A more than twenty-five fold jump in investment in fewer than 10 years. That’s how fast China is gaining control over Africa’s mining industry. And Beijing’s push is not ending any time soon.
China’s growing economy is thirsty for sustainable supplies of mineral resources. Despite being the number one mining nation in the world, China is facing a rapid depletion of its local mineral resources. Reserves-to-production (R/P) ratio that represents the “burn rate” of proven reserves of mineral commodities when applying current levels of domestic mine production shows that China is in the “red zone” for future supplies of nearly all crucial minerals (Figure 1).
Figure 1. R/P (“burn rate”) ratio for China in comparison to world average R/P, years. Sources: compilation of USGS, BP, country and other reports.
In order to overcome shortages of essential mineral commodities, as well as to secure long-term sustainable supplies for its ambitious economic development strategy, the Government of China empowered and encouraged a number of domestic state-owned and private companies to actively pursue mining deals throughout the world.
Since this strategy, also known as “Two Resources, Two Markets”, launched in 2006, Africa quickly became the most desirable region for China and Hong Kong-based companies hunting for mining deals globally.
The scale of China’s expansion in Africa is just a mind blowing. In less than 10 years since Chinese authorities called for mineral resources diversification globally, the number of major mining/mineral processing assets in Africa with China-headquartered companies interest, increased from only a handful in 2006 to more than one hundred and twenty in 2015 (Figure 2). And those are only assets in advanced stages of their development, i.e. the figures exclude early exploration and other greenfield projects.
Figure 2. Evolution of major mining/mineral processing assets in Africa with China-based companies’ interest, cumulative numbers. Source: IntelligenceMine.
Keeping in mind that many of China-Africa deals are not always made public, an adjusted number of China-controlled mining assets in Africa could be even more impressive.
From the regional point of view, Chinese companies became firmly anchored to the Southern African countries and now quickly spreading to the north from Equator (Figure 3).
Figure 3. Countries in Africa, where mining interest of China-based companies exists, evolution from 2006 to 2015.
A wide variety of corporate entities have contributed to this formidable expansion, including mining, mineral processing, metallurgical, manufacturing, power generation, infrastructure development companies, as well as investment banks, research institutes and even individuals.
The forms of mining deals that China employs in Africa are also very diverse and involve direct investments in mining projects, infrastructure investments–to-mineral resources “trade-in” deals, joint ventures, indirect investments, off-take agreements, options and a variety of other structures.
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These examples give some insight into the vast scope of China’s involvement in Africa’s resources and mining industry.
In 2012, China General Nuclear Power Corporation (CGNPC) acquired Husab project in Namibia (Figure 4), which is one of the biggest uranium deposits in the world, and now is finishing construction of a huge uranium mine there. In under three years since earthmoving activities first began at Husab, CGNPC built and is now commissioning the world’s third largest uranium mine.
Another notable project is a massive Kamoa copper deposit located in the Democratic Republic of Congo (DRC), which is recognized as the world’s biggest undeveloped high-grade copper deposit. Zijin Mining Group recently completed a half a billion dollars deal with Ivanhoe Mines that allows Zijin to control this advanced project. No doubt Zijin, which is not lacking of governmental funds and in-house mining expertise, is going to commission this mine as soon as possible.
Figure 4. Husab and Kamoa projects location. Source: IntelligenceMine online mapper.
There are a many more world-class mining assets located in Africa acquired by Chinese companies in recent years.
Why has Africa became a priority destination for China? First and foremost, it’s the continent’s rich endowment of mineral resources with many world-class deposits discovered in recent years. Secondly its untapped mineral resources provides excellent greenfield development potential.
Western companies have tended to be more cautious about investing on the continent which is still grappling with serious infrastructure deficiencies, political turmoil, weak institutions and corruption.
Chinese companies have shown greater tolerance for risk and have proven to be adept at navigating political and economic upheaval. Not least because the country’s mining majors enjoy the firm backing of the government in Beijing and the country is able to take a long term strategic view.
In recent years, African countries increased output of nearly all major mineral commodities (except PGMs) as this table shows. With the backing of China, do not expect the pace of development to slow any time soon.
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With the exception of Botswana and possibly Morocco, all the other countries are in economic and political turmoil. The injection of investment dollars into their economy would appear to be most welcome at this stage. China however like all other countries, put themselves first, so beware the hand that feeds you!
Political instability and or lack of infrastructure are irrelevant to communist investment models. When China invests in Africa, those assets are protected with the political and military government. In a democratic model, private companies that invest are on their own. When western governments do try to get involved such as the case in the middle east for oil base asset investment and protection, we see how complex and challenging this is and the investment community doesn’t have the stomach for it. We have seen this throughout history including the Suez channel, cotton trade in the USA in in 18th century, etc….fact is, communism provides a compelling model for investing in other countries that provides a comprehensive pool of resources to deal with instability regarding foreign investments in other countries. For every made in China thing you have in your hand or are wearing, remember this…there is a price to cheap consumer items.
All these African Countries accepting this Very, Very Cheap money from China will have reprecussions down the road!
model is not much different from the US model not long ago, when dealing with
key resources for their growth. The US companies have jumped into the most
dangerous areas in the world looking for an oil deal, I mean the Middle East.
So nothing to do with democracy, but based in the country interests. But till
now is a fundamental piece of US foreign policy to support American business wherever
they go. Now a more sophisticated model is being used, and it is called the TPP
agreement, whereby all parties agree to use the same rules for doing business
that has as a model the US.
Nigeria is also doing well right now with a new government whose focus is developing the mining sector. Nigeria has extensive deposit of many commodities. Labour is cheap and available. The country currently suffers acute shortage of electricity, yet, high grade low sulphur coal is available in abundace, an opporunity for investors that will like to mine coal and use it to feed a coal-fired power plant without having to look for market for the coal. As a result, the operation of such a mine will not depend on the international market price. We are currently working on getting investors that will be interested in this rare opportunity where material is available and the demand cannot be met.
Neo-Colonialism… Chinese style! We have to wonder what kind of long term impacts all this Chinese investment and related efforts will have in Africa and many of the nations there. It COULD stimulate the development of real civilization in much of that region… or it COULD mire much of Africa even deeper in corruption…think traditional African style corruption guided by Chinese triad style organized crime! And as always, the ordinary folks who are just trying to somehow scrape out a living will get trapped between the contending criminal cartels. And… just to complicate the whole matter… its just a matter of time before the United States and other developed nations begin to realize that they also desperately need the mostly untapped resource riches of Africa, and these nations may well organize into a new cold war with China over those resources. which, of course, will mean that ordinary Africans will get trapped between those contending forces, as well!!! Just wonderful… criminals and corruption on the one hand… and a bitter critical resource driven Cold War on the other!!!
Who weakens these institutions, the west and China.