Very interesting reports emerging from China’s mining sector late last week. Suggesting that the sector is struggling with some major issues, and needs serious help in moving forward.
The biggest problem is debt. With sources suggesting that the country is about to take unprecedented action in dealing with money owed by some of the biggest national mining firms.
Bloomberg quoted people familiar with the matter as saying this will take the form of a state-owned fund to absorb bad mining debt. Including debts owed by some of the highest-profile Chinese companies working overseas.
Sources said the new fund will be established by the State-Owned Assets Supervision and Administration Commission. And will aim to take on existing debt from across the mining industry.
Familiar persons singled out China’s largest metals trader, Minmetals, as one of the companies likely to see debt taken off its books. With the mega-firm currently owing about $9.3 billion to debt holders.
That’s a point that should be of interest for the mining investment community around the world. Given that Minmetals’ 74%-owned subsidiary MMG is an important player in international projects in Australia, Canada, Peru and Laos.
All the more so because China’s creation of the debt fund suggests the government here sees miners being stretched right now in terms of finances. (Not surprising, given the recent fall in metals prices — and the aggressive investments in new projects made by Chinese companies the last several years.)
The hope is the fund will head off serious problems with these firms, ensuring that operations can continue without major interruption.
If the plan goes smooth, we may not see much fallout on the local or international stage. But this development does suggest investors should be keeping an eye on China-related ventures for any signs of financial strain.
It also makes it likely that many Chinese companies will be more careful in new investments going forward. Potentially meaning less capital coming out of this part of the world for minerals development.