SouthGobi Shares Climbs Back 12.66% After Chalco Extends Bid
HONG KONG, July 4 (WSJ) —Aluminum Corp. of China Ltd. will get an extra month to make a more than $920 million offer to buy a controlling stake in SouthGobi Resources Ltd. (TSX:SGQ, HK:1878) from Ivanhoe Mines Ltd. (TSX:IVN, NYSE:IVN), indicating that the state-owned Chinese aluminum giant is still keen on investing in the Mongolia-focused coal company despite challenges posed by new foreign-ownership restrictions adopted by the Mongolian government.
The proposed deal, under which Aluminum Corp. of China, or Chalco, would buy up to 60% of the coal miner, faces political opposition in Mongolia amid growing sensitivity about foreigners cashing in on the country's hoard of coal, copper, gold and other natural resources. Given its size and influence, China, in particular, raises concerns in the landlocked country, which broke from Soviet influence just over two decades ago and formed a democracy.
Mongolia adopted a new law on foreign investment in May that limits foreign ownership in strategic industries such as mining to 49%, unless the buyer obtains parliamentary approval. That came shortly after Chalco first announced in April its plan to make an offer for the stake in SouthGobi, which produces coking and thermal coals at its flagship Ovoot Tolgoi mine 40 kilometers from the China border.
In a joint statement Tuesday, Chalco and Ivanhoe said they will cooperate with the Mongolian government to ensure the deal complies with the country's new foreign investment law.
The two sides, whose shareholders have both approved the deal, have also agreed that the Chinese aluminum giant now has until Aug. 3 to make its offer, after pushing back the original deadline from July 5, the statement said.
Word of the extension sent SouthGobi's Hong Kong-listed shares up as much as 13% to 34.35 Hong Kong dollars ($4.43) in the morning session Wednesday, helping them recover somewhat after they had fallen more than 40% since the offer was announced in April because of the ensuing uncertainty. Wednesday afternoon, shares of the company were up 12.3% at HK$34.15 but still 48% below Chalco's planned offer price of HK$65.97.
Chalco's Hong Kong-listed shares were up 1.2% at HK$3.35, outperforming the benchmark Hang Seng Index's 0.02% gain.
Ben Kwong, chief operating officer at brokerage KGI Asia, said SouthGobi's shares rebounded because the market sees the extension as a sign of how committed the Chinese aluminum producer remains to the deal.
"We saw some bottom-fishing in SouthGobi's shares following its recent share-price correction as investors bet that Chalco will get the green light from the Mongolian government," he said.
However, it isn't clear yet whether the Mongolian government will approve the acquisition. SouthGobi Chief Executive Alexander Molyneux told Dow Jones Newswires earlier that the deal will have to be endorsed by parliament, but that no other legal exceptions will have to be made.
In June, SouthGobi said its Mongolian business had to stop operating a dry-coal-handling facility because the country's environmental ministry declined to revise an environmental impact assessment for the plant, which washes coal and prepares it for transport to market.
The miner has also had to suspend mining activities and put capital spending plans on hold because of weak demand due to the global economic downturn and a "lack of clarity" on whether its license to mine would be suspended by the Mongolian government after Chalco announced its acquisition plan.
The proposed deal, under which Aluminum Corp. of China, or Chalco, would buy up to 60% of the coal miner, faces political opposition in Mongolia amid growing sensitivity about foreigners cashing in on the country's hoard of coal, copper, gold and other natural resources. Given its size and influence, China, in particular, raises concerns in the landlocked country, which broke from Soviet influence just over two decades ago and formed a democracy.
Mongolia adopted a new law on foreign investment in May that limits foreign ownership in strategic industries such as mining to 49%, unless the buyer obtains parliamentary approval. That came shortly after Chalco first announced in April its plan to make an offer for the stake in SouthGobi, which produces coking and thermal coals at its flagship Ovoot Tolgoi mine 40 kilometers from the China border.
In a joint statement Tuesday, Chalco and Ivanhoe said they will cooperate with the Mongolian government to ensure the deal complies with the country's new foreign investment law.
The two sides, whose shareholders have both approved the deal, have also agreed that the Chinese aluminum giant now has until Aug. 3 to make its offer, after pushing back the original deadline from July 5, the statement said.
Word of the extension sent SouthGobi's Hong Kong-listed shares up as much as 13% to 34.35 Hong Kong dollars ($4.43) in the morning session Wednesday, helping them recover somewhat after they had fallen more than 40% since the offer was announced in April because of the ensuing uncertainty. Wednesday afternoon, shares of the company were up 12.3% at HK$34.15 but still 48% below Chalco's planned offer price of HK$65.97.
Chalco's Hong Kong-listed shares were up 1.2% at HK$3.35, outperforming the benchmark Hang Seng Index's 0.02% gain.
Ben Kwong, chief operating officer at brokerage KGI Asia, said SouthGobi's shares rebounded because the market sees the extension as a sign of how committed the Chinese aluminum producer remains to the deal.
"We saw some bottom-fishing in SouthGobi's shares following its recent share-price correction as investors bet that Chalco will get the green light from the Mongolian government," he said.
However, it isn't clear yet whether the Mongolian government will approve the acquisition. SouthGobi Chief Executive Alexander Molyneux told Dow Jones Newswires earlier that the deal will have to be endorsed by parliament, but that no other legal exceptions will have to be made.
In June, SouthGobi said its Mongolian business had to stop operating a dry-coal-handling facility because the country's environmental ministry declined to revise an environmental impact assessment for the plant, which washes coal and prepares it for transport to market.
The miner has also had to suspend mining activities and put capital spending plans on hold because of weak demand due to the global economic downturn and a "lack of clarity" on whether its license to mine would be suspended by the Mongolian government after Chalco announced its acquisition plan.
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