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Australian Miners Look West for Capital

November 8, 2010

“After providing a flood of capital when the rest of the world was closing its checkbooks during the financial crisis, China’s mostly state-controlled mining sector is likely to find itself increasingly outgunned in the race for Australian resources, according to bankers to the industry.

‘Through the financial crisis, China was the provider of capital of last resort,’ said Alan Young, a managing director at J.P. Morgan in Sydney. ‘What you’re seeing now is that companies have other options.’

The return of commodities prices to historic highs in recent months has changed the equation, making funding from Asian end-users more of an option than a necessity.”

Source: Wall Street Journal, November 3 2010

Observations:

  • Various Australian mining firms have raised money on stock markets (Fortescue, MacArthur) now that investors turn back to markets and interest in mining stocks is increasing. This reduces the need for the mining companies to raise cash by partnering with cash-rich Chinese firms.
  • The increase of the exchange rate of the Australian dollar versus the American dollar and the Chinese Renmimbi further decreases the attractiveness for Chinese firms to invest in Australian mining property.

Implications:

  • Chinese companies have ongoing interest in expansion abroad. As they will have to compete with other sources of money for western companies they will resort to offering more favorable conditions or to acquiring foreign assets.
  • The increasing competitiveness to act as financer of mining projects strengthens the need for the Chinese mining and metals industry to consolidate; creating less but stronger companies that have the power to make international deals.

©2010 | Wilfred Visser | thebusinessofmining.com

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