Few words better suit a description of China Metallurgical than that of ‘behemoth’. It suggests something massive, sprawling, gargantuan but somewhat mysterious.
The South China Morning Post prefers to describe the firm as an “engineering, mining and construction giant owned by the mainland government”. Xinhua says it is “one of the country’s key enterprises engaged in overseas investment in ferrous and non-ferrous metals”. Whatever the identifier, the company is increasingly hard to ignore as it finds its way into the news each week.
China Metallurgical was only incorporated in 1998 from a jumble of government assets but has grown 30% annually ever since. By 2008 it had accumulated almost Rmb203 billion ($29.6 billion) of assets and had an operating income of Rmb165 billion.
Its original DNA was steel, or more precisely the construction of steel mills. It is thought to have designed and built 90% of China’s steel plants. It remains the world’s largest metallurgical engineering and construction firm today.
Confusingly, the group is also a major player in China’s paper market. However, this business segment was not included in the assets sold off in a dual Hong Kong and Shanghai IPO in September.
The publicly offered entity – Metallurgical Corp of China (or MCC) – raised a combined $5.12 billion from the two listings. The reason for raising the cash was not hard to fathom as the company has increasingly been steered by the state towards buying natural resources abroad to feed China’s industrial machine.
Just last week, it emerged that Australian resources firm Resourcehouse planned a $3 billion IPO in Hong Kong because of the city’s ‘China connections’.
What were they? A partnership with Metallurgical Corp of China, in which the Chinese firm will find 70% of the cash required to build the China First Coal mine in Queensland. This gets it 10% of the mine’s equity and 30 million of the 40 million tonnes of thermal coal it produces each year.
The partnership with Resourcehouse looks likely to be the first of many MCC deals in Australia. But the search for minerals has also taken it to less conventional locales. For example, it owns 75% of the Aynak Copper mine in Afghanistan, where it paid $808 million for the right to mine 300,000 tonnes of copper annually (the equivalent of a fifth of China’s current copper production).
The mine has proven controversial. The Washington Post has alleged – via a US government source – that MCC had paid a $30 million bribe to secure the contract. (The Afghan minister of mines “strongly denied” the accusation at a press conference held on November 18, as did MCC on its website).
Also controversial is MCC’s new $1.4 billion investment in a nickel and cobalt mine in Papua New Guinea. The operation has been criticised by environmentalists for poisoning fish with its dumped waste, bringing in illegal Chinese labour, and treating local employees “like animals”, according to sources quoted by TIME magazine.
Tensions among the local populace got so bad that the chief mines inspector closed the project down in July.
The mine has since restarted but TIME reckons tensions remain. We recommend its article on the Ramu mine (‘The World of China Inc’, December 7 issue). It’s the best piece of China-related journalism WiC has spotted in this week’s international press.
But maybe the strangest piece of news to emerge this week about the firm: a small Hong Kong company has filed a petition to have China Metallurgical wound-up.
Far East Aluminium Works is suing to recover an unpaid debt.
If successful, the ‘behemoth’ will be liquidated.
But the South China Morning Post notes that this is “highly unlikely to happen”.
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