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Featured Guest Opinion
(note: Featured Guest Opinions do not necessarily reflect the opinions of KWR Intl.)

China Minmetals Meets Mild Canadian Resistance

Jim Letourneau, Big Picture Speculator

CALGARY (KWR) Global demand for commodities has been a boon to resource rich countries like Canada and Australia. Increasing demand for raw materials has led the Chinese government to take a proactive role in the procurement of commodities and the facilitation of their production. The proposed $7 billion purchase of Toronto-based Noranda by China’s Minmetals is part of this initiative.

Resistance to the transaction is not unexpected. Noranda has a made-in-Canada corporate history dating back to 1922. The transformation of a prospector’s dream into an international mining conglomerate is a source of national pride. The sale of Canada’s largest mining also includes 60% of Canada’s third largest miner, Falconbridge.

Although much is being made of Canada’s resistance to this transaction it appears to be restricted to the minority. The loudest complaints have been from the 3rd ranking opposition NDP party who are raising the specter of China’s human rights record. Some are even trying to wrap themselves in the red maple leaf flag and raise sovereignty issues about Canada’s resources. While there may be a time when countries want to hoard their raw materials for domestic consumption in the face of shortages, the fact remains that Canada is great exporter of raw materials. After all, there are 32 million Canadians and 1.3 billion Chinese.

Images of Tiananmen Square in 1989 are still fresh in people’s minds but the advances in the average living standards and freedoms for the Chinese people have been ignored. China’s transition from Soviet style central control to a more market driven economy has been extraordinarily rapid.

Human rights issues are important to Canadians, we believe in diversity, freedom of expression and compromise. We don’t want evil empires using our resources for nefarious purposes. Countries that execute criminals, torture political prisoners and discourage freedom expression might not be ideal trading partners but as long as Canadian’s are willing to turn a blind eye to the human right’s record of other countries there are no moral grounds to not trade with China as well. So far trade restrictions on softwood lumber, grain, and beef that benefit American special interest groups have been refreshingly absent for Canada-China trade relations.

It appears unlikely that Canadians will be undertaking a global inventory companies involved with countries with human rights issues. There are numerous small-scale resource development projects being spearheaded by Canadian companies in countries with sketchy human rights records. If a country is open for resource-related business, chances are there’s a TSX Venture exchange company using Canadian capital to explore for it.

I know from personal experience that almost everything we buy comes from China. During a recent move, I collected approximately 20 different sized boxes from the local Wal-Mart. While the in-store recorded announcement distracted unconcerned soothed crowed that the vast majority of the goods they sold were “sourced from Canadian suppliers”, the boxes all had the words “Made in China” on them. As my daughter Veronica succinctly stated “Where else are we going to get our stuff from?”. Trade is a two-way street.

China as also indicated that they are in the market for Canadian energy assets. Canada’s oilpatch has a longstanding tradition of selling its assets to the highest (usually American) bidder when prices are high and then buying them back for a song when prices are low. Foreign investment in Canadian natural resources is nothing new.

On a more practical level Bombardier is in the running for $4.5 billion worth of Chinese transportation contracts. Canadian Prime Minister Paul Martin is clearly aware of the consequences of restricting the free flow of goods and services between the world’s most rapidly growing economy and Canada. Mild opposition followed by practical compromise is the preferred modus operandi of Canadians. While the purchase of Canadian companies by Chinese interests may not be greated with open arms, there are no reasons to prevent it outright. A multi-billion dollar transaction without a European or American purchaser is a new phenomenon to Canadians. Ultimately, everyone will get what they want. China will get access to Canadian resources, technology and capital markets, Canadians will strengthen trade relations with China and the Canadian opposition parties will get attention by opposing it all. Noranda will be sold and China will be making additional investments in Canadian resources in the near future.