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UPDATE 2-Chalco drops $926 mln bid for Mongolian coal miner
* Chalco drops offer for SouthGobi due to political opposition
* Withdrawal positive for both Chalco and SouthGobi-analyst
* Mongolia wary of Chinese investment in mining sector
HONG KONG, Sept 3 (Reuters) - Chalco has dropped its $926 million bid for a majority stake in Mongolia-focused coal miner SouthGobi Resources Ltd in the face of stiff political opposition.
Home to some of the world's biggest unexploited mineral deposits, Mongolia has become one of the hottest destinations for billions of dollars of mining investment, but the government is wary about the growing Chinese presence in the sector.
The state-controlled Chinese aluminium giant's April bid for control of SouthGobi was the trigger for a law passed in May that limits foreign ownership to 49 percent for companies in strategic sectors including mining.
The government has also suspended a plan by an international consortium involving China Shenhua Energy and U.S.-based Peabody to develop Mongolia's giant Tavan Tolgoi coal mine.
Chalco and Turquoise Hill Resources Ltd, which owns a 58 percent stake in SouthGobi, both cited the difficulty of obtaining regulatory approvals for the failure of the bid.
SouthGobi's Hong Kong-listed shares slumped 5.57 percent on Monday ahead of the widely-expected announcement to close at HK$20.35. The Toronto listed shares last traded at C$2.69, well short of the C$8.48 per share bid from Aluminum Corporation of China Ltd, or Chalco.
MININING OPERATION SUSPENDED
SouthGobi, which owns large coal projects close to the border of energy-hungry China, saw its second-quarter profit plunge after Mongolia suspended its mining licence following Chalco's bid.
Operations at its flagship Ovoot Tolgoi mine in the south of the country had been "fully curtailed" since June 30 and were not expected to resume in the third quarter, SouthGobi said last month.
"This is good news for both Chalco and SouthGobi," said Helen Lau, analyst at UOB Kay Hian.
"For Chalco it wouldn't need to pay such a high premium for SouthGobi shares and for SouthGobi now the political risk has been removed and that probably will see the company returning to normal production and sales."
The former Soviet satellite, landlocked between China and Russia, passed the controversial law in May aimed at capping foreign ownership in the mining, finance, media and telecommunications sectors.
Bids above $75 million or involving state-owned firms like Chalco that aim for majority control are subject to scrutiny by a government panel.
Chalco has been investing in coal, iron ore and electricity projects as the profit margin for its core aluminium business shrinks.
In April, it agreed to buy 29.9 percent of Winsway Coking Coal Holdings Ltd, which transports coking coal from Mongolia to China, for HK$2.39 billion ($307.92 million)
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