Abstract
The People’s Republic of China (PRC) is a natural world leader in terms
of both reserves and the
production of several metals and minerals. It
joined the WTO in 2001, and has since become an economic
force to be
reckoned with, doubling its manufacturing output and in the process
accumulating over
US$1trn of foreign exchange reserves. Endowed with
abundant mineral wealth, the country leads in the
production of copper,
coal and aluminium. Further, its 1,200 gold mines position it fourth in terms
of gold
production worldwide – a metal of which it is also the
world’s third-largest consumer.
China is also in the fortunate
position of being cash rich at a time when many mining companies around
the world are struggling to locate financing. So, in recent months, Beijing
has been very active in buying
up Australian mining assets. We examine
this phenomenon in detail on page 8 of this report.
The national
government is taking active steps to make the mining industry more
competitive. Although it
is a communist state, China introduced market
reforms in the 1980s and today only about a third of the
economy is
directly state-controlled. The government is encouraging mergers and
acquisitions (M&As) as
a means of ensuring optimal use of mineral
resources, and barriers to foreign investment are gradually
being done
away with.
The Chinese mining industry as a whole is suffering from the
global financial crisis and the collapse in
commodity prices. Yet the
recovery of the domestic and international mining sector will be due, in
part,
to the success of China’s CNY4trn fiscal stimulus package.
This should include investment in railroads,
airports and power generation
in 2009-2011, which will help drive demand for steel and other
commodities. The government has also pledged to spend CNY900bn on affordable
housing in the same
period. It is estimated that these measures will boost
demand for steel by as much as 150mn tonnes a year,
which will help
stimulate demand for iron ore.
Meanwhile, predictions that Chinese steel
companies will be able to force a 30-40% drop in iron ore
prices in 2009
look optimistic. Falling prices are forcing many Chinese ore miners out of
business, while
smaller international miners are having to reduce
production. Therefore, just when China thought it was
in a strong position
to bargain with the major mining companies, it has found itself more reliant
on them
than ever. At most, industry watchers expect a cut of 20% in iron
ore prices, after negotiation.
Elsewhere, in January 2009, Chinese
conglomerate China Union signed a US$2.6bn deal with Liberia to
develop
its main iron ore mine. The deal represents China’s largest ever
investment in the West African
nation. China Union has pledged to have
built a refinery at Liberia’s Bong Mines with a capacity of 1mn
tonnes per annum (tpa). It is expected that 3,000 jobs will be created at the
project, with 15,000 possible
jobs following. Before Liberia’s
disastrous civil war, the mines were operated by a German firm Bong
Mining
Company.
Industry Forecast
In 2008, China became the world’s
largest supplier of gold, surpassing South Africa. China is also
implementing its 11th Five-Year Plan (2006-2010), which emphasises securing
the economy’s future
metals and minerals resource needs. The focus
is on further geological exploration of mineral reserves
and increasing
the supply of mineral products to fuel China’s rapid economic expansion.
One area where
China is especially keen to increase its reserves is
uranium. With the country looking to rapidly increase
its nuclear power
generation, the government is seeking to secure a stable supply of raw
materials.
Uranium exploration is concentrating on Inner Mongolia and
north-west China. BMI forecasts the mining
industry GDP in China to grow
at 13.26% per annum in 2008-2013, reaching US$474bn by 2013.
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