Mongolian bill creates hurdles for Chalco’s takeover bid
Aluminum Corp of China (Chalco)'s 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, analysts said yesterday.
State-run aluminum giant Chalco said that it aims to purchase a 56 percent to 60 percent stake in SouthGobi at the price of up to $1 billion. But the Mongolian government recently enacted a bill which seeks to impose a 49 percent cap on foreign ownership in key industries including the country's booming mining sector.
SouthGobi said Wednesday that one of its subsidiaries has been involved in investigations by Mongolia's anti-corruption authorities, which has added further uncertainties to Chalco's takeover bid.
Chalco did not comment on the acquisition bid when contacted by the Global Times yesterday.
"It is very hard for Chalco to successfully get a controlling stake in SouthGobi in view of the political uncertainties," Mu Wenxin, a senior analyst with commodities portal Umetal, told the Global Times yesterday.
Analysts said that the current investment environment in Mongolia is not very favorable to Chinese investors.
"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," said Mu.
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.
"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," Mu noted.
Despite the uncertainties, analysts said that there will be increasing cooperation between the two countries in natural resources.
"The exploration cost in Mongolia is comparatively low. Given that Mongolia also considers China as a crucial market, the two countries will see more cooperation in future," Li Chaolin, an analyst from the China Coal Transportation & Sales Society, said yesterday.
Chalco said in April that it will also buy a 29 percent stake in Winsway Coking Coal, which owns coal mines in Mongolia.
State-run aluminum giant Chalco said that it aims to purchase a 56 percent to 60 percent stake in SouthGobi at the price of up to $1 billion. But the Mongolian government recently enacted a bill which seeks to impose a 49 percent cap on foreign ownership in key industries including the country's booming mining sector.
SouthGobi said Wednesday that one of its subsidiaries has been involved in investigations by Mongolia's anti-corruption authorities, which has added further uncertainties to Chalco's takeover bid.
Chalco did not comment on the acquisition bid when contacted by the Global Times yesterday.
"It is very hard for Chalco to successfully get a controlling stake in SouthGobi in view of the political uncertainties," Mu Wenxin, a senior analyst with commodities portal Umetal, told the Global Times yesterday.
Analysts said that the current investment environment in Mongolia is not very favorable to Chinese investors.
"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," said Mu.
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.
"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," Mu noted.
Despite the uncertainties, analysts said that there will be increasing cooperation between the two countries in natural resources.
"The exploration cost in Mongolia is comparatively low. Given that Mongolia also considers China as a crucial market, the two countries will see more cooperation in future," Li Chaolin, an analyst from the China Coal Transportation & Sales Society, said yesterday.
Chalco said in April that it will also buy a 29 percent stake in Winsway Coking Coal, which owns coal mines in Mongolia.
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