Explorers urged to ‘keep the door open’ for Chinese investors

Australia’s increasingly cash-strapped small to medium cap mineral explorers have been encouraged to keep the door open to potential China-based investment dollars – but to take a far more pragmatic approach to securing agreements for long-term project backing.
The “open door’ encouragement was proffered by Adelaide-based specialist China-Australia investment consultancy, Kimberley Global, which in December undertook its third interchange in China to attract investment dollars to this sector of Australia’s mining industry.
“Equity providers in China are well aware that many Australian resources are being caught out by the rapidity of the meltdown and the drying up of traditional sources of capital for their exploration, drilling and mine developments, ” Kimberley Global principal, Dr Xian Tao, said.
“Some of these companies will have no choice but to urgently access new sources of capital to stave off closure, asset sales or merger and to allow at least some exploration activity to ‘survive’ the impact of the financial meltdown,” Dr Tao said.
“China is a willing participant to assist in this market dynamic but some changes are needed in the manner in which these Australian junior resources entities redesign their business strategies and balance sheets if they are to be reliant on future China backing.”
A former Visiting Research Fellow at Sydney’s University of Technology and Associate Professor, Earth Sciences at China University of Geosciences (Wuhan), Dr Tao said, “There are three business cornerstones that will encourage China backers to close a deal - and that is, the robustness of an Australian minerals project, how dynamic is its management group, and good communication.
“Chinese resources investors have an open mind but need to actually see and ‘walk’ the ground to get a sense of the expectation and flexibility within a project and how it measures against wildly fluctuating markets for metals commodities.
“They must be allowed sufficient time to undertake their own due diligence and not be pressured in the current equities environment, to close a deal simply because of the shortening financial horizons facing an Australian explorer,” she said.
Dr Tao’s comments were echoed by Barbara Grieve, who runs AXCEN, a consultancy bringing mining projects and Chinese investors together.
“A particular strength is our ability to organise and facilitate successful meetings in China and in Australia to foster business collaboration, investment, trade, technology exchange, long-term friendships and enduring relationships,” Grieve told The Australian Journal of Mining.
With offices in Shanghai, Jiangsu, Tianjin and Beijing in China; and Sydney and Melbourne; AXCEN works directly with the Mining Equipment & Services Council of Australia (MESCA) and its member companies.
For the past two years MESCA has conducted a China Research Tour with the assistance and guidance of Grieve, which included meetings with high level and welcoming Chinese organisations.
Grieve is producing an investment summit to take place in Beijing in April. She said, “As a participant at this event you will connect directly with the competing demands from China wanting to secure current and future supply of energy and resources from Australia.
“Regardless of any current market conditions China still has a strong strategic demand for energy and resources, and energy and resource security, both now and in the future,” she said.
The event will be publicised across China to more than one million Chinese decision makers, according to Grieve.
“A tender process will then commence before the event for your business in China. This will ensure that demand and investment is directed to your business in a competitive process on the China side. You will be positioned at the Summit to present your trade and investment opportunity to the wider audience, and conduct serious business discussions scheduled prior to the event.
“Currently there’s not a systematic approach like this to help exploration companies to survive and thrive into future. Without exploration our mining industry here is doomed.”
There are also significant disparities in culture, customs, institutions and regulation, between the Chinese and Australian approach to doing business. Both Tao and Grieve highlight the importance of Australian explorers understanding how to deal with government-owned companies in China - a key source for investing resources funds overseas.
According to Grieve, the Chinese Government will be releasing funds in the second half of this year to stimulate domestic infrastructure.
“Many Chinese investors want to wait until April, when the Chinese economy will start to come back. They will be wanting to make agreements with Australian producers then,” said Grieve.
Dr Tao said she remained positive about China’s economic future as its huge domestic market would continue to drive long-term and strong growth.
“The impact on China banks of the worldwide financial crisis has been extremely small, China holds some US$2 trillion in reserves and its local economy is robust under the four trillion yuan stimulus plan – and that aids the investment pool available to Australian explorers,” said Dr Tao.

The China Investment Summit for Australian Resources and Energy
17-19 April 2009, China World Hotel, Beijing, PRC
www.axcen.com.au