African Barrick Gold

China's play for African gold: At what cost?

October 31, 2012: 9:56 AM ET

China's emergence as a major player in Africa is fueling an intense debate over the nature and motive of its involvement. China National Gold's bid for Tanzania's largest gold mine adds kindling to this fire.

African Barrick Gold's mine in Tanzania

By David Rice

FORTUNE -- The ugly side of mining in Africa made global headlines this summer, with strikes and protests following violent clashes in South Africa, resulting in the death of 44 miners and a policeman.

Many of the work stoppages that spread across South Africa following the violence have ended, but there is another story in African mining that has received comparatively little coverage, although the implications are just as significant.

In August, the state-owned China National Gold Corporation announced a $3.9 billion bid to acquire African Barrick Gold, Tanzania's largest gold miner -- a wholly owned subsidiary of Canada's Barrick Gold Corp (ABX). If approved by regulators in Tanzania as well as in London, where African Barrick Gold is traded, it will become China's first gold mine outside its borders and will double China National Gold's total production capacity.

China seems to have the Midas touch in Africa, steadily turning vast natural resource wealth into gold through investments in oil, gas, and mineral projects around the continent. Last year, Chinese interests invested nearly $16 billion in African mining projects -- a tenfold increase from 2010 -- according to the China Mining Association.

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The purchase of Barrick, which is expected to go through, would represent a new front in China's acquisition of Africa's natural resources, one where Chinese interests increasingly buy-out Western owned companies operating in African regions that are financial, public, and political liabilities. Barrick declined to provide comment for this article.

Parsing China's motives

China's emergence as a major player in Africa is fueling an intense debate over the nature of and motive behind its involvement. Critics argue China's strategy is driven by self-interest to the point of malevolence, while defenders hail its ability to achieve success where traditional partners from the West have consistently, and sometimes dramatically, failed.

Both sides have a point. Western initiatives designed to alleviate poverty are well intentioned, but these programs are top heavy and the administrative requirements on African governments receiving the funds are unduly cumbersome.  The Chinese government's approach, on the other hand, is much less bureaucratic, but opaque to the point of being secretive, which invites corrupt behavior by African leaders, and is overtly focused on securing access to African natural resources as opposed to elevating Africa's poor.

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