Mining machinery companies' prospecting goes international

If anyone can excavate their way out of a deep pit of economic misery you would think it would be those who make heavy-mining machines. In that regard, the gold mining equipment makers of Zhaoyuan in Shandong province do not disappoint.

After two years of digging away and being held back by an ailing domestic market that has refused to improve, the companies have finally hit pay dirt: the gold markets of Africa, Russia and Southeast Asia.

Zhaoyuan's gold mining machinery industry went into a funk in 2010 as a result of a big price drop brought on by the economic slowdown, saturated domestic markets and price wars with large mining machinery companies in Zhejiang, Jiangsu and Hunan provinces.

Last year, sales of gold mining machinery in Zhaoyuan fell 19 percent, or 2.2 billion yuan ($359 million; 264 million euros) from a year earlier. Sales of crusher and heavy ball mill, the main equipment used in gold mining, fell 27 percent and 33 percent, the city's economic and information bureau says.

"Based on the state of domestic precious metal markets, demand for gold mining equipment will not increase any time soon," says Li Hongchun, president of Zhaoyuan Huadong Heavy Mining and Machinery Co Ltd, the biggest gold mining equipment business by export volume in Zhaoyuan.

"The good thing is that expansion in Africa, Russia and Southeast Asia will save us from the frail domestic market demand."

The opportunities involve developing gold, silver and copper mines in these emerging economies, the most notable being Ghana, South Africa, Russia and Indonesia.

Li, who traveled to Ghana and Cameroon to set up sales offices there last year and in 2011, says gold-rich countries such as Ghana have the world's best technology and equipment to mine gold. Big international companies such as Newmont Mining Corporation of the United States, Prestea Sankofa Gold Limited of Britain and Gold Fields Limited of South Africa have invested billions of US dollars in the country to explore for gold.

However, impoverished local gold diggers are restricted to the most primitive methods and tools on the gold fields: hammers, shovels and iron winnow fans. Li says more than 25,000 Chinese gold miners, many of them from Shanglin, a county in South China's Guangxi Zhuang autonomous region, run small-scale gold mining businesses in Ghana.

Zhaoyuan Huadong says that the great divide between rich and powerful miners and their much poorer counterparts has opened up opportunities for the company.

"Ghanaian, Indian and Chinese gold mining companies have ordered various types of sand pumps and ore dressing machines such as classifiers, flotation machines and conveyors from us," Li says.

Last year the company sold 12 types of gold mining products in Cameroon, Ghana and Zimbabwe through three domestic trade information companies in Qingdao, Shandong province, and 22 local dealerships throughout Africa. The value of sales amounted to $14.3 million. The company also sold $2 million worth of machinery to India and Russia.

Cong Hengliang, deputy director of Zhaoyuan's commerce bureau, says: "Zhaoyuan's gold mining machinery makers have benefited greatly from the natural resources boom in Africa and Southeast Asia, where competitive prices, localization and working with big customers are crucial."

While selling gold mining machinery to Africa can be lucrative, one drawback for sellers is that buyers generally demand delivery at least two months before money changes hands, which can put big strains on manufacturers' cash flows.

Xu Chengsong, general manager of Zhaoyuan Jindu Gold Machinery Co Ltd, which employs 700 people and focuses on the African and Indonesian markets, says that even though German and Australian companies have a technological edge over their Chinese rivals, miners in Africa and Southeast Asia do not need the latest machinery. Rather, they prefer machinery that is cheap and durable.

"So companies in Zhaoyuan need good representatives overseas to handle price negotiations, delivery, payments and after-sales service because buyers in developing markets are quite price sensitive," Xu says.

"Improving dealership networks is one way of reducing financial risk in a new market, because our African dealers are familiar with both customers and market conditions. As we offer higher commission, our dealers also want a quick return on their outlay and effort."

Zhaoyuan Jindu has built three dealership networks, in South Africa, Tanzania and Zambia, with 16 local and Arabic dealers.

Fifteen of the company's employees are now doing a one-year course in business and English at Shandong Institute of Business and Technology in Yantai, and next year graduates will take up posts in Dubai to help with shipping operations, and in Lusaka to sell copper, gold, iron and nickel mining equipment.

The company says it is now negotiating with the Tanzanian government to set up an assembly line for crushers in Dar es Salaam next year. It has also put in a bid to supply copper mining equipment to Konkola Copper Mines Plc, the largest mining company in Zambia.

"African customers really appreciate value-added services, and we hope to offer a full gamut of products to our core customers," Xu says.

Zhaoyuan Jindu bagged $9 million of international orders last year, most of them from Africa. It also spent 4.7 million yuan on print and Internet advertising to promote its products in Indonesia, Russia and Zambia.

"Even though the global economy still faces uncertainties, our products have benefited from high international mining machinery prices of precious metals in the past three years," Xu says.

"With proper branding and promotion, we see few difficulties in selling our products in Africa and Southeast Asia in the long term."

Contact the writers at zhongnan@chinadaily.com.cn

As the Chinese gold mining machinery market shows no signs of recovery, Li Hongchun, president of Zhaoyuan Huadong Heavy Mining and Machinery, finds greener pastures in Africa and Southeast Asia. Zhong Nan / China Daily

(China Daily European Weekly 10/18/2013 page19)