China signs deal to invest in South Africa’s platinum industry

China has signed a deal to invest $877 million in South Africa’s platinum industry, Beijing’s second largest investment in Africa outside the energy sector.

China is set to make its second largest investment in Africa outside the energy sector by ploughing $877m into South Africa’s platinum industry.

The deal signed last week adds intensity to China’s ambitious drive to sustain its economic boom by securing Africa’s natural re-sources. For the first time, Beijing will take a direct stake in the continent’s platinum reserves, most of which are in South Africa.

Jinchuan, a Chinese state-owned mining company, is to acquire a 51 per cent stake in Wesizwe, a junior South African platinum developer, for $227m (€185m, £158m).

The China Development Bank will then raise an-other $650m to develop its flagship Frischgewaagd-Ledig platinum project. After the mine is built, Jinchuan will take all its platinum produced, according to a long-term supply deal.

“This is a very significant strategic play because it gives China its first direct access to platinum,” said Martyn Davies, chief executive of Frontier Advisory, a Johannesburg company that worked with Wesizwe.

The entry of one of China’s largest mining companies into the South African platinum industry follows that of Eurasian Natural Resources Corp, Kazakhstan’s largest miner.

ENRC agreed to buy a 12 per cent stake in Northam Platinum for R2.2bn (€230m, $280m, £190m) in April, with many industry analysts expecting ENRC to increase its stake over time.

Like Wesizwe, Northam is on the smaller end of a global platinum industry dominated by three big South African producers: Anglo Platinum, Impala Platinum and Lonmin.

In the past decade platinum has been used mostly in the automotive sector, which uses it to make autocatalysts to clean exhaust from vehicles. But last year demand for platinum jewellery surged, driven by Chinese buyers attracted to lower prices, according to a recent report by Johnson Matthey. South Africa accounts for some 80 per cent of the world’s platinum group metal production.

The deal’s structure – with a relatively small equity stake supplemented by a more significant project financing component and long-term supply agreements – is becoming a pattern among Chinese resource deals in Africa.

This year similar structures were agreed with Chinese companies to develop African Minerals’ Tonkolili iron ore deposit in Sierra Leone and Bellzone’s Kalia iron ore deposit in Guinea.

More background on Chinese investment in South Africa.

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