Chinese investors warned about African mining risks – by Toh Han Shih (South China Post – December 16, 2013)

http://www.scmp.com/business/commodities

Resource-rich continent attractive to China, but potential investors are told to proceed cautiously

Chinese companies are keen to pour money into mining projects in Africa, but investors have received a fresh warning about the risks in the continent’s mining sector. Speakers at the recent Global Resource Investment Conference in Shenzhen told of some of the problems that can beset projects in resource-rich Africa.

“There are many potential Chinese clients who are interested in investing in mines in Africa, but there are lots of challenges,” said Cindy Pan, a lawyer at international law firm Dentons.

Pan cited poor infrastructure, political instability, corruption, cultural differences, as well as other political and legal risks. She cited the case of a Chinese company that invested in a mine in the Democratic Republic of Congo, where officials made repeated demands for bribes.

One Chinese company bought a mine in Mozambique, where the acquisition contract included a clause that allowed the government to buy 15 per cent of the mine, Pan said. The contract did not specify the price at which the Mozambique government could buy the stake, and this ambiguity creates risks for the Chinese client, she added.

At the China Mining Congress and Exhibition in Tianjin in November, China Mining Association vice-chairman Wang Jiahua said about 80 per cent of China’s overseas mining investments had failed, according to mainland media reports.

Against this backdrop, the China-Africa Development Fund had invested in more than 20 mining projects on the continent, covering iron ore, copper, gold and other metals and minerals, said an executive with the fund, which is a subsidiary of state-owned China Development Bank.

The fund now manages US$3 billion, of which US$2.6 billion has been committed to investment in sectors such as agriculture, manufacturing, mining and infrastructure, said the executive who declined to be named. The fund, which was launched in 2007, would grow to US$5 billion gradually, he added.

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