Caixin reported that a Chinese metals mining concern”s plan
to tap mineral rich Mongolia took a pause in early September 2012 as the
Aluminum Corporation of China Limited withdrew its bid for coal supplier
SouthGobi Resources Limited.

Chalco”s buyout ambitions surfaced in April 2012 when it signed an agreement
with SouthGobi”s majority shareholder, Turquoise Hill Resources Limited, a
Canadian company controlled by global mining giant Rio Tinto, for up to 60% but
no less than 58% of SouthGobi shares at CAD 8.48 apiece.

The potential USD 1 billion transaction was expected to close by July 15th
2012. But Chalco delayed and then terminated the deal, blaming regulatory
hurdles in Mongolia.

The deal for SouthGobi was supposed to fit an overseas expansion strategy at
Chalco which, as China”s biggest aluminum producer, has been working to
vertically integrate its coal, ore and aluminum businesses.

In a press release, Turquoise Hill said that its and Chalco”s executives had
concluded that the transaction was unlikely to obtain government regulatory
approval within an acceptable timeframe.

The cancellation didn”t surprise the market, as investors had been selling off
SouthGobi stock since April. Between that month and September 2012, the share
price had slumped 71% on the Toronto stock market.

Analysts consistently predicted a tough go for the plan, given complicated
politics in Mongolia and weak economic conditions globally.

Indeed, Chalco and Turquoise Hill officials said pressure from opponents of the
deal inside the Mongolian government had been building for months before they
finally threw in the towel.

On April 16th 2012, the Mongolian energy minister suspended mining licenses for
SouthGobi Sands LLC, a SouthGobi subsidiary. Meanwhile, the regulator suspended
the operating license for SouthGobi”s Ovoot Tolgoi mine.

Mr Alexander Molyneux, who served as SouthGobi”s CEO until the deal collapsed
in September 2012, said that the ministry”s decision reflected its clear opposition
to the Chalco takeover. He lashed out at Mongolian regulators for what he
called hostility.

Industry analysts said the Mongolian government revised foreign investment
laws, apparently with the goal of upsetting the deal and catering to public
opposition to foreign mineral buyouts.

Parliament approved a new foreign investment law in mid May 2012 that labeled
mining resources, banking, financial services, media companies and telecoms
nationally strategic sectors for which any company stake transfer would require
special government review.
Source – Caixin Online

(www.coalguru.com)