China's enormous appetite for mining assets

China's growth in investing in global mining assets has been little short of phenomenal with acquisition values rising one hundred-fold in five years

Toulouse - 

China, a country that already consumes a third of the world's copper and 40% of its base metals, is on a buying binge in the global mining market, America's National Mining Association reports. Last year, companies based in China or Hong Kong joined in foreign mining acquisitions totalling $13 billion, 100 times the level of activity five years ago. China is on course to sustain this pace in 2010, say analysts, with 76 outbound mining deals completed and valued at $8.3 billion. The Heritage Foundation, which has built a database to track such deals, predicts mining acquisitions are the principal driver in China's outbound investment, expected to exceed $100 billion in 2014. Analysts believe China accounted for one-third of the value of all cross-border mining deals last year.

The worldwide recession has favoured China's cash-rich companies. "Every project that [wants money] looks at Chinese companies," said Amy Cheng, a spokesperson for BOC International, the investment banking arm of state-owned Bank of China. No longer are mining assets acquired solely by state-owned companies, as private investors are increasingly sought after for capital. An example is CST Mining Group, a Hong-Kong based company with only 15 employees before it bought two copper mines this year - one Canadian, one Australian - raised $600 million and hired scores of western mining experts to run its new acquisitions.

One analyst at PricewaterhouseCoopers also notes that Chinese companies are acquiring mines now at early stages of production instead of only mature stages, reflecting a growing confidence in their management abilities.

Fairfax reports the Shanghai Composite Index rallied 2.3% on July 28 on speculation that the government will increase investment and domestic spending to bolster the economy. China is aiming to boost local consumption to offset a potential decline in exports.

• The index has climbed by 11% since it reached its low on July 5.  With the government implying last week that it is unlikely to risk further economic policy tightening, are stocks now good value?
• Putting positive views to one side, manufacturing data due for release on August 1 is widely estimated to show in an increase in manufacturing.  Whether it is a considerable gain on a marginal one will dictate whether it is viewed as a positive for the economy or not
• Evidence that national banks are experiencing a rough patch was underlined July 29 as the Industrial and Commercial Bank of China announced plans to raise as much as $6.6 billion to replenish capital in an effort to protect itself from non performing loans. The announcement raises the figure China's five largest banks are raising after a record $1.4 trillion in lending last year to $60 billion.

John Chadwick is editor/proprietor of International Mining magazine - www.im-mining.com

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