and Eurasia Capital’s initiation report on South Gobi Energy Ltd. published on September 8, 2009.