China is coming for Africa’s copper … and more

Faced with declining domestic production, China’s top copper company — Minmetals — has said the “only solution is going overseas,” and many Chinese company are following its steps.

First was Latin America, now Africa. No matter where the project is, Chinese investors are coming for it, and the recent acquisition of the Tenke Fungurume mine in the Democratic Republic of Congo by Chinese capitals is just the latest sign of a growing trend.

The Asian nation plans to grab assets other firms are putting up for sale. The reason? Simple: it needs to secure supply of metals, mainly copper and cobalt.

Countries in Africa, where mining interest of China-based companies exists, evolution from 2006 to 2015.

Countries in Africa, where mining interest of China-based companies exists, evolution from 2006 to 2015.

While global copper production was up 3.5% in 2015, Chinese output declined. At 1.66 million tonnes, China’s mine production accounts for 8.7% of global supply of just over 19 million tonnes last year.

That contrasts with Chinese demand for the metal, which is expected to grow to 46% of worldwide copper consumption by 2018.

The country has built out its smelting capacity over the past ten years as it has grown to consume about 40% of the world’s copper. But it is still reliant on overseas mines for the raw copper material.

“China is very short of copper resources,” Jerry Jiao, vice-president of China Minmetals, the country’s largest metal trader, told the World Copper Conference, held in early April in Santiago, Chile. “The only way to make stable supply of copper resources . . . going overseas is the only solution.”

R/P (“burn rate”) ratio for China in comparison to world average R/P

R/P (“burn rate”) ratio for China in comparison to world average R/P, years. Sources: compilation of USGS, BP, country and other reports.

Minmetals is the owner of the big Las Bambas mine in Peru, which started shipping copper this year. It agreed to sell copper concentrate from the mine to a local unit of China’s state-owned Citic group, it said in January.

The company is just one of many eying foreign assets. China Molyddenum (CMOC) inked a $2.65 billion deal in May with Freeport to acquire its largest copper mine in Africa — Tenke Fungurume.

If it goes through, the transaction will be remembered as one of the mining industry’s biggest forced sales after a steep commodity downturn that has pushed several companies to take drastic action to shore up their balance sheets.

It would be the second large acquisition within two weeks by the firm, which earlier this year said it wanted to expand its global presence and shortly after began to do so, agreeing to buy Brazilian assets from Anglo American, another miner with a large debt load, for $1.5bn.

Eyes also on cobalt, gold

The sale of Tenke Fungurume would be the single largest private investment in the DRC’s history, and analysts suggest that with such deal China not only wants to secure its copper supply, but also to get a stake in the cobalt market, as the raw material is crucial to developing batteries for electric cars.

mining/mineral processing assets in Africa

Evolution of major mining/mineral processing assets in Africa with China-based companies’ interest, cumulative numbers. Source: IntelligenceMine.

The Tenke deal also underscores how China, where demand for foreign mining assets remains strong, is benefiting from the weakened bargaining positions of some sellers to acquire resources cheaply.

Once the transaction is finalized, Chinese companies will be responsible for around 62% of global refined cobalt production in 2017, according to CRU estimates.

Demand for the material is expected to soar by more than two-thirds over the next decade.

Zijin, the Chinese firm that can now boast of being the third largest gold producer, has also been steadily shoring up offshore assets. Last year, it opened its purse and purchased 49.5% of the Kamoa copper project from Ivanhoe Mines in the DRC for about $412 million. The company has confirmed that it will be looking to acquire more mining companies, particularly gold producers and circulating rumours point the firm is looking in Africa first.

It sounds familiar

In many ways, China is repeating a known strategy for those in the mining industry. At the turn of the millennium, the country moved to secure supplies of traditional commodities, such as oil and industrial metals, sometimes through acquisitions, other times through investments and loans-for-oil deals with nations including Angola and Venezuela, which held big deposits of the raw materials.

But China’s control of other commodities last decade raised strategic concerns in the US and Japan, after rare earth metals — which were then primarily mined in China — were subject to export restrictions.

The DRC accounts for over 50% of the world’s supply of cobalt, which is also used in smartphone batteries.

The Tenke mine alone, which lies in the south-east of the DRC, about 175km north-west of the provincial capital of Lubumbashi, last year produced 16,000 tonnes of cobalt. The operation has reserves that could last 25 years, according to the company.

Experts agree that Chinese strategists have long seen the DRC as a prime place for fellow citizens to access raw materials, including cobalt.

Moreover, China’s policy of non-intervention in international conflicts enables them to bid for assets in jurisdictions where Western miners may fear to tread for political reasons.

Let’s the race begin…

By Evelyn Murray

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