mining_partnerhships
Business deals between companies headquartered at opposite ends of the earth have become the rule, rather than the exception. These deals may make headlines for their magnitude, but not for their intercontinental nature. But recently, two such deals caught this writer’s attention. Though they received little coverage in the press, these deals exemplify the benefits of poverty reduction and development not only in countries experiencing development, but also in developed and undeveloped countries alike.

Both deals concern Zijin Mining Group Co., a Chinese firm, which late last month purchased large shares of two mines owned by Canadian firms. According to Bloomberg, Zijin bought a 50 percent share of the Porgera mine in Papua New Guinea from Toronto-based Barrick Gold Corp. and a 49.5 percent share of Kamoa mine in the Democratic Republic of the Congo from Vancouver-based Ivanhoe Mines Ltd. These deals infuse Canadian physical capital with Chinese financial capital, all while helping Papua New Guinea and the DR Congo grow their exports.

For Barrick and Ivanhoe, these deals amount to a crucial injection of capital. Both companies have faced financial difficulties recently: Barrick aims cut $3 billion of its $10 billion net debt by year’s end, while Ivanhoe declared bankruptcy at the beginning of this month after negotiations with creditors fell through. Both firms are expected to pursue expanded mining partnerships with Zijin in the coming years, so as to keep themselves solvent. For Western firms like Barrick and Ivanhoe, capital-rich corporations based in the developing world represent invaluable allies as global competition grows stiffer.

For Zijin, these deals not only offer a chance to get some cash off its hands, they also represent the culmination of decades-long poverty reduction efforts in China. Fifty years ago, a business like Zijin would have been unthinkable in China or any other low-development country; had China been a capitalist economy, foreign firms would have likely dominated its primary sector. But as China’s domestic industrial capacity grew, poverty rates in China plummeted. Firms like Zijin have turned poor countries into middle-income countries. Now, these countries are poised for a new stage of development as domestic firms go global by partnering with Western businesses.

Last but not least, these deals symbolize an opportunity for development and poverty reduction in Papua New Guinea and the Congo, where the mines in question are located. By aiding struggling Western firms, Zijin ensures that locals will remain employed and that transit infrastructure is well maintained. Employment and infrastructure are not only useful in and of themselves, they also give other businesses a chance to proliferate and make poverty reduction efforts simpler. Furthermore, these deals underscore what happens when a country outgrows its poverty—it begins trading intensively with other countries, many of which it helps to develop in the process.

Zijin, Barrick and Ivanhoe are not household names, and may never become household names. Nevertheless, these three firms exemplify how poverty reduction pays dividends for developed countries, developing countries and countries that have yet to develop. American firms take heed, partnerships with companies in the developing world help all countries, not just your bottom line.

– Leo Zucker

Sources: Barron’s Asia, Bloomberg, Financial Times, The Globe and Mail, The Northern Miner, The Wall Street Journal, Yahoo! Finance
Photo: Demanjo