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Global Mining Perspectives on Opportunities in Coal, Silver, and Gold
China, India and Latin America Present Mining Companies with Growing
Markets
By Jennifer Lee
February, 2006
The ‘lever effect’ - it’s what countries such as China have possessed
over the past few years and it has helped them to wield influence in
global markets. For example, part of the demand for major commodities
such as gold can be directly linked to a rising demand in China for
jewelry.
But not only is the demand for products in countries such as China and
India raising the bar for production, but the potential for companies to
expand their business operations is increasing at a rapid pace.
Commodities such as silver, gold, and coal are not only traded around
the world, but companies focused on these minerals are increasingly
taking their operations global to best capture available supply.
Evaluating some of the laws in place for companies to take this approach
is an important step in determining potential success in a region. An
important consideration in identifying sound investments is to determine
what the regulatory climate could mean for mining or related companies
who are looking to expand or potentially explore new options in foreign
markets.
China’s Opportunity:
In a paper recently published by Perkins and Coie LLP and Affiliates
entitled, “New Rules Mean New Prospects in China for International
Mining Companies,” many factors which have played a hand in China’s
mining sector throughout the last decade are discussed. The article
begins by stating that, “As a general matter, China’s legal system is
still in the early stages of development. Its system of commercial laws
has evolved within the last two decades as China has liberalized its
economy; however, the country’s laws still do not have the element of
predictability found in other legal systems. Comprehensive regulations
governing the mining industry have only been issued within the last five
years.”
A document entitled the “Several Opinions Concerning Further
Encouragement of Foreign Investment in Exploration of Mineral Resources
Other Than Oil and Gas” was released in December 2005. The aim of this
document, which was released by State Council on behalf of five
government ministries who had a role in regulating foreign investment in
the mining industry, was outlined to “set out a variety of tax and other
incentives for foreign mining companies.”
Looking at links between industries in China, steel production is
closely tied to the amount of coke required and regulation impacting
steel presently provides for movement in both markets. According to an
article recently featured in the Financial Times, “China has accounted
for 78 percent of the growth in global steel production since 2000 and
produced almost 350m tonnes of the metal last year, a total almost equal
to the combined output of Europe and Japan.” The same article concludes
that, “Chinese steelmakers have been increasing their capacity in a bid
to grow too big to face closure under government-led attempts to
rationalize the booming sector.”
These changes to how regulations have been set up have had a huge impact
on business in the country. Justin Davis, vice president of Keating
Investments, North American representatives of
Puda Coal Inc. (OTC BB: PUDC), stated that some of the additions to the regulatory framework
have changed the market dynamic. “As of year end 2005, any coal mine
extracting less than 300,000 metric tonnes per year was being shut
down.” The resulting impact on the marketplace said Davis, was that
“only the largest and most efficient in the entire value chain are going
to survive this industry consolidation.”
Davis said that
Puda Coal is well-positioned in that it “has
significantly expanded its capacity, and indicated demand is such that
the Company could be producing at 100% of that capacity by the end of
2006.”
Puda does not directly mine coal; rather, it sources the highest
grade coal from top mines with unblemished safety records like Jucai
Coal. Through a value-added process,
Puda then cleans the coal so it can
then be converted into coke for use in the steel manufacturing process.
Davis furthered that because of the intense demand for steel in the
country, “steel companies the world over are trying to establish
operations in China,” but that “those establishing relationships with
the largest and highest quality producers of cleaned coal, like
Puda
Coal, will have a distinct competitive advantage.”
A recent Financial Times article reported that, “China has accounted for
78% of the growth in global steel production since 2000 and produced
almost 350m tonnes of the metal last year, a total equal to the combined
output of Europe and Japan.”
Puda’s six top new customers in the province include Hardan Steel and
Iron, Pangshan Steel and Iron, Beijing Capital Steel and Iron, Shanxi
Coal Import and Export Group, Sineohem Corporation and Taxan Steel and
Iron. The company currently has a share in “50% of China’s coke
production” in total.
Tony Trahar, Company CEO of Anglo American PLC (NASDAQ: AAUK) was quoted
in Chinese People’s Daily Online as saying that, “from the view of
consumption and productive capacity, China now plays a vital role in the
global natural resources market and everyone that has set foot in this
field could not underestimate the lever effect China has so far played
in the global market.” Anglo American is continuing to seek out further
opportunities in China, with smaller projects and investments in coal,
papermaking and zinc, turning out significantly well. According to Trahar, the “Chinese government is now trying its best to improve the
coal mine safety and raise the environmental protection standard, which
will boost the confidence of foreign companies to invest in the
country.”
Latin America Mining Markets:
Turning the spotlight on another region, Mexico is also seeing an
increase in mining exploration and expansion. Brenda Radies,
Vice-President of Corporate Relations Pan American Silver Corp. (TSX:PAA;
NASDAQ:PAAS) comments, ”In addition to our 6 operations, we are
currently building a new silver mine in Mexico and we have two more
projects in development, one in Argentina and one in Bolivia. Our new
mine in Mexico is expected to be completed in the fourth quarter of this
year and will add 5 million ounces of silver per year to our current
production of 12.5 million ounces per year. The Manantial Espejo project
in Argentine is due to have a production decision made shortly. It is a
50-50 joint venture with Silver Standard Resources and would contribute
2 million ounces of silver per year to Pan American starting in 2008. We
also have a small project in Bolivia that will contribute another 2
million ounces per year at very low cost, also starting in 2008.”
Endeavour Silver Corp. (TSX: EDR; FSE: EJD; EDRGF: PNK) also has set up
operations in Guanacevi, Mexico, with an eye of what it takes to do
business there. When asked how the company has prepared itself to set up
in the country, Director of Investor Relations Hugh Clarke commented
that, “starting at the head office here in Vancouver, a lot of our guys
had substantial prior experience in Mexico such as our Chairman Bradford
Cooke, President Godfrey Walton and even myself. We actively sought and
were successful in attracting senior management with Mexican experience.
Neil Marshall, our mine manager, is a good example. We were also
extremely fortunate to attract Miguel Ordaz, our Director of Mexican
operations, to the company. Miguel is a Mexican national with a
background in mining engineering and knows everybody in the industry in
Mexico.”
Endeavor plans to continue to develop their operations in Mexico. “We
have very ambitious plans to dramatically expand the company’s
operations in Mexico through acquisitions and organic growth. We know
how to operate in Mexico and are quite comfortable in the country.
Having said that, if a remarkable opportunity presented itself in
another jurisdiction, well we would have to have a look at it,” explains
Clarke.
With companies casting their nets this wide, a closer look at
international corporate attitudes is a must. The shift from a national
to global paradigm has wider implications for those involved in and
around the mining sector.
Canarc Resource Corp. (TSX: CCM;OTCBB: CRCUF) who has ventures in
Suriname, South America and a potential venture ahead with its Benzdorp
project, has had some experience being one of the first gold mining
companies. Gregg Wilson, Manager of Investor Relations reported, “It is
a developing country, but mining has been in the country for 80 years
with major companies such as Newmont Mining Corporation (NYSE:NEM) and
Cambior Inc. (TXS:CBJ; AMEX:CBJ) in production. With respect to the
regulatory issue, Wilson comments that, “mining regulations are not
particularly onerous. The country is in a lot of ways, quite
accommodating because they want to diversity their economy and grow
their country.”
Eldorado Gold Corp. (AMEX: EGO; TSX: ED), now exploring in Brazil,
Turkey and China, has employed a strategy in its international mining
ventures that looks to integrate closely with the region’s experts.
Manager of Investor Relations Nancy Woo, reported that “the philosophy
of our company is to have management and staff be the people to run the
mine.” The aim she stated, was to have “the majority if not all of our
management staff be nationals.”
Exploring India:
On the other side of the globe, India’s government has done a lot to
attempt to attract foreign investment and growth in exploration efforts.
In a recent interview with Bloomberg reporters Francine Lacqua and Ashok
Bhattacharjee, India’s Finance Minister P. Chidambaram stated that,
“India aims to attract $10 billion for foreign investments this year,
two-thirds more than in 2005, as it eases rules to attract overseas
funds to accelerate economic growth.”
He further told reporters that “We need to get more capital into mining,
especially coal-mining, steel-making, ports and seaports,” at a World
Economic Forum at Davos, Switzerland. With these lures in place, India
is hoping to set a new balance with China in an attempt to catch up to
this economy which opened its doors to outside investment as early as
1978, a good 13 years ahead of them.
Such a rise in import and export capacity will have interesting
implications for mining companies seeking to expand their horizons in
the years ahead. According to Bloomberg, “Prime Minister Manmohan Singh
is relying on increased trade and overseas investments in infrastructure
to boost the pace of economic growth to as much as 10 percent over the
next three to four years.”
Jennifer Lee
Jennifer Lee has a degree in English Literature from the University of
British Columbia. She holds a publishing certificate from Simon Fraser
University and has worked at both Vancouver and Western Living
magazines, where she began her career as an editorial intern. She has
worked as an editor in countries such as Zimbabwe and South Africa,
producing books, newsletters and editing various quarterly magazines on
a variety of international development related topics. In South Africa,
she worked to help produce a bi-weekly newsletter for the Institute for
Security Studies on crime and corruption headlines which appeared in all
national and provincial papers. Prior to working in southern Africa, she
wrote articles for DMR Consulting Group, on mergers and acquisitions
taking place in the market during 2001. She now produces a quarterly
publication at the University of British Columbia.
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