China continues to grow at a rate far above the levels seen in the other industrialized countries. And to fuel its expected superlative growth over the next decade, which could be the country’s golden years in spite of what some critics are saying, the country will need raw materials, based on my stock analysis.
The country has always been a major importer of raw materials, including metals, oil, and forestry, but my stock analysis suggests China is aggressively pursuing exploration in oil and metals. China has also looked to add resource companies via takeovers around the world in such places as Canada, the United States, and Africa in order to have some control over resource reserves, according to my stock analysis.
A recent example of this was the Canadian government’s somewhat surprising approval of the $15.1 billion takeover of Canada-based Nexen Inc. (NYSE/NXY) by China state-owned CNOOC Limited (NYSE/CEO) to go through. The deal was initially thought to be axed by the Canadian regulators and government, citing the security concerns of a takeover of oil reserves by the Chinese government-controlled CNOOC. Canada has rejected takeover bids from Chinese companies in the past, citing the need to safeguard its mineral and energy resources, so this deal was a surprise. Based on my stock analysis, I suspect Canada may have felt pressured to approve the deal, as the country wants to open up more trading with China; a rejection of this deal by the Canadian government would not have looked good in the eyes of the Chinese government.
The reality is that there will be compromises as far as acquisitions of foreign firms by the Chinese, especially if you want to keep trading with China, according to my stock analysis.
While the Nexen deal doesn’t mean there will be more deals from China to come, it does show that the country is hungry to gain access to raw material reserves around the world, as China looks to double its gross domestic product (GDP) by 2020. My stock analysis indicates that China will continue to target global reserves, which, in turn, translates into internal exploration and the buying of foreign resource companies. This is where you can make money going forward.
In 2009 and 2010, Chinese energy firms made about $48.0 billion of acquisitions in North America, according to the International Energy Agency (IEA). The country has investments in the oil-rich Canadian tar sands in Alberta, and my stock analysis suggests that we can expect to see more Chinese capital flowing in.
And according to the IEA, the country has targeted Iraq as its top oil source by 2030. (Source: Xiang, L. and Juan, D., “China to be main buyer of Iraqi oil by 2030, says IEA,” China Daily November 13, 2012, last accessed February 5, 2013.)
Whether it’s in the Middle East, Africa, or Canada, China wants to—and needs to—pump up its access to oil reserves, regardless of the location.
China’s energy radar is global. Making significant investments in Africa, China is steadily increasing its access to African resources with open arms. What allows the Chinese to buy is its massive war chest of over $3.0 trillion in cash reserves, according to my stock analysis.
You can understand why China has clout and the ability to get deals done.
My stock analysis also indicates that the search is not only limited to oil, but it extends to other essential raw materials, such as metals and forestry, as well. China is the world’s largest consumer and producer of gold. In 2011, the country produced over 300 tonnes of gold—tops worldwide, according to research by precious metal consultant GFMS. Australia produced 270 tonnes in 2011, as the second-biggest producer. This is a big reason why China has been eyeing Australia for acquisitions, according to my stock analysis.
At the same time, China is trying to reduce its need for foreign sources of metals; the country continues to scour the world, looking at acquisitions. My stock analysis notes that there’s a rise in the amount of domestic exploration for energy and metals via Chinese companies.
China has made numerous acquisitions and, based on my stock analysis, I expect this to continue, especially as the country continues to grow and its appetite for raw materials rises.
Deals that I feel will be targeted will be in mid-cap to big-cap mining and energy stocks that have strong reserves and are already in production.
By: George Leong
Posted: February 6, 2013, 7:54 am
We believe the stock market and the economy have been propped up since 2009 by artificially low interest rates, never-ending government borrowing and an unprecedented expansion of our money supply....