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TBG Resource Flash for May 3-9, 2008
News Picks:- Jinshan’s pre-commercial production for the 3-month period ended March 31, 2008 was 11,286 oz of gold and 5,414 oz of silver. Jinshan received net proceeds of C$10.9 million for the sales of gold and silver for the three month period ending March 31, 2008. (Source: Jinshan Quarterly Report)
- Midwest's Directors announced that since the Target's (Midwest) Statement release 29 April 2008 was approved for printing, Sinosteel has agreed to increase its offer to A$6.38 per share subject to Sinosteel receiving acceptances of 50.1% of Midwest shares. In other words, the A$6.38 increased offer is only available to Midwest shareholders once the 50.1% threshold has been satisfied. Previously Midwest’s board has said that any offer below A$7 per share undervalued the company and should be rejected. (Source: Midwest Website & Miningnews.net) Peter Fritz Comment: After some initial missteps we are coming closer to the conclusion of China’s first (or one of the first) hostile takeover of a foreign listed company. We can expect to see more in the future, especially in the resource sector. In this transaction Sinosteel is being advised by JP Morgan.
- Iron ore and metallurgical company Haoning Group has become the latest Chinese group to adopt the strategy of seizing shareholdings in Australian iron ore plays after securing a 9.55% stake in Jupiter Mines In a statement released yesterday, Sydney-based Jupiter said 14.8 million shares will be placed with LSG Resources, an Australian company which is part of the Haoning Group, at an issue price of A$0.25 to raise A$3.7 million. Last year, Jupiter defined an initial resource of 2.2 million tonnes at 60.6% iron at the Mt Mason prospect in the Central Yilgarn project following a 1000m drilling program. (Source: Miningnews.net) Peter Fritz Comment: We are starting to see private PRC companies or groups acquire minority stakes in overseas resource properties. This is in contrast with the SOEs who like to take the whole project or a majority stake. Also, these investments do not seem to be linked to offtake but are rather investments for the sake of generating a financial return rather than to secure a resource which, again, is different from the usual SOE strategy.
- China’s largest power company, China Huaneng Group, has its eyes on Morris Iemma's A$15 billion sell-off, as part of an ambitious strategy to buy Australian power, coal and even uranium assets. China's largest coal mining company, Shenhua Group, has also been closely watching the NSW electricity privatisation program. But Chinese companies are concerned by what they see as Australian government discrimination against recent Chinese investment proposals. Both Huaneng and Shenhua are also actively scouring eastern Australia for coal mines to ease an acute shortage of domestic supply. China mines and consumes about 2.5 billion tonnes of coal a year, about 40% of the world total, but that is not enough to satisfy the industrial machine. (Source: Sydney Morning Herald)
- China National Petroleum Corporation (CNPC) is in talks to buy a 49% stake in a Japanese oil refinery operated by Nippon Oil. It is the first investment in Japan by the Chinese company, which is seeking to overcome a chronic shortage of refining capacity. A joint venture would pair a Japanese refiner, which faces surplus capacity as its domestic market shrinks, with an emerging Chinese oil enterprise, whose relatively small refining business has struggled to keep pace with rapid growth in exploration and production. Nippon Oil said it expected the venture to begin operating next April pending a final agreement. CNPC would provide crude oil for the refinery in Osaka, western Japan, and sell the output in China. Nippon Oil would continue to manage the facility, which processes 115,000 barrels a day. “Our plan is to turn the Osaka plant into a hub for exports,” said Shinji Nishio, Nippon Oil chief executive. PetroChina loses billions of dollars on its refining operations because Beijing limits the retail price of petrol and other petroleum products. (Source: Financial Times) Pete Fritz Comment: This is certainly an interesting development which underscores improving relations between China and Japan. This deal is also in line with China’s low-risk high cost strategy of acquiring resources and processing capacity rather than building more capacity or engaging in risk exploration.
- Zinifex Australia Limited announced that Jinchuan Group Limited had accepted Zinifex's offer for its 10.4% interest in Allegiance Mining NL. With Jinchuan's acceptance, Zinifex will own more than 90% of Allegiance and will move to compulsorily acquire the outstanding shares and de-list the company (Source: Kitcometals.com)
- Chinese companies will be encouraged to buy farmland abroad, particularly in Africa and South America, to help guarantee food security under a plan being considered by Beijing. A proposal drafted by the Ministry of Agriculture would make supporting offshore land acquisition by domestic agricultural companies a central government policy. Beijing already has similar policies to boost offshore investment by state-owned banks, manufacturers and oil companies, but offshore agricultural investment has so far been limited to a few small projects. If approved, the plan could face intense opposition abroad given surging global food prices and deforestation fears. However, an official close to the deliberations said it was likely to be adopted. The move comes as oil-rich but food-poor countries in the Middle East and north Africa explore similar options. Libya is talking with the Ukraine about growing wheat in the former Soviet republic, while Saudi Arabia has said it would invest in agricultural and livestock projects abroad to ensure food security and control commodity prices. (Source: Financial Times) Pete Fritz Comment: This is a very interesting development that will almost certainly draw lots of opposition from outside of China.
Resource News from the Chinese Press:
Regulation and policy
Tax reform plan to expand scope of tax collection
<Chinamining.com.cn> Sources have disclosed that a resources tax reform plan is likely to be published in the latter half of this year and will expand the scope of tax collection. Meanwhile, the reform also plans to change how resource taxes are collected. The tax will be collected on a value added basis rather than a specific volume basis.China encourages companies to use coalbed methane
<China Mining News> According to the Energy Bureau of the National Development and Reform Commission, a new policy to promote the treatment and use of coalbed gas has been drafted. The policy attempts to increase the number of companies investing in the sector, stimulate the use of coalbed gas and improve the safety conditions of coal mines.
At present, the preferential policies on taxes and fees formulated by most of the provinces and municipalities have been released. The main preferential policies include the exemption of import duty and import VAT for the equipment and special tools used for the exploration; development and operation of coalbed gas; refunding of VAT for the companies extracting coalbed gas; accelerated depreciation of equipment, exemption and off-set of investment, deduction of technological development fees and zero resources tax for extracting coalbed gas on the ground.
Cooperation with foreign companies is encouraged. The foreign cooperation of extraction of the coal stratum gas has been extended from the original exclusive operation Zhonglian Coalbed Gas Co., Ltd. to the joint exclusive operation by Zhonglian Coalbed Gas Co., Ltd. and other companies as designated by the State Council. The Ministry of Commerce, National Development & Reform Commission and the Ministry of Land and Resources are now testing pilot projects to expand foreign cooperation in this sector.
Base Metals
PT Sinosteel to build 500,000-MT nickel ore mine in Indonesia
<Chinamining.com.cn> PT Sinosteel Indonesia Mining, a subsidiary of China's state-owned Sinosteel Corp., is in the initial stages of developing a 500,000-metric-ton nickel mine in central Sulawesi, with plans to mine nickel ore by the end of the year, a senior company official said Wednesday. The mine would be Sinosteel's first move into nickel mining, as part of the company's aggressive efforts to secure raw materials for steelmaking. The final exported laterite nickel product would likely contain 1%-2% nickel and would be sold to Sinosteel Corp.'s 80,000 ton ferronickel plant, which is currently under construction near Tianjin, China.China's top copper tube producer to set up plant in Mexico
<Chinamining.com.cn> Golden Dragon Precise Copper Tube Group Inc., China's largest precise copper tube producer, is to set up a plant in Mexico. The Mexican plant, in the copper-rich Coahuila with a designed capacity of 70,000 tonnes of precise copper tube, will start production by the end of 2008. The plant will cost up to US$80 million and will be funded by Standard Chartered, Goldman Sachs and Lehman Brothers.
Coal & Steel
Tongling Nonferrous to start risk exploration in Chile Silver Mountain Mine
<China Nonferrous Metals News> On April 29, Tongling Non-Ferrous Metal Group Holdings Co., Ltd began risk exploration of the Chilean Silver Mountain mining area. This is the company’s first geo-survey engineering project and also the first overseas exploration and construction project of the Geo-Survey Branch.The risk survey project of Chilean Silver Mountain is a project jointly carried out by Tongguan Resources Company of Tongling Non-Ferrous Metal Holdings Group Company, Zhongxinghenghe of Hong Kong and CCCL Chile. The scope under the risk survey of the first stage is 20 square kilometers. The drilling quantity of the first stage will be 20,000m and is expected to be completed in two years.
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