China and its grip on African mining

Watch industry experts at this year’s Mining Indaba in South Africa talk about China’s African mining empire and possible implications for mining companies and consumers in the West. 

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Q. Is China losing its grip on African mining?

John Meyer, mining analyst, SP Angel:“So, China has muscled its way into global markets, particularly trying to dominate a lot of commodities. Now, what they’ve done is they’ve focused on the metallurgical side of things. They’ve trained up a lot of metallurgical engineers and developed furnaces and processing facilities for most commodities. And in fact, they now dominate copper smelting, for example. They were always big on the rare earth side, and they’ve just got bigger. In many respects what they’ve done is they’ve reduced the price of processed commodities to a level that’s encouraging the construction of electric vehicles, for example. You wouldn’t be buying electric vehicles at the price that they’re available for if China wasn’t producing those processed materials at a relatively low cost. The West would never produce materials at those costs.

“But the good thing, the really good news, is that, actually, you can still sell concentrates and raw materials/ores into China and the miners can still make good money. So, whereas years ago we would have had to develop our own processing facilities, now the Chinese have them. Now on the one hand, that feels like a negative because China once in a while starts sabre-rattling. The politicians, they put two fingers up at the West and they say, ‘You can’t have some of these things.’ In reality, they tend to do that when their own demand is outstripping their own supply. Because what they’ve always done is planned to be self-sufficient.

“So let’s say they’ve planned to produce several thousand tons of neodymium. Their own industry is growing to meet that demand. Sure they’ve been selling it abroad, but there comes a point where they say, ‘Well, hang on. We need all this at home. We don’t need to sell it abroad.’ So, it doesn’t matter what the politicians are saying. The demand is such that the West is going to have to wait. Because the guys who are processing the materials are always going to sell it to their mates, the guys they have drinks and lunches and dinners with. And, of course, the Western buyers get shut out. So, they are now having to run around securing their own supplies. But more than that, creating their own processing.

“Now, everybody throws up their arms in horror and says, “Oh my God. The Chinese are cutting us out.” Not really. The West should have been developing its own processing facilities in advance, and they should have been seeing, well, it coming. But they’re not doing a lot about it. Now, yes, the US government is now funding a lot of this. So, what they’re doing in reality is funding the processing side to help the miners. That’s great news, because the mining side has almost always made much better margins than the processing side of things.”

Sapan Ghai, chief commercial officer, Sovereign Metals Ltd (LSE:SVML):“Ultimately, China controls the supply of graphite into the world, and therefore can control the price of graphite today. Graphite’s applications, or its key application today, comes in the form of the anode within a lithium-ion battery. So, every battery has a positive and negative. The negative side is graphite, so even though it’s called a lithium-ion battery, it’s 50% graphite.

Now, 97% of that graphite in all our lithium-ion batteries around the globe comes from China. China produces about 1.2 million tons of graphite out of 1.6 million tons of demand in terms of just the natural graphite. It also produces this thing called synthetic graphite, which works as graphite but is a by-product from the petrochemicals industry.

“I think everyone who has a critical minerals list has graphite on that list. So, whether that’s the US, whether that’s the EU. NATO back in December came out with a list of 11 strategic minerals. Both titanium and graphite was on that list. Those are strategic and important, in fact vital, for the allied defence force. So, that’s telling you the importance of graphite and indeed titanium to the world.”

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Harry Anagnostaras-Adams, executive chair, KEFI Gold and Copper (LSE:KEFI):“China, decades ago, through central Party directive, focused its businesses, most of which were controlled by the Party or influenced by the Party, to put heir foot on natural resources. And the extension of sovereign loans as well as the investment by those companies, was very much directed amongst other things, but included a very high priority to put their foot on natural resources. And then the electrification revolution has highlighted the fact that rare earths and battery metals actually have been disproportionately controlled by China because of decades of focus by China well ahead of the West. And the US and the rest of the West have just woken up to that.

“The largest investor in African natural resources in the last two years were the Gulf states. And that’s part of the West moving into natural resource security. Saudi Arabia has announced that it wants to be one of the world’s largest EV manufacturers, but it doesn’t have any battery metals. So, obviously they’re looking to invest in battery metal deposits internationally. You can’t make things unless you have access to the raw materials and to the ability to process it with cheap power and so on. And so I think it’s not about imperialism, I think it’s just about security. And for whatever reason, the West thought that it didn’t really matter until the last couple of years when they realised it had been 30 years out-manoeuvred.”

Neil Herbert, executive chair, Atlantic Lithium Ltd (LSE:ALL):“In terms of potential end users for lithium concentrate today, nearly all the supply currently goes to China. However, what we are seeing is increasing numbers of new projects coming forward for chemical converters, both in Europe and indeed in the Middle East. What I expect to see over coming years, and particularly as we come into production, [are] actually those plants coming into production. And so we may well befeedingplants outside China. We may be feeding plants in Europe or indeed in the Middle East, which is at this moment in time probably the area where I expect to see most progress in terms of new production facilities being built.”

Emma Priestley, chief executive, GoldStone Resources Ltd (LSE:GRL):“So, in a previous life, when I was a director of a company called Lonrho, we were operating in38 countries in Africa and we saw first-hand – that’s going back, that was the years 2005 to 2014 - Zambia and Angola, the influence of the Chinese coming in. Which back then, and even before that, it was very much commodities for infrastructure. And the Chinese did it very well. You can’t blame them. We Westerners would come in and say, ‘Oh, we’ll build you a new railway line. But we want you to do this on this policy, and we want you to do that.’ Meanwhile, the Chinese had been in, built the railway line. ‘Thank you very much. We’ve got our oil, the diamonds and our iron ore and our copper. Life moves on.’ So, you can’t blame the African continent for signing up with the Chinese, I would have done. I want a railway line, I want roads, I want new buildings.

“What’s happened though is the fact that a lot of those African countries realised that the Chinese weren’t actually creating employment for their people. And so they had their Chinese labour doing the Chinese infrastructure. And the African countries, it didn’t sit right. But as the years have gone on, the Chinese have started to do the agreements with the African countries differently. They’re still doing infrastructure, but a lot of the countries now, they are creating employment and are doing it differently. But the Chinese, of course, still want their commodities.”

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Bernard Aylward, chief executive, Kodal Minerals (LSE:KOD):“Well, I think what we see with China is a country that took the view early on that they needed to be in the lithium sector, that they needed to be able to demonstrate clearly that they were making a lot of progress towards a cleaner environment in their own country, as well as worldwide. And the impact that lithium is going to have there is quite clear in that you’re reducing a lot of internal combustion engines in terms of a lot of pollution from petrol, from diesel, from gas, from the environment. And I think they took the view early on that it was clearly a change that was, in my view, going to become unstoppable. And I think China’s view as well is that it is going to be the predominant power driver for vehicles. And that, hence, they control a lot of processing and then delivery to batteries.”

Andre Liebenberg, chief executive, Yellow Cake Ordinary Shares (LSE:YCA):“If we look at Chinese influence on the nuclear sector, if you start at the upstream, they don’t have very good domestic uranium resources. So, they’re going to have to procure the resource from abroad. And that’s why they buy 50% of Kazakhstan’s output. The two operating mines in Namibia both go to China. They’ve owned £15 million of production capacity there. So, they’re going to need uranium from abroad. Conversion and enrichment, they can be self-sufficient.

“But on the nuclear power side, the power station side, it’s been dramatic what they have achieved. Seventeen reactors at the time of Fukushima. They currently have 56 operating reactors. They’re building 26 as we speak. They approved, what, 10 reactors last year? So, they have now learned how to build these things on an industrial scale. So, it’s setting up the supply chain that goes into building all these reactors. So, that whole network of infrastructure and industry is now in place where they can build a reactor in five/six years because they’ve developed that skill set. So, we’ve seen them growing that capacity quite dramatically.

“I think they’re talking of doubling their capacity between now and end of the decade/early next decade. It’s unbelievable the size of the growth there. And it’s not all because of the green theme. And I think that has a large part to play, but they just need energy. They need all forms of energy. They’re still building coal mines. So, I think that’s a big driver.

“They’ve got their first small modular reactor, which I think will be ready commercially next year. And once they build one of those, they can build 20 of them. So, I think their influence on the industry [has] taught the world how to rebuild nuclear in a way that the US and France did in the 1970s. France built its whole fleet out in the 70s and early 80s, and the US the same. And once you build one and build 10, it makes a big difference. Where, if you look at the UK, Hinkley Point, it’s a bespoke project. And it’s over budget and over time.”

Dennis Edmonds, chief executive, Kazera Global: “It’s interesting in terms of China and the Western world. I think one of the things that needs to be borne in mind is that America and the Western world are big, big trading partners with Africa and particularly South Africa. And we would hope that they would continue, I think. They do put money in and they do provide a proper trading partner. China is very, very ambitious and they seem to come in and they seem to put money into projects. But not always with the same long-lasting beneficial effect for the local country. So, I think it’s going to be an interesting balance.

“I quite like dealing with the Chinese because they will make decisions and they will act on them, and they will follow their mouths with their money, and will make decisions very quickly. And they’re brave. The Western world tends to go through a much slower process. But then the Western world arguably has been doing it in Africa for longer and has had a more long-lasting beneficial impact. So, I think it’s a bit of a trade-off, and I think anybody dealing with either needs to be aware of the pros and the cons.”

Charles Bray, executive chair, Aterian (LSE:ATN): “The Chinese were very active over the past decade, especially within Africa, establishing relationships and providing infrastructure to African countries. And oftentimes in those negotiations, a lot of deals were struck whereby they would provide, let’s say a port or a rail system or roads, and have then access to certain mineral rights. They then exploited having that access, and then subsidised and promoted within their own country the development of refining capability.

“I think that Chinese influence in [and] over the African continent is waning somewhat. I think that the Chinese five years ago had much more influence than they do today. And I think the governments across, in particular, Sub-Saharan Africa recognised that there’s nothing for free. There’s no free lunches. And that having these groups of Chinese coming into the country offered some benefits, but that a lot of those benefits were short term and more, let’s say, directed towards the Chinese as opposed to the local communities.

“So, I think a balance is being re-established, and I think it’s an opportunity now for Western companies to show up, implement – and I know this is not a popular word any more, but environmental, social and governance (ESG)-type strategies that actually promote and help local communities create value that is very sticky. It would allow them to engage with the communities and the government on a longer-term basis. Whereas I believe the Chinese – who tend to, at least as I was taught historically, think in millennia – at least when it comes to mining in Africa, can be a bit short term in their thinking.”