TORONTO (miningweekly.com) – Mining companies should be looking to China as the sovereign debt and European banking crisis squeeze their traditional funding sources, an advisor that specialises in connecting Western firms with Chinese investors said this week.

Strategic Capital & Intelligence Group (SGIC)CEO Jack Slibar expected the pace of Chinese investment into foreign mining firms to pick up significantly over the next two or three years.

While many market watchers had anticipated China would have gone on a massive shopping spree when the 2008 recession sent commodity share prices to bargain basement levels, this did not play out.

Slibar said in an interview China was still at that point digesting the choices it had in terms of locations as well as the sizes of investments it wanted to make.

“Now that has been digested, and they are now looking at this with a vengeance. The level of deals are going to be significantly increased over the next two or three years,” he commented.

There has already been a marked increase in both government and private Chinese investments in foreign mining firms.

Take, for example, the recent buyouts announced of companies including Canada’s Anvil Mining, UK-based Kalahari Minerals, and Australia’s Sundance Resources, to name but a few. Most recently, Sinopec agreed to buy Canadian gas producer Daylight Energy for $2.1-billion last week.

Slibar said China was most interested in securing industrial minerals, then energy products, followed by precious metals.

The eagerness for both state-owned enterprises and private Chinese firms to secure off-take in industrial metals and oil and gas is for obvious reasons.

Perhaps not so obvious is the country’s interest in precious metals, which Slibar noted China is increasingly looking at to diversify the $3.04-trillion the company held in US reserves in March, as the outlook for the dollar grows bleaker.

SGIC has been facilitating deals between TSX-listed gold majors and intermediate companies and Chinese SOEs and private companies. While not much has been announced in this regard, the deals are coming, Slibar said.

Why would cash-flush Canadian gold producers be looking for Chinese investment?

According to Slibar, having a Chinese partner offers a company the “security umbrella” of having the government behind them, which can help protect against the growing threat of resource nationalism and nationalisation.

HOW LONG?

While a perception exists, and often for good reason, that it takes protracted timelines to put together a transaction with a Chinese company, Slibar said hiring a company like his can accelerate the process.

He put forward that SCIG already had relationships in China and had built up trust, which its clients can tap into.

“There is a huge cultural gulf between the Chinese businessman and the European and the North American businessman. It’s very hard to bridge that gulf often, and we facilitate the relationship, presenting the deal to the Chinese in Chinese terms, and the converse with respect to North Americans or Europeans.”

While there is n general timeframe that a deal takes to thrash out, 10 months could be said to be the average negotiating period, said Slibar.

For smaller deals, up to $50-million, three weeks can be enough, while larger pacts that have infrastructure components can take as long as 18 months, he added.

SCIG has offices in London, Shanghai and Toronto, where its 18 staffers focus on facilitating deals in soft commodities, such as grains, and hard commodities, like metals.

The size of transactions the company has worked on ranges from $200-million to $1.4-billion.

While Chinese firms, both government-owned and private, initially began by taking strategic minority stakes in foreign mining companies, they have been increasingly been looking to gain control.

Slibar explained that Beijing sets targets it expects Chinese state-owned enterprises to achieve, which is why these companies now often seek to have operational control of the assets they invest in, but not necessarily majority ownership.

AVOIDING CHINESE FRAUDS

There has been no shortage of headlines over the past year of Chinese companies taking North American investors for a ride, but Slibar said that this is more the exception than the rule.

He added that companies can avoid being defrauded by getting a company like SCIG to perform due diligence checks in China, and also being wary of a firm interested in entering a sector that appears to have little to do with its existing businesses.

Still, China was not the “Wild West” that many perceived it to be, noted Slibar.

“There are significant structures and checks and balances...it’s not the same as what we have here, but it’s certainly applicable there.”

DEAL STRUCTURES

While Chinese firms, both government-owned and private, initially began taking strategic minority stakes in foreign mining companies, they have been increasingly been looking to gain control.

Slibar explained that Beijing sets targets it expects Chinese state-owned enterprises to achieve, which is why these companies often seek to have operational control of the assets they invest in, but not necessarily majority ownership.