Mongolia new bills further disrupt Chalco, SouthGobi deal
* New rules to review investments by foreigners
* Legislation in parliament this week
* Chalco says bid contingent on winning regulatory nod
* Chalco says approval terms have to be satisfactory to it
By Euan Rocha and Sonali Paul
TORONTO/MELBOURNE, April 25 (Reuters) - Mongolia looks set to enact new foreign investment rules that may delay or derail Chinese aluminium giant Chalco's plan to buy control of Canadian coal miner SouthGobi Resources Ltd, as the nation looks to protect its resources from China.
The review follows Mongolia's suspension of SouthGobi's licences after the deal was announced, but much mystery surrounds the legislation, whose contents are not clear.
Some analysts have speculated that the moves may just be a ploy ahead of elections in June and predict the deal will go through. But others say Mongolia fears all its coal will go to China, the world's biggest coal consumer, where it fetches much lower prices than in the seaborne market, and that it is serious about safeguarding its interests.
"This is not an election stunt. There has been a long-standing fear of domination of the Mongolian economy by Chinese state-owned enterprises," said an Ulan Bator-based senior executive, declining to be identified due to the sensitivity of the matter.
Historical mistrust between the two countries has meant that 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 coal and copper mines.
State-owned Chalco said on Wednesday it did not intend to move forward with its $926 million bid to gain a majority holding in SouthGobi from Australia's Ivanhoe Mines until it has all the necessary regulatory approvals in place.
SouthGobi owns coal projects spread across Mongolia, including the Ovoot Tolgoi coal mine.
But Chalco is also pressing ahead with securing more Mongolian coal interests, buying a stake of almost 30 percent in Hong-Kong listed Winsway Coking Coal Holdings Ltd, a big buyer of the nation's coal. It also sells coal from Mongolia's prized Tavan Tolgoi mine.
Chalco and Ivanhoe said in a joint statement they intend to cooperate with Mongolia to ensure their deal proceeds and meets requirements under any new laws enacted by the country.
The Chinese firm said it believes the proposed deal will be of "net benefit to Mongolia and the Mongolian mining industry," echoing arguments made by a range of foreign investors who say the country needs them to develop its abundant resources.
OTHER DEALS DELAYED
The legislation is on the Mongolian parliament's agenda for the next two days, but it is not clear what the legislation includes, a lawyer involved in foreign investments in Mongolia said.
Mongolia has, however, been looking at other countries' foreign investment laws as a potential model, including those in major resource producers Australia and Canada.
Australian and Canadian guidelines call for protecting the national interest and closer scrutiny on deals where state-owned enterprises are acquiring assets.
Ulan Bator-based broker Frontier Securities said in a note this week that communications from parliament and Mongolian media create the impression that the bill would likely be speedily approved.
Uncertainty over rights in Mongolia has meant other deals have also been delayed.
SouthGobi has extended the closing date on plans to sell its Tsagaan Tolgoi thermal coal project in Mongolia to Australian-listed Modun Resources Ltd to as late as Dec. 31. The $30 million deal had been supposed to close by June 1.
The planned sale of part of Mongolia's Tavan Tolgoi coal mine, estimated to have as much as 7.5 billion tonnes of coal, has also been held up due to concerns over foreign ownership.
Bidders for the its western block include China's Shenhua Group, U.S. coal miner Peabody Energy, a Russian-Mongolian consortium headed by Russian Railways, and Japanese and South Korean firms.
The government may decide to hold on to the block, given the difficulties of a consortium coming together, chief operating officer of state-owned Erdenes-Tavan Tolgoi, Graeme Hancock, said this week.
But Peabody has not given up and remains optimistic that it will be a part of any long-term development of Tavan Tolgoi, company spokesman Vic Svec said in a comment e-mailed to Reuters.
* Legislation in parliament this week
* Chalco says bid contingent on winning regulatory nod
* Chalco says approval terms have to be satisfactory to it
By Euan Rocha and Sonali Paul
TORONTO/MELBOURNE, April 25 (Reuters) - Mongolia looks set to enact new foreign investment rules that may delay or derail Chinese aluminium giant Chalco's plan to buy control of Canadian coal miner SouthGobi Resources Ltd, as the nation looks to protect its resources from China.
The review follows Mongolia's suspension of SouthGobi's licences after the deal was announced, but much mystery surrounds the legislation, whose contents are not clear.
Some analysts have speculated that the moves may just be a ploy ahead of elections in June and predict the deal will go through. But others say Mongolia fears all its coal will go to China, the world's biggest coal consumer, where it fetches much lower prices than in the seaborne market, and that it is serious about safeguarding its interests.
"This is not an election stunt. There has been a long-standing fear of domination of the Mongolian economy by Chinese state-owned enterprises," said an Ulan Bator-based senior executive, declining to be identified due to the sensitivity of the matter.
Historical mistrust between the two countries has meant that 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 coal and copper mines.
State-owned Chalco said on Wednesday it did not intend to move forward with its $926 million bid to gain a majority holding in SouthGobi from Australia's Ivanhoe Mines until it has all the necessary regulatory approvals in place.
SouthGobi owns coal projects spread across Mongolia, including the Ovoot Tolgoi coal mine.
But Chalco is also pressing ahead with securing more Mongolian coal interests, buying a stake of almost 30 percent in Hong-Kong listed Winsway Coking Coal Holdings Ltd, a big buyer of the nation's coal. It also sells coal from Mongolia's prized Tavan Tolgoi mine.
Chalco and Ivanhoe said in a joint statement they intend to cooperate with Mongolia to ensure their deal proceeds and meets requirements under any new laws enacted by the country.
The Chinese firm said it believes the proposed deal will be of "net benefit to Mongolia and the Mongolian mining industry," echoing arguments made by a range of foreign investors who say the country needs them to develop its abundant resources.
OTHER DEALS DELAYED
The legislation is on the Mongolian parliament's agenda for the next two days, but it is not clear what the legislation includes, a lawyer involved in foreign investments in Mongolia said.
Mongolia has, however, been looking at other countries' foreign investment laws as a potential model, including those in major resource producers Australia and Canada.
Australian and Canadian guidelines call for protecting the national interest and closer scrutiny on deals where state-owned enterprises are acquiring assets.
Ulan Bator-based broker Frontier Securities said in a note this week that communications from parliament and Mongolian media create the impression that the bill would likely be speedily approved.
Uncertainty over rights in Mongolia has meant other deals have also been delayed.
SouthGobi has extended the closing date on plans to sell its Tsagaan Tolgoi thermal coal project in Mongolia to Australian-listed Modun Resources Ltd to as late as Dec. 31. The $30 million deal had been supposed to close by June 1.
The planned sale of part of Mongolia's Tavan Tolgoi coal mine, estimated to have as much as 7.5 billion tonnes of coal, has also been held up due to concerns over foreign ownership.
Bidders for the its western block include China's Shenhua Group, U.S. coal miner Peabody Energy, a Russian-Mongolian consortium headed by Russian Railways, and Japanese and South Korean firms.
The government may decide to hold on to the block, given the difficulties of a consortium coming together, chief operating officer of state-owned Erdenes-Tavan Tolgoi, Graeme Hancock, said this week.
But Peabody has not given up and remains optimistic that it will be a part of any long-term development of Tavan Tolgoi, company spokesman Vic Svec said in a comment e-mailed to Reuters.
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