By: Caixin global

Investing in Africa’s mining industry is worth it for Chinese companies, industry insiders said, as geopolitical tensions rise and the U.S. and its allies tighten control over key mineral resources.

Despite its poorer infrastructure and challenging business environment, Africa was highly recommended as an investment destination by participants at last week’s China Mining Conference and Exhibition.

Chinese mining and infrastructure companies will be able to leverage their strengths to support their mining investments in the African market. They could also cooperate to expand the African market to “overcome local inefficiencies,” said Qi Ding, an analyst at China International Capital Corp. Ltd.

Cheng Jun, a partner at Zhong Lun Law Firm, pointed out that some African countries have in recent years revised their mining laws. However, he said these reforms are more focused on better capitalizing on the overall rise in commodity prices rather than taking greater control over local mineral resources, so they will have little impact on mining investment for the time being.

“Africa is worth the risk,” said Zhang Weibo, a researcher at China Geological Survey’s international mining research center. “Every place carries risks, but most are cost-related. If there are still profits to be had after accounting for these risks, it’s a favorable investment environment,” he said.

Africa has about 30% of the world’s mineral reserves. It is home to the largest reserves of cobalt, diamonds, platinum and uranium in the world, according to the United Nations Environment Programme.

Chinese companies are scouting the world for mining assets as the country’s booming new-energy vehicle industry has boosted demand for lithium, cobalt and nickel — key metals used in electric vehicle batteries.

However, they’re facing tougher environments in the U.S. and its allies such as Canada and Australia. The trio have tightened mining investment rules as they look to cut their reliance on Chinese imports of raw materials that are crucial to the green transition.

It’s almost impossible for Chinese companies to acquire Canadian companies that focus on mining “critical minerals,” which include copper, lithium, cobalt, nickel, rare earths and graphite, said Bo Shaochuan, a director of Zijin Mining Group Co. Ltd. (601899.SH -0.93%). It’s difficult for Chinese companies to even make minority equity investments in the firms.

Zijin Mining Vice President Shen Shaoyang said mining deals usually take place in superpowers such as Canada and Australia, making it challenging for Chinese firms to acquire mining assets.

However, while Canada and Australia have tightened investment requirements by increasing the amount of red tape, they have also given Chinese miners room to negotiate to facilitate the success of deals, he said.

Bo suggested investing in global gold resources, as no country has yet listed the precious metal as a critical mineral.

In June, Zhaojin Mining Industry Co. Ltd. closed a deal worth roughly $500 million to acquire Australian gold producer Tietto Minerals Ltd. In August, Shanjin International Gold Co. Ltd. (000975.SZ +0.05%) completed its acquisition of 100% of the shares in Canadian gold firm Osino Resources Corp.