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This has been a benchmark week for the mobilization of Chinese capital, with the announcements that USD 2.7bn will be invested in infrastructure to enable an iron ore development in Guinea to get its goods, ready only some good years hence, to the Atlantic coast, and that in a mix of equity and debt, USD 877m has been earmarked for building a mine at a platinum group metals (PGM) deposit in South Africa.

For years, China has ranked as the world's biggest consumer of raw materials. While it also ranks as the No 1 miner of a number of metals and minerals, not least coal, iron ore and gold, it increasingly crosses into deficit areas where it becomes a net importer, as seen some years ago in iron ore, and copper, and during 2009 in both main classifications of coal, coking and steam.

In this context, China's three pillars, seen in voracious demand for raw materials, long experience in mining, and substantial foreign reserves, have fuelled a growing mandate for direct Chinese investment in foreign resources, both in mining, and oil, where China is also a net importer. For well known reasons - real or perceived- of which there are more likely many rather than few, there are sensitivities associated with Chinese foreign investments.Chinese miners, backed directly or indirectly by state money, continue to scout the world for opportunities of investing directly in mining and oil resources. Outside China, the chief challenge faced by established resources companies (and countries), is access to capital, whether internally (surplus, hopefully, cash flows), or externally, by courtesy of access to equity and debt markets (whether public (listed) or private).

The so-called supercycle in global commodities, now nearing a vintage decade of duration (and including a collapse in prices from around mid-2008, now mainly out of the system, but now correcting again . . . ), has left the Western world's mining companies generally undercapitalized. This characteristic reaches up to the biggest of miners.

Shareholders continue to holler for what they consider to be their pieces of meat, in the form of dividends and/or stock buybacks, constraining the free cash flow available for reinvestment and for development of capital-gobbling new projects. All told, for a good number of mining companies, debt levels continue to stand at relatively high levels; a selection of 13 of the world's biggest non-Chinese miners had aggregated net debt (including cash) of USD 108bn at the end of 2009.  

If this seems odd, it may become odder still: even the world's biggest miners now seem somewhat shy of commitments made to huge new mining developments. Brazilian supergroup Vale, the world's No 2 miner by value, appears to be dragging its heels on Serra Sul. In itself, the barriers of entry into the mining, and logistics, of seaborne iron ore are gigantic. In 2007, Vale flagged Serra Sul, a new mine, within its Carajás system in Brazil, as "the largest greenfield site in our history and the largest iron ore project in the world".

Project completion was initially slated for the first half of 2012; this has now been pushed forward to the second half of 2013. At least part of the reason is the massive budget required to build Serra Sul: USD 11.3bn (revised up from the original USD 10.1bn). Serra Sul is yet to be approved by the Vale board.

Vale's financial statements show that surplus cash flow of USD 8.1bn produced in 2008 turned into a net deficit cash flow of nearly USD 1bn in 2009, following the 2008 correction in commodity prices. Vale's net debt has more than doubled from USD 5.6bn at the end of 2008 to USD 12.4bn on 31 March 2010.

Seaborne iron ore has been one of the big winners of the commodities supercycle, especially for the three companies that dominate about three quarters of the market, in the form of Vale, Rio Tinto, and BHP Billiton.

The growth of the seaborne iron ore market has almost defied gravity, moving from about 420m tonnes in 2000 to around 800m tonnes this year. Demand is anticipated to increase to 1,100m tonnes in 2013, indicating that more than USD 30bn is required for investment to increase global capacity, over the next few years alone. At full capacity, Serra Sul is projected to push out about 90m tonnes a year.

Chinese capital is available and willing, and ever patient. In terms of size, the leading (proposed) mining transaction out of China, dating to 12 February 2009, involved Rio Tinto, which, with massive net debt of USD 38.6bn on 31 December 2008, wanted to raise USD 12.3bn from smaller rival, unlisted Chinalco, by selling equity stakes in some of Rio Tinto's most prized aluminium, copper and iron ore assets. Chinalco holds 38.6% of listed Chalco, a big Chinese aluminium producer, and also 26.6% of listed Yunnan Copper.

Rio Tinto also wanted to sell convertibles worth USD 7.2bn to Chinalco; if the hybrid debt-equity instruments were indeed sold and one day converted, Chinalco's stake in Rio Tinto would have increased to 18%. In 2007 Rio Tinto paid a brain-gouging USD 38bn in cash for Alcan, trumping an earlier bid from Alcoa.

During 2009, a cash-strapped Rio Tinto sold USD 3.5bn in bonds, at fairly expensive coupons over five and ten years. In other bids to shore up it balance sheet after the Alcan experience, Rio Tinto in 2009 sold some fine assets, separately to the proposed Chinalco deal: Jacobs Ranch for USD 761m; potash assets for USD 850m, and certain iron ore assets for USD 750m.

Facing a rising wall of well-documented discontent, Rio Tinto abandoned the Chinalco deal, which was replaced by the 5 June 2009 announcement of a general rights issue to raise the equivalent of USD 15.2bn, and also agreeing a monster joint venture with BHP Billiton over the two companies' Pilbara, West Australian, iron ore assets. This JV, yet to be approved by regulators, was according to announcements one where BHP Billiton would pay Rio Tinto USD 5.8bn "for equity type interests at financial close to take its interest in the joint venture" from 45% to 50%. This values the full joint venture at USD 116bn.Rio Tinto retained a good working relationship with Chinalco, which has recently come full circle in Guinea, which holds one of the world's biggest undeveloped iron ore provinces. The rush into West Africa's iron ore, centering on Guinea, continued this week, with London-listed Bellzone Mining on Monday announcing that Hong Kong-based China International Fund (CIF), noted for its infrastructure investment to date in Angola, is to invest USD 2.7bn in 286km rail and port facilities for Bellzone's Kalia iron ore project.

Bellzone would eventually hold 10% of the infrastructure company. CIF has the right to purchase 100% of the off‐take from Kalia, where Bellzone previously said it "is committed to the development of a USD 4.45bn, 50m tonnes a year iron ore facility with supporting rail and port infrastructure for the export of iron ore in the Republic of Guinea, West Africa, by 2014".

Bellzone's market value of USD 361m leaves it with stiff challenges on financing the building of the Kalia mine as such. However, the commitment of significant Chinese capital for the build of infrastructure for the pending mine build at Kalia cannot be overlooked. It can be compared to years and years of gymnastics staged by Ivanhoe's Robert Friedland in seeking capital for the USD 4.6bn needed for the phase I construction of the Oyu Tolgoi copper-gold mine in Mongolia.

The government has a 34% stake in the project, financed to now mainly by Rio Tinto, which would in the foreseeable future hold more than 50% of Ivanhoe, as various instruments mature, adding to Rio Tinto's existing equity stake. Oyu Tolgoi comes with all kinds of bells and whistles.

On 6 October 2009, Oyu Tolgoi LLC, the operating company, agreed to buy three T-Bills from the Mongolian government, with an aggregate face value of USD 287.5m, for USD 250m (the annual rate of interest on the T-Bills is set at 3%). The initial T-Bill, with a face-value of USD 115m, was purchased by Oyu Tolgoi LLC on 20 October 2009 for USD 100m, to mature on 20 October 2014.

It later transpired that the government wanted to waive the other T-Bills, and instead requested "tax prepayments", which Ivanhoe agreed to. USD 50m was paid on 7 April 2010; the second tax prepayment of USD 100m will be made within 14 days of Oyu Tolgoi LLC fully drawing down the financing necessary to enable the complete construction of the mine, or 30 June 2011, whichever date is earlier. This has the basic elements of a Mexican standoff.

Ivanhoe's ongoing attempts to finance Oyu Tolgoi include buy-ins from the International Finance Corporation and the European Bank for Reconstruction and Development. There is little sense of Chinese capital showing up here; it may be of note that the Canada-based Fraser Institute recently ranked 72 mining jurisdictions across the world; the bottom 10 overall scorers included Venezuela, Ecuador, the Philippines, Zimbabwe, the DRC, Mongolia, and Bolivia.

By contrast, billions of dollars are lining up to flow into Guinea, which for years has ranked as the world's biggest exporter of bauxite (aluminium ore). The news from Bellzone followed the announcement on 30 April that Vale had agreed to pay USD 2.5bn for a 51% stake in BSG Resources Guinea, which apparently holds rights to blocks 1 and 2 in the Simandou iron ore system, Guinea. This meant that the three Kings of seaborne iron ore are fully involved in Guinea.

Rio Tinto, which discovered Simandou in 2004, had claimed a 95% stake in all four Simandou blocks, seemingly until December 2008, when soldiers took Guinea over. A general election in the country is anticipated about a month from today.

On 19 March 2010 Rio Tinto announced a non-binding MOU with Chinalco to establish a Simandou joint venture, where the new partner would acquire a 47% interest by providing a USD 1.35bn earn-in over the next two to three years. The message seems clear: while Rio Tinto has spent USD 600m on development at Simandou, to date, it has identified the need for a partner with . . . serious capital. A partner which is also a long term buyer of the planned iron ore output puts the cherry on the cake.

There are other joint ventures in the area: on 19 January ArcelorMittal, an integrated global steelmaker, announced it had entered into initial discussions with BHP Billiton to potentially combine its respective iron ore mining and infrastructure interests in Liberia and Guinea within a joint venture.

This raises questions of the destiny of smaller players, such as London-listed African Minerals (market value: USD 1.1bn) advertising that "the success of the geophysics and reconnaissance drilling over the 20km strike length of Kasafoni has propelled the Tonkolili Iron Ore Deposit to the top of the list for largest JORC compliant magnetite reserves in the world". Tonkolili is to be found in Sierra Leone.

The most direct routes from Simandou to the Atlantic coast are either through Sierra Leone, or Liberia. In contrast to Ivanhoe (market value: USD 5.5bn), Bellzone has shown that juniors in "the right place" with the right stuff under the soil can attract serious attention, and huge capital.

Across the Atlantic, Anglo American, which holds a controlling stake in South Africa's Kumba Iron Ore, is busy with Minas Rio in Brazil. During cyclical highs in the iron ore market, during 2007 and 2008, Anglo American spent USD 6.7bn on iron ore assets in Brazil, including 100% of Minas Rio, and 49% of LLX Minas Rio (port of Açu).

The build at Minas Rio is set to absorb around USD 4bn for phase I, which proposes first production in 2012, with full ramp-up to 26.5m tonnes a year of iron ore in 2013. Bellzone's market value of USD 361m can be compared to Anglo American's USD 47.3bn, a difference of more than a hundred fold. Bellzone wants Kalia to start out with production at about twice the levels planned for Phase I at Minas Rio.

Core Mining, a little-known private Isle of Man company, which appears to be based in Australia, recently announced a deal with integrated Russian steelmaker Severstal, which in return for 16.5% of Core can invest up to USD 55m into Core Mining up to the end of 2012. Core claims exploration licences for the Avima iron ore deposit in Congo-Brazzaville, and the Kango iron ore deposit in Gabon.

Patient Chinese capital was also rewarded this week with a key entry into southern Africa's platinum group metals (PGMs) arena, which holds around three quarters of global PGM resources. Johannesburg-listed platinum developer WeSizwe Platinum  announced that unlisted Jinchuan, China's No 1 miner of nickel, and also platinum group metals (PGMs), had, along with the China Africa Development Fund, (CADFund) signed a "total financing solution", worth USD 877m (about ZAR 6.9bn), for the mine build at Wesizwe's 100% owned Frischgewaagd-Ledig project, near the well known Sun City resort north of Pretoria.

The announcement follows the 22 April effective awarding of mining rights, for a project that has so far cost around ZAR 1bn to develop, and which for a year has remained steeped in controversy centering around the interesting and strange behaviour of Johannesburg-based Musa Capital, an entity headed, apparently, by two US citizens.

Jinchuan and CADFund have, subject to fulfillment of conditions precedent, agreed to subscribe for 51% or 830m new shares in the enlarged share capital of Wesizwe for an aggregate subscription price of USD 227m, equal to ZAR 2.07 per Wesizwe share (at an exchange rate of USD/ZAR 7.55).

Jinchuan and the CADFund have separately secured a letter of commitment from the China Development Bank for the provision of a USD 650m project finance facility, essentially debt, conditional on completion of the equity component. The financing terms available are exceptional, by any standards, and mind-boggling, by South African standards.

Capital availability for PGM miners was a subject of interest after PGM prices peaked in March 2008, and then crashed, recovering, in line with most other metal prices, from around early 2009. Anglo Platinum, an 80% unit of Anglo American, conducted a USD 1.7bn right issue earlier this year, repairing its balance sheet. Lonmin and Aquarius completed rights issues during 2009; Platmin has also been active during both years raising capital for its ongoing mine build, which should reach full production early next year.

Chinese miners show some selection in the mining arena. In July 2009, China Investment Corporation invested CAD 1.74bn in a private placement by Vancouver-based Teck, which offers a cocktail irresistible to China: "a world leader in the production of copper, metallurgical coal and zinc, molybdenum and specialty metals, with interests in several oil sands development assets".

Gold appears to be one clear exception. Zijin, a diversified miner, and China's biggest listed gold producer, has shown little, if any, appetite for acquiring gold assets outside the country. Zijin recently announced a USD 284m investment in the Deziwa and Ecaille C copper-cobalt projects in Katanga Province, Democratic Republic of the Congo (there have been media reports that the deal has been repudiated, denied by Zijin). On the contrary, gold is about the only area where mining firms have been allowed into China, as seen, for example, in the case of Eldorado.

Miners and petroleum companies are found at the absolute start of the global value chain. The Chinese culture, which stretches back some 5,000 years, is reasserting itself as the base of a major global economy, backed by a work ethic and capital pool that can ride out all kinds of cycles. Investors may take note.