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China enters South Africa platinum sector

December 20, 2010

“China is to enter the South African platinum sector in a transaction worth $877m, its biggest mining investment in the country, as it continues to target Africa as a source of raw materials.

The deal, announced on Friday, will be China’s second-largest investment in the continent outside the energy sector. The state-owned miner Jinchuan Group and the China-Africa Development Fund will take a 45 per cent stake in the junior miner Wesizwe Platinum for $200m, as well as funding a $27m stake for black investors in line with South African black empowerment rules.

The Chinese entities have further committed to raise $650m in project finance to develop Wesizwe’s Frischgewaagd-Ledig mine. Jinchuan – China’s biggest platinum producer, which acquired Canada’s Continental Minerals for $434m in September – will take all platinum group metals produced at the mine.”

Source: Financial Times, December 18 2010

Observations:

  • The $5bln China-African Development Fund is stepping up its involvement in the mining industry, signing an agreement with China National Nuclear Corp in September to develop uranium mines in September and an agreement with Wuhan Iron and Steel for a project in Liberia in April.
  • In May 2010 Jinchuan appeared to seal exactly the same deal with the China Development Bank as investment partner and a 51% share coming in Chinese hands. The 6% stake going to the Micawber investment group is the result of arbitration over cash funding and compliance with black empowerment rules.
  • The estimated cost to dig the mine northwest of Johannesburg is “similar” to a 2009 estimate of 6.6 billion rand ($960 million) and it could start production around 2013 (Source: BusinessWeek)

Implications:

  • The China-African Development Fund is one of the many state-controlled investment vehicles the Chinese government is using to help the domestic mining companies expand internationally. China Development Bank and China International Fund are more well-known investment partners. It is unclear why this deal was transferred from the China Development Bank to the China-African Development Fund.
  • As more Chinese mining companies go public to raise money, the need for government assistance in foreign investment will be reduced in the long term. However, the government assistance through development banks and funds will play an important role in defining which Chinese mining companies will become the domestic champions that arise from industry consolidation.

©2010 | Wilfred Visser | thebusinessofmining.com

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