Chalco has decided to extend its offer for a majority stake in
Mongolia-focused coal miner SouthGobi Resources Ltd for the second time, the
Chinese aluminium giant said on Thursday, in the face of stiff political
opposition in Mongolia.

State-controlled Chalco will extend the time
for it to make a proportional takeover bid for up to 60 percent of the common
shares of SouthGobi by another 30 days as it is still trying to obtain approval
from the Mongolian government, Chalco said.

“Additional time is needed to engage
with the Mongolian government and review the terms and conditions of the
transaction,” it said in a filing with the Hong Kong stock exchange.

Toronto- and Hong Kong-listed SouthGobi”s
shares have wilted since April, when Aluminum Corporation of China Ltd —
better known as Chalco — announced a $926 million, or C$8.48 a share bid for a
controlling interest in the company, which owns large coal projects in Mongolia
close to the Chinese border.

SouthGobi shares last traded at C$4 in
Toronto.

The proposed deal has the backing of
SouthGobi”s majority shareholder, Ivanhoe Mines Ltd, but it faced political
opposition within Mongolia almost immediately, which is becoming wary about the
growing Chinese presence in its mining sector.

“Mongolia is known to be sensitive to
the acquisition of resources by China, as this could put both the demand and
supply side in the hands of Chinese state-owned companies,” HSBC said in a
July report.

Authorities in the resource-rich country
threatened to revoke SouthGobi”s mining licenses and the government outlined
plans to enact new investment rules that would allow it to review deals
involving foreign companies with assets in the country.

On July 3, Chalco announced it would delay
its plan to acquire the majority stake in SouthGobi by 30 days as it was
seeking regulatory backing in Mongolia.

Even if Chalco wins Mongolian approval, it
would likely lower its offer given the recent sharp declines in SouthGobi”s
share price amid uncertainty over its mining licences in Mongolia, analysts
say.

SouthGobi suspended some of its mining
operations in June as it could not obtain permits to carry out day-to-day
operations. Operations in its Ovoot Tolgoi mine remain suspended, also because
of a recent sharp drop in coking coal prices in China, a source with direct
knowledge of the matter told Reuters.

A takeover by Chalco should benefit
SouthGobi as the Chinese company would become a major source of demand for its
coking coal and help SouthGobi source electricity and build highways needed for
production expansion and transport, analysts say.

Reuters