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SouthGobi Resources plans "vigorous" defense against class action suit

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SouthGobi Resources (TSE:SGQ) (HKSE:1878) is planning to "vigorously defend" itself against a class action lawsuit that has been proposed in Canada. 

In a statement released last night, the company told investors that on January 6, Canadian law firm Siskinds filed a proposed securities class action suit against the company, certain of its current and former senior officers and directors, as well as former auditors tied to SouthGobi's restatement of its financial reports as disclosed on November 8, November 11, November 14 and December 12, 2013. 

The dual-listed mining company, which is held 56% by Turquoise Hill Resources (NYSE:TRQ) (TSE:TRQ), is focused on the exploration and development of its metallurgical and thermal coal deposits in Mongolia's South Gobi region. It holds a 100% stake in a subsidiary that holds the mining and exploration licenses in Mongolia and operates the flagship Ovoot Tolgoi mine, which produces and sells coal to customers in China.

In September 2012, Turquoise Hill, which is majority owned by Rio Tinto (NYSE:RIO), took over management control of SouthGobi and made several changes to the board and senior staff, including the resignation of three existing directors and the appointment of five new directors, as well as the sacking of the current CEO at the time. This followed news of Turquoise Hill and the Aluminum Corp of China (Chalco) dropping a $925 million bid for SouthGobi, citing "minimal prospect" of obtaining the necessary regulatory approvals within an acceptable time frame.

At the time, the company was hurt by the curtailment of mining operations at its Ovoot Tolgoi mine due to weak market conditions and regulatory issues regarding the Chalco bid.  The company was also impacted by various infrastructure constraints in Mongolia, and the softening of inland China coking coal markets. 

SouthGobi said Wednesday that it has hired independent legal counsel in Canada to advise on the class action suit, and intends to "vigorously defend the lawsuit if and when it is served with the proposed claim". As of last night, it had not yet been formally served with a copy of the suit.

Shares of SouthGobi edged up by one penny to trade at 85 Canadian cents in Toronto. 

Quick facts: SouthGobi Resources Ltd

Price: 0.105 CAD

TSX:SGQ
Market: TSX
Market Cap: $28.63 m
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