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Australian Miners Place Big Hopes On China FTA

Dow Jones Newswires

Australian Miners Place Big Hopes On China FTA

By James Attwood

19 April 2005

SYDNEY (Dow Jones)—If the proposed free-trade agreement between Australia and China can cut the long delays faced by Australian mining companies to get projects off the ground in China, it could give a major boost to Australian mining investments in China.

Early indications suggest that could well be the case.

Australian trade officials confirmed Tuesday the ongoing FTA negotiations will not only cover tariff and customs but also an array of post-border issues such as licensing, foreign investment, standards and technical regulations.

Such a broad scope falls in line with Beijing’s stated aim of attracting more foreign capital and technical know-how to develop the country’s mineral potential, which has been held back by a complicated operating environment.

There are all sorts of restrictions in terms of ownership, access to geological data, the distinction between the right to explore and the right to mine and dispute resolution, said Minerals Council of Australia Chief Executive Mitchell Hooke.

"Basically it boils down to uncertainty over a lack of clarity of regulations and legal processes; in other words, all sorts of things you might expect from an economy in transition," he told Dow Jones Newswires.

Such post-border issues traditionally fall outside the scope of free trade agreements, and are sure to complicate the process.

But that is the area of most significance to the Australian minerals industry, said Hooke, who participated in a recent bilateral trade symposium in China.

While the situation is improving, many foreign companies continue to endure long and often complicated approval processes for doing business in China.

Perth-based Leyshon Resources Limited (LRL.AU), partly owned by Newmont Mining Corp. (NEM), for example has spent 18 months securing approvals to explore for copper and gold, a process CEO Paul Atherley says would have taken half the time elsewhere.

"If an FTA can facilitate the process of foreign capital and technology entering the country, it would be very welcome," he said.

Clearer Rules To Boost Investors Confidence

For other Australian miners focussed on China, the greatest benefit of a bilateral trade agreement would be greater regulatory clarity for investors.

"The mining sector suffers at the moment from a lack of precedents of exploration licenses being converted into mining licenses - how much foreigners can own, which minerals, there’s a lot of confusion," said Jake Klein, CEO of Sino Gold Ltd. (SGX.AU).

"From our perspective, China does provide access to foreign groups, (but) from an investor’s perspective, an FTA will provide greater clarity and confidence, and that means greater access to capital for us," he said.

Sino Gold is the only foreign company to hold a wholly owned mining lease in China and it aims to become one of the several large-scale producers left standing after an anticipated consolidation of around 1,000 small-scale mining operations.

Another China-focussed Australian gold company, Michelago Ltd. (MIC.AU), said a possible benefit of an FTA would be an easing of restrictions on Australian banks operating in the country, thereby improving access to capital for miners.

Michelago is in the final stages of negotiations with Australia & New Zealand Banking Group Ltd. (ANZ) to guarantee the company’s US$20 million share of working capital for the BioGold gold plant in China.

China Investors Would Also Benefit

And from the perspective of Chinese investors in Australian mineral operations, an FTA could ease China’s own restrictions on its investments abroad, said Michelago CEO Greg Starr.

A joint feasibility study completed before the decision to start FTA negotiations concluded that a pact will enhance output and employment in China, and in all Australian states and territories, Australian Trade Minister Mark Vaile said.

China already is one of the most important markets for Australia’s minerals sector, with exports growing almost fivefold since 1995 to be nearly A$4.5 billion in 2004.

China accounts for about 4% of global gross domestic product but 16% of world metals consumption.

Australian iron ore exports to China grew 41% in 2004 to reach A$2.4 billion, with China overtaking Japan as the world’s largest iron ore importer. Coal exports surged 72% last year, while exports of nickel, copper and aluminum also grew strongly, according to data from the Minerals Council of Australia.

Such high dependence on Australian mineral resources could even prompt Chinese trade negotiators to press for an upward revision in Australia’s foreign investment review threshold from the current A$50 million to A$800 million, industry observers said.

But while liberalizing the screening process would make life easier for Chinese metals companies looking to buy into Australian raw materials suppliers, it is unlikely to be a key driver for future investments, Minerals Council’s Mitchell Hooke said.

"I don’t think lifting the threshold will be the make or break of investments; strategic considerations will always be the overriding factor," he said.

However, an FTA could remove or reduce restrictions on foreign investors, by liberalizing rules surrounding the full gamut of mining, exploration and mining services activities, he said.