Investing in Mines Not as Difficult as Imagined

"In the past buying stocks of steel & iron companies could make you money, and now buying mines can also make money "Mr. Ma Zhongpu, an industrial analyst, advised the people around him.
The price to earnings ratio of stocks is low in the steel & iron industry. While the enterprise value is high theoretically, industrial analysts generally are optimistic about it. However, many people who are casting their convetous eyes on steel & iron stocks don't dare make a purchase decision.

"Therefore, we should now look at other investment sectors, for example the trade in mineral products." Mr. Ma Zhongpu said. " Not long ago, because of coal shortages, about 13,000 small mines began operation again in China. This may also be the case for other mineral resources. "

Mining Industry Investment Interest Alive Again.

In early 2008 when all Chinese coal-fired power plants were depressed by coal shortages, the pit-mouth power plant of AES, a foreign power company, escaped the difficulty.

Pit-mouth power plants are built close to the mine pit mouth. As a coal-fired power plant needs a great deal of coal ( a medium-sized coal-fired power plant needs about 1.5 million tons of standard coal each year), the pit mouth power plant can save transportation costs. The power shortages that occurred in the beginning of this year were because of transportation difficulties and supply shortages.

"As it is close to a coal source and has enough coal reserves, the pit mouth power plant did not suffer greatly during the snow disaster that happened not long ago in China." said Mr. Paul Hanrahan, AES’ President.

As he benefited from pit mouth power plants, Mr. Paul Hanrahan is also interested in buying mine projects in China. If there are good mine investment projects in China, "we will also invest in mine projects. We have coal projects in India, Kazakhstan, Hungary etc. We are interested in all coal-power integration projects. "

According to Mr. Paul Hanrahan, it is an optimal choice, even in the US, to control coal sources by establishing power plant near a mine. "It often happens that coal transportation is blocked by bad weather. This is the same case in other countries such as the US and Canada. In the US, coal is supplied from western regions and needs to be transported by rail to power plants in eastern regions. The climate issue can bottleneck coal transportation."

After the snow disaster, China permitted about 13,000 small-to-medium mines to begin operation again. Prior to this, these mines were closed because of security and environment issues.

"Currently, this is also the case for iron mines." said Mr. Ma Zhongpu, an industrial expert. Iron ore witnessed great price increases in 2008, while Tangshan City, Hebei province, is a region where "the iron ore price is highest worldwide. Therefore, facing the same difficulty in iron ore supply as coal, the state will possibly loosen its restrictions on small-to-medium size iron mines. "

In addition, "there are some small iron mines in the Tangshan region, with scales from hundreds of thousands of RMB to millions of RMB. It is estimated that the price of these mines will increase after the government opens its mining policies. "said Mr. Ma Zhongpu.

Investing in Foreign Mines Earns Ten Times More Money

"For companies that bought iron mines in Australia in 2004 or so, they will now enjoy a 10x price increase. " said Mr. Ma Zhongpu. "Now the price of mines is increasing rapidly in Australia, so additional investment is already inappropriate. Now, many companies choose to invest in mines in Africa, West Asia and Brazil."

Operating overseas mines is not as difficult as imaged. Mr. Yang, marketing manager of a cobalt & nickel company in Zhejiang province, just invested in cobalt and copper mines in the African nation of the Congo.

Mr. Yang said, "We recouped our investment in mines and smelting plants within 3 years. While exploiting cobalt mine, we also mine copper and transport it to China. This can address the demand of copper in China. "

"Previously we could only purchase cobalt from foreign companies at a high price and had no say in how much we paid. " Mr. Yang recalled. "Currently several Chinese companies are mining cobalt in Africa, thus we can purchase high quality cobalt metal at a lower price."

All these changes are because the cobalt & nickel company where Mr. Yang worked bought a medium-sized cobalt mine in the southern region of the Congo. They smelt cobalt and transport finished cobalt products to China, which relieves the supply of cobalt metal in China. "

Besides Mr. Yang’s cobalt mine , there are now nearly ten Chinese companies operating mines and smelting raw materials there.

"There so many Chinese companies investing in the Congo that we now find local Congolese can speak Chinese." said Mr. Yang.

Some large state-owned enterprises including China Metallurgical Group also have plans to invest in the Congo. "They are communicating with private companies and hope to enter the market rapidly by cooperating with them. Now the projects Chinese people operate in Congo are becoming bigger and wider " said Mr. Yang.