China’s New Shopping Mall - Canada

What has these three names in common – Aluminium Corp of China (Chinalco), Jiangxi Copper Co Ltd and China Minmetals Corp, except they are Chinese owned companies? Both made acquisition in mineral related business in Peru.

The truth is that these mineral-related business that acquired by them in Peru were Canadian mining ventures. This year’s conference of the Prospectors and Developers Association of Canada in Toronto, there was one obvious thing to note i.e. the attendance of the Chinese delegation, which signaled that country’s continued interest in Canadian mining assets.

So it was no surprise to me when, in July, the state-run China Investment Corp (CIC) bought a $1.5 billion stake in Canada’s Teck Resources Ltd. CIC is one of the new breed of so-called “sovereign wealth funds” (SWF), essentially government controlled investment funds that all told control trillions in foreign reserves. CIC manages about $200 billion of China’s estimated $2.3 trillion in foreign-exchange holdings.

For Teck, the 17.2% stake taken by CIC provided a badly needed cash infusion, since the Vancouver-based producer of copper, zinc, gold, metallurgical coal, and a host of specialty metals and excess energy was saddled with debt.

Since then, China has picked up the pace.

Now PetroChina Co. Ltd. is purchasing a 60% interest in two undeveloped projects of the privately held Athabasca Oil Sands Corp of Calgary. That puts nearly 3 billion barrels of crude oil under PetroChina’s ownership, while operational control of the projects remains with Athabasca. With reserves surpassed only by those of Saudi Arabia, Canada’s oil sands are seen as a world-class asset – as well as one that’s highly strategic.

China’s large acquisitions are raising eyebrows and spooking national governments. And that’s to be expected. In 2005, when the Chinese National Offshore Oil Corp. (CNOOC) failed in its attempt to take over Unocal Corp., a U.S.-based refiner/retailer of gasoline. Unocal later merged into Chevron Corp. Several subsequent China-led takeovers of properties in North America were thwarted for apparent political reasons.

It’s that type of behaviour that makes Canadian assets so attractive. Essentially, China has become a key supplier of badly needed capital, with a focused interest in a multitude of Canadian mining-and-commodities projects. But most observers assume China is only after the big fish – advanced-stage projects, with near-term production. If you can spot the trend, you’ll see why it’s a costly mistake to focus exclusively on larger, high profile projects. China itself has now realized how much attention its bigger deal making attracts. So China’s advanced guard has cast a much wider net: It’s now studying smaller mining and commodities projects that have at least passed certain regulatory hurdles and (ideally) have proven reserves.