With Australia in a mad rush to build renewable energy networks to cut emissions and slow climate change, where will the raw materials come from, why is Chinese investment so crucial and can Australia reduce its dependence on China?
There is a massive global shortage of critical minerals to build solar panels, wind towers and batteries.
Australia is the world’s biggest supplier of lithium for batteries and a big exporter of iron ore, bauxite, gold, lead, diamonds, rare earth elements, uranium and zinc, which are all used in the production of renewables.
Globally, about 400 new mines will be needed just to supply the car industry with batteries, according to Benchmark Minerals, but attracting investment to Australia to get some of those projects up will be difficult.
Chinese investment needed
Investment in Australian mines from China has tanked in recent years.
That is because the Foreign Investment Review Board rejected Chinese bids for two lithium projects and that has made Australia a less attractive place to invest.
The federal government is concerned about the reliance on China, given the security threat the country poses, its use of sudden trade bans on key commodities, and our reliance on the country for key imports that became difficult to get during the pandemic.
Reuters Asian commodity analyst Clyde Russell has been watching the rise of China over the past 20 years and thinks the government is right to be worried.
“It’s a legitimate concern. It’s safe to say that the Chinese government has shown that it will act in its own interests, where its interests align with Western countries that’s fine, but if they don’t the Chinese will do what they want,” Mr Russell said.
But he also said Chinese investment would be needed.
“It’s massively expensive, you’re talking trillions, and you’re doing it at the same time as you’re changing energy systems at the same time, also costing trillions.”
He warned that investment is very hard to find for high-risk ventures like mining.
The federal government has just put $4 billion into a fund to help finance critical minerals projects and it wants to see Australia partner with the US to develop an alternative supply chain for renewable energy products.
Mr Russell said that was a drop in the ocean and much more money would be needed to make that work and to fund new Australian mines.
The answer, he says is China.
Chinese miners in Australia
So if we are relying on China to invest in new mines and potentially more downstream processing, what can we learn from the companies already operating in Australia?
Yancoal is listed on the Australian and Hong Kong stock exchanges and has its head office in Australia, but its major shareholder is a Chinese state-owned company.
It initially bought a small coal mine in the Hunter Valley, but grew quickly when it took over Felix Resources and Coal and Allied assets from Rio Tinto.
Yancoal is now worth $5.6 billion.
Chief commercial officer Michael Ngo told last week’s International Mining and Resources Conference in Sydney that the company did exchange knowledge and ideas with its Chinese connections, but it was not wedded to that culture.
“Having local management is critical, it helps you to manage the workforce, how you run the mine in terms of work safety, mine design, utilising different technology and different equipment, how you manage different stakeholders such as government and the community,” Mr Ngo said.
But he also concedes they communicate with the Chinese counterparts.
“The Chinese underground mining community is very large and very sophisticated and provides a good source of knowledge for us.”
Chinese explorers
Hanking Australia is a subsidiary of China Hanking Holdings, which is part of the state-owned ChemChina group.
It is listed on the Hong Kong exchange and has a history of mining iron ore in China, which is used in the production of wind towers.
It bought some WA gold mining companies more than 10 years ago and has been looking for new gold reserves.
Managing director Mark Qiu says there’s a lot of potential for new mines here.
“In the last three years our team discovered more than 4 million ounces of gold,” he said.
“Our reserve increased nine times to 1.64 million ounces, one of the largest in Australia.”
Hanking gold is sold to the Perth Mint.
Chinese processing plants
Another huge Chinese company in Australia is MinMetals, which mines base metals like copper and zinc.
It is part of China Minmetals, which is a Chinese state-owned company but it has its mining headquarters in Melbourne and runs operations in Africa, Canada and Latin America.
It does export to China but a lot of its product goes to other countries as well, and Australian staff are working on its sites in Africa, Laos and Peru.
Chief executive Liangang Li said the company wanted to build processing facilities here, as it has done in Indonesia.
“In Australia, we’re talking about building a hydroxide plant … and we have a project offshore outside China.”
Do we need even more Chinese investment?
Mr Russell thinks the Australian government has to stop blocking Chinese investment in mining projects to enable greater investment.
“They will be looking for assurances that when they want to do deals that they won’t get knocked back,” Mr Russell said.
He thinks the Australian government could use other measures to protect the country’s interests.
Indonesia for example has used Chinese investment to get projects up, but after 10 years they must be more than 50 per cent locally owned.
Without some incentives and less obstacles, Mr Russell does not see China increasing its investment here and without it, he believes the task of finding the resources and turning them into renewables will be too big.
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