[miningmx.com] — AS ONE fund manager humorously observed: “It’s nationalisation, Jim, but not as we know it’ – certainly not as proposed by ANC Youth League (ANCYL) president Julius Malema.
The Star Trek allusion is about what’s been happening, almost surreptitiously, in the South African mining industry: the quite breathtaking acceleration in Asian – predominantly Chinese government-backed – investment though, one hastens to add, with generous compensation, which is not part of the ANCYL’s plans.
Most recently, there’s the R8.90 per share bid for Metorex by China’s Jinchuan Group which values the JSE-listed firm by an extra R1.7bn, or 23% more than an earlier R7.35/share bid by Brazilian firm Vale. Then there was the proposed R3.9bn investment in the deep and marginal Evander 6 and Jeanette shafts by Hong Kong-listed Hing Wing, an almost crazy R3.6bn more than the previous owner, Taung Gold, paid for the assets only a little while earlier.
And when no one seemed interested in financing Wesizwe Platinum, which was seeking upwards of R5bn, in came Jinchuan Group and the China Africa Development Fund with an offer of some R6.6bn, seizing control of the company and its board.
Sandwiched between these offers is the bid for up to 70% of Gold One International for as much as R3bn by a Chinese consortium of business interests. Although profitable, Gold One has fairly modest gold production and a uranium mine to develop, which some view as risky in the current anti-nuclear environment. (Certainly, it had the immediate effect of hurting uranium project valuations). With all due respect, Gold One’s investment patter is mostly one of promises and blue sky.
Nor would I put a bid for the Blyvoor gold mine by a Chinese diversified group out of the question. Once again, a marginal asset at best, but with access to a bucket load of gold reserves. So while South African “entrepreneurs” in Aurora Empowerment Systems allow millions of ounces of unmined gold resources to be flooded at the Grootvlei mine, probably forever, we’re finding foreign investors – mainly the Chinese government – paying top dollar to capture them.
These Chinese investments – worth a combined R26bn on completion – have been made in the last 12 months.
Before that, there was really only the investment in Ridge Mining by China’s Zijn Mining to talk of in the mining sector, and that was in 2007. That’s a massive acceleration in investments in South African mining, and it’s not only the Chinese. Japan’s ITOCHU took a R1.9bn, 8% stake in IvanPlats’ Platreef project recently.
There’s also the significant interest shown by India, especially in the coal market which is worrying Eskom because Indian traders will pay more for power station coal than the electricity utility. A quick scan of coal exports from Richards Bay Coal Terminal (RBCT) shows the Asian economies have come in from virtually nowhere.
Atlantic seaborne trade from RBCT was 65% of all shipments in 2005, while Indian demand was negligable at less than 5% of total.
However, Asian demand for South African coal has been increasing steadily since it first appeared on the radar of South African exporters in 2007. Today an estimated 15% of all exports from RBCT head for China, while nearly 30% of total South African exports are absorbed by India. Atlantic seaborne trade has fallen to a fifth of total since 2005.
You’re right to suspect the high price being paid by Chinese investors. Partly, it’s viewed as the cost of entry, but it’s also a reflection of the way the Chinese view capturing metal supplies, according to Kobus van der Wath, founder and president of the Bejing Axis, a company that educates about and facilitates trade with China.
Van der Wath says the Chinese view securing future metal supplies a question of national security. Chinese investment is not a question of commercial entities sealing good business propositions, but extensions of government seeking the means to fuel its economic ascent.
And what of that economic ascent?
“Forecasts predict that the world’s GDP (gross domestic product) will expand at an average rate of $4 trillion per year from 2010 to 2014, of which 40% will come from Asian countries,’ says Van der Wath. China’s role in this Asian advance is obviously predominant and amazingly quick.
