Bloomberg News

Mongolia Bars SouthGobi’s U.S. Chief From Leaving Country

February 01, 2013

Mongolia has banned Justin Kapla, a U.S. citizen and president of Rio Tinto Group’s SouthGobi Sands LLC coal mining unit, from leaving the country as part of a probe into corruption among domestic officials.

Kapla was designated as a witness in a criminal case against D. Batkhuyag, the former chairman of Mongolia’s mineral resources authority, SouthGobi Sands said in an e-mailed response to questions yesterday. Batkhuyag was yesterday jailed for six and a half years for illegally issuing over 120 mining licenses, according to Mongolian news agency news.mn.

“We are aware of the case of Justin Kapla, who has an exit ban in Mongolia,” a spokesman at the U.S. embassy in Mongolia said by phone, declining to be named due to government policy. “We are in touch with Mr. Kapla and are providing appropriate assistance. Due to privacy considerations we are unable to comment further.”

The restriction placed on Kapla is at least the second for a SouthGobi executive, following the travel ban on chief legal counsel Sarah Armstrong, an Australia native, last year. The Ulan Bator, Mongolia-based company, whose Hong Kong-listed parent SouthGobi Resources Ltd. (1878) is majority owned by Rio, has been under scrutiny from Mongolian authorities since last April, after state-run Aluminum Corp. (2600) of China Ltd.’s offer to buy it.

Kapla said he couldn’t comment on the ban when contacted by phone by Bloomberg News. SouthGobi said it won’t comment further on the matter. Mongolia’s Independent Authority Against Corruption, which is conducting the probe, didn’t reply to questions e-mailed to its general inquiries address. Its officer for international affairs said by phone she couldn’t comment.

Rio Tinto declined to comment on Kapla’s travel ban, the company said in an e-mail.

Rio Problems

Rio Tinto has faced mounting problems in Mongolia. Lawmakers have called for the company to renegotiate an accord to develop Oyu Tolgoi, the world’s biggest copper project under construction. Rio, the second-biggest miner, is considering a temporary halt to Oyu Tolgoi to protest the demands, two people familiar with the company’s plans said this week.

SouthGobi’s troubles started after Chalco, as the Chinese company is also known, said last year it plans to buy majority control of the Mongolian coal company. The planned acquisition raised a public outcry, according to then vice finance minister Ganhuyag Chuluun Hutagt. The deal led to Mongolia passing a law in May that curbed foreign investment, especially in relation to state-owned firms.

The same month, Mongolia’s anti-corruption agency raided the offices of SouthGobi Sands, as part of an investigation into expired licenses. The agency’s probe found that former mineral resources chief Batkhuyag had reissued four suspended SouthGobi permits and transfered another license to a company run by associates, according to News.mn and UB Post newspaper reports.

Not Charged

“To date, neither SouthGobi nor any of its employees have been charged with any wrongdoing,” the company said in a statement Nov. 15. “SouthGobi and its employees continue to cooperate with the Mongolian government agencies, including the Independent Authority Against Corruption, in their ongoing investigations,” it said.

Chief Legal Counsel Armstrong was questioned by anti- corruption officers in connection with their probe, SouthGobi said Dec. 24. Armstrong returned to Australia at the end of December.

Permit Transfer

President Tsakhia Elbegdorj has said Mongolia needs to step up its battle against corruption. This has included a number of high-profile investigations last year, among them into ex- president Nambaryn Enkhbayar, who was jailed for four years on charges he denied.

The investigation into SouthGobi centers on the transfer of some of the company’s permits, which occurred before Kapla joined the company, Minnesota state native Kapla said in a letter to his local U.S. Senator Alan Franken, a copy of which was obtained by Bloomberg News.

Franken’s spokeswoman Alexandra Fetissoff said that the senator had received Kapla’s letter. “We have been in contact with the family,” she said.

U.S. Embassy

Kapla has lived in the country for seven of the last nine years, according to the letter.

The travel ban has been in place for at least 11 weeks and Kapla has not been called in for questioning in that time, he said in the letter. The ban was originally imposed in May and revoked in June, and he learned in October that it had been reinstated, Kapla said in the letter.

Turquoise Hill Resources Ltd. (TRQ), known as Ivanhoe Mines Ltd. before Rio Tinto took control last year, owns 58 percent of SouthGobi Resources. SouthGobi Sands is a wholly owned unit of the Hong Kong-listed SouthGobi Resources.

To contact the reporter on this story: Yuriy Humber in Tokyo at yhumber@bloomberg.net

To contact the editor responsible for this story: Jason Rogers at jrogers73@bloomberg.net


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