Chinese investment is crucial to Australia’s energy transition. How will it happen?

As Australia madly rushes to build renewable energy networks to reduce emissions and slow climate change, where will the raw materials come from, why is Chinese investment so crucial and Australia can- reduce its dependence on China?

There is a massive global shortage of minerals essential for building solar panels, wind towers and batteries.

Australia is the world’s largest supplier of lithium for batteries and a major exporter of iron ore, bauxite, gold, lead, diamonds, rare earth elements, uranium and zinc, which are all used in the production of renewable energy.

Globally, around 400 new mines will be needed just to supply the automotive industry with batteries, according to Benchmark Minerals, but it will be difficult to attract investment to Australia to launch some of these projects.

Chinese investments are needed

Chinese investment in Australian mines has fallen in recent years.

Indeed, the Foreign Investment Review Board rejected Chinese bids for two lithium projects, making Australia a less attractive place to invest.

The federal government is concerned about reliance on China, given the security threat the country poses, its use of sudden trade bans on key products, and our reliance on from this country for key imports that have become difficult to obtain during the pandemic.

Clyde Russell says Australia must stop blocking Chinese investment.(Provided: Clyde Russell)

Clyde Russell, an Asian commodities analyst at Reuters, has watched China’s rise over the past 20 years and thinks the government is right to be concerned.

“It’s a legitimate concern. It’s safe to say that the Chinese government has shown that it will act in its own interest, where its interests align with those of Western countries, that’s good, but he doesn’t, the Chinese will do what they want,’” Mr. Russell said.

But he also said Chinese investment would be needed.

“It’s extremely expensive, you’re talking trillions, and you’re doing it at the same time as you’re changing energy systems at the same time, which also costs billions.”

He warned that it is very difficult to find investment for high-risk projects like mining.

MMG is a Chinese company headquartered in Melbourne and with assets like this mine in Rosebery, Tasmania.(Supplied: MMG Ltd)

The federal government has just invested $4 billion in a fund to help finance critical mining projects and wants to see Australia partner with the United States to develop an alternative supply chain for renewable energy products .

Mr Russell said it was just a drop in the ocean and much more money would be needed to make it work and to fund new Australian mines.

The answer, he says, is China.

Chinese miners in Australia

So if we rely on China to invest in new mines and potentially further downstream processing, what can we learn from companies already operating in Australia?

Yancoal is listed on the Australian and Hong Kong stock exchanges and is headquartered in Australia, but its main shareholder is a Chinese state-owned company.

Yancoal purchased coal assets in the Hunter Valley and their value quickly increased to $5.6 billion.(Supplied: Yancoal)

It initially purchased a small coal mine in the Hunter Valley, but quickly expanded when it bought the assets of Felix Resources and Coal and Allied from Rio Tinto.

Yancoal is now worth $5.6 billion.

Michael Ngo says ties with the Chinese mining community are valuable.(Supplied: Yancoal)

Chief commercial officer Michael Ngo told the International Mining and Resources Conference in Sydney last week that the company did exchange knowledge and ideas with its Chinese connections, but it was not tied to that culture.

“Having local management is essential, it helps you manage the workforce, how you manage the mine in terms of workplace safety, the design of the mine, the use of different technologies and different equipment , how you deal with different stakeholders such as government and the community,” Mr. Ngo said.

But he also admits that they communicate with their Chinese counterparts.

“The Chinese underground mining community is very large and very sophisticated and is a good source of knowledge for us.”

Chinese explorers

Hanking Australia is a subsidiary of China Hanking Holdings, part of the state-owned ChemChina Group.

It is listed on the Hong Kong Stock Exchange and has a history of mining iron ore in China, which is used in the production of wind towers.

He bought out some Washington state gold mining companies more than 10 years ago and is looking for new gold reserves.

Managing director Mark Qiu says there is great potential for new mines here.

Hanking Australia has one of Australia’s largest gold reserves.(Supplied: Perth Mint)

“Over the past three years, our team has discovered more than 4 million ounces of gold,” he said.

“Our reserve has increased nine-fold to 1.64 million ounces, one of the largest in Australia.”

Hanking’s gold is sold to the Perth Mint.

Chinese processing plants

Another major Chinese company in Australia is MinMetals, which mines base metals like copper and zinc.

It is part of China Minmetals, a Chinese state-owned company, but has its mining headquarters in Melbourne and has operations in Africa, Canada and Latin America.

It exports to China, but much of its product also goes to other countries, and Australian staff work at its sites in Africa, Laos and Peru.

Liangang Li says the company wants to build more facilities in Australia.(Provided: Minmetaux)

Managing Director Liangang Li said the company wants to build processing facilities here, as it has done in Indonesia.

“In Australia we are talking about building a hydroxide plant…and we have an offshore project outside of China.”

Do we need even more Chinese investment?

Mr Russell believes the Australian government needs to stop blocking Chinese investment in mining projects to allow greater investment.

“They will be looking for reassurance that when they want to do deals they won’t be put off,” Mr Russell said.

He believes the Australian government could resort to other measures to protect the country’s interests.

Indonesia, for example, has used Chinese investment to launch projects, but after 10 years they must be more than 50 percent locally owned.

Without incentives and fewer barriers, Mr Russell doesn’t see China increasing investment here and without it he believes the task of finding the resources and turning them into renewable energy will be too big.