UPDATE 1-Chalco drops $926 mln offer for Mongolia coal miner

* Chalco drops offer for Southgobi due to political opposition

* Offer withdrawal seen positive for both Chalco and Southgobi

* Mongolia wary of Chinese investment in mining sector

HONG KONG, Sept 3 (Reuters) - Chalco has dropped its $926 million offer for a majority stake in Mongolia-focused coal miner SouthGobi Resources Ltd in the face of stiff political opposition.

The state-controlled Chinese aluminium giant's April bid triggered a sharp backlash in Mongolia, which in May passed a law limiting foreign ownership to 49 percent for companies in strategic sectors including mining.

Turquoise Hill Resources Ltd, which owns a 58 percent stake in SouthGobi, said in a statement on Monday that there was "minimal prospect of obtaining the necessary regulatory approvals within an acceptable timeframe".

Shares of SouthGobi, which owns large coal projects in Mongolia close to the Chinese border, have wilted since April as the C$8.48 per share bid by state-controlled Aluminum Corporation of China Ltd, or Chalco, ran into opposition from the Mongolian government.

The firm's Hong Kong-listed shares slumped 5.57 percent on Monday ahead of the widely-expected announcement to close at HK$20.35. The Toronto listed shares last traded at C$2.69.

"This is good news for both Chalco and SouthGobi," said Helen Lau, analyst at UOB Kay Hian,

"For Chalco it wouldn't need to pay such a high premium for SouthGobi shares and for SouthGobi now the political risk has been removed and that probably will see the company returning to normal production and sales."

MININING OPERATION SUSPENDED

SouthGobi's second-quarter profit plunged after Mongolia suspended its mining licence following Chalco's bid.

Operations at its flagship Ovoot Tolgoi mine in the south of the country had been "fully curtailed" since June 30 and were not expected to resume in the third quarter, SouthGobi said last month.

The proposed deal had the backing of Turquoise Hill, but Mongolia is becoming wary about the growing Chinese presence in its mining sector.

The former Soviet satellite, landlocked between China and Russia, passed a controversial law in May aimed at capping foreign ownership in the mining, finance, media and telecommunications sectors

Bids above $75 million or involving state-owned firms like Chalco that aim for majority control are subject to scrutiny by a government panel.

Chalco has been investing in coal, iron ore and electricity projects as the profit margin for its core aluminium business shrinks.