Pending the completion of the investigations, the Company, through its Board of Directors and new management, has taken a number of steps to focus ongoing compliance by employees with all applicable laws, internal corporate policies and codes of conduct, and with the Company's disclosure controls and procedures and internal controls over financial reporting.
NOTICE OF INVESTMENT DISPUTE
On July 11, 2012, SouthGobi announced that SGQ Coal Investment Pte. Ltd., a wholly-owned subsidiary of SouthGobi Resources Ltd. that owns 100% of the Company's Mongolian operating subsidiary SouthGobi Sands LLC, filed a Notice of Investment Dispute on the Government of Mongolia pursuant to the Bilateral Investment Treaty between Singapore and Mongolia. The Company filed the Notice of Investment Dispute following a determination by management that they had exhausted all other possible means to resolve an ongoing investment dispute between SouthGobi Sands LLC and the Mongolian authorities.
The Notice of Investment Dispute consists of, but is not limited to, the failure by MRAM to execute the PMAs associated with certain exploration licenses of the Company pursuant to which valid PMA applications had been lodged in 2011. The areas covered by the valid PMA applications include the Zag Suuj Deposit and certain areas associated with the Soumber Deposit outside the existing mining license.
Under the Notice of Investment Dispute the Company is entitled to commence conciliation/arbitration proceedings under the auspices of the International Centre for Settlement of Investment Disputes ("ICSID") pursuant to the Bilateral Investment Treaty.
To date, the Company has not commenced conciliation/arbitration proceedings.
On January 18, 2013, MRAM issued the Company a PMA pertaining to the Soumber Deposit; however, three valid PMA applications remain outstanding.
Activities historically carried out on the exploration licenses with valid PMA applications include drilling, trenching and geological reconnaissance. The Company has no immovable assets located on these licenses and the loss of any or all of these licenses would not materially and adversely affect the existing operations.
COMPLIANCE WITH THE CODE ON CORPORATE GOVERNANCE PRACTICES
The Company has, throughout the six months ended June 30, 2013, applied the principles and complied with the requirements of its corporate governance practices as defined by the Board of Directors and all applicable statutory, regulatory and stock exchange listings standards.
COMPLIANCE WITH MODEL CODE
The Company has adopted policies regarding directors' securities transactions in its Corporate Disclosure, Confidentiality and Securities Trading policy that has terms that are no less exacting than those set out in the Model Code of Appendix 10 of the rules governing the listing of securities on the Hong Kong Stock Exchange.
The Board of Directors confirms that all of the Directors of the Company have complied with the required policies in the Company's Corporate Disclosure, Confidentiality and Securities Trading policy throughout the six months ended June 30, 2013.
Economic activity post transition in China's leadership has been slower than expected. The Chinese steel industry has been particularly affected and, as a result, demand and prices for coking coal have been negatively impacted. Certain coal price indices in China have reached four year lows and coal consumption and production in regions close to the Mongolian border have dropped significantly year on year. There has been a 36%(1) drop year on year to June 30 in Mongolian coal exports to China. Current sentiment indicates that market conditions will remain challenging for the remainder of the year. The longer term outlook is more positive; however, the timing of any recovery in 2014 remains uncertain and dependent on the Chinese economy.
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