China growth spurs rebound in mining deals – by Brenda Bouw and Tamara Baluja (Globe and Mail – July 14, 2011)

The Globe and Mail is Canada’s national newspaper with the second largest broadsheet circulation in the country. It has enormous impact and influence on Canada’s political and business elite as well as the rest of the country’s print, radio and television media. Brenda Bouw is the Globe’s mining reporter.

China is reigniting the mining sector with its near double-digit economic growth, working through inventories and triggering a rebound in commodity prices that is inspiring a new round of deal-making in the industry.

The world’s largest commodities consumer reported robust second-quarter growth of 9.5 per cent on Wednesday, surpassing expectations and helping send both stock markets and metal prices higher.

Copper, considered an indicator of global economic activity, slumped below $4 (U.S.) a pound in May amid widespread worries that China’s moves to tackle inflation could derail the country’s breakneck growth. But copper prices have rebounded sharply, reaching $4.40 Wednesday and closing in on the record $4.62 reached in mid-February, as the Asian superpower confounds skeptics.

China’s latest growth figures “should dampen fears that the economy is heading into a hard landing and they suggest that policy makers can afford to stay focused on tackling inflation for a while longer,” said Mark Williams, senior China economist at Capital Economics. That is expected to keep driving demand for commodities used to help build infrastructure and everyday goods such as appliances and automobiles.

Chinese copper production hit record levels in June, and imports are climbing as its factories devour existing inventories.

“The statistics also point to a pick-up in demand for copper following months of imports falling down,” said Patricia Mohr, vice-president of economics and a commodities specialist at Scotia Capital.

“Fabricators in China have been working off inventory on hand in reaction to tightening credit conditions. They actually liquidated a lot of their stocks, and the imports again rose in June, and I believe, the liquidation is more or less over in China.”

While base-metal prices bounce back, renewed debt worries in Europe are driving up the price of gold, which hit a new intraday high of $1,588.90 an ounce in New York on Wednesday.

Higher prices and strong demand are propelling mining companies to seek growth through mergers and acquisitions, particularly after a lull in late spring when values dropped.

On Wednesday, Northgate Minerals Corp. said it would buy Primero Mining Corp. in a deal the companies valued at $370-million (Canadian) to create a mid-tier gold producer with mines in Mexico and Australia and a gold development project in Ontario.

Joe Conway, chief executive officer of Primero who will head the combined company, said he plans to aggressively expand the new entity to capitalize on the metal’s growing image as a safe-haven currency.

“We think the commodity will continue to rise as long as there is financial uncertainty,” he said.

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