China may yet target a mining major as it scours the world for new sources of natural resources to feed booming domestic demand for raw materials to satisfy infrastructure needs. Its strategy may also speed the emergence of Chinese mining companies big enough to compete with major Western counterparts, analysts say.
China is the world's top producer and consumer of many metals and has bought into numerous mine projects or smaller companies in recent years, including copper, bauxite and iron ore, to feed its voracious demand for raw materials.
"There's definitely a short-term strategic requirement, but there's a wider political dimension," independent consultant Angus MacMillan said. "There's an element of central planning, China is looking to control a large proportion of natural resources on a long-term basis."
He said the country was looking at where it stood in the global picture and deciding where it wanted to be. "We're seeing the next global empire," he added. Magnus Ericsson, senior partner at Stockholm-based consultancy Raw Materials Group (RMG), said current consolidation in China's metals industry would ultimately create big companies there, which in turn would look overseas.
"This is the first ripple on the surface of a big wave," he said. Most saw the buys as symptomatic of China's tendency to plan, looking to feed its needs in the long term.
Last week, Aluminium Corp of China Ltd (Chalco) bought Peru Copper, giving it an option on a big copper project in Peru that may start up around 2010. China said in March it was creating an investment vehicle to diversify part of its $1.2 trillion in foreign reserves. Part of the $200 billion fund, which will allow it to take on sizeable interests, is expected to be invested in commodities given China's lack of many key resources including oil.
Chinese firms have already invested heavily in Australia, Africa, Latin America and parts of Asia, often in countries shunned by Western miners due to perceived high political risk. "I don't think they've done anything untoward in terms of controlling the supply. They've got a strong economy and they need those resources," said Andrew Cole, a director at Baring Asset Management.
"The Chinese want to supply their domestic requirements and no more than that. Every time they cross that path you see government policy come out against it," said Andrew Keen of Bernstein Research. Chinese firms had long-term plans, Cole said. "The West will pay the price of that at some stage," he added.
Lex Hoogduin, chief economist at Netherlands-based asset manager Robeco, thought the money from the $200 billion fund could be invested using private equity. "The private equity fund will make a selection of companies to invest, but... what they will probably also do gradually is buy some equities themselves of miners," he said.
RMG's Ericsson said: "It can't be far off a company like Minmetals buying a major company. It's a bit speculative, but a bid for (London-listed) Anglo American is possible as early as later this year."
Minmetals, China's largest state-owned metals trader, failed in 2005 in its bid to buy Canada's Noranda. Noranda's operations are now owned by Xstrata Plc. Last month Minmetals said it planned to boost investment in Latin America.
Others think aluminium majors Alcoa and Alcan, in the midst of a take-over battle, might be looked at by Chalco. There has also been recent talk of Chinese interest in BHP Billiton, the world's largest mining group and the third largest supplier of seaborne iron ore.
Chinese firms have already bought iron ore companies in Australia to satisfy fierce demand from their steel industry. China produced just over a third of the 1.244 billion tonnes of global crude steel output in 2006 and accounted for 43 percent of world imports of iron ore for steel production.
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