The next big mining investment story

INDONESIA looks certain to replace Africa as the next mining investment story. It could be this year or maybe next but it will happen. Although investment has a patchy record, due to red tape, corruption and the Bre-X scandal, it seems the world’s third most populous nation has turned the corner. It is rich in resources, has a new mining law and there is huge demand from China, India, and traditional powerhouses South Korea and Japan.

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China a major mining force

China’s drive towards mass urbanization is gaining momentum, resulting in increased consumption and a huge appetite for natural resources. As well as boosting its domestic quest for resources and enhancing mining methods leading to increased output, this appetite means China is increasingly looking to obtain resources from overseas.

Standard Bank’s chief executive, Asia – Andrew King says that for overseas mining companies China has become the primary source of funding and at present is possibly the only source that has the wherewithal to do so for large-scale projects with significant infrastructure requirements, with government support an added bonus.

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Golden glow to continue

As 2010 draws to a close and the mining world ponders what 2011 has in store, gold seems certain to retain its glow, at least in the short to medium term.
Since the start of 2008, just before the GFC, gold has stood tall above most other major asset classes, appreciating by 67% while equity markets, are still in negative territory. Copper has challenged, being up 35% but another precious metal, silver, has won the race and is up by 96%.
At the end of 2010 gold continues to set new records and recently set a new high of US$1423.75 an ounce. Overall, the gold price is up 11% in the last three months, and in the last 12 months it is up by 24%. Silver has soared 64% in the same period.

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Coal M&A activity shifts to US

The vast majority of recent M&A activity in the coal sector has been focused on Australia and Indonesia owing to the increasing energy needs of China and India as well as the need for further industry consolidation.

However, analysis by Wood Mackenzie indicates a global shift in activity towards the US.

Analysis shows the total number of deals completed this year is comparable to the previous 12 months; however the disclosed acquisition spend is down 16% from 2009 levels - at US$10.9 billion.

Wood Mackenzie head of coal supply research Gero Farruggio says the vast majority of M&A activity has been focused in Australia and Indonesia. There has been 27 deals in 2010 to date, compared to 25 in 2009, with single asset transactions accounting for 15 deals - up 50% on 2009 levels.

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Sylwia Pryzbyla, Editor

Sylwia Pryzbyla
Editor, ASIA Miner and Australian Editor, E&MJ
[email protected]

Sylwia Pryzbyla has more than two decades of experience in media and publishing industries.

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