The Conversation (0)
Chinese investors look set to invest in resource companies and projects abroad to satisfy world’s most populous nation’s thirst for metals and minerals. Experts say that copper and coal are two minerals where many deals are likely to be seen in 2012. In addition, junior miners are now more ready than ever for Chinese money as funding is scarce.
By Karan Kumar — Exclusive to Resource Investing News
As funding becomes scarce, global mining companies are looking to China for money in the hope that the mineral-hungry nation will strike deals to not only ensure its own supply, but also to invest in strategic assets that will provide a good return on investment going forward.
At the Mines and Money conference in Hong Kong last month, “there was a sustained increase in junior miners seeking strategic asset sales and investment. This was evident in the amount of juniors commissioning Mandarin Desktop Reviews for marketing their assets to increasing amounts of Chinese investors,” Jamon Rahn, Vice President of Emerging Asia Capital and an attendee of the conference, told Resource Investing News in an interview. Emerging Asia Capital advises juniors listed on the Toronto and Australia stock exchanges on attracting an investor base in Greater China.
“At last year’s Mines and Money, many mining juniors were not willing to sell their projects or strike strategic deals,” Rahn said. “At the 2012 conference, we saw a monumental shift in the amount of juniors seeking strategic asset sales to Chinese industrial partners or investments by a strategic Chinese financial partner. They are ready to invest, they are ready to go. To put that in perspective, in 2012 alone, our subsidiary company China Geos has seen a 230 percent increase in the amount of Mandarin Desktop Reviews and technical translation by juniors in due diligence with Chinese investors or industrial partners.”
Figures on Chinese investment opaque
No figures are available as to how much China and private investors within the country are expected to invest in foreign mining assets this year, Rahn said, adding that the landscape is a “bit opaque” as state-owned Chinese companies are making the bulk of mining investments.
According to a 2010 report by Deloitte and mergermarket, which provides the latest statistics available, Chinese investors spent about $9.2 billion on 33 announced mining deals abroad in 2009, up from 20 deals in 2008.
Rahn said Chinese investors are seen investing in copper and coal – metallurgical and thermal – assets abroad this year. Coal powers most of Southern China, he said.
“Not many investments have taken place yet, but in terms of preparing there are signs of where the investments are going to go this year,” he added. “China is extremely hungry for copper opportunities even if prices will decline, because they have a strategic interest to secure the end product for future production needs.”
Year of copper, not dragon
Rahn said that China is responsible for about 40 percent of global copper consumption. “Copper will be a big investment theme this year by Chinese strategics and investors. They are being smart and on the hunt for good companies and assets. It’s not the year of the dragon, but rather the year of copper.”
This week, Aluminum Corp. of China Ltd. (HKG:2600), the country’s largest aluminum producer, agreed to acquire SouthGobi Resources Ltd. (TSX:SGQ,HKG:1878), a Mongolia-focused coal company listed in Toronto, from Ivanhoe Mines Ltd. (NYSE:IVN,TSX:IVN) for up to US $889 million. Aluminum Corp., a Hong Kong-listed subsidiary of the Chinese state-owned metals and mining group CHINALCO (HKG:2600,NYSE:ACH), said it intends to offer $8.48 per share to acquire a stake of up to 60 percent in SouthGobi, whose shares also trade in Hong Kong.
Rahn brushed aside claims that a small slowdown in China’s GDP growth this year will end the country’s desire to invest in resources or acquire offtake opportunities. “I am not a believer,” he said. “Sure, the real estate industry is struggling in China and this will impact short-term prices of commodities, but the fundamental long-term resource demand that has been created by over 1.3 billion people in the last 20 years argues strongly against that. In our opinion China is not a fleeting star in terms of resource consumption and investment, it is a long-term strategic story that will continue to invest and acquire.”
Other experts say that while China is aggressively looking for mining investments abroad, the country is turning away from Australia and Canada, where assets are getting too expensive, and moving its sights to South America, Africa, and Central Asia. “Those traditional markets that are developed, while being more stable – the likes of Australia and Canada – the competition to gain good resources is actually very, very intense,” Leong Eng Kiat, Managing Director of CCB International Capital, told Reuters in a recent article. “Because of that, the prices tend to be bid up. So Chinese investors are looking outside of these countries and going into emerging markets – the likes of Africa, Latin America, central Asia.”
Securities Disclosure: I, Karan Kumar, hold no direct investment interest in any company mentioned in this article.