China Hongqiao Group, the nation’s largest non-state aluminum producer, is in talks to buy a bauxite mine in Africa to secure the raw material for the processing of the metal. “We are looking to lock up resources in Africa and may make some concrete progress over the next six months,” said Christine Wong, head of corporate finance, without disclosing the target or the price. “We must take a controlling stake to make sure we have the off-take for more than 20 to 30 years.” Hongqiao is seeking bauxite supplies after Indonesia banned exports of unprocessed ore in January. The company, one of the lowest-cost smelters in China, is increasing output after rivals including Aluminum Corp of China shut down plants. “Demand is still strong even as China is forecast to slow down this year,” Wong said. “We see demand from the construction of social housing, high-speed railways, ultra-high-voltage grids and coal cars.” Hongqiao plans to boost production by 30% to almost three million tons this year. The plan may help Hongqiao become China’s biggest aluminum smelter by output, surpassing Aluminum Corp, which plans to shut as much as one million tons of capacity out of 3.6 million tons. Hongqiao has 16 million tons of bauxite stockpiles, enough for about 14 months. It also has signed a three-year supply contract with Rio Tinto Group to buy at least three million tons annually from Australia and has supply agreements with India. Hongqiao may increase its aluminum refining capacity to 3.44 million tons by the end of this year from 2.96 million tons in 2013. The company is building a venture for an alumina plant in Indonesia and expects to start production in 2015. Hongqiao’s capital expenditure this year will be reduced to CNY8 billion, largely for building power plants, from about CNY15 billion last year. About 95% of Hongqiao’s sales are shipped in molten form to customers within a 30 km radius of its Shandong facilities, said Vanessa Lau, Senior Analyst with Sanford C. Bernstein.

A change in taxes on rare earth producers in the second half of the year could push up the prices of the scarce minerals, an industry source said. Taxes would be imposed based on the value of the minerals, rather than on volume as is the case at present. That shift will mean higher prices at the producer level, which the government hopes will reflect the scarcity of these resources and the environmental costs of their extraction. Higher prices will alter the supply-demand balance, undercut smuggling and reduce high inventories of rare earths overseas, said the expert quoted by the China Daily. Other steps will also be taken, such as a requirement for environmental compliance certificates to export the materials. China, with rare earth reserves accounting for about 23% of the global total, supplies more than 90% of the world’s demand, but mining and processing causes much pollution. As a result of a WTO ruling, China is expected to lift export tariffs, while the existing export quota system has become irrelevant in recent years since actual export volumes fell short of quotas. Prices of the minerals were weak in 2013, affecting Chinese producers. In Baotou, Inner Mongolia, which has 34 large-scale producers, the industry’s revenue reached CNY1.81 billion last year, down 25.3%. Profits sank 4.7% to CNY210 million, while exports slid 47.2% to CNY31 million. China’s leading rare earth producer, Inner Mongolia Baotou Steel Rare-Earth Hi-Tech Co, said net profit slumped 71.7% year-on-year to CNY69.38 million in the first quarter of 2014. Revenue tumbled 52.8% to CNY1.09 billion, the China Daily reports.

Chinese mining companies are planning to acquire more firms or forge joint ventures abroad to secure supplies of precious and industrial metals. China accounted for nearly 14% of all mining mergers and acquisitions activity by value last year, but the number of Chinese transactions slid to 21 from 34 and their value declined to USD5 billion from USD6 billion in 2012, according to a research report by PricewaterhouseCoopers (PwC). China’s share of global mining deals may be bigger this year, said Ken Su, China mining and metals leader at PwC. China is the world’s top producer of steel and also its leading importer of iron ore. The country is also the world’s leading consumer of copper, and the top importer and consumer of gold. PwC global mining leader John Gravelle cited the Las Bambas copper mining project in Peru as an example of China’s mining firms reaching out for major investments overseas. But the average deal size of Chinese investments in overseas mines will be smaller, because more private Chinese companies, which lack the financial muscle of state-owned enterprises (SOEs), are investing in mines abroad, Su said. China’s demand for mining resources will grow 3% to 6% this year, Gravelle estimated. The China Metallurgical Industry Planning and Research Institute predicted China’s total iron ore imports would rise 6.3% to 850 million tons this year, about half of which would come from Australia. Western Australia’s iron ore exports to China rose 23.5% to 425 million tons last year, and China accounted for 76% of the state’s iron ore exports, the Western Australian government said.

China’s bid to slash its dependence on foreign iron ore miners by creating its own mega producers risks running aground before it starts due to high costs and poor quality of ore. Instead, overseas suppliers may end up shipping more to their top market. For two decades, China has been trying to reduce its reliance on iron ore supplied by top producers Vale, Rio Tinto and BHP Billiton without much success because the price of the ore it produces is higher. The global miners are boosting output to capture more of the Chinese market through massive expansion to increase their dominance. BHP lifted its annual production target to 217 million tons, while Rio Tinto is close to mining 300 million tons a year and Brazil’s Vale is targeting more than 360 million tons. To make its own iron ore mining more efficient, China, which buys more than two-thirds of the world’s iron ore, was drafting a plan to create six to eight domestic miners by 2025, each with an annual capacity of more than 30 million tons. A draft of the plan is expected to be submitted to the central government by the end of the year. Combined production would at best amount to only a third of total demand. While Chinese iron ore production continues to grow every year, the low quality of the ore is forcing miners to dig deeper and increasing costs even more. “The only way for the new integrated miners to compete against top miners is if they can slash their costs, but I do not expect this can happen,” said a senior official at a medium-sized Chinese miner with an annual output of 2 million to 3 million tons. The average iron content of ore in China fell to 21.5% last year from 31.2% 10 years earlier, said Pan Guocheng, Chief Executive of privately-owned miner China Hanking. The average cost of Chinese miners is USD105 a ton, compared with USD60 to USD65 including delivery for Australian and Brazilian ores, the South China Morning Post reports. China’s iron ore output rose 4% to 183.3 million tons in the first two months, slowing from 13.5% last year.

China can now search the international seabed for three valuable minerals after a new exploration contract was signed in Beijing by the China Ocean Mineral Resources Research and Development Association (COMRA) and the International Seabed Authority (ISA). Under the contract, China has exclusive right to explore an initial area of 3,000 square kilometers. Cobalt-rich ferro-manganese crusts contain rare metals such as cobalt, nickel and iron and are used in various industries such as engineering, electronics, infrastructure and batteries. The contract, the third signed between ISA and COMRA, makes China the only nation authorized to explore international seabeds for as many as three major types of minerals－polymetallic nodules, polymetallic sulfides and cobalt-rich ferromanganese crusts. Although a latecomer to deep-sea exploration, China won the right to search for polymetalic nodules in the northeastern Pacific Ocean in 2001, for polymetallic sulfide deposits in the southwestern Indian Ocean in 2011 and for cobalt-rich ferromanganese crusts in the western Pacific in 2014. With China’s first contract to end in 2016, which means the country can begin commercially mining for polymetallic nodules in the northeastern Pacific, the country still faces technical hurdles in mining the ocean floor.