Despite political tensions in the country, its huge deposits of gold and other metals are proving too big a temptation for foreign miners, David Eimer reports from Beijing
While Britain's athletes are eyeing gold medals at the Beijing Olympics, British mining companies are setting out to claim a share of China's vast gold deposits. The resource-rich, soon-to-be superpower has been increasingly attracting the attention of foreign miners in recent years. Now, British firms are leading the race to develop the country's mineral deposits.
They are doing so a long way from the shiny new Beijing that will be on display to the world next month. While China has spent an estimated £20m readying the Chinese capital for the Olympics, it is to Tibet, one of China's least-developed regions, that foreign mining companies are now looking. Despite having one of the most hostile environments imaginable, as well as a serious lack of infrastructure, the "roof of the world" is a treasure trove of minerals.
Central China Goldfields (CCG) is the only British miner operating in Tibet. Despite the recent protests against Chinese rule, it is adamant it has made the right decision.
"We're not a political organisation - we don't take sides. But whoever is in charge will develop these deposits," Jeff Malaihollo, the managing director of CCG, told The Sunday Telegraph. "It is how you do it that is important - whether you do it in an environmentally sustainable way and by working with the local community. Ultimately, though, if we don't do it, someone else will."
There is no doubt about that. The once under-developed and under-funded Chinese mining sector is undergoing a revolution that in the next few years seems certain to have a profound effect on commodity markets worldwide. China is on its way to becoming self-sufficient and ultimately one of the world's major exporters of commodities, as vast new mineral deposits are discovered.
Last year, China overtook South Africa to become the world's leading gold producer. Leyshon Resources, listed on Aim and the Australian Securities Exchange, is developing a gold mine in north-eastern Heilongjiang province. "China had a unique combination of untapped exploration potential and established infrastructure," said Paul Atherley, the managing director of Leyshon. "Because of that, China has become the world's largest gold producer in less than a decade."
British mining firms led the way into China. In 1997, the London-based, Aim-listed Griffin Mining became the first foreign company to be granted an exploration licence since the founding of the People's Republic of China in 1949. Now, British companies are operating across China and most are watching developments in Tibet, mining's new frontier.
The Chinese name for Tibet, Xizang or "western treasure house", makes clear how valuable the volatile, politically sensitive region is to China. In 1999, the Chinese embarked on a secret, seven-year geological survey that found 16 major deposits of copper, iron, lead, zinc and other minerals. Tibet is believed to hold as much as 30m-40m tons of copper, 40m tons of lead and zinc and more than a billion tons of high-grade iron ore.
China's steel-hungry construction and car industries imported 386m tons of iron ore in 2007, an 18 per cent rise on 2006, almost half of the world's total imports of iron. That figure will be drastically reduced if the iron in Tibet can be extracted. In all, the total value of Tibet's minerals is estimated at £64.8bn by the Chinese government.
CCG decided in 2006 that Tibet was too tempting an opportunity, despite the threat of protests from groups opposed to China's treatment of the Tibetans. Established in November 2004, in response to the opening up of China's gold sector to overseas companies in 2003, CCG first focused on developing gold projects, including a mine in Inner Mongolia it hopes to have in production by next March. But for the past year, CCG has been exploring for copper in Nimu, close to Tibet's capital, Lhasa.
Nimu lies on the Gangdese copper belt, which runs from the south-western Chinese province of Yunnan all the way to Afghanistan. CCG is still at the exploration stage, but Chinese companies are already constructing mines along this belt, including Yulong, which will be China's largest copper mine. Later this year, the Vancouver-based Continental Minerals is expected to be granted a licence for the first foreign-owned mine in Tibet.
"There's a lot of copper in that belt. Geologically, it's very similar to the Andean belt in South America and it's only a matter of time before more people start hitting copper," says Malaihollo. Like all foreign mining companies in China, CCG has had to set up a joint venture to operate - CCG works with the Sichuan Bureau of Metallurgy and Geological Exploration.
The fact that foreign companies must work with Chinese partners in Tibet has led Tibetan exile and pressure groups, such as the Free Tibet Campaign, to criticise the way such companies have rushed to take advantage of the opening up of mining.
In 2003, the Dalai Lama, the Tibetan spiritual leader, used an open letter to voice his concern, saying: "I appeal to all foreign mining companies and their shareholders thinking about working in Tibet to consider carefully about the ethical values when embarking on such a venture." There have been reports of clashes between Tibetans and Chinese mine workers.
Such opposition has made many British companies wary. "We have looked at projects there but, rightly or wrongly, it does create issues back in the West if you do invest in Tibet. So we are steering clear for the moment," says Roger Goodwin, Griffin Mining's finance director. Instead, it is concentrating on expanding its Caijiaying zinc-gold mine in China's Hebei province.
The precious metals sector is proving the most attractive option for British companies in China. "It's usually easier to get a quicker payback from precious metals development than base metals, which typically have a longer development profile and require a greater capitalisation," says Nigel Clark, chairman of the China International Mining Group (CIMG), a non-profit forum that represents overseas miners.
However, foreign companies are increasingly faced with newly cash-rich companies attracted to the mining sector by the soaring price of commodities. "A lot of real estate companies are getting into mining and the more speculative of them are just throwing money around and we can't compete with that," says Malaihollo.
Overseas companies also have to deal with five different levels of bureaucracy, from the state level, to the provincial, municipal, local and village levels, and many find they do not have the patience to succeed in China.
"One has to understand and respect how business is done in China and appreciate that the only deals to be made in China will be those according to Chinese laws, rules and regulations," says Clark.
But for those companies who are already established, China seems set to be the new El Dorado for years to come.