Here is another interesting slide from Jim Chanos’ presentation at the Value Investing Conference. This one builds the case for a “bear” (negative) scenario for mining companies, including Vale (see our previous post “VALE (NYSE: VALE): China or Bust?“). He points out that iron ore countries (like Australia and Brazil) are “slaves” to China’s growth… read below.
“Nationalistic Commodity: Iron Ore Countries for Sale“
1. Leveraged to Chinese Growth
– Growth in iron ore demand is driven by China’s fixed asset investment boom
– China’s share of global iron ore consumption is 59% (June 2011) up from 52% (June 2008)
2. Iron ore extraction becoming more costly
– Major growth projects lie in increasingly difficult to access geographical locations
– Enormous investment in rail, port and energy facilities required to access new projects
3. Governments use companies as extension of public policy
– Exploit the industry as a source of revenue and taxes
– Capital deployment at the ‘suggestion’ of government officials
What do you think?