Supply and Demand: Asia's Mining Market at a Glance6 April 2011
An Asian boom is underway, fuelled by surging demand for raw materials in many developing economies. Mining Technology provides a snapshot view of Asia's mining market.
The days of clear delineation between the developing and developed worlds are long gone. Burgeoning, assertive young economies from all continents have entered the world stage as importers of goods and services for infrastructure projects, as well as prominent exporters and international investors.
South and East Asia, led by new economic powerhouses India and China, is a region that is rich with opportunity for the mining and metals sector. But more than simply being a hotbed of mining activity and new projects, Asian companies are rapidly catching up with North America and Europe in global mining investment, and mergers and acquisitions.
This rapid ascent, particularly notable in China, is all the more clear in the mining world as Asian countries seek to secure present and future material resources. In addition to China, projects and deals in Asia and all over the world are being driven by India, Singapore, Indonesia, Japan and South Korea.
In this snapshot of Asia's mining market, we take a look at the Asian mining companies stepping into the spotlight, as well as recent investments made to tap into the continent's own raw resources. We also ask if poor safety regimes mean this impressive expansion comes at too high a high price in some countries.
Vale invests in China
Many Asian countries are attracting strong investment from the world's major mining companies. Vale, the world's largest iron ore mining company, which last year surpassed Petrobras as Brazil's biggest exporter with external sales worth $24bn, has been proactively increasing its presence in China. In December 2010, the company began trading on the Hong Kong Stock Exchange (HKSE), the largest non-financial company ever to trade publicly in Hong Kong. This clear signal of the company's intention to expand operations in China and Asia is being borne out, as Asia is now Vale's biggest export market.
The Brazilian company is also beginning to invest in iron ore projects in China. One of the most prominent of these is a joint venture partnership with Henan-based steelmaker Anyang Iron and Steel on a 1.2-million-ton iron ore pellet plant. Vale and Anyang are expecting the plant to start production by the end of March 2011.
Vale has also partnered with two Chinese companies to provide equipment for its $2.5bn CLN iron ore project in the Brazilian state of Maranhão, with contracts signed in Shanghai between Vale and Chinese manufacturers Keda Machinery Manufacturing and Zoomlion in November 2010. Keda will produce five conveyor belts for the project, while Zoomlion will provide a reclaimer and two iron ore stackers. The companies will be producing some of the highest-capacity equipment in their respective fields ever built in China.
Upon announcement of the contracts, Vale CEO Roger Agnelli spoke confidently about the company's future ventures in China and with Chinese companies. "Vale will invest a lot in China in the coming years and we are completely confident that China has a lot to offer," he said. "We will grow together."
But it's not only Vale that is partnering with Asian companies, and it's not only China that is welcoming major investments into mining projects, Merukh Enterprises subsidiary PT Merukh Iron & Steel announced in February 2011 that it would be investing $48bn to build two new iron ore plants in the Indonesian province of East Nusa Tenggara to help satisfy the country's skyrocketing demand for steel.
Merukh will be joined by two European companies, Luxembourg's Paul Wurth and German engineering firm SMS Siemag, for the construction of the plants, which are expected to produce a total of 3.5 million tons a year.
"We will take advantage of the rich natural resources, particularly widespread iron ore reserves in Sumba, with an aim to accelerate Indonesia's position as a strong industrial nation in south-east Asia in 2025," said Merukh president director Rudy Merukh.
Asia's overseas investments
Asian countries are not only pouring investment into domestic projects in their push for resource security. The likes of India, China and South Korea are becoming increasingly assertive in pursuing mining mergers, acquisitions and project deals all over the world, particularly in Africa, where mineral resources are plentiful but external investment is often required to develop them. The $3bn investment into two iron ore mines in Tanzania by Sichuan Hongda Co. and China Guangdong's $1.2bn offer to acquire Kalahari Minerals and its uranium mining assets in Namibia in March 2011 are just two recent examples of this trend.
Throughout 2010 and into 2011, Indian companies looking to increase power capacity have been on a global coal spending spree. Indian energy firms like JSW, Reliance Power, Tata Power and Essar Energy acquired coal mines in South Africa, Australia and Indonesia in 2010 to help fuel future domestic power generation.
Several particularly large coal acquisitions by Indian companies have taken place in Australia. In August 2010, Adani Mining paid $3.1bn to acquire Linc Energy's coal tenements in the Galilee Basin, north-west Queensland. Adani plans to begin producing thermal coal from the site by 2014, using underground coal gasification and gas-to-liquids technologies. "They have indicated to us that they want to do at least 50Mtpa, and up to 60Mtpa," Linc's CEO Peter Bond told the Australian Associated Press.
The Adani acquisition was the largest ever in Australia by an Indian company. The second-largest was announced at the beginning of March 2011, with Indian power and infrastructure company Lanco Infratech acquiring Australia's Griffin Coal for $755m. The buyout gives Lanco access to Griffin's thermal coal mines, with a total capacity of more than four million tons. Lanco CFO Suresh Kumar told the Economic Times that the mines would cover around 30% of the company's coal requirement until 2015.
The cost of rapid Asian expansion
Despite the incredible contribution of mining expansion to flourishing Asian economies, there can be little doubt that such impressive growth is coming at a human cost.
China has the world's worst safety record in the mining sector, particularly in coal mines.
Mine safety legislation has been sidelined in favour of a relentless, production-based development model that has seen the scale of the country's mining operations far outstrip its ability (or will) to adequately protect workers.
Chinese State Administration of Work Safety spokesperson Huang Yi admitted in May 2010, after three months of disastrous explosions and floods in Chinese mines, which took the lives of dozens of workers (including three major disasters in March alone), that safety training and the enforcement of safety regulations were completely inadequate.
Huang pointed out that a third of China's state-owned safety equipment was outdated and in need of replacement, and that funding for safety regulation and enforcement needed to be increased, as well as the frequency of fines and penalties for safety violations.
The spokesperson also emphasised that around half of China's 5.5 million coal miners are migrant worker who receive little to no safety training and, as they are paid by piece rate, they are incentivised to prioritise production over health and safety. "Migrant workers are both perpetrators and victims of accidents," he said.
It's clear that a massive set of reforms to the fundamental framework of Chinese coal mining will be necessary if the country's mining success is to escape the shadow of needless worker casualties. And although China's poor safety record stands out in Asia, the recent explosion at the Sorrange coal mine in Pakistan that killed 43 workers highlights the need for Asian countries to develop safety regimes that are able to cope with their increasing production.