China's Chalco scraps bid for Mongolia coal miner

China's biggest aluminium producer Chalco said it had scrapped a planned bid to take a majority stake in a Mongolian coal miner, after Mongolia's government opposed the deal.

Chalco had aimed to acquire up to 60 percent of miner SouthGobi's shares in a deal valued at HK$7.2 billion ($928 million).

"The proposed proportional takeover transaction has minimal prospect of obtaining the necessary regulatory approvals within an acceptable timeframe," Chalco said in a statement to the Hong Kong stock exchange, where it is listed.

The Chinese company had terminated the agreement to buy out SouthGobi's biggest shareholder, Turquoise Hill Resources Ltd. (formerly Ivanhoe Mines), said the statement released late on Monday.

Days after the proposed deal was announced in April, SouthGobi said Mongolian authorities wanted to suspend some of its licences.

The Mongolian company said the government's Mineral Resources Authority had requested suspension of the exploration and mining licence pertaining to its flagship coal mine, Ovoot Tolgoi.

Under the original deal, Chalco would have purchased up to 100 percent of SouthGobi's coal production at market prices for up to two years, leading to concern among some Mongolian politicians over Chinese monopolisation of state resources.

The Ovoot Tolgoi mine is already providing coal to Chinese customers since it is located just 40 km (25 miles) from the Mongolia-China border.

Mongolia has opened up its mining sector to foreign investors in the hope of pulling thousands out of poverty, but the government faces mounting pressure to maintain a larger stake of the resources.

China on Monday expressed hopes that Chinese companies could cooperate with Mongolian firms in the mining sector.

"Chinese enterprises are encouraged to cooperate with their Mongolian counterparts on the basis of Mongolian law and international norms," foreign ministry spokesman Hong Lei was quoted as saying by the official Xinhua news agency.

Chalco was up 3.08 percent to HK$3.01 in Tuesday morning trade in Hong Kong despite the setback.