SouthGobi Resources inks alliance with Winsway Coking Coal

Shares of SouthGobi Resources (SGQ-T, 1878-SEHK) leapt $1.82 or 15.04% to $13.92 apiece by early afternoon in Toronto on news the company had signed a five-year strategic alliance to sell at least two million tonnes of coal a year to Winsway Coking Coal Holdings (1733-SEHK).

The coal producer has also signed a separate contract for 2011 under which it agrees to sell 3.2 million tonnes of coal to Winsway, the largest single coal-sales contract in SouthGobi’s history.

Pricing for the coal to be sold under the latter contract has been agreed to for the first quarter of 2011 and will be set in advance of each subsequent quarter. Coal volumes for delivery will be divided evenly at 800,000 tonnes per quarter. Any specific future coal sales will be subject to mutual agreement on terms, including pricing.

The strategic alliance agreement  “will increase volumes of SouthGobi’s coal sales and add value over time, building on Winsway’s demonstrated capability to deliver Mongolian coal to consumers in China,” Alexander Molyneux, SouthGobi’s president and chief executive, said in a statement.

Winsway, one of the largest off-takers of Mongolian coal into China, will work with SouthGobi to raise the market value of the Vancouver-based company’s Mongolian coal. Winsway also will provide priority access to its logistics assets.

Winsway services at least 60 steel makers and coking plants in China and its business reach includes procurement, transportation, storage, processing and marketing. It is one of the few companies that own logistics and transportation infrastructure at the border crossings between China and Mongolia.

SouthGobi began mining coal at its flagship mine Ovoot Tologoi in 2008. It sold 1.3 million tonnes of coal in 2009 and says it is on track to sell about 2.5 million tonnes this year.