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% 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