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China sovereign wealth fund to open office in Canada

|Includes: DUK, LUNCF, MLKFF, SU, SXRZF, Ur-Energy Inc. (URG)

It may have gone relatively unreported in the press but China Investment Corp is preparing to open their first overseas office in Toronto.

CIC was established in 2007 as a sovereign wealth fund, with a mandate to manage a portion of China’s foreign exchange reserves. Assets are reported to be in the region of $300 billion at 2009.

The location of Toronto may seem at first a little unusual and is somewhat of a black eye for New York and London, however given China’s huge commodity appetite the decision is not unsurprising.  Canada is a commodity rich country with a strong currency and managed to avoid the mistakes of the US and Europe during the credit crisis.

The fund has already been active in the Canadian market, investing in the miner Teck Resources in 2009 and various oil sands projects.

On a political front the decision to open the office seems to have been welcomed by the Canadian government, with Finance Minister Jim Flaherty issuing an email recently, declaring that he “is pleased that CIC has chosen Toronto to locate its North American headquarters.” How popular this decision will be with the Canadian public remains to be seen, especially if CIC starts to acquire Canadian assets.

This prospect would seem to be only a matter of time before it becomes reality and therefore presents an opportunity to play the China expansion game, commodity boom and M&A activity simultaneously.  The acquisition of assets may either be as strategic stakes, joint ventures are even outright purchases. Although, I expect CIC to be aware of the importance of the Canadian public perception to deals and may therefore shy away from outright purchases, at least initially.

Looking at possible areas of interest I would expect CIC to focus on mining assets such as uranium, copper and coal. This may also be coupled with further expansion into oil sands and natural gas. The agriculture sector should not be discounted as well, given China demographic trends of increasing population urbanization, bring an expectancy of a higher standard of living.

Given this investment thesis then where can we expect to see activity?  Below are names that even if not direct targets, I would expect to see benefit from deal activity when CIC open their chequebook.

Uranium – Cameco, UR Energy and Uranium One 

Metals – Lundin Mining Corp and Mercator Minerals Ltd 

Oil and Natural Gas – Paramount Resources, Progress Energy and Suncor Energy.