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Chinese eye grass roots and advanced exploration

March 1, 2010
by Norm Tollinsky
In: News with 0 Comments

In 1966, moviegoers were all abuzz over the film, “The Russians are Coming, the Russians are Coming,” a comedy starring Carl Reiner, Eva Marie Saint and Alan Arkin. Fast forward 44 years and it’s the Chinese who are knocking on the door – only it’s not a movie.

One of the first indications of China’s interest in Canada’s natural resources was a surprise bid in September 2004 by China Minmetals Corp. for mining giant Noranda, which at the time owned a 59 per cent stake in Falconbridge. The prospect of a state-owned company from a Communist country buying up Canada’s biggest mining company didn’t go over all that well and nothing came of it, but Chinese interest in Canada’s vast mineral wealth hasn’t waned.

“When China Minmetals made its bid for Noranda, the message they got was that they shouldn’t expect to come to Canada and just buy out all these huge Canadian companies,” said Marc Leroux, Ontario Ministry of Northern Development and Mines’ senior manager, information and marketing services. “It was explained to them that there’s a mineral development food chain in Canada and that they should consider getting involved in all aspects of it. It looks like they took the message to heart.”

Leroux, just back from a trade and investment mission to China, said, “There’s a tremendous interest in Canada, but we shouldn’t feel special. The amount of sovereign wealth they have has taken them to all corners of the globe. There seems to be a bottomless pit of money.”

Grass roots exploration

Since 2004, the Chinese have focused on acquiring mining companies at the lower rungs of the food chain and are now getting involved in grass roots exploration. Companies like Sinocan Resources, China Nonferrous Metals Exploration Corp. and China Metallurgical Exploration Corp. have staked in excess of 6,000 claims across Ontario. They have made presentations to several First Nation communities, including Webequie and Kasabonika, and are preparing to follow up with airborne surveys, fieldwork and drilling. Blocks of claims have been staked in the James Bay Lowlands, Timmins and Sudbury.

In contrast with the backroom mutterings voiced over the September 2004 bid for Noranda, this time around the Chinese are being welcomed with open arms.

“We all know that there is no mining without exploration, so the more exploration we do, the more deposits can be found and developed,” said Leroux. “It’s a strategic part of the Mines and Minerals Division investment marketing strategy to encourage as much exploration as we can. At the end of the day, where the money comes from is inconsequential, as long as the exploration and development of these minerals benefits the people of Ontario.”

6,000 claims

Keeping the 6,000 plus claims already staked in good standing will cost the Chinese companies more than $2 million a year.

The identity of these Chinese companies is a bit fuzzy.

“It’s hard to figure out exactly who they are,” said Leroux. “They dissociate themselves from the mining companies because, in China, all the mining companies are government-owned. They recognize the challenges of a Communist government buying up natural resources in another government’s turf, so a lot of them are shell organizations positioning themselves as investment houses rather than mining companies.”

Leroux cautions against underestimating their technical expertise, pointing out that teams of Chinese geologists, geoscientists and number-crunchers have shown up in Ontario to carry out preliminary evaluations of several projects.

“We sit down with these guys and they tell us ‘We’ll give you an answer in 10 days.’ They act very fast.”

The trade and investment mission to China coincided with the China Mining Congress and Expo October 20 to 22 in Tianjin, and included presentations on investment opportunities in several locations across the country.

The Ministry of Northern Development and Mines identified China as a strategic market in 2007 and joined forces with the Ministry of Economic Development and Trade to organize the two-week mission.

Leroux was blown away by the interest in Canada’s resources and the pace of development in China.

“They need raw materials to help meet their growth projections,” he said. “Construction is everywhere. If you’re not in a construction zone, you’re in a building that still smells like fresh paint.”

China’s interest in Ontario is so great that the Ministry is thinking of focusing on other markets in the future.

“There’s not much value in chasing a market that’s chasing you, so I think we’re going to focus our efforts on other strategic markets,” said Leroux. “India has big potential. It has more of a traditional business culture and there’s not the big language barrier.”

The investment marketing component of the mission was a huge success, but the trade component fizzled. The Ministry struggled to recruit mining suppliers and, in the end, showed up with one company from Northern Ontario and seven companies from elsewhere in the province. The lone Northern Ontario supplier was Walden Equipment, a Sudbury company specializing in hoisting equipment and remanufacturing of surface and underground equipment.

Eyes wide open

“I think SAMSSA (the Sudbury Area Mining Supply and Service Association) has done a really good job outlining the reality that you’re not going to penetrate a market like China by participating in one trade show,” said Leroux. “There are more than 6,000 mining operations in China. It’s a huge market, but it’s a very complex business environment and a very different culture. You have to go in there with eyes wide open, so some of the companies may not have identified China as a strategic market because it’s a huge commitment.”

Hard-Line Solutions Inc., a Sudbury company specializing in radio remote controls and mine-wide communication systems, spent several years trying to cultivate the Chinese market and eventually gave up. Word spread quickly through Northern Ontario’s supplier community.

There are some “real fears” about doing business in China, especially around intellectual property rights, said Leroux. “They’ll purchase a piece of equipment and the next thing you know, there’s an LHD (load-haul-dump machine) on the market and it looks just like yours.”

One of the first investments by the Chinese in an Ontario mining company originated in 2006 with the signing of an agreement between nickel miner Liberty Mines and Jilin Jien Nickel. Jilin Jien offered Liberty Mines a $4 million pre-payment credit facility to assist with the capital cost of its mill and in, May 2009, spent $30 million to acquire a 51 per cent stake in the company.

More recently, in October 2009, Jilin Jien took the lead in a $192-million takeover of Canadian Royalties Inc., a junior miner with an advanced exploration project in Quebec’s Raglan camp. Then, in December, Corriente Resources Inc., a Vancouver-based junior miner with a copper-gold project in Ecuador, agreed to a $679 million takeover by Tongling Nonferrous Metals Group Holdings Co. Ltd. and China Railway Construction Corp. Ltd.

“In the last six months we’re seeing some of these investment firms setting up shop in Canada. I’ve touched base with a couple based in Toronto and I’m meeting next week with some that are based in Vancouver,” said Leroux.

“It runs the whole gamut. There’s even a Chinese company that recently staked a whole mess of claims on building stone potential sites in the Thunder Bay area, so we’re also talking building stone, dimension stone and aggregates. There seems to be nothing outside the realm of possibilities.”

www.libertymines.com
www.canadianroyalties.com
www.jiencanadamining.com

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