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
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