Australia: More Ore For China's Mills
Even as Washington balks at Chinese bids for American assets, Australia has rolled out the welcome mat for investment from the mainland. At least a half-dozen Chinese companies have bought into minerals producers Down Under in the past year, and more purchases are likely as China's turbocharged growth fuels its consumption of everything from aluminum to zinc. "The Chinese are driving the resources industry and [will] for the next 10 years," says Jyn Sim Baker, executive director of Midwest Corp., an iron ore producer based near Perth that in June agreed with Sinosteel Corp. to jointly develop two mines.
China is already the No. 2 consumer of Australian minerals, after Japan. Chinese companies in 2004 bought $2.6 billion worth of Australian copper, iron ore, nickel, and other resources -- 12% of total Australian mineral exports, says the Minerals Council of Australia, a trade group. And Chinese demand is surging. By 2010, China will account for 30% of the world's consumption of aluminum, copper, iron ore, and nickel, up from 15% in 2000 and just 7% in 1990, according to Macquarie Bank, Australia's leading investment bank. China's growth has led to a huge price runup. Iron ore, for instance, has risen 72% this year.
Now the Chinese are starting to buy -- or at least invest in -- the companies that produce those minerals. In June, Beijing-based Shougang Group, one of China's leading steelmakers, said it will pay Western Australia's Mt. Gibson Iron $120 million for half of an iron ore mine. Industry leader BHP Billiton (BHP ) last year parceled out 40% of an iron ore mine among four Chinese steelmakers in a deal that BHP says could generate $9 billion in sales over 20 years. "They feel there is more security if they actually take ownership of the underlying resource base," says BHP'S chief commercial officer, Marius Kloppers. Also last year, Yanzhou Coal Mining Co. paid $23 million for a coal mine in Australia's Hunter Valley. And for the past three years, Shanghai-based Baosteel Group Corp. has had an alliance with industry giant Rio Tinto. "Our goal is to stabilize the supply of steelmaking materials," says Wu Dongying, Baosteel's director of strategy and planning.
It's not just Australia, either. In May, trading company China Minmetals Corp. announced a joint venture with Chilean copper producer Codelco that calls for an initial investment of $550 million and as much as $1 billion down the line. In April, Baosteel and two other Chinese companies said they are spending $950 million to redevelop a Philippines nickel mine. And last November, the Chinese Metallurgical Construction Group announced that it was investing $600 million in nickel and cobalt production in Papua New Guinea. "Everywhere we are going we see Chinese investors," says Nicholas Moore, head of investment banking at Macquarie. "Gas, iron ore, copper, everything. They want to have a hand in the supply chain."
Still, China is facing competition as the resources sector heats up. CNOOC Ltd (CEO )., of course, lost out to Chevron Corp. (CVX ) for control of California-based Unocal. Beijing-owned Citic early this year expressed interest in WMC Resources Ltd., a Melbourne-based nickel and uranium miner that was ultimately bought by BHP. And China Minmetals made a bid for control of Canada's Noranda Inc. (NRD ), but talks fizzled. Switzerland's Xstrata PLC last month bought 20% of the copper and nickel producer.
If high oil prices and the fallout from Hurricane Katrina lead to a downturn in the U.S. economy and a decrease in demand for Chinese goods, China's companies might put the brakes on their global resources grab, at least for a while. But don't expect any such slowdown to last for long. China is hungry for minerals and other resources -- and it will surely continue to search worldwide to satisfy that appetite.
By Bruce Einhorn in Sydney, with Geri Smith in Mexico City