FOCUS: China to reassess domestic base metals mines to bolster resource security

After United States sanctions cut off supplies of microchips for Huawei smartphones, alarm bells began to ring out across all Chinese industries deemed as pivotal to the country’s future development, but reliant on imported materials.

And the base metals sector is one of the key areas, according to the chairman of Zijin Mining, Chen Jing-He.
“Now we know the importance of securing the supply of microchips and food, but how about the feed for metals production - mined metals? China relies heavily on base metals imports, so if foreign sanctions cut off our supplies, it could be even worse than running out of smartphone chips,” Chen told delegates at a recent strategic development conference on gold held in Beijing.  
Chen said the risk was particularly true in the Chinese copper sector, in which smelters take up more than half of the world’s total capacity, yet the country owns only 4.6% of global copper resources. 
“If that day came - [of sanctions being applied to the base metals sector] - while China is still lagging behind [in terms of] mine exploration and development, the consequence would be too horrible to contemplate,” Chen said. 
Zijin is one of China’s most ambitious buyers of overseas facilities and over the past five years has acquired stakes in the Democratic Republic of Congo’s biggest copper deposit Kamoa Kakula, in Serbia’s BOR copper complex and in Canadian base metals miner Nevsun.   
And the cash-rich miner recently set its sights on domestic assets and, in June, bought a controlling stake in Tibet’s Qulong copper mine - China’s largest porphyry copper deposit.   
This self-sufficiency drive is in line with a recent call from Beijing to “touch and feel clearly” domestic natural resources across China. 
‘Know our inheritance’
Last month, China’s Ministry of Natural Resources hosted an online training session with more than 20,000 technical staff from oil giants PetroChina, Sinopec and CNOOC, along with other major resources companies. 
“There has not been any nationwide inspection in the past 10 years, our database of natural and mineral reserve is no longer up to date. We have to audit and update the reserve database,” the ministry said.  
In addition to oil and natural gas, the “strategic natural resources in shortage” targeted in the ministry's assessment include copper, aluminium, nickel, gold, cobalt, lithium, iron, chromium, zirconium and potassium. 
State-owned enterprizes and local governments have been tasked with coming to “know our inheritance” better by inspecting proven and probable mined resources and identifying “mining areas” where nobody has yet to officially claim the exploration and mining rights. 
The government estimates the latter could account for at least 40% of the country's total mineral resources, including Asia’s largest untapped zinc-lead deposit at Huoshaoyun
With the reliability of Chinese statistics long regarded as questionable, the natural resources ministry said this assessment - to be completed by the end of 2021 -must be of “high-quality” and “well-controlled” to provide a clearer picture of China's “national strength.”
The call comes at a time when it is becoming increasingly costly for Chinese companies to procure certain raw materials from overseas - including copper concentrates - due to geopolitical risks and tensions, along with Covid-19-led mine disruptions. 
In summer 2020, Fastmarkets' copper concentrates treatment and refining charges index dropped to a multi-year low, reflecting the tight availability of the material on the spot market. It fell to $43.7 per tonne/4.37 cents per lb on September 4 - its lowest level since its launch in 2013.     
The fall implies that Chinese smelters - the most active spot buyers - were receiving a notably thinner incomes for turning copper concentrates into refined copper. 
Adding to China's woes, in June, the offshore yuan dropped to a near-record low while trade tensions between the US and China deteriorated, with the imposition of the new security law in Hong Kong lifting import costs even further.  
Despite rising cost pressures, the room for Chinese copper smelters to cut concentrates imports is limited, and over the first six months of 2020, more than 10.84 million tonnes of copper concentrates were brought into the country, up 3% compared with the same period in 2019. 
China’s mined copper output in January-June was up 8.4% to 800,000 metal tonnes, according to the government, which roughly translates to 2.4 million tonnes of copper concentrates, according to Fastmarkets calculations.
That means domestically mined copper will have to at least quadruple to replace the imported volumes.
Currently, the only operational copper mine in China with a copper metal output of more than 100,000 tonnes per year is the Dexing mine owned by Jiangxi Copper, while most other copper mines are either mid-sized. or privately run smaller operations.
On the long road to self-sufficiency in metal resources, China is not alone, however, and a similar approach is also being promoted in India. 
The operator of India's biggest copper smelter, Birla, recently entered an agreement to source copper concentrates locally from state run mines. The move is said to be a help with achieving ‘Atmanirbhar Bharat’ - Indian prime minister Narendra Modi's term for his drive toward a “self-reliant India.”  

Julian Luk

julian.luk@fastmarkets.com

Published

Julian Luk

October 05, 2020

14:54 GMT

Hong Kong