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Chinese smelters begging

By David Bond             Printer Friendly Version
November 01, 2005

Lijiang, China – If you’ve got a silver, lead, copper or zinc mine anywhere in the world, the Chinese smelting industry would like a word with you: They have cash.

Smelters here are paying a premium for mine concentrates and even advancing payment for future shipments of cons – a market phenomenon unheard of in the North American mining industry, where miners wait months for smelter payments following shipment.

“China is short of silver concentrate supply and has to import a large amount of silver concentrates contained in lead, zinc and copper concentrates. In 2005, China will import 20,000 tonnes of silver concentrates and will import hundreds [more tonnes] of silver contained in lead, zinc and copper concentrates,” said Sun Youping of the China Non-Ferrous Metals Industry Association.

Mr. Sun’s remarks came at the 4th annual China International Silver Conference being held in Lijiang this week.

There are some 30 large non-ferrous smelters operating in China, compared with just two in the United States, and they are hungry. North American miners operating over here are enjoying this seller’s market. Myles Gao, president of Silvercorp, which has opened the world-class Ying silver mine in central China, said nearby smelters are advancing payments for raw ore shipments at the rate of about 75 percent of net ore value.

Smelters – Chinese or otherwise – really only have two speeds: full-tilt or shutdown. Running at fractional capacity reduces income for the smelter, but the costs remain the same as for full production. Thus premiums and advanced payments are there for the offering.

China sits on the world’s biggest pile of underground silver, with basic resources amounting to 115,000 tonnes, of which 23,995 tonnes are reserves, 34,117 tonnes are “basic reserves” (probable or possible) and 84,780 tonnes are resources. This accounts for about 22.1 percent of the planet’s total, Mr. Sun said. “Although China has a large amount of silver reserves, the nation is not rich in high-grade silver mines. Among the proved silver miners, there are a lot of small-sized and lean ones rather than large-scale and high-grade ones,” he said.

The government is encouraging both foreign development inside China, and Chinese mining ventures abroad, to feed this nation’s hungry smelters and satisfy burgeoning domestic demand for the poor-man’s gold, and the value-added industrial opportunities more silver can bring to China.

“The shortage of resources and energy emerged along with development of the nation’s economy. On one hand, the Chinese government will try to attract overseas funds to invest in China’s mining industry. On the other hand, the government also encourages domestic companies to develop overseas resources. Presently a lot of overseas investors are involved in the exploration of China’s mines,” Sun said.

He singled out the Ying mine as an example of foreign capital developing Chinese silver assets. “The cooperation on silver mines is just under way. Canadian SKN Resources Company (parent of Silvercorp) has joined hands with the (Chinese government) to develop the Luoning silver mine in Henan Province. With more favorable policy released by the government, Chinese silver exploration will attract more attention from the rest of the world.”

Sun discouraged China’s domestic miners from playing in the futures markets. “The Chinese financial market is unsound, and domestic silver producers cannot do the hedging business,” he said.