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Hong Kong bourse orders SouthGobi to probe former execs amid fraud concerns

SouthGobi Resources Ltd. said Jan. 8 that the Hong Kong Stock Exchange asked it to investigate the conduct of former senior executives that "raises suspicions of serious fraud, misappropriation of company assets and other criminals acts" between 2016 and the first half of 2018.

The exchange told SouthGobi on Jan. 3 that it could lose its Hong Kong listing if it fails to address the concerns related to "suspicious transactions" involving subsidiary Inner Mongolia SouthGobi Energy Co. Ltd. and unspecified "coal trading and transportation companies" allegedly linked to or controlled by former management and employees.

The coal mining company's shares have been suspended from trading in Hong Kong and on the Toronto Stock Exchange since December 2018, pending the resolution of the issues.

SouthGobi had said it reported some of the suspicious transactions to Chinese authorities. Meanwhile, the company, which owns the Ovoot Tolgoi coal mine in southern Mongolia, expanded the mandate of a special committee of its independent directors to look into the matter.

The special committee was originally formed in November 2017 in response to the arrest of former CEO and Chairman Aminbuhe on suspicion of fraud in China. He was subsequently fired from his post and removed as chairman.

The committee expects to engage forensic accounting experts to assist with its internal investigation on or before Jan. 11 and aims to complete the probe by the middle of March, SouthGobi said.

SouthGobi needs to disclose the findings of its investigation, take remedial action and inform the market of all material information for its shares to resume trading in Hong Kong, according to the statement.

The coal miner said it defaulted on its debt to China Investment Corp. after previously defaulting on agreements with the sovereign wealth fund in May 2018.