Zijin Mining, one of China’s largest mining groups, extended its global reach Tuesday by signing two separate and key agreements with Canadians Barrick Gold (TSX:ABX) and Ivanhoe Mines (TSX:IVN).
The deals will see Zijin help Barrick and Ivanhoe advance their respective projects in Papua New Guinea and the Democratic Republic of Congo.
But perhaps the most important aspect of today’s agreements is the fact that both aim to form long-term strategic partnerships to collaborate on further ventures, opening new markets for all the firms involved.
Barrick’s Chairman John L. Thornton, couldn’t have summarized the significance of these deals better:
“A twenty-first century mining company with global reach and the intention to become an industry leader must, by definition, have a distinctive relationship with China,” he said in today’s statement. “China has become both the largest producer and consumer of gold, and a major source of capital and expertise for the mines of the future.”
Zijin, which besides gold also produces copper and zinc, acquired in March a 10% ownership in Ivanhoe for about $85 million. At that time, Ivanhoe Executive Chairman Robert Friedland said the two companies were in “detailed, friendly discussions about the strategic co-development of our Kamoa copper discovery.”
According to a preliminary economic assessment, Kamoa’s first phase of development is estimated to cost about $1.4 billion. Ivanhoe said it has invested about $337 million to date on discovering and developing the project.
I could not agree more with John L. Thornton – Western Companies should have started working with the Chinese 15 or 20 years ago! It’s not too late and I would hope to see more in the near future.
I am in agreement with these strategic investments for both sides of the table. China does have a continuing need for the materials and the mining companies have an ongoing need for the capital investment. As Steve also mentioned there are other equally important benefits. China has a more limited knowledge of modern mining practices compared to their partners this will be clear as they will not have a heavy influence on operations but show interest in how it is done. The other mutual benefit is vertical integration for both parties – this is a great bonus if correctly used.