Government Chicken
Government Chicken
by Dave Forest
September 15, 2010
You all know the story.
The race to secure natural resources is intensifying. Particularlyamongst governments and nationally-sponsored corporations. Andparticularly in Asia.
We've been seeing signs the last few years that Asian nations arestepping up their drive for oil, copper, iron and natural gas. I talkedlast week about India jumping into the fray in a big way for coal.
A few more indicators this week worth mentioning. Korea is upping the ante.
Korea National Oil Corp (KNOC) leaked this week that it will sellbetween $500 million and $1 billion worth of bonds to fund its $2.6billion hostile takeover of Africa/North Sea-focused Dana Petroleum.
The same day, the world's second biggest smelter, LS-Nikko announced ajoint venture with Korea's top steelmaker, Posco. Under the deal, thetwo majors will work together on the acquisition and development ofcopper and iron ore projects.
These are deals of mega-proportions. So much so, the Korean governmentsaid it fears currency appreciation because of state-associated firmsissuing billions in new won-denominated debt.
Not to be outdone, Japan also announced some ambitious natural resourceplans this week. Tokyo Electric Power Company (Tepco) said it is aimingto take more ownership in liquefied natural gas projects around theglobe.
Tepco currently sources 11% of its LNG supplies from projects in whichit owns equity. Mainly Australia's Darwin LNG facility. The company saidit wants to grow this to 33% equity supply by 2020.
This is a big jump in supply. Meaning Tepco is going to have to be fairly aggressive in pursuing buy-in on new projects.
With all these plans on the books, deep-pocketed Asian governments aregoing to be increasingly butting heads with regular corporations as wellas each other when it comes to buying resource projects. A lot of cashis being brought to bear on the sector in a great game of "chicken",with significant implications for project valuations.
The Asian slant means projects within shipping distance of the East aregoing to be in demand. Pick your investment spots wisely.
Here's to the amazing race for resources,