Chalco, Tata Steel to Invest in Australian Mines (Update1)
Oct. 25 (Bloomberg) -- Aluminum Corp. of China, the country's biggest producer of the metal, India's Tata Steel Ltd. and rivals plan to invest in Australian mine and oilfield projects worth $63 billion over the next decade.
Demand from China and India, the world's two fastest- growing major economies, has pushed oil, coal, iron ore and copper prices to records this year, spurring a search for new sources of supply. About A$84 billion of minerals and energy projects are now under consideration in Australia, according to the Australian Bureau of Agricultural & Resource Economics.
``There's huge demand,'' said Mark Pervan, head of research at Daiwa Securities SMBC in Melbourne, in a phone interview Oct. 19. ``These users are realizing that with such high raw material prices, it makes sense to own some of these assets.''
Australia is the world's largest producer of bauxite, alumina and zircon, according to the Canberra-based bureau. It also ranks among the top five producers of aluminum, coal, copper, iron ore, lead, nickel and silver, and has the world's largest uranium reserves. Raw material producers such as BHP Billiton and Rio Tinto Group are already developing A$23 billion of mines and oilfields in the country.
Chinese and Indian companies are expected to invest in the new projects, with iron ore, coal and gas the most popular, said Mark Durrant, general manager of resources industries at government agency Invest Australia.
Middle Class
``Some of these projects won't take place if we only rely on local investments,'' Durrant said Oct. 19. ``The emergence of the middle class in India and China is driving the need for consumer products like washing machines, and the need for steel and its ingredients has blossomed from there.''
Beijing Shougang Co., China's fourth-biggest steelmaker by output, and other Chinese companies are in talks to invest as much as A$10 billion in Australia, Henry Wang, senior investment commissioner for Greater China at Invest Australia said in an interview Sept. 16.
BHP Billiton, the world's largest miner, last September won contracts to supply $3.2 billion of iron ore to four Chinese steelmakers, on top of an earlier accord for $9 billion, supporting its mine expansion plans. Chinese contracts are also driving Rio Tinto's investment in its Australian iron ore mines, and will account for almost half of total demand after expansion.
Shares of BHP and Rio Tinto have risen to records this year on growing profits on sales to China.
Tata Steel
Tata Steel, India's second-biggest steelmaker, is in talks to buy stakes in as many as three coal mines in Australia, A.D. Baijal, vice president, raw materials, said Sept. 19. Gujarat NRE Coke Ltd. has bought into its third Australian mine, while GAIL (India) Ltd., which distributes 90 percent of India's natural gas, plans to spend $500 million in the country.
``Australia is the only place where you can get large quantities of coal,'' Tata Steel's Deputy Managing Director T. Mukherjee said in an interview Sept. 30. ``Also there are coal mines where one can invest and assure long-term supply.''
India's economic growth reached a 15-year high in fiscal 2004 and the government wants state-owned steelmakers to increase output by 10 percent annually to meet demand that's expected to double in the next seven years. Meanwhile, GAIL and other energy companies want to diversify supplies away from the Middle East.
China
China's economy grew 9.5 percent in the first half, the same as the past two years when the pace was the fastest since 1996. Shanghai-based Baoshan Iron & Steel Co., the country's largest steelmaker, and rivals may import 80 percent more iron ore by 2009, Merrill Lynch & Co. said Sept. 21.
Soaring Chinese iron ore demand sent prices up a record 71.5 percent from April 1, while coking coal prices more than doubled. Developing countries accounted for 74 percent of global demand growth for oil and minerals in 2004, according to Deutsche Bank AG, which cited the World Bank.
``Competition for Australian resources is quite strong,'' said Robert Vagnoni, 47, managing director of Murchison Metals Ltd., which is planning a A$1 billion expansion of its iron ore project in Western Australia. ``Not only are we seeing demand from the Chinese, we see interest from the Japanese, the Koreans and the Taiwanese. We've also had enquiries from India.''
Japan
Japanese rivals have been in Australia for decades. Nippon Steel Corp. has owned a stake in Rio Tinto's Robe River iron ore venture since 1977. Mitsubishi Corp., Japan's biggest trading company, first invested in coal mines in Queensland in 1968, while Itochu Corp. and Mitsui & Co. partnered with BHP to mine iron ore in Western Australia in 1967.
``What the Japanese were to the Pilbara iron ore mines of BHP and Rio, the Chinese may do for the new iron ore projects,'' Vagnoni said. Other Australian iron ore miners looking for investments include Fortescue Metals Group Ltd. and Midwest Corp.
Indian and Chinese companies are among 10 interested in developing the Aurukun site in Queensland, which contains 650 million tons of bauxite, enough to produce the aluminum contained in 2.5 million Boeing Co. 747-400 aircraft.
Aluminum Corp. of China, known as Chalco, Mumbai-based Hindalco Industries Ltd. and companies from Canada, Brazil, Japan and Russia have submitted bids, the state government said Oct. 14. Mining the deposit and building a processing plant may cost as much as $900 million, Chalco said in March.
``The intention is to secure supplies, and they're very conscious of their exposure to our resources,'' said Mitchell Hooke, 48, chief executive of the miners-funded Minerals Council of Australia. ``They're not in this for the financial returns. They're in this because of the opportunity costs of not getting the supply.''
Riskier Projects
Still, overseas investors may have to invest in smaller, riskier projects in Australia as Rio Tinto, BHP and the biggest companies may be reluctant to relinquish control of their mines. Rio Tinto Chairman Paul Skinner said the company doesn't need to sell stakes in its mines to Chinese customers, the Australian reported Sept. 16.
High mineral prices are also making investing in mines more expensive, Tata Steel's Baijal said.
``The likes of Rio and BHP are unlikely to want to give away equity in their mines as they can fund them themselves,'' said Shaun Giacomo, who helps manage $1 billion at SG Asset Management Pte. in Singapore, including shares in BHP and Rio Tinto. Investors ``may have to partner grass root projects. The world-class assets are tightly held.''
Stability
Even smaller assets in Australia may be more in demand than mines elsewhere though.
``We have preferred Australia over Africa because of the political stability and also because this country offers a viable environment to conduct business,'' Sumit Kumar Khetan, president of Gujarat NRE, said on Oct. 4.
In Indonesia, Newmont Mining Corp., the world's biggest gold miner, is standing trial on criminal charges of polluting the sea with arsenic and mercury. Denver-based Newmont denies the charges. Newmont, Placer Dome Inc. and Goldcorp Inc. have said plans to cancel mining rights in Venezuela make future investments in that country unlikely.
Australia has a ``stable government, a light regulatory regime, and an economy that's very pro-mining,'' said SG's Giacomo. ``There's a scarcity of projects worldwide'' to invest in, he said.
