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Chinese mining acquisitions overseas have hit their highest level in more than a decade as companies race to secure the raw materials that underpin the global economy in the face of mounting geopolitical tension.
There were 10 deals worth more than $100mn last year, the highest since 2013 according to an analysis of S&P and Mergermarket data. Separate research by the Griffith Asia Institute found that last year was the most active for Chinese overseas mining investment and construction since at least 2013.
The country’s huge demand for raw materials — it is the world’s largest consumer of most minerals — means its mining companies have a long history of investing overseas. Analysts and investors say that the rise in dealmaking partly reflects China’s efforts to get ahead of the deteriorating geopolitical climate, which is making it increasingly unwelcome as an investor in key countries such as Canada and the US.
Michael Scherb, founder of private equity group Appian Capital Advisory, said there had been “more activity in the past 12 months because Chinese groups believe they have this near-term window . . . They’re trying to get a lot of M&A done before geopolitics get difficult.”
The trend has continued since the start of this year. China’s Zijin Mining recently said it planned to acquire a gold mine in Kazakhstan for $1.2bn. Appian sold its Mineração Vale Verde copper and gold mine in Brazil to China’s Baiyin Nonferrous Group for $420mn in April.
“In the next few years we are likely to continue to see a healthy level of dealmaking activity from Chinese mining companies,” said Richard Horrocks-Taylor, global head of metals and mining at Standard Chartered.
Christoph Nedopil, an expert in Chinese overseas investment and director of the Griffith Asia Institute, noted that under the Belt and Road Initiative, Xi Jinping’s hallmark foreign policy, transport and infrastructure projects have tended to be smaller.
By comparison, Chinese mining and resource investments overseas have remained large. This, Nedopil said, is in line with China’s pivot towards high-tech manufacturing, including in batteries and renewable energy. But it also reflects the fact that investors have become more sophisticated in their investment and operational approach.
China dominates the processing of most critical minerals — including rare earths, lithium and cobalt — but has to import a lot of the raw materials.
The US and many European countries are trying to reduce their dependence on China for these metals, which are key to the production of everything from electric vehicle batteries to semiconductors and wind turbines, and develop alternative supply chains.
Western countries including Canada and Australia were “increasingly wary” about Chinese investment in local mining assets given “the strategic nature of a lot of these minerals”, said Adam Webb, head of battery raw materials at Benchmark Mineral Intelligence.
Analysts and bankers noted that Chinese companies had become adept at snapping up mining assets from western rivals in recent years, often being willing to take a longer term view on valuations and invest in riskier jurisdictions.
“There has been a [growing] sophistication of Chinese buyers’ outbound M&A strategies,” said Scherb.
“The Chinese government used to select one buyer per asset sale process and back that group. What’s evolved over the past three to four years is the government allowing Chinese groups to compete with one another. That implies they don’t fear losing to the west anymore,” he said.
John Meyer, an analyst at corporate advisory firm SP Angel, said that China had been making deals “to actively keep the west out of certain critical materials which they dominate”.
“Every time someone gets close to mining lithium, the Chinese come running with a cheque book.”
The most active Chinese mining groups in overseas deals include CMOC, MMG and Zijin Mining.
Chinese financial institutions have also issued billions in loans for minerals mining and processing projects in the developing world.
Timothy Foden, co-head of the international arbitration group at law firm Bois Schiller Flexner, who works in a number of African countries, said Chinese companies were positioning themselves to benefit from resource nationalism in nations such as Mali.
Some military governments in Africa have sought to take control of western mining assets and are demanding higher royalty payments. Chinese companies are often prepared to accept a less lucrative arrangement if they can take over the running of the asset, the lawyer said.
