Chalco and Turquoise Hill Resources (TSX:TRQ) cancelled a deal Monday that would have seen the company formerly known as Ivanhoe Mines sell its stake in SouthGobi to the Chinese concern.
Turquoise Hill said it a statement that the two companies concluded that the proposed deal had a "minimal prospect of obtaining the necessary regulatory approvals within an acceptable timeframe."
"As a result, Turquoise Hill and Chalco have agreed to terminate the lock-up agreement, including Chalco's obligation to make a proportional offer," the company said in a statement.
On the Toronto Stock Exchange, SouthGobi shares closed down 50 cents, or just over 18 per cent, at $2.19 Tuesday. Turquoise Hill was up 27 cents at $8.19.
Chalco's offer to buy a controlling stake in SouthGobi had 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.
Turquoise Hill said it will now work with SouthGobi to improve performance of the company's business.
On Tuesday, SouthGobi annouced the resignation of three existing directors and the appointment of five new directors to bring it to nine members.
The board accepted the resignation of directors Edward Flood, Robert Hanson and chairman Peter Meredith.
Turquoise Hill chief executive Kay Priestly joined the board as chairwoman, while Sean Hinton, founder and principal of consulting firm Terbish Partners, was added as deputy chairman.
Others joining the board included retired Rio Tinto executive Lindsay Dove, Turquoise Hill senior vice-president Brett Salt and Kelly Sanders, president and chief executive of Kennecott Utah Copper.
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 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 country have been uneasy about possible economic domination by their giant neighbour.
SouthGobi's flagship coal mine, Ovoot Tolgoi, produces and sells coal to customers in China.