China in “Scramble for Africa”

Guinea

Guinea

Chinese interest in acquiring “strategic assets” continues unabated, with recent acquisitions & investments in a number of companies in Australia & South America.

As we saw in last weeks bullish approach regarding Nigerian oil, China is looking a little further afield & it’s all seeing eye has settled upon Africa. The latest country to be courted is the Republic of Guinea as China seeks to gain access to the West African nation’s large mineral deposits.

The impoverished nation possesses more than 25 billion tonnes of bauxite ore, with more than 150 mineable deposits having been prospected to date. Additionally, Guinea’s mineral wealth includes more than 4 billion tonnes of high-grade iron ore, significant diamond and gold deposits & as yet undetermined quantities of uranium. Bauxite exports account for more than 75% of GDP, according to Wiki sources.

Guinea’s Minister for mines was quoted in the Financial Times as saying that the Guinean government is in talks with the China International Fund (CIF) regards a $7Bn investment into a number of projects including infrastructure, minerals & oil.

“Instead of just giving natural resources… in exchange for promises of developing our infrastructure, we decided to take the joint venture approach and co-own not only the infrastructure development companies and projects, but also whatever natural resource companies or projects are developed jointly.” said Mohamed Thiam “All the government’s stakes in various mining projects will be put in that mining company. Future mining permits or concessions that the government decided to develop on its own will be put in that company,”

China still doesn’t seem to be too picky regarding who it does business with, as the present Guinean government is a military dictatorship that has recently put down a bloody coup last month. 150 people were killed on September 28, when troops opened fire on a crowd  gathered in  the capital Conakry, in order to protest at ongoing corruption in Captain Moussa Dadis Camara‘s rule.

Sidya Toure, who leads the only effective opposition & is a former prime minister was quoted “I do not understand how you can believe that we can inject this kind of money into the economy of Guinea where the total gross domestic product is only three billion dollars.”

CIF is also planning to form a consortium with the Guinean government & near neighbour Angola’s state oil company Sonangol to look at prospecting for oil off Guinea’s coast. As we reported previously, West Africa has become a hotbed of speculation & investment, as new oil fields are coming under development in Ghana, Angola, & Senegal. It is considered likely that offshore Guinea will also provide new hydrocarbon deposits that can be exploited.

What is interesting is that CIF on the face of things, does not seem to be an officially backed government company, whereas all the recent deals have been undertaken either by the Chinese Development Bank or via large state owned enterprises such as CNOOC or Chalco. CIF is registered in Hong Kong & an inspection of the website gives very little information on the structure of the entity.

Last November, as it became clear that the global economy was heading into a recessionary period, central government in Beijing implemented a 4 Trillion yuan/$586 Bn stimulus package, aimed at cushioning the blow of decreasing exports on the economy whilst also improving industrial efficiency at all levels, with energy receiving a special focus.

Adopting various measures such as tax reductions, rebates, fiscal subsidies, improved access to credit & direct government expenditure, central government has been encouraging state owned oil companies such as Petrochina & CNOOC to expand foreign investment in upstream opportunities, whilst increasing domestic refining capacity & oil product stockpiles.

We have seen a number of examples of this with Russia signing a 20 year $25Bn oil supply contract in February, which will see Rosneft supplying up to 300,000 bpd of oil via it’s East Siberia-Pacific Ocean (ESPO) oil pipeline to China. This was closely followed by the China Development Bank extending a $10Bn loan to Brazil’s state owned company Petrobras in return for securing strategic oil supply contracts & this month CNOOC has made a bid to acquire more than 16% of Nigeria‘s stated oil reserves.

It would appear that sentiment is currently running against Western based IOC’s & countries in emerging markets that have currently untapped or underdeveloped  hydrocarbon deposits are enjoying the ability to play interested parties off against one another. What is interesting to me is the fact that China seems to be playing Guinea at arms length via what is in effecr a shell company, allowing them to hold up a clean pair of hands on an international basis.

This desire to secure resources at what would seem “any cost” should, in our opinion, receive close attention from both a geo-political & investment point of view. IOCs will not be able to compete in areas where there are no rules, particularly in Africa, whilst it looks like China will circumvent accepted norms using any available route to acheive their aims.

Original article published at MyStockVoice

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