ASIA MINING: Chinese Offensive

THIS POST WAS ORIGINALLY PUBLISHED FEBRUARY 24, 2009


The commentary in yesterday’s People’s Daily says: “China has grown to be a new heavyweight player and stepped into the limelight on the world stage… If the Cold War was 'a tug of war' between East and West, and a showcase of hard power, what we have today, for the first time in history, is a global, multicivilizational and multipolar competition, and a display of smart power”. And true to these words, we see a real display of smart power.
Looking at the world mineral resources market, it is obvious that China has become a dominant ingredient in its structure. About one third of total consumption of majority of metals goes to China. "With the global financial crisis, most companies are becoming cautious of investing in the sector, but with domestic demand increasing in the long term, we are under great pressure this year," Wang Min, vice-minister of land and resources, told a national geological survey conference in Beijing.
There are different options to relieve the country from this pressure. China Daily today reports vast internal potential of the country:  “From 1999 to 2007, a total of 3,795 exploration programs were carried out, with 7.56 billion yuan ($1.1 billion) invested and about 184 companies and bureaus of land and resources involved…” There are more than 1,200 potential mining sites including 20 medium and large ones. And one way is to increase foreign participation in mineral survey and exploitation, as well as attract foreign investors. While the first two things are quite feasible and would be welcomed by international companies, I think, that the investment side might take quite a while.
Thus, the other way is open and is used on full scale – M&A on international scale. This is well reflected in current press reports; I have been posting some references here too. The latest news come from Australia, that in fact my soon turn into some second-grade supplier of resources to China. That is another “beefing up of mining efforts”: after yesterday’s deal with Valin Iron and Steel Group that takes the stake in Fortescue Metals Group Ltd, the latter agreed to increase its supply to up to 4 million tons a year to Valin subsidiary Xiangtan Steel from 2010 onwards, up from 1 million tons a year now – four times higher.
It is interesting to note that financial transactions around Fortescue are far from over – there are reports that several deals are upcoming that include among the others -  sovereign wealth fund China Investment Corporation (CIC) is going to invest more in the company. And there is an Indian trace here too: Valin Iron and Steel Group owns a 33.9% stake of Hunan Valin Steel Company, in which ArcelorMittal also has a 33% equity interest.
This is without a doubt “global, multicivilizational and multipolar competition, and a display of smart power”