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Turquoise Hill’s Oyu Tolgoi in the South Gobi desert in Mongolia© Staff Photographer / Reuters/Reuters

SouthGobi Resources Ltd. shares tumbled 22 per cent Tuesday in the first day of trading since its chief executive officer said he believes a Chinese company won't go ahead with a takeover attempt for the miner, which faces a government crackdown on its operations in Mongolia.

Alexander Molyneux told analysts on a conference call Monday that current foreign investment stipulations in Mongolia make an Aluminum Corp. of China Ltd. (Chalco) takeover "almost impossible."

The company's shares fell 22.7 per cent, or 84 cents, to $2.86 on Tuesday. Shares in parent company Turquoise Hill Resources Ltd. fell 3.1 per cent, or 27 cents to $8.28.

Chalco and Turquoise Hill, formerly called Ivanhoe Mines, agreed earlier this month on a 30-day extension of the offer for up to a 60 per cent stake in SouthGobi, but not less than 56 per cent. It will now expire on Sept. 4.

"It is my personal belief that this extension has been granted to find some way out of the proposal," Mr. Molyneux told analysts on a conference call to discuss the troubled company's latest quarterly results.

Chalco's offer to buy a controlling stake in SouthGobi has raised concerns in Mongolia about Chinese ownership of the company.

Earlier this year, Mongolia's parliament passed a foreign investment law that appeared aimed at stopping Chalco.

It requires government approval for investments in mining or other strategic industries if the investors are foreign state-owned companies or if foreign investment would exceed 49 per cent of the venture.

Mr. Molyneux said no offer has come and SouthGobi hasn't had any "meaningful" contact with Chalco, adding that he is unaware whether Chalco has been talking to Turquoise Hill.

"Our view – and this is just SouthGobi's view and not the view of Chalco or our major shareholder – is that there is no clear way forward for a Chalco proposal at this time."

Last month, SouthGobi filed a notice of investment dispute on the government in Mongolia.

Mr. Molyneux said the foreign investment law is still not regulated, and it isn't clear whether it will be further altered.

"Without clear regulation on the foreign investment law or without a process through which such foreign investment proposals can be reviewed and considered, it's almost impossible to see how Chalco can navigate it's bid through the Mongolian government infrastructure."

Mongolian authorities have asked SouthGobi to suspend production while they review a plan by Chalco to acquire a majority stake in SouthGobi from Turquoise Hill.

On Monday, the company reported a second-quarter profit of $237,000, or nil per share, compared to earnings of $67.3-million, or 37 cents per share during the same quarter of 2011. Revenue fell to $8.4-million from $47.3-million a year earlier as the company was forced to curtail operations.

Turquoise Hill and SouthGobi have most of their operations outside Canada but are listed on the Toronto Stock Exchange and have corporate head offices in Vancouver.

Turquoise Hill is developing the Oyu Tolgoi mine in southern Mongolia.

Rio Tinto PLC owns a 51 per cent stake in Turquoise Hill, which in turn owns two-thirds of the Oyu Tolgoi project. The Mongolian government owns the remaining third.

Mongolia has profited from selling coal, copper and other minerals to China's booming economy, but some in the sparsely populated North Asian country are uneasy about possible economic domination by their giant neighbour.

SouthGobi Resources is focused on metallurgical and thermal coal deposits in Mongolia's South Gobi Region. The company's flagship coal mine, Ovoot Tolgoi, produces and sells coal to customers in China. It plans to supply a wide range of coal products to markets in Asia.

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