Prevailing Protectionism Challenge to nternational Mining

An overall adjustment of glob- al industries is going on and the global resource allocation layout is changing. Developed countries attempt to maintain the existing resource allocation layout while emerging countries such as China and India are getting involved in global resource allocation and are playing an increasingly active role. The reporter from China’s Foreign Trade magazine had an interview with relevant officials， experts and professionals in mining investment on such issues as the current characteristics of international mining market， the situation of international mining market in the year 2012 and the foreign investment direction of Chinese mining， and analyzed the above issues.

Liu Shuchen， a senior analyst in the Information Center of Ministry of Land and Resources believes that there is a major interaction between the global economic development and mining industry and the demand for resources， and that economic growth rate will remarkably affect the demand for energy. There are major changes in the mining policies of many countries which have encouraged the rise and spreading of resource nationalism and local protectionism in these regions. In addition， the long-term strong demand and increasing supply capacity of mineral products interweave with the recent slowing trend to result in the high-level price fluctuation of mineral products; the low-price era of resources is now a history. Furthermore， besides the common bulk minerals， some rare minerals， those needed by high-tech in particular have also drawn intensive attention. International disputes over rare earth in the past two or three years has demonstrated this general trend.

International mining investment mainly goes to which minerals? In the year 2011， investment in iron ore exceeds 200 billion U.S. dollars， accounting for 32%， investment in copper amounts to 180 billion U.S. dollars， accounting for 26%， and investment in gold reaches over 110 billion U.S. dollars， accounting for 17%. Investment in the three major minerals totals up to more than 70% of the overall investment， and that of iron ore is still increasing. The main investment target countries remain the same， namely Australia， Canada， Chile， Brazil， Russia， Peru， the United States， South Africa， and the Philippines.

Liu believes that Latin America is a hot investment spot of global mining industry which accounts for one third of the total investment. According to relevant data， from the year 2011 to 2015， investment in Brazilian mining amounts to over 68 billion U.S. dollars， that of Chile reaches 65 billion U.S. dollars and that of Peru is 40 billion U.S. dollars. Australia and Canada remain as the largest investors. These are investments in mineral exploration and exploitation.

In recent years， the M A in global mining industry has been extremely active and large companies have reinforced their monopoly of resources， which results in improvement of production concentration. In addition， in some regions it is an overall trend that the government strengthens its control of resource companies. For example， in Russia and some areas of South America， there is a new round of nationalization of mining companies and the governments pay much attention to cultivate international competitiveness， and expand international markets.

Currently， resource nationalism or local protectionism has posed enormous challenges to the mining industry， and not a few countries are adjusting polices concerning mining taxes and mining royalty. These are the major problems facing mining industry. According to relevant analysis， in the last two years， at least 25 countries have raised or pledged to increase mining taxes and royalties， in order to improve the government’s income on the mining indus- try. Australian government has begun to levy 30% of Resource Super Profits Tax since the year 2012; Peruvian government is also planning on collecting Resource Super Profits Tax; Russia has raised its severance taxes on natural gas and oil， as well as the exporting tariff on copper， nickel and petroleum products; Brazil is conducting research on franchise taxes. All these tax-related policies will have some impacts on the mining industry.

Chen Xianda， Vice President and General Secretary of the China Mining Association aired his view: as the world economy fluctuates， mineral trading has become a tool of speculative investment to a certain extent， which results in rising prices of bulk minerals and high-level price fluctuation; some countries have adjusted their mining-related policies and begun to collect Resource Super Profits Tax， temporarily affecting the development of mining industry; just like in the 2008 financial crisis， the upstream industries are the first to be affected; although the uncertainties in world economic recovery may affect the short-term development of mining industry， the prospect of mining in the long run is promising.

Sun Baoliang， Deputy Director in Science and Technology and International Cooperation Department of the Ministry of Land and Resources indicated that Chinese government encourages enterprises of all kinds of ownership to engage in overseas investment and cooperation， and advocates integrating the exploration and exploitation of mineral resources into the global resource market.

Chen Xianda pointed out that China’s overseas mining investment will develop steadily in 2012， with the growth rate slowing down， or the investment amount decreasing slightly. Although in the long run the rigid demand for minerals from China and India will sustain the development of mining industry， it is necessary to adjust the prices of minerals as the global economy is in its phase of adjustment and the economic growth slows down. Investment in Africa and the Americas will continue to increase; investment in Oceania and Asia cools off; as the debt crisis in Europe continues to aggravate， more M A and investment opportunities present themselves in Africa which is considered as the backyard of European debt， and the gradual maturity of exploration projects in Africa will also bring about greater capital inflows; capital flows are expected to further diversify， and more capital will pour into the Americas， especially Canada， Peru and Chile. Investment in Australia is expected to cool down and some longer-term fund may be invested in the Americas， Canada in particular. As ASEAN countries set restrictions on their raw mineral exports， it is expected that mining investment in ASEAN will slow down， and more investment will go to downstream industries. Many countries begin to collect excess profit tax following Australia. It is necessary to be cautious of getting stuck when investing in these countries， because the expected profit may shrink with the collection of excess profit tax.

Investors should pay attention to the political situation in Africa. We suggest that the investors reduce the period of return on investment， complete every project meticulously and don’t expand the investment scale before gaining return， avoiding blind expansion; otherwise， it may be quite difficult to withdraw the investment in case of any risk.

South America and Asia are fairly desirable places for investment. When investing in Canada， investors should pay more attention to its environmental protection issues， and the local community relations; all these issues should be taken into account and be assessed in advance.

Chen believes that with Chinese enterprises’ in-depth development in multinational operations， the advancement of overseas mining investment and experience accumulation in overseas investment， Chinese enterprises will be increasingly familiar with foreign investment environment. As a result， foreign mining investment will be more and more rational， and excellent foreign investment enterprise will emerge. These enterprises have many things in common: they are powerful， standardized in operation， actively implement international standards and norms， understand and respect the host country’s economic， political and social status， good at risk control， emphasize social responsibility， comply with host country’s laws and regulations， possess international perspective， high-quality talents and strong financing ability. According to statistics， along with industrial restructuring and upgrading， more entities from various industries will be involved in overseas mineral resource exploration， exploitation and investment， combining the technology of geological prospecting and exploration units with fund from various entities. And the building of the institutional platform for resolving mineral prospecting risks needs to be accelerated to make the development of overseas mining investment more rational and professional.

According to relevant statistics， by the end of 2011， China had participated in more than 2，000 cooperation projects concerning overseas mineral resource exploration and exploitation which dispersed in 80 countries and regions， involving over 600 investment entities with a total investment amount of about 200 billion U.S. dollars. Due to the great demand for minerals from the emerging economies， the dependence on traditional metal ores will sustain a long-term increase. Although the demand for minerals from Western industrial countries will not increase by a large margin， emerging economies such as China will maintain a strong demand for minerals in the process of their rapid industrialization and urbanization. Some countries with abundant mineral resources such as Canada， Australia and South Africa all hope to promote economic growth and create more jobs through resource exploitation. Matt Tedford and Chris Landers， managing partners in Canada KPMG introduced China’s M A projects with a trading volume of over one billion U.S. dollars in the first quarter of 2012 which has significantly promoted the development of Canadian mining industry. Of course， the competition is very fierce in the M A process. There are extremely large-scale M A projects and one of which rank as the largest M A project in Canadian history. Thus， it is obvious that China’s enterprises have gradually matured in the international M A market.