Chalco threatens legal action in Mongolia deal

The Aluminium Corporation of China, or Chalco, said on Monday it will take legal action if Mongolia breaks its long-term coal supply contract.

Mongolia's state-owned company Erdenes-Tavan Tolgoi (E-TT), which owns the 7.5 billion-ton Tavan Tolgoi project, wants to renegotiate a 2011 coal supply deal worth $250 million with Chalco.

E-TT last week delayed an IPO of up to $3 billion, blaming problems with infrastructure and the deal with Chalco, according to Reuters.

"Loss and difficulties cannot be the excuse for demanding a change of price and quantity, and suspension of delivery,” said an emailed statement Chalco provided to China Daily.

"Otherwise, it could constitute a material breach and cause severe legal consequences. More importantly, it will adversely affect the international reputation of Mongolia companies and even the country, impeding Mongolia to attract foreign investment and develop foreign trade and its own economy in the long run."

In the statement, the Chinese company said as a long-term partner, it would love to help ETT overcome the difficulties.

Analysts said the dispute reflects an unsatisfying investment environment in Mongolia.

Mongolia has rich, high quality coal resources, but they have not yet been well explored, said Dai Bing, director of the coal industry information department at JYD Online Co Ltd, a Beijing-based bulk commodity consultancy.

The main reason is the negative influence of the country's political situation, which is also a key reason for Chinese companies' reluctance to invest in Mongolia, he said.

"However, China's biggest coal producer and trader Shenhua Group's coal mining businesses in Mongolia will not be affected by the dispute this time," he said. "The dispute between Chalco and ETT should be considered as an individual case."