Global Times reported that Aluminum Corp of China bid to take a controlling stake in Canadian coal miner SouthGobi Resources which mainly operates coal mines in Mongolia may face hurdles due to policy uncertainties in Mongolia.

State run aluminum giant Chalco said that it aims to purchase a 56% to 60% stake in SouthGobi at the price of up to USD 1 billion. But the Mongolian government recently enacted a bill which seeks to impose a 49% cap on foreign ownership in key industries including the country booming mining sector.

SouthGobi said Wednesday that one of its subsidiaries has been involved in investigations by Mongolia anti-corruption authorities which have added further uncertainties to Chalco takeover bid.

Chalco did not comment on the acquisition bid when contacted by the Global Times recently.

Mr Mu Wenxin a senior analyst with commodities portal Umetal said "It is very hard for Chalco to successfully get a controlling stake in SouthGobi in view of the political uncertainties."

He said that "The Mongolian government on the one hand needs foreign investors to help in developing its resources, but on the other hand, sometimes tends to be protective to their natural resources."

He added that "Chinese companies can always choose not to seek a controlling stake in international acquisitions, which can serve as a way to avert such political risks."

Analysts said that the current investment environment in Mongolia is not very favorable to Chinese investors.

Mr Peter Markey, China mining and metals industry leader at Ernst & Young said a better time for Chinese companies to make acquisitions would be after the Mongolian election in June.

Ernst & Young also noted in a report that resources nationalism has become a growing source of uncertainty in international acquisitions during the economic slowdown.

Despite the uncertainties, analysts said that there will be increasing cooperation between the two countries in natural resources.

Source - Global Times

(www.steelguru.com)