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China Is Investing Beyond Its Borders to Secure Copper Supply

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Jun. 4 2015, Updated 8:06 a.m. ET

China’s copper supply

China- (FXI) based Zijin Mining is investing $700 million to acquire overseas mining assets. The company recently announced plans to acquire gold and copper assets. This includes a 50% stake in a gold mine owned by Barrick Gold (ABX). The deal forms part of Barrick’s debt reduction strategy. However, for China, it’s part of a larger goal to secure raw material supplies.

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Latin America, China’s largest copper supplier

China has only about 4% of the world’s copper supply, but it accounts for more than 42% of global copper consumption. Latin America (ILF) is China’s largest copper supplier.

China is the largest trading partner for several countries in the region. Over the last few years, China has also ventured into Africa to gain access to the region’s natural resources.

Oyu Tolgoi mine expansion

Turquoise Hill Resources (TRQ), which is 51% owned by Rio Tinto (RIO), has signed an agreement with the Mongolian government to expand its Oyu Tolgoi mine. The mine is strategically located near China, as you can see in the above chart.

Oyu Tolgoi produced 148,400 tonnes of copper concentrates last year. It’s expected to produce 450,000 tonnes of copper after the expansion is complete. According to TRQ, after the planned expansion, Oyu Tolgoi will be the third largest copper mine.

The mine will help fulfill some portion of China’s copper demand. Major copper miners see copper as a bright spot in their portfolios. The broad consensus is that most copper mines are aging, and new mines are coming up in high-risk zones like Africa. Miners expect copper prices to stay strong as a result of supply shortfalls.

Meanwhile, how did copper prices play out in May? We’ll find out in our next part.

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