World Right Side Up: Investing Across Six Continents by Christopher W. Mayer

Author:Christopher W. Mayer [Mayer, Christopher W.]
Language: eng
Format: epub
Tags: General, economics, Business & Economics, International, Finance, Investments & Securities, Accounting
ISBN: 9781118171400
Publisher: Wiley
Published: 2012-04-10T00:00:00+00:00

The Chinese Beat Me to It

While in Johannesburg, I met with Gold One, one of these enterprising shallow miners. I had a meeting scheduled with Gold One set for Tuesday, May 17. This was one of my favorite companies in South Africa, and I was looking forward to meeting them.

On Monday, May 16, one day before my meeting, a Chinese consortium bought a 60 percent stake in the company, and the stock jumped nearly 20 percent, to 51 cents per share, on the Australian exchange, where the price has stayed since. I was a bit bummed out by the timing. I would've liked to have recommended the stock to readers of my newsletter first, but the Chinese beat me to it.

The Chinese are all over Africa. China-based companies (often state-owned) have been buying natural resources in Africa, everything from coking coal to agricultural goods, such as coffee from Uganda and sesame from Ethiopia. China's trade with Africa has gone from only $10 billion in 2000 to $129 billion last year, surpassing the United States as Africa's largest trading partner. Importantly, Africa supplies China with one-third of its oil.

There are plenty of connections specifically with South Africa, which is home to the largest Chinese population in Africa, more than 250,000 people. About a quarter of all Chinese direct investment in Africa winds up in South Africa. The China Construction Bank and the China Eximbank set up headquarters in Johannesburg in 2009. Then China's largest bank took a 20 percent stake in South Africa's largest bank, Standard Bank, for $5.5 billion. At the time, that was the largest purchase of a foreign asset by a Chinese bank.

I find China's investment activities on the continent fascinating, both as a curious cultural drama and as a development story. If you want a good read on the subject, I recommend China Safari: On the Trail of Beijing's Expansion in Africa, by a pair of French journalists. It's a complex topic and one that will probably stay with us for a while as foreign investors jockey for African assets.

So given all this, I'm not surprised about the Gold One transaction. Plus, the Chinese love gold. According to Reuters, “China produced 340 tonnes of gold in 2010, and investors locally bought 571.5 tonnes, according to official data, for a gap of 231.5 tonnes.” To make up that gap, China goes abroad. India is still the largest buyer of gold, but China passed it as the largest market for gold bars and coins.

What the Chinese got in Gold One was a shallow gold mine in Johannesburg with mines that have relatively low technical risk and produce gold at high profit margins. Gold One is the lowest-cost producer of gold among South African gold miners. (Hence, the reason it attracted my attention.)

What is fascinating about Gold One is its place in the development of Johannesburg's gold mining industry. You would think that after more than a century of mining the great reef in Johannesburg, most of the gold would be gone.

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