China is leading the global mining industry in more ways than one. Both its demand for metals and the capital it is making available to foreign mining companies are benefitting the global mining industry. In a Day 2 keynote session on mining development at the China Mining conference in Tianjin, presenters from three of China’s biggest mining companies expressed their expectation for the gold price to rise further. There was also examination of China’s very significant overseas investment in Australian and Canada and calls for metal price stabilisation and for “changes in iron ore prices to be more rational.” Modernisation of the mining industry and better technologies are needed according to a number of the speakers.
The latter comment came from the first speaker in the session, Zhou Zhongshu, President of China Minmetals Corp. He expressed concern at the current iron ore pricing system and asked that future iron ore prices should take into account the price at which the products are sold. He pointed to the steel plants in China that were making a loss.
He had begun by considering the effects of the global financial crisis and noting how companies like his had helped support Australia’s mining industry. He quoted a figure of $9.7 billion that had been invested this year in Australia’s mining industry by the time of the conference. But, he said, companies around the world “need more help in getting capital from China.”
He stressed a global need to stabilise prices – “volatility is bad.” And, commenting on other countries’ fears about Chinese outward investment, he expressed the view that China believes in open trade. “We need outward investment and it is contributing to the world economy.” He asked that no one be afraid of a “China conspiracy.”
The Group is China’s largest nationwide supplier of raw materials for the metallurgical industry and also the largest steel trading company, having formed a complete chain in the industry. Minmetals has reserves of 600 Mt of iron ore and 250 Mt of coking coal. It is among the nation’s largest exporters of coke, coal, ferroalloys and refractory materials and largest importer of iron ore, steel scrap, slabs and billets and sells 20 Mt/y of steel products.
Song Xin, Vice President of China National Gold Group Corp (which contributes 20% of China’s annual gold production) noted that the country’s gold output had risen in 2008 to 282 t and that demand, at 395 t, was now second only to India. He said the national reserve had risen from 600 to 1,054 t.
China National Gold’s resources today amount to 1,149 t of gold, 532 Mt of copper and 690,000 t of molybdenum. The company has spent RMB770 million on exploration in the past two years on 71 exploration projects in China’s 16 key mineralised belts. Annual production of new mines will be more than 100 t, he said.
On the opening day of the conference, Wang Min, Vice Minister of Land & Resources, Director General of China Geological Survey had set the scene somewhat by explaining to delegates that investment in the domestic mining industry, between January and August this year, had, at RMB440.6 billion, showed year-on-year growth of 18.9%. Over the same period, coal imports grew by 155% to 75.75 Mt, iron ore imports went up 33% to 405 Mt, and copper concentrate imports went up 14% to 4.13 Mt.
Chen Jinghe, CEO of Zijin Mining expects China’s GDP growth to be some 8% this year, thanks to investment measures taken by the government. His company will contribute significantly as it has today evolved into a large mining group holding subsidiaries in 20 provinces in China and seven foreign countries. The company reports it “has become China’s largest owner of metal mineral resources, China’s largest gold producer, China’s third largest copper producer, and one of China’s six major zinc producers.” Zijin’s growth in the first half of this year was 11%. Chen too believes that the gold price has further to rise. He also says Chinese mining companies must get out of China and that his company needs large-scale projects.
Wang Jianhua, Chairman and the Secretary of the Party of Shandong Gold, says China must be part of economic globalisation and should be allowed to adapt to globalisation. He stressed there was a great need for globalised information. He too is a believer in the gold price going higher.
His company and China’s mining industry in general need to absorb and use best practices from around the world, he said. There is a need for enhanced technologies to be used in China’s mines. There is also need for better use of capital and to maximise the use of human resources. Furthermore, he wants to see greater uses found for gold and for better tracking of the market.
Wang wants to see more remining of tailings, which he did say was on the rise. He also sees needs to enhance utilisation and wants to see clusters of gold mines operating in harmony.
Tan Yaling, an International Researcher with the Bank of China, revisited the global mining industry’s fundamental need for funding. She believes the global financial crisis is not a simple financial problem. The fact that prices are not controllable is bad, she said. She described the situation as “chaotic” and believes normal theories no longer apply. There is a need to look longer term on a broader scale. Lots of revisions are needed to develop models to explain “what is today’s world.”
Looking at China’s mining industry she spoke about a need to eliminate the gap between China and the developed world. There is a great need to invest in science and technology, she said.
Mike Elliott, Ernst and Young’s Global Mining and Metals Sector, noted that China’s outbound investment in mining has been very significant. Australia and Canada (“low political risk”) dominate as the destinations of choice, accounting for 92% of the investment. Chinese needs are copper, zinc, lead, nickel, iron ore and coal. Recent priority transactions have been in iron ore, coal and copper.
There have been a number of domestic drivers for this outbound investment . One he pointed out is perhaps not so well known and that is the “high cost of domestic production,” in some cases. Certain older mines in China are simply not cost effective.
“What Chinsese companies are getting right,” he said, are:
- Focus on low risk/low cost
- Clear view of value
- Positive business environment
- Government support
- Available capital
The last point he mentioned, and perhaps the most important, was that Chinese companies were “offering cash.” This he said had been a key to their success and important to stimulate global mining.
However, he pointed out that investment from Japan, India and Sovereign Wealth Funds was coming back and was competition. As a result, the safer investment opportunities were beginning to dry up. But this in itself was an opportunity in that Chinese companies could look to additionally invest in infrastructure projects in order to help develop new third world mines.
The third executive expecting to see even higher gold prices was Lu Dongshang, Chairman of Shandong Zhaojin, who closed the morning noting that his 80% of his company’s revenue was from gold and that Shandong Zhaojin had weathered the storm of the “financial tsunami.” His policy to avoid risk embraces expansion, development and optimisation. Focussed on gold, he said his company was one of the lowest cost producers in China and was “ready to capture more value out of gold.”
Touching on the subject of outbound investment, Lu commented that industry integration was on the increase. He feels bigger and stronger companies should be encouraged to make moves abroad.