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Potential Impact of Chinese Investment on theCanadian Mining SectorLo-Sun Jen, Ph.D.Minerals and Metals SectorNatural Resources CanadaA presentation at the FOCAL Conference Session onThe Economic and Political Impact of Chinese Foreign Investment in The Americas: A Canadian perspectiveCrown Plaza Hotel, OttawaFebruary 10, 2006

  • A brief overview of the mineral relations between Canada and China
  • Why China is interested in investing in mining in Canada
  • Current Chinese mining investments in Canada and impact
  • Pros and cons of potential impact of Chinese mining investment in Canada
  • How to protect Canadian mining interests in Canada and China
a brief overview of the mineral relations between canada and china
A Brief Overview of the Mineral Relations between Canada and China
  • In 1970, Canada and China established diplomatic ties
  • In 1976, first Canadian mining trade mission to China
  • In 1988, first Canada-China MOU on cooperation in minerals and metals
  • In mid 1990s, China launched definitive economic reform towards an open market economy
  • In 1998, China’s Ministry of Land and Resources (MLR) was formed and serious mining reform began in China
  • In 1999, the first China Mining (a policy conference) was launched and invited international input to China’s mining policy reform, with Natural Resources Canada (NRCan) calling for gold liberalization and improvements to China’s investment climate for foreign investment
  • In 1999, NRCan began training of MLR mining officials in cooperation with Queen’s University to help expedite mining reform in China
  • In 2002, China officially encourages Chinese mining investment abroad and the first Canada-China Mining Investment Forum was held in Toronto

China’s Need for Mineral Development and Investment Abroad

  • China currently consumes
    • 22% of the world’s output of copper
    • 23% of the world’s output of aluminum
    • 16% of the world’s output of nickel
    • 50% of the world’s output of steel
  • Demand from China for key base metals is rising by more than 20% a year due to its rapid economic development and growth.
  • It is widely known that China has shortages of copper, nickel, iron ore, uranium and potash. Due to demand for minerals and metals continues to outpace domestic mine development and production, China is now increasingly relying on imports of all major industrial minerals and metals including zinc, which China leads the world in production.
  • Current mining investment scene between Canada and China
    • Canadian mining companies in China (with JV): 100
    • Chinese mining related investment in Canada: 3
what attracts chinese mining investment to canada
What Attracts Chinese Mining Investment to Canada?
  • Canada is mineral-rich, especially nickel, copper, zinc, lead, uranium, iron ore, potash, and metallurgical coal
  • Canada has advanced technology and management know-how
  • Canada has favorable investment climate
    • A fair and transparent fiscal and regulatory regime
    • Competitive taxation
    • Allows 100% foreign ownership in mining, except for uranium
    • Mining rights and mining rights transfer guaranteed
    • Foreign investors are treated as equal members of the business community, and enjoy both the rights and benefits and obligations and responsibilities
    • Allows full availability and access to all published international standard information and statistics on minerals and metals and geosciences data
    • World leader in equity financing for mining companies
    • Well defined environmental process and standards
    • Fair and consistent project approval process and procedure
    • Land access and security of tenure
    • No import or export restrictions
why it took so long for chinese mining investment to come to canada some misconceptions
Why It Took So Long for Chinese Mining Investment to Come to Canada? Some Misconceptions
  • Global competition
    • Cheaper or closer investment projects elsewhere
    • e.g. Africa, Indo-China, South America, Australia
  • Canada has been viewed as a high cost country
    • Mineral properties expensive
    • High labour cost
    • labour relations complex
    • High transportation costs due to long distances
    • high living costs
    • high taxes
    • long and severe winter weather adds further to costs and shipment delays
  • Canadian tax system considered complex
    • 3 levels of government taxation and complex tax rules
    • 3 types of tax rate
  • Too many jurisdictions and regulations in Canada to deal with if

investments span beyond one province

current chinese mining investment in canada
Current Chinese Mining Investment in Canada
  • There were no Chinese mining investment in Canada before 2005
  • In 2005, three mining related investments took place - two in oil sands (bitumen sands or tar sands) mining and one in gold and silver mining:

(A) Oil sands mining

    • In April 2005, China National Offshore Oil Corp. (CNOOC) acquired a 1/6 interest in Calgary-based MEG Energy Corp. for $150 million.
    • In May 2005, SinoCanada, a unit of China’s Sinopec Group, agreed to pay about $105 million for a 40% interest in Calgary-based Synenco Energy Inc.’s Northern Lights oil sands project in Alberta.

- The move advances the $4.5 billion project, located near Fort McMurray.

current chinese mining investment in canada cont d
Current Chinese Mining Investment in Canada – cont’d

(B) Gold mining

  • In August 2005, The Zijin Mining Group Co., Ltd., China’s second largest gold producer, agreed to invest $1.95 million in Vancouver-based Pinnacle Mines Ltd. to fund exploration and development of Pinnacle’s Silver Coin gold-silver-base metal project near Stewart in northwestern British Columbia.
current impact of chinese mining investment on canada s mining industry
Current Impact of Chinese Mining Investment on Canada’s Mining Industry
  • Currently, the actual number of Chinese mining related investments in Canada is small: two oil sands and one precious metals.
  • In terms of size of investment, all three investments are not considered large. In fact, the precious metal investment is relatively small.
  • In terms of economic and social impact, all three investments do not appear to have a significant negative effect on the region.
  • On the contrary, the injection of investment capital will help advance the projects towards development and potential job creation for Canadians in the respective regions.
  • However, due to the increasing need for China to secure stable long-term supplies of minerals and metals from abroad, more mining investments to Canada from China can be expected in the future, hence a need to examine the potential impact of an increased Chinese investment in Canada.
pros and cons of potential impact of chinese mining investment on canada s mining industry
Pros and Cons of Potential Impact of Chinese Mining Investment on Canada’s Mining Industry
  • Pros
    • brings investment capital to Canada to help fund development of mineral projects and regional mineral development
    • create jobs in Canada: direct mining jobs and indirect jobs
    • stimulate mineral trade between Canada and China
    • opportunity to help China move towards an open market economy by showing Chinese joint venture companies the Canadian standards, corporate governance and best practices
    • opportunity for more effective Canadian government intervention if major Chinese corporate take-over of Canadian companies does occur
  • Cons
    • risk possible mine/plant closures and job losses, especially if investment in the form of corporate take-over
    • risk market imbalance or distortion
    • risk losing Canada’s international competitiveness by assumed lower standard Chinese operations in Canada
    • risk of possible human-rights violations in mining in Canada due to China’s historically poor human-rights records - a misconception
    • as major Chinese enterprises (companies) are state-controlled, Canadian operations taken over by such enterprises could risk influence by Chinese government interests and decisions
how to protect canadian mining economic and social interests in canada and china
How to Protect Canadian Mining, Economic and Social Interests in Canada and China
  • By Canada’s existing federal and provincial/territorial laws and regulations, including relevant mining and securities Acts, and regulations
  • By the Investment Canada Act
  • By applying and enforcing Canadian industry standards including economic, social, legal, financial, environmental and technological standards; corporate governance; and best practices
  • By forging a bilateral Canada-China Foreign Investment Protection and Promotion Agreement (FIPA)
  • Through WTO on trade and investment
  • Through the Canada-China SWG and MOUs
  • Through Bilateral Investment Treaties (BITs)
  • Despite strong interest in Canadian mining for decades, Chinese mining investments in Canada only began in 2005 and have been relatively small. Strictly speaking, there is only one small hard-rock mining investment so far. However, more Chinese investments can be expected in the future.
  • Most potential negative impacts are perceived risks.
  • Nevertheless, investment safeguards are needed. Until China can demonstrate or guarantee world-standard business behavior, project level Chinese mining investment in Canada rather than corporate take-over could be encouraged. But this could prove to be difficult as Canada does not discriminate foreign investment by country. Fortunately, Chinese companies invested abroad are learning to comply with local laws and practices and are not behaving much differently than companies from industrial countries.
  • To minimize any adverse impact, one potential solution is a bilateral investment protection agreement with China, with clear and specific terms on protecting mining investments in Canada and China, and to promote mutual investment for sustainable development, good governance and best practices.