Mongolian court upholds $18 mln fine on SouthGobi Resources

(Reuters) - A Mongolian appeals court has upheld a fine worth nearly $18 million for tax evasion on Toronto-listed SouthGobi Resources, according to a statement from the court, which analysts say may send the company teetering towards insolvency.

Mongolian authorities last year issued tens of millions of dollars in tax claims to companies, putting investors on edge. The perception of an unpredictable government has subdued enthusiasm for the country's coal and copper deposits worth billions of dollars, sending foreign investment spiralling downwards by 74 percent last year.

SouthGobi may appeal the decision announced on Wednesday to a higher court, said Dale Choi, head of Independent Mongolian Metals & Mining Research, in an email to investors.
"Still, the likelihood has increased that SouthGobi could end up with facing a penalty of ~$17.5 million, which increases risk of insolvency for the company," Choi said.
A Mongolian court found SouthGobi Resources and three former foreign employees guilty of tax evasion in hearing by a panel of judges held on Jan. 30, and fined the company 35 million tugrik ($17.5 million) for taxes owed.

The January hearing was the third after judges twice returned the case to the prosecution because of a lack of evidence. SouthGobi has denied the tax evasion charges, but was not able to immediately able to respond to a request for additional comments.
"Throughout the investigation, the administration officials have issued in total four reports which all have all been different and contradicted one another in terms of content and final sums of purported tax evasion," said Chief Financial Officer Bertrand Troiano by email last month.

Mongolian President Tsakhiagiin Elbegdorj last month pardoned the three former employees who had been sentenced to more than five years each in prison on the tax evasion charges.

SouthGobi operates the Ovoot coal deposit in the Gobi desert, about 25 miles north of the China-Mongolia border. It and other miners in the area have suffered from a sharp drop in coal prices as China's economic growth has slowed. ($1 = 1,986.0000 tugrik) (Reporting by Terrence Edwards; Editing By Tom Hogue)