China's copper mine project in Peru reflects its economic power
The Asian giant lacks the natural resources at home it needs to keep its economy expanding, but it has a lot of cash to acquire them.
By Chris Kraul email@example.com
That's one reason Chinalco Mining Peru, a unit of China's state-owned Chinalco, is continuing with a project announced two years ago to open a $2-billion copper mine in the Peruvian Andes by 2012, Wolfe said in an interview in this capital Friday.
"They went through the last 10 years selling things and piling up billions of dollars in surplus reserves, which they are now using to finance an expansion into the world," said the soft-spoken Wolfe, who, in a short-sleeved shirt and khaki trousers, hardly fits the image of hard-charging chief executive.
The open-pit mine is expected to produce a quarter of a million tons of copper a year and is one of five major Chinese mining projects planned for Peru that appear to be advancing despite the darkening economic climate. The reason? The Asian giant's insatiable need for raw materials.
Erica S. Downs, a China expert at the Brookings Institution in Washington, said Chinese mining companies are aggressively expanding worldwide, often through mergers and acquisitions that target companies that have been laid low by the crisis. An example is Chinalco's bid to acquire control of Rio Tinto, a giant Australian-British mining company.
"When the economy was booming, there were fewer attractive assets for sale, and often stiff competition for those that were available," Downs said. "Today, Chinese firms are finding the opportunities for international mergers and acquisitions to be much more plentiful."
Whether through mergers or original projects such as the copper mine in Peru, China's moves in mining reflect the country's strategic decision to exert "more direct control over resources," Wolfe said.
"They had the option of continuing to buy in the global marketplace but seem to have made a change of plan," he said.
Rich in natural resources, Latin America has been a special focus of Chinese investment in recent years. China's leadership announced in 2004 that it would invest $100 billion in this hemisphere over the ensuing decade, and after a slow start it seems well on its way of meeting the goal.
Peruvian exports of gold, copper, silver, zinc and other products reached $18.6 billion last year, six times the natural resources shipped out of the country in 1999, Vice Minister of Mines Felipe Isasi said. Since 2005, mining jobs have nearly doubled to 138,000.
Although commodity prices have fallen in recent months, mining and exports of other natural resources have helped make Peru's economy one of the few that are still growing amid the global crisis. In 2007 and 2008, Peru was South America's fastest-growing economy, averaging 9% expansion per year.
It's all a dramatic turnaround from 15 years ago, when the country was in the grips of the Sendero Luminoso (Shining Path) insurgency and mining concessions went begging, said John Youle, a former U.S. diplomat and Lima-based economic consultant.
"In relation to Panama, Ecuador, Mexico and Venezuela, Peru has some important strengths," Youle said. "You've got responsible fiscal policies and enough foreign reserves accumulated that they should come through this declining climate not unscathed but in much better shape than other kids on the block."
Not everyone in Peru is thrilled about the mining boom.
Jose de Echave of the Lima-based environmental watchdog group Cooper Accion said the country was ill-prepared to monitor the rapid expansion of mining. He warned of ecological disaster unless the government bolstered its environmental safeguards, including the establishment of an independent department similar to the U.S. Environmental Protection Agency.
The Chinese have a poor reputation in the country stemming from labor disputes at an iron mine in southern Peru that the iron and steel company Shougang acquired in the early 1990s. There have been numerous strikes and claims of poor management practices, including the firing of Peruvian workers and importation of Chinese labor to replace them. Shougang was even expelled from Peru's national mining association.
Wolfe, a decades-long veteran of mining in Latin America, said Chinalco has learned from other companies' mistakes. Of a payroll that will soon total 2,500 workers, only three are Chinese nationals, he said. He insisted that the Chinese know now what it takes to be good corporate citizens.
That knowledge will be tested in coming months as the company begins the delicate process of relocating 5,000 residents from the town of Morococha, the mine's location, to a new town to be built three miles away. Many residents are resisting, despite Chinalco's offer of free housing for most townspeople.
Wolfe said there is much at stake in China's success in Peru. The continued growth of its economy depends on access to metals.
"They want to become similar to the U.S. or Europe," Wolfe said. "They have a long way to go, but it cannot be done without metals and other natural resources. Domestically, there are 1.3 billion Chinese, and all of them want cellphones, cars, appliances -- just like you and me. And that takes copper, lots of it."