The first week of March is always the time when what bills itself as “the largest mining trade show in the world” takes place in Toronto, Canada, an event named Prospectors and Developers of Canada Exhibition – referred to as PDAC.
It is a big show, with over 20,000 attendees over a five day run, and companies from far away from Canada being there, plus bankers, lawyers, dealmakers and equipment companies selling to the mining sector.
What had began decades ago as some prospectors with rocks they had chipped to show the potential riches below has evolved into a global business event.
One of the consequences of the expanded importance of PDAC is that companies often schedule major announcements for the week it takes place. A daily magazine is produced to list all the announcements, deals, financings and results that companies crowd to get out during this high visibility period.
Another feature is that, all through the show, a series of industry leaders will give speeches in the side venues attached to the main halls.
The first day of PDAC some of the most high profile people are speaking, to sent the tone for the days to come. This year, on the first day, Robert Friedland, the founder and boss of the the Ivanhoe complex of companies, gave the keynote speech.
Friedland is a major player, whose companies have made investors billions of Dollars in capital growth, from nickel in Canada (one of the world’s largest deposits) to copper in Mongolia (also, one of the largest deposits) to large scale copper and cobalt production in Congo And Friedland, based in Singapore, has been closer than most executives to the Chinese as they have become the dominant player in the resource business.
The whole mining industry has largely been driven, since about 1995, by the ever growing needs for raw materials of the People’s Republic of China. The Chinese currently produce half of all of the steel in the world, just to pick one example. Since domestic iron ore in China is low quality, they are by far the largest buyer of iron ore mined in Australia, Brazil, India and Canada. Giant ships, carrying 400,000 tons of ore each, were built by the Brazilians just to deliver iron ore to China.
The Chinese have been deeply involved with mine development in Africa, and increasingly in South America. In recent decades this has come to include direct ownership of mining projects in Australia and Canada, among the other destinations for capital.
With this context, what Robert Friedland had to say at the opening of PDAC this year is notable.
Canada (and, to a lesser extent, Australia) have begun to push back on the growing Chinese ownership of mining projects in their jurisdiction. Limits have been placed on new Chinese investments in Canadian mining assets last November.
“We are going to be deprived of all this Chinese capital in all of these junior mining companies,” the billionaire executive warned, “it’s really getting harder to be a miner.”
Since it was never easy to be a miner, one shudders at the thought.
A closer look at the Canadian rules show that there is a distinction made between Chinese state owned enterprises (SOEs) and genuinely private sector companies, which happen to be based in the People’s Republic.
The rules in Canada were drafted to effect the SOEs. The Canadian government ordered these entities to divest interests in three small Canadian lithium development companies. In principle the private sector companies will not be restricted. That said, the distinction in China between the State sector and the private sector can be blurry.
Lithium in particular has become a hot button subject. For a long time now, the Chinese have effectively controlled three metals groups: lithium and rare earths, with a combination of locally produced raw material, and a lock on the processing capacity to turn the raw minerals into commercial products. The third metal under effective Chinese control is tungsten, a tech metal used in applications that require very high melting points, and/or extreme hardness – the Chinese drove the world price down to close all of the non-Chinese tungsten producers out of business, and relied on the large domestic resources to supply the world.
But lithium is now seen as the “metal of the future” as the key material in batteries. The idea that the Chinese SOEs would produce lithium concentrate in Canada, ship it to China, and ship back high value batteries did not appeal to the Canadian government. The lithium deposits in Canada began to look “strategic” and the ownership restrictions came into being.
Realistically, how important is this restriction on investment? Will Friedland’s fears of an undercapitalized Canadian mining industry, cut off from Chinese SOE equity, come to pass?
One of the problems that the global mining industry does not seem to have is lack of capital for development. There can be issues of investment in some mining countries – some of those longstanding (the Democratic Republic of Congo, or Venezuela) and others more recent problems (parts of Peru, Myanmar) but even in these countries, projects can go ahead if they are robust enough.
In addition to “traditional” private sector banking lenders for projects, multilateral institutions like the International Finance Corporation, the European Bank for Reconstruction and Development, any number of state backed export credit lenders and the like are now lending to mining projects globally. The EBRD has been active in Africa, as have all the others.
The issue is not development capital, but high risk exploration capital. This is a business of small, specialist companies, which are normally backed by small investors, although increasingly there is institutional money in the sector as well. This was not an area that Chinese money found attractive in general. If they want to gamble, the Chinese always have Macau.
The answer to the question in the title is clear. It has been useful for some parts of the mining industry to have access to capital from China. In much of the world, that investment faces no focused restrictions But it does not seem too likely that the Canadian (or Australian or American) mining companies will suffer any measurable disadvantage if they do not have Chinese capital at their disposal – or at least equity capital, as there is no restrictions on sourcing Chinese debt for projects in general.