Shares digital

Chinese investment in foreign mining companies has stepped up a gear with last week’s $14 billion purchase of a 12% stake in Rio Tinto (RIO) by Chinese state mining company Chinalco and aluminium producer Alcoa.

Australian iron ore miner Fortescue is the focus of a rumoured $2 billion investment by Chinese energy group Shenhua and government-owned fund, China Investment Corp. Such mega-deals are likely to become commonplace this year as China seeks to secure future supplies of natural resources as long-term investments and to support

economic expansion.

Anglo American (AAL) said on Monday that it had formed a partnership with the China Development Bank, combining strengths in financing and developing natural resource projects. ‘Anglo gives China access to a scarce resource of Western mining engineers and the ability to mobilise new mining operations across Africa relatively quickly,’ said John Meyer, head of resources at investment boutique, Fairfax.

Commodities group Glencore is reported to be negotiating the sale of its 35% stake in mining giant Xstrata (XTA) to the China Development Bank.

Standard Bank’s head of mining and metals, Thys Terblanche, told delegates at a London mining conference last November that international acquisition targets were ‘key to growth for Chinese companies’. Magnus Ericsson, chief executive of the Raw Materials Group, added that a Chinese group could use acquisitions to enter the top ten largest mining companies by 2009.

Smaller-scale deals are also being made. Chinese steel maker Shougang agreed on Tuesday (5 February) to buy a 19.72% stake in Mount Gibson, another Australian iron ore specialist. It paid $181 million for a 9.7% holding with an option agreement for the remainder.

Shares says: China will dominate mining M&A this year, paying premium prices for strategic stakes to secure commodity offtake.

BUY Anglo American, Xstrata

HOLD Rio Tinto

by: Dan Coatsworth