Overseas mining investment still problematic

To enhance the supply of mineral resources, China has accelerated overseas mining investment, but many operations are still facing a gloomy future, an industry expert said.

China has only 13 overseas mines in operation with a total annual output of 62 million metric tons, which accounted for about 8.3 percent of annual imports, Liu Xiaoliang, secretary-general of the China's Metallurgical Mines' Association, said during the China International Steel and Raw Materials Conference in Qingdao on Wednesday.

Japan and many European countries are operating overseas mines whose output takes up more than 50 percent of their imports, he said.

Chinese companies have invested in overseas iron ore projects with resources of more than 98.72 billion tons, but most of the ore needs to be processed.

"Chinese companies have been developing their overseas resources for more than seven years and only a few have projects in operation," said Liu. "Most of them are still at the pre-operation stage and it is difficult to say when these projects will eventually be put into operation."

He said infrastructure, including water supplies, power, railways and ports, still pose a major challenge for Chinese companies.

"Some projects have a much higher investment in infrastructure than that for ore production," he said.

The cost of mining Australian ore is around $30 to $40 a ton. Even if the cost reaches $50 to $60 a ton, they still can make a profit.

Liu said some Chinese companies, such as CITIC Pacific Ltd, a Hong Kong-based conglomerate holding company, have costs as high as $100 a ton in their overseas mines in Australia.

"There will be no cost advantage when the iron ore is shipped back," he said.

Russell Tipper, chief executive officer with Brockman Mining Australia, said: "Chinese companies will learn from experience. Australian companies are starting to better understand the Chinese investment process."

He said a greater understanding between both parties will ensure more robust and sustainable investment in the long term.