China may be slowing, but the resource-hungry country is always on the hunt for resources to help fuel its industrial growth in the decades ahead. And if you believe the country and its objective to double its gross domestic product (GDP) by 2020 (read “China’s Golden Years Still to Come”), then you have to believe that reliable resources will be needed. This means internal exploration and the buying of foreign resource companies.
In 2009 and 2010, Chinese energy firms made about $48.0 billion in acquisitions in North America, according to the International Energy Agency (IEA). The country has investments in the Canadian tar sands in Alberta, and I expect to see more Chinese capital flowing in.
And according to the IEA, China has targeted Iraq as its top oil source by 2030. (Source: “China to be main buyer of Iraqi oil by 2030, says IEA,” China Daily, November 13, 2012.)
Whether it’s in the Middle East, Africa, or Canada, China wants to and needs to pump up its access to oil reserves, regardless of the location.
Take Canada, for instance. In spite of political roadblocks from the Canadian government, China has been targeting Canadian energy plays; albeit, not all have played out.
CNOOC Limited (NYSE/CEO), one of the three major state-owned oil producers in China, wants to buy Canada-based Nexen Inc. (NYSE/NXY) for $15.1 billion in cash, or $27.50 a share. With the prevailing market share price at $24.50, there’s a sense the deal could fail. The problem is that the deal has yet to be accepted by the Canadian regulators and government, which have cited security concerns of a takeover of oil reserves by the Chinese government-controlled CNOOC. This is not the first time the Canadian government has said no to China, and it surely will not be the last time.
Yet China’s energy radar is global. The country has been making significant investments in Africa and recently funded the country with an additional $20.0 billion in loans. The country is steadily increasing its access to African resources. When you have over US$3.0 trillion in cash reserves, you can understand why China has clout and the ability to get deals done.
The search is not only for oil, but also for other essential raw materials. The country is the world’s largest consumer and producer of gold. In 2011, the country produced over 300 tonnes of gold—tops worldwide, according to research by precious metal consultant GFMS. Australia, the second-biggest producer, produced 270 tonnes in 2011. It’s a big reason why China has been eyeing Australia for acquisitions. Newmont Mining Corporation (NYSE/NEM) is one of the top players in Australia.
So while China is trying to reduce its need for foreign sources of metals, it continues to scour the world, looking for acquisitions. Mining companies with large reserves are sought after. China has made numerous acquisitions, and I expect this to continue, especially as the country continues to grow and its appetite for raw materials increases.