Below: ‘Port Hedland Suite’ (1/5) by artist Larry Mitchell
The Pilbara Project, FORM
equity stake in the asset. For Australian mining
companies looking to leverage the cost competitiveness
of Chinese contractors while looking for strategic
investors, this model makes perfect sense.
Chinese companies lack local expertise
In the meantime, cost overruns continue to plague the
mining industry. The cost of building CITIC Pacific’s
flagship Sino Iron project, China’s largest investment in
Australia’s mining sector, has increased to a whopping
US$8 billion, at least three times higher than the
original US$2.5 billion cost announced back in 2006.
But for China, the mine was never exclusively
commercially driven. The project, backed by the
Chinese government, is considered a major attempt to
satisfy China’s demand for iron ore with a Chinese-
owned overseas supplier. Furthermore, CITIC Pacific
acknowledges it has encountered some difficulties in
meeting Australia’s more stringent safety and regulatory
requirements compared with China, including stricter
commissioning requirements.
Another Chinese company facing challenges in
Australia is Sinosteel, which suspended work on its
US$2 billion Weld Range iron ore mining project in
WA’s mid-west region, citing delays in port and rail
infrastructure development as the main bottlenecks.
While overspending and project delays are not
that uncommon, this trend needs to be more closely
examined to outline win-win situations for Chinese
investors and Australian stakeholders.
China moves to diversify
its supplier base
In 2011, up to 60% of China’s iron ore imports came
from just three mining majors – Rio Tinto, Vale and
BHP Billiton. In the long run, China aims to increase
its iron ore imports from small to mid-sized players to
diversify its supply channels in a major effort to reduce
its dependence on major global players. According
to the China Iron and Steel Association, the ratio of
China’s iron ore imports from small to mid-sized players
will rise to 50% in the coming years, which has strong
implications for Australia’s mining sector.
As the world’s largest consumer, China is also
trying to increase transparency and play a bigger
role in the marketplace. Australian miners, including
the country’s fourth largest iron ore producer, Atlas
Iron, have signed agreements with China Beijing
International Mining Exchange to join China’s first
online iron ore trading platform. Launched in January,
the exchange aims to create a fair and transparent
platform for domestic and foreign companies. Atlas Iron
stands out as a prime example of how an Australian
company can adapt to the changing structure of the
Sino-Australian iron ore relationship. As a gauge of its
success in feeding China’s hunger for raw materials
as an independent miner, Atlas Iron shipped its
10
millionth ton of iron ore to China in early 2012.
Moving forward
China and Australia have both profited greatly from a
deepening bilateral trade and investment relationship,
illustrating the evolving synergy between their
economies. However, the challenges associated with
defining future corporate growth strategies in the
midst of a global economic slowdown has also made the
association more complex, necessitating a greater need
for information sharing and discussion.
Business executives of leading Australian resource
enterprises are already urging the government to
allocate more resources into building a much richer,
broader relationship with China. Meanwhile, their
Chinese counterparts are still learning and are keen on
cooperating with local Australian entities to help them
navigate stricter regulatory requirements and cultural
differences in unfamiliar territory.
Australian mining companies are actively looking
to encompass emerging markets into their global
strategies to take advantage of shifts in the relative
competitiveness of regions, countries and companies.
To save costs, they exploit the fact that the epicentre
for global manufacturing and contracting continues to
relocate to emerging markets and China in particular.
Furthermore, Australian mining executives are
becoming aware that China is no longer simply an end
buyer; China can also be a strategic partner, not only in
Australia but in other growth markets around the world.
In a new world order, Chinese ambitions combined with
Australian expertise can help companies from both
countries chart future growth strategies.
MINESITE 2012
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