MONTERREY, MEXICO –China may be some 10,000 miles from Latin America, 45 hours of flights and stopovers and days away at sea, but it is making its presence felt in a region long used to U.S. dominance.
With a government mandate to seek out new raw material supplies to maintain its white hot economic growth, China is buying up many of Latin America’s biggest mining deposits, even if some are relatively low-grade. Size is what matters, and China’s resources are clearly not enough, with the country producing less than half the copper and less than three-quarters of the alumina it needs for infrastructure growth.
Meanwhile, Beijing’s US$1.3 trillion in foreign reserves means state-owned companies have plenty of purchasing power. Latin America is very obliging, brushing off concerns about Chinese environmental and safety standards. Brazilian President Luiz Inacio Lula da Silva took 400 local business leaders with him on a trip to China in 2004, while last December, Bolivian Foreign Minister David Choquehuanca went eagerly to the communist nation to convince Chinese Premier Wen Jiabao that the impoverished Andean nation was ripe for China’s mining investment.
Latin America also has its geographical card to play over Africa, China’s other big resource target. Countries such as Mexico and Peru, although far flung from Beijing, have Pacific ports that can carry minerals straight across the ocean to the hungry dragon.
A few of the main beneficiaries of the new trend are the mostly Canadian junior miners, who have been able to sell their lucrative Latin American deposits to Chinese developers. As China comes to terms with its new position as a world economic power and global dealmaker, it is discovering it must walk before it can run in the mining business. A failed attempt by Minmetals to buy Canada’s Noranda in 2005 taught China it is not yet ready to go after U.S. and Canada majors and so it is playing the field at a lower level.
“China is facing a steep learning curve in terms of international transactions and at the same time is obtaining the minerals it needs from Latin America,” says Sao Paolo, Brazil-based mining economist Joao Vargas.
That has been providential for Peruvian- based juniors in particular. In April last year, Zijin Mining Group, China’s second-largest gold miner, bought U.K-listed and Peru-focused Monterrico Metals to get its hands on the US$1.4-billion Rio Blanco project in northern Peru. Aluminium Corp. of China (Chinalco) paid $800 million for Peru Copper to get its hands of the huge Toromocho copper deposit in the central Andes. In December, Jiangxi Copper and Minmetals agreed to buy Canada’s Northern Peru Copper Corp. for $455 million to develop the copper-gold Galeno project in Peru’s northern Andes.
In Mexico, at the start of this year, China’s top nickel producer Jinchuan Group lured Canadian junior Tyler Resources into accepting a $214-million takeover deal which gave Jinchuan access to its copper-zinc-gold-silver Bahuerachi project in Chihuahua state, near Texas. Jinchuan chairman Li Yong-jun described Bahuerachi as “one of Mexico’s most notable resource projects.”
In Chile, Minmetals is in talks with local miner Antofogasta Minerals( ANFGY-O, ANTO-L) to buy a minor stake in the Esperanza copper and gold project, while Chinalco is also developing a bauxite deposit in Brazil’s Para state with Vale (RIO-N and aims to start operations in 2009.
With the latest takeover deals alone, China will have a sizable amount of minerals crossing the Pacific going back home. Bahuerachi has an indicated resource of 524.5 million tonnes grading 0.4% copper, 0.03 gram gold per tonne and 4.03 grams silver. Toromocho is slated to produce more than 200,000 tonnes a year of copper in concentrate starting in 2012, while Galeno has measured and indicated resources of 803 million tonnes grading 0.48% copper, 0.11 gram gold per tonne, 2.6 grams silver and 0.014% molybdenum. Rio Blanco, which, until the Chinese purchase, was the largest copper deposit in the world not owned by a major firm, could produce about 200,000 tonnes of copper and 2,500 tonnes of molybdenum in concentrate each year for 20 years, with annual exports of about US$1 billion. Esperanza in Chile has a 15-year mine life based on proven, probable and possible ore reserves of 535 million tonnes averaging 0.55% copper and 0.23 gram gold per tonne.
While Latin America has a long mining history and a relatively stable mining code, China may get more than it bargained for in the region. Strikes are common as miners seek a bigger share of the commodities boom. U.S. and Canadian miners have learned they must be very sensitive to community needs if they are to get things done. In Peru, anti-mining protests have been vigorous for the last few years and the country’s mining chamber says private sector mining investment faces an “ongoing and systematic attack.” In September, three towns in northern Peru held a symbolic vote against Zijin’s Rio Blanco copper project on fears the mine would pollute rich agricultural lands. Five years ago, a similar conflict forced a Canadian mining company to scrap a project in the nearby town of Tambogrande.
“China has governments on its side and it has the money to develop the projects, but the big question is whether it has the tactical skills to win over suspicious local communities,” says a Peruvian-based mining executive who declined to be named. Some communities feel the mineral-rich land their families have farmed for centuries is theirs and should not be touched by foreign companies, and therefore are not willing to negotiate. Others want sewer systems, schools, hospitals and roads, and push mining companies to take on the role that weak local governments have long neglected.
“There have been bad experiences in the past and, unfortunately, once you lose the trust of a communityit takes an enormous amount of effort to rebuild it,” Martin Tanaka, a researcher at the Institute of Peruvian Studies told Reuters at a recent mining conference in Peru.
China’s limited record in Latin America does not bode well, either. China’s Shougang, which has owned Peru’s only major iron ore mine since1993 and plans a US$500- million investment over the next four years to boost production, has long faced accusations that it mistreats its workers, pollutes the environment on Peru’s Pacific coast and has cut safety standards to a minimum, provoking regular accidents, some of them fatal. It has suffered annual strikes. Zijin, on the other hand, has shown promising signs, offering US$80 million in social projects over two decades at Rio Blanco, although that has yet to persuade all local residents.
“It doesn’t matter if they are Chinese, American or from outer space, we don’t want a big hole in our land. It will ruin our livelihoods,” says Carmen Quispe, a mother of five who lives near Rio Blanco. –Based in Monterrey, Mexico, the author is a freelance writer specializing in mining issues.
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