Demand for resources is driving Chinese mining companies overseas

As the worlds largest consumer of mineral raw materials, its no surprise that Chinas mining companies are following their international peers and starting to hunt for resources overseas.

By the end of last year, Chinas mining companies had invested $17.9 billion abroad about 19.8% of Chinas total foreign direct investment, according to Song Yufang, senior vice president of China Minmetals, speaking at the China Mining Conference, November 13-15.

After its failed, nearly $6 billion bid for Canadas Noranda in 2004, Chinas largest metals and minerals trading group signed a joint venture with Chiles state-owned Chilean National Copper Corporation, or Codelco.

According to Chinas news agency, Xinhua, the joint-venture operates as a vehicle for Minmetals to secure a long-term copper supply from Codelco.

Under the deal, Minmetals also has an option to acquire a minority interest in Codelcos Gaby copper project. Gaby is a copper oxide deposit just south of Codelcos Chuquicamata mine in northern Chile.

Minmetals has also set up a comprehensive cooperation framework with the government of Jamaica for the joint exploration and development of bauxite resources on the island nation in the Caribbean.

Last year Minmetals created a joint exploration company with Century Aluminium of the United States to move ahead with a number of exploration projects. It also signed a contract with the state-owned Bolivian Mining Resources and Metallurgical Department to jointly develop mineral resources in Bolivia.

Apart from Minmetals, China Nonferrous Metal Mining Group has invested $150 million in copper mining in Zambia.

Chinalco invested $2.2 billion in a bauxite mine in Australia, and bought Peru Copper for $792 million earlier this year.

Shenhua Energy, Chinas largest coal mining company, is planning to acquire coal mines in Australia and Indonesia. And Chinese steel companies, such as Baosteel and Angang have been actively investing abroad in iron ore mining, particularly in Australia. Sinosteel Mining has two smelter projects in South Africa and a mine and a smelter project in Zimbabwe.

China National Uranium, meanwhile, is developing two uranium exploration sites in the Agadez region of Niger. Production is scheduled to start in 2010, according to the China Brief a publication of the Washington-based think-tank, the Jamestown Foundation.

Its resource-rich Africa that has really become the major focus of Chinas reach overseas. The African continent which is still relatively under-explored and under-exploited — is home to about 30% of the planets mineral resources, according to South Africa-based Standard Bank. Indeed it produces more than 60 different metals and minerals.

According to Africas Silk Road: China and Indias New Economic Frontier, a book published last year by Harry Broadman, an economic adviser to the World Bank, Chinese foreign direct investment in Africa amounted to US$1.2 billion by the middle of 2006.

Of course not all of that money is moving into the mining industry. China has had a history of aid programs in Africa since the 1960s, (as well as supporting Africas liberation movements and providing scholarships for African students to access higher education in China).

Today Chinas presence has spread across many sectors. Beijing has helped build major infrastructure projects such as roads and railways, airports, hospitals, football stadiums, government buildings, housing projects, power projects and gas wells.

In October 2000, China set up the China-Africa Cooperation Forum, under which Beijing cancelled the debts of 31 African countries about US$1.3 billion and granted zero-tariffs on the imports from 28 African countries, according to The New Sinosphere: China in Africa published by the Institute for Public Policy Research, a leading think-tank in the United Kingdom.

Thys Terblanche, Standard Banks global head of mining and metals, estimates that more than 800 Chinese firms are active in Africa today on 176 different projects.

In a speech during the China Mining Conference this month in Beijing, Terblanche noted that China is lending US$5 billion for infrastructure projects in the Democratic Republic of Congo alone. The loan announcement mentioned that the infrastructure funding support will be in exchange for access to resources but was fairly general and exactly how this will be executed and whether development or operating assets will be involved is unclear.

According to The New Sinosphere: China in Africa, Feza Mining, a joint venture between Chinas Wambao Resources and some Congolese businessmen, is building a pyrometallurgic plant, which could produce as much as 1,000 tonnes of cobalt a year.

The publication also reports that China has invested nearly US$170 million in Zambias mining sector, primarily in copper, and in Gabon, a Chinese consortium, lead by China National Machinery and Equipment Import and Export Corporation, or CEMAC, has been granted the sole rights to develop vast iron ore reserves — as well as build the rail links necessary to get to them.

Chinas investment in Africa does raise some concern, however. The countrys corporations have often been criticized for their labour practices which in many cases have involved hiring more Chinese expatriates than local employees. Pay scales have also been criticized. According to the The New Sinosphere: China in Africa, the Chinese-owned Chambishi copper mine in Zambia, for instance, pays its 2,000 miners about US$45 per month.

Cynthia Carroll, chief executive of Anglo-American, noted in her keynote address at the China Mining Conference that Chinese international companies operating overseas must embrace international environmental and social standards.

Concerns have been expressed about the social and environmental standards being applied by some Chinese operators in their investments in Africa and South America, she told a vast audience on the opening day of the conference.

This is certainly not a universal problem and there are, undoubtedly, some good Chinese operators. But, as Chinese companies become more established as international operators, I am sure they will come to share an appreciation of the need for our industry to follow international standards in the management of its environmental and social impacts.

Carroll added that the West had made its own errors and noted in particular that the short-term priorities of some junior companies were not always supportive of sustainable outcomes.

Sadly the reputation of our industry tends to be set by the standards applied by the worst performers, she said.