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China Mining Report Q4 2010
Business Monitor International, Aug 2010, Pages: 74
China Mining Report provides industry professionals and strategists, corporate analysts, mining associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on China's mining industry.
Zijin Mining Affected By Waste Spill
The near-term outlook for China’s biggest gold producer, Zijin Mining, has been negatively affected by an accident at its main Zijinshan copper and gold mining site in Fujian province during July 2010, which led to the spillage of 9.1mn litres of acidic copper mine waste into the Ting River. More damaging to the company have been media reports that it did not admit the scale of the environmental disaster for nine days, which worsened the impact of the initial spill and has infuriated local authorities in the region. There was a further leak of 550 m³ of waste water on July 16, with the original spill having moved along the river from Fujian Province into neighbouring Guangdong.
Looking forward, the company will now have to dedicate resources towards the clean-up operations that may otherwise have been used to make fresh acquisitions as it looks to expand. Zijin has temporarily shut down its copper smelter while an investigation into the accident is carried out. Some company officials have since been detained. The company is now also subject to a China Securities Regulatory Commission investigation surrounding a possible breach of information disclosure rules relating to the spill, according to a report on the Business Week website.
Certain commentators have suggested that Zijin had been expanding too aggressively in recent years, without perhaps spending the necessary resources on strengthening health and safety norms at its properties. Already, a company spokesman, Zhao Jugang, has been quoted on the Business Week website as stating that the company will invest some CNY200mn over the coming 12 months to improve its environmental standards.
This accident at Zijinshan is merely the latest in a spate of recent pollution incidents within China and underlines the massive steps the country still needs to take to meet international safety standards. For Zijin itself, the accident will severely curtail its ambitions for overseas expansion over the near term. These ambitions had already suffered a setback with news in June 2010 that it was pulling out of its AUD545mn bid for Australia’s Indophil Resources. For more information on Zijin, please turn to the Company Monitor section at the end of this report.
Separately, an August 2010 fire at the Luoshan Gold mine, operated by state-owned Shandong Zhongkuang Group Company also had an impact on other gold miners, according to local media reports. Listed gold companies saw their share values fall, amid fears over mine safety across the industry and the likelihood of other accidents in future. The fire also saw output from the city of Yantai (where Luoshan is located) temporarily halted, while other gold mines were closed for safety checks.
Country Overview
The People’s Republic of China is a natural world leader in terms of both reserves and the production of several metals and minerals. Endowed with abundant mineral wealth, the country leads in the production of copper, coal, zinc, aluminium and gold.
China is also in the fortunate position of being cash rich at a time when many mining companies around the world are struggling to locate financing. In 2009 and early 2010, Beijing has been very active in buying up foreign mining assets, notably in Australia, but also in countries such as Mongolia and Zambia. The national government is taking active steps to make the mining industry more competitive. Although it is a communist state, China introduced market reforms in the 1980s and today only about a third of the economy is directly state-controlled. The government is encouraging mergers and acquisitions (M&As) as a means of ensuring optimal use of mineral resources and barriers to foreign investment are gradually being removed.
Industry Forecast
Reaching an estimated value of US$255bn in 2009, China’s mining industry continues to grow at a fast pace. It is the world’s largest producer of coal, copper, zinc, aluminium and gold. China is also the world’s largest consumer of coal. Coal plays a dominant role in China’s energy consumption and caters to a major proportion of its rising energy needs.
China is especially keen to increase its uranium reserves. With the country looking to rapidly increase its nuclear power generation, the government is seeking to secure a stable supply of raw materials. Exploration for the metal is concentrated in Inner Mongolia and the north west. BMI forecasts that the mining industry will grow at a rate in excess of 8% per annum over our forecast period, reaching US$502bn by 2014.
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