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China seals African platinum deal

May 27, 2010

“China is set to make its second largest investment in Africa outside the energy sector by ploughing $877m into South Africa’s platinum industry. The agreement signed last week adds intensity to China’s ambitious drive to sustain its economic boom by securing Africa’s natural resources.

For the first time, Beijing will take a direct stake in the continent’s platinum reserves, the majority of which are in South Africa. Jinchuan, a Chinese state-owned mining company, is to acquire a 51 per cent stake in Wesizwe, a junior South African platinum developer, for $227m (€185m, £158m).

The China Development Bank will then raise another $650m in project finance to develop its flagship Frischgewaagd-Ledig platinum project, near Rustenburg, west of Pretoria. After the mine is built, Jinchuan will take all of its platinum produced, according to a long-term supply agreement.”

Source: Financial Times, May 26 2010

Observations:

  • Platinum and paladium are mainly used as catalysts in the car industry and in jewellery. Over 75% of the total production of platinum is coming from South Africa.
  • After the investments by Rio Tinto, Chinalco, Vale and CIF in Guinea and Niger last month, this deal signifies the next billion of FDI in the mining industry in Africa.

Implications:

  • The involvement of the China Development Bank in this project is special. It increases the buying power of the Chinese (mostly state-owned or controlled) miners even further, accelerating the Chinese control over Africa’s natural resources.
  • Demand for precious & rare metals is increasing as many of them are used in high-tech applications. A significant part of the rare metal resources is located in Asia, but China will still increase its efforts of securing access over deposits over-seas. As the diversified miners do not really have an incentive to join this race, high-tech producers from the western world should be looking for ways to secure their supplies of critical inputs in the long term.
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