MAC/20: Mines and Communities

China' s prospects

Published by MAC on 2009-02-10

The vital importance of Chinese minerals' demand to the "health" of the mining industry in these "troubled times" is indisputable. So is the the degree to which its domestic firms can export finished, or semi-finished, metallic products.

During 2008 the overall balance of this trade offered a mixed picture, according to data released last month by the regime's customs authority.

However, there is little doubt that Australia, India and (so far as nickel is concerned) Indonesia, lead the way in providing both ore and refined concentrates of the leading ferrous and non-ferrous metals.

Pursuing the recent state strategy of directly accessing raw materials through ownership, last week a Chinese company was given the go-ahead by Australian's government to bid for control of major zinc-lead producer, Perilya.

At the same time, Chinalco entered talks with debt-ridden Rio Tinto over raising its equity in the UK-Australian giant to just under 20%, thereby increasing security in provision of iron ore and inputs to aluminium .

While Africa has long been cited as the key target region for China's mining companies, in recent months they have shied away from making major commitments on the continent, in either cash or equity.


China's bauxite-aluminium trades during 2008

Key points:

* China's imports of primary aluminium rose by nearly 10% during 2008

* By far the biggest single supplier was Russia, with Australia a long way behind, followed by India

* However, Australia was, by a long margin, the most important provider of alumina (refined bauxite) - at just under 4 million tones, followed by India with two thirds of a million tonnes

* Indonesia was the pre-eminent supplier of bauxite (just over 17 million tonnes), followed by Australia (around 5 million tonnes) and India (3.5 million tonnes)


China's primary aluminium imports up 9.23 % year-on-year in 2008

China's primary aluminum imports in 2008 grew by 9.23 percent year-on-year, after December imports jumped significantly from that of November, according to General Administration of Customs statistics released on Jan. 22.

China imported 13,509 tons of primary aluminum in December, soaring 110.16 percent from the previous month, bringing the country's total imports in 2008 to 121,642 tons.
Imports of alumina over the 12-month period dropped by 10.51 percent year-on-year to 4.59 million tons, while imports for December alone climbed by 15.46 percent month-on-month to 435,401 tons.

Bauxite imports decreased by 5.87 percent from November to 1.31 million tons in December, while imports in 2008 came to 25.79 million tons, up 11.13 percent on an annual basis.

Source: Interfax China Metals and Mining, 23 January 2009


Basic data on Chinese trade in nickel, lead, zinc (and tin)

Key points:

* Nickel, lead and zinc imports to China - in both concentrate and refined forms - measurably increased during 2008, over the previous year

* Indonesia was the premier supplier of nickel ore and concentrates - at 7.4 million tonnes this was nearly double supply from the Philippines at just over 4 million tonnes.

* Nickel ore and concentrates supply to China from the Philippines fell by a half during 2008, over the previous year

* Overall, nickel concentrate imports to China fell by a fifth during 2008

* While the biggest supplier of refined lead was Australia, the US, followed by Peru and Australia were the largest suppliers of lead concentrate

* Chinese exports of refined nickel, lead, zinc and tin toppled, variously, by between 61% and 97% during 2008


 

China's refined lead, zinc and nickel imports rise in 2008, exports tumble

China's imports of lead and zinc in both refined and concentrate forms, as well as refined nickel, all recorded year-on-year growths in 2008, while the country's exports of refined lead, zinc, nickel and tin over the same period tumbled, according to figures released by the General Administration of Customs on Jan. 22.

China imported a total of 30,913 tons of refined lead over the 12-month period, up 23.41 percent year-on-year, while the country's imports of lead concentrate grew by 14.2 percent.

However, Chinese exports of refined lead fell by 85.78 percent to 33,609 tons in 2008.

In 2008, refined zinc imports, at 183,384 tons, increased by 22.67 percent year-on-year, and imports of zinc concentrate grew by 10.65 percent when compared to the previous year. The country's exports of refined zinc slumped by 74.13 percent year-on-year to 71,318 tons.

Imports of refined nickel came to 118,103 tons in 2008, up 12.16 percent on an annual basis, while nickel concentrate imports decreased by 20.61 percent year-on-year to 12.32 million tons. Exports of refined nickel plummeted by 61.3 percent year-on-year to 6,552 tons in the period.

Meanwhile, refined tin imports decreased by 21.62 percent year-on-year to 13,220 tons in the 12-month period and tin concentrate imports dropped by 65.42 percent year-on-year to 7,154 tons. Refined tin exports plummeted by 97.63 percent year-on-year to 559 tons in the period.

Source: Interfax China Metals and Mining, 23 January 2009


Australia allows Chinese purchase of controlling interest in major zinc miner

China's Zhongjin is to be allowed to buy 50.1% of struggling Australian zinc miner, Perilya.

REUTERS

5 FEBRUARY 2009

SYDNEY/SHANGHAI Australia on Thursday cleared China's Shenzhen Zhongjin Lingnan Nonfemet.SZ to buy a controlling stake in outback zinc miner Perilya, making it the latest Chinese firm to eye Australian mine assets.

Zhongjin, China's third-largest zinc producer, and Perilya said the approval by Australia's Foreign Investment Review Board would allow the Chinese group to proceed with a A$45.5-million offer to buy a 50.1 percent stake in Perilya, a medium-sized zinc and lead miner wrestling with low metals prices and undergoing a major revamp to boost profitability.

The move, endorsed by Perilya's board and approved by shareholders at a special meeting on Thursday, could lead to hundreds of thousands of tonnes of zinc and lead-bearing ore concentrates being shipped to China for smelting, starting as soon as 2010, Perilya Managing Director Paul Arndt said.

Korea Zinc Co holds a supply contract for Perilya's zinc until 2012, though a deal for supplies of lead going to Belgium-listed Nyrstar expires in December.

Perilya shares, which have mostly traded downward since mid- December, gained as much as 15 percent before backtracking to close a half-cent stronger at 17.5 Australian cents.

Zhongjin President Zhang Shuijian told a teleconference through an interpreter that his company was not immediately in the market for further purchases in Australia, but would "keep an open mind" over any future acquisitions.

The Foreign Investment Board, answerable to the Federal Treasurer, recently gave a green light to Chinese aluminium group Chinalco to lift its stake in Rio Tinto to 14.99 percent from 9 percent and also has allowed Chinese companies to partner Australian iron ore miners.

Some analysts say Australia is softening its stance on foreign ownership of mines ever since the commodities boom turned to bust in mid-2008, but the government says its policy has not changed.

The treasurer, Wayne Swan, this month said that while Australia welcomed foreign investment, outsiders must first pass a "national interest test."
Perilya this year joined a growing number of miners that include fellow Australian Oz Minerals and Canada's Teck Cominco feeling the heat from a dramatic drop in metals prices that has seen zinc lose 51 percent in the last year.

Mining of ore this year by Perilya from its Broken Hill deposit will almost halve to 950,000 tonnes from 1.8 million tonnes last year, a level forecast to yield 55,000 tonnes of zinc and 50,000 tonnes of lead. ($1=1.56 Australian dollar) (Reporting by James Regan in Sydney and Alfred Cang in Shanghai; Editing by Clarence Fernandez)
© Thomson Reuters 2008. All rights reserved.


China's iron imports in 2008: Australia and India lead the way

Key point:

* More than 40% of China's iron ore imports, during 2008, derived from Australia - with India very close behind, followed by Brazil, South Africa and Peru.

China imports 183.36 mln tons of Aussie iron ore in 2008

Australia's iron ore shipments to China grew by 25.93 percent on an annual basis to 183.36 million tons in 2008, accounting for 41.33 percent of China's total iron ore imports over the period and making it China's largest supplier, according to statistics released by the General Administration of Customs on Feb. 2.

China's other significant iron ore suppliers in 2008 were Brazil, India, South Africa and the Ukraine, which exports amounted to 100.62 million tons, 91 million tons, 14.34 million tons and 7.05 million tons respectively.

In December alone, China's iron ore imports reached 34.53 million tons, growing by 6.17 percent from November. Over the month, China's imports of Indian iron ore surged by 151.03 percent from the previous month to 10.19 million tons. This was mainly due to increased demand from small and medium-sized Chinese steel mills, which recently resumed production, while contract Australian and Brazilian ore imports experienced a month-on-month decline.

Source: Interfax China Metals and Mining, 23 January 2009


China looks to African metals and minerals for the long term

Chinese investment is replacing that from the West in many key sectors, especially with regard to metals. Minerals and energy and Chinese businesses are prepared to take the long term view.

Alistair Thomson

Reuters

2 February 2009

DAKAR - Chinese businessmen are taking a long-term view and pursuing strategic expansion in Africa even though China's multiplying investments on the continent have lost some luster in the global downturn.

Beijing and Chinese companies have pledged tens of billions of dollars to Africa in loans and investments mostly to secure raw materials for the world's fastest-growing large economy.

That long-term interest remains intact, despite a worldwide economic slump that has hit China's exports to the rich world and a sharp decline in Africa's mineral shipments to China.
China-Africa trade has surged by an average 30 percent a year this decade, soaring to nearly $107 billion in 2008.

"China is in Africa for the long term, and strategically," said David Shinn, a former U.S. ambassador to Ethiopia and Burkina Faso who teaches at George Washington University's Elliott School of International Affairs.

"They will not veer from this, in my view," he said.

Far from retreating, many Chinese businessmen are hunting for bargains.
Chinese and Indian firms have expressed interest in taking over Zambia's top cobalt producer Luanshya Copper Mines since it halted operations in December, Zambian state media reported.

South Africa's Standard Bank, itself 20 percent owned by the Industrial and Commercial Bank of China (ICBC), said last month it was advising Chinese mining clients on buying opportunities in Africa and elsewhere.

"They are looking at 2009 and saying 'This is a time we see as a very big buying opportunity. We've got the backing from government, we've got the financial means'," Thys Terblanche, the bank's head of mining and metals investment banking, told Reuters.

Beyond mining, Chinese state companies are pushing ahead with strategic energy sector investments and infrastructure; private outfits are continuing to expand in technology areas.
"Some developed Western countries hit by the financial crisis are reducing their investment in Africa. Objectively, this is a powerful opportunity for Chinese businesses to expand their investment and market share in Africa," Cui Yongqian, a former Chinese ambassador to the Republic of Congo and Central African Republic, told a China-Africa trade forum this month.
Trade with Angola, China's biggest source of African crude oil, reached $25.3 billion in 2007 and Beijing has offered Luanda $5 billion in oil-backed loans.

Shenzhen-based Huawei Technologies, China's biggest telecoms equipment maker, is pushing south from its established stamping ground in North Africa.

"I see no reason why they would want to decrease their investments in the telecommunications sector, because that's profitable for them," said George Washington University's Shinn.

"It will vary according to sector and country ... It's very dangerous to generalize about the China-Africa relationship," he said. "They will certainly make tactical retreats where the economy requires it."

LONG-TERM VIEW

Even China's slower economic growth far outpaces that of other major economies. Beijing says it can achieve 8 percent growth in 2009. The IMF says it may cut its forecast to about 5 percent, from the 9 percent it predicted in October.

While competitors lay off workers and delay new projects, China Non-Ferrous Metals Corporation is opening a copper smelter this month in Chambishi town, which Zambia has transformed into a tax-free economic zone to attract Chinese investment.

Zambian President Rupiah Banda and China's Trade Minister Cheng Deming launched a second economic zone this month near the capital Lusaka, where Chinese firms will assemble electrical goods such as television sets and cellphones for export.
"Zambia is still an attractive investment destination (and this will give) confidence to existing firms operating here not to start scaling down their operations," Banda said.
Zambia's Copper Belt is witnessing a growth in Chinese deals.

"In Zambia, mining investment is large-scale and long-term," said Xing Houyuan, director of multinational business at China's Academy of International Trade and Economic Cooperation, which is affiliated to Beijing's Commerce Ministry.

"I don't see any likelihood of a pullback ... Companies won't give up investment plans because of the short term. The biggest impact is likely to be on projects that are still in the planning stage, where the money had not really been committed yet," Xing said.
In Liberia, China Union has just signed a $2.6 billion contract to develop the Bong iron ore deposit.

CONGO AND GUINEA

China also insists the slowdown will not dampen interest.

"We will continue to have a vigorous aid program here and Chinese companies will continue to invest as much as possible in Africa because it is a win-win solution," Chinese Foreign Minister Yang Jiechi said in South Africa in mid-January.

However, the global slowdown has forced some Chinese businesses to close operations in Africa and prompted a re-think of some of the multi-billion-dollar mega-deals that blazed a trail across the world's poorest continent.

Democratic Republic of Congo and Guinea are cases in point.

DR Congo rode the boom in commodities to attract a wave of foreign investment in its rich but long-neglected copper, cobalt, gold and other mineral resources after post-war elections in 2006. Now that dream is fading.

"We have one processing mill and several workshops in Congo. We have closed them. There are many Chinese-invested firms in Congo and I understand most of them have shut down their operations," said a marketing director at a private firm in China's eastern province of Zhejiang, which supplies cobalt and nickel compounds for use in mobile phone batteries.

"I don't think we will resume production in the factories in Congo any time soon. We expect the economic slowdown could worsen in this year and weigh on the prices further," he said, requesting anonymity because he was not authorized to speak to the media.
Africa's heavy dependence on resource exports means it feels any squeeze more painfully. Global trade fell an annualized 3.7 percent between September 2008 and November last year, its biggest drop since 2001.
Congo's franc has fallen 20 percent against the dollar in less than four months and foreign reserves are at a five-year low. The government is seeking a $200 million bailout from the International Monetary Fund's Exogenous Shocks Facility.

A much-trumpeted $9 billion package of Chinese loans, investment and infrastructure projects in return for Congolese minerals contracts may be cut back to $6 billion, a diplomat in Kinshasa said, partly to appease the IMF which has expressed voiced concern at Congo taking on such huge debts.

Guinea, the world's top exporter of bauxite aluminum ore, had hoped for its own multi-billion-dollar deal with China to build hydropower dams, roads and bridges in return for mines.

Talks have dragged as the economic climate has worsened, hampered by Guinea's instability and a coup last month after the death of President Lansana Conte, said Ahmed Tidiane Diallo, director-general for mining projects at the Mines Ministry.

Gabon, similarly eager to cement a 1.6 trillion CFA franc ($3 billion) contract to develop the 360-million-tonne Belinga iron ore deposit, has accused its Chinese partners of dragging their feet amid the uncertain economic environment.

(Additional reporting by Joe Bavier in Kinshasa, Saliou Samb in Conakry, Eric Onstad in London, David Lewis in Dakar, Lucy Hornby and Chris Buckley in Beijing, Moumine Ngarmbassa in N'Djamena, Antoine Lawson in Libreville, Alfred Cang in Shanghai, Mabvuto Banda in Lilongwe, Daniel Wallis in Nairobi; Editing by Louise Ireland and Pascal Fletcher)

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