MAC/20: Mines and Communities

China Update

Published by MAC on 2008-02-01

China update

1st February 2008

Although there are justified concerns about Chinese "penetration" of Africa and Latin America, and to a lesser extent south and southeast Asia, in fact the regime's biggest single target for mineral marketing deals, acquisitions and joint ventures is Australia.

China poaching Latin America's last big mines

By Mica Rosenberg, Reuters

30th January 2008

MEXICO CITY - Chinese miners eager to feed a roaring economy with raw materials are buying some of the last remaining big mines in Latin America, where risks are lower than China's other commodities sources like Africa.

Still, there are pitfalls ahead. The choicest known mining resources in the region have already been snapped up, while labor unions are independent and quick to strike for a greater share of the boom in commodity prices.

The Chinese are scouring the globe for the few remaining mineral deposits since they produce less than half the iron and copper and less than 70 percent of the alumina needed to build huge infrastructure projects from highways to power grids to airports.

Earlier this month, China's largest nickel producer, Jinchuan Group Ltd, bought Mexico's biggest untapped copper-zinc deposit from Canadian company Tyler Resources Inc , the latest in a spate of acquisitions across the region.

China has invested billions of dollars in Africa in recent years but civil war, coups d'etat, lack of infrastructure and disease hinder mining companies there. Latin America, by contrast, has a long mining history and a well-developed regulatory framework to deal with foreign companies, making it a "natural hunting ground" for Chinese investors, said mining analyst Charles Kernot from investment bank Seymour Pierce.

"Latin America is very attractive given the geological potential and the ability to transport straight across the Pacific Ocean," said Kernot.

"The logistics are easier than trying to get stuff out of central Africa," he said. Chinese state-owned companies can open new mines at up to 50 percent less cost than Western companies, importing everything from Chinese-made vehicles to lower-paid, highly experienced engineers, giving them an advantage in these emerging markets.

Beijing's foreign reserves of $1.3 trillion give state-owned companies a massive war chest, allowing them to buy up companies as they gain experience in the sector and graduate from earlier joint ventures.


But with dwindling mineral resources around the world, China has already bought some of the biggest remaining targets in Latin America this past year. In December, China's Minmetals and Jiangxi Copper acquired Canadian miner Northern Peru Copper Corp for about $450 million, the third time last year that Chinese miners bought assets in Peru.

Aluminum Corp of China (Chalco) agreed in June to pay $790 million for Peru Copper, owner of the Toromocho property, which could be one of the country's largest copper mines by 2011 or 2012.

"These are the types of projects where if the Chinese put in the infrastructure they are going to reap the rewards for some time," said Vaughan Wickins, an analyst at Standard Bank in London.

"With their demand requirements there is no point in them going out and securing a couple 100,000 tonne copper operations, they need some big resources," said Wickins, whose bank has advised Chinese companies interested in buying Latin American assets.

The Jinchuan Group is currently in talks with Petaquilla Minerals about its project in Panama, one of the largest undeveloped copper properties in the world, said a Petaquilla spokesman.

Tyler's Bahuerachi project in northern Mexico has an estimated resource of over 500 million tonnes of metal and will cost about $600 million to develop, said the company's chief executive, Jean Pierre Jutras.

"I think what Jinchuan saw in Mexico made them very optimistic ... that the climate in Mexico may be very favorable for expanded activities," said Jutras. But investing in Latin America, while not as risky as Africa, could potentially be complicated for Chinese companies.

Mining projects in the region have been plagued by labor disputes and environmental complaints from local communities. "The last thing the local population would want would be boatloads of Chinese workers coming over to operate mines," said Kernot.

"If you are going to use a local work force you will have to be subject to all the local rules and regulations," he said. Striking miners have shut down mines in Mexico repeatedly over the past couple of years, costing the industry some $2.4 billion, according to the country's mining chamber. And Latin American locals are wary of Chinese mining companies operating with poor environmental practices.

Last September, three towns in northern Peru voted to reject the $1.4 billion development of the Rio Blanco copper project by China's Zijin Mining Group's , fearing the company would pollute the area's rich agricultural lands. Peru's government is siding with the company in the dispute, but concerns from indigenous communities in the region have forced foreign miners to scrap mining projects in the past.

(Additional reporting by Lucy Hornby in Beijing and Terry Wade in Peru; editing by Matthew Lewis)

Minmetals-Jiangxi Copper JV acquires NPC

A Minmetals-Jiangxi Copper joint venture has successfully won the bid to fully acquire Northern Peru Copper (NPC), after NPC shareholders holding 95.92 percent of outstanding shares agreed to the acquisition, Minmetals informed Interfax Tuesday.

The Minmetals-Jiangxi Copper joint venture, named Copper Bridge Acquisition Corp., will automatically acquire the remaining 4.08 percent stake in NPC within two months, as the 95.92 percent consent from shareholders exceeds the required 66.67 percent minimum.

Approval from relevant government authorities has already been obtained.

The NPC takeover represents a large step forward for Minmetals and Jiangxi Copper's overseas expansions, and will help relieve China's tight copper concentrate supply, according to Minmetals.

NPC is a Vancouver and Lima-based copper exploration company and controls the Galeno copper, gold and molybdenum project.

The Minmetals-Jiangxi Copper joint venture, in which Jiangxi Copper holds a 40 percent stake, will only formally acquire NPC after completing all the required acquisition procedures, and will then proceed with the construction of the Galeno copper mine, as well as exploration work on the Hiloraco gold mine and Pashpap copper and zinc mine in the northern Peru.

The Galeno copper mine, located in northern Peru's Yanacocha mining district, contains proven reserves of 7.41 million tons of copper, 165.7 tons of gold, 4981.7 tons of silver and 201,000 tons of molybdenum. Mine construction requires an investment of $1.5 billion, and is scheduled to commence production by 2012, with an initial capacity of 200,000 tons of copper metal content ore per year for the first five years. The mine has been designed with a 20-year lifespan.

The Pashpap copper and zinc mine contains 635,000 tons of proven copper reserves, while the Hiloraco gold mine contains 32.4 tons of proven gold reserves. Jiangxi Copper intends to finance the NPC acquisition and project development with RMB 1.3 billion ($180.56 million) raised through a proposed bond and warrant issuance, the company announced on Jan. 22, 2008.

If the proposed bond and warrant issuance does not take place on schedule, Jiangxi Copper will initially finance the project through internal funds and bank loans, which will be paid back through project proceeds.

source: Interfax China Mining and Metals, 1 February 2008

Zhongjin Lingnan teams up with Antam to fully acquire Herald Resources

Shenzhen-listed Zhongjin Lingnan Nonferrous Metals Co. Ltd. announced Wednesday that the company has teamed up with Indonesian-based PT Antam Tbk to acquire a 100 percent stake in Australian-listed Herald Resources Ltd. in order to gain access to the company's lead and zinc reserves.

Zhongjin Lingnan and Antam launched a joint offer to purchase all of Herald Resources' 202 million issued shares at a per-share-price of AUD 2.5 ($2.22), making the total consideration worth AUD 504.8 million ($448.26 million).

Herald Resources directors said they have agreed to accept the offer if no better offer emerges.

In line with Australian corporate law, Zhongjin Lingnan and Antam will set up a joint-venture company to execute the acquisition, in which Zhongjin Lingnan will hold a controlling 60 percent stake and Antam, the remaining 40 percent.

Herald Resources' main assets include the Dairi project located in Northern Sumatra in Indonesia, which contains 5.4 million tons of proven ore reserves, with zinc at grade 16.5 percent and lead at grade 10.2 percent.

Herald Resources currently owns an 80 percent stake in the Dairi project, while Antam owns the remaining 20 percent. Upon completion of the stake acquisition, Antam and Zhongjin Lingnan will each have access to 52 percent and 48 percent, respectively, of the Dairi project.

Antam, which is listed on both the Jakarta and Australian stock exchanges, is an Indonesian state-controlled company that specializes in nickel and gold mining. Zhongjin Lingnan suspended share trading Tuesday and has not resumed to date. Company stock fell by the daily limit to close at RMB 35.08 ($4.87) on Monday.

Australia remains China's largest iron ore supplier in 2007

source: Interfax China Mining and Metals

1st February 2008

China's iron ore imports from Australia increased 14.81 percent year-on-year to 145.61 million tons in 2007, accounting for 38.01 percent of the country's total iron ore imports over the year, and allowing Australia to maintain its lead as the largest single iron ore exporter to China.

The runners up included Brazil, India and South Africa, who exported 97.63 million tons, 79.37 million tons and 12.23 million tons respectively, to China in 2007.

Significant, though considerably behind these suppliers (exporting less than 6 million tonnes) were Canada, Russia, Iran, Peru, and Indonesia

The data comes from China's General Administration of Customs


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