Media, page-88

China Minmetals...the other side of the coin...must be considered

A qualified mining engineer with a great deal of first-hand experience in nickel projects has called out that he is very concerned about the quality of Chinese heavy mining installations.

And it is relevant, as the recent release by China Minmetals indicates more business between
Friedland companies and state-owned Chinese mining and construction firms.

It so happens that the historical predecessor of the state corporations referenced in the Minmetal release were involved in the construction and operation of the Ramu nickel project in PNG. The Ramu mine is a cobalt-nickel laterite deposit that is operating but has not achieved nameplate production, from the figures I have seen.

The Ramu project, though now operational, has been plagued with every kind of problem: social, political, and environmental; and more to the point, there were serious construction quality problems.

Even worse, the company was found guilty of fraud and corruption (on an Indian bridge project), their construction was so shoddy that the bridge was condemned after completion, and the company was declared off-limits for financing by a number of international banking groups.

So there is an important negative factor to consider...how competent are the Chinese counterparties ?

(1) Worst case...contracting with CMC could be a disaster, the leopard doesn't change its spots
(2) Mediocre case...they are not trustable but will do OK
(3) A little better...they can do a little better if it is demanded
(4) Best case...they have fired the bad guys, learned a lot of lessons since Ramu and Indian Bridge, they been taken over by more competent bureaucrats, and will do a decent job or better.

In all honesty I cannot venture an informed opinion on this. And I do not think Friedland's wonderful words in the Minmetal release can be completely trusted in light of the history on Ramu....they have the flavor of an exhortation-cum-backscratching; he gives them high praise in public, how is is pleased with their competency etc., but he surely would not embarrass them in a press release such as the one quoted.

Further, there is no way to know for sure...it seems clear they are involved already in some of Friedland's projects, and there have not been overt problems coming to light. And no EPC contract has been awarded yet on Sunrise.

But for fairness to you who are reading, and full consideration of all the factors, I think it is a potentially important issue to consider. Especially if the EPC for Sunrise goes to CMC.

My own position is that I trust Friedland's judgment, and his ability to handle the situation.

The way I read it, Friedland wants a better deal on capex for Sunrise, and has a much, much larger carrot in his DRC projects to offer the Chinese to ensure he gets a quality product at Sunrise, should he in fact decide to give them the contract on it. If they are on the spot, I think Minmetal is capable of doing a good job.