August 10,2009

China Casts Resource-Hungry Eye on Nickel Mines

By CT Johnson

Following in the footsteps of other Chinese resource companies, and leveraging off government efforts to restructure the non-ferrous metal industry and create a number of global giants, the country's two largest nickel producers both announced significant overseas acquisitions.  Jinchuan Mining revealed plans to take a 51% interest in Zambia's Munali mine, while Jilin Jien Nickel Industry said that it had purchased a 14.7% stake in Canada's Victory Nickel.

China's largest nickel producer, Jinchuan Mining, said that it will acquire 51% of Australia's Albidon Ltd.'s Munali nickel mine in Mazabuka, Zambia.  Jinchuan converted its existing loans to Albidon into an equity stake in the mine.  In 2007, Albidon approached Jinchuan and asked for its help in developing the $65 million Munali mine project.

 Since 2003, demand for nickel has soared in China's expanding stainless steel manufacturing industries with domestic producers failing to keep pace.  Jinchuan and other producers have increasingly had to look abroad for new sources of nickel and other non-ferrous metals.

 Jilin, the country's second largest producer, increased its stake in Victory from 4.3% to 19.0% with its purchase from Nuinsco Resources Ltd.  Jilin is now the largest shareholder in the Toronto-listed exploration and development company.

 "Although the price of nickel continues to rise, it is still low compared to the highest level last year. So, we think it is good time to start on overseas acquisitions," said Wang Xinglong, secretary to the chairman of Jilin.

 Jilin also announced a venture with Canada's Goldbrook Ventures to bid for Canadian Royalties, the crown jewel in the Nunavik nickel project in Quebec.  Canadian Royalties had to suspend development after facing difficulties financing the C$465 million project.

 "Canadian Royalties' Nunavik nickel project presents an excellent development opportunity that can only be realised with a board of directors and management with extensive experience in effectively developing large-scale resource projects and in raising the large amounts of capital that will be required," Goldbrook CEO David Baker said.

In the past half year, Chinese resource companies have stepped up their hunt for resources to fuel their growing economy, expanding projects in Africa and taking advantage of the worldwide economic downturn to snap up mines and resources in Canada, Australia and South America.  Canada's Teck Resources, Australia's OZ Minerals, and Repsol's Argentine producer YPF have all caught the eye of Chinese suitors.

China's obsession with metals has been one of the defining themes of its most recent commercial engagements with the rest of the world.  During the first half of 2009, Chinese companies acquired stakes in two Australian rare earth projects, Lynas Corporations and Arafura Resources, creating rumors of a Chinese plot to corner the rare-earth market.  China Investment Corporation's investment into Canadian miner Teck Resources stirred commentary throughout North America.  Aluminum Corporation of China's failed bid for an additional 9% stake in Australian miner Rio Tinto and subsequent accusations of industrial espionage have dominated the headlines in both countries. 

The entrance of China's nickel producers into the fray adds yet another dimension to the country's bid to continue its amazing economic expansion.

 

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