Recently I’ve been telling my readers about an incredible deal that had just been signed between China and the Democratic Republic of the Congo. For those of you who are new… I’ll give you a quick reminder…

Congo is one of the most mineral-rich places on earth. Africa’s biggest country is said to hold just about every mineral know to man – gold, copper, diamonds, uranium…

In April this year the Chinese sealed an agreement with the Congo government that is going to see China invest $9 billion dollars in reviving Congo’s war-ravaged infrastructure and mines.

In return they will get access to the African giant’s vast mineral wealth. About $3 billion of that is going to be invested in reviving the mines. But a massive $6 billion is going to be spent on building desperately needed infrastructure. China is going to build about 2,400 miles of new roads, 2,000 miles of railway, 32 hospitals, 145 health centres and two universities.

There are only about 3000 miles of roads in the whole Congo at the moment. So the impact on the country is going to be huge…

In return, China is going to get access to some 10.62 million tonnes of copper and 620,000 tonnes of cobalt. That could add-up to more than $42 billion in profit for the Chinese in the coming years.

The sheer size of the deal has completely blown away China’s rivals. Western mining companies and governments have been left reeling as China appears to have locked-up some of the most valuable mineral deposits in the world. And they aren’t very happy…

What are the Chinese up to?

Last week, Hong Kong’s respected South China Morning Post newspaper, carried an article on the deal. I’m going to quote it at length here, because I think it’s an excellent window into how the Chinese actually view their move into Africa:

“Poor Congo! It can never get a break from meddling westerners. But what can it expect, since it is doing a multibillion-dollar deal with China.”

“Worse, this deal, estimated to be worth US$9.25 billion, involves valuable natural resources and will entrench China, for years, in the affairs of a key African country as big as Western Europe. And, as with many similar massive investment schemes across the continent, it is pitting China investors against western institutional lending and aid bureaucrats and mining companies.”

True enough. And the simple fact is that most western companies just aren’t going to have the resources to go head-to-head with the Chinese government in the scramble for Africa. One of our current plays has done just the opposite. It’s providing the infrastructure and support-services that are going to be necessary for the multinationals and Chinese state-owned giants to get their loot out of Africa… find out more about this play here…

The article goes on…
“Sure, there is no guarantee China will deliver. But even if they deliver just half of what they promise, it will benefit the country enormously, which hitherto has been more newsworthy in the west for civil wars and exotic diseases like Ebola.”

“China is taking on enormous risks with the deal. The tonnes of resources sound good on paper, but some of Congo’s mines and concessions are underdeveloped and dangerous to operate; others remain to be explored and developed. The technical and operational challenges are great.

“No western government or corporation would commit so much capital resources in a single enterprise because, as one analyst said of western investments in the continent in general, they mistake their own ignorance and prejudice for risk assessment.

“So, here is a potentially good deal for Congo, and the International Monetary Fund is unhappy. Likewise some western mining companies, which signed dozens of contracts with the country during the last civil war. The chickens are coming home to roost for the companies in the latest sorry attempt at exploitation by the west.”

What he means by that is that many of the small mining exploration companies that entered the country during the Civil War in late 1990’s are now seeing their contracts being cancelled. A lot of these contracts were one-sided deals which left the Congo government holding the short end of the stick. With the support of their powerful new Asian friend, these small American and European companies are now being forced out. And here’s the Post’s rhetorical flourish at the end:

“China is offering real economic growth and opportunity to sub-Saharan Africa, something the west has never done. Poor countries need all the help they can get, from whatever sources they choose.”

The ONE company that can beat the Chinese at their own game…

Why am I revisiting the Congo today? Because when I first wrote about China’s investment deal with the country early last month, I mentioned that we were looking at several investment opportunities in that country…

And we have found one. In fact, if I’m right about it, it’s going to offer the sort of profits that make China’s deal with the Congo look small…

You see, earlier this year, a group of shadowy tycoons who operate in Africa struck a deal that gives them access to the Congo’s richest mines…the sort of thing that the Chinese can only dream about. They’ve got all the right connections and they’ve got the cash to pull it off. And our latest recommendation is going to put you right in the thick of it.

Source: Secret Deals, Africa’s Richest Mines

Of course, once explained the answers are obvious. The planes we see flying above us, whether military or commercial, are pretty old and inefficient. New fuel-efficient and eco-friendly ones are badly needed. And that is why we’ve noted this in our diary, because new planes use a lot of titanium… and this commodity is becoming increasingly more valuable.

US giant Boeing is pretty optimistic in its current market outlook. It sees new planes making up 80 percent of the 36,400 airplanes that will be in service in 2026.

Both Boeing and Europe’s giant, Airbus, see huge demand for planes coming from Asia-Pacific. The market is described as dividing up on the lines of 31% Asia-Pacific, 27% North America and 24% Europe. Then by 2026 the emerging countries of Argentina, Brazil, South Africa, with around 3bn people, will also want more planes.

Titanium is magic for aircraft manufacturers. It is corrosion resistant and has the highest strength to weight ratio of any metal. It is as strong as steel but 45% lighter. It occurs in the earth with a number of mineral deposits, principally rutile and ilmenite.

It was discovered in Cornwall in 1791 by amateur geologist and pastor William Gregor, then vicar of Creed parish. Uses have been found for it at a slowly increasing rate. Now it is more fully appreciated, supply is forecast to stay steady (or fall) but demand is expected to rise sharply.

As usual China’s position is key

The titanium minerals market was in deficit last year. As usual with metals and minerals, China’s position is key. It is no longer an exporter. Plus energy shortages in South Africa, producer of 27% of the market, are cutting supplies from there.

While the US has been using less, China has been using more. And whilst titanium’s toughness makes it such a popular alloy for metals, it also goes into paints, coatings and plastics – where its anti-corrosive properties are a winner.

Asia is the fastest growing market with projections of future growth rates of 6-7% a year. China, which has a demand of 650,000 tonnes per year, is seeing growth rates of 10% a year and above – according to producers. The largest amount of titanium consumption is in paints and coatings, followed by plastics. Analysts forecast that China will represent 17% of global consumption by 2010-2011.

India is the next power house with growth rates of 8-10% per year while demand in southeast Asia is growing at a healthy 4-6% per year. Vietnam also has strong growth but from a small base.

Prices of Chinese imports of ilmenite, the main feedstock for titanium, have risen by around 50% so far this year. With global demand for titanium minerals expected to rise by 3.6% this year on average, more price rises seem on the cards. Apparently, a lift of 1% in Chinese GDP results in a 2.2% lift in titanium consumption.

A little Irish one to watch

A little producer that we’ve been watching, although it is still very early days, is actually an Irish company, quoted in Dublin and on AIM. This is Kenmare Resources. Last year it produced 86,000 tonnes of ilmenite, but this is forecast by broker Canaccord to leap to 541,000 tonnes this year and 747,000 next.

So that means, says Canaccord, that it should soon be making reasonable profits — from losses of nearly US$10m last year – to break even this year, and then on to profits of US$19m in 2009, with US$79m in 2010.

By Erin Hamilton and Isabel Turner

Source: Titanium Is Flying High