China Eyes African Mining Divestments

With declining commodities across the board, mining companies that have made huge investments in mining projects in recent years are starting to re-think their strategies. More Western mining companies are looking to sell stakes in mining projects, especially in Africa, one of the most active investment destinations in recent years. Meanwhile, Chinese mining companies are taking a look at purchasing these assets at more reasonable prices.

The most recent example of this trend is Canadian miner Barrick Gold, the world's largest gold producer, reportedly exploring a sale of its 74 percent stake in African Barrick. Chinese Zijin Mining Group has indicated a preliminary interest in African Barrick. Although African Barrick is Tanzania's largest gold producer, it has performed poorly, struggling to hit its production targets.

The move to sell off some assets reflects greater downward risks in the world economy. Like other global miners, Barrick Gold recently signaled it was reining in its expansion plans, reviewing its sprawling portfolio of assets and introducing a renewed focus on disciplined spending. Meanwhile, Chinese mining companies are selectively exploring the purchase of strategic assets overseas at attractive prices. State-controlled Zijin, the largest gold producer and second-largest copper producer in China, recently bought a majority stake in Norton Gold Fields, marking the first successful example of a Chinese enterprise taking over a large-sized gold mine in production. According to PwC, deals by Chinese companies in the resources and energy sectors have dominated overseas M&A activity in the first half of 2012, making up 44 percent of the country's total number of outbound transactions.

Another one of China's largest mining companies, Jinchuan Group, has recently entered South Africa's platinum sector through its acquisition of Wesizwe, a South African company that is developing one of the richest platinum deposits in the world. The joint acquisition with the China Africa Development Fund (CADFund) opens the possibility of further Chinese investment in a sector that has previously been dominated by South African and Western commodities companies. Jinchuan pledged a further $877 million to fund the development of the company's primary asset, a greenfield platinum mine in the northwest of the country. This is a stark contrast to Aquarius', an Australian commodities producer, decision to shut down two platinum operations in South Africa, angering local workers.

As Western mining companies look to increase their cash holdings in a more uncertain future, Chinese mining companies are thinking long term, knowing full well that China will still need reliable sources of crucial natural resources for years or even decades to come. However, time will tell whether Chinese mining companies can pick up the slack left behind by their Western peers. If they can turn around underperforming mining assets, the African continent will be that much better off, marking another milestone in China's growing list of achievements in Africa.

The ChinAfrica Econometer is produced by The Beijing Axis, a China-focused international advisory firm operating in four principal areas: Commodities, Capital, Procurement, and Strategy.

For more information, please contact:

Daniel Galvez, danielgalvez@thebeijingaxis.com

www.thebeijingaxis.com