UPDATE 1-SouthGobi to expand Mongolia mine with CIC funding

* Gets $500 mln funding from China Investment Corp

* Plans to boost Ovoot Tolgoi output more than fivefold (In U.S. dollars unless noted)

TORONTO, Oct 26 (Reuters) - SouthGobi Energy Resources Ltd SGQ.V said on Monday it plans to accelerate the development of its Mongolian coal projects with a $500 million investment from a subsidiary of China's sovereign wealth fund, China Investment Corp (CIC).

However, the reaction from SouthGobi's Canadian-listed stock price was largely muted, due to limited liquidity. SouthGobi is almost 80 percent owned by Vancouver-based Ivanhoe Mines (IVN.TO) with the bulk of its remaining shares being held by institutional investors and mutual funds.

Shares of the SouthGobi, which is focused on exploring and developing metallurgical and thermal coal deposits in Mongolia, were up 1.6 percent at C$12.65 in afternoon trade on the TSX Venture Exchange.

The company's flagship project is the Ovoot Tolgoi coal mine in South Gobi region of Mongolia. The mine is expected to produce about 1.5 million tonnes of coal this year, but the company plans to ramp up production to 8 million tonnes in the next three to five years.

It also plans to develop its Soumber deposit, which is located about 20 km (12 miles) east of Ovoot Tolgoi.

A recent change in Mongolian mining laws has paved the way for foreign investment.

After years of discussions, Mongolia wrapped up a deal earlier this month to develop one of the world's biggest untapped copper and gold deposits, when it signed off on Rio Tinto (RIO.AX) (RIO.L) and Ivanhoe's $3 billion Oyu Tolgoi mine.

The deal, made possible after the government repealed a windfall profit tax in late August, will allow work to begin on the project that will help boost the central Asian nation's economy. Many hope this deal will fuel further investment in the country's vast, largely untapped natural resources.

SouthGobi said CIC's investment will give it the right to nominate one director to SouthGobi's board, which currently consists of eight members.

CIC's investment, in the form of convertible debentures, also gives it the right of first offer for any direct and indirect sale of Ivanhoe's ownership stake in SouthGobi.

($1=$1.07 Canadian) (Reporting by Euan Rocha; editing by Rob Wilson)