China Mining Report Q4 2009

China Mining Report Q4 2009

The People’s Republic of China is a natural world leader in terms of both reserves and the production of
several metals and minerals. It joined the WTO in 2001, and has since become an economic force to be
reckoned with, doubling its manufacturing output and in the process accumulating over US$1trn of
foreign exchange reserves. Endowed with abundant mineral wealth, the country leads in the production of
copper, coal and aluminium. Further, its 1,200 gold mines position it fourth in terms of gold production
worldwide – a metal of which it is also the world’s third largest consumer.
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. So, in recent months, Beijing has been very active in buying
up Australian mining assets. We examine this phenomenon in detail on p.8 of this report.
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 done away with.
The Chinese mining industry as a whole is suffering from the global financial crisis and the collapse in
commodity prices. Yet the recovery of the domestic and international mining sector will be due, in part,
to the success of China’s CNY4trn fiscal stimulus package. This should include investment in railroads,
airports and power generation in 2009-2011, which will help drive demand for steel and other
commodities. The government has also pledged to spend CNY900bn on affordable housing in the same
period. It is estimated that these measures will boost demand for steel by as much as 150mn tonnes a year,
which will help stimulate demand for iron ore.
Meanwhile, predictions that Chinese steel companies will be able to force a 30-40% drop in iron ore
prices in 2009 look optimistic. Falling prices are forcing many Chinese ore miners out of business, while
smaller international miners are having to reduce production. Therefore, just when China thought it was
in a strong position to bargain with the major mining companies, it has found itself more reliant on them
than ever. At most, industry watchers expect a cut of 20% in iron ore prices, after negotiation.
Industry Forecast
In 2008, China became the world’s largest supplier of gold, surpassing South Africa. China is also
implementing its 11th Five-Year Plan (2006-2010), which emphasises securing the economy’s future
metals and minerals resource needs. The focus is on further geological exploration of mineral reserves
and increasing the supply of mineral products to fuel China’s rapid economic expansion. One area where
China is especially keen to increase its reserves is uranium. With the country looking to rapidly increase
its nuclear power generation, the government is seeking to secure a stable supply of raw materials.
Uranium exploration is concentrating on Inner Mongolia and north west China. BMI forecasts the mining
industry GDP in China to grow at 13.26% per annum in 2008-2013, reaching US$474bn by 2013.

Executive Summary 5
SWOT Analysis........7
China Political SWOT ................ 7
China Economic SWOT .............. 8
China Business Environment SWOT............ 9
Special Focus: Outlook For Global Mining.............10
Table: Biggest Chinese Acquisitions In Australia Since 2005...... 12
Table: Global Mining – Top Five Companies By Market Capitalisation (US$mn)......... 14
Table: Global Mining – Key Players’ Future Investment Plans (Selected Projects)....... 15
Industry Trends And Developments ......17
Market Overview .......... 17
Regulatory Structure 17
Regulatory Structure Developments........... 20
Project And Property Updates ................21
Metals .......... 21
Gold........ 21
Copper.... 21
Nickel...... 22
Iron......... 22
Zinc......... 23
Bauxite And Alumina ................ 24
Uranium.. 24
Minerals....... 25
Coal ........ 25
Table: Mines In China .............. 26
Mining Business Environment...............27
Regional Overview – Asia Pacific.. 27
Table: Regional Mining Business Environment Ratings .............. 27
Indonesia – Business Environment Ranking ... 28
Limits Of Potential Returns....... 28
Risks To Realisation Of Returns ................ 29
Legal Framework..... 30
Labour Force................ 32
Table: China – Demographic Indicators, 2000-2030 . 33
Table: Regional Labour Force Quality...... 34
Foreign Investment Policy ........ 35
Table: Asia’s FDI Inflows, 2005-2006....... 36
Table: China’s Annual FDI Inflows, 2000-2006......... 36
Political Environment ............... 37
Macroeconomic Forecast ......... 38
Table: China – Economic Activity, 2006-2013 ........... 41
Industry Forecast Scenario ....42
Metal Prices Outlook................ 42
Aluminium To Average US$1,700/tonne In 2009........ 42
Table: BMI Aluminium Forecast ............... 42
Table: Aluminium .... 44
Copper To Average US$4,800/tonne In 2009 ............. 45
Table: BMI Copper Forecast.... 45
Table: Copper.......... 47
Commodities Forecast – Gold To Average US$920.00/oz In 2009 ................ 48
Table: BMI Gold Forecast........ 48
Global Industry Overview......... 50
Regional Analysis .... 50
China – Mining Industry Forecast ............. 53
Table: China’s Mining Industry, 2005-2013 (US$mn, Unless Otherwise Stated) ........... 54
Competitive Landscape.........55
Table: Key Players In China’s Mining Sector............. 55
Company Monitor..56
Shandong Gold Mining Company.............. 56
Zijin Mining Group.. 57
Datong Coal Industry Company ................ 58
Zhaojin Mining Industry Company ............ 59
Appendices ............60
Appendix A: Global Assumptions... 60
Table: Global Assumptions, 2008-2011..... 60
Developed States...... 61
Table: Developed States’ Real GDP Growth, 2007-2012............ 61
Emerging Markets ... 62
Table: Emerging Markets’ Real GDP Growth, 2007-2012.......... 63
Regional Aggregate Data And Exchange Rate Forecasts ............ 64
Table: Global And Regional Real GDP Growth And Average Exchange Rates, 2008-2011............ 64
Appendix B: Business Environment Ratings Methodology................ 65
Ratings Overview..... 65
Table: Mining Business Environment Indicators ........ 66
Table: Weighting Of Components.............. 67