SouthGobi expects China’s Chalco to drop takeover bid


HONG KONG — Mongolia-focused coal mine group SouthGobi Resources Ltd. said on Tuesday that it expects China’s state-controlled Chalco to drop its US$926 million takeover bid in the face of opposition from the Mongolian government. The proposed deal has the backing of SouthGobi’s majority shareholder, Turquoise Hill Resources Ltd., formerly known as Ivanhoe Mines Ltd., but it faced opposition almost immediately within Mongolia, which is becoming wary about the growing Chinese presence in its mining sector. “I personally believe Chalco is not continuing to work on the deal,” SouthGobi Chief Executive Alex Molyneux told Reuters. “The evidence I have before me seems highly unlikely that the bid is going to go forward,” Molyneux said by telephone, citing Mongolia’s recent efforts to block the deal. “It’s 100-percent clear that Mongolia has made the deal impossible.” Aluminum Corp. of China Ltd., or Chalco, this month said it had decided to extend its offer for up to 60 percent of the common shares of Toronto and Hong Kong-listed SouthGobi Resources for the second time as it needs more time to “engage with the Mongolian government and review the terms and conditions of the transaction.” The company in April had announced the CA$8.48-per-share bid for a controlling interest in SouthGobi, which owns large coal projects in Mongolia close to China, which has a huge appetite for energy and minerals to feed its giant economy. Chalco has until Sept. 4 to formalize its bid. Mongolia, a former Soviet satellite state locked between China and Russia, passed a controversial law in May aimed at capping foreign ownership in “strategic” industries like mining.

The law stipulates that foreign investors are allowed to own a maximum of 49 percent of companies involved in the mining, finance, media and telecommunications sectors before being subject to scrutiny by a government panel. The rule only applies to deals valued at above US$75 million, or ones involving state-owned companies like Chalco.