Chinese ‘diverting mining cash to Canada, Africa’
HE flow and size of Chinese investments in the Australian resources sector are tapering off as Canada and Africa prove more attractive cash destinations.
There have been only eight deals involving Chinese companies this year, half the level of two years ago, according to analysis by legal firm King Wood Mallesons.
One of these deals was the $41 million purchase by PetroChina of the coal-seam gas assets of Molopo Energy in Queensland, announced last Wednesday.
This was dwarfed by two major new Canadian deals, with China’s third-biggest company, CNOOC, bidding $US15 billion for oil company Nexen and Sinopec bidding $1.5bn for the North Sea oil assets of Talisman Energy.
“We have a lot of competition for Chinese investment dollars from jurisdictions that the Chinese think are more friendly towards them in Canada and Africa,” King Wood Mallesons’ Nicola Wakefield Evans said.
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She said the hurdle was not only the Foreign Investment Review Board, but also the high costs of doing business in Australia and what the Chinese see as the unpredictability of our legislation, with investors surprised by the carbon tax and the mining tax.
“It comes down to whether we are a country that’s easy to do business with. Canada and much of Africa are being very proactive,” she said. The difficulty of using foreign labour and the tough environmental standards in Australia deterred investors.
Many huge Chinese investments in Australia are still under development. CNOOC is an equity partner in the $20bn BG Group liquefied natural gas project in Queensland.
Yancoal has completed a series of purchases of Australian coal assets, culminating in the merger with Gloucester Coal as Australia’s largest listed coal company.
Deloitte Access Economics’ latest review of investments shows the new LNG projects have helped lift the total value of firm resource projects by $102bn in the past year, with the total now $208bn.
Of this, $186bn is in the oil and gas industry. A further $78bn of investment is in infrastructure under construction or with firm commitments, most related to the resource sector.
But few new projects are coming on to replace them. The value of resource projects under consideration, but for which commitments have not yet been given, has fallen by $95bn to $117bn in the past year as LNG projects received commitment. Several projects on the list, such as the $20bn expansion of BHP’s Olympic Dam uranium and copper mine, are in doubt. The downturn in world commodity markets is likely to choke the flow of new projects, although there may still be interest from foreign investors in takeovers of existing operations or in adding to investments they have made.
Ms Wakefield Evans said Chinese investors were constantly appraising a large number of deals from around the world, not all of which come to market.
Gaining approval from the Chinese government can be more difficult than overcoming the FIRB. Zijin Mining’s $545m bid for Indophil Resources lapsed when it could not achieve regulatory approvals in China, although it won clearance in April for its $223m bid for the Kalgoorlie goldminer Norton Gold Fields.