"In recent years Chinese mining companies, backed up by the capital market, have considerably increased their rates of spending foreign investments and developing mineral resources. The volume of investments has increased. China is active in moving to meet the outside world," Mr. Ceng Shaojin, Permanent Deputy Chairman of the China Mining Association (CMA), said at the summit of the mining industry in Beijing organized by British Mining Journal.
Throughout 30 years from the beginning of reforms in China and particularly from the start of the 21st century, China’s mining economy was steadily moving uphill making possible for foreign capital to enter the Chinese turf and for local capital to probe outside global economic environment. According to Ceng Shaojin, from January 1994 when Anshan Iron & Steel Corp (AISC) was listed and up to now many Chinese mining companies were registered at stock exchanges both in China and abroad. On March 21, 2002 Griffin Mining and Hebei Huaao Mining Development Company, a foreign-capital-based company, was issued a license for mining solid minerals and this happened for the first time, according to the web-site of the Hebei Province Association of Mining and Metallurgical Companies.
According to the statistics provided by China Gold Network, from May to December, 2009 the Chinese mining enterprises implemented a total of 155 investment projects abroad, driving the cumulative amount of their investments to over $4.5 billion. This figure included $2.38 billion worth of investments made by state-owned companies (52% of the total amount) and $2.16 billion (47.95%) invested by private and mixed enterprises.
Mike Elliott, Global Mining and Metals Leader, Ernst & Young, noticed in his interview to China Economic Review that 2009 was very fruitful for the Chinese mining industry in terms of M&A transactions: China won the greatest share in the total number of mergers and acquisitions in the mining and iron-and-steel industries throughout the world. The Ernst & Young report emphasized that in 2009 mergers and acquisitions accounted for 1,047 transactions in this field worldwide and were totally worth $60 billion, where China’s chunk weighed $16.1 billion, or 27%.
In the first quarter of this year, Chinese companies invested almost $3 billion into 45 foreign projects. It is noteworthy that the structure of investments has changed: state-owned companies invested only 36% of the total, while private and mixed firms - 63%.
According to China Mining, one of the most splash-making deals in 2010 was struck by China Metallurgical Group Corporation turning to be a shareholder of Australia-based Resources House Ltd. The management of the Chinese metallurgical company announced the $200-million deal on January 12.
Referring to the problem of financing the listing of mining companies and their attracting foreign investments Ceng Shaojin stated the following:
1) China is a country which has the biggest population in the world of 1.3 billion (it should be noted that this figure is given by official statistics, whereas by some estimations the actual number of population has already exceeded 1.5 billion). China is now in an advanced stage of urbanization and industrialization. The urban saturation at present is only 46.6% and according to the State Planning Committee of the People’s Republic of China it will reach 70%-75% within 20 years. To reach this goal China will need an ever growing amount of mining industry products.
2) China is a country which is a large-scale manufacturer, large-scale consumer, large-scale exporter and large-scale importer. This is a rather rare combination in the world.
3) From the day the People’s Republic of China was established and in the last 30 years of active development the mining enterprises of China already began to have ample opportunities for investments abroad. After an increase in the level of industrialization and urbanization, the GNP per capita was stably growing and in 2003, 2006 and 2008 it was accordingly $1000, $2000 and $3000. Though in this respect China is so far lags far behind the advanced nations, the country’s efforts to develop its economy and increase the living standards of the population also pushed forward the transition of the mining industry towards market.
4) Globalization of China’s mining industry is a new link in its development. On the other hand, the international mining industry is also subject to influence of industrialization and urbanization of the People’s Republic of China. Certainly, the prosperity of the international mining industry is promoting higher rates of foreign investments on the part of Chinese companies.
Ceng Shaojin has also underlined the inextricable link between capital and the mining industry and urged the Chinese mining enterprises to take into account the following types of interdependence while financing and implementing their projects abroad:
1) Direct dependence between production and demand. Though prices and supplies of basic products turned out by the mining industry are closely connected nevertheless demand appears to be the decisive factor. The operational cycle in this industry - from exploration and mining to processing and sales – is rather long and demands long-term investments. It is impossible to decide whether it is necessary to invest in exploration judging only by prices on the stock market and current market movements in mining industry goods. Investors need to analyze a specific area or country and even global economic trends in the given period of time to make a well-reasoned decision and go to investments.
2) Dependence between the market and production. The current situation in demand for mining industry production in China may be characterized by division of the market into two big groups:
- The group which is strongly subject to influence of changes in the international market (the market field of this group’s production covers the entire world, including gold and oil).
- The group of non-metals is more dependent on the state of affairs in the local market and local market trends (nonferrous metals may be included into a separate subgroup combining the features of both groups above).
3) Dependence between production and the location where it is manufactured. Investments abroad made by the Chinese mining enterprises lie in the wake of their own development requirements. While financing foreign mining, it is necessary to accept responsibility for the environment to which these investments are directed. When Chinese companies “go global”, they should be interested not only in their own development, but also in the development of the society which owns the mining fields being worked out. It also means to take into account the interests of local population, to stimulate local economy and maintain proper relations with the local government.
4) Dependence between mining and environment. The mining industry is a complex of branches involving exploration, mining, processing and application of mineral resources. In its process it is impossible to avoid impact produced on the environment. Mining companies while being engaged in investment and economic activities abroad should pursue a sparing and careful approach to using resources and protect the natural environment which created these resources.
In other words, the vice-president has urged the Chinese companies "to behave well" while pursuing their activities outside the familiar China. And it is no wonder, since some of the local mining fields resemble an area of ecological disaster, rather than prove a sparing and careful approach to the environment. I remember quite well the lunar landscape of an open-cast mine in a three-hour trip from Beijing where tourists probably do not happen to be usual visitors. People, stunted vegetation and buildings were of the same colour with dug-up earth bowels all painted in grey metallic. "After all I am planting aluminum cucumbers on a canvas field” – these words from the song written by Russian rock-singer Viktor Tsoi relate the atmosphere of that place most precisely. And after the excursion to that metallurgical industrial complex in Anshan in 2000, we were cautiously recommended to eat activated coal for some days. For China it is important to introduce green technologies in its production as soon as possible and pursue industrialization taking maximum care of the environment.
Olga Patseva, Rough&Polished, Shanghai
