Wednesday, October 6, 2010

A (More) Transparent Chinese Mining Deal in Mozambique

 Coal mining: Image courtesy of Reuters
Many people (including me) who study China-in-Africa were not well-versed in the standard operating procedures for large commercial deals in mining, power generation, and so on. I've learned a lot about this over the past few years, in particular, about the lack of transparency that is common across the board (ergo the need for organizations like Transparency International).

Several weeks ago I was invited to lunch with staff from a major US oil company with operations in Africa. I asked them what their "standard" practices were in offering signing bonuses, negotiating royalty rates, and so on. They were completely tight-lipped about all of this, citing commercial reasons for confidentiality.

Similarly, someone I know who has been advising on a complex power deal in Africa, in which Chinese banks are involved, told me that no details could be divulged, as it was standard practice on deals like this (not specifically Chinese deals) for all the parties to sign non-disclosure agreements while the deal was being negotiated. 

It was thus interesting to learn some details about an MOU signed between Australian firm Riversdale, and China's Wuhan Iron & Steel Corp (Wisco) and China Communications Construction Company, in Mozambique (Zambeze & Benga). The deal would grant Wisco "the right to buy 40% of the coking coal produced from the Zambeze project ... and at least 10% of the coking coal produced from the nearby Benga coal mine." The $800 million deal would give Wisco 40% of the Zambeze project, and 8% of Riversdale's shares. It would be payable in three tranches:
The first $200-million would be paid upon the completion and signing of a definitive agreement covering the joint venture.

A further $150-million would be payable on the successful completion of a feasibility study for Zambeze, subject to meeting certain milestones, including establishing the commercial viability of developing and operating the Zambeze project to produce no less than 30-million run-of-mine tons of coal a year.

A further $450-million would be payable on the granting of the mining contract, mining licence, final environmental approval and other necessary regulatory approvals required to proceed with the development of the project.
Wisco, CCCC and other Chinese companies will conduct "a comprehensive study of mine-to-ship logistics to enable the export of large tons of coal products from the Zambeze project to ports for export markets." The stages that this deal must pass through are no doubt similar to those for many of the other mining MOUs signed by Chinese companies. (These uncertainties help explain why so many signed MOUs do not result in actual projects.)



Tom Cushman said...

Dear Deborah
Do you have any information on the Belinga iron mine in Gabon or a suggestion on where I might get some.
Best wishes
Tom Cushman

Deborah Brautigam said...

I have a copy of the contract from 2008. But I think this project is facing a lot of difficulties. The last time I looked, it was not moving forward.

Karl said...

I agree that lack of transparency can be the issue here. China is known for that industry and I think it's important that they are transparent.

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