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.