Ivanhoe Mines Ltd T.IVN

Will the Belt and Road Initiative Dry Up?

[bloomfield18]

Interesting piece in Foreign Policy magazine.

https://foreignpolicy.com/2018/12/06/bri-china-belt-road-initiative-blunder/

They make a strong case that the Belt and Road Initiative has failed to achieve basic Chinese policy objectives. Taken together with a slowing Chinese economy, and growing unsustainable levels of state enterprise debt, it may signal that the gravy train, throwing ridiculous amounts of money at developing countries, could be cut back. Not necessarily a formal announcement of failure. That will never happen. Money flows could simply slow to a trickle, or dry up, like a creek in late summer. 

How would this affect IVN? Of course, we can’t know for sure, but perhaps it would force state miners to pay more attention to the bottom line. Acquiring resource, regardless of cost, may no longer be good enough. Counter-intuitively, that could be positive for IVN shareholders. Having Chinese partners who couldn’t care less about profit would be problematic for the rest of us. Today, private shareholders are there for the profits (aka ORE), while state miners are there for the resource. If state miners also prioritize maximizing profits, then we’re all on the same page.

DRC government strategy of punitive high taxes and royalties is predicated on several assumptions that may no longer hold true. 1) Obtaining financing for projects is easy through Belt and Road. 2) Money is easy because the world is about to run short of key strategic metals. 3) Therefore, government should adopt an uncompromising hard position on taxes and royalties, since miners need us, more than we need them.

In reality, most metals are not in short supply. Money has been readily available due to foreign policy decisions of Xi Jinping. There is no other reason. This is not a natural process of supply/demand. One person is controlling the money spigot. What turns on easily, can turn off just as quickly. The Belt and Road is not necessarily impractical. However, operating projects at the outer margins of profitability is wasteful.