Besides constantly acquiring in Australia, Chinese state-owned enterprises (SOEs) are also eyeing Canada’s rich oil sand and iron ore resources.
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Wuhan Iron and Steel (Group) Corporation (WISCO) has agreed to buy a 19.9% stake in Consolidated Thompson Iron Mines Ltd (CLM) for $240 million, as well Sinopec has acquired a 10% stake in Northern Lights Oil Sands Project from Total. After the deal, Sinopec and Total will each hold a 50% stake in the project.
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Apparently China, seizing opportunities offered by the low price of bulk commodities, has been accelerating its pace in transferring its huge foreign exchange reserve into energy and other strategic resources by promoting the overseas acquisition of state-owned enterprises; including three major oil companies, Chinalco, Minmetals, and large steel companies; while the value of its foreign exchange reserve is becoming increasingly uncertain. Australia and Canada have become the main destination of its acquisitions.
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WISCO will invest $240 billion into CLM, and in return, CLM is to transfer 29.7 million common shares, which accounts for 19.9% of total common shares issued, to WISCO. Additionally, WISCO will gain no less than a 25% stake in a newly established company which is responsible for the Bloom Lake Project, while retaining the right to purchase 25% of the total iron ore production of the project during its production term.
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Other benefits WISCO are accruing from the deal include the right to purchase CLM's output at a fair market price, such as the current, and future, extended product line of Bloom Lake, Lamelee and Peppler Lake, which are also assets under CLM's name.
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CLM President and COO Richard Quesnel claimed the deal would expand CLM’s current annual iron ore production from 8 million to 16 million tons. Â
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The Northern Lights Oil Sands Project is located approximately 100 kilometers northeast of Fort McMurray, Alberta. The investment in the project is estimated at CAD 4.5 billion and the daily output will reach 100,100 barrels of synthetic crude oil.
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The project was first owned by Synenco. In May 2005, Sinopec bought from Synenco a 40% stake into the project for CAD 150 million. Total acquired Synenco for about CAD 480 million and therefore gained a 60% stake in the project.
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"Total is pleased to expand its cooperation with Sinopec," said Yves-Louis Darricarrere, President of Total’s Exploration & Production division. "This change to the Northern Lights Partnership will be an opportunity to engage with Sinopec to develop the oil sands resources and to access markets in North America and Asia."
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Canada has extremely rich oil sands resources. In Alberta, one of the most expansive oil sands reserves, oil sand fields reach about 100,000 square meters and oil reserves total over 176 billion barrels, second only to Saudi Arabia in terms of total oil reserved. The break even point for global main stream oil companies stays at about $30 to $35 per barrel, while exploration costs for the oil sands in Canada reaches $36 to $40 per barrel. Under the current international crude oil price, the profit is not very attractive.
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However, Sinopec aims for strategic investment, instead of simply garnering rich profits. The deal offers Total a perfect chance to transform its resources into cash. The Northern Lights Project covers almost 184 square kilometers, and the total crude oil exploitable reaches one billion tons. According to Synenco, the project may be also associated with 1.08 billion barrels of asphalt. This is certainly a big attraction to Sinopec, which is seeking to acquire overseas resources.
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This is also a good deal for Sinopec in terms of exploitation costs, as the exploitation costs for some large Chinese oil fields has reached over $40 per barrel. Besides, the current low oil price can’t last long. When the economy rebounds, it is very likely to go up.
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In fact, China’s three major oil companies are all seeking chances to acquire oil sands resources in Canada. CNOOC bought an 18% stake into MEG for CAD 150 million in 2005, and PetroChina also bought exploitation rights in 11 oil sands fields in Alberta, totaling 258.6 square kilometers, in 2007.
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In the long run, Sinopec will be able to increase its oil yield rate and get more diesel if it transports the oil produced in Canada to China and mixes it with the paraffin oil made in China.
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