RE: SouthGobi Signs Cooperation Agreement With CHA Wallstreet Journal comments:
HONG KONG—Aluminum Corp. of China Ltd. ACH+0.08% agreed to buy a controlling stake in a Mongolian coal miner from Canada's Ivanhoe Mines Ltd. IVN+1.65% for up to 7.2 billion Hong Kong dollars (US$927.1 million).
Chinese miners have been stepping up overseas acquisitions of natural resources to feed the country's rapidly growing energy demand. Monday's deal by Chalco, as the Chinese company is known, was its latest in an effort to diversify from aluminum. Last year the company agreed to invest $1.35 billion with Rio TintoRIO+2.50% in a Guinea iron-ore deposit.
Chalco said Monday it agreed to buy 56% to 60% of SouthGobi Resources Ltd.1878.HK+18.16% for HK$65.97 (US$8.49) a share. That was a 29% premium over SouthGobi's closing price Friday. Ivanhoe owns 57.6% of SouthGobi Resources.
SouthGobi shares jumped 18% to HK$60.50 on Monday in Hong Kong. That left them well below their initial public offering price of HK$126.04 in January 2010.
Ivanhoe founder Robert Friedland, who owns 13.7% of the company, said in February the miner was considering asset sales to raise funds to develop its giant Oyu Tolgoi mine in Mongolia.
Chalco, China's biggest aluminum producer, will take up to 100% of SouthGobi's coal for up to two years and help produce electricity for the site.
SouthGobi's flagship coal mine is the Ovoot Tolgoi site, but the company is developing three other projects and plans to increase production to as much as six million metric tons this year from 4.57 million tons last year.
"We will keep selling to existing customers but we can sell extra coal to [Chalco's parent] of up to 100% of our minable production," said SouthGobi Chief Executive Alexander Molyneux. "There's no risk that we can't sell the coal." He said Chalco's help in connecting to China's electricity grid will help reduce production costs significantly.
Chalco's stock fell 1.9% to HK$3.67 Monday amid concerns about lower metal prices and higher costs. The company in March warned that it expected to report a first-quarter loss. Chalco posted a 69% decline in 2011 net profit as Chinese economic policy raised financing costs environment and fuel and raw-material costs rose.
"The deal could help Chalco to further integrate its business by securing coal resources to support its aluminum production," said Robin Tsui, an analyst at BOCI Research. The deal gives SouthGobi "strong financial support as it plans to ramp up production," he said.
—Alistair MacDonald in Toronto contributed to this article.