Chinese Mining Investments Sweep The Globe

If anyone had any doubt that a seismic shift of financial power from West to East is underway, they need to look no further than the US$17 billion Chinese companies and sovereign wealth funds pumped into the mining sector in investment commitments last year.

That number could have been closer to US$30 billion if Chinalco had been successful in its bid for a 50% stake in a number of Rio Tinto’s (RTP-N, RIO-L) assets.

Indeed the Chinese government is sitting on more than US$2 trillion and the nation’s well-known appetite for commodities will see its investment in offshore mining projects shift into higher gear in the years ahead.

Most of the acquisitions in 2009 were in iron ore, coal and copper with the largest being Yanzhou Coal Mining’s (YZC-N) US$2.9- billion takeover of Felix Resources (FLX-A), which owns several coal mines in Australia.

The number of Chinese investments in offshore mining assets last year detailed in a list compiled by Deutsche Bank runs to 26. And is worth closer scrutiny by players in the industry who might be on the lookout for trends or possible deals.

In the coal sector, Lark Guangdong pledged US$350 million to Indonesian coal miner PT Bumi Resources and Noble acquired Gloucester Coal (GCL-A) for US$500 million. Gloucester Coal is a coal miner in Australia’s Gloucester basin, 100 km north of Newcastle in New South Wales. China’s sovereign wealth fund, China Investment Corp. purchased US$1.98 million in debt instruments of Bumi Resources, while China Investment Corp. took a stake in coal miner SouthGobi Energy Resources (SGQ-T) for US$500 million. SouthGobi recently listed on the Hong Kong Stock Exchange and includes among its assets a large coal mine in Mongolia.

Iron ore deals included Wuhan Iron and Steel’s controlling stake in Centrex Metals (CXM-A) for US$150 million. Wuhan Iron and Steel is one of China’s largest steel-makers producing about 30 million tonnes annually, while Centrex Metals owns iron tenements in southern Australia’s Eyre peninsula. The Chinese steel giant also took a stake in Consolidated Thompson Iron Mines (CLM-T) for US$240 million to access the Canadian company’s iron ore assets in Quebec.

In other transactions, Hunan Valin Steel Company invested US$900 million for a 17.5% stake in Fortescue Metals (FMG-A) of Australia, one of the world’s leading iron ore producers and Baosteel purchased a stake in Perthbased Aquila Resources (AQA-A) for US$270 million. Xuan Yuan Industrial Development issued a US$260 million project loan to Petropavlovsk (POG-L), a London- listed company with gold and iron ore assets in Russia that bills itself as that country’s third-largest gold producer. China Railways also invested US$244 million for a stake in African Minerals (AMI-L), which holds iron ore assets in Sierra Leone, West Africa. Sinosteel also acquired a stake in Australia’s Murchison Metals (MMX-A) and China Minmetals, the country’s largest metal trader, bought a stake in the Lake Giles iron ore project from Macarthur Minerals (MMS-V) for US$85 million.

In copper, Tongling/China Railway acquired Corriente Resources (CTQ-T) and its Ecuadorian projects for US$650 million, while China Non-Ferrous Metal Mining acquired Luanshya Copper and pledged investment in its Zambian copper asset to the tune of US$450 million. Sinchuan Hanlong issued US$700 million in debt and equity for a controlling stake in Moly Mines (MOL-T, MOL-A), which is developing base metal projects including the world-class Spinifex Ridge molybdenum-copper project in Western Australia.

In the copper-gold sector, Zijin Mining spent US$520 million on its acquisition of Indophil Resources (IRN-A). Indophil is developing the Tampakan coppergold project in the southern Philippines. First Pacific took a stake in Philex Mining (PX-P) for US$215 million. Philex operates the Padcal copper-gold-silver mine in the Philippines. Finally, the China Development Bank and Samruk signed off on a US$2.7-billion loan to Kazakhmys (KAZ-L), the largest copper producer in Kazakhstan.

Precious metals deals included China Sci-Tech’s purchase of the Martabe project from OZ Minerals (OZL-A) for US$211 million and Guangdong Risking Assets Management’s US$150-million purchase of a stake in Pan Australian Resources (PNA-A). Pan Australian produces copper concen- trate from its Phu Kham coppergold deposit, 120 km north of the Lao capital Vientiane.

Other investments included Minmetals’ US$1.4-billion acquisition of OZ Minerals, which owns the Prominent Hill copper-gold mine, 130 km northwest of BHP Billiton’s (BHP-N) Olympic Dam, and China Non-Ferrous Metal Mining’s US$10 million stake in Terramin (TZN-A), a base metal company with an operating zinc mine located 60 km from Adelaide, the capital of South Australia. Terramin also has advanced zinc projects in Australia and Algeria. Zhongjin purchased a US$40-million controlling stake in Australian zinc miner Perilya (PEM-A), which operates a zinc, lead and silver mine in Broken Hill, in New South Wales, and China Investment Corp. invested US$1.5 billion for a stake in Teck Resources (TCK. B-T, TCK-N).