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China Spend Much Money to Learn How to Invest in International Mining


(Steven) Heng Huang

Director of HOT Mining, Member of AusIMM, Senior Engineer (Mining & Process)


(Luke) Ke Jiao

Mining Engineer, Chief Rep. Of HOT Mining Pakistani Joint Venture

For a long time, Chinese mining companies or investers are considered rich but fool. Until recently, we could still hear some jokes from mining brokers. This mine has large reserves with high grade ore. It can be converted into gold XX tons... Yes, until today, those completely unreliable guys are still active in the mining rights trading market.


Everytime I heard this bullshit, I always want to ask: Hi dude, could you please read more books before you intend to bamboozle others?  


This is just what happens in the China. How about international? In recent years, HOT has also done many international mining projects. Consequently, I've seen a lot of people with modified overseas resources projects to seek cooperation or financing. They are blind and impatient. They totally do not analyze clients demand and intentions. They just want to sell the mining right as soon as possible, just like selling a house or a car. According to their way of work, you can image the quality of their projects.


One obvious fact is that the main target of these brokers is the investors from China. Probably, in the eyes of the mining rights traders all over the world, all Chinese mining investors are blockhead.


Deceptions are everywhere, no matter huge projects or small projects. It is not uncommon that data is modified to deceive investors or great plan is promised, which is actually cannot be achieved. There is no doubt that these projects are going to fail. But what if the projects are very good and they are all located in developed countries which have mature laws and regulations such as Australia and Canada, are these projects definitely going to be profitable?


Absolutely not. 


I Have participated in a technical upgrade review work for a coal mine and coal preparation plant project in Australia. Strictly speaking, this project is a very good investment target. It is located in the mature mining area in Queensland. Its infrastructure is perfect and do not need to worry about water supply, electricity supply and transportation problems. It have great living conditions. It has very large reserves of coking coal. Its mining conditions are very good, and has been small-scale production for more than ten years. There is a coal preparation plant for this coal mine, and there is a special railway line that can transport products directly to the port. Because this project is already in operation, it is not difficult to update the environmental impact assessment and mining certificate renewal. Investors bought the vast tracts of land and pastures above the mineral rights in advance. Therefore the potential risks of conflict with local residents are solved.


From the perspective of Chinese investors, this project is Extremely perfectHowever, Investors are still suffering from serious losses.


What is the reason?


The reason is the location of this project. Yes, the reason is Australia, the place is considered that laws and regulations are perfect, and invest here is very safe.


The more perfect laws and regulations are, the more difficult it is for Chinese companies to work in the "Chinese way". To some extent, these various rules bring heavy burdens to the investment and development of Chinese companies.


First of all, Chinese companies are unable to send Chinese engineers and technical workers to Australia because of visa problem. Most Chinese employees can not apply for Australian working visa due to the strict Australian approval system. Therefore, hiring local engineers and miners is the only option. The problem is employment. It is a difficult to employ miners in Australia. For a underground mine, the situation is worse. During the several years from project preparation to project implementation, the overall experience of the chief engineer in charge is confined to the open pit mining. Even It's difficult to employ a chief engineer, and you can imagine what's going to happen for this project.


Besides, the engineer team also has problems. For example, due to the stubborn and arrogance of Australians, it is difficult for Chinese shareholders to get involved in decision making. For example, in Australia, miners can directly refuse to use if they feel the equipment has potential safety hazard, etc. Because of those, any partner and technical expert from China can not really provide valueable and experienced advice. They can not work well with local employees. They are more like two separate operating systems.


Without considering the factors of the mine itself, the greatest risk of mining investment comes from the people involved in mine development and management. In this project, the management structure is unreasonable. In addition, the leading Australian chief engineer chose the longwall mining technology that was not suitable for this coal mine. Actually, the Chinese engineers have already pointed out that there are a lot of faults in the mining area, and room and pillar method is more suitable for this project. However, this proposal was not considered at all. And about duration of this project (Seriously affect the payback period of investment calculation), although Chinese experts have repeatedly reminded the plan in Australia is impossible to complete, this Australian chief engineer still believed it can be finished on time. As a result, the whole project has been postponed again and again. About work-face Sequence plan, these open pit mining experts did not consider the efficiency of equipment transportation and prevention of accidents. So, it is consume a lot of time to fix this problem when the accident happened. Eventually, the best time in the market was missed. Something like this has happened again and again and again...


Something else happened later and I will not talk about it. Overall, if this project is in China, Indonesia or any developing country, then Chinese companies can develop and manage this project in the "Chinese way". And I am pretty sure it is a very profitable coking coal project. What a pity!


Conclusion: Is it safe to invest in Australia, Canada and other countries with improved laws and regulations? The answer is not that simple. Instead, opportunities exist in countries people think it is a mess, the countries do not follow the rules, or even the countries where the mining laws are immature(most African countries for example). In there, you can develop and manage a project with low cost. You can make a profit. Even if one day the local government no longer support your production for a variety of reason, it does not matter. Just quit because you have made a lot of money.


There are two extremes in China's mining investment. The one are speculators. They keep buying and selling mining rights and earn the difference. The others are dreamers. They think about big strategies, but they don't care about details.  


There are no right or wrong for these two extremes. Whether it can make money depends on business level and a little bit luck.


Cross the river by tossing stones.  

It doesn't matter whether the cat is black or white, as long as it catches mice. 

Now think about these two sentences, and I found they are very philosophical. The same is true for mining investment. The mining investors and companies may develop the project and make money with low cost as first, and then seek long-term development opportunities. Probably, for the most mining company which want to develop good project, this is a better choice.


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