Almaty. January 25. KazTAG – Chinese metallurgical giant MCC (China Metallurgical Corporation) created all conditions for buying in Kazakhmys. China’s state-owned company is now in very good position to gain control over metal production in Kazakhstan.
After publication of the first editorial analysis of KazTAG about strategy of the Asian companies, our agency received some questions.
“What is your example of Asian strategic approaches in modern conditions? Is it possible to predict actions of Asian partners?”
It will be very interesting to consider two large Chinese and Kazakhstani companies. E.g. Chinese China Metallurgical Corporation (MCC) and leader of Kazakhstani metallurgy – Kazakhmys corporation. It is possible to consider them as a sample of applying classical Chinese strategy to modern situation.
Short-term and quite personal forecast.
In 2010 or 2011, MCC will try to buy in Kazahkmys and will try to gain control over this company. After announcement of the financial results in Q2, 2010, it might be possible to predict – how Chinese would try to do it – by buying stocks at LSE or approaching to large shareholder.
What is the ground for this forecast? This is it.
The main task of MCC, as a state company, is a fail-safe supply of metals to China. Including copper supply. As known, China is not only the world’s largest consumer of refined copper, but also the largest producer of this commodity (about 5 times larger than Kazakhmys). And Chine does not export copper. It consumes all its domestic production.
As for Kazakhmys, it is one of the world’s top ten copper producers. In addition to this, Kazakhmys bids for copper mines outside Kazakhstan. We can recall two major bids where Kazakhmys took part – Udokan (Russia, with reserves of about 20 ml tons of copper) and Ainak (Afghanistan) – 11 ml tons (Soviet info dating back to 1970-ies).
Russia. Alisher Usmanov’s Metalloinvest won Udokan in 2008. Russian experts suppose that it is much more profitable to send copper concentrate from Udokan to China – without processing it at Russian facilities. As Metalloinvest has $5 bl debt, it is likely it would look for more partners than only Rostekhnologii (Russian Technologies) company. In all the likelihood, China can be a new partner for him, as a long-term buyer. Kazakhmys that also took part in Udokan bid, however Usmanov scarcely considers the Kazakhstani company as a possible partner for this copper mine.
Afghanistan. Victory in the bid for Ainak cost MCC a fortune. As Russian Kommersant wrote, copper of Ainak will cost MCC $4,000-$5,500 per ton. The average market price for copper will vary around $5,500. So it means that ore extraction and copper production in Afghanistan will balance on payback rate for the Chinese company.
And these expenses do not include transportation expenses, which will be great taking into account distance to China from Afghanistan. Russian experts believe that the Chinese investors neglect economic calculations, as they base on the national interests – because copper demand in China grows driven by increasing production in engineering construction and metallurgy.
However, right after Ainak tender in 2007, and even in 2009, the Afghan and the US media outlets accused Afghan mining minister Mohammad Ibragim Adel of receiving bribe from the Chinese company for winning in the bid for the deposit. According to the Washington Post, Adel received money in Dubai.
KazTAG sources among the Afghan businessmen confirm information that the bid was not transparent and there possibly was a bribe.
After failing two foreign tenders, Kazakhmys started development of Vesenne-Aralchinskoye deposit, located at Kazakhstan-Russian border.
In the end of 2009, a team of Kazakhmys Gold visited Iran where the Kazakhstani specialists met with several authorities including IMIDRO – Iran’s state company for metal mines. The visit’s goal was to research investment opportunities in copper-mining, gold-mining, oil and energy industries of Iran, said general director of the department of commerce of the Iranian trade development organization, according to госкомпанию, ведающую всеми шахтами страны. Целью визита было изучение и Press TV Iran.
Kazakhstani delegation held 3-4 meetings in Iran and there was a warm welcome – as Iran is eager to establish partnership with Kazakhstan in all possible spheres. After the delegation left IRI, Iranian press called the visit as very successful. However, it was last year.
The other day, MCC delegation visited Iran and also held successful negotiations with IMIDRO. And the Chinese agreed that they would provide financing for projects of the Chinese companies in Iran including depressive regions – where it is too expensive to invest for Tehran on its own. KazTAG sources in Iran said that Beijing made a generous offer to is oil ally.
As for copper-rich Mongolia, China’s companies are very active and dominant there and they do not count their expenses to put their hand onto Mongolian copper.
Weiqi or strategic board game
All this boils down to fact that MCC deliberately or accidentally isolates Kazakhmys from crude resources. As the martial arts experts say: “Tiger uses claws without thinking of them but the prey cannot escape. Dragon uses power without noticing it, but the mountain cannot stand”.
There is such a Chinese game – Weiqi – also known as Go. You can win in this game by surrounding chips of the enemy and taking them.
People who play this game can see a loop in MCC actions – a winning position for a Chinese giant. Sun Tzu calls it “breakingalliances”. The great Chinese strategist advised to show close as distant and distant as close. And actions of MCC in Afghanistan and Iran might be directed towards Kazakhstani metal deposits.
At the same time, China development bank lends more than $2 bl to Kazakhmys. This loan can be understood as an attempt to “break plan”, to make the Kazakhstani corporation to concentrate on domestic project – as it is easier to deliver metals from Kazakhstan to China.
Of course, there are large deposits in Kazakhstan. Kazakhmys itself enjoys own great ore base. However, sometimes major companies make major mistakes. They extract and process only rich ore, neglecting ore with mid and low content. Especially in the eve of IPO. What they do is violation of all mining laws. Because, when a company exhausts rich ore – production drops together with stock quotes. But, I think Kazakhmys did not do such mistakes and the company still has ores to extract.
Despite high shareholders and despite government support – Kazakhmys is still a company and it has to feed its owners, managers and staff. Taking into account the fact that this Kazakhstani company is the largest employer in the republic – Kazahkmys is not only a copper giant, but it is a social project launched by Kanysh Satpayev, who struggled to attract government financing in 1930-ies to this wild region of Kazakh republic.
Kazakhmys significance for all Kazakhstani industry can hardly be overestimated- it is result of efforts of many people and the first industrial success of contemporary Kazakhstan. Thousands of families, living and working at the ores of the international company are the offsprings of those who had believed in perspectives of the region and dedicated their lives to it. That is why, social aspect of Kazakhmys company, from my point of view, is more important than its business-strategies.
It is necessary to take in account that world copper prices are under strong influence of Chinese demand. Taking in consideration that copper stocks at Chinese warehouses have been growing, the demand can collapse anytime after the country achieves certain strategic level. This way it is possible to influence Kazakhmys profit through world stock exchanges reducing or increasing purchases or just stating about such intentions. It is classics of stock exchange games. It is legal, warranted and usually it pays.
As MCC did everything to take Kazakhstani copper companies in surrounding, it can give money as a loan; later ask to give them back in commodities at the spot prices.
As far as prices at the world stock markets are really regulated by skillful players- the attempt of the Chinese metal giant to establish its control over Kazakhmys is not far away. How do you like this scenario?
How much real does this forecast seem for Kazakhstani corporation? Does it have any chances for maneuver? We suggest Kazakhmys representatives discussing it. KazTAG is ready to present its dialogue ground.