Editorial and Op Ed Articles
Introdution and Articles
by Gabriel Lafitte
4. Latest Publication News
5. Quick Update on Mining in Tibet
What next: The Resource Curse Reaches Tibet
Continental Minerals of Canada and the Copper and Gold at Shetongmon
[In Part I of Special Edition on Mining in Tibet]
1. Mining Tibet: An Overview
2. Zijin Mining: The New Force in Extracting Tibet’s Mineral Wealth
3. Western Mining: Qinghai Based Mining Giant
LATEST PUBLICATION NEWS:
A new book, fully downloadable, on the logging and reforestation of theforests of Eastern Tibet is now available. John Studley provides us withnot only an up to date account of the patchy reforestation of the Khamforests devastated by decades of indiscriminate logging, but also gives usa carefully thought through model of how to do reforestation work with thefull involvement of local Tibetan communities, rather than the top-downapproach favoured by Chinese central leaders, which usually excludes thelocals. The book is called “Hearing a Different Drummer: a new paradigmfor the keepers of the forest.” It is a practical guide to how to doforestry work in a culturally sensitive way, by including rather thanexcluding Tibetans. http://www.iied.org/pubs/display.php?o=14541IIED
John Studley is an ethno-forestry consultant, a Fellow of the RoyalGeographical Society and a Chartered Geographer. He has a PhD inGeography, an MA in Rural Social Development and Diplomas in Forestry,Cross-cultural Studies and Theology. He has spent most of his working lifein High Asia and has worked for the state, the voluntary sector, and since2001, as a private consultant. He can be contacted at John_Studley@compuserve.com.
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A QUICK UPDATE:
This issue and the previous, concentrate on the mining industry in Tibet.In August, we outlined two new major entrants to the mining of Tibet, notforeign companies but domestic Chinese state owned giants, ready to makemoney from Tibet. Since the August issue, the clouds have moved on, andZijin Mining, the bigger of the two companies analysed last month, hassold much of its holdings in the biggest Tibetan copper deposit, at Yulongin Kham, to the other company we outlined in August, Western Mining, acompany which made its money from mining Amdo, or northern Tibet. “Zijinowns a 39 percent stake in Tibet Yulong, a copper mining company, whileWestern Mining holds 41 percent. Their stakes would change to 22 percentand 58 percent, respectively, upon the deals' completion.” (The Standard,11 August 2007)
Around the world mining companies big and small sell and buy assets allthe time, so it might seem like an obscure deal, but it also tells ussomething about how soon Tibet will be mined on a big scale. Zijin is amuch bigger and more profitable company than Western Mining, and it hasglobal reach, able to choose where it invests next from a wide portfolioof prospects. Western Mining is smaller, newer to the big league, withfewer choices, and a strong focus on western China as its base. When Zijinsold its Yulong copper/gold/silver holdings to Western Mining, we can takethis as a signal that Zijin has better things to do with its money thanwait several more years for the Chinese government to build a railway tothe Jomda/Yulong district of Kham, in the far east of Tibet AutonomousRegion, in the steep hills that divide the Za Chu/Mekong watershed fromthe Dri Chu/Yangtze watershed.
The size of the several deposits of copper and gold around Jomda, and theenormity of China’s demand for copper, both make it essential that whenJomda is exploited, it will be on a large scale. That means a railway toget smelted copper to market, or more probably, copper concentrates to adistant smelter. Depending on whether the railway is eventually built eastfrom Lhasa or west from Kunming (or Chengdu), Tibetan copper concentrateswill be delivered to smelters in Gansu via Lhasa, or Yunnan or Sichuan tothe east. But that day is a long way off, and any rail construction to themineralised zone will be a major undertaking, more expensive and more ofan engineering challenge than the new Gormo to Lhasa line. Western Miningmay have to hold its huge equity stake in Yulong for a long time beforemining gets past its present small experimental scale.
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WHAT NEXT: THE RESOURCE CURSE REACHES TIBET
The focus of this issue of Trin Gyi Phonya is, as with the previous issue,on mining. Having introduced the big Chinese miners arriving on the scene,we now move on to look at international investors in Tibetan mining,notably the small Canadian miner Continental Minerals, its parent HunterDickinson and its Chinese state owned partner Jinchuan. Many smalltransnational mining companies have shown interest in Tibet, closelyexamining data generated by Chinese geological exploration teams, but sofar none has gone as far as Continental in planning an actual full scalemine. Continental may in turn lead to other transnational investment: thatis what China hopes, and why China is giving such preferential treatment,subsidies and tax breaks to ensure Continental’s new Shetongmon mine nearShigatse is profitable. The breaks get bigger and bigger by the month, asour report below reveals.
The arrival of transnational mining companies, first the smaller ones moreinclined to take risks, then the bigger globally recognisable brand names,and the arrival of Chinese state owned mining giants, all add up to the beginnings of the resource curse in a Tibetan incarnation.
Around the world, “resource curse” has become a concept that identifiesthe paradox of wealth in resources translating into poverty of the people.The more resources are extracted, the poorer the people get, usuallybecause the national elite is corrupted by all the wealth generated in oneconcentrated place, and manages to capture the stream of wealth producedby the mines, for their private consumption. The elite, in distantnational capitals far from the mines, are no longer accountable to thepoor of the mining districts, and instead are beholden only to the miningcompanies that produce the gold to be split between them, excluding the populace.
In Tibet, the resource curse has certain Chinese characteristics. Theoutcome is familiar: the impoverishment of local communities and theenrichment of a distant elite. In China this is achieved through legalmonopolies and centralised ownership of resources and of mining companies,in a planned economy designed to keep raw materials prices low andprofitability of smelters and manufacturers far from Tibet high.
In many developing countries the “resource curse” can be tackled bytackling corruption, the lack of transparency, the kleptocratic tendency of ruling elites to capture wealth and privatise it for their exclusive benefit. In China, however, the dominant ideology holds that the exploitation of Tibetan resources is not only legal but that it is thepillar of Tibetan development, the source of future Tibetan wealth,fostering economic growth that will eventually bring modernity to all Tibetans. Yet Tibetans are powerless to say no to the stripping of theirresource endowment, and are powerless to insist on getting a fair pricefor their minerals, or to insist on value being added within Tibet totheir raw materials. China’s command economy is still in place in Tibet,orchestrated from above by central leaders, whose plans are to promote theindustrial growth of inland China by ensuring a plentiful supply of cheapresources sourced from Tibet, sent by the new railways lines to smeltersand manufacturing centres thousands of kilometres from Tibet.
Simply put, the fate of Tibet is to be a quarry, employing a substantialimmigrant workforce, since the education system in Tibet is so substandardthat few Tibetans have the skills or training to participate in anindustrial workforce except as unskilled labourers in the construction phase.
This is a resource curse that is thoroughly institutionalised,systematised and rationalised as somehow beneficial to the people whoseresources are depleted, for almost no local benefit. The case study below,of Continental Minerals, whose copper, gold and silver mine near thePanchen Lama’s seat in Tsang, in central Tibet, illustrates how theresource curse is being imposed on Tibet.
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CONTINENTAL MINERALS OF CANADA AND THE COPPER & GOLD AT SHETONGMON
The Shetongmon copper and gold mine near Shigatse, and the Canadiancompany Continental Minerals, with a Chinese state-owned corporatepartner, plan to dig close to fourteen million tons of rock a year fromhillsides directly above the Yarlung Tsangpo river, beginning in 2010.Since the rail line passing the mine is due for completion by 2010, andContinental says it is now close to completing its business feasibilityplans, social impact and environmental impact reports, large scaleconstruction work may begin much sooner, since, in order to access the 182million tons of rock destined to be crushed and chemically treated atShetongmon, a further 300 million tons has to be first removed, to get atthe actual ore. This means removal of the hills above the copper ore maybegin soon, since it is an enormous earth-moving operation.
Figures given in this report are derived directly from ContinentalMinerals own press releases. Their latest estimate is that they will beable to mine 182 million tons of ore, out of the total resource that isrich in copper, gold and silver of 220 million tons, over a short period,only 14 years. This means a fast rate of extraction, and a mine which willcomplete its life cycle through exploitation on a scale far bigger thananything ever seen in central Tibet. Once the mine begins operation, itwill dig, crush and chemically treat 40,000 tons of rock each day, for 14years. Tibet has never seen anything like this.
Continental Minerals estimates that they will receive $5.824 billion fromthe sales of copper, gold and silver, at a rate of $416 million a year onaverage, over the 14 year life of the mine before Continental departs. Ofthe annual income of $416 million a year, $174 million will come fromcopper, $147 million from silver and $95 million from gold, even thoughgold is a minute fraction of the rock to be crushed and chemically cooked.These figures are highly conservative, based on price assumptions farbelow actual 2007 market prices for all three metals. Continental may wellearn much more. Continental will pay royalties to the Tibet AutonomousRegion government of less than $10 million a year, in compensation for thedepletion of Tibet’s irreplaceable resource endowment. (see below)
Continental is not a large company, but it seems closest to extracting thewealth of the Tibetan people, for the benefit of Chinese industry andCanadian shareholders. Continental’s plans are far advanced, even thoughit has not made public its many environmental, social and economic studiesof its deposit. Readers seeking more information should go to the companywebsite: http://www.hdgold.com/kmk/Home.asp ; and to the regularmonitoring conducted by TibetInfoNet:http://www.tibetinfonet.net/content/update/33 .
For a period of two years, prior to the actual mining and concentrating ofcrushed rock at Shetongmon, the mine construction phase will employ 2500people. Even if some are Tibetans recruited locally, the overwhelmingmajority will be immigrants. Since the rail line is due to be completed by2010, and mining can begin, the company plans to spend a lot in 2008 and2009 to construct the mine, including the removal of 300 million tons ofoverburden rock, since the mine is to be open cut, with no tunnelling.During 2008 and 2009 there will be a population explosion at Shetongmon.See Continental gets positive feasibility for Xietongmen, eSource CanadaBusiness News Network, 15 August 2007, for details.
The permanent workforce is to be 460, once mining is under way, accordingto Continental, with many workers bused in daily from Shigatse, a citywith a huge nonTibetan immigrant population. The proposal by Continental elicited an unequivocal statement from theTibetan exile government when both parties met in London on 19 May 2007.Following is a shortened version of the statement available online at:http://www.tibet.net/en/flash/2007/0507/19B0507.html
“Our main concerns are the well-being of the Tibetan people and theenvironmental impacts of a mine that may operate for as long as 40 yearsor more. We base our response entirely on the evidence. “In this situation, the mining companies Continental Minerals, and itsChinese state-owned major equity partner Jinchuan Nonferrous MetalsCorporation, have made information available, enabling us to assess theproposed mine against the Guidelines for International DevelopmentProjects and Sustainable Development in Tibet, which was issued by CentralTibetan Administration in 2004 for just such a situation as this.
“According to our research study, this project fails to comply with theTibetan Guidelines for the following reasons:
1. It is on a scale that is too large to be beneficial locally to theTibetan people.
2. It depletes precious Tibetan resources for the profit of distantChinese state-owned partners and a Canadian company, with only modestroyalties provided at provincial level and inadequate compensationlocally.
3. The location is only less than a kilometre from the Yarlung TsangpoRiver, which is the great waterway not only of Tibet but also India andBangladesh. Bangladesh already faces an arsenic crisis in its water. Ifthe highly acid toxic wastes produced by this mine during 40 years ofmining, or after mining ceases, should ever seep into the Yarlung Tsangpo,the lives of a hundred million people downstream will be at risk.
4. Mining depletes the heritage of Tibet, with no acknowledgement that allTibetans, other than some local people, are the losers. There is not evena resource depletion tax.
5. Never before has mining on such a scale happened in Tibet. There isnothing inevitable about a mine that increases China’s copper productionby little more than one per cent, but impacts negatively on an area closeto one of Tibet’s most historic town, namely Shigatse. The large number ofmines in Tibet, on a much smaller scale, invariably caused destruction,and provided opportunities for an uncontrolled influx of Chinese immigrantworkers into Tibet, which marginalises the Tibetan people in their ownland.
6. Local communities in the areas affected by mining have had noopportunity to seek and obtain independent expert advice on short and longterm consequences of mining. There has been no satisfactory program ofeducation, in close cooperation with local communities, establishing alocal learning community able to consider carefully the many complexitiesof mining technologies and techniques. Only after a full process of actionresearch run by local people is it possible to contemplate such a project.
7. The above points, among many others, are only a preliminary listing ofour Tibetan concerns.” [end of quote]
Now the key question is whether Continental, which says it is committed toCanadian, not Chinese standards, will heed the clear rejection issued bythe Tibetan exile government, chiefly on the grounds that the project isfar too large to be beneficial, or in accordance with the clear Guidelinesissued in 2004. Will Continental treat the Tibetan government as justanother voice, to be heard but not heeded, or will it take seriously that,in the absence of freedom of expression inside Tibet, it is the Tibetansin exile who can actually speak for Tibet, and voice Tibetan wishes? Continental publicly emphasises its commitment to highest standards inmining, sacred site protection, participation by local communities,consultation, environmental management etc. It argues that, beingCanadian, and committed to Canadian codes of practice, their mining willbe done to a higher standard than if done by Chinese companies. NormalCanadian mining practice ensures affected indigenous communities are fullyinformed of all likely impacts, and no mining can proceed until they givetheir informed consent, after negotiating a royalty and compensationpackage which ensures a portion of mineral sales go to the affectedcommunity. Have the Tibetans at Shetongmon (Xietongmen in Chinese) giventheir informed consent? Is it possible that Tibetans anywhere in Tibet canaccess all relevant information, and make choices based on full knowledge?How can any mining company say Tibetans have the same opportunity asindigenous Canadians, under their highly autonomous Nunavut government, tolearn, consider, debate and freely discuss all the consequences of mining?
While Continental professes great concern for Tibetan feelings, what ittells mining industry newspapers is how grateful it is to China forsubsidising its operations. The boss of Continental, CEO Gerald Panneton,gave an interview to the Canadian mining newspaper Northern Miner,published 5 March 2007. The story, titled High on Tibet, said:
“Recent large-scale infrastructure initiatives undertaken by the Chinesegovernment have opened up the remote region to prospective development byboth domestic and foreign firms. Continental looks to tap into the Tibetanmineral potential to feed the region's voracious appetite for metalsdriven by sustained economic growth. ‘Five years ago, I would not betalking about this project -- there was no rail, there was no road, therewas no electricity. It all happened in the last five years,’ saysContinental president and CEO Gerald Panneton. ‘What makes this projecteconomic is that between 2000 and 2005, they (the Chinese) built arailroad between the town of Golmud and Lhasa, and it is to be extendedall the way towards the project,’ Panneton continues. ‘What this does,because of the existing rail system that you have in China, is give youaccess to all the smelters.’
“Looking to fast-track development, the company has conducted all majortechnical reports in both English and Chinese to meet dual layers ofregulatory requirements. A mining licence is anticipated by the end of theyear with the submission of the Chinese version of the feasibility studyscheduled to be complete shortly as part of the mining applicationprocess. Assuming a positive feasibility study by mid-year and bankablefeasibility following the signing of all contracts, Continental reckonsproject construction could begin by mid-2008.
“Based on a modelled 40,000-tonne-per-day operation, the company projectsit will recover about 50,000 tonnes (110 million lbs.) copper, 200,000 oz.gold and almost 2 million oz. silver annually. ‘Logistics are good, youcan drive to the project, and you have hydro power, which is cheap,"Panneton says, estimating the price at about 5¢ to 7¢ per kilowatt hour.The local grid has about 75 megawatts of surplus power available, allowingfor Xietongmen's expected requirement of around 65 megawatts. Most of theregional grid is powered by a number of hydroelectric generating stations.
“Exploration has identified at least two other large mineralizedoccurrences (Langtongmen and Newtongmen) on the now-expanded land package.With an eye towards expediting mining permits and development capital,Continental recently aligned itself with the major Chinese smelting groupJinchuan. The firm has entered into an agreement to provide equity andcapital financing, a concentrate offtake facility and will provide othermine-building support at Xietongmen. Jinchuan will also assist inarranging 60% of the required capital for mine development in the form ofdebt financing, and directly contribute 30% of the capital through debt orequity financing and provide infrastructure, construction and technicalsupport. The major smelting firm has also entered into a concentrateofftake agreement under terms to be disclosed in "due course."
“Panneton describes negotiations as "a little bit more difficult" inChina. As all the Chinese smelting groups are state-owned, the dealprovides the government with indirect involvement and equity participationin development and mining of Xietongmen. Preliminary transportation costsare estimated at about $31 per tonne from site to smelter with theconcentrate grade expected at 25% copper, 30 grams gold and almost 300grams silver. Once development costs are recouped, the project will besubject to a 15% tax rate for five years after which it rises to 30%.
“During a recent site visit by The Northern Miner, it was apparent theChinese government has been active on a number of large-scaleinfrastructure developments in the region, particularly those that aretransportation-oriented. Aside from the recently completed railway and itsexpansion plans, the ‘Friendship Highway,’ which is expected to provide atrade and transportation corridor through Nepal and into India, is alsobeing upgraded.
“As an ‘autonomous region,’ Tibet is entitled to retain the productionroyalties from Xietongmen. Royalties of 3% and 2% are payable as netsmelter royalties from gold and copper, respectively. In China's otherprovinces, the royalty would go to the central government. Proposed miningoperations would draw from the local labour pool. Full environmentalstudies have included community involvement and participation. The companysays there has been no opposition from any of the local communities.
“The mining plan calls for a tailings impoundment in a valley just east ofthe Xietongmen deposit. It would be a zero-discharge, closed system andany acid generated would be buffered using material from a nearby limedeposit.”
A Continental press release on January 11, 2007 claims the company hasdone all the right things in terms of Tibetan community engagement,environmental assessment and feasibility studies: “A comprehensive program centered on the Xietongmen deposit commenced in2006. The program is designed to collect the data necessary for afeasibility study and environmental and social impact assessments, and istargeted for completion in 2007. In addition to extensive drilling tofully assess the resource potential of the property, the program hasincluded preliminary engineering, environmental and socioeconomic studiesand expanded community and stakeholder engagement activities.Environmental and socio-economic baseline data collection is being carriedout by Sinosphere, based in Beijing, in conjunction with Golder. TheYellow River Conservatory Bureau is conducting hydrological studies atsite. Flora and fauna baseline studies are largely complete, but otheractivities such as weather data collection and water well monitoringcontinues. Socio-economic baseline studies have been completed, and inputis being collected from the local authorities.
“Continued Community Engagement: The community engagement program wasexpanded along with the other project activities in 2006. As feasibilitystudies have progressed, a series of more formal meetings and informationsessions have been initiated in the local villages. Additional meetingshave been held with county and regional government officials. Afive-person team comprised of a Community Relations Manager and VillageLiaison Officers from the local area has been engaged to describe anddiscuss the project and to get input on it. The Company's localEnvironmental Manager has also been actively involved in thesepresentations and in planning follow up sessions to respond to questions.In addition, the team is working with the communities to assessopportunities for longer term community and economic development.
In May 2007, NGO Friends of Tibet convened a meeting in Dharamsala todiscuss mining, which attracted a large attendance of Tibetans from bothNGOs and government. At that meeting http://www.phayul.com/news/article.aspx?id=16726&article=Mining+rage+and+corporate+responsibility+in+Tibet&t=1&c=1many basic facts were circulated, some of which are as follows: The proposed mine at Shetongmon is the first world scale mine in TAR, andthe first internationally owned mine. What happens at Shetongmon sets aprecedent for other mining projects. The Shetongmon mine plans to dig 13to 14 million tons of rock a year.
Continental says “Full environmental studies have included communityinvolvement and participation. The company says there has been noopposition from any of the local communities.” However eyewitnesses saythat on 10 October 2006 “Tibetan county officials went to the village inan attempt to resolve a dispute. The villagers refused to listen to theirexplanations, claiming that the county government had been bribed. Thesituation then deteriorated into a verbal and physical altercation betweenthe villagers and the government officials and police, in the course ofwhich some locals shouted: “All Chinese out of Tibet”.” (source: TINUpdate 21 Oct 2006). Large scale mining, and foreign investment in exploitation of Tibetanresources has been successfully resisted until now, and there is everyreason to suppose people around the world could be mobilized to protesteffectively against a mine which Tibetan government in exile has nowstated is unacceptable (see www.tibet.net statement of 19 May 2007) Continental is a small company with insufficient capital to even build amine, without turning to a Chinese state-owned company to finance mineconstruction. Continental Minerals publicly acknowledges that China’sconstruction of the new railway is what makes the mine possible, giving itaccess to all of China’s smelters. "What makes this project economic isthat between 2000 and 2005, they (the Chinese) built a railroad betweenthe town of Golmud and Lhasa, and it is to be extended all the way towardsthe project," Continental chairman Panneton continues. "What this does,because of the existing rail system that you have in China, is give youaccess to all the smelters." This small company benefits enormously fromChina’s spending of so many billions on railway and hydropower construction.
A total of 2.66 million ounces of gold are to be extracted over thelifetime of the mine, which means the miners will earn a total of $1.86billion from gold alone at present gold price of $700 per ounce. A totalof 1.6 billion lbs of copper will be produced during the mine’s lifetime.At current prices of $7000 per ton this will earn the miners $5.2 billion. Altogether, including gold, copper and silver, the miners could earn $9 oreven $10 billion if prices stay at their current levels, rather than the$5.8 bn they announce on the assumption of much lower world prices incoming years. Yet the cost to China of constructing the railway from Lhasato Shigatse and Shetongmon is 11 billion yuan, plus the cost of hydro damsto provide enough electricity to crush 10 million tons of rock each yearto powder, then cook it in chemical vats to concentrate the copper. Whythe massive subsidy?
Beijing is subsidizing Continental on a massive scale, in many ways:By building and paying for all construction costs of the railway linesbetween Shetongmon and Jinchuan, via Lhasa, Gormo, Xining and Lanzhou, adistance of over 2500 kilometres. The cost is, on Beijing’s figures, 37billion yuan or $US4.8 billion.By providing hydropower to the copper concentrator, which will use largeamounts of electricity. According to a Continental Minerals press releaseof 15 August 2007, a 100 megawatt power supply is required to crush andchemically treat 40,000 tons of rock every day. This is provided by theTAR government.TAR is building a highway enabling concentrated ores to be trucked 50kmsto Shigatse, where the rock will be loaded onto rail wagons. This iscostly in fuel and environmental impacts, and requires the ores to travelbackwards, away from their Gansu destination first. (for details seecompany press release: KMK Continental Minerals' Xietongmen shows IRR of16.5%, Canada Stockwatch, 15 August 2007, Canjex Publishing Ltd.)By charging a low freight rate of $31 per ton (250 yuan) of copperconcentrate sent by rail 2500 kms from mine to smelter. China’s announcedfreight rate on the Lhasa railway is 0.2 yuan per ton per kilometer, whichwould require the mines to pay 500 yuan per ton to get concentrates to thesmelter. The actual rate to be paid is half the advertised rate, so thisis yet another subsidy provided by Beijing.By exempting the mining company from paying any tax at all to Beijingduring its most profitable early years of operation, until the mine hasrepaid all its expenses. In March 2007 Continental said it is supposed topay a 15% tax for five years, then after that 30%. This is very favourabletreatment, which gives the miner maximum opportunity to finance expansionto a bigger scale of mining. However, by August 2007 an even lower taxrate had been negotiated: “Corporate tax of 10 per cent has been appliedto the model with a five-year tax-free period.” (Continental press releaseof 15 August 2007)
TibetInfoNet is a provider of “information services” to Continental miningand its Vancouver based parent Hunter Dickinson. TibetInfoNet also claimsto be advising seven other mining companies, including some of the globalgiants. TibetInfoNet claims to be a neutral honest broker, but advocatesmining, arguing that a Canadian miner is better than a Chinese miner.TibetInfoNet argues vigorously that this mine should proceed, becausemining is inevitable and is better done by an international companycomplying with international standards than by a purely Chinese company.Yet there is nothing inevitable about a mine that requires massivesubsidies for its existence and profits.
Global mining companies have looked at the promising data provided byChinese geologists in Tibet for many years and have invariably withdrawn.One example is Cyprus Amax, which decided not to take up the Yulong copperdeposit near Jomda in Kham, although the amount of copper -850 milliontones- is huge. Another example is Australian based Sino Gold, whichwithdrew from Amdo in 2001 due to a campaign by Australia Tibet Council,and from a deposit in Kham due to a 2003 campaign by ATC.
The arrival of international mining companies in Tibet is not theinevitable and unstoppable operation of global market forces. There isnothing inevitable or natural about mining that relies on massive Chinesesubsidies that provide the transport, electricity, cheap labour and urbanservices at a price far below the cost to the Chinese government ofproviding them.
The mine is very close to the Yarlung Tsangpo, in an area where extremeweather is common. It is extremely important to ensure toxic mine wastesproduced on a large scale do not reach the river, including throughunderground seepage, even in the most extreme floods and rainstorms.
Continental says it sets high standards, and complies with the Canadianmining policies, which require that indigenous communities be carefullyconsulted and are free to express their actual feelings, and give theireducated, informed consent to mining going ahead. In reality Continentalhas not revealed its business plan, urban construction plan, employmentpolicy, environmental impact statement or any significant document, to anyTibetans, in or beyond Tibet, in any language. Continental says localTibetans support the mine, but there has been no process enabling Tibetansat Shetongmon to learn about the impacts of a mine that will operate atleast 40 years, bringing an immigrant labour force with it. The only printmaterials in Tibetan produced by Continental are one sided, such as acartoon proclaiming everyone in the area will in future live like kings.
Continental Minerals has repeatedly stated that it intends to implementCanadian standards for mining in the TAR. Canadian mining code guaranteesa big royalty payment to indigenous minorities in the huge area ofnorthern Canada which has its own indigenous government, known as Nunavut.This highly autonomous government, recognized by all Canadian authorities,negotiates with mining companies, and has the power to say no. No suchroyalty payment is being offered to the Shetongmon or Shigatse Tibetans. Continental Minerals continues to emphasise its commitment to sociallyresponsible mining at the Shetongmon site and has a unique opportunity tocreate an important precedent for mineral development in the TAR. Inreality, the precedent will only allow bigger foreign companies to enterTibet.
China is the world’s biggest consumer of copper, and copper use willcontinue to grow fast, partly because of plans under way to hydropower damTibetan rivers and transmit electricity a long distance to industrialcentres of Guangdong province. The distance is so great that muchelectricity will be lost en route, and copper is essential as transmissionwire because it loses less electricity than the cheaper alternative,aluminium. Urbanisation and prosperity mean people buy more electricalappliances, and electricity use will grow fast.
China will continue to be heavily dependent on imported copper, and thisdoes not seem to be seen as a problem, or a cause of anxiety for thegovernment of China or the copper companies. An output of 50,000 tons ayear does little to reduce China’s dependence on imports. An extra 50,000tons is an increase of just under one per cent of China’s copperproduction which in 2006 was 5.6 million tons.
China has plentiful alternative supplies of copper from neighbouringlandlocked countries which have few nearby export opportunities. BothMongolia and Kazakhstan are proceeding with big copper mines financed byChinese and international investment, with most (or all) of the copperoutput destined for China. The new Mongolia mine alone will produce450,000 tons a year, nine times more than Shetongmon. New copperproducers on China’s coast continue to buy copper from Chile, Australiaand elsewhere. Existing copper producers around the world can readilyincrease their output to meet demand.
Chinese copper companies are vigorously expanding overseas, recentlybuying copper mines in Peru, Pakistan and Australia. Global copper priceswere around US$2000 a ton for several years up to 2003, then rose sharplyto more than $6000 a ton today, and will probably stay well above the1998-2003 level for many years to come.
The closest copper smelters to Tibet are Yunnan copper, and, in Gansu,Baiyin and Jinchuan. Jinchuan smelter will take what Shetongmon produces,and is also buying a direct ownership equity stake in the Shetongmon mine.Jinchuan is directly owned by the Chinese government. Gansu has directrail access to TAR and to the Shigatse rail extension, which China hasannounced will be completed by 2010. Jinchuan currently produces 120,000tons of copper a year, making it a mid-sized producer in China. Jinchuanin Gansu will also be the destination of the copper to be mined at Yulongnear Jomda in Kham.
Continental is a small company with limited access to capital, which hasso far spent only modest amounts. Now that the company is about to begiven its mining licence, allowing it to go ahead with actual production,its biggest spending period is coming up in 2008, and it needs partners toenable it to outlay the $US400 million needed to create an operationalmine and copper concentrator plant, since the deposit is only 0.7% copperon average. That partner is the Jinchuan copper smelter in Gansu, whichhas guaranteed also to take all the concentrate produced at Shetongmon andsent by rail.
What will be loaded into rail wagons at Shetongmon will be 25% copper,with small but valuable amounts of gold (30 to 60 grams per ton) andsilver (300 grams per ton), all to be delivered to Jinchuan for smeltinginto pure metals. In August 2007 Continental revealed a new plan foraccelerated production. Now the plan is to dig, crush and chemically treatclose to 14 million tons of rock each year. By the time the pulverizedrock has been cooked in highly acid vats, three quarters will be waste, toremain at Shetongmon, and the rest will be sent by rail to the distantsmelter in Gansu. Initially Continental said the percentage of copper inthe rock was 0.43%, but that has now been upgraded to 0.78%. This meansthat for every ton of copper produced, 125 tons of rock must be dug,crushed, cooked, railed and smelted. The total tonnage sent by rail fromShetongmon to the Jinchuan smelter is 210,000 tons a year, from which53,000 tons of copper metal will be extracted by the smelter. China’sfreight trains seldom pull more than 5000 tons, so this means at least 42freight trains a year laden with copper concentrate, nearly one train aweek leaving Shetongmon with copper concentrates.
The Jinchuan smelter is at the Jinchuan copper and nickel mine inJinchang, an arid part of Gansu bordering Inner Mongolia. The Jinchuandeposit is big, and has been mined for many years. Jinchuan is 300 kmsfrom China’s major military industrial weapons production base and rocketlaunch site at Jiuquan, so it is highly likely that Shetongmon copper andgold will be used in China’s weapons, missiles and computerized missileguidance systems. There is a direct rail connection between Jinchuansmelter and the Jiuquan weapons industrial complex.
Three quarters of all rock mined will be piled up at Shetongmon after thecopper has been extracted. This rock is highly acid, and will be held in avalley, which is to be sealed with clay to prevent leakage. The plan is toalso mine limestone locally, and add it to the waste rock to neutralizethe acidity.
The mine location, in the Gang Tise mountains, is an area beingintensively explored and orebodies tested for commercial exploitation.TibetInfoNet says many companies will invest in mining Tibet onceContinental Mining begins operations, and the mountains near Shigatse willbe mined for the coming 150 years. Central Tibet is to become a quarry,for distant Chinese industries, with Shigatse the main quarrying districtfor many years to come. Whether the mine goes fast or slow, if all the copper is extracted, thetotal amount of rock to be dug up is during the mine’s lifetime is wellover 480 million tons of rock, and three quarters of that is to be dumpednext to the mine, once the copper is chemically removed. This scale ofoperations will require a sizeable workforce permanently employed at themine. Not all copper can be chemically extracted from the finely crushedrock, so any leakage from the waste dump may pollute the Yarlung Tsangpowith copper as well as other minerals.
ZChina hopes Shetongmon will be a model for future mines in TAR,encouraging foreign investors. This is why China is willing to subsidiseContinental so extravagantly, to attract more foreign investment and buildmining up into the main industry in Tibet. Continental itself now ownsmore land next to Shetongmon and is drilling to see if more copper isavailable nearby. Any agreement over the future of Shetongmon establishesa precedent for further mining in Tibet.
The TAR government will receive revenues by payment of royalties from themining and smelting. Although royalty payments usually go to the centralgovernment, in this situation TAR is to receive 3% of the gold sellingprice and 2% of the copper selling price. If copper remains at $6000 aton, the planned annual production of 50,000 tons will sell for $300million, bringing TAR only $6 million a year in extra revenue. If goldproduction of 200,000 ounces of gold a year happens as planned, at currentgold price of $620 per oz, the company will make $124 million a year, butTAR will get only $3.72 million a year. The silver production of 2millionounces a year will generate no revenue at all for TAR. The totalcontribution to TAR will be only $9.72 million a year (79 million yuan),which does very little to reduce TAR dependence on Beijing.
Since Tibetan protests began, the royalty payment of 3% of the goldselling price (see Article in Northern Miner above) has been increased to4%, though the royalty on copper remains at 2% and on silver nothing atall. If gold remains at its present price of $700 per ounce, the TARgovernment would get $5.3 million a year in gold royalties, and the localcommunities would still get nothing, other than compensation for thosemost immediately displaced by the mine and concentrator plant. The royaltyincrease was announced 15 August (Continental gets positive feasibilityfor Xietongmen, eSource Canada Business News Network). Such royaltypayments, to governments that are far from transparent or accountable, canbe a great temptation to cadres who are less than honest.
WHERE TO FROM HERE?
Before Continental spends hundreds of millions of dollars in 2008 and 2009on construction of the mine and concentrator, it is essential that itrelease in full, and in Tibetan, its environmental impact statement, dueto be completed by the end of 2007. Likewise, it must release, for allstakeholders in and beyond Tibet, full details of its feasibility study,its social impact assessment report and its community education andconsultation process, in order that there be independent assessment as towhether Continental meets its proclaimed Canadian standards, includingobtaining informed consent of indigenous minorities.
Continental does seem to recognise that in this project there are manystakeholders, including the European Tibetan communities it met with inLondon in April 2007, and the Tibetan government in exile, whoserepresentatives flew to London at Continental’s invitation. The questionnow is whether those stakeholders are taken seriously, or whether theirinvolvement is just a maneuver to engineer consent.
In the fine print of the Continental press release of 15 August 2007 thecompany acknowledges the many risks, including the possibility ofrejection of the mine by key stakeholders: “Other general risks includethose ordinary to very large construction projects, including the generaluncertainties inherent in engineering and construction cost, the need tocomply with generally increasing environmental obligations, andaccommodation of local and community concerns. The Feasibility Study alsoassumes that the Project will have access to a railroad that extends toShigatse, the construction of which is underway but the Company has nocontrol over the timing of its completion.”
This, as Continental says, is a very large construction project. It is thelarge scale –digging and pulverising 40,000 tons of rock every day of theyear- that Tibetans find most fundamentally objectionable, and it is thisobjection Continental must take seriously if its claim to set higherstandards than China’s is to be taken seriously.
The resource curse has now reached Tibet. So many poor countries richlyendowed with minerals have found their mineral and energy wealth benefitsonly an elite who corruptly monopolise the cash flow from the mines andoil wells. Far from spreading benefits that trickle down even to the mostremote people, the resource curse only insulates the elites from themasses, making them accountable to the oil companies more than to theirown voters.
In Tibet, where there are no meaningful elections or elected leadersaccountable to the people, the resource curse with Chinese characteristicsmeans mineral wealth accrues to state owned mining corporations based inGansu or even further from Tibet, benefiting smelters, manufacturers andindustries constructing the mega-urban centres that dominate the whole ofwestern China, including Tibet. This reduces Tibet to a quarry, for noobvious local benefit.
In many third world countries it is massive corruption that captures thewealth generated by mining; but in China the capture is systemic, writteninto the rules of who owns and benefits from mining. Current rules as toownership of minerals, and present plans for building regionalmanufacturing hubs in Lanzhou-Xining, and Chongqing-Chengdu mean thatTibet’s mineral wealth will be taken away, for processing andvalue-adding, at distant locations. All Tibetans will gain is an influx ofimmigrant workers, and the environmental costs. This is the resource cursein its most extreme form.
1. Mining Tibet: An Overview
This issue of Trin-Gyi-Pho-Nya is the first of a two-part special editionthat concentrates on mining and the fast emerging new Chinese regimegoverning mining of Tibetan natural resources. This and the next issue area series of Cloud Messengers bearing from afar news of a coming storm. Themessage is that Tibet will be exploited as never before, and China’scentral leaders are willing to pay an enormous upfront cost to enablemining companies, both Chinese and international, to profit from Tibet’swealth of minerals.
In this first part, we present detailed case studies of two leadingChinese mining companies operating in Tibet: Zijin and Western Mining. Thefollowing issue will also provide a contextual discussion of China’s oiland mining industry to understand the logic behind this impending storm,along with a case study of an international company that is operating inTibet: Continental Minerals from Canada, and the special role designatedfor it in China’s grand plan to exploit Tibet’s minerals.
What brings all these clouds together into a thunderhead is theorchestration of central leaders, who have decided Tibet must beindustrialised, to serve as the source of cheap raw materials for the nextwave of inland industrialisation centred on the mega-urban clusters ofChongqing-Chengdu, also Lanzhou-Xining. These metropolitan industrialcentres are to be the beneficiaries of extracting Tibet’s mineral wealth,with very few benefits available to Tibetans.
Mining of central Tibet on a scale never seen before now seems close.Until now the many mines were small in scale, low in technology andcapital, attracting get-rich-quick immigrants who often did greatenvironmental damage, then left as soon as the easy pickings were gone.
Now a whole new regime is emerging, sponsored at the highest level bycentral authorities, who have also cracked down on the small-scaleartisanal mining, not so much for environmental reasons as to preserverich mineral deposits whole, for the exclusive use of big,capital-intensive and technology-intensive mining companies. Transnationalmining companies are now rapidly taking over key deposits in Tibet,encouraged by state policies that handsomely subsidise their costs.
These new mining giants are not the global giants, but Chinese state-ownedmining corporations. Quietly, the mining industry in China has undergonerevolutionary change. Not only are the local artisanal miners excluded,increasingly the medium sized enterprises are being pushed aside by acentrally orchestrated campaign to consolidate the mining industry to apoint where only a few corporations dominate the whole minerals extractionindustry. In Tibet, the big new players are Zijin Mining and WesternMining.
The newly built rail line to Lhasa, and its branch lines currently beingsurveyed, planned or already under construction, make all the difference.China’s willingness to spend billions to subsidise the mining companies,to ensure their profitability, is at the heart of the strategy of adevelopmentalist state determined to make mining the pillar industry ofTAR, turning TAR into a quarry economy for the enrichment of themetropolitan hubs of southwest and especially northwest China.
Chinese geologists have over decades proven substantial reserves ofcopper, gold, silver, chromite and most recently diamonds, chiefly alongthe Yarlung Tsangpo river valley. Many of the biggest mineral finds are inthe valley of this river, in a belt of ophiolite rock formed by themelting of India and Asia, and a slow cooling that allowed molten rock toseparate into its elements. Tibet’s ophiolite belts traverse the entireplateau, in three parallel lines, each in a major river valley. TheYarlung Tsangpo suture zone, as geologists call it, is the best explored,with many zones of mineralization including the mining of copper, gold andsilver at Shetongmon. The Norbusa chromite mine near Tsethang, and theShetongmon copper mine are just the beginning, this mineral-rich belt is2000 kms long.
The same may prove true of the other two ophiolite belts traversing Tibetfrom west to east. North of the Yarlung Tsangpo is another belt, beginningin far western Tibet at Pangong Tso lake, stretching all the way into theheadwaters of the Gyalmo Ngulchu, which becomes one of Burma’s majorrivers, the Salween. The third ophiolite belt is even further north, andis little known, because it is largely in acutely frigid alpine desert,except in its eastern end, where it forms the valley of the upper Dri Chu,which is internationally known as the upper Yangtze.
All three mineral-rich ophiolite belts are river valleys. The YarlungTsangpo suture zone is the bed of not only the Yarlung Tsangpo but alsothe Sengye Khabab or Indus, which flows west towards Ladakh and Pakistan.The Bangong-Nujiang suture zone (to use the name geologists have given it)becomes the Salween, and the most northerly belt becomes the Yangtze. Thusmining in Tibet will directly impact many of the world’s major rivers: theBrahmaputra, Indus, Salween and Yangtze.
The copper, gold, silver, chromite and diamonds of these three suture zonebelts are not the only locations where minerals have been found, testedand assessed for commercial extraction. In eastern Tibet, near the edge ofthe plateau, are many deposits of gold so finely disseminated through thehost rock that the metal cannot be detected by the human eye. Again, hightech, capital-intensive methods are needed to extract these disseminated deposits.
The size of the deposits matches the size of China’s demand, and the sizeof the newly bulked up Chinese state owned corporations ready to make theprofits. Three sets of causes and conditions have come together: supply,demand and capacity to extract. Central Tibet, despite its remoteness, cannow supply what China always expected: a steady supply of minerals. Thedemand comes from China’s global role as the world factory. China’s demandfor almost all minerals and energy resources pushed up prices globally in2005 and 2006, with no sign they will fall to pre-2004 levels any timesoon, according to the professional commodities forecasters. In turn, thedramatic rise in demand and in prices has helped China agglomerate itssmaller miners into giants, making windfall profits in 2006 from theirglobal reach, accessing minerals wherever they are found, fattening theirbottom lines just at the time they may need to invest in Tibet for thesake of future profitability.
The case studies presented in these two issues of Trin-Gyi-Pho-Nya focuson the mining companies most likely to operate in Tibet on a large scale.Some observers have argued that this is the inevitable globalisation ofTibet, no longer exempt from the global laws of the market, of demand andsupply. However, a closer look at the actual Tibetan locations, the costs,distances from processing and from markets, suggests there is nothinginevitable about large-scale mining in Tibet, despite the high metalprices and chronic shortages of domestic sources within China. Theevidence available suggests the new mining boom about to happen in Tibetis a direct result of massive subsidies, not the inexorable laws ofcapitalist economics.
Mining brings together geology and economics. Only when a deposit iscommercially profitable will there be a mine. This Trin Gyi Phonyaprofiles the financial logic of mining Tibet as well as the locations, andthe actual abundant treasures created by the collision of India with Asia.This edition co-incides with a major report from the Central TibetanAdministration’s Environment & Development Desk that gives much detail onmining. It also co-incides with a new report from the InternationalCampaign for Tibet on impacts of the Lhasa railway, which includes theaccess to mining and immigrant settlement of mining areas. Readers shouldgo to http://www.tibet.net/en/diir/pubs/edi/ and www.savetibet.org formore.
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2: Zijin Mining: The New Force in Extracting Tibet’s Mineral Wealth
In a country where spectacular profits are possible, Zijin Mining standsout as spectacularly profitable even by Chinese standards. Since thecompany was established in 2000, its’ assets have grown from 382 million(“m” henceforth) yuan at the end of 2001 to 4356 m yuan at the end of2006, reflecting its many acquisitions. Despite the expenses of majorexpansion, shareholders can enjoy no less than a 79% rate of return ontheir equity in 2006. Among their shareholders is Merrill Lynch, currently8th biggest stockholder with 672m shares, over 6% of total shareholdings.
Zijin now operates in Mongolia, Vietnam, Burma and Peru, as well as owningsubstantial mines across China. Zijin’s enormous profits, boosted by itsability to take full advantage of the 2005 and 2006 global escalation inmetals prices, enables it to intervene decisively in Tibet, whenconditions are right.
“Zijin Mining Group Co. Ltd., which was a Fujian Province-based goldcompany, invested $30 million in a joint venture to develop the Yulongcopper deposit in [Tibet] Autonomous Region. Other investors includedGeologic Team of Xizang Geology and Mining Survey Bureau, Western MiningCo. Ltd., and Xizang Changdu State-Owned Assets Administration. Thejoint-venture company Xizang Yulong Copper Co. Ltd. will be established tooversee the development of the Yulong deposit, which has proven reservesof 6.5 Mt of copper. Western Mining held 41% of the shares of the company,and Zijin controlled 39% shares” (Copper and Nickel Monthly, 2005, May, p.9).
Zijin is a big name in the Chinese mining industry. A Zijin vice-presidentis one of only four Chinese names on the 14-man International AdvisoryCommittee for the November 2007 China Mining conference hosted by China’sMinistry of Land & Resources.
While waiting for the government to put in place the necessary transportinfrastructure in Tibet, Zijin is pressing ahead with expansion plans atits Fujian home base, bolstering its limited output by importing copperconcentrates from a mine it recently bought in Peru. The 2007 Peruvianacquisition is the latest in a long line of international ventures for thecompany, which has shifted its headquarters from its Fujian home atShanghang. Its listing on the Hong Kong Stock Exchange enables Zijin toaccess global capital markets as well as taking up the pent-up investmentdemand of newly rich Chinese investors.
“Zijin Mining Group Co., Ltd. announced on April 12  that it hadbeen granted enough acceptances of its offer for the London-listedMonterrico Metals Plc... According to the announcement issued by theHK-listed Zijin Mining, as of April 11, valid acceptances of the cashoffer have been received in respect of a total of 13,198, 586 MonterricoShares, representing 50.17% of the voting rights normally exercisable at ageneral meeting of Monterrico. ‘All the conditions to the offer have beensatisfied or waived and that, accordingly, the offer is declared whollyunconditional,’ said Zijin Mining in the announcement. Zijin is the firstChinese enterprise to acquire an overseas company via recommended cashoffer, and also the first purchasing of a UK-listed company. Theacquisition by Zijin Tongguan is mainly targeted for Rio Blanco, acopper-molybdenum mine project in northern Peru” (Xinhua China Metals, 30April 2007).
Zijin’s new acquisition in northern Peru will dig up 25 million tons ofrock a year, chemically cook it in a conventional flotation circuit toproduce approximately 220,000 tonnes of copper in concentrate andapproximately 2,500 tonnes of a separate molybdenum concentrate. Theconcentrates will be shipped to China, for smelting in Zijin’s expandedcoastal plant in Fujian province. At present, shipping concentrates acrossthe Pacific from Peru to Fujian is much easier than getting Tibetan copperconcentrates to a coastal smelter, or even an inland smelter in Gansu,until more railway lines are built.
Zijin’s Peruvian mine is a much bigger operation than the first majorcopper mine in Tibet at Shetongmon, owned by a small Canadian company. Thetonnage of the total deposit is about the same as the deposits at Yulongand nearby in Tibet, in the vicinity of Jomda town. When full scale miningbegins at Yulong it too may require digging up and treating 25 milliontons of rock a year, or more if Montericco is a guide, since thefeasibility study for the Peru deposit proposed doubling to 50 milliontons a year would be optimal.
“The ever increasing financial strength of Zijin Mining is also supportiveto its overseas expansion. Last September, the company obtained a creditline up to RMB 9.6 billion from China Development Bank, which is earmarkedfor its overseas expansion. And in early February , the companyannounced that it would apply to China Securities Regulatory Commissionfor a floatation of a maximum of 150 million A shares which would accountfor 12.49% of the company’s enlarged capital after the planned issue.Merrill Lynch estimated that the proposed offering would help Zijin Miningraise RMB 7.5 billion or so.
“[Zijin Mining’s] announcement elaborated on the use of the prospectiveproceeds worth nearly RMB 6.1 billion, including RMB 3.15 billion forover-seas investment, RMB 1.52 billion for expansion of open-pit mining atthe Zijinshan gold and copper mine, RMB 462 million for expansion ofHunchun gold and copper mine, RMB 199 million for a 20 tonnes per dayrefractory gold concentrates smelter/ refinery project, RMB 357 millionfor exploration projects, RMB 300 million for acquisition of mining rightsand RMB 93 million for increasing registered capital of subsidiaries andassociates.
“Zijin Mining proved to be a star performer among China’s metallurgicalenterprises in 2006. According to its annual report issued on March 9, theHK-listed company, with total assets worth RMB 11.35 billion at end-2006,reported RMB 0.16 in earnings per share, up by a hefty 142.24% over thatfor 2005. Its 2006 revenue totaled RMB 10.68 billion, a rocket-like growthof 251.71% over the previous year, and its gross profit amounted to RMB3.96 billion, up 168. 87%, with pre-tax profit up 153% to RMB 2.87 billionand net profit up 171.1% to 2. 36 billion” (Xinhua China Metals, 28 March2007).
Zijin’s financials are remarkably strong, a sure sign of being a favouredinstrument of central leaders. Any company that can increase the value ofits sales by 250 per cent in a year has more than good luck. On thesefigures, Zijin paid only 0.51 bn yuan in tax, which is less than 13 percent of declared pre-tax profit. Little wonder Merrill Lynch estimatesZijin is able to raise a further 7.5 bn yuan by floating a small portionof its equity to investors who will have no effective say how the companyis run.
“The company rolled out a total of 49.28 tonnes (or 1,584,388 ounces) ofgold last year, up 135.10% y-o-y, of which ore-produced gold up 35.6% to20.7 tonnes (or 665,520 ounces). The country’s total production of goldaggregated to 240.078 tonnes in 2006, of which Zijin Mining accounted for20.53%, the national output of ore-produced one was 179.848 tonnes, withthat from Zijin Mining taking an 11. 51% share. At end-2006, the companyowned gold resources of about 455 tonnes (included 57 tonnes associatedwith other metals). With most being open-pit mining, it boasted aproduction cost of US$203 per ounce, US$93 lower than the world average ofUS$ 296 per ounce. Meanwhile, the company’s output of copper rose by 103%to 40.3 kt in 2006, that of zinc up by 37.5 times to 54.7 kt and that ofiron concentrate up 71.43% to 600 kt.
“In addition to overseas expansion, Zijin Mining investigated 78 projectsamong the country last year, and entered into formal agreements of 16projects by way of setting up new company and acquisition. At end-2006,the company also had reserves of platinum and palladium of about 151tonnes, copper of about 6.7 million tonnes, zinc of about 2.38 milliontonnes, nickel of about 0.5446 million tonnes, lead of about 0.4 milliontonnes, molybdenum of about 0.26 million tonnes (included 0.03 milliontonnes molybdenum associated with other metals), tin of about 0.1 milliontonnes, iron ores of about 188 million tones, and coal of about 300million tones” (Xinhua China Metals, 28 March 2007).
Zijin can afford to wait until the state has a rail line to the Yulongcopper mine in Tibet, before putting in serious money. At the very least,since Zijin has already announced its copper concentrates from Yulong aredestined for a Gansu smelter, it will expect the state to invest in amajor upgrade of the almost 1000kms of highway between the mine and theNagchu junction with the Lhasa to Gormo, Xining and Gansu rail line. Zijinis swallowing up mining projects all over China, and abroad, with no needto invest major amounts in mines in Tibet until all circumstances areright, and the government has paid for major infrastructure.
Zijin has energetically swallowed promising deposits within China, such asthe Ashele Copper company zinc and copper deposit in Xinjiang, in which itacquired majority ownership in 2005. Zijin is looking for fresh domesticacquisitions, especially gold mines. “Within China, the government isplanning to open bidding for the Yangshan gold mine in northwest Gansuprovince in the second half of the year. Yangshan is China’s largest goldmine and Zijin’s rival, Zhaojin Mining Industry (1818.HK), is reportedlyplanning to bid for the project. When asked if Zijin would bid as well,Huang [Xiaodong, Zijin”s executive director and senior vice chiefexecutive officer] said: ‘Wherever there’s gold, we’re interested.’Meanwhile, Huang told Dow Jones Newswires that production at Yulong CopperCo.’s copper mine in Tibet should be back on schedule. Zijin owns 39% ofYulong and output has been delayed repeatedly since last year. Huangattributed the production snafus to cold weather” (Dow Jones ChineseFinancial Wire, 4 June 2007).
Other recent media stories confirm Zijin plans to begin mining at Yulong,and will concentrate the copper ore, then send the concentrate to Gansu,though the report is unclear how hundreds of thousands of tins ofconcentrate, in a location 1000 kms from the nearest rail line, are goingto get on their way to distant Gansu. Probably production will be smallfor some years, until the Chinese government steps in and builds thetransport infrastructure.
“Zijin holds 39 percent in Yulong Copper Co. Ltd., which holds rights toChina’s largest proven copper resources in a remote Tibetan deposit.Small-scale production has already begun at the mine, which is newlyaccessible thanks to a railroad that reached the Tibetan capital of Lhasalast year. ‘It is not necessarily worth it to transport raw materials fromTibet to the coast. For instance, there are smelters in Gansu,’ [Wayne]Gao [deputy general manager and senior geologist for Zijin’s overseasdevelopment division] said. Zijin already sells concentrate from itsAshele copper mine in Xinjiang, in the far west, to Jinchuan Group Ltd. inGansu. The Yulong project must be accessed through a Tibetan forest.‘Tibet is very remote. So anything we develop there, whether Yulong orelsewhere, we have to do an environmental impact report first. And in thatreport, of course we have to address future environmental protectionmeasures and steps to take during the development,’ Gao said.“Development of the mine, which accounts for about a tenth of China’scopper reserves, got the go-ahead from China’s environmental agency lastsummer. But Zijin ran afoul of environmental authorities this winter,after a breach of a tailings dam at its mine in Guizhou triggered atightening of China’s standards. ‘This had a pretty big effect,especially because our company has always emphasized environmentalaspects. Management, especially because we are about to list A-shares,really worries about this type of problem,’ Gao said. ‘It’s clear that inthe future we will have to strengthen our environmental procedures’”(Reuters News, 17 May 2007).
Zijin’s annual report to shareholders and the Hong Kong Styock Exchange,in March 2007, lists Tibetan copper and gold at Yulong among its manypriorities, most of them gold mines, for 2007: “The emphases in 2007 areon combined open pit exploitation of Zijinshan Gold and Copper Mine,expansion project of Huichun Shuguang Gold and Copper mine, GuizhouShuiyindong Project Phase III, Hebei Dongping Gold Mine, Wuping YueyangSilver and Gold Mine, Shandong Longkou Damoqujia Gold Mine, WulaehouqiZijin Zinc Mine, the technological reform of Hunan Anhua Tungsten andAntimony Mine, and construction projects of Xinjiang Fuyun Reduction IronProject, Guangdong Xinyi Gold Mine, Yinyan Tin Mine, Xizang Yulong CopperMine Phase I and Mongolia Nari Tolgoi Gold Mine. All the above-mentionedprojects should be completed and commenced the production as planned” (DowJones Commodities Service, 9 March 2007).
Zijin has another copper mine in Tibet, also in early stages ofproduction, in Qinghai. The company annual report for 2007 says: “QinghaiDeerni [Dornod?] Copper Mine has overcome all kinds of difficulties insetting up a mine in a plateau, and has successfully established the mineand commenced trial production.” Zijin has grown so fast in recent yearsit is short of management staff able to operate internationally, butwithin China it has many deposits, exploration areas and a wide variety ofminerals, as its annual report says: “After acquisitions and large inputsin exploration works, at the end of 2006, the Group has recorded a growth(after the deduction of the consumption in this year) in metal (ore)resource/reserves of gold resources of about 455 tonnes (included 57tonnes gold associated with other metals), platinum and palladium of about151 tonnes, copper of about 6.7 million tonnes, zinc of about 2.38 milliontonnes, nickel of about 0.5446 million tonnes, lead of about 0.4 milliontonnes, molybdenum of about 0.26 million tonnes (included 0.03 milliontonnes molybdenum associated with other metals), tin of about 0.1 milliontonnes, iron ores of about 188 million tones, and coal of about 300million tonnes, respectively (on equity base for non-subsidiaries). Theabove-mentioned resource reserves as recognized by Ministry of Land andResources, include 448 tonnes of gold, 4.167 million tonnes of copper,0.51 million tonnes of zinc, 0.168 million tonnes of molybdenum, 0.1million tonnes of tin, 0.23 billion tonnes of coal, and 32.15 milliontonnes of iron ore” (Dow Jones Commodities Service, 9 March 2007).
What next for Zijin?
The company has plans for lead and zinc extraction, in another TibetanBuddhist cultural area, in Tuva, just north of Mongolia, in Siberia. Zijinis keen to increase its ownership, extraction and smelting of platinum inSouth Africa. According to mining companies there Zijin has “deep pockets”and is willing to finance a smelter (Financial Mail [Johannesburg], 29June 2007). Zijin is moving into Tajikistan. On taking over a Tajik goldmine, Zijin announced it would double the amount of rock being dug thereto 3 million tons a year (Asia Pulse, 28 June 2007). The steady stream ofacquisitions and profits has done wonders for Zijin’s share price, andapproval for each international takeover from China’s State developmentReform Commission is readily obtained.
In these circumstances, why would Zijin pour money into a remote hillypart of Tibet, between the watersheds of the upper Yangtze and the upperMekong, where there is a huge copper deposit but as yet no adequatetransport?
Zijin has announced it will not build a smelter nearby, which meansconcentrates that are at most 25% copper must travel great distances to asmelter. That means three of every four tons rail freighted are waste.Zijin need not invest in a smelter, since China’s policy is that smelters,to be globally competitive, can be built only if they produce a minimum of100,000 tons of copper metal (plus gold and silver or other extractablemetals in a deposit) a year. The Yulong/Jomda deposits are big enough tosustain a smelter of that size one day, but Zijin appears to be in nohurry, having fulfilled its obligations to central leaders by bringingYulong to Stage One, which appears to be somewhat modest, pendingcompletion of state-financed power supplies and rail access. However, withcopper at $8000 a ton, a price not seen for a very long time, this couldchange.
Chinese geologists tell a different story, always urging central leadersand mining companies to plunge in; however mining companies are morecautious, knowing there is a big difference between a deposit and acommercially viable, competitive mining operation. The geologists areunashamedly economic nationalists, and their rhetoric often alarmsTibetans, who assume all announced deposits are being mined.
“Another breakthrough, officials said, is the discovery of a copper beltwhich extends 400 km from west to east along the Yarlung Zangbo River inthe Qinghai-Tibet Plateau. Part of the belt, the copper mine at Yulong,has prospective reserves of 14-18 million mt and may become the largestcopper mine in the country. Yulong, not far from the newly builtQinghai-Tibet Railway, could serve as a turning point for Tibet's miningeconomy, Zhang Hongtao, CGS deputy director said” (Platts Commodity News,25 January 2007). This is highly misleading. Yulong is actually close to1000 kms from the nearest point of the Lhasa to Gormo rail line, atNagchu; perhaps only 800 kms if a railway were built through the mountainswith a lot of tunnels and bridges to avoid the hairpin bends of theexisting highway.
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3: Western Mining: Qinghai Based Mining Giant
Another Chinese mining giant in the making is Western Mining,headquartered on the Tibetan Plateau, in Xining, its shares listed on theShanghai Stock Exchange. Western Mining has a major stake in the Yulongcopper deposit in Kham, but not quite as big as Zijin, which is in charge. (This company should not be confused with an Australian-based company ofthe same name which was bought out by BHP Billiton and its namedisappeared in the late 1990s.) Western Mining has a way to go, but thanksto current central policy of fostering the growth of national champions inthe mining sector, Western Mining may well make it into the big league,with a correspondingly big capacity to mine Tibet on a scale quite unlikethe past.
Western Mining is a partner of Zijin’s, in a copper and molybdenum mine inManchuria. The firm's assets include lead, zinc and aluminium smelters.Mining assets also include the Yulong copper deposit in Tibet, China'slargest proven copper resource, and the Bayannaoer copper mine in InnerMongolia, which is already operating.
Before floating a portion of its equity in mid 2007, Goldman Sachs was thefourth biggest shareholder in Western Mining, holding 10% of all shares.
Western Mining describes itself as “a relatively large state holdingenterprise with the diversified shareholding. The company strictly adheresto the resources exploitation strategy and internationalization strategy.It owns mining rights over many large and top mines, including XitieshanLead and Zinc Mine, Saishitang Copper Mine, Tongyugou Copper Mine, Chakaand Keke Salt lakes in Qinghai province; Huogeqi Copper Mine in InnerMongolia; Xiacun Silver-polymetallic metal Mine in Sicuan Province; YulongCopper Mine and Lawu Copper-zinc Mine in Tibet; Stannum [tin] Mine in theKirg izhia; which have laid down strong resource foundation for itslong-term development” (www.westmining.com).
The first four mines named, all in Amdo northern Tibet (Qinghai inChinese) are the foundation of Western Mining’s fortunes, the basis of itsexpansion now into south eastern Tibet (Kham in Tibetan) at Lawu andYulong. This is a company on the march, assisted at every turn by officialpolicy.
Western Mining has permission to gamble on the international futuresmarkets, hedging its bets on price movements and currency fluctuations, aprivilege granted selectively by central leaders. According to Interfax(26 Nov 2005), “Western Mining Corp, a major lead, zinc and copper minerin northwestern China's Qinghai province, has received approval from theChina Securities Regulatory Commission (CSRC) to list on the ShanghaiStock Exchange, CSRC said. CSRC gave its approval on June 5, less than amonth after it received Western Mining's application.
“The company is China's second-largest lead concentrate producer,fourth-largest zinc concentrate producer and seventh-largest copperconcentrate producer in terms of its 2006 output. It plans to float up to500 million shares, or 20.64 percent of its total equity, and the fundsraised will be used for acquisitions and expansion.
“In 2006, Western Mining produced 60,397 tonnes of lead concentrate or 8.2percent of the country's total output, 76,635 tonnes of zinc concentrateor 3.6 percent of China's total, and 25,967 tonnes of copper concentrateor 3.4 percent of China's total, according to company figures. It controlsfour mineral mines including China's largest lead-zinc mine Xitieshan andhas a 41-percent stake in the undeveloped Yulong copper mine in Tibet,which has reserves of around 3.2 million tonnes of copper and is likely tobecome the largest copper deposit in China when commissioned” (MetalBulletin News Alert Service, 6 June 2007).
Western Mining is not as big as Zijin, but can now grow fast, thanks toits privileged access to investors, without diminishing its stateownership. Then share float gives the company an extra $500 million, forfuture expansion in its preferred areas, which are western China andinternational acquisitions (Reuters News, 5 June 2007).
The share float, and the company’s base, were micro-managed by centralleaders, who switched the float from Hong Kong, which is more open tointernational investors, to Shanghai, an overheated investment markethungry to invest savings. “Western Mining had previously said it plannedto list on the Hong Kong bourse in the first half of this year. But thisplan may have been rejected by China's central government as it attemptsto encourage more domestic enterprises to list in mainland stock markets,analysts said. ‘China's stock market is under great pressure with surplusliquidity, and I think the government will accelerate the listings ofenterprises domestically to boost the amount of shares in the market. Thesurplus is unavoidable as China lacks sufficient investment channels,’said an analyst from Changjiang Securities. Other analysts suggested thatBeijing's desire to protect its mineral resources, which it deemsstrategically important, could have forced Western Mining to list inShanghai rather than Hong Kong” (Metal Bulletin News Alert Service,1 June2007).
Western Mining in June 2007 made its sales pitch to investors, staging aroadshow that made the most of its location in Tibet as its greatadvantage. “Western Mining has received very warm welcome by interestedinstitutional investors during its management pre-roadshow in Shenzhen,Shanghai and Beijing as of June 27, media reports.
“Western Mining is engaged in mainly development of upper-stream resourcesand the production of lead, zinc and copper, and it has evident resourcesadvantages, said a securities researcher Sun Zhaohui specializing in themetal sector. In recent years, the prices of nonferrous metals have beengrowing and the profits go mainly to the upper stream of the industry, soWestern Mining formed very strong profitability. Its profit margin in themining business in 2006 stood as high as at 82%, expressed Sun.
“Official statistics show that 50% of China's mineral resources arelocated in the country's western areas, where will serve as nation'sprimary resources sources. Located in Northwestern China's QinghaiProvince, Western Mining thus naturally formed the advantages through itsyears of experience in mineral resources development in the high-altitudeareas” (SinoCast China Business Daily News, 2 July 2007). The sales pitch worked, Chinese investors snapped up the shares, and thecompany raised around $700 million, with the original shareholders stillhaving 80% of all shares.
“Western Mining, in which Goldman Sachs has a 10per cent pre-issue stake, almost tripled its net profit last year to 1.54billion yuan, from 520 million yuan a year earlier. Sales rose 78 per centto 8.22 billion yuan. Sumitomo Mitsui Asset Management analyst Harry HeChunwu said the Western Mining offering would draw an overwhelmingresponse from investors amid rising metal prices. He expects WesternMining's shares to be priced at about 15 times earnings and to surgesharply on their trading debut” (South China Morning Post, 26 June 2007).
The sales pitch worked, Chinese investors snapped up the shares, and thecompany raised around $700 million, with the original shareholders stillhaving 80% of all shares. “Western Mining, in which Goldman Sachs has a 10per cent pre-issue stake, almost tripled its net profit last year to 1.54billion yuan, from 520 million yuan a year earlier. Sales rose 78 per centto 8.22 billion yuan. Sumitomo Mitsui Asset Management analyst Harry HeChunwu said the Western Mining offering would draw an overwhelmingresponse from investors amid rising metal prices. He expects WesternMining's shares to be priced at about 15 times earnings and to surgesharply on their trading debut” (South China Morning Post, 26 June 2007).
The foundation for the rise of Western Mining is its decades of extractinglead and zinc from the Tsaidam basin in northern Tibet, at Xitieshan, onthe main railway line into Tibet, half way between Terlenkha (Delingha inChinese) and Gormo (Golmud). Lead production has dwindled in recent yearsto 73,000 tons a year, but zinc is over one million tons a year, givingWestern Mining a strong earnings base over a long period (QinghaiStatistical Yearbook 2006). Western Mining’s self-description places muchemphasis on Xitieshan as its crown jewel: “Western Mining Group, Ltd. isone of the largest mining conglomerates in China, with diversifiedholdings that include four large and medium sized non-ferrous mines, oneof which, the ‘Xitieshan’ is China's largest mine with annual productioncapacity of 1.5 millions tons of lead-zinc minerals and 160,000 tons oflead and zinc metals. Western Mining is based in the province of Qinghaiand focuses on the mining, processing, refining and smelting of lead, zinccopper and other non-ferrous metal resources. It has a workforce of morethan 8,000 and an assets value in excess of US$10.5 billion, includingsubsidiary listing applications on the Shanghai and London StockExchanges” (Market News Publishing, 14 June 2007).
The sales pitch worked spectacularly, given central leaders’ preferentialpermission for Western Mining to float shares at the height of the stockmarket boom and the height of metal price cycles. The International HeraldTribune reported: “Shares of Western Mining, China's second-largest makerof lead concentrate, more than doubled on their Shanghai debut afterinvestors ordered almost 244 times the stock offered. ‘The jump is higherthan our expectations, showing that investors are still crazy about newstocks,’ said Zhou Dexin, who helps manage equities and bonds at ChinaMerchants Fund. Western Mining sold the shares at about 21 times 2006earnings, helping to stoke investor interest in the offering and ensure afirst-day rally. Western Mining raised 6.2 billion yuan for takeovers andplant upgrades and to repay bank loans.
Western Mining effortlessly raised sufficient capital to exploit Tibetmore thoroughly, thanks to the pent-up demand of the newly rich in Chinafor investments that promise to return more than a bank deposit, given thepaucity of alternatives allowed, since Chinese citizens may not buy sharesoutside China. The 6.2 bn yuan raised meant no loss of control bymanagement or by central leaders who are in overall charge, since only asmall portion of equity is now in diverse private hands. The newshareholders’ valuation of the company as worth 21 time sits most recentdeclared profits suggests everyone expects future profits to bespectacular, even though the declared profit for 2006, of 1.54 billionyuan was an extraordinary leap, given that the profitability of the entireminerals sector [excluding oil and gas]in the whole of Qinghai, for alloperating companies, in 2004 was one third this amount, 510 million yuan(Qinghai Statistical Yearbook 2006, table 3-21, 59-60).
The leap in profitability between 2004 and 2006 may tell us how stateowned companies have reinvented themselves. In 2004 the hundreds of stateowned mining companies in Qinghai, including Western Mining, still clungto old habits of employing as many people as possible, and minimisingdeclared profits on which tax is due. By 2006 Western Mining reinventeditself as a corporation positioned for maximum attractiveness to privateshareholders by maximising profit. The leap also is a measure of theenormous jump in profitability of all miners, because of the global pricerises. The bottom line is that Western Mining is now cashed up, ready totackle the major expenses associated with doing to Kham what it has longdone to Amdo. Turning Yulong into a major copper and gold mine will beexpensive, but the two big shareholders, Zijin and Western Mining now havethe cash reserves to do it.
What remains uncertain is whether state owned miners such as WesternMining and Zijin calculate their best profit prospects are in Tibet orelsewhere. Congo is on the horizon for Western Mining. “Chinese lead andzinc miner Western Mining Group Co. Ltd., will spend about $200 million todevelop three copper-cobalt mines in Congo, the company's head toldReuters. The initial public offering and the overseas investment are partof the globalisation of the Chinese mining sector, which will consolidateinto several national champions, said Mao Xiaobing, chairman of the boardof the firm based in the remote western province of Qinghai.
“High metals prices have spurred Beijing to promote minerals exploration,open the sector to foreigners and urge domestic firms to consolidate tocompete globally. Western Mining, China's largest non-integrated miner,owns five non-ferrous mines in China. It is exploring in Qinghai, Tibet,Xinjiang, Gansu and Sichuan to expand its lead, zinc and copper reserves,Mao said. It is also expanding overseas as part of China Inc.'s search forresources to feed an economy that grew by 10 percent or more in each ofthe past four years. In the Democratic Republic of Congo, constructionshould begin on two mid-size mines in the second half of this year,pending government approval.
“At home, Western Mining plans to produce 40,000 tonnes of refined lead in2007 from a plant that began operations last year. It also hopes todevelop tungsten, tin and nickel operations, Mao said. Western Mining isinvesting $30 million in the Uchkosgon tin mine in Kyrgyzstan. Chinashould see more mergers and acquisitions in the mining sector over thenext several years as Beijing raises the bar for smaller miners in termsof capital requirements, project approvals and environmental regulations,Mao said” (Reuters News, 7 March 2007).
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