New World Development

Losses mount for Mongolia Energy

PUBLISHED : Wednesday, 04 July, 2012, 12:00am
UPDATED : Wednesday, 04 July, 2012, 12:00am


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Mongolia Energy, the controversial coal miner controlled by tycoons Cheng Yu-tung and Simon Lo Lin-shing, saw its share price plunge 12.2 per cent yesterday after posting a HK$4.83 billion net loss for the year.

The loss, much wider than the HK$310.75 million it lost the previous financial year, was due to the booking of HK$4.02 billion of impairment losses on property, plant and equipment. It reflects the value of future revenues the firm will lose due to its failure to obtain a water permit for its planned coal processing plant.

Mongolia Energy said the failure forced it to switch the planned plant's site from Mongolia to Xinjiang, where its sole customer, Bayi Iron and Steel, is located. But the plant would not be ready for at least a year.

It is liaising with the Xinjiang government over land-use rights and has made a preliminary application to build the plant. As an interim solution, it has engaged a mainland coal trader with a washing plant in Xinjiang to do the processing for it.

Mongolia Energy rose to fame in 2007 when it paid HK$1.2 billion to then controlling shareholder Liu Chenglin for mining rights to an area equivalent to one-third the size of Hong Kong.

It grew from a penny stock to fetch up to HK$18 a share in 2008 - more than 2,400 times its 2007 earnings - after announcing that it had at least eight letters of intent and memoranda of understanding from potential business partners, despite not having a production plan. The names of some of the would-be partners suspiciously resembled major mainland state firms. Its share price ended yesterday at 36 HK cents.

In 2010, the Hong Kong stock exchange censured Mongolia Energy, its chairman Lo and executive director Yvette Ong for misleading statements over potential partners.

Mongolia Energy also admitted that Liu was a former suspect in a bribery scandal in Liaoning province in the late 1990s, and changed his name in 2006. Liu has since sold down his stake from 28.5 per cent in 2008 to less than 5 per cent by August.

In late 2009, then chief executive James Schaeffer said the company aimed to start coal production in 2010 with a target of 3 million tonnes for 2011 and 8 million tonnes for 2012. It sold 17,350 tonnes for HK$6.2 million last year, and completed a 311-kilometre road for HK$1.9 billion in March to move coal to Xinjiang. Schaeffer retired last month.

In its results announcement, the company said its liabilities exceeded assets by HK$509.8 million on March 31, and its auditors said it would not be able to meet debt repayment obligations if it failed to get fresh financing. It added that some of its mining concessions were located in areas where exploration and mining were prohibited by a law enacted three years ago. It is entitled to compensation but details were not available.

The Mongolian government tightened scrutiny of foreign investment in the minerals sector last month. SouthGobi Resources' mining licences were suspended after state-owned Aluminium Corporation of China offered to buy 60 per cent of the miner, without seeking Ulan Bator's approval.