Resource security high on China’s agenda

As the world’s largest consumer of mineral raw materials, it’s no surprise that China’s mining companies are following their international peers and starting to hunt for resources overseas.

By the end of last year, Chinese mining companies had invested $17.9 billion abroad — about 19.8% of China’s total foreign direct investment, said Song Yufang, senior vice-president of China Minmetals, speaking at the China Mining Conference held in Beijing from Nov. 13-15.

After its failed, nearly $6-billion bid for Canada’s Noranda in 2004, China’s largest metals and minerals trading group signed a joint venture with Chile’s state-owned copper miner, Codelco.

According to China’s news agency, Xinhua, the joint venture operates as a vehicle for Minmetals to secure a long-term copper supply from Codelco.

Under the deal, Minmetals also has an option to acquire a minority interest in Codelco’s Gaby copper project. Gaby is a copper oxide deposit just south of Codelco’s Chuquicamata mine in northern Chile.

Minmetals has also set up a comprehensive co-operation framework with the government of Jamaica for the joint exploration and development of bauxite resources on the island nation in the Caribbean.

Last year, Minmetals created a joint exploration company with Century Aluminium (CENX-Q) of the United States to move ahead with a number of exploration projects. It also signed a contract with Bolivia’s Mining Resources and Metallurgical Department to jointly develop mineral resources in the South American country.

Apart from Minmetals, China Nonferrous Metal Mining Group has invested $150 million in copper mining in Zambia. Aluminum Corp. of China (ACH-N), or Chinalco, invested $2.2 billion in a bauxite mine in Australia, and bought Peru Copper (CUP-X) for $792 million earlier this year.

China Shenhua Energy (CUAEF-O), China’s largest coal mining company, is planning to acquire coal mines in Australia and Indonesia. And Chinese steel companies, such as Baosteel and Angang Steel (ANGGY-O), have been actively investing abroad in iron ore mining, particularly in Australia. Sinosteel Mining has two smelter projects in South Africa and a mine and a smelter project in Zimbabwe.

China National Uranium Corp., meanwhile, is developing two uranium exploration sites in the Agadez region of Niger. Production is scheduled to start in 2010, according to the China Brief publication of the Washington, D.C.-based think tank, the Jamestown Foundation.

It’s resource-rich Africa that has really become the major focus of China’s reach overseas. South Africa-based Standard Bank estimates that the African continent — which is still relatively underexplored and under-exploited — is home to about 30% of the planet’s mineral resources. Indeed, more than 60 different metals and minerals are mined in Africa.

According to Africa’s Silk Road: China and India’s New Economic Frontier, a book published last year by Harry Broadman, an economic adviser to the World Bank, Chinese foreign direct investment in Africa amounted to US$1.2 billion by the middle of 2006.

Of course, not all of that money is moving into the mining industry. China has had a history of aid programs in Africa since the 1960s, (as well as supporting Africa’s liberation movements and providing scholarships for African students to access higher education in China) and since then, China’s presence has grown across many sectors. It has helped build major infrastructure projects such as roads and railways, airports, hospitals, football stadiums, government buildings, housing projects, power projects and gas wells.

In October 2000, China set up the China-Africa Cooperation Forum, under which Beijing cancelled the debts of 31 African countries — totalling about US$1.3 billion — and granted zero-tariffs on the imports from 28 African countries, according to The New Sinosphere: China in Africa, published by the Institute for Public Policy Research, a leading think tank in the United Kingdom.

Thys Terblanche, Standard Bank’s global head of mining and metals, estimates that more than 800 Chinese firms are active in Africa today on 176 different projects.

In a speech during the China Mining Conference, Terblanche noted that China is lending US$5 billion for infrastructure projects in the Democratic Republic of the Congo alone. The loan announcement mentioned that the infrastructure funding support would be in exchange for access to resources, but was fairly general, and exactly how this will be executed and whether development or operating assets will be involved is unclear.

The New Sinosphere reports that Feza Mining, a joint venture between China’s Wambao Resources and some Congolese businessmen, is building a pyrometallurgical plant that could produce as much as 1,000 tonnes of cobalt a year.

The publication also says that China has invested nearly US$170 million in Zambia’s mining sector, primarily in copper, and in Gabon, a Chinese consortium, led by China National Machinery and Equipment Import and Export Corp., or CEMAC, has been granted the sole rights to develop vast iron ore reserves — as well as build the rail links necessary to get to them.

China’s investment in Africa does raise some concern, however. The country’s corporations have often been criticized for their labour practices — which, in many cases, have involved hiring more Chinese expatriates than local employees. Pay scales have also been criticized. The New Sinosphere cites salaries of miners at the Chinese-owned Chambishi copper mine in Zambia, for instance, at about US$45 per month.

Cynthia Carroll, chief executive of Anglo American (aauk-q, aal-l), noted in her keynote address at the China Mining Conference that Chinese international companies operating overseas must embrace international environmental and social standards.

“Concerns have been expressed about the social and environmental standards being applied by some Chinese operators in their investments in Africa and South America,” she told a vast audience on the opening day of the conference. “This is certainly not a universal problem and there are, undoubtedly, some good Chinese operators. But, as Chinese companies become more established as international operators, I am sure they will come to share an appreciation of the need for our industry to follow international standards in the management of its environmental and social impacts.”

Carroll also said that the West had made its own errors and noted in particular that the “short-term priorities of some junior companies” were not always “supportive” of “sustainable outcomes.”

She added: “Sadly, the reputation of our industry tends to be set by the standards applied by the worst performers.”