As China continues its transition to economic super-power, outbound investment from the country is expected to increase this year with mining and energy assets key to the country’s investment strategy.
As a prelude to Mines and Money Beijing in June, we’ve gathered some of the key trends and forecasts for Chinese outbound investment, identified Chinese companies who are pursuing aggressive M&A strategies in the mining and energy sector and examined how the profile of the Chinese resources investor is changing in 2013.
Chinese Outbound Investment to Increase in 2013
A report by China’s top economic planning agency, the National Development and Reform Commission, predicts Chinese outbound investment will grow 15% this year to $88.7 billion, in what was labelled in the report as “a more proactive opening-up policy this year”.
Already the forecasts are on track, with the first two months of 2013 resulting in a 147% year-on-year increase in Chinese non-financial outbound investments (worth $18.4 billion).
Metals & Energy Sectors Remain Key in China’s Outbound Investment Strategy
Amy Cheng from the Bank of China International presented an overview of Chinese outbound investment at Mines and Money Hong Kong which outlined that USD$18.5 billion was invested in metals during 2012 and a further USD$56 billion was invested in energy assets, representing 59.5% of all outbound investments.
Cheng explained that the commodities highest on the hit list for Chinese investors are copper, gold, coking coal, iron ore and energy related resources.
Australia, Africa, South-East Asia and North America would continue to be the primary regional focus of Chinese investment.
Chinese Outbound M&A Ramps Up
Recent M&A activity suggests Chinese investors are displaying a willingness to invest billions abroad and with the fall in gold bullion in the last fortnight, analysts anticipate this will further spur an increase in M&A with Chinese investors at the forefront.
Energy and resources continues to be the major sector focus for Chinese outbound M&A, representing 66% of the value of investments from 2005 to Q3 2012. During this time, despite a turbulent five years for global economic markets, USD$187.3 billion was spent by China on energy and resource sector M&A deals.
Amongst those leading the outbound investment charge in the mining arena recently has been Zijin Mining Group (marcap USD$10 billion). Last August they took a majority stake in Australian gold producer Norton Gold Fields (worth USD$236.6 million) and this week (through Norton Gold Fields) continued their expansion plans with a buyout of Kalgoorlie Mining Company, worth about $10 million.
Zijin announced in December its intention to outlay $USD5 billion over the next three to five years to buy gold assets overseas, with the Norton takeover being a strategic move to further invest in mining assets in Western Australia, particularly in the Kalgoorlie region.
Li Zhilin, President for International Affairs at Zijin, was quoted in January as saying “The main path for increasing resource reserves is through overseas acquisitions”. With additional funding gained from the China Development Bank, the company’s Chairman Chen Jinghe stated that “money is not a problem”.
Fellow miner Shandong Gold announced it is on the hunt for overseas investments. Li Zhongyi, Chairman of the international mining unit, stated in November that “we aim to have at least one acquisition each year over the next three years.”
The company has already acquired 51% of Australian producer Focus Minerals for AUD$225 million.
Other Chinese mining organisations who have recently inked deals include China Minmetals Corp, who last week confirmed a AUD$1.5 billion deal to develop the Dugald River mine in Queensland.
While some high-profile discussions haven’t made it successfully through the negotiation stage (such as the recent talks between China National Gold and African Barrick), the aggressive investment plans by Chinese companies, gold bullion prices falling to their lowest levels in two years and traditional debt and equity markets remaining tight, the climate is well positioned for M&A investment from Chinese companies.
The Changing Profile of the Chinese Investor
While Chinese SEOs represent the lion’s share of the investment pool, the profile of the Chinese investor has begun to shift, as Bhagyesh Dash from Bromius Capital explained in an interview with Fortbridge last week.
“The profile of the Chinese investor has changed quite a bit” says Dash, pointing to an emergence of private groups and business conglomerates who, for reasons of diversification and changes in the economic climate (a slowdown in the property sector and overall economy) “need to find a new home for surplus cash flows”.
According to Dash, these private investors are “following the lead of the [SOEs] and the dictate of the government to “go global” and secure national resources for China Inc. by looking to invest in and acquire mining, oil and gas assets overseas”.
While the Chinese SOEs are “still clearly dominant”, the private groups “are certainly getting more and more active” and are “seeking to deploy capital into the resources sector and capable of looking at bigger deals with or without partnering with the SOEs”.
Dash also expects more engagement between Chinese SOEs and larger global mining corporations – evidence in case being the conversations between African Barrick and China National Gold (although this ultimately resulted in a failed bid, it is significant that deals of this size are being considered).
“We believe there is going to be more interaction between Chinese SOEs and the larger mining groups in relation to assets the larger mining groups own and that they are having difficulty funding in these markets”.
A recent mergermarket newsletter also pointed to the emergence of Chinese private investors looking at overseas mining interests.
“Private companies will do more deals in Africa this year. In the past several years, Chinese SOEs were the dominant acquirers of large-sized mining assets. Now, more and more private capital from China is forced to seek investment opportunities abroad, due to the ongoing nationalisation of domestic resource assets in China”.
“Private enterprises will focus on smaller deals valued at USD 5m-10m in overseas investments, with an eye toward future asset appreciation”.
Mines and Money Beijing
Mines and Money Beijing is China’s leading conference and exhibition focusing on Chinese outbound investment into international mining projects.
With over 1,000 representatives from China’s leading mineral resource investors and 100 international mining companies expected to attend this year, Mines and Money Beijing will provide unparalleled opportunities for China’s resource investors to source their next overseas mining investment opportunity.
Speakers at this year’s event include: Li Zhilin from Zijin Mining Group, Jionghui Wang from China Minmetals Corp, Tong Junhu from China National Gold Corporation, Amy Cheng from Bank of China International, a selection of leading resource investors like Chen Biao from Jinjiang Mining Fund, Dr Zhang Yan from Qinglan Blue Ocean Mining Investment Fund and many more.
Investors at the event will meet executives from international mining companies to explore mining investment opportunities from around the world.
View the agenda for the event here or register online now.
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