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China and Britain ready to exploit Tibet's natural resources

July 28, 2008

The Telegraph (UK)
July 26, 2008

Despite political tensions in the country, its huge deposits of gold
and other metals are proving too big a temptation for foreign miners,
David Eimer reports from Beijing

While Britain's athletes are eyeing gold medals at the Beijing
Olympics, British mining companies are setting out to claim a share
of China's vast gold deposits. The resource-rich, soon-to-be
superpower has been increasingly attracting the attention of foreign
miners in recent years. Now, British firms are leading the race to
develop the country's mineral deposits.

They are doing so a long way from the shiny new Beijing that will be
on display to the world next month. While China has spent an
estimated £20m readying the Chinese capital for the Olympics, it is
to Tibet, one of China's least-developed regions, that foreign mining
companies are now looking. Despite having one of the most hostile
environments imaginable, as well as a serious lack of infrastructure,
the "roof of the world" is a treasure trove of minerals.

Central China Goldfields (CCG) is the only British miner operating in
Tibet. Despite the recent protests against Chinese rule, it is
adamant it has made the right decision.

"We're not a political organisation - we don't take sides. But
whoever is in charge will develop these deposits," Jeff Malaihollo,
the managing director of CCG, told The Sunday Telegraph. "It is how
you do it that is important - whether you do it in an environmentally
sustainable way and by working with the local community. Ultimately,
though, if we don't do it, someone else will."
# More on mining

There is no doubt about that. The once under-developed and
under-funded Chinese mining sector is undergoing a revolution that in
the next few years seems certain to have a profound effect on
commodity markets worldwide. China is on its way to becoming
self-sufficient and ultimately one of the world's major exporters of
commodities, as vast new mineral deposits are discovered.

Last year, China overtook South Africa to become the world's leading
gold producer. Leyshon Resources, listed on Aim and the Australian
Securities Exchange, is developing a gold mine in north-eastern
Heilongjiang province. "China had a unique combination of untapped
exploration potential and established infrastructure," said Paul
Atherley, the managing director of Leyshon. "Because of that, China
has become the world's largest gold producer in less than a decade."

British mining firms led the way into China. In 1997, the
London-based, Aim-listed Griffin Mining became the first foreign
company to be granted an exploration licence since the founding of
the People's Republic of China in 1949. Now, British companies are
operating across China and most are watching developments in Tibet,
mining's new frontier.

The Chinese name for Tibet, Xizang or "western treasure house", makes
clear how valuable the volatile, politically sensitive region is to
China. In 1999, the Chinese embarked on a secret, seven-year
geological survey that found 16 major deposits of copper, iron, lead,
zinc and other minerals. Tibet is believed to hold as much as 30m-40m
tons of copper, 40m tons of lead and zinc and more than a billion
tons of high-grade iron ore.

China's steel-hungry construction and car industries imported 386m
tons of iron ore in 2007, an 18 per cent rise on 2006, almost half of
the world's total imports of iron. That figure will be drastically
reduced if the iron in Tibet can be extracted. In all, the total
value of Tibet's minerals is estimated at £64.8bn by the Chinese government.

CCG decided in 2006 that Tibet was too tempting an opportunity,
despite the threat of protests from groups opposed to China's
treatment of the Tibetans. Established in November 2004, in response
to the opening up of China's gold sector to overseas companies in
2003, CCG first focused on developing gold projects, including a mine
in Inner Mongolia it hopes to have in production by next March. But
for the past year, CCG has been exploring for copper in Nimu, close
to Tibet's capital, Lhasa.

Nimu lies on the Gangdese copper belt, which runs from the
south-western Chinese province of Yunnan all the way to Afghanistan.
CCG is still at the exploration stage, but Chinese companies are
already constructing mines along this belt, including Yulong, which
will be China's largest copper mine. Later this year, the
Vancouver-based Continental Minerals is expected to be granted a
licence for the first foreign-owned mine in Tibet.

"There's a lot of copper in that belt. Geologically, it's very
similar to the Andean belt in South America and it's only a matter of
time before more people start hitting copper," says Malaihollo. Like
all foreign mining companies in China, CCG has had to set up a joint
venture to operate - CCG works with the Sichuan Bureau of Metallurgy
and Geological Exploration.

The fact that foreign companies must work with Chinese partners in
Tibet has led Tibetan exile and pressure groups, such as the Free
Tibet Campaign, to criticise the way such companies have rushed to
take advantage of the opening up of mining.

In 2003, the Dalai Lama, the Tibetan spiritual leader, used an open
letter to voice his concern, saying: "I appeal to all foreign mining
companies and their shareholders thinking about working in Tibet to
consider carefully about the ethical values when embarking on such a
venture." There have been reports of clashes between Tibetans and
Chinese mine workers.

Such opposition has made many British companies wary. "We have looked
at projects there but, rightly or wrongly, it does create issues back
in the West if you do invest in Tibet. So we are steering clear for
the moment," says Roger Goodwin, Griffin Mining's finance director.
Instead, it is concentrating on expanding its Caijiaying zinc-gold
mine in China's Hebei province.

The precious metals sector is proving the most attractive option for
British companies in China. "It's usually easier to get a quicker
payback from precious metals development than base metals, which
typically have a longer development profile and require a greater
capitalisation," says Nigel Clark, chairman of the China
International Mining Group (CIMG), a non-profit forum that represents
overseas miners.

However, foreign companies are increasingly faced with newly
cash-rich companies attracted to the mining sector by the soaring
price of commodities. "A lot of real estate companies are getting
into mining and the more speculative of them are just throwing money
around and we can't compete with that," says Malaihollo.

Overseas companies also have to deal with five different levels of
bureaucracy, from the state level, to the provincial, municipal,
local and village levels, and many find they do not have the patience
to succeed in China.

"One has to understand and respect how business is done in China and
appreciate that the only deals to be made in China will be those
according to Chinese laws, rules and regulations," says Clark.

But for those companies who are already established, China seems set
to be the new El Dorado for years to come.
CTC National Office 1425 René-Lévesque Blvd West, 3rd Floor, Montréal, Québec, Canada, H3G 1T7
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