Mining Sector

1. Sector Overview

Southwestern China is rich in mineral resources. To date, geologists have confirmed reserves of over 130 different minerals. The reserves of non-ferrous metals in SW China account for 40% of the total reserve in China. The reserves of vanadium and titanium in Sichuan account for 82% and 33% of the world total reserve respectively. There are 112 types of non-ferrous metals in Yunnan alone, among which the reserves of lead, zinc, and germanium take the lead in China. Guizhou 's reserves of coal, mercury, aluminium, and phosphorus rank top in national reserves.
In 2006, mining production in Southwestern China was valued at around RMB 170.5

billion.[2]

The majority of mining production is for copper, aluminium, lead & zinc, rare earth, phosphorate, vanadium and titanium. Major local companies are:

  • Panzhihua Iron & Steel Group
  • Chongqing Bosai Mineral Group 
  • Southwest Aluminum (Group) Co, Ltd.
  • Yunnan Aluminum Co. Ltd.  
  • Yunnan Metallurgical General Company
  • Kunming Iron & Steel (Group) Co. Ltd.
  • Yunnan Tin Group
  • Yunnan Copper Group  
  • Guizhou Wengfu Industry Group

To encourage the development of the mining industry in SW China, the central government authorized Yunnan as the pilot province to enact its own incentives and policies to attract foreign investment in the mining sector in 2001. Sichuan followed suit and issued Provisions of Sichuan Province for the Encouragement of Foreign Investment in Geologic Exploration and Mining in May 2001. Both Yunnan and Sichuan have autonomy to grant exploration and production license. These policies, plus the abundant mineral reserves have drawn foreign investors to flock to this unveiled area - including companies from Australia, England, South Africa and Canada.

From July of 2006, the Southwestern China mining administrations started tighter control over exploration permits to cool down the overheating of the market. Also efforts have been made to aggregate established small-scale exploration properties into larger properties according to the mineral development plan drafted by provincial Departments of Land & Resources. As a result, a lot of international companies withdrew from the market, while some well-established Canadian companies remained to explore precious metals, such as copper, gold, silver, lead and zinc, with their Chinese partners.

The usual practice for the Canadian junior mining companies in SW China is to set up a JV with a local partner, who owns an exploration license on a certain property. Then the Canadian companies will start the exploration through its JV. No production license has yet been granted to any Canadian company or its JV in the SW China . The procedures vary in each province, but the main steps remain the same as follows:

Action

Seeking Chinese partners with exploration license

Involved Chinese Parties

  • Exploration brigades under local Bureau of Geology and Minerals
  • Local Metallurgy Bureau
  • Gold Brigades of Armed Police
  • Exploration brigades under Nuclear Department

Note

These organizations hold 85% of the exploration license in SW China . Some have production license as well.

Action

Setting up JV

Involved Chinese Parties

Provincial MOFTEC - if the total investment of the project is under 100 million USD Central NDRC - if the total investment of the project exceeds 100 million USD

Notes

MOFTEC = local commission or ministry of foreign trade and economic relations NDRC = National Development and Reform Commission

Action

Acquiring exploration licenses

Involved Chinese Parties

Local government (county level); Provincial MLR - if the total exploration investment is within 5 million RMB (In Yunnan, Sichuan only at present); State MLR - if the total exploration investment exceeds 5 million RMB

Notes

Project assessment, especially environmental impact and minority group concerns; Issuing license for JV; MLR = Ministry of Land and Resources

Responding to the mining industry's dismal safety and environmental record, the Chinese government is urging "Green Initiatives in Mining", which will promote improved mine safety, tail processing, site reclamation and restoration. Since 2006, China has been implementing Mine Environment Reclamation Bond system, which will subsidize purchase of technologies, products and services for mining environment protection.

2. Market and Sector Challenges (Strengths and Weaknesses)

Strengths:

  • Technology. Canadian companies' expertise in exploration has been well recognized in SW China . The close cooperation between Canadian geologists and the local experts leads to the success of projects. After Canadian companies set up a JV with their local partners, necessary training is given to the Chinese partners, thus elevating the technical level dramatically.
  • Management. Most executives for Canadian companies have rich experience working in international mining companies and have accumulated first-hand information on every aspect from their previous jobs, including daily operation, financing and technology.
  • Financing tools. This is the unprecedented advantage of Canadian companies. Supported by Vancouver Stock Exchange and Toronto Stock Exchange (TSX), Canadian companies have the access to solid fund supply for sustainable exploration and mining, which is not available in China given the poor financing system. Though few Chinese officials understand the significance of the stock exchange financing tool, they also admit that there is default of financing tools in China . The stock exchange listing is apparently the most effective financing source for Canadian exploration companies that are active in China .
  • Expertise in sustainable mining. In the long history of natural resources development and exploitation, Canadian companies have enhanced their unique capabilities in environmental impact assessment, site reclamation, tail treatment, mine safety, crisis communications, and other environment-related aspects.

Weakness:

  • Limited resources and company scale. As SMEs, Canadian companies find it difficult to bid for massive projects. Local governments favour working with a single partner over the life cycle of a project and it is also hard to convince the Chinese government officials of Canadian companies' long-term commitment.
  • Lack of personnel who are familiar with Chinese laws and practice, and have international experience. Doing business in China is not easy, in the mining sector in particular. The complicated laws and regulations, the overlapping administration of various departments, as well as cross-culture shock will discourage some first-time investors to SW China .

Opportunities:

  • Green mining. Chinese government is urging? Green Initiatives in Mining?, which will include factors such as mine safety, tail processing, site reclamation, restoration. Canadian environment companies will have niche market to introduce their services to Chinese mines.
  • Mining and processing machinery. Canadian mining/processing machinery should start looking for market opportunities with big SW Chinese mining companies, such as Hunan Copper Group, Southwest Aluminium Group. Canadian manufacturers should also team up with Canadian and domestic mining companies, supplying them with equipment for exploration and production.

Challenges:

  • Illegal mining. In spite of the continuing effort from the Central government, illegal mining is phenomenal across China. Poverty, minority group concerns, and local protectionism have worsened the problem in SW China . Illegal detention of Canadians and their property were even reported in the past.
  • License transfer. This issue includes two aspects - the exploration license transfer from Chinese partner to JV; and the exploration license transfer to production license. The local partners have used the transfer of title as a bargaining tool and to even suggest additional 'under-the-table' payments
  • Unclear administration authorities . According to the Notice of the Ministry of State Land and Resources concerning Further Regulating the Administration of the Mining Title Transfer (No. 12), The Chinese Ministry of Land & Resources ( MLR ) above county level is responsible for granting license for exploration and production. It is not clear whether future license applications will be sent to the city level MLR, and only file to the provincial MLR.
  • Inconsistent application of the law across national and provincial departments. When the leadership changes, Canadian companies may encounter different interpretation of laws and regulations.
  • Access to geological data : available data is not public, nor easily obtained.
  • Minimum capital requirements : It will be more difficult for junior companies to obtain exploration/mining license because of the minimum capital requirement - the minimum registered capital for applications of exploration titles is RMB 3 million in Yunnan. The Local governments remain wary of small companies and prefer large firms willing to invest heavily in projects from start to finish.
  • New bidding procedures : Canadian companies will face more severe competition during the exploration title bidding procedure from Chinese companies, who have the financial support from the government geological survey fund. Newly introduced bidding procedures require a multiple representatives (e.g. three) to be present on-site with sometimes short notice. Selection of and cooperation with Chinese partners will be more crucial for Canadian mining firms.
  • Tax / royalty payments : Partial payment of total estimated royalties are now being asked for up front in some cases.

3. Sub-Sector Identification

Exploration and Mining

Joint efforts of Canadian companies may provide better access to the exploration and mining licenses. The Consulate has been supporting Canadian investors by organizing government roundtables and policy dialogues in Southwestern China, to help clarify regulatory changes and advocate for Canadian interests.

Mining Equipment and Services

There are strong opportunities beyond the traditional mining exploration and development that has up to now been Canada's strength in Southwest China's mining sector. Mining equipment and services have become an emerging opportunity for future cooperation in areas including: drilling equipment and service; mine safety technology & equipment; mine reclamation; geological hazard monitoring & control; mining equipment; mining environment protection. The prospects of the mining equipment/services market depend very much on: a) the central Chinese government renewed emphasis on improving the safety and environmental and social sustainability of mining; and b) consolidation of and increasing economies of scale in the Southwest mining industry. At the same time, challenges still remain because of: a) a lack of awareness of Canadian expertise in mining equipment/services; b) severe competition from Chinese companies with much lower price and c) aggressive competitors (esp. Northern European countries, the U.S., Australia and South Africa).

Mining Equipment and Services

There are strong opportunities beyond the traditional mining exploration and development that has up to now been Canada's strength in Southwest China's mining sector. Mining equipment and services have become an emerging opportunity for future cooperation in areas including: drilling equipment and service; mine safety technology & equipment; mine reclamation; geological hazard monitoring & control; mining equipment; mining environment protection. The prospects of the mining equipment/services market depend very much on: a) the central Chinese government renewed emphasis on improving the safety and environmental and social sustainability of mining; and b) consolidation of and increasing economies of scale in the Southwest mining industry. At the same time, challenges still remain because of: a) a lack of awareness of Canadian expertise in mining equipment/services; b) severe competition from Chinese companies with much lower price and c) aggressive competitors (esp. Northern European countries, the U.S., Australia and South Africa).

Canadian Government Contacts:

Consulate of Canada in Chongqing
Email : aice.xiong@dfait-maeci.gc.ca
Website: www.tradecommissioner.gc.ca

Natural Resources Canada
Email : info@aiac.ca
Website: www.aiac.ca
Website: www.nrcan.gc.ca

Foreign Affairs and International Trade Canada
125 Sussex Dr
Ottawa, ON K1A 0G2
Website: www.tradecommissioner.gc.ca

Foreign Affairs and International Trade
WOA (China Geographic)
Contact: Brendan Murphy, Deputy Trade Commissioner
Email : Brendan.murphy@international.gc.ca

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