April 25, 2012 / 8:18 PM / 6 years ago

Mongolian review plan disrupts SouthGobi deals

* New rules would allow government to review deals

* Chalco says bid is contingent on winning regulatory nod

* Chalco says approval terms have to be satisfactory to it

TORONTO, April 25 (Reuters) - Mongolia’s plan to enact foreign investment rules that would allow it to review deals affecting companies with assets in the country could delay two separate agreements involving Ca n adian coal miner SouthGobi Resources Ltd.

Chinese aluminum giant Chalco said on Wednesday it does not intend to move forward with a $926 million bid for a majority stake in SouthGobi until it has all the necessary regulatory approvals in place.

Chalco’s announcement came a day after SouthGobi extended the closing date on plans to sell its Tsagaan Tolgoi thermal coal project in Mongolia to Australian-listed Modun Resources Ltd.

China’s state-run Aluminium Corp of China Ltd, better known as Chalco, is attempting to buy a 60 percent stake in SouthGobi. It already has a support agreement in place with the miner’s majority shareholder, Ivanhoe Mines Ltd.

SouthGobi shares, however, have dropped roughly 10 percent since the deal was announced in early April. The fall came after the government of Mongolia subsequently announced it would suspend SouthGobi’s mining permits - including the ones pertaining to its flagship Ovoot Tolgoi coal mine - in light of the proposed Chalco deal.

In a joint statement on Wednesday, Chalco and Ivanhoe said they intend to cooperate with Mongolia to ensure that their deal proceeds and meets requirements under any new laws enacted by the country.

Chalco said it believes the proposed deal will be of “net benefit to Mongolia and the Mongolian mining industry”.

SouthGobi owns a handful of coal projects spread across Mongolia. The Ovoot Tolgoi coal mine is about 40 kilometers from Mongolia’s border with China, the world’s largest coal consumer.

While Mongolia has opened its doors to foreign investors over the past decade, Chinese companies have found it hard to win access to Mongolia’s vast copper and coal mines. Analysts say that this is due to historical mistrust between the two countries.

Some analysts, however, are still confident that the Chalco deal will proceed.

“We believe the Chalco-SouthGobi deal will go through, and view the move by Mongolia as election related,” Scotia Capital analyst Tom Meyer wrote in a note to clients.

Chalco also appears undaunted and the company has outlined plans to pay $308 million for a stake of almost 30 percent in Winsway Coking Coal Holdings Ltd, a big buyer of Mongolian coal. That deal that would complement its purchase of a majority stake in SouthGobi.

Chalco said it still plans to begin its tender offer for SouthGobi shares sometime in early July, b ut the deal will only close if it gets regulatory approvals in time.

“A condition to Chalco’s completion of the proposed partial offer is that all required regulatory approvals have been obtained on terms satisfactory to Chalco,” the Chinese metals giant said. “Unless and until such regulatory approvals have been obtained to its satisfaction, Chalco may withdraw its bid,” .

SouthGobi, earlier in the week, said the closing date of the deal with Modun has been extended to as late as Dec. 31. The $30 million deal had been supposed to close by June 1.

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