By Victoria Ruan in Beijing and Matthew Walls in London
China’s $300 billion sovereign wealth fund may finance China Mining United Fund’s plan to develop a potash project in Ethiopia that is also being eyed by mining giant BHP Billiton Ltd., a senior official familiar with the situation said Thursday.
China Investment Corp. is studying whether to take a stake in the potash project being jointly developed by China Mining United Fund and Canada’s Allana Potash Corp., or finance part of the project’s construction costs, the person familiar with the situation said.
According to China Mining’s Web site, the potash project is one of the largest in the world, with projected output of about 200 million metric tons.
CIC’s possible involvement in the pursuit of potash, used in fertilizers, highlights China’s growing demand for the mineral, as it seeks to boost its agricultural output.
However, China’s appetite is facing serious challenges from global mining companies, which have been moving fast to tap into Africa’s rich potash resources as crop prices rise.
The person didn’t say what stage CIC was at in the decision, but said the project is very important for China, which imports around 80% of its potash needs.
“Without support from CIC, from the government, how can we come up with so much money for such a big project?” the person said, adding the project’s value keeps appreciating, raising concerns about a possible bid from BHP Billiton.
A spokesman for CIC wasn’t immediately available for comment.
BHP Billiton spokesman Ruben Yogarajah Thursday declined to comment on any interest in Allana Potash’s Ethiopian mining project. He said BHP has exploration licenses in Ethiopia, but he declined to provide more details, saying the work there is at a “very early stage.”
Allana Potash signed a strategic agreement in November with an affiliate of China Mining United Fund, China Mineral United Management Ltd., to place shares worth 2 million Canadian dollars ($1.96 million) to the fund. The proceeds of the initial investment will be used to finance exploration and development of the potash project in Danakil Depression in northeastern Ethiopia.
Under the agreement, China Mineral would acquire 20% of the total potash production of the project and finance 35% of its construction costs, estimated at around $280 million, Allana said on its Web site in November. It said the Chinese mining fund is closely linked to one of the largest fertilizer companies in China, but didn’t name the company.
China Mining United Fund, which was set up in May last year, is one of China’s first private investment funds focused on mining-related investments.