Sunday, June 20, 2010

China Inks Even More Deals For Australia Mining Assets

Even in the face of a 40% mining tax, China is still busy investing in Australia. That seems rather remarkable as any company or country with time on its hand would rather skip or defer any investments in Australia at this point. Maybe they have some inside knowledge that the proposed 40% tax will be greatly reduced, but this type of move only gives the government of Australia more ammunition to implement the tax.

To us this signals how ferocious the demand for mineral assets is in China. How its not about to end any time soon. And how any assets outside of Australia at the moment are very attractive because of the tax issue.

Notice how they seem desperate for iron ore mines that will supply the steel industry. This leads us back to investments in scrap steel recycler China Armco (CNAM) and met coal producer Puda Coal (PUDA). Both are Chinese companies recently up listed in the US that will benefit significantly from continuing strong steel demand in China.

CNAM just opened up a recycling center in China that will greatly increase revenue while PUDA is in the process of consolidating coal mines that will also significantly increase revenue. As this story confirms that demand will continue to soar in China then both stocks should be bought aggressively.

The recent fear about a hard landing in China has overshawdowed the growth stories in these 2 stocks even sending CNAM down over 60%. Just at the time that CNAM expects revenue to surge to $220M this year while their market cap is only $50M. Stock only trades at 4x expected earnings as well. This seems like an incredible bargain to us.

PUDA hasn't sold off as much but it provides just as attractive as an investment. Coal mining operations just began in May with more mines to consolidate over the next couple years. They trade at 4x 2011 earnings. Anybody wanting to invest in the long term growth in China could hardly go wrong investing in these very cheap stocks.

Details on the mining deals announced today:
  • The China Development Bank agreed on Monday a $1.2 billion loan facility for the $2 billion Karara iron ore project in west Australia, which is being developed by Australia's Gindalbie Metals and China's Angang Steel.
  • The bank also inked a preliminary deal to help fund projects for miner Aquila Resources, including its $3.45 billion West Pilbara iron ore project, also in west Australia.

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