GRAPHICS

China's Interest in the Mongolian Coal Sector

Oct 9, 2012 | 15:40 GMT

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(Stratfor)

China's Interest in the Mongolian Coal Sector

On Sept. 28, Aluminum Corp. of China, commonly known as Chalco, announced that it would end its $308 million bid for a 29.9 percent stake in Winsway Coking Coal Holdings Ltd., a private Hong Kong-based firm that operates mines in Mongolia and manages transport logistics between the two countries. Less than a month earlier, Chalco dropped a $926 million bid for a 57 percent stake in SouthGobi Resources Ltd., which runs the Ovoot Tolgoi mine — the largest coal operation in Mongolia. The bids failed after five months of contentious negotiations among Chalco, the Mongolian parliament and the country's Mineral Resources Authority. Two weeks after Chalco announced its offer for SouthGobi in early April, the Mongolian agency called publicly for the suspension of operations at Ovoot Tolgoi while it reviewed the takeover bid and while new legislation was drafted to regulate mergers and acquisitions of Mongolian assets by foreign entities. Meanwhile, a bid won by another Chinese firm to buy a major stake in Mongolia's Tavan Tolgoi mine, which holds the world's largest untapped deposits of coking coal, will almost certainly be downsized. Acquiring major stakes in projects such as Tavan Tolgoi or Ovoot Tolgoi is a key part of Beijing's plan to build integrated "coal-rail-power" hubs that would allow China at least partial control over every step of the coal supply chain — from extraction to transport to consumption. The failure of these efforts reflects a growing concern among recipients of Chinese investment, in Mongolia but also across the globe, about the political and geopolitical implications of ceding control of domestic resources to Chinese state-owned enterprises.