Eurasia Capital raises target price for SouthGobi Energy Resources to C$24 per share.

Eurasia Capital research team has recently made a site visit to Ovoot Tolgoi mine and met with SouthGobi Energy (SGQ) management to receive updates following the recent successful closing of substantial financing. Our key takeaway from these management meetings is that the company will be able to substantially improve their margins by bringing the pricing of their products in line with coal prices in China thanks to improvements in product quality, CIC partnership and infrastructure development. In addition, the major share of SGQ’s production will consists of high quality hard and semi-soft coking coal going forward, marking the company’s entrance into upstream of the Chinese steel industry. We believe the market has yet to price in these two significant factors leaving big upside in the share price. We have increased our target price to C$24 per share. This represents 40% upside to current SGQ’s share price of C$17.1 (Dec 31, 2009). 

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