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Ontario woos China mineral mining investors despite government caution

Resource-rich province must strike a balance between investments and national security

PUBLISHED : Monday, 22 October, 2012, 12:00am
UPDATED : Monday, 22 October, 2012, 4:47am

Ontario, the largest mining jurisdiction in resources-rich Canada, is actively courting minerals mining investment from China, which has invested more in Australia than elsewhere.

This is despite uncertainty over the fate of Chinese offshore major CNOOC's US$15.1 billion proposed takeover of Canadian oil and gas producer Nexen after the Canadian government unexpectedly rejected over the weekend the C$5.17 billion (HK$40.3 billion) takeover of Progress Energy Resources by Malaysia's Petronas.

The Petronas deal had been expected to pass muster easily.

The Canadian government needs to balance Canada's desire for more foreign investment in its resources sector with public concerns that handing full control of a major Canadian resource company to a Chinese state-backed firm would jeopardise national security.

"We have a lot of Chinese investments in many sectors in Canada," said George Ross, Ontario Ministry of Northern Development and Mines deputy minister, when asked about attitudes towards Chinese investment.

"We are a country of free-traders, so we welcome foreign investment in all sectors, and that includes Chinese investment."

In 2005, state-owned China Minmetals' C$6 billion takeover bid for Canadian copper and zinc miner Noranda collapsed owing to opposition from some Canadian politicians.

Multibillion-dollar, 100 per cent takeover proposals from state-backed mainland firms for Canadian resources firms disappeared soon after and reappeared again years later in the Nexen deal.

The largest deal in the interim was a C$1.5 billion, 17 per cent stake acquisition in 2009 by sovereign wealth fund manager China Investment Corp of debt-laden Vancouver-based multi-minerals miner Teck Resources. CIC opened an office in Toronto early last year to assist its search for investment opportunities.

According to Dealogic data, mainland firms ploughed in US$6 billion since the start of 2008 to buy into Canada's non-fuel mining firms.

This compares with U$19.2 billion spent on Australian firms, dominated by a US$14 billion deal in 2008 by aluminium major Chinalco to buy around 9 per cent in mining giant Rio Tinto.

In terms of on-the-ground project investments, Chinese firms have spent the most in Australia on iron ore projects, thanks to Australia proximity to China that translates into lower transport costs for the bulky material, and also because of the higher quality of its ore.

Canada typically attracts more Chinese investment in copper, gold and nickel projects, although high iron ore prices in recent years have resulted in some investment by mainland steel mills in iron ore projects in eastern Canada.

Ontario, three times the size of Japan and four times that of Britain, is the world's third-largest producer of diamond by value, third-largest producer of platinum and seventh-largest producer of nickel, a raw material for stainless steel. It is also a significant gold, copper, zinc and silver producer.

Ontario exported C$1.9 billion of metallic minerals to the mainland and Hong Kong last year, compared to C$20 billion exported to the United States and C$13 billion to Britain.

Some C$1 billion was spent on exploration in the province last year, up from less than C$200 million a decade ago and accounting for just over a quarter spent in Canada overall.

Mark Smyk, manager of the province's northwest geologist programme of the Ministry of Northern Development and Mines, said the global economic and commodities downturn is expected to see this year's exploration spending drop to around C$800 million, after two years of strong recovery from a brief dip in 2009 following the global financial crisis.

To attract foreign investment, Ontario eliminated a tax on investments in 2010 and offered tax exemptions and reductions for new, remote mines.

With easy-to-mine resources in southern Ontario dwindling after 100 years of mining, the remote "Ring of Fire" northern region is emerging as the new exploration frontier, and mainland firms' investment interests have grown, especially in nickel and gold projects, Smyk said.

Shanghai-based steel major, Baosteel Group, last year bought a 9.9 per cent stake in Toronto-based Noront Resources, which is developing a C$609 million nickel, copper and platinum project in northern Ontario.

Jilin Jien Nickel Industry in April acquired a 59.7 per cent stake in central Ontario nickel miner Liberty Mines.

Dan Gagnon, senior vice-president of operations at Lake Shore Gold, based in Timmins, central Ontario, said booming gold mining in the region thanks to high gold prices meant competition for mining talent is rife, with salaries rising around 10 per cent annually.

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