As Mines and Money Beijing gets closer, we caught up with Erik Bethel from Sino Latin Capital (who is speaking at the event) to hear his perspectives on Chinese investment into overseas mining projects.
Erik will be presenting on ‘Connecting Chinese investors with Latin America’s mineral resources’ on conference day one.
MM: What’s your growth forecast for Chinese outbound investment in the mining and energy sector? Will the push to “open up” increase the amount of investment seen over the next few years?
EB: In the past, China took advantage of depressed markets as an opportunity to acquire minerals and mining assets inexpensively. In the financial crisis of 2008-09, while mineral purchases from the rest of the world contracted, China’s actually increased!
Let’s look at copper. In 2008-09, the rest of the world contracted by 15% while China’s purchases of copper grew by 39%.
In zinc, the rest of the world contracted by 21% while China’s zinc purchases grew by 24%! Nickel, lead and iron were very similar.
MM: Which areas of the sector will see the largest levels of investment (type of commodity, region etc)?
EB: Over the last few years China has had to look at marginal projects because the good ones were really expensive. In a time where “cash is king” I suspect we will see Chinese firms snatching up attractive opportunities that weren’t previously available. I suspect that many of the majors – most of whom are totally over-leveraged – will need to begin selling off assets. Many of these assets are in Latin America.
In terms of commodity, we like copper. We still believe that the need in China is still very high and that the interest level for good copper projects is proportionally high.
MM: Are Chinese investors exploring different models of funding and investment e.g streaming and royalties?
EB: No. At this stage, the optimal structure for a Chinese investor is still majority control. Things may evolve over time, but today this is what the vast majority of Chinese investors want.
MM: In the last few years, have you seen a change in the profile of the Chinese investor market? Is investment from private funds and investors growing?
EB: Overall the biggest change we have seen in the Chinese investor market is a growing sophistication and an understanding of how to do business overseas.
In Latin America, for example, certain firms like Chinalco (who bought Peru’s Toromocho project) have learned how to do business locally. In addition to developing the mine, they are also working with local communities, contributing to social programs, and building roads.
Private Funds: There is limited funding from private funds. Chinese private equity funds typically raise money that is denominated in local currency (RMB). Investing RMB overseas is impossible and this presents a challenge. The other challenges deal with the fact that local Chinese private equity funds do not have in-house mining expertise.
Private Firms: Private firms have emerged over the last decade or so and many of them are well run, knowledgeable, and experienced in making investments overseas. They are able to make decisions more rapidly than a state-owned company. However a big limitation is that it is more difficult for them to get project funding (leverage) from the large Chinese banks. Banks lend mainly to state-owned companies.
MM: What do mining companies need to consider when seeking capital from Chinese investors?
EB: Chinese investors operate on the basis of a relationship, not a contract. If you want money from a Chinese investor, you need to invest time in building the relationship. It requires a lot of patience and effort. Without a relationship that has been built over many months (or preferably years), forget about raising money from China.
For more in-depth analysis on Chinese outbound investment in foreign mining projects and to explore capital raising options in the region, take part in Mines and Money Beijing in June. Hear Erik Bethel’s presentation on Conference Day One.
Along with Erik, you’ll hear perspectives and investment strategies from Jionghui Wang from China Minmetals Corp, Tong Junhu from China National Gold Corporation, Bill Weng from Bank of China International, and a selection of leading resource investment funds like Chen Biao from Jinjiang Mining Fund, Dr Zhang Yan from Qinglan Blue Ocean Mining Investment Fund and many more.
To attend Mines and Money Beijing, download the agenda or register online.
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