SouthGobi Resources said yesterday that it expected state-controlled Chalco to drop its US$926 million takeover offer for the Mongolia-focused coal miner in the face of Mongolian opposition.
The proposed deal has the backing of SouthGobi's majority shareholder, Turquoise Hill Resources, formerly known as Ivanhoe Mines, but it faced political opposition almost immediately in Mongolia, which is becoming wary about the growing Chinese presence in its mining sector. "I personally believe Chalco is not continuing to work on the deal," SouthGobi chief executive Alex Molyneux said. "The evidence I have before me seems highly unlikely that the bid is going to go forward … It's 100 per cent clear that Mongolia has made the deal impossible."
Aluminium Corp of China, better known as Chalco, said this month it had decided to extend its offer for up to 60 per cent of the common shares of Toronto- and Hong Kong-listed SouthGobi Resources for the second time as it needed more time to "engage with the Mongolian government and review the terms and conditions of the transaction". The company in April had announced the C$8.48-per-share (HK$66.31) bid for a controlling interest in SouthGobi, which owns large coal projects in Mongolia close to China. Chalco has until September 4 to formalise its bid.
Molyneux said SouthGobi had had no formal contact from Chalco for more than a month, another sign that the deal will not happen.
Chalco board secretary Liu Qiang said she had no comment, when asked whether Chalco was still pursuing a takeover of SouthGobi.
SouthGobi said late on Monday that its second-quarter profit plunged on lower output after Mongolia suspended its mining licence following Chalco's bid.
Operations at its flagship Ovoot Tolgoi mine in the south of the landlocked country had been "fully curtailed" since June 30 and were not expected to resume in the third quarter, SouthGobi said.
The company's second-quarter net income attributable to equity holders fell to US$237,000 from US$67.3 million a year earlier.
"They [the Mongolian government] have done everything in their power to roadblock the deal by the Chinese state company," Molyneux said.
He added that profits were also hurt by weakening demand for coking coal in China.
Norov Altanhuyag of the Democratic Party was confirmed as Mongolia's new prime minister on Friday, raising hopes of a tougher stance on graft and a friendlier investment climate after recent parliamentary results prompted concerns that more power would be handed to politicians who advocate local control of mines.