"Ore Struck" as Described by the Financial Times: Rio Tinto's Problems Doing Business in China

Doing business in China is no easy task, particularly when it comes to economic sectors that have been identified by Beijing as being important to the country's future.

A recent article in the Financial Times ("Ore Struck," April 6, 2010) tells a cautionary tale for all who seek to do business in China. The article is about the conviction of several of mining giant Rio Tinto's employees who were working in China.

As the FT explains:

The conviction of miner Rio Tinto's former employees has heightened foreign companies' awareness of the risk of working in sectors strategically important to Beijing.

Reading the story is a must for any one or any company that plans to or is doing business in China. While huge profits may ensue from such activities, the risks are no less daunting.

Mining Firms Rio Tinto and BHP Billiton Top U.K. Corporate Governance Survey

U.K. mining giants Rio Tinto and BHP Billiton were ranked first and second respectively in a new survey conducted about corporate governance among the Financial Times Stock Exchange 100 companies.

The survey, conducted by Resources Global Professionals, an international business consultancy, ranked companies in more than 60 categories. About 11 percent of the ranking was based on "green-related issues," according to a story in the Financial Times ("Miners Top Governance Survey," Sept. 27, 2009).

The ranking of two mining companies at the top of a distinguished grouping of companies was not necessarily surprising since major mining firms are now taking a closer look at how to preserve (or improve) their corporate reputations. Failure to do so can result in the loss of stock value and lead to higher interest rates, particularly on infrastructure-related loans.

Rio Tinto Rejects Chinalco Offer, But China Remains Very Much in the Resources Acquisition Picture

One of the most fascinating aspects associated with the natural resources sector is watching Chinese government-affiliated businesses as they attempt to acquire resources around the world.

Sometimes the Chinese firms succeed, while in others they do not. The latter was the case recently when mining giant Rio Tinto rejected a nearly $20 billion investment package by Chinalco, which was set up in 2001 when 12 Chinese aluminum-related enterprises were consolidated into one firm. Headquartered in Beijing, Chinalco has in recent years been on the hunt for resources for the rapidly expanding Chinese economy.

Another major natural resource-related disappointment for China's leaders came in 2005 when the U.S. government stepped in to prevent an $18.5 billion acquistion by China National Offshore Oil Corp. of Unocal.

To be sure, in both the case of Australian-based Rio Tinto or Unocal national interests helped throws spanners into the deals. But China will not be going quietly into the night...not with a resource-hungry population to serve as well as $2 trillion in funds waiting to be invested (thanks Washington!).

Just to name a few of the places where China is actively involved now or is trying to buy assets: Afghanistan, Brazil, Cuba, Ecuador, Iran, Peru, the Sudan, Venezuela. The days are now long gone when the only players were coming from Australia or Canada or the UK or US. Of course, this is greatly oversimplified, but it is worth bearing in mind that the world of natural resources acquisition has become more competitive and exciting. Don't blink or Chinalco may make an offer on a gold mine near Reno, Nevada.

For more on this topic, see today's Financial Times story, "Outmanoeuvred."