UNTOUCHED MINERAL DEPOSITS, UNABATED RESOURCES DEMAND DRIVING INVESTMENT
Deloitte mining mergers and acquisi- tions global leader Jeremy South points out that North Asian investors are currently leading the establishment of joint ventures and strategic partnerships with junior mining companies, and are becoming the primary source of financing for new mines that are not controlled by intermediate producers. The key driver of North Asian investment flows is the need to secure supplies of key mineral and metal production into these North Asian economies.
In addition to the established large North Asian economies, Mongolia is also emerging as an important player in the mining sector, says South. Mongolia hosts some of the world’s largest undeveloped mining projects, and significant investment from neighbouring countries, China and Russia, as well as investment from Canadian and Australian mining companies, is likely to fund the development of a significant mining industry in Mongolia over the coming years.
The Investing in Asian Mining Indaba, which takes place in Singapore from October 29 to 31, will create awareness of the growing importance of Mongolia in the global mining landscape, and the significant investment potential for increasing mining activity in the region, explains Deloitte.
Meanwhile, in Southeast Asia, global diversified mining groups are operating and continuing to invest in the more established mining jurisdictions of Indonesia and the Philippines, while junior investors are targeting less established countries like Cambodia and Laos.
“There are some companies, such as gold miner Olympus Pacific Minerals, that are focusing exclusively on Southeast Asian mining opportunities,” says South.
The region has enormous resources poten- tial, as it possesses high-quality mineral assets in a multitude of commodities, from copper to platinum-group metals, which are largely untapped as a result of historical underinvestment in exploration and infrastructure, he explains.
“After years of underinvestment in Asia, the governments of Southeast Asia are now becoming aware of the economic potential of mining. The Philippines is recognising the economic value of its mineral base and the need to monetise it.
“Vietnam needs a stronger mining sector to reduce its trade deficit and strengthen its currency, while Laos is embracing foreign direct investment to develop its gold mining industry and generate healthy export revenues, not to mention government royalties,” adds South.
Investment in Asia
The historical underinvest- ment in infrastructure, in particular, presents challenges for many Asian countries attempting to grow their resources sectors. The lack of sufficient infrastructure avail- able to support potential mining developments presents a significant barrier to an otherwise promising economic machine, he says.
South cites the barriers to development of promising deposits located in remote regions of China. “High transportation costs and the required capital investment to build the necessary infrastructure often make it economically unviable to transport resources from western China to the manufacturing base in eastern China.”
The Investing in Asian Mining Indaba provides a platform for Asian mining companies to attract investors and provides industry participants with knowledge on existing opportunities regarding the supply of the financial capital, skills, project management experience, education, training, social development and physical infrastructure development needed to support the sector, says South.
He says the mining industry has become one of the key economic drivers in Asia and believes that mining investment will increase, with the Indaba highlighting investment trends and the key role Asia plays in the global mining sector.
Global Influence
When addressing the members of the Vancouver Board of Trade this month, Mining Association of Canada president and CEO Pierre Gratton said regulatory reform, investment in infra- structure and the promotion of strong trade relations with countries such as China, the world’s biggest consumer of metals, would keep Canada globally competitive.
Deloitte mentions that Asia now accounts for more than 30% of global gross domestic product and contributed close to 60% of global growth in 2011. Current expectations are that the contribution of Asian growth to the global economy in 2012 will be similarly strong.
According to a Reuters poll of over 700 economists worldwide, the global debt crisis and a relatively slow US recovery will continue to leave Asia as the main driver of growth worldwide.
Over the last ten years, Asian countries have become more resilient in dealing with risks and have endeavoured to promote sound economic development through adjustment and reform, says South.
This has resulted in increasing investor confidence in key Asian economies over time, driving increased foreign direct investment in the mining sector.
“In Indonesia, the government has said it expects mining investment in the country to reach $6 billion by 2012, up from $2.5 billion in 2010,” he adds.
This is despite a 2012 International Monetary Fund report ‘Regional Economic Outlook: Asia and Pacific’ that states growth in Asia has slowed markedly in the last quarter of 2011 because of the weakening external demand.
The report also states that weak exports and supply shocks have taken their toll on indus- trial production across Asia, but high-frequency indicators suggest that a turnaround may be possible.
However, despite a slow- down in growth in China to 7.6% in the second quarter of this year, compared with decades of average yearly growth of 10%, Gratton adds that most prices remain at relatively high levels.
“The mining supercycle is not over, it is in a lull. This is the nature of the mining business, which is cyclical. The industry is generally better prepared for the current slowdown, compared with the last time, which was much more dramatic,” he said.
Rapid industrialisation in China continues to drive demand for minerals and metals that are used in a range of construction and manufacturing applications as the country has expanded its infrastructure base.
This has led to China being a significant consumer of two of British Columbia’s top commodity exports: copper and steel-making coal.
“China will continue to drive the demand for minerals and metals well into the future, and it is being followed by several emerging nations, such as India and Brazil,” notes Gratton.
By: Zandile Mavuso
Edited by: Tracy Hancock
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