* 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.
