Mining investor EMR upbeat on trade relations with China

One of the nation’s biggest mining investors is confident the trade relationship with Beijing will get back on track.

(L-R) EMR Capital managing director Jason Chang with chairman Owen Hegarty in their Melbourne offices. Picture: Aaron Francis/The Australian

One of the nation’s biggest mining investors says diplomatic tensions have yet to hurt direct links between Australian and Chinese businesses and is confident the trade relationship with Beijing will get back on track in the medium term.

Relationships between Australia and China took a major step backwards this week after a social media post featuring a fake picture that was shared by senior Beijing official Lijian Zhao, depicting an Australian soldier holding a knife to the throat of an Afghan child, drew outrage from Scott Morrison and sparked a fresh outbreak of diplomatic crossfire.

EMR Capital CEO Jason Chang, whose fund owns two substantial Australian copper mines with Chinese customers, as well as the Kestrel coking coal mine in Queensland, said that, although the latest war of words was a setback, he felt Australia had been making progress towards diplomatic conciliation with China.

“I felt the Australian government was making some gestures and I thought that China was receiving that well. So I think it just requires more gestures, and that’s sorted us out in the past with other countries, so this is no different,” Mr Chang said.

“China wants, in my view, to partner with Australia, and Australians want to partner with Australia. The basis is there. It will come through, but both sides need to make some gestures.”

Before founding EMR, Mr Chang was a KPMG partner for more than 13 years and led KPMG Australia’s Asia and China practices, spending considerable time in China working with state-owned and private-owned enterprises on investments around the world.

Mr Chang is based in Hong Kong with EMR and still does extensive business with Chinese companies.

He told The Australian that, so far, there was little sign the diplomatic tensions were affecting business-to-business relations.

“We’re obviously touching base with Chinese companies all of the time. We’re seeing a lot of interest — Chinese companies are talking to us actively about working together,” Mr Chang said.

“They buy our commodities, they buy our copper still, and so it’s still very active and friendly engagement, and I don’t see any change to that. From a business to business point of view it’s working, at least in our business, pretty well.

“There’s lots of dialogue, lots of interaction, lots of meetings, ­nothing other than very good ­engagement.”

EMR is testing the market on the sale of its Golden Grove copper mine in Western Australia and said that, despite fears that tougher restrictions on foreign investment imposed by Josh Frydenberg could deter further Chinese investment in Australia, EMR had received plenty of interest in the copper mine from potential buyers in China.

“Short term, given the current situation, there might be some apprehension in China to do big things in Australia. But long term I don’t really see that as an issue,” Mr Chang said.

“At the end of the day, unless it’s a very sensitive asset, or in a very sensitive location, I can’t see any deals being blocked. And certainly my impression from listening to conversations is that Australia is open for business.

“China is still very interested in Australia, China sees Australia as very important for them, therefore there’s no reason for China not to invest and trade with Australia. There’s no question about that, they would welcome that. So I don’t feel anxious about trade and investment medium term, long term. But short term there will be some disruptions, but I’m hopeful that will be resolved quickly.”

While EMR is testing the market for Golden Grove, as revealed in The Australian’s DataRoom column, Mr Chang said a trade sale was not a certainty, with the private equity company still ­mulling an IPO of its base metals assets.

EMR had previously flagged a move to bundle its Capricorn and Golden Grove mines in Australia, an 80 per cent stake in the Lubambe mine in Zambia and its Redhill prospect in Chile into an entity that could be floated on the Australian stock exchange.

With copper surging to seven-year highs this week, with the prospect of further gains to come, Mr Chang said a float of the assets could potentially still make more sense, given EMR wanted to retain some exposure to the assets.

“The decision point is really what kind of valuation these parties are going to put on it and whether it’s at a level where we feel comfortable in transacting,” he said.

Golden Grove is expected to book earnings before interest, tax, depreciation and amortisation of about $US175m ($238m) this year and, since acquiring the mine from China’s MMG for $210m in 2017, EMR has quadrupled the mine’s economic reserves and extended the life of the 30-year-old operation for at least another 15 years.

“We think there’s a lot of upside at Golden Grove, and there’s a view [inside EMR] that now is not the time, because when you own a good asset you maybe shouldn’t be selling them too quickly,” Mr Chang said.

“So there’s a few alternatives — one is that if there’s a valuation we’re comfortable with we will look to transact, and when we transact it could be cash, or cash plus script, we’re open to that too.

“And then of course the IPO market is another interesting alternative.”