Global Mining Perspectives on Opportunities in Coal, Silver, and
Gold
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.