China`s miners to step up push overseas
Source: www.chinamining.org Citation: www.scmp.com Date: Apr.04, 2014
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| "The reason we are interested in [the Las Bambas] project is that we want to further boost our resources and raise Chinese firms` influence on bulk commodities in the global market," China Minmetals vice-president Li Fuli said. Photo: AP |
Chinese mining companies will be on the prowl this year to acquire more firms or forge joint ventures in regions ranging from Africa to Latin America to Southeast Asia as they try to feed the country`s voracious appetite for the iron ore and precious and industrial metals vital for an economy that has slowed but is still expanding at a healthy clip.
Industry data shows China accounted for nearly 14 per cent of all mining mergers and acquisitions activity by value last year, but the number of Chinese transactions slid to 21 from 34 and their value declined to US$5 billion from US$6 billion in 2012, according to a research report by PwC.
Last year was one of the worst years for global mining M&A in nearly a decade, with the total deal value at its lowest since 2004, a PwC report said.
The sour mood in the global mining sector was exacerbated by soft metal prices that in turn reduced mining company profits, the report said. This caused mining companies to focus on reducing debt and controlling costs instead of acquiring mines, PwC said.
China`s share of global mining deals may be bigger this year, said Ken Su, the China mining and metals leader at PwC.
"China has become relatively more important globally. While 2013 was one of the worst years for mining mergers and acquisitions, China outpaced nations such as Canada, Australia and the US," Su said.
"We might see some bigger deals announced in 2014."
China is the world`s top producer of steel and also its leading importer of iron ore. Over 95 per cent of the iron ore it imports is processed into steel, which is widely used for everything from shipbuilding to construction.
The country is also the world`s leading consumer of copper, a key industrial metal widely used by power companies. It is the world`s biggest producer of gold and also the top importer and consumer of the precious metal.
PwC global mining leader John Gravelle cited the Las Bambas copper mining project in Peru as an example of China`s mining firms reaching out for major investments overseas.
On March 19, MMG, a Hong Kong-listed subsidiary of China Minmetals, a state-owned enterprise, confirmed it and two other Chinese firms, Guoxin International Investment and Citic Metal, were in discussions to acquire a stake in Las Bambas from Glencore Xstrata, the Swiss resource giant.
While 2013 was one of the worst years for mining mergers and acquisitions, China outpaced nations such as Canada, Australia and the US KEN SU, PWC
Gravelle estimated the Chinese consortium would pay US$4 billion-US$6 billion for a stake in Las Bambas, roughly equal in value to all Chinese mining mergers and acquisitions last year.
"This is a mega-deal for sure. If this happens, it will stand out compared with the last two years," said Su.
But the average deal size of Chinese investments in overseas mines will be smaller, because more private Chinese companies, which lack the financial muscle of state-owned enterprises, are investing in mines abroad, Su said.
Last year, the China-Africa Development Fund invested in more than 20 mining projects on the continent, covering iron ore, copper, gold and other metals and minerals, an executive with the fund, which is a subsidiary of state-owned China Development Bank, said.
Chinese firms are looking not only at Africa and Latin America. Closer to home, they forged deals with Indonesia during the visit of President Xi Jinping to the country in October.
In mining, these included a US$5.1 billion deal to construct a ferronickel plant with an annual capacity of 300,000 tonnes in Sulawesi, a US$1 billion joint-venture deal to construct an aluminium processing plant, and a deal between Hangzhou Jinjiang and Borneo Alumindo Prima for a US$1.7 billion bauxite and aluminium processing plant.
China`s demand for mining resources will grow 3-6 per cent this year, Gravelle estimated. The China Metallurgical Industry Planning and Research Institute, a mainland industry group, predicted China`s total iron ore imports would rise 6.3 per cent to 850 million tonnes this year, about half of which would come from Australia.
Western Australia`s iron ore exports to China rose 23.5 per cent to 425 million tonnes last year, and China accounted for 76 per cent of the state`s iron ore exports, the Western Australian government said.
This year, the total value of Chinese overseas mining investments will probably rise, but the nature of the mining assets being acquired will shift towards gold and copper, said Carrie Chen, senior vice-president of M&A at Citic Securities.
Su said investment will gravitate towards gold mines.
"When we talk to Chinese companies in general, they have a positive outlook on gold prices. They think the price is going to go up," he said.
"Gold is seen as a safe investment. There is a flight to quality, as there are challenges in the global economy."
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