Chinese miners have been aggressively scouting for overseas mining acquisitions this year and are expected to continue bidding for strategic assets amid a commodity downturn that has pushed top miners to shore up their balance sheets by off-loading operations.
Only from January to June this year, China-backed funds and companies snapped up $4.5 billion worth of overseas mining assets, or 18.2% more than in the same period last year, according to a report by Mergermarket and international law firm Baker & McKenzie.
So far this year, China Molybdenum has emerged as the main buyer. In May, the company acquired Freeport-McMoRan’s stake in the Tenke Fungurume mine in Congo for $2.65bn and, a month earlier, it agreed to buy niobium and phosphate assets in Brazil from Anglo American (LON:AAL) for $1.5bn.
But unlike previous years, large state-owned firms no longer dominate the acquisitions scene, the experts say. Increasingly, private and provincial state-backed firms are joining the hunt for supplies of raw materials as they also try diversifying their portfolios.
As an example the analysts mention Jiangxi Ganfeng Lithium, China’s second largest producer of the so called “white gold” and the country’s biggest maker of battery-grade lithium, which late last year acquired 43% of the Mount Marion lithium project in Western Australia.
Infrastructure construction firm Sichuan Railway Investment Group (SRIG) is another case in point. Last month, the firm signed a A$330 million deal with Alton Mining to acquire 60% of a copper-gold mine in Queensland, Australia.
Other than copper and cobalt, Chinese firms are expected to continue searching for gold assets, even though the commodity has risen almost 25% this year. As the world’s top consumer (China consumes around 1,000 tonnes of the precious metal a year) and main producer of refined gold, it is expected that cash-flush Chinese firms will embark on a new quest to reduce its dependency on international producers.
Most of them, however, will be looking at existing gold deposits and companies, rather than building mines from scratch.
Zijin Mining, China’s biggest gold company by market value, has accounted for most of the country’s outbound gold investment. Last year, it acquired a 50% in Barrick Gold’s (TSX, NYSE:ABX) Porgera operation in Papua New Guinea for $298 million.
Zhaojin Mining Industry Co. Ltd., another leading Chinese gold company, said earlier this year it was also looking at overseas gold mines and projects. The company is exploring the option of picking up equity in gold mines in developed markets such as Australia and Canada, but it is also considering gold projects in developing markets, such as South America.