MAC: Mines and Communities

The Chinese are coming - but perhaps not where you might expect

Published by MAC on 2009-07-20

No one can confidently predict the long-term prospects for global revival of the ferrous and non-ferrous metals sectors. "Analysts" send out mixed signals; some of which are manifestly intended as a boost to investor confidence, while others continue warning against optimism while the unprecedented meltdown in actual demand for metals - in infrastructure, other construction projects, and for transportation - continues.

But China's mining companies are taking full advantage of the current current "bear" (buyers') market and have been acquiring further significant stakes in overseas mines and mineral projects. It is logical to see this "new wave" of foreign forays as, at least a partial, response to the state's recent problems in securing a pre-eminent hold over iron ore stocks.

Between May and the end of July, China's Iron and Steel Association (CISA) - the world's leading purchaser of iron ore - tried to reduce the cost of these imports, but didn't succeed.

Not only is the association organisationally weak; as well as contending with pressures from the Big Three producers (Vale, Rio Tinto and BHP Billiton), CISA also had to view with its own private steel mill owners. And these apparently made individual agreements with suppliers who were prepared to pay so-called "spot" market prices, at higher rates than CISA was pushing for.

Iron will?

The extent to which these negotiations triggered the arrests on July 5th of four Rio Tinto executives, allegedly for espionage, has become the stuff of sometimes wild accusation and counter-accusation. [See this week's London Calling].

But, in the longer term, what's more important than such jousting is that, over the past two months months, Chinese companies have quietly been securing, or increasing, their stakes in Australian iron ore companies, as well as a major Brazilian producer and another in Canada.

This strategy is par for a well-established course - one laid down in earnest around 2002. Contrary to common perceptions, Chinese entrepreneurs and miners are not implacably glued to targeting Africa or Latin America.

In the near future at least, it is the mineral-rich territories "down under" on which they are focusing most attention.

State-owned Chinalco recently suffered a major setback when rejected by Rio Tinto (effectively by the company's institutional shareholders) for what would have been the most significant Chinese overseas investment to date.

The deal would have given Chinalco a significant toehold on the world's second largest operating iron ore region, Australia's Pilbara. The blow was hardly softened by Chinalco being able to take up its full entitlement to a new Rio Tinto share rights issue.

The impending joint venture between Rio Tinto and BHP Billiton undoubtedly poses a threat to China's market fortunes. (However, it should be remembered that China's own ferrous mines are massive producers, albeit of lower-grade ore.) Again, whether that prospect played a key role in the state's arrests of Rio Tinto staff, earlier this month, is open to speculation.

Nonetheless, there are plenty of other smaller producers still out there and which are being eyed by firms from the Peoples' Republic.

Not least among these is the Fortescue Metals Group, ranking fourth in the global iron hierarchy, in which China's Valin corporation already has the leading stake.

Just a fortnight ago, Fortescue's chief executive welcomed the possibility that Sovereign Wealth Fund, the Chinese Investment Corp (CIC) might pump further funds into the Australian company.

Copper claims

Although industry commentaries currently centre their attention on the fortunes of iron, the more important recent Sino-related exploits relate to copper, cobalt and nonferrous metals.

The CIC looks likely to acquire a 17.2 percent equity stake in Canada's leading diversified mining corporation, Teck, along with .voting rights of 6.7% (small but significant, nonetheless).

Additionally, the China Nonferrous Metal Mining (Group) is about to take a controlling stake in one of Africa's most important copper ventures, thus further advancing its grip on the copper-cobalt outfit, Chambisi Metals plc. (The UK involvement in both these companies is noted below.)

So - Chinese eyes haven't turned away from Africa, nor indeed from South America; indeed, last year's most important corporate copper forays by the Peoples' Republic were in Peru.

But, for the moment at any rate, the field of combat is firmly located in Australia and Canada where the regime seems to recognise that it will get a far less critical reception than in many other countries.

And that's notwithstanding the current spat between the regime and Rio Tinto.

[Comment by Nostromo Research, 18 July 2009]

CNMC to buy controlling stake in Zambia's Luanshya Copper Mines

Interfax China Metals and Mining

12 June 2009

China Nonferrous Metal Mining (Group) Co. Ltd. (CNMC) has entered into an agreement with Enya Group * (see note) and the Zambian government to acquire a controlling stake in Zambia-based Luanshya Copper Mines (LCM), according to a state-run media report on June 7.

An industry insider, who asked to remain anonymous, told Interfax on June 8 that CNMC previously planned to hold an 85 percent share in LCM on completion of the deal, while the Zambian government would retain a 15 percent stake. However, the Zambian government may now want to increase its shareholdings to 35 percent.

LCM, which has an annual production capacity of 1.65 million tons of copper ore, suspended output in January 2009 due to the global economic downturn and plummeting copper prices from $8,000 per ton to $3,000 per ton, Xinhua news agency reported. It said CNMC will resume production at LCM shortly.

According to the local Lusaka Times newspaper, CNMC will invest over $400 million in re-opening the Baluba Mine and developing the Milyashi project, both of which are run by LCM.

CNMC officials were unavailable for comment when reached by Interfax on June 8.

On May 8, 2009, the Zambian government announced that CNMC had won the bid to invest in LCM, and later carried out talks with CNMC to hammer out an agreement.

The Zambian government, through Zambia Consolidated Copper Mines-Investment Holdings Plc (ZCCM-IH), owns a 15 percent stake in LCM, while Enya Group holds the remaining majority.

CNMC, which is engaged in the development of nonferrous metals resources in China and abroad, has been operating in Zambia ever since taking over of the Chambishi Copper Mine in 1998.

Zambia is the largest copper producing country in Africa, and the fourth-largest in the world. Its copper output reached 600,000 tons in 2008.

* Nostromo Research comments: Not only has British-based Enya Holdings BV now secured a critical partnership with China's Nonferrous Metals Mining Group (CNMC) in the Luanshya joint venture (potentially one of the biggest copper miners in Africa). Enya, in June 2009, also announced that it would operate Zambia's top cobalt producer, London-listed Chambishi Metals plc. It appears likely that the Zambian government will not increase its stake in Chambishi from its current 15% , especially in the light of "predictions" that the current low price of copper will not rise in the near-term.

According to Zambia's mining minister, Chambisi's eponymous smelter will source its cobalt from copper imported from DR Congo [see: Reuters, 26 June 2009]

Zambian govt unlikely to raise stake in Chinese-controlled copper mine

Interfax China M&M,

19 June 2009

The Zambian government is unlikely to increase its holding in China Nonferrous Metals Mining (Group) Co. Ltd.'s (CNMC) 5 million-ton Chambishi Copper Mine, which is located in Zambia, a CNMC employee told Interfax on June 18.

"The Zambian government previously expressed an interest in increasing its stake in domestic copper mines as copper prices have rebounded, but I believe that as copper prices are set to fall in the third quarter, they will shelve that plan. In addition, the Zambian government is now not in a position to change the stake holding structure as we have signed an agreement," Liang Boyi, a senior employee from CNMC, told Interfax at the Nonferrous Metals Mining Forum 2009 in Guizhou Province's Guiyang City.

According to previous foreign media reports, the Zambian government said it will increase its stakes in all foreign-owned copper mines in Zambia to between 25 percent and 35 percent from the current level of around 15 percent in order to exercise more influence in their operation, as it is concerned about possible mine closures and the resulting job cuts.

Currently, CNMC hold an 85 percent stake in the Chambishi Copper Mine, while the Zambian government hold a 15 percent stake, according to Liang.

Furthermore, analyst Li Yusheng from Beijing Antaike Information predicts that copper prices on the London Metal Exchange (LME) are likely to fall to $3,700 per ton in the third quarter of this year, as that period traditionally experiences slack global copper demand from both the air-conditioning and electric wire producing industries.

The three-month LME copper contract price ended at $4,970 per ton on June 18, 0.2 percent up from the previous trading day.


China's copper imports keep rolling in

David Pett

Financial Post

10 July 2009

Reports that China will slow down copper imports appear to be wildly exaggerated based on the latest data from China General Administration of Custom.

In June, the country's imports of unwrought copper and semi-finished copper products were 475,999 tonnes. an all-time record. It is the fifth straight month that imports of unwrought and semi-finished copper products have increased.

"For the last three months, reports have suggested that China will decrease its imports of copper, but each month, China announces increases in copper imports," said Hendrik Visagle, Octagon Capital analyst.

"Recently, it was rumoured that 100,000 tonnes of copper was going to be shipped out of China and onto the [London Metals Exchange] because China had overbought; even if this is true, nothing has shown up in the LME statistics so far."

Outside of China, Mr. Visagle said copper demand has been muted, "with consumers at first destocking and now living hand-to-mouth in the face of rising copper prices."

He expects copper prices to be very choppy and move sideways over the short term, but doesn't anticipate the huge oversupply in copper that other forecaster are predicting. He maintained his $2.50 per pound copper prices estimate for 2009.

"We believe that China will continue with robust demand, and that consumption outside of China will pick up after the summer period, when consumers begin restocking," he wrote.

BHP/Rio venture boosts Fortescue fortunes

By Denny Thomas, Reuters

7 July 2009

* China seen funding Fortescue's expansion
* Asset JVs, convertible bonds likely way to raise funds
* Unlikely to issue equity
* CIC most likely investor to offer funding )

SYDNEY - As BHP Billiton and Rio Tinto focus on delivering $10 billion in savings from their iron ore venture, Fortescue Metals Group Ltd hopes to get a favourable funding deal for its aggressive growth plans.
BHP-Rio's $116 billion iron ore venture effectively means Chinese and other Asian steel mills have one less major iron ore supplier to deal with, giving steel mills less clout in annual price negotiations.

Fortescue, a distant No.4 iron ore miner, behind Brazil's Vale, Rio and BHP, is seen as an indirect beneficiary of the BHP-Rio deal. Investors have snapped up the stock betting that Fortescue could extract a better bargain from Chinese firms who are keen to lower their reliance on BHP and Rio.

The BHP-Rio deal raises the probability of China financing Fortescue's expansion, with China Investment Corp, a sovereign wealth fund being advised by Deutsche Bank, the most likely investor to offer funding, sources said.

Fortescue would need $5.2 billion to more than double its annual output to 120 million tonnes in a next expansion phase, CLSA estimates. Fortescue is forecast to ship 26 million tonnes in fiscal 2009.

But Fortescue founder and CEO Andrew Forrest is in no mood to issue further equity and dilute his holding, sources close to Forrest told Reuters.

"To fund major expansion, they would sell down assets in a joint venture structure because that is a preferred option for a buyer as well," said one source familiar with Fortescue's thinking.

Fortescue's spokesman was not available for comment.

Fortescue raised about $826 million by selling a 17.4 percent stake to China's Hunan Valin Iron and Steel earlier this year, but the source said a new equity deal with another Chinese entity was unlikely.

"Andrew (Forrest) hates selling equity... The deal with Valin was done because they had an ongoing expansion to fund," the source added.

"They get far better value by selling down assets, rather than selling down equity. It's almost certain the next lot of capital they raise would be at the asset level," the source said.


In just over a month since BHP and Rio joined hands, Fortescue shares have gained about a quarter, while the benchmark S&P/ASX 200 index .AXJO is down about 4 percent, giving Fortescue a market value of $8.4 billion.
Fund managers say China's steel mills would do everything possible to end BHP/Rio's dominance on the iron ore market.

Rio's decision to walk away from an agreed but controversial $19.5 billion cash infusion by China's state-owned Chinalco is another reason why China could ink a funding deal with Fortescue.

"Clearly the Chinese are not happy and Andrew (Forrest) will try to take advantage of that. Whether he'll be successful or not is to be seen," the source said.

Prior to selling a stake to Valin, several companies including Anglo American and CIC had held talks with Fortescue about either buying an equity stake or for an asset joint venture. "People are saying there's a business case for other iron ore players in Pilbara. Clearly China is going to want to promote independent iron ore players," said another source, who is close to a potential Chinese investor.

The sources declined to be identified as the discussions were confidential.

But not all agree that an asset joint venture is the only way to go forward.

"Andrew (Forrest) does not mind taking on cheap finance that is available in China to fund his growth. And the Chinese will tend not to go at a straight senior debt level, but they will look at preferred equity or convertible (bonds)," the second source said. ($1=A$1.26)

(Editing by Dhara Ranasinghe) (; +61 2 9373 1812; Reuters Messaging:

NFC's proposed investment in Australian zinc miner clears final regulatory hurdles

Interfax China Metals and Mining (abridged)

10 July 2009

China Nonferrous Metal Industry's Foreign Engineering and Construction Co. Ltd. (NFC) has received the last two regulatory approvals for its proposed AUD 10 million ($7.95 million) investment into zinc miner Terramin Australia Ltd., NFC announced on July 4.

Go-aheads from Australia's Foreign Investment Review Board (FIRB) and China's National Development and Reform Commission were received in early June.

According to an agreement signed between the two companies in March 2009, Terramin will issue 15.5 million new shares at AUD 0.65 ($0.52) per share to NFC, which will make it the largest shareholder in the Australian zinc miner with an 11.22 percent stake.

Terramin has total zinc and lead resources of 4.05 million tons, measured by metal content, at its Angas Zinc Mine in South Australia and the Tala Hamza zinc and lead deposit in Algeria.

CIC to buy 17.2 pct stake in Canadian miner

Interfax China M&M

10 July 2009

China Investment Corp. (CIC) announced on July 3 that it inked an agreement to invest CAD 1.74 billion ($1.50 billion) into Canadian miner Teck Resources Ltd. in exchange for a 17.2 percent equity stake with a 6.7 percent voting right.

According to the announcement, CIC will buy 101.30 million class B shares for CAD 17.21 ($14.81) per share through its wholly-owned subsidiary Fullbloom Investment Corp. from Teck through a private placement. The transaction is expected to be completed by around July 14, 2009 and is subject to applicable stock exchange and other regulatory approvals.

CIC said its proposed acquisition of the class B shares is solely for investment purposes and has agreed to hold the purchased shares for at least one year following the closure of the deal.

Scotia Capital Inc. is the financial adviser and Torys LLP is the legal adviser to CIC for this transaction.

"This transaction will have an immediate and very positive effect on Teck's balance sheet, and represents an attractive opportunity for Teck to establish a relationship with a major Chinese financial investor, with a deep understanding of China, the world's largest consumer of our principal products," Don Lindsay, president and CEO of Teck, was quoted as saying in the announcement.

CIC, a wholly state-owned company, is an investment institution engaged in making long-term investments in equity, fixed income and alternative assets.

Teck is Canada's largest diversified mining, mineral processing and metallurgical company, focusing on copper, metallurgical coal, zinc, gold and energy. The company either owns or has interests in 15 mines in Canada, the United States, Chile and Peru, as well as one metallurgical complex in Canada.

Guangdong Rising Assets gets FIRB approval to purchase PanAust stake

Interfax China M&M

3 July 2009

Australia's Foreign Investment Review Board (FIRB) has given Chinese state-owned Guangdong Rising Assets Management Co. Ltd. the go-ahead to buy a controlling stake in Australian Securities Exchange-listed copper miner PanAust Ltd., PanAust announced on June 30.

According to a previous Interfax report, Guangdong Rising Assets will pay $140 million for 460 million new shares to be issued by PanAust. After the transaction, Guangdong Rising Assets will hold a 19.9 percent controlling stake in the Australian copper miner.

Brisbane-based PanAust currently owns the Phu Kham copper and gold project, and the Phu Kham Heap Leach gold project in Laos as well as the Puthep copper project in Thailand.

PanAust plans to produce 65,000 tons of copper concentrate, measured by copper metal content, as well as up to 75,000 ounces of gold in 2009.

Renova Group, China National Gold Group plan to explore, mine Kamchatka gold and platinum

Interfax China M&M

3 July 2009

Renova Group plans to explore and mine gold and platinum deposits along the Kamchatka Peninsula [Russia] in conjunction with China National Gold Group Corp., Renova Group told Interfax.

The companies signed a memorandum of understanding on June 17 to further gold and platinum exploration, bolster reserves at fields and establish joint mining enterprises.
Renova Group said that as the agreement does not set down specific timeframes, both companies will meet to draft further proposals soon.

Renova Group owns Kamchatka Gold, which operates the Aginsky GOK mining enterprise with annual output of approximately 2 tons of gold, and Koryakgeoldobycha, which mines platinum.

Kamchatka Gold plans to establish several other mining enterprises, and ramp gold production up to 8 tons in two or three years and 14 tons by 2015 to 2016. It has resources of 380 tons.

The Kamchatka region's natural resources ministry told Interfax that Koryakgeoldobycha had mined its first 100 kilograms of placer platinum and is targeting 826 kg this year. It is currently panning at two sites, Ledyanoi and Levtyrinyvayam.

Wah Nam buys 11.3 pct stake in Australian iron ore miner

Interfax China M&M

26 June 2009 (abridged)

Hong Kong Stock Exchange-listed Wah Nam International Holdings Ltd., which manages and operates toll roads and bridges in China, has purchased an 11.3 percent stake in Brockman Resources Ltd., a small-sized Australian iron ore miner, Brockman announced on June 25.

According to the announcement, Brockman is currently completing its pre-feasibility study on the Marillana project, and is planning to establish a mining operation there with annual iron ore production capacity of between 15 million tons and 25 million tons for a period of more than 25 years.

The Marillana project is one of Brockman's principal assets and has iron ore resources of 1.4 billion tons. It is based in the Pilbara region of Western Australia and estimated to produce in excess of 950 million tons of iron ore grading between 57.4 percent and 60 percent in its lifespan. The Marillana project is located close to existing rail, road and port infrastructure.

Brockman also has other nonferrous metal projects in Western Australia, including nickel, copper and cobalt.

WISCO makes offer to buy MMX stake

Interfax China M&M

26 June 2009

Wuhan Iron and Steel (Group) Corp. (WISCO), China's third-largest steel mill, has offered to acquire minority stakes in Brazilian iron ore miner MMX Mineracao e Metalicos S.A. (MMX) and its subsidiary through new share issues, MMX announced on June 23.

According to the non-binding offer, WISCO will acquire a 9.09 percent stake in MMX for $120 million, and a 23 percent stake in MMX's subsidiary MMX Sudeste Mineracao S.A. for $280 million.

MMX said in the announcement that it would simultaneously negotiate a long-term offtake agreement for MMX Sudeste to supply iron ore to WISCO.

A WISCO employee, surnamed Bai, previously told Interfax that the company was in talks with a Brazilian iron ore miner over a joint venture steel production facility in Brazil with annual production capacity of 5 million tons, and that the Brazilian miner is likely to supply iron ore to the plant.

An unnamed industry insider close to WISCO told Interfax on June 24 that WISCO's speculated steelworks project is with MMX, and that the two companies signed a memorandum of understanding in May 2009.

WISCO representatives were unavailable to comment when contacted by Interfax on June 24.

Angang's purchase of Gindalbie stake cleared by regulators

By Ginger Ding, Interfax China M&M

26 June 2009

Anshan Iron and Steel Group's (Angang) planned investment to increase its shareholdings in Australian Securities Exchange-listed Gindalbie Metals Ltd. has cleared its final regulatory hurdle after receiving the go-ahead by the Chinese government, Gindalbie announced June 23.

Approval from the Chinese government was the final condition required for Gindalbie to complete the AUD 162.06 million ($126.40 million) share placement to Angang, which is its 50:50 joint venture partner in the Karara Iron Ore Project in the Mid West region of Western Australia. The Australian Foreign Investment Review Board (FIRB) approved the deal on May 8, 2009.

On completion of the share placement, Angang's stake in Gindalbie will increase from 12.6 percent to 36 percent. It is expected the placement procedures will be completed within the next seven days.

Garret Dixon, managing director of Gindalbie, said in the announcement that Angang remains committed to the development of the Karara project, and has invested AUD 573 million ($446.92 million) into Gindalbie and the project. The project is awaiting ministerial land use approval with a view to beginning construction in the fourth quarter of 2009.

Apollo Minerals eying Chinese investment for iron ore deposit

Interfax China M&M

12 June 2009

Australian Securities Exchange-listed iron ore miner Apollo Minerals Ltd. has commenced talks with potential investors in China regarding its Mount Oscar iron ore deposit in Western Australia, according to a company announcement on June 9.

Apollo's executive director, Richard Sealy, said in the announcement that a number of Chinese parties have shown an interest in the project since the breakdown of the cooperation agreement between the Aluminum Corporation of China (Chinalco) and Rio Tinto, and projects such as Mount Oscar are being targeted as Chinese companies try to strengthen their iron ore resources in Australia.

Sealy added that he is optimistic that China will maintain its high iron ore demand, as the country's infrastructure development is set to continue for the foreseeable future.

The Mount Oscar iron ore deposit has estimated iron ore reserves of 800 million tons with a maximum grading of 51.9 percent.

WISCO to buy 19.99 pct stake in Canadian iron ore miner

Interfax China M&M

12 June 2009
Wuhan Iron and Steel (Group) Corp. (WISCO), China's third-largest steel mill, has signed an agreement to invest $240 million into Canada-based iron ore miner Consolidated Thompson Iron Mines Ltd. in exchange for a 19.99 percent stake and joint venture cooperation, Consolidated Thompson announced on June 9.

WISCO will buy 38.68 million common shares at a per-share price of CAD 2.72 ($2.46) for a total of CAD 105.21 million ($95.34 million).

WISCO's remaining investment will go towards establishing a joint venture with Consolidated Thompson to develop the Bloom Lake iron ore mine located in Canada's Quebec Province, in which WISCO will hold a 25 percent stake.

WISCO is obligated to purchase no less than 25 percent of the iron ore produced at the mine annually, and will be entitled to other long-term offtake rights to purchase additional iron ore, upon certain conditions, from the future expansion of the Bloom Lake project as well as the Lamelee and Peppler Lake projects.

The agreement is subject to approval from the Chinese government as well as the Toronto Stock Exchange. The agreed investment is expected to be completed by July 20, 2009.

Richard Quesnel, president and CEO of Consolidated Thompson, said in the announcement that the partnership with WISCO provides Consolidated Thompson with financial flexibility, and strengthens the company's potential to expand the current annual production capacity of the Bloom Lake mine from 8 million tons to 16 million tons of iron ore.





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