Mr. Chen Jinghe delivered a speech on the keynote session of CHINA MINING 2015
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| On the morning of Oct.21, 2015, the keynote session of CHINA MINING Congress and Expo 2015 was convened at Meijiang Convention and Exhibition Center of Tianjin. Business leaders and renowned economists delivered speeches around the theme “New Normal，New Opportunities，New Development”. The picture shows that Chen Jinghe, chairman of Zijin Mining Group Company, was delivering a speech with the topic of “The Challenge and Prospect of China`s Mining Industry under the New Normal of Economy”. |
Distinguished chairman,
Dear colleagues in mining industry and friends from all walks of life concerned about mining industry,
Good morning!
It’s my great honor to stand here to exchange views on issues related to China’s mining industry with you.
The issue I would talk about today was relatively heavy as we knew that it was the winter period for mining industry. All people in this industry should stand the severe test of the cold winter as we had no idea how long the cold will last, whether this was the coldest winter for mining industry and what the future of China’s mining industry would look like.
I thought the “frosty winter” period of China’s mining industry under the new normal was mainly characterized by the following. China’s economic development trend has changed tremendously because of the economic new normal. First, the growth speed was gradually slowing down and industrialization has basically entered the middle and late period or completely the late period. Great changes have taken place in the shift of growth mode. The industrialization period in the first one or two decades was featured by consumption of massive raw mineral materials, later replaced by the development of service industry. Though China’s mining industry was still growing, its growth rate was decreasing, which was against the favor of mining industry under new normal.
The high economic growth rate led by industry in the past 30 years was entering the bottleneck period. Days when money could be earned only through growth has gone. Surplus was the most common economic phenomenon under the new normal.
The real estate has great a great bearing on mining industry as well as our economy. In the past ten years, the total areas of the buildings we built has exceeded the sum ever after the human being exists. It was both impossible and unrealistic if the areas continued to increase.
As to the bulk commodity, its mass production and exploration in China has occupied 40%-50% those of the globe. During this period, we have created a number of “first” in the world. Such huge consumption has led to a super cycle in bulk commodities over the past ten years. Against the backdrop of the slumping consumption demand or the sluggish growth, the price of mineral products has begun to fall three years before and the price of some products plummeted a good deal, which has brought about difficulties to the whole mining industry with most of the investors adversely affected. Likewise, the once successful coal industry with huge profits made has suffered great losses. This was an in-depth and cruel reality.
The population in Chinese mainland occupied 20% of the global, but we consumed more than 40% of the global resources. Against this backdrop, it was both impossible and unrealistic to drive the growth of the global mining industry just by depending on China’s growth. It was also impossible for our colleagues in mining industry to weather through the difficulties like what happened in 2008 and 2009 as the whole consumption demand has now entered the bottleneck period.
According to the national statistics, profits of mining industry began to fall by some 8% in 2012, 17% in 2013, 13% in 2014. This year the profits of mining industry from January to August fell by 57%, the unprecedentedly difficult year for mining industry. The profits of mining industry to industrial profits fell from 18.9% to 5.9%.
The “Four Mining” problems our minister once repeatedly referred to would reoccur. As a matter of fact, most of mining companies has chosen to increase their production capacity in the event of dropping price. Commodity prices will still fluctuate at current level, the price of some products may drop even further. Under the present difficult market conditions when price fell and companies made losses, many mining companies, including Zijin Mining got their profits by increasing production, it would take much longer time than expected to restore reasonable prices by eliminating additional capacity and reducing supply.
Second, China’s mining industry had its inherent problems from the beginning. The size of most mines was small, the grade was low, the exploration was difficult, and its marketization degree was lower than that of other industries. Even some corporations were only large in size but still weak in those aspects.
China’s mining industry was also characterized by its fragmentation. It is a fragmented economy mainly because the state-owned enterprises occupied most of the industry. China’s mineral resources expected high dependence on foreign countries with 56% iron ores, 83% copper mine, 57% bauxite,57% crude oil depending on import.
Under the new normal, I thought mining industry should seek survival first before pursuing development. Second, we should improve the internal strength of mining industry to control its cost which is the most important criterion to judge a mining industry. Even during the time when mining industry flourished and the prices rose year by year, however fine the management was, its cost management would be extensive, which best exemplified that there was still room for cost control.
Third, the industry system formed in the flourishing period of mining industry should be reformed and readjusted and various costs should be tightened.
However, under the new normal, mining industry also met with some good opportunities, which was one of the themes of great importance for this conference. China’s economy still remained a relatively high growth speed, which was a positive sign. I thought that a 5% growth on that huge base was still a good rate; the emerging of India and countries in Southeastern Asia and along the “One Belt and One Road” as well as economic rebound in developed economies led by the US were all important factors in the increase of demands for mineral products. Along the complete red line cost, the prices of many minerals were near cash cost with some higher than the cost.
Moreover, the capital contribution to mine explorations and building was much larger than that in the past, which would limit the downside of price fall. In addition, M&A among mining companies were increasingly becoming active. China’s mining companies would increase their global presence under the guidance of the One Belt and One Road Initiative, and become one of the most active players in the international market.
I thought some of China’s mining companies boasts of the basic conditions of participating in the global mining competition. In the past two or three decades, great changes have taken place in China’s mining industry. Though China was not abundant in resources, mining industry has also created some miracles. While China’s mining companies draw more lessons and pay more costs in going global, we still believed that we could not put undue criticism on the predecessors of mining industry as even the icons of this industry have made the same mistakes-they have made tens of billions dollars of provisions these years. There was a case in which a international mining giant bought a deposit with 4 billion dollars, only making profits of 5 million dollars.
China’s mining industry had its own advantages. We have applied a number of advanced technologies in development and innovation. These technologies were rather creative in its application and cost control. Some resources like low-grade or hard- explored mines could not be explored even in the international market, but we took the lead in their effective exploration. Moreover, we had our own advantages in the exploration of some small complicated deposits
But one of the critical weaknesses of China’s lied in its shortage of talents and experience in international operation, a problem could only be solved in practice but not through training. I believed that going global was the hope for the future development of China’s mining industry since China was faced with challenges presented by overexploitation of domestic resources, low resources per capita and limited space for internal growth.
The gloomy global mining market has resulted in substantial under-evaluation of many mineral resources and mining companies. As not so long ago some large mining companies engaged in overcapitalization and thus involved in high liability ratio, they needed to sell some projects or seek fund cooperation. It was fairly to say that going global to take part in the cooperation and competition of international market was rather a marvelous opportunity for the future development of mining industry.
Under the current market condition, if China, as the biggest consumer of mineral products, did not seize up the situation and cultivate the transnational mineral cooperation of international influence, our mining industry was doomed to be a failure. When it came to Chinese Dream, people in mining industry should also make their due contributions to realizing it.
One thing that draws our attention was that with the RMB accelerating into the world, we could expect very soon to see that China’s capital would move into the global capital market and China’s mining industry was destined to make a big difference. Since China’s accession into WTO in 2001, we have seen products made in China around the globe in the past dozens of years. If RMB could be integrated into the world market more quickly and could be fully convertible under downward capital, if China’s capital could be completely dependable around the globe, China would not only make new achievements including the “Belt and Road” Initiative but also make money around the world, thus further realizing our Chinese Dream.
Here I wanted to propose some advice. First to the relevant departments of our government. The current rules and regulations concerning mining industry were enacted during the mining boom. They played an important role in standardizing mining industry, avoiding excessive storage and harm and running the industry in accordance with the law. It was a time when money was easily earned and policies of fiscal and taxation were strictly implemented. Now with the great changes taking place in the market, the project approval has become rather rigid and the acquisition of mining rights and market transfer were both difficult. We hoped for a more open environment for the mining market as the procedures and time for review and approval were too complicated.
We also expected the eleven management departments as well as fiscal and taxation departments related to mining industry would conduct reforms soon so as to help the mining companies weather through the difficulties.
By taking the platform of China Mining, I wanted to make reference to one thing that heavy mental anomalies in soil was a matter of great importance and has a great bearing on mining industry. In particular, I urged a careful differentiation between background anomalies and pollution resulted from development of mines, or else mining industry would lead astray. We, engaged in geological exploration, must be clear that deposits were formed through anomalies of stream sediment, soil and rock elements. Where mines could be discovered was definitely abnormal in heavy metal. Some research and even some technology departments and the media simply considered heavy metal anomalies as metal pollution. Media reports often came that heavy metal pollution in soil was background anomalies. Pollution in the course of mining exploration was only a small part of mining industry. It would be too terrible if pollution happened time and again. I hoped that more emphasis should be given to environmental geology when mine fields were being reviewed.
Lastly, I hoped greater support could be given to mining companies. The “Belt and Road” Initiative has shed more lights to those enterprises and created sound policy environment for China’s mining industry to forge ahead into the world market.
I hoped government could provide going-global companies with more policy and funding support such as easier access to finance in the capital market, low-interest funding support with sufficient foreign exchange reserves, favorable policies for project approval, etc.
China’s mining companies should learn experience from peers around the world and at the same time, put more emphasis on the harmonious development of communities. Third, I hoped that coherent forces could be formed between companies and funds provided to avoid disordered competition and industrial associations could provide havens for mining companies. In addition, I also expected that the industrial associations such as the China Mining Association to take a more proactive position in defensing this downturn by listening carefully to the concerns of mining companies and thereafter reporting the industrial status quo and demands to relevant authorities.
Finally, I wanted to brief on the development of Zijin Mining under the new normal. The general development of Zijin Mining was featured by internalization, large-scale projects and asset securitization with internalization becoming the main direction for the new round of development. Inside the company, we gave top priority to reform, growth and development. The gross profit of our mineral products still stood at around 40%, higher than that of the most mining companies. We still had great confidence about our future. In general, we would continue to adopt a positive attitude in promoting the development of mining companies.
Here I’d like to extend my heartfelt thanks to the attention leaders of all levels and friends from all walks of life have given to us.
Thank you!
About CHINA MINING
Since first held in 1999, the scope and influence of CHINA MINING has grown rapidly year by year. As a global mining summit forum and exhibition, CHINA MINING Congress and Expo has become one of the world’s top mining events, and one of the world’s largest mining exploration, development and trading platforms, covering all aspects of the whole mining industry chain, including geological survey, exploration and development, mining rights trading, mining investment and financing, smelting and processing, mining techniques and equipment, mining services, etc. playing an active promotion role in creating exchange opportunities and enhancing mutual cooperation between domestic and foreign mining enterprises.
CHINA MINING Congress and Expo 2015 will be held at Meijiang Convention and Exhibition Center in Tianjin on October 20th-23rd, 2015. We invite you to join the event and to celebrate the 17th anniversary of CHINA MINING with us. For more information about CHINA MINING 2015, please visit: www.chinaminingtj.org.
