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Australia-China mining relations in the Year of the Tiger
1997 was the last time we entered the Chinese Year of the Tiger, and it was a year to forget with several Asian tigers heavily hit by the financial crisis, an abrupt end to a decade of economic growth.
Dennis Lin
By Dennis Lin, Partner, BDO (QLD) Pty Ltd
At that time, China was relatively unaffected, having pegged its currency to the US dollar and having less investment in securities than its ASEAN neighbours. Meanwhile, Australia had just seen the true potential of its minerals and energy sector, with its exports valued at $39.2 billion.
Fast-forward 12 years and 2009 was similar to 1997 in many ways, though on a much wider and global scale. Since then, China has become the global powerhouse economy with a thirst for commodities, including minerals.
Australia has happily responded to this Chinese demand, with its exports in 2009-2010 expected at $123 billion, despite a 23 per cent fall on the previous year.
To illustrate the changing landscape of commodities exports from Australia, the agricultural sector’s contribution to total exports dropped from 8.8 per cent in 98-99 to 4.1 per cent in 09-10, while minerals and energy increased exponentially from 17.7 per cent to 41.5 per cent, according to ABS (Australian Bureau of Statistics) data.
No matter what some economists may argue or believe, Australia has well and truly tied its business dealings with China as its largest two-way trading partner. Recession was common in many countries in 2008-2009, but both Australia and China seem to have managed to escape with minor injuries.
Like the Japanese before them, the Chinese companies have started to swoop on natural resources in Australia over the last decade. Its insatiable demand for commodities, and now Australian mining companies, has the Australian government on high alert.
The Chinese have experienced measurable success (eg. Felix Resources, Aquila Resources), and the Australian government has also responded with some diplomatic answers of its own (eg. Rio Tinto/Chinalco, Oz Minerals/Minmetals).
Other than these well-known transactions, the Chinese companies are approaching the acquisition of mining tenements (including greenfield sites) with tremendous speed.
For those not involved on a day-to-day basis, one only needs to look at the ASX releases of the Australian minerals exploration companies. Almost without exception, there are announcements on a weekly (and sometimes daily) basis of yet another transaction with a Chinese company of an equity injection.
The profiles of these companies are also becoming more diverse, as we see more provincial investment houses and mining companies coming ashore. It will only be a matter of time before more private equity funds from China also look Down Under.
So, what does this mean for Australia? For business, these transactions are healthy and they create the confidence and the vibe much needed in the marketplace in 2010.
With the mergers and acquisitions activity and the ability to carry out exploration with funds raised, Australia’s commodity exports future is secure.
At the same time, one can be assured that there will continue to be steady demand from China, as well as other major developing economies such as India, or our largest exporting destination of Japan.
However, only time will tell what the Year of the Tiger will bring for both countries and the mining sector.
* Dennis Lin can be contacted on +61 (0)7 3237 5999 or via email at dennis.lin@bdo.com.au. He is a partner in BDO’s Corporate and International Tax team based in Brisbane. He also coordinates the firm’s China desk and advises on inbound investments and M&A.
