A source at Sojitz, a leader in rare metal imports, agreed that the Japanese companies are unable to compete. Unlike the worry-free Chinese, listed Japanese trading and mining companies have to consider the impact on their share price if they overpay for assets.
Rare earth prices have been on the increase again since this March, having fallen 50% year on year, making the assets attractive assuming the economy improves. While the government-owned Japan Bank for International Development will guarantee project financing, the difficulty lies in assessing the right price. Asset valuations for metals such as nickel have been driven up by Chinese acquisitions rather than demand, the Sojitz source noted.
Japanese Government-owned institutions are watching with concern as the Chinese Government-owned companies continue their shopping spree in countries like Australia, sources at Japan Oil, Gas and Metals National Corporation (JOGMEC) said. JOGMEC, which finances prospection and exploration projects, is actively seeking to support Japanese companies that want to invest in natural resources which will supply to Japanese industry. JOGMEC, whose budget increased to over JPY 30bn this year, prefers to invest in low risk countries like Australia but investments will have to be made where the deposits were found.
A source at Nippon Export and Investment Insurance (NEXI), which provides insurance on foreign investments made by Japanese companies, echoed JOGMEC’s concerns. While the Japanese Government’s financial aid is welcome, it will not be enough to help the Japanese compete effectively with their Chinese peers. NEXI does not have a fixed budget. It is willing take on a portion of the project financing risk by providing insurance not only on project financing but also for natural resource deposits and against country risk for up to 15 years.
However, those defending the Chinese position argue that one of the purposes of the Chinese acquirers of rare earth in Australian is to serve their Korean and Japanese clients because China has restrictions on rare earth and other resource exports. More generally, they note that while in the past Chinese companies had been out-bid by cash-rich Japanese bidders, the situation has now reversed because the Chinese government has now recognized its need to purchase overseas resources.
China relentless
Chinese outbound acquisitions or co-development of overseas rare earth mines is encouraged and guided by the Chinese Government, said a source at Inner Mongolia Baotou Steel Rare Earth Hi-tech [Bao Gang Xi Tu], one of China’s largest rare earth mine developers. Acquisition financing can be raised through state-owned banks, guaranteed by the Government.
Rare earth mines in Australia are prime targets given their quality and the nation’s low risk profile. The rare earth arm of Baotou signed an agreement with Arafura to co-develop an Australian rare earths mine at Nolans in late 2008.
Although China is home to the largest rare earth reserves in the world, it is still actively seeking chances to acquire overseas mines, a Chinese based analyst said. The purpose is to assure resources for the green energy, high-tech and defense industries. China is not the only country aggressively seeking to expand its rare earths resources; the US and Russia have similar policies, the analyst noted; the only difference is that China is leading the race.
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GGG Price at posting:
46.5¢ Sentiment: Buy Disclosure: Held
