China Stakes a Claim

Bill,
I would like to add a follow-up to David Bond’s important and informative "Another China Syndrome." First off, it’s clear that China intends to develop its way out of its demographic challenges. The logistics of this monumental undertaking — shaping the future of 1.3 billion people — demands extraordinary strategic planning. One of their logical goals would be to guarantee the control of the natural resources necessary for continued growth.

In the minerals field, China has already given us some clues to its priorities. In 2006 it eliminated incentives to export scrap nickel, aluminum fines, lead, zinc, tin, tungsten, molybdenum, magnesium, sponge titanium, cobalt, antimony, zirconium, beryllium, cadmium and chromium.1 This was followed in 2008 by tax increases on tungsten, lead, zinc and copper ores.2 The new taxes are reportedly meant to insure that domestic supplies of these minerals are not over-exploited.

Notice that precious metals are not on the list and are kept out of the spotlight, just as expected.

One of the main points that Mr. Bond’s interviewee makes is that China plans to acquire mineral resources by buying foreign mining companies. After the Union Oil debacle, it is reasonable to expect that the Chinese will carefully test the M&A waters before making any substantial splash. They need to be confident that they will not again be embarrassed and thwarted by nativist/xenophobic politics.

I believe their initial test has just concluded successfully. Here are the details:

Vancouver, BC, April 28, 2008 – Yukon Zinc Corporation (YZC.TSX-V) ("Yukon Zinc" or "the Company") announces today that it has received an unsolicited bid for 100% of the outstanding shares, options and warrants of the Company ("the Northwest Proposal") by way of Plan of Arrangement. The Northwest Proposal was made by Northwest Nonferrous Investment Company, Limited, and Jinduicheng Molybdenum Group, Ltd. (collectively, "the Investors"). Both corporations exist under the laws of the People's Republic of China.The proposal results from due diligence investigation and discussions with the management of the Investors that commenced in early 2007.3 (my emphasis)

A little digging revealed that the innocuously named Northwest Nonferrous Investment Company, Limited is actually a part of the Northwest Geological Exploration and Mining Bureau for Non-Ferrous Metals of the People's Republic of China. It may be relevant that Yukon Zinc has substantial reserves of not just zinc, but silver. Also note that zinc is needed for the iron the Chinese just agreed to pay the Aussies 95% more for.

The latest news is, "June 26, 2008 - Acquisition of Yukon Zinc Corporation by Jinduicheng Molybdenum Group, Ltd.and Northwest Nonferrous International Investment Company, Limited Receives Shareholder and Court Approval…" (my emphasis)

So, if China needed to find out what the reaction would be to its acquisition of a North American mining company, the answer is — essentially none. The deal received minimal media coverage and sailed through.

With step 1 a success, it seems reasonable to expect another resource company takeover bid from the Chinese in the near future. Based on the first offer, it could involve a company with substantial lead, zinc or copper resources. While the company may not have "gold" or "silver" in its name, it will likely own important precious metals assets. If this is the start of a trend, and as recognition builds that the junior mining sector has caught the eye of the biggest investor on earth, it is sure to add high-octane fuel to the coming bonfire.

Best wishes,
Peter R.
www.pandacollector.com

1. http://www.chinamining.org/Policies/...

2.http://news.alibaba.com/134290_Metal...
se_Taxes_Tungsten_Lead.htm

3. http://www.yukonzinc.com/yzcnr_04_29...

4. http://www.yukonzinc.com/YZC-NR-June...