"The proposed transaction has minimal prospect of obtaining the necessary regulatory approvals within an acceptable time frame," Vancouver-based Turquoise Hill Resources, SouthGobi’s largest shareholder, said in a statement.
"As a result, Turquoise Hill and Chalco have agreed to terminate the lock-up agreement, including Chalco’s obligation to make a proportional offer."
Chalco’s plans to acquire a stake in SouthGobi have been hindered by the Mongolian government, which passed a law in May restricting foreign state-owned companies from controlling key assets. The Chinese company was due to make a takeover bid by September 4 after it agreed with Turquoise Hill to extend the deadline for a second time.
Chalco proposed in April to buy as much as 60 per cent of SouthGobi for $8.48 per share.
Turquoise Hill, a unit of Rio Tinto which recently changed its name from Ivanhoe Mines, has a 58 per cent stake in SouthGobi. Turquoise Hill is building the $6.2 billion Oyu Tolgoi copper and gold mine in Mongolia with Rio Tinto, scheduled to begin production in 2013.
SouthGobi also unveiled board changes, including the resignation of three existing directors and the appointment of five new directors effective September 3.
The company's board accepted the resignation of directors Edward Flood, the Honourable Robert Hanson and chairman Peter Meredith, and subsequently appointed Lindsay Dove, Sean Hinton, Kay Priestly, Brett Salt and Kelly Sanders as directors of the company.
Kay Priestly is chief executive of Turquoise Hill Resources and was named chairman of SouthGobi. Priestly has has more than 30-years of experience in the financial, mining and energy sectors.
Sean Hinton has been appointed as deputy chairman and will play an active role in supporting the management team. Hinton has more than 23 years of experience in Mongolia and China, including as an advisor to Rio Tinto, Oyu Tolgoi and Goldman Sachs(Asia).
"Peter, Ed and Robert have been longstanding directors and have been instrumental in providing outstanding guidance in discovering, developing and successfully operating SouthGobi's flagship Ovoot Tolgoi mine. I want to sincerely thank them for their long service to the company," SouthGobi's new chairman Key Priestly said.
"I am honoured to be appointed chairman and welcome the other new directors. I look forward to working with Pierre Lebel, our lead independent director, deputy chairman Sean Hinton, my fellow directors and the SouthGobi management team.
"With the termination of the Chalco transaction, we will focus on the company's core business performance and realizing the operating potential of an outstanding asset."
Pierre Lebel added: "On behalf of the board, particularly on behalf of SouthGobi's independent directors, I want to welcome our new directors to the company. Each brings significant skills and experience that will be very valuable to SouthGobi as we move ahead with future development."
Lindsay Dove spent more than 30 years in the international oil, coal and shipping industries with BP and Rio Tinto where he held a variety of senior management positions.
Since retiring from Rio Tinto in 2006, Dove has been an independent consultant advising on acquisitions and corporate transactions, primarily in the international coal mining industry.
Previously, Salt was with Rio Tinto for 15 years in a variety of senior product group and corporate level commercial roles.
Kelly Sanders currently is president and CEO of Kennecott Utah Copper and has been working in the mining industry for 32 years, including 28 years with coal mining operations. Sanders previously held senior positions with Rio Tinto Energy America and Ziegler Coal, both in Wyoming's Powder River Basin coal mining district.
SouthGobi Resources is focused on exploration and development of its Permian-age 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. The company plans to supply a wide range of coal products to markets in Asia.