Liu Yikang: To stay or to Act when mining winter is coming?
Source: www.mlr.gov.cn Citation: www.gtzyb.com Date: November 3, 2015
"Nowadays, the global mineral exploration market appears to hit bottom. China’s mining industry’s strategy of "going global" is still going on, although it has many setbacks. The abundant experience from last round of "going global" has become the precious wealth for next time of overseas expedition. If winter comes, can spring be far behind? At this moment, it should be taken action when time is right."
CHINA MINING Congress and Expo 2015 had a hot topic: On the occasion of the winter of mining industry, has the market already hit the bottom? In the China’s Enterprises Outbound Investment forum, the insiders from mining industry almost unanimously believed that mining market had hit the bottom. A new round of "going global" should be carried out immediately.
First of all, let’s began with a mining investment case, which just missed the perfect opportunity. Oyu Tolgoi Copper Mine belonged to Mongolia, approximately 80 kilometers away from the border with Mongolia, with copper reserves of 31.19 million tons. In 2013, it had been completed and put into operation. Copper production was expected to reach 500,000 short tons annually. In September 2002, with great discovery of a rich concealed ore body in the 270th hole, it achieved a major breakthrough. At that time, Ivanhoe Mines (Ivanhoe Mines Ltd., a Canadian mineral exploration and development company, was listed on the Toronto, New York and NASDAQ Stock Exchange.) wanted to invite Chinese companies to invest in Oyu Tolgoi mine, so they invited the author to pay a visit to this full of prospect land. The end of 2002, like now, was a winter of mining industry. When the author went back with this blockbuster information, few person made inquires. Instead of interesting, all of the Chinese companies held a view that “We have already in trouble now, please give up the idea of talking about overseas investment and long-term development strategy with us". As everyone known, 3 years later, with the recovery of mining industry, Chinese companies poured out to invest overseas, but it was too late. Because of improper disposal, we lost the wonderful chance.
The same was about to happen again in 2008, with global mining climax, Chinese investors flocked to invest in overseas mining market at a staggering price. However, due to the lack of serious investigation of investment environment and specific response plans for different countries’ different risks, Chinese investors directly moved the domestic operation ideas and methods to a completely different cultural background, and ultimately caused massive failures of foreign investment in mining industry.
The current situation of China’s mining industry was similar to the situation in 2002. From 2012 to 2015, the shares of mining kept going down. At the Conference, many spokesmen predicted that mineral products prices slide had room to run, and probably would continue to fall. And mining companies had to go through a period of rough time in the cold winter of mining industry. At this moment, the market values of some large mining companies had shrunk dramatically, and the market values of the junior exploration company had shrunk by more than 90%. With high quality and low price, there were many good projects on the market, which provides enough space for investors to make choices.
However, the domestic mining industry investors had a tradition to chase high. A domestic iron and steel enterprises bought 25% stake of Sierra Leonean Tonkolili Iron Ore at the total price of $1.5billion in July 2011, and purchased the rest 75% stake in in 2015 April with $1.7 billion. The purchase price at low tide was only 3.7% of the purchase price of the crazy period. Because of this tradition, a lot of enterprises were holding back to see what would happen next. As if it was a repeat of the same mistake of Oyu Tolgoi mine in 2002.
From author’s view, mineral investors should have a strategic vision to search for the global potential project with low price and high quality instead of maintaining those exanimate exploration projects with the result that miss so many wonderful opportunities. Many of the world`s junior exploration companies’ share price had fallen to three or five cents. It had hit the bottom. Could it be worse?
Look at those excellent Chinese investors, like WISCO, Sinotech and so on, with considerable strategic vision, they precisely spotted the mining market trends, seized the window of mining recession period, and grasped the opportunity to get the good performance of overseas mining investment.
Nowadays, the global mineral exploration market appears to hit bottom.Of course, some mineral projects had no opportunity to develop during the mining downturn. But when the springtime of mining industry is coming, it will become a popular asset.
China’s mining industry’s strategy of "going global" was still going on, although it had many setbacks. The abundant experience from last round of "going global" had become the precious wealth for next time of overseas expedition. If winter comes, can spring be far behind? At this moment, it should be taken action when time is right. Liu Yikang)
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