China's Chalco to buy stake in Mongolian miner

By bne IntelliNews April 2, 2012

bne -

Chinese aluminum producer Chalco has agreed to buy Ivanhoe Mining's controlling stake in Mongolian-focused coal miner SouthGobi Resources for $926m, as the Chinese state company diversifies into other resources in the face of tough aluminium market, newswires report.

Chalco said in a statement it will acquire the 57.6% stake for CAD8.48 per share, a 28.1% premium to SouthGobi's closing price on March 30. The Chinese company said it will fund its acquisition with internal funds and bank loans.

Canadian and Hong Kong listed SouthGobi mining company is focused entirely on Mongolia. It owns four coal projects in the country and has another three assets for development up its sleeve - the Soumber Deposit, Zag Suuj Deposit and the Ovoot Tolgoi Underground Deposit. In addition, SouthGobi holds mineral exploration licences in Mongolia.

Chalco's parent company Chinalco owns a 12.9% stake in Rio Tinto, which in turn holds 51% stake in Canadian miner Ivanhoe Mining, which has been an early mover in the Mongolian mining sector.

As ever in Central Asia, it's Chinese energy appetite driving the strong prospects for Monogolian coal mining. On March 23, Mongolian Mining Corporation became the first Mongolian corporate to tap international bond markets with a benchmark $600m, five-year issue. The funds will go towards building a railway to deliver MMC's coking coal to China, to whom it sells the entire output from its two deposits.

The strength of the drive eastwards is illustrated by the fact that the government is yet to give the company permission to start building the line because it may disrupt the state's own hope to build a railway to link to its giant eastern neighbour.

However, the government is unlikely to want to delay progress for too long given that record FDI of $3.8bn last year was attracted by Mongolia's role as a supplier of raw materials to China, helping the economy to 17.3% growth for 2011.

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