Chalco's Bid for SouthGobi in Peril

China has fallen silent in its pursuit of a deal that would have unlocked vast seams of Mongolian coal ahead of a deadline that expires next week, as politics and a slowing Chinese economy likely scotched the proposed $920 million investment. It is now all but certain that Chalco won't pursue its bid for Mongolia-focused coal miner SouthGobi Resources Ltd., according to SouthGobi Chief Executive Alexander Molyneux.

The Chinese metals major, also called Chalco, hasn't contacted SouthGobi in recent weeks on a bid it once hotly pursued, Mr. Molyneux told Dow Jones Newswires on Friday, with the deadline that Chalco set for the deal to be completed set to expire Tuesday.

"We still haven't heard anything from Chalco, my strong feeling is still that it's likely the Chalco bid won't happen," he said. Mr. Molyneux said in mid-August that SouthGobi hadn't been in contact with Chalco for more than a month, after the Chinese company said in early August it would have until Sept. 4 to make its offer for a controlling stake in SouthGobi.

Chalco's bid in April for SouthGobi, which sits on potentially 800 million metric tons of coal resources, triggered political hostility in the Mongolian capital of Ulan Bator. The government in May suspended SouthGobi's mining licenses on national-security grounds and unveiled a new law to cap foreign investments in strategic sectors including resources.

Mongolia heavily depends on foreign investment to ride its commodity boom, but rapid mineral-driven wealth has also created a groundswell of frustration among ordinary Mongolians that the spoils of resource development would favor foreigners, a sentiment that became a campaign issue during legislative elections in June.

The threatened SouthGobi deal also came at a time of China's economic slowdown, which has taken a heavy toll on Chalco.

Chalco said last week it swung to a net loss of 3.25 billion yuan [$511 million] for the first half of the year, as falling aluminum prices and the slowing economy hit earnings.

"At current aluminum prices, the profit for the second half is unlikely to be materially better than the first half," Barclays Research said in a note.

Global aluminum prices, a mainstay product for Chalco, have fallen more than 20% this year, while domestic prices are down about 10%.

In mid-August, Mr. Molyneux told an earnings conference that his company saw "no clear way forward" for Chalco's offer given the political opposition to the deal in Mongolia.