Miner sets up own PE fund
Updated: 2011-11-09 07:55
By Cai Xiao (China Daily)
BEIJING - East China Mineral Exploration & Development Bureau (ECE) has launched a 1 billion yuan ($157.5 million) private equity fund with the Chinese financial service institution Power Capital Co Ltd.
The fund is the first in the country to be established by a State-owned mining company. It plans to invest in mineral resources, including gold and rare earths, in line with the nation's goal of discovering and integrating mineral resources.
"When economic security is defined by resource supply and the rapid development of industrialization, urbanization and the modernization of agriculture, the ECE will keep up with the pace," said Director-General Shao Yi on Monday.
Last month, the State Council, China's cabinet, implemented a 10-year plan (2011-2020) to search for mineral resources, saying that mining exploration should become more proactive to guarantee national reserves.
Wang Xiaobin, the founder and chairman of Power Capital, said that the fund was raised from institutional investors and has already accounted for 500 million yuan.
"With this fund, we are planning to invest in several projects, including a gold and silver mine in Yunnan province, mines for aluminum and manganese ores in East China and a rare-earth mine in a region that I can not reveal right now," said Wang.
He added that the scale of investment for each project is usually 100 to 200 million yuan and about 60 percent of the projects in which the fund invests could be repaid within three years.
Wang also said that the fund will exit if a company undertakes an initial public offering, purchases a shell company as a means of obtaining a market listing, or is involved in mining rights transactions.
"As China plans to integrate mineral resources, qualified mining companies are being encouraged to explore resources and to obtain mining rights," Wang said, adding that mining rights transactions can be very profitable, often generating returns of 10 times the initial investment.
Fang Fang, vice-chairman of JP Morgan Asia Investment Banking, said earlier this year that dollar depreciation is causing the price of international bulk commodities to keep rising and is pushing up the price of mineral resources. China is currently reorganizing its mineral enterprises, thereby providing opportunities for investors.
According to the market researcher, Zero2IPO Group, venture capital (VC) and private equity (PE) are flocking to the mineral sector. In August, four mergers and acquisitions deals concerning mineral resources were unveiled. The amount spent on the deals totaled $266 million in the VC and PE markets, accounting for 22.8 percent of all deals that month.