It is expected that the state-owned Aluminium Corp of China Ltd, or Chalco,
will drop its takeover bid for Mongolia’s coal-producer SouthGobi Resources Ltd
due to fierce resistance from the Mongolian government.

In April of this year, Chalco offered $926 million for a 60 percent stake in
SouthGobi. Almost immediately, however, the Mongolian government reacted by
introducing a new investment law that limits foreign companies from owning more
than 49 percent of companies involved in mining, finance, media and
telecommunications sectors. In an even more aggressive stance, the Mongolian
government has delayed the renewing of some of SouthGobi’s license, scaring
away customers and squashing production.

This has stalled Chalco’s takeover bid to the extent that it is expected it
will be dropped. Mongolia’s new protectionist policies mean that Chalco’s bid
will now be scrutinised by a government panel. In effect, Chalco has stated
that it will be unable to finalise its bid until September 4, as it needs more
time to “engage with the Mongolian government and review the terms and
conditions of the transaction.”

The majority shareholder of SouthGobi, Turquoise Hill Resources Ltd,
supports the deal, yet has faced an immovable obstacle in the government.
SouthGobi Chief Executive Alex Molyneux has recently told Reuters that “they
[Mongolian government] have done everything in their power to roadblock the
deal by the Chinese state company.” He further stated that “the evidence I have
before me seems highly unlikely that the bid is going to go forward. It’s 100
percent clear that Mongolia has made the deal impossible.”

Chalco, who has increasingly been investing in the mining sector as the
profit margins for core aluminium drops, has yet to comment on the situation.

Chris Devonshire-Ellis, of Dezan Shira & Associates, who sits on the
UNDP Development Program board for Mongolia, comments: “The situation
concerning Chalco is complex. It is not purely a matter of not wanting Chinese
investment, it relates to the changing of foreign investment laws and the terms
and conditions of the contract that Chalco wanted to insert, such as the
provision of Chinese labor in Mongolia. The Chinese labor issue is a huge
political problem in Mongolia, and I have to say the Chinese may have to
rethink their strategic policies of tendering international contracts. It is
important for countries that have the ability to receive Chinese investments
that they maintain their own employment and ethnic sovereignty – China will
have to learn from this. Mongolia is a landlocked nation, highly suspicious of
China as a result of its involvement in Tibet, and it wants to keep China at arm’s
length. I do not believe the Chinese have fully appreciated the position in
Mongolia, however having their money turned away may become a more familiar
process globally if they do not wake up to the real issues.”

Source: www.2point6billion.com