Sand in the wheels

4 September 2012 By John Foley Follow @johnsfoley

Chinese state miner Chalco pulled a bid for Mongolia’s SouthGobi after clear signs Chinese government-backed firms aren’t welcome. Such protectionism is mostly muddle-headed, but increasingly accepted. Bigger deals, like CNOOC’s $15 billion bid for Canada’s Nexen, aren’t immune.

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Chalco, a state-owned Chinese mining company, on Sept. 3 walked away from a $925 million agreement to buy up to 60 percent of SouthGobi Resources, a Mongolian mining company and owner of the Ovoot Tolgoi coal field.
Chalco and Turquoise Hill, the Canada-based seller of the stake, decided that the transaction was unlikely to receive regulatory approval in a reasonable time, the seller said in a statement.
SouthGobi stock, which is traded in Toronto and Hong Kong, was trading at HK$20.20 by noon on Sept. 4, compared with Chalco’s original offer equivalent to HK$66.73.
Mongolia’s June elections gave victory to the broadly pro-markets Democratic Party, but without a clear majority. Mongolia also recently passed a new mining law capping foreign ownership of mines at 49 percent without parliamentary approval, and including further restrictions on purchases by state-owned buyers.
Ivanhoe Mines, which was renamed Turquoise Hill on Aug. 2, holds 58 percent of SouthGobi, and China Investment Corp holds a further 13 percent. Turquoise Hill is in turn controlled by Anglo-Australian miner Rio Tinto, which moved to a majority shareholding of 51 percent in January.
Canada’s main opposition party criticized the government’s handling of a $15.1 billion bid by China’s CNOOC Ltd for Canadian oil producer Nexen Inc on Aug. 30. The Conservative government is probing the offer – China’s largest foreign takeover bid to date – to see if it is of net benefit to Canada.
Political sources cited by Reuters said the cabinet was split over the CNOOC deal, in part because of concerns that China would gain more control over Canada’s energy patch.

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