CHALCO HAS dropped its $926 million bid for a majority stake in Mongolia-focused coal miner SouthGobi Resources Ltd in the face of stiff political opposition.
Home to some of the world’s biggest unexploited mineral deposits, Mongolia has become one of the hottest destinations for billions of dollars of mining investment, but the government is wary about the growing Chinese presence in the sector.
The state-controlled Chinese aluminium giant’s April bid for control of SouthGobi was the trigger for a law passed in May that limits foreign ownership to 49 per cent for companies in strategic sectors including mining.
The government has also suspended a plan by an international consortium involving China Shenhua Energy and US-based Peabody to develop Mongolia’s giant Tavan Tolgoi coal mine.
Chalco and Turquoise Hill Resources Ltd, which owns a 58 per cent stake in SouthGobi, both cited the difficulty of obtaining regulatory approvals for the failure of the bid.
SouthGobi’s Hong Kong-listed shares slumped 5.57 per cent ahead of the widely-expected announcement to close at HK$20.35.
The Toronto listed shares last traded at C$2.69, well short of the C$8.48 per share bid from Aluminum Corporation of China Ltd, or Chalco.
SouthGobi, which owns large coal projects close to the border of energy-hungry China, saw its second-quarter profit plunge after Mongolia suspended its mining licence following Chalco’s bid.
Operations at its flagship Ovoot Tolgoi mine in the south of the country had been “fully curtailed” since June 30th and were not expected to resume in the third quarter, SouthGobi said last month.
The former Soviet satellite, landlocked between China and Russia, passed the controversial law in May aimed at capping foreign ownership in the mining, finance, media and telecommunications sectors.
Bids above $75 million or involving state-owned firms like Chalco that aim for majority control are subject to scrutiny by a government panel. Chalco has been investing in coal, iron ore and electricity projects as the profit margin for its core aluminium business shrinks. – (Reuters)
