China Mining Report Q1 2009 - companiesandmarkets.com adds new report

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 reckon 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 1200 gold mines position it fourth in terms of gold production worldwide – a metal of which it is also the world’s third-largest consumer.

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.

However, 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 CNY4,000bn fiscal stimulus package. This should include investment in railroads, airports and power generation in 2009-11, which will help drive demand for steel and other commodities. Meanwhile, 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 metric 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 one-million-tonnes-a-year refinery at Liberia’s Bong Mines. 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 company, the Bong Mining Company.

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