The China International Mining Group is pleased to publish the CIMG White Paper for 2007.
CIMG has had, and continues to have, the privilege of discussing issues which affect the mining industry with relevant authorities.
CIMG recognizes and commends the work carried out over the last few years to streamline the mining sector, and incorporate policy that is sustainable and socially equitable.
The CIMG White Paper 2007 seeks to identify the challenges which remain, with the aim of encouraging a constructive dialogue on these issues as a means of assisting the growth and sustainable development of China's mining industry.
Developments
Much has changed since the publication of the most recent CIMG White Paper in 2006.
On the regulatory front, a new Labor Law has been passed, and the new Tax Law will be implemented in early 2008. There are also changes in corporate governance and the industry is placing greater emphasis on worker safety, environmental protection and community relations.
To a large extent, China’s resource requirements are continuing to drive world commodity prices. China has now overtaken Australia in gold production and is likely to overtake South Africa to become the largest gold producer in the world.
This is being achieved during a period of marked structural change in China’s mining industry. The process of streamlining mining operations from 200,000 mines in 1996 down to today’s 100,000 would present numerous challenges in any jurisdiction. The fact that this has occurred in a period of rapidly increasing demand is commendable.
However, foreign and domestic investment in China’s mining industry is only a fraction of its potential. Furthermore, most of the moderate foreign expenditure has been focused on exploration for gold. There has been insufficient investment in the exploration of base metals. There are many reasons and issues to explain why there is only limited investment base metal exploration, Some of the key reasons include uncertainty of tenure, lack of clarity and uneven application of the law (in provincial areas for example) and problematic access to geological information just to name a few. These base metals exploration issues are also being experienced for those involved in gold exploration. These reasons create such uncertainty for long term projects that it causes investors to place their investment funds in other countries.
China’s geology and size suggest great potential for the discovery of world class mineral deposits. China should be self sufficient in many of the metals currently being imported in ever increasing volumes. However, this move to self-sufficiency can only take place if exploration and development are encouraged in a coherent way.
Assisting the mining sector
The international mining community can play an important role in overcoming these challenges. Most other mining nations have gone through similar development cycles and foreign companies have much to offer this developing industry.
Apart from coal there does not appear to be a pipeline of world class mines coming on stream over the next few years to feed increasing domestic demand. The long time periods required for exploration and development suggest that China must purchase mineral commodities from abroad and invest in overseas mines to ensure supply security over the next few years.
However, this will only be a short term solution that will primarily benefit nations with vast natural resources.
Over the long term, however, foreign participation in China’s mining industry will benefit China. Some of the benefits include:
· Access to capital markets to provide substantial long term investment. This is crucial as world class mines require billions of dollars over many years.
· More efficient exploration, discovery and development of resources using the world’s best technologies and experience.
· Efficient and effective management techniques that can help make the industry more cost effective, assist consolidation, and improve resource utilization rates.
· Better environmental protection using the world’s best technologies and practices
· Implementation of advanced social practices to protect local communities.
· Reduction of China’s dependence on overseas supply.
· Economic and social benefits at the national, provincial and local levels, especially in the west of China. This has been clearly demonstrated in other sectors of the Chinese economy.
· Responsible and efficient utilization of China’s resources.
· Transparency through foreign investor participation in initiatives such as EITI, ICMM, and the MMSD report.
Industry professionals know that when demand exceeds supply, market forces will always attempt to restore the balance resulting in:
· increased funding for exploration;
· exploration of deeper regions;
· exploration in more remote geographic locations;
· exploration of more technologically challenging deposits;
· mining of lower grade deposits;
· new mining techniques being introduced (such as in-situ leaching of deep deposits);
· new processing technologies being introduced (such as bio-oxidation and larger more efficient smelters);
· other industries using different cheaper metals (for example, the car industry using aluminium instead of copper in car radiators); and
· increases in metal recycling.
Moving forward
The key question CIMG hopes to address with the CIMG White Paper 2007 is how to utilise foreign investment to benefit and assist China in achieving sustained development.
The specific topics raised in this year’s White Paper remain largely unchanged from last year's version.
However, there has been a greater focus this year on the requirement of all stakeholders for ‘confidence’.
Firstly, the financial markets need to be confident that the current regulatory and policy regime will be enforced consistently. Market uncertainty affects the industry in many areas:
· the transparency and consistency of exploration and mining laws;
· regulations on obtaining, evaluating and transferring mineral rights;
· fiscal policy;
· corporate structures; and
· access to geological data and databases.
Secondly, investors also need to be confident that the benefits of investment in a project can be realised.
Both international and domestic investors need to be certain that their investments are protected and will provide a reasonable rate of return. This need for confidence is especially true in the mining sector as it is an inherently speculative industry.
Currently, China has laws designed to facilitate both domestic and foreign investment in mineral exploration and mine development. However, foreign investors have encountered many problems with the content, interpretation and enforcement of these regulations and the issues are discussed in detail in the CIMG White Paper 2007. This regulatory irregularity reduces ‘confidence’. A regulatory system that is fair, transparent and consistently enforced will increase foreign investment as investors will be more confident.
An example of a regulatory irregularity that reduces confidence is the closure of some provinces for accepting exploration license applications (ELAs). This is an issue of major concern for foreign investors, considering that these provinces are arbitrarily accepting ELAs of some projects and not others.
Thirdly, local communities also require confidence that jobs will b e created and the environment will be protected. This will require greater scrutiny and transparency in the planning, execution and delivery stages of project development. At a time when there is much competition for deposits, there is a need to look at the environmental aspects of how land is developed and then rehabilitated in a sustainable manner. Community participation in all these aspects will ensure the right balance is struck between the creation of local jobs and the protection of the environment. This will make local communities more confident in the viability of a project.
Finally, and most importantly, China’s future is dependent upon the ability of government to confidently provide the primary resources that will fuel China’s remarkable development. With appropriate developments, CIMG anticipates great improvements in China’s mining sector. Given China’s natural wealth, there is potential for China to become a leading player in many commodities.
China International Mining Group
November 2007
For a copy of the CIMG White Paper 2007 please download from the link below.
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