Mining demand set to increase dramatically: Deloitte

The world's mining companies are deferring their expansion projects in the face of China's waning demand, but the country's demand is expected to increase dramatically in the coming years, said Deloitte Touche Tohmatsu on Wednesday.

With China's ongoing urbanization process and growing population as the driver of the world's mining industry, the country will generate huge demand in the following years, said Karl Baker, partner of mining adviser at Deloitte.

As commodity prices decline and the global economic uncertainty lingers, it's harder for mining companies to predict future demand patterns, said Philip Hopwood, global mining leader of energy and resources at the consultancy.

In terms of China's outbound M&A in the overseas market, transaction volumes are likely to rise in 2013 with Asian investors remaining frequent providers of development capital, it said.

"The Chinese government is still actively encouraging its companies to acquire resources abroad, although transactions will need to be carried out in a more diligent manner," said Jeremy South, global leader of M&A for the mining sector at Deloitte.

He said that more than 50 percent of the world's mining companies are short of cash, which will lead to many overseas opportunities for Chinese companies.

However, for the same reason, Chinese companies will have difficulties to find equal partners in financial terms in the overseas M&A market.

The top challenge for Chinese mining companies is the rising costs of construction, operations, equipment and labor.

Baker said that Chinese companies want to bring more workers to overseas mining projects, due to a shortage of local talent.

"(That) has raised some disputes in foreign countries and the Chinese companies have to find a way to balance local and domestic labor," he added.

Regarding China's mining investments in Mongolia, which has caused some controversy, he said that Mongolia needs to decide what it wants for its mining industry, but that it has to deal with China.

"Mongolia should not make it difficult for foreign companies to invest in the country," said Baker.