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Do your Chinese homework

DUE diligence and an understanding of the approval process are seen as key issues miners and expl...

Chris Cann
Do your Chinese homework

Lawyer Ian McCubbin from Deacons Lawyers said successful investment in China was possible if foreign companies were sensitive to local regulatory procedures.

As he put it; "In China, anything is possible but everything is difficult."

He said the biggest downfall of companies operating in China was a failure to complete thorough due diligence procedures.

"A lot of Australian companies say 'those thieving rogues in China, they were tricking us' … when it's simply a case of the foreign Australian company not doing sufficient due diligence – not doing its homework," McCubbin said.

He said companies needed to familiarise themselves with the environment in which they wanted to do business and not simply assume it will the same as the environment from which they have come.

Another major downfall was giving in to the temptation to allow the joint venture partner solely deal with the approvals process because the exercise appeared "just too hard".

"Take the time and trouble to verify everything yourself. It's very important to go the extra step."

McCubbin said it was imperative companies venturing into China took the time to "dig deep" and identify the joint venture party being dealt with and the unique regulatory environment in which companies where operating.

The Resources general manager at the Department of Industry and Resources, Rick Rogerson, agreed a cautious and thorough approach was necessary and urged companies to do their research.

He said the ambiguity between commercial bodies and Government bodies, through which mining companies had to pass to gain approvals, caused problems for foreign entities.

"Understand and distinguish between the regulatory bodies and commercial entities – make sure you know who you're actually dealing and ensure that your proposed joint venture partner actually owns the tenements and the geological information that goes with it," Rogerson advised.

Adding to this concern was a convoluted mining licence application process and restricted access to some geological information on the grounds of national security.

And while successful Australian-listed operator Sino Gold has taken the time to develop relationships and gain an invaluable intellectual asset – an understanding of the Chinese way – Rogerson noted that it was not always affordable to for smaller companies to set up offices in China and take the time to understand the approvals process.

For those that persevere though, the rewards are there. Rogerson believes there is considerable upside with a more comprehensive geoscience study nearing completion and a revue of mining legislation under way incorporating a consultation process with western nations including Australia and Canada. He predicts exploration dollars invested in China will double in the next year.

That sort of jump would please Sino chief executive Jake Klein.

He urged fellow resource companies to look past perceived difficulties and tap into China, saying the resources industry was a kick behind the play in a country that was attracting $1 billion a day from other industries.

"China is very high in the rankings in terms of geological prospectivity, yet it only attracts less than 1% of the global exploration dollars," Klein said.

"That provides somewhat of a conundrum as to why the mining industry is so out of kilter with other industries across the world.

"It is my view that this will change and China will become an increasingly acceptable and important destination for global resource companies."

MiningNews.net

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