China could freeze out mining competitors in Africa

China’s recent loan to the Democratic Republic of Congo in return for mining leases and control of tolls over road and rail infrastructure built from the loan could be an effective tool to control those competing for Africa’s rich mineral assets, according to a London fund manager.

The Democratic Republic of Congo has just agreed a loan for $5bn from China, not much less than its average annual GDP over the past few years. Congo wants to use the cash to build 6400 kilometres of railways and roads, hospitals and health centres, two universities and government housing units, said the International Herald Tribune. The country will pay off the loan by granting China mining concessions, as well as toll rights for the roads and railways constructed with the borrowed money.

China has got about $1.3trn worth of savings and announced in January they were going to buy mineral assets directly. Nations building infrastructure using money sourced from Beijing will be beneficial to other countries and mining firms, said Carmel Daniele, CEO of CD Capital in London.

However she added: “given others will be using the infrastructure that they’ve built the Chinese want something back. Even though they’re quite good at spending a lot of money they still keep their eyes on the pennies.

“They might want to continue to control these (roads and rail), because China could become quite powerful, if they are controlling the roads, railways, and ports in these developing nations, and stop any competitors by putting a higher cost on anyone competing with them. So maybe it’s less of a cost issue and more about control and a strategic weapon against any of their competitors.”

CD Capital invests in pre-IPO mining firms, and Daniele has told Hedge Funds Review in the past she would expect a portion of the holdings in CD Capital’s fund to be sold to Beijing. China’s move has alerted the attention of fund managers with a huge rise in commodity and resource demand. Daniele is one of these people.

“My fund is a private equity fund,” Daniele said, “I invest privately alongside owners of natural resource companies, when they are highly undervalued and then they either get listed or sold out via a trade sale to either the big caps, to the Chinese groups, Indian groups or whoever.

Daniele has found it astounding the speed at which China has been moving to snap up commodity assets around the globe, not just in the Congo. She said that China has been going straight to the countries, to the private equity firms, to the governments; effectively approaching anyone who owns the underlying assets.

She notes however one of the problems with the Congo is that, even though they have such rich mining assets, they have very little infrastructure, so even if one secures the mining assets it’s then very hard to then extract and transport the raw products.

This is behind the very reason for China’s sudden loan.

“I think it’s very revealing; that China has been a strong force in the whole of Africa and the government has been completing a lot of the transactions very quietly, and now they’re just buying more and more mines.” Daniele added.

“For instance in the Congo-Brazzaville nearby, they have done similar types of smaller transactions, where they have secured assets like iron ore, but have built hospitals in exchange which hasn’t really been publicised. The big caps have been trying to lobby the UN and the World Bank, to stop the Chinese from buying Africa.